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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.
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.
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