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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.
Surprise, Surprise, Surprise!
by Scott Brown of Raymond James,
The economic data were mostly stronger than anticipated last week. GDP growth exceeded expectations, although the details were a bit troublesome. With everyone anticipating some impact from the partial government shutdown, nonfarm payrolls accelerated in October. Moreover, revisions to August and September, painted a much stronger picture of job growth. What does this mean for the Fed and its decision to taper?
Tighter Fiscal Policy Not Helping
by Scott Brown of Raymond James,
We are now more than five years into the economic expansion, but to many Americans, it still feels like a recession. Many of the headwinds that restrained the recovery early on, such as housing and state and local government, have turned to modest tailwinds, and monetary policy remains highly accommodative. The biggest restraint on growth this year has been fiscal policy. There is a near-term focus on a long-term budget deal, but an agreement seems rather unlikely. Sequester spending cuts set for mid-January should be a more important consideration for lawmakers.
Permabull?
by Jeffrey Saut of Raymond James,
A permabull is defined as somebody who is always upbeat about the future direction of the stock market and the economy. Recently I have been called a permabull by certain members of the media, which may be true since March of 2009, but certainly not true over the past 14 years.
Beyond the Noise, More of the Same?
by Scott Brown of Raymond James,
Delayed economic data reports have begun to arrive. The figures point to a disappointing 3Q13 (relative to expectations) and the partial government shutdown is unlikely to help in 4Q13. The recovery had been poised for improvement this year, but fiscal policy has been a major headwind. Economic figures will be distorted in October (due to the government shutdown) and in November (due to the rebound from the shutdown). Yet, beyond the noise, the underlying pace of growth is likely to remain disappointing in the near term. Is there hope for 2014?
A Different Perspective
by Jeffrey Saut of Raymond James,
In last Tuesdays Wall Street Journal there was a story titled No Rocket? Venture to Sell Balloon Trip Into Space. The article began, Space tourism may not be rocket science after all. An Arizona company wants to develop high-altitude balloons to send thrill seekers to the edge of Earths atmosphere. The trips would cost less than other proposed space jaunts, but passengers wouldnt experience the same intensity of weightlessness.
The Fiscal Follies, the Economy, and the Fed
by Scott Brown of Raymond James,
The deal reached last week does not remove uncertainty about the budget and debt ceiling. We could go through a similar crisis in three months. The hope is that lawmakers will learn from the recent experience and work together.
The Boys Are Back in Town
by Jeffrey Saut of Raymond James,
The boys are indeed back in town as Washington D.C. opened its doors for business as usual last week following a contentious debt ceiling debate and a 16-day shutdown of the government. This outcome had been anticipated in these letters for often-stated reasons, and just like when the fiscal cliff was averted, I now expect the media to turn its focus to the next Armageddon.
Huey Lewis and the News!
by Jeffrey Saut of Raymond James,
Thirty years ago Huey Lewis and the News released their smash hit album titled Sports. It was an instant hit with every song on the album a winner. And last week Huey was playing on the Street of Dreams as participants danced to his hit tune This Is It. Of course, the It in question is a potential deal between the House of Representatives and the President on the debt ceiling and the government shutdown.
Some Encouraging News, but Further Uncertainties
by Scott Brown of Raymond James,
Financial market participants welcomed signs that leaders in Washington were at least willing to talk to each other. However, it remains unclear what sort of agreement will be reached. A temporary extension of the debt ceiling sidesteps a near-term financial catastrophe, but does not remove uncertainty completely.
An Unnecessary Crisis
by Scott Brown of Raymond James,
With the lapse in appropriations, the federal government slipped into a partial shutdown last week. The economic impact will depend on how long the standoff lasts, which could be a couple of weeks or more. Recent economic data suggest that third quarter growth was a lot lower than anticipated. So, the crisis in Washington arrives at a particularly bad time. Lawmakers appear to be taking the debt ceiling more seriously, and we could see action on that before the budget authorization is settled but its unclear how the situation will be resolved.
Ashes to Ashes
by Jeffrey Saut of Raymond James,
The phrase ashes to ashes, dust to dust is derived from the Biblical text of Genesis 3:19 and was adapted to its present form at an old English burial service. Last week I repeated those words as I scattered my fathers ashes next to my mothers in the memorial garden of the church they loved so much in Richmond, Virginia. Indeed, my week was spent in Richmond, Washington D.C., and Baltimore seeing institutional accounts, consulting with political types, and speaking at various events for our financial advisors and their clients.
Misplaced Budget Priorities
by Scott Brown of Raymond James,
The Federal Open Market Committee delayed the initial reduction in the pace of its asset purchases, citing concern about the recent tightening of financial conditions (higher long-term interest rates). However, Bernanke also noted uncertainty in fiscal policy. He recognized the improvement in economic activity and labor market conditions since the Fed began QE3, which was achieved in spite of a federal fiscal retrenchment. He also suggested that the debates on the governments spending and borrowing authorities may create downside risks.
Thank You!
by Jeffrey Saut of Raymond James,
Thank you Franklin Templeton for allowing me to speak at your world headquarters in San Mateo, California last week. I had the privilege of meeting John Templeton on a number of occasions and it is heartwarming to see your organization carrying on with Sir Johns impeccable traditions. Thanks to all the portfolio managers (PMs) that met with me in the San Francisco Bay area, as we swapped ideas and renewed friendships.
Bernanke Gets Another Chance to Communicate
by Scott Brown of Raymond James,
It seems clear that most Fed policymakers have not decided whether to begin reducing the pace of asset purchases. Officials will review a wide range of data and anecdotal information this week. Its generally (but not universally) expected that this will lead the Federal Open Market Committee to begin tapering, but modestly, while signaling a wait-and-see attitude on further action. The Fed should continue to stress that short-term interest rates will remain low for some time. The economy is still far from being fully recovered, but were well on our way.
White Noise
by Jeffrey Saut of Raymond James,
Most recently, I have been in a cautious mode, believing we were involved in a short-term pullback that would carry the S&P 500 (SPX/1687.99) down about 10%. That strategy was working until the Syrian compromise wrecked the rhythm of the decline. Bear in mind, however, the anticipated decline was always couched within the context of a longer-term secular bull market.
The Suit?
by Jeffrey Saut of Raymond James,
Bernie Cornfeld, of IOS Fund fame, coined the phrase, Do you really want to be rich? At the time I was working as a stock broker, and writing investment strategy for E.F.Hutton, having penned in December 1974 that, I recommend a gradual return to significant common stock accumulation (I still have that report). I also learned that you have to evaluate the risks, because sometimes when you go after the big bucks you lose. Then you end up with small change!
How Strong is the Job Market?
by Scott Brown of Raymond James,
A year ago, as the Fed was about to embark on its third large-scale asset purchase program (QE3), the policy focus shifted to the labor market. In announcing QE3, the Federal Open Market Committee indicated that purchases would continue if the outlook for the labor market does not improve substantially. A year later, how much improvement have we seen?
Money and Savings?
by Jeffrey Saut of Raymond James,
I spoke to Ben Stein (American actor, writer, lawyer, and commentator on political and economic issues) a few weeks ago, and his parents sound a lot like my grandparents. My grandparents, and their peers, were just starting out in life during the depression. After experiencing those horrible economic times, saving for a rainy day became second nature.
On Tapering, All Signs Point to “Maybe”
by Scott Brown of Raymond James,
Investors looking to the July 30-31 Fed policy meeting minutes for clear clues on future moves were left disappointed. Nearly all senior Fed officials expect that a reduction in the pace of asset sales is likely to be warranted by the end of the year. However, they appear evenly divided on whether that will be sooner (September) or later (December). The economic data remained mixed, suggesting that the decision will be a close call.
Random Thoughts in the Summer Doldrums
by Jeffrey Saut of Raymond James,
On October 10, 2008, with the S&P 500 (SPX/1663.50) at 839.80, the bottoming process began when 92.6% of all stocks traded on the NYSE made new annual lows. Thats a six standard deviation event, which is supposed to occur only twice in a lifetime. At the time many investors were liquidating their portfolios because they did not heed Benjamin Grahams advice in his epic book The Intelligent Investor, The essence of investment management is the management of RISKS, not the management of RETURNS.
Temptress Time?!
by Jeffrey Saut of Raymond James,
I dont equate gambling with investing, but many do by using margin, options, exotic derivatives, and what-have-you to leverage their various market positions. To be sure, some seers say that the public has been buying 2 to 1, and even 3 to 1, leveraged exchange-traded funds (ETFs) on 50% margin, which gives those positions 4:1 and 6:1 leverage, in an attempt to try and outperform the S&P 500. When leverage works in your favor, it can multiply profits enormously.
The Tick-Tock on Tapering
by Scott Brown of Raymond James,
The Feds September 18 decision on whether to begin reducing the pace of asset purchases will depend on the economic data (the job market figures, in particular), but theres a growing consensus that were likely to see a modest initial step, as a compromise between Fed officials who want to end the program sooner and those that want to see it continued. There are other things for policymakers to consider. One is the possibility of an adverse reaction in the financial markets. Another concern is the low underlying trend in inflation.
Dog Days!
by Jeffrey Saut of Raymond James,
The phrase Dog Days refers to the sultry days of summer. In the Northern Hemisphere, the Dog Days of summer are most commonly experienced in the months of July and August, which typically experience the warmest summer temperatures of the year. In the Southern Hemispheres, they tend to occur in January and February, in the midst of the austral summer. Dog Days is also defined as stagnation, so I think Dog Days is the proper moniker for last weeks market action as all the markets stagnated!
An Important Week on the Economic Front
by Scott Brown of Raymond James,
The markets have placed too much emphasis on the Fed tapering. Whether policymakers decide to slow the rate of asset purchases in September or December shouldnt matter all that much. The Feds decision will be data-dependent. Note that its not the figures themselves that matter. Rather, its what the data imply for the overall economic outlook.
Bad Trade?!
by Jeffrey Saut of Raymond James,
Last week I asked myself the obligatory question, Did I make a bad trading decision by targeting mid-July through mid-August (with the date specific of July 19th) as the timing point for the first meaningful decline of the year? The reason for said question was that every time the S&P 500 (SPX/1691.65) sold off last week, buyers showed up to save the day. And, the operative word is trading because that potential downside strategy was merely a short-term tactical call.
Blather, Rinse, Repeat
by Scott Brown of Raymond James,
As expected, Federal Reserve Chairman Ben Bernanke repeated recent themes in his monetary policy testimony to Congress. However, he appeared to make a clearer distinction between the Feds two current policies, emphasizing that short-term interest rates will remain low for a long time. Even though there wasnt anything new in Bernankes testimony, the markets took it as dovish. Importantly, the Fed isnt the only central bank placing an emphasis on forward guidance.
D-Day +1
by Jeffrey Saut of Raymond James,
I have termed last Friday (7/19/13) as D-Day because for the past few months my work has targeted that date as a potential turning point for the equity markets. Given the upside stampede, my sense was/is that turn would be to the downside for the first meaningful pullback of the year. In past missives I have elaborated on the reasons and clearly the media has listened.
Bernanke Still Trying To Get The Message Across
by Scott Brown of Raymond James,
Economists view the Federal Reserves communications with the public as being consistent over the last several weeks. There has been no change in the monetary policy outlook. The Fed had been expected to reduce the pace of asset purchases later this year. The financial markets, however, seem to be hearing different things at different times.
The Philosophy of Tops
by Jeffrey Saut of Raymond James,
Everyone kept saying a top is not in place yet. They persistently pointed to the normally reached levels of this or that statistic that were not yet there to reinforce their desire to remain bullish...I have used this quote from Justin Mamis (historian, author, and stock market guru), many times during the years. I use it again this week since we have arrived at my major timing point of July 19th, which for months I have suggested represents the best potential for the first meaningful decline of the year.
Rosebud?!
by Jeffrey Saut of Raymond James,
Produced in 1941, the movie Citizen Kane is heralded as one of the best movies ever made. It was one of the first to depict the American Dream, and materialism, as less than desirable and therefore causes one to contemplate what actually constitutes a life? Indeed, as a child the central character, Charles Foster Kane, is living in rural Colorado in a boarding house run by his mother (Mary).
Jobs, the Fed, and Long-Term Interest Rates
by Scott Brown of Raymond James,
The June Employment report showed a labor market that is far from fully recovered, but appears to be well on its way. Federal Reserve policymakers are not going to react to any one report, but the trend in nonfarm payrolls has remained strong. Is that enough to ease up on the gas pedal? Perhaps. However, it should still be some time before the Fed has to hit the brakes.
Failure to Communicate, Part 2
by Scott Brown of Raymond James,
The financial markets have begun to reassess Fed Chairman Bernankes monetary policy comments. Several Fed officials spoke last week, each echoing Bernankes key messages: 1) policy will remain data-dependent, 2) tapering is not tightening, and 3) a rise in the federal funds target rate is a long time off. With an emphasis on data-dependence, the economic figures should get more scrutiny from the markets. Still, theres a sense that hope plays a major role the Feds economic outlook.
T-i-m-b-e-r-r-r!
by Jeffrey Saut of Raymond James,
Many investors have stepped into the bucket, or left the game altogether. Recall that stepping into the bucket is when a batter steps away from home plate on his forward swing, usually in response to the fear of getting hit in the head by the ball. The Wall Street parallel is that it seems one of the hardest things to do is something you may not have been trained in at an early age.
Welcome Back, Mr. Bond
by Jeffrey Saut of Raymond James,
Weve been expecting you Mr. Bond. The phrase is itself a variant and joins the phrase Play it again Sam as a phrase attributed to a film or TV series. I have used said quip over the past few years, having been wrong-footedly expecting a backup in interest rates. While I did finally target the yield low of last July, the ensuing rate rise has been far slower than I would have thought, that is until the past few weeks.
What We've Got Here is (a) Failure to Communicate
by Scott Brown of Raymond James,
In his press briefing following the June 19 FOMC meeting, Fed Chairman Bernanke outlined how the evolution of the economic outlook will drive policy decisions in the months ahead. The key messages are that monetary policy will remain data-dependent, that tapering is not tightening, and that higher short-term interest rates are still a long way off.
The Game of Risk
by Jeffrey Saut of Raymond James,
Ten years ago the COMP was changing hands around 5132. It is now trading at 3423 for a 13-year loss of some 33.3%. Meanwhile, over that same timeframe, the earnings of the S&P 500 are up 83%, nominal GDP is better by some 57.6%, and interest rates are substantially below where they were back then. If you are a college professor such statistics do not foot with your teachings because professors tend to believe stock returns are all about earnings and interest rates. I concur, but would add the caveat, That is if you live long enough.
Dialing Down
by Scott Brown of Raymond James,
The financial markets have gyrated in recent weeks on fears that Federal Reserve policymakers will taper the rate of asset purchases. The rise in long-term interest rates and increased market volatility are hard to justify based on the discussion of possible changes in the Fed asset purchase program alone. No change in monetary policy is expected at this weeks Federal Open Market Committee meeting.
Thinking About Thinking?
by Jeffrey Saut of Raymond James,
I think a lot about thinking in an attempt to improve my ability to make good decisions. I also work hard to avoid linear thinking, which tends to extend present conditions linearly into the future. Such thinking caused investors to ignore the Dow Theory sell signal of September 1999 with portfolio consequences that are now legend. That same thinking occurred in November of 2007, concurrent with another Dow Theory sell signal, with similar portfolio consternations. Ladies and gentlemen, economic changes, and for that matter stock market changes, tend t
Never on a Friday
by Jeffrey Saut of Raymond James,
Over the past 10 years there have been many Hindenburg Omens triggered, but to my knowledge only one of them has actually worked (The Wall Street Journal 8/23/2010 article states the accuracy is only 25%, looking at the period from 1985). Actually, the last Hindenburg signal (December 2012) proved to be an exceptionally good point to buy stocks. I expect this Omen will prove to be yet another false signal because the McClellan Oscillator is just about as oversold as it ever gets.
Filling in the 2Q13 Picture and Looking Ahead
by Scott Brown of Raymond James,
Were now two-thirds of the way through 2Q13. However, the second quarter economic picture is still sketchy. We have some data for April, which is subject to revision. Figures for May will begin arriving this week. Despite the cloudy near-term economic picture, the financial markets are looking ahead to better growth in the second half of the year.
The Week in Fiscal and Monetary Policy
by Scott Brown of Raymond James,
The financial markets were more than a bit confused by the minutes of the April 30 May 1 Federal Open Market Committee meeting. Some Fed officials wanted to begin tapering the rate of asset purchases as early as June. However, that wasnt a majority opinion. Fed Chairman Bernankes testimony to the Joint Economic Committee of Congress was balanced, but strongly suggested that monetary policy is unlikely to be tightened anytime soon. In his testimony, Bernanke also lectured congress on fiscal policy, which has been completely wrong-footed this year.
Buying Stampede
by Jeffrey Saut of Raymond James,
Over the long weekend I decided to type the words buying stampede into Google to see what popped up. To my surprise there were more than 2,000,000 hits on the phrase buying stampede and many of them were attributed to me. While that was a pretty humbling experience, it also was surprising because I would have thought more investors would have used that phrase in connection with the many upside rally skeins that have occurred over the past dozen years.
Bernanke's JEC Testimony
by Scott Brown of Raymond James,
On Wednesday, May 22, Federal Reserve Chairman Ben Bernanke will testify on The Economic Outlook. The next monetary policy meeting is four weeks away, but Bernanke is likely to provide a preview of what will be discussed at that time specifically, on the issue of when to begin reducing the rate of asset purchases. The short answer may be it depends.
Alpha, Beta!
by Jeffrey Saut of Raymond James,
I had a somewhat lengthy conversation with Rich Bernstein last Friday. I have been on TV with Rich over the years, but have never really had a one-on-one talk with him. Recall that Richard Bernstein was the Chief U.S. Strategist at Merrill Lynch for years before becoming the eponymous captain of Richard Bernstein Advisors (RBA). I was speaking with Rich because I have developed an interest in a few of the funds he manages for various entities. Rich began by stating he is extremely bullish, believing we are in one of the biggest bull markets ever.
The Budget Deficit
by Scott Brown of Raymond James,
The Monthly Treasury Statement showed a large budget surplus for April. Some of that may prove to be temporary. Income was pulled forward into 2012 ahead of expected tax increases in 2013 and that was reflected in higher tax payments in April. Some of it is payback from the bailouts of a few years ago (for example, earnings from Fannie Mae and Freddie Mac). However, much of the improvement reflects a rebound from a severe recession. Tax revenues are recovering and recession-related expenses are trending lower.
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