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The Feds Outlook: Optimistic? Or Just Hopeful?
by Scott Brown of Raymond James,
As expected, Federal Reserve policymakers left short-term interest rates unchanged, did not alter the forward guidance on the federal funds target rate, and trimmed the monthly pace of asset purchases by another $10 billion (to $35 billion beginning in July). In its policy statement, the FOMC was a bit more optimistic about a pickup in growth. Fed officials forecasts of 2014 GDP growth were revised lower, but implicitly, forecasts for the final three quarters of 2014 remained strong.
Bizarro World
by Jeffrey Saut of Raymond James,
I feel like I am living in Bizarro World. First named "Bizarro World" in DC Comic books, the term has come to mean a situation or setting that is weirdly inverted or opposite of expectations. I mean weve had the ATFs Fast & Furious where we sold guns to Mexican smugglers. The NSA is spying on us. The IRS is using its power to target select groups and now the IRS claims it has lost 28 months of Lois Lerners emails. Benghazi. The Department of Justice going after the Associated Press and Rosengate.
Fed Outlook: Playing It Close to the Vest
by Scott Brown of Raymond James,
The Federal Open Market Committee will meet this week to set monetary policy. The FOMC is widely expected to further taper the monthly pace of asset purchases (not on a preset path, but continuing in measured steps). The bigger question is when the Fed will begin to raise short-term interest rates. The correct answer is it depends. Fed officials are currently debating the order of steps to be taken as they begin to normalize monetary policy.
Many Moving Parts
by Scott Brown of Raymond James,
The U.S. economy contracted in the first quarter, but it appears very unlikely that weve entered a recession. Weather disruptions and the late Easter have made it difficult to gauge the underlying trends in the economic data, but a significant second quarter rebound appears to be baked in. Still, taking the first two quarters together, growth in the first half of the year is likely to be disappointing relative to earlier expectations.
Everybody’s Unhappy?!
by Jeffrey Saut of Raymond James,
In Last Friday’s Morning Tack I had this to say, “While there are no current major negatives from my indicators, this does indeed feel like the end of a trading move and not the beginning of another huge leg to the upside.” What causes such inflection points is when the folks that have doubted the rally finally can’t stand it any more and they throw in the towel and buy stocks.
Everybody’s Unhappy?!
by Jeffrey Saut of Raymond James,
If the equity markets don’t experience a sell-off this week, we can probably assume the SPX is in its final upside “blow-off” stage on a trading basis. In such a stage the markets make it seem unbearable to be in too much cash, or worse, totally out of the market. Blow-offs usually end with a parabolic peak and often with a buying climax. If you want to see what a buying climax looks like, go look at the “selling climax” at the March 2009 lows and turn the chart upside down. Longer-term, I continue to hold the belief we are in a secular bull market, but in the sho
Computer Tutor?!
by Jeffrey Saut of Raymond James,
My friend Jerry Goodman died recently. His nom de plume was Adam Smith, obviously taken from the legendary economist Adam Smith (1723 1790). In addition to the book The Money Game, Jerry wrote numerous other books. In his later years, he worked at another friends establishment, that being Craig Drill, eponymous captain of the insightful Drill Capital Management.
A Revised Bond Market Outlook?
by Scott Brown of Raymond James,
A year ago, as Fed Chairman Bernanke spoke of the possibility of tapering the Feds Large-Scale Asset Purchase program (QE3), bond yields moved higher. Theyve been range-bound over the last year, but have more recently dipped to the lower end of that range. Whats driving the bond market?
Concerned Optimism
by Scott Brown of Raymond James,
In her congressional testimony, Fed Chair Janet Yellen chose her words carefully. She indicated that if the economic outlook evolves as anticipated (growth picks up, the labor market tightens, and inflation moves toward the Feds 2% goal), then the Feds asset purchase program (QE3) will likely end in the fourth quarter. However, she refused to be pinned down on when the Fed would begin raising short-term interest rates. Global concerns and the housing sector will bear close observation.
Old Turkey
by Jeffrey Saut of Raymond James,
I revisit the Old Turkey story this morning, which I first read in the classic book Reminiscences of a Stock Operator, about the escapades of Jesse the boy plunger Livermore, because of the reference I made to him last week that drew so many questions. The wisdom of Old Turkey is as good today as it was when first published in 1923. The problem with most investors today is that they have never experienced the 1923 1929, the 1946 1964, or the 1982 2000 secular bull markets.
You Gotta Have Heart
by Jeffrey Saut of Raymond James,
Secretariat (3-30-70 10-4-89) is considered the greatest American racehorse of all time. In 1973 he became the first Triple Crown winner in 25 years, and in the process he set records in all three races that still stand today. In the Kentucky Derby his time was 1:59 2/5, in the Preakness it was 1:53, and in the Belmont Stakes 2:24.
The Job Market, GDP, and the Fed
by Scott Brown of Raymond James,
The U.S. economy added 1.15 million jobs in April thats prior to seasonal adjustment. We normally see large (unadjusted) job gains each spring. This year appears to be stronger than normal, partly reflecting a rebound from a bad winter. Strength in the seasonally adjusted payroll figure is certainly good news, but it may not necessarily be suggestive of a sharper underlying trend in job growth. There is still a very large amount of slack in the job market.
Yellen?s Three Big Questions (and a Few Others)
by Scott Brown of Raymond James,
Speaking to the Economic Club of New York, Fed Chair Janet Yellen presented an analysis of the monetary policy actions taken to address the Great Recession and offered guidance on what will drive policy decisions going forward. The centerpiece of her talk was about the three big questions that the Fed has to answer. However, there are a number of other debates going on in economics right now that have long-term consequences.
Yellen?s Three Big Questions (and a Few Others)
by Scott Brown of Raymond James,
Speaking to the Economic Club of New York, Fed Chair Janet Yellen presented an analysis of the monetary policy actions taken to address the Great Recession and offered guidance on what will drive policy decisions going forward. The centerpiece of her talk was about the three big questions that the Fed has to answer. However, there are a number of other debates going on in economics right now that have long-term consequences.
The Wile E. Coyote Stock Market?
by Jeffrey Saut of Raymond James,
Last Wednesday, when the D-J Industrials were up some 180 points, I could not shake the feeling that this was the ?Wile E. Coyote stock market.? The visual is when Wile runs off a cliff, but his feet keep moving, until he looks down and realizes there is nothing underneath him. The resulting fall was similar to what happened late last week to the equity markets. Indeed, I really did not understand, or trust, last Wednesday?s Dow Wow for the reasons mentioned in these missives.
An Uncomfortable Discussion
by Scott Brown of Raymond James,
Income inequality is a touchy subject. It?s hard to have a polite conversation, but like it or not, we are going to have a discussion this year. I will not take a position here (this is largely a political question). Rather, I will try to illustrate what the data say and to present the different points of view.
The Russians Are Coming
by Jeffrey Saut of Raymond James,
The Russians Are Coming, The Russians Are Coming is a 1966 American comedy film directed by Norman Jewison and based on Nathaniel Benchley?s book The Off-Islanders. The movie tells the Cold War story of the comedic chaos that happens when a Soviet submarine runs aground closely offshore a small island town near New England and the crew is forced to come ashore. Last Friday, however, rumors that the ?Russians are coming? swirled down the canyons of Wall Street, causing a late Friday Fade that left the S&P 500 (SPX/1865.09) down an eye-popping 24 points.
The March Employment Report
by Scott Brown of Raymond James,
Last week began with a speech by Janet Yellen. The Fed Chair was not expected to say much of consequence, but instead, she continued to emphasize the large amount of slack in the labor market and the Fed?s strong commitment to reduce it. The clear implication is that short-term interest rates are not going up anytime soon. This message may have been meant to counter misconceptions taken away from her recent press conference.
Yellen?s Labor Market Dashboard
by Scott Brown of Raymond James,
In her years as a Federal Reserve official (governor, district bank president, and vice chair), Janet Yellen expressed a greater concern about job conditions than her peers. As expected, that emphasis has continued into her tenure as Fed chair.
Yellen Speaks, Do the Financial Markets Listen?
by Scott Brown of Raymond James,
No surprise, the Federal Open Market Committee tapered the monthly rate of asset purchases by another $10 billion and altered the language in its forward guidance on the federal funds rate. In its policy statement, the FOMC indicated that ?it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends.?
Picture This
by Jeffrey Saut of Raymond James,
Picture this: you?re an investor starting out in the 1940s after World War II came to an end. Your own experience in the contemporary history of the stock market would've taught you that bonds were the safer, and superior, asset allocation over the long-term.
A Kid?s Market?
by Jeffrey Saut of Raymond James,
The Great Winfield goes on to say, in Adam Smith?s classic book from 1967, ?The strength of my kids is that they?re too young to remember anything bad, and they are making so much money they feel invincible.? He rented kids with the idea that one day the music will stop (it partially did in 1969-1970 and completely did in 1973-1974) and all of them will be broke but one.
The Fed Policy Outlook
by Scott Brown of Raymond James,
Much of the recent economic data have been distorted by adverse weather, which makes it difficult to gauge the underlying strength. However, while economic activity appears to have slowed in early 2014, the longer-term outlook hasn?t changed. Growth should pick up.
I?m Confused
by Jeffrey Saut of Raymond James,
In one of last week?s Morning Tacks I used this email from one of our financial advisors: ?Hey Jeff, about a month ago I emailed you asking if the ~1750 low on the S&P 500 was a good buying opportunity. You emailed back saying ? ?No, not yet? ? and ever since in your remarks you claim not yet. So now that we are well above that level, clients are asking why didn?t we get in ... what?s your recommendation??
The Long Road Back
by Scott Brown of Raymond James,
Five years ago, the economy appeared to be in freefall. Monetary policy and fiscal stimulus helped to halt the downslide, but a full economic recovery was still expected to take years. This wasn?t your father?s recession that we went through; it was your grandfather?s depression. We have made progress, but we still has very long way to go.
The White Hurricane
by Jeffrey Saut of Raymond James,
'Unseasonably mild and clearing' was the weather forecast going into the Ides of March back in the year of 1888. And it was true, as temperatures hovered in the 40s and 50s along the East Coast. However, torrential rains began falling, and on March 12th, the rain changed to heavy snow, temperatures plunged, and sustained winds of more than 50 miles per hour blew.
Weather-Beaten
by Scott Brown of Raymond James,
Harsh winter weather often shows through in the economic data. Large seasonal adjustment can magnify that impact. Snowstorms happen every year, of course ? the key is whether they are worse than usual. This year, bad weather has been relatively widespread, affecting many areas of the country and much of the economic data for December, January, and February. None of the bad weather has had a significant impact on the longer-term outlook and investors have begun to take the economic news with an appropriate grain of salt.
Rich Man, Poor Man!
by Jeff Saut of Raymond James,
Last week was a pretty wild week starting out with Monday?s 90% Downside Day where 90% of total Up/Down Volume, and total Up/Down Points traded, were recorded on the downside (read: negative), leaving the S&P 500 (SPX/1797.02) down ~41 points. It was the second 90% Downside Day in the past two weeks with the first occurring on January 24th, which broke the SPX below its first support zone of 1808 ? 1813, thus now that level becomes an overhead resistance level.
A Few Concerns
by Scott Brown of Raymond James,
Weve begun 2014 with widespread expectations that economic growth will pick up. Growth last year was restrained by tighter fiscal policy. With that out of the way and the housing sector recovering, the pace of expansion is poised to improve. However, there are a number of concerns. Weak growth in real wages may limit consumer spending, which accounts for 70% of Gross Domestic Product. Long-term interest rates could rise too rapidly, choking off the recovery in the housing sector. A continued low trend in inflation, a major concern for some Fed officials, could weaken growth.
Bear Raid?
by Jeffrey Saut of Raymond James,
I should have guessed that something was wrong when I checked into the Langham Hotel last Thursday only to be told by the valet, "There is a bear on the loose in the neighborhood so watch out." At first I didnt believe him, but when I turned the TV on there it was, and as the cameras rolled the news anchor said, "Pasadena police and wildlife officials are warning residents to be on alert for a black bear after it was spotted wandering through backyards. The animal appears to be moving from home to home."
The Policy View From Washington
by Scott Brown of Raymond James,
Lawmakers put the finishing touches on the budget bill, which will remove most of the fiscal policy uncertainty for the next two years. Thats helpful for the economy and the financial markets, although the debt ceiling remains a possible trouble spot. Federal Reserve officials seem intent on continuing the tapering of asset purchases, but economic and financial market developments will dictate the pace.
The Week
by Jeffrey Saut of Raymond James,
Arguably, the best magazine of recent times has been The Week, a publication that embraces magazine journalism in its most functional style. The Week is written in one-hundred synopses culled, for the most part, from other news organizations from around the world on all topics. If I had but one publication to read in order to stay informed on just about everything, it would be The Week. In this mornings missive, however, I am referring to "the week" I experienced last week in South Florida.
The Employment Picture: Clear As Mud
by Scott Brown of Raymond James,
On balance, most of the economic reports in recent weeks have been consistent with a moderate increase in momentum heading into 2014. However, the December Employment Report showed a surprisingly soft gain in nonfarm payrolls. Is this a sign of another false dawn in the recovery?
Ready For Lift-Off?
by Scott Brown of Raymond James,
While some had expected a quick recovery from the recession, that was never likely to be the case. Recessions that are caused by financial crises are different from the usual downturns - they are more severe, they last longer, and the recoveries take a long time. The economy has been in recovery mode for the last four and a half years, but finally appears to be poised for an acceleration in 2014.
I'm Back
by Jeffrey Saut of Raymond James,
Well, Im back after roughly a two-week hiatus where I didnt do very many strategy calls, or strategy reports. I did, however, pen a letter regarding my forecast for 2014 dated 12/30/13. And for those who, like me, kicked back over the past two weeks to spend time with family and rejoice in the holidays, and did not read anything, I urge you to peruse my "2014" report.
2014?
by Jeffrey Saut of Raymond James,
Year-end letters are difficult to write because there is always a tendency to discuss the year gone by or, worse, attempt to forecast the coming year. Typically, when the media asks where the S&P 500 (SPX/1841.40) will be at the end of the new year, I tell them you might as well flip a lucky penny.
The One Percent
by Jeffrey Saut of Raymond James,
I read the Popes words about inequality following a meeting of our newly formed Consumer Analysts Panel. The panel consists of our consumer analysts, our lodging/housing analysts, our economist, senior management of our institutional sales team, and me. Interestingly, the recurring theme over the course of said meeting was that the top 20% of wage earners are doing fine, but the bottom 20% are not.
Taper Time?
by Scott Brown of Raymond James,
There are many arguments for and against an initial reduction in the Feds monthly rate of asset purchases, but the balance has shifted toward a December taper. It appears to be a very close call, but even if the Fed decides to delay again, we all know (or should know) that QE3 is going to wind down in 2014.
Christmas
by Jeffrey Saut of Raymond James,
Well it is official, Christmas has begun. For me it began with the private wine and dinner party at Morrell, arguably the finest wine store I have ever seen, and anyone that knows me knows I have seen a lot of wine stores! Morrell is located at 1 Rockefeller Center between 5th Avenue and 6th Avenue overlooking the Christmas tree at Rockefeller Center. I had done a gig on Bloomberg radio at Morrell last Tuesday with my friends Carol Massar and Pimm Fox and got invited to the party the next evening to watch the lighting of the Christmas tree.
Fiscal Policy and Monetary Policy - Update
by Scott Brown of Raymond James,
Market participants expected the November Employment Report to be the deciding factor on whether the Federal Reserve would begin to slow its rate of asset purchases this month. However, officials arent going to react to any one piece of data. The best argument for tapering is that it has to start sometime. However, the key factors that delayed the tapering in September and October are still with us to some extent.
Running Out of Time
by Jeffrey Saut of Raymond James,
Well, so far the Federal Reserve is winning out over my timing models that continue to suggest caution should be the preferred strategy in the short-term; and last week that strategy was wrong footed as the D-J Industrial Average notched another new all-time high.
Sir Isaac Newton
by Jeffrey Saut of Raymond James,
In 1711 the Earl of Oxford formed the South Sea Company, which was approved as a joint-stock company via an act by the British government. The company was designed to improve the British governments finances. The earl granted the merchants associated with the company the sole rights to trade in the South Seas (the east coast of Latin America). From the start the new company was expected to achieve huge profits given the believed inexhaustible gold and silver mines of the region.
Permanently Depressed?
by Scott Brown of Raymond James,
One of the main economic debates of the last few years has been whether weakness is cyclical or structural. If the downturn is due to a temporary (albeit, severe) shortfall in domestic demand, then growth should pick up sharply at some point as the economy returns to its potential. If its structural, fiscal and monetary policy can do little to help. Opinions differ, but while the consensus may see the sluggish economy as reflecting mostly cyclical forces, cyclical weakness is more likely to become structural the longer it lasts.
Yellen: Farther To Go
by Scott Brown of Raymond James,
Janet Yellen gave a balanced assessment of how monetary policy will be conducted during her tenure as Fed chair. However, the financial markets perceived a dovish tilt. She stressed that conditions in the labor market are still far from normal and noted that inflation has been running below the Feds goal of 2% and is expected to do so for some time. However, Yellen noted that there were risks of removing support too late as well as too soon. QE3 cant go on forever.
Who is Right on the Stock Market?
by Jeffrey Saut of Raymond James,
Efficient, or inefficient, that is the key question. I would argue that at major inflection points the stock market is ANYTHING but efficient. Thats because, as my dear, departed father used to say, The stock market is fear, hope, and greed only loosely connected to the business cycle! Plainly, I agree and would note that when on March 2, 2009 I stated the stock market was going to bottom that week, I was greeted with cat-calls of disbelief. The same was true with the Dow Theory sell signal calls of September 1999 and November 2007.
That Was the Week That Was?!
by Jeffrey Saut of Raymond James,
That Was the Week That Was, informally TWTWTW or TW3, was a satirical comedy program on BBC television in 1962 and 1963. It was devised, produced, and directed by Ned Sherrin and presented by David Frost. An American version by the same name aired on NBC from 1964 to 1965, also featuring David Frost. And last week was just such a week for me.
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