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It's What You Learn After You Know It All That Counts.
by Jeffrey Saut of Raymond James,
January is the time of year when strategists, economists, gurus, etc. all join in on the annual nonsense of predicting "What's going to happen in the markets for 2013?" For many, this ritual is an ego trip, yet as Benjamin Graham inferred forecasting where the markets will be a year from now is nothing more than rank speculation. Or as I have noted, "You might as well flip a lucky penny."
A Conversation With Warren Buffett
by Jeffrey Saut of Raymond James,
Clearly, the stock market "thinks" something good can happen given the action so far this year. To wit, we ushered in the New Year with a 90% Upside Volume Day on December 31st followed by another 90% Upside Volume Day on January 2nd (90% of total volume traded came in on the upside). Such back-to-back Upside Days are pretty rare, especially at the beginning of the year.
Inflation, Still Not Taking Off Anytime Soon
by Scott Brown of Raymond James,
A few years ago, amid exceptionally large federal budget deficit and extraordinarily accommodative Fed policy, a number of pundits warned of impending hyperinflation. Instead, inflation has stayed low. That hasn't stopped the inflation worrywarts. It's just a matter of time, they say. Inflation "has to show up at some point." That's not an argument. There are a number of reasons to expect inflation to stay low.
The Cliff, the Fed, and the Economy
by Scott Brown of Raymond James,
The budget deal removes a major uncertainty for the financial markets. We now know what tax rates will be. However, the American Taxpayer Relief Act (ATRA) has a number of drawbacks. The December 11-12 FOMC policy meeting minutes showed a split among Fed officials, but that doesn't necessarily mean that asset purchases will end any sooner. The economic data reports have been mixed but generally indicate that the recovery is in reasonable shape.
White Noise?
by Jeffrey Saut of Raymond James,
"Investing in the financial markets necessarily involves one's ability to change perspectives over time... And there's more of the white noise than ever before."... The Contrary Investor.com. So said the Contrary Investor; and I could not agree more given my sense that the media remains "long" volatility. Indeed, every time volatility increases, so do my phone calls from the financial media as they feel "compelled to come up with rationales for daily movements in asset prices;" last week was no exception.
Lessons Learned
by Jeffrey Saut of Raymond James,
Beginning of the year letters are always hard to write because there is a tendency to talk about the year gone by, or worse, attempt to predict the year ahead. Therefore, we are titling this year's letter in an attempt to share some of the lessons that should have been learned over the past few years.
Armageddon?
by Jeffrey Saut of Raymond James,
So we wait for the alleged Armageddon for the second time in as many weeks. And as one smart money manager writes, "We should not forget that Congress has a magic eraser. No matter what they do, with a few strokes of a pen everything goes back to effectively January 1, 2013 and the Fiscal Cliff will take its place on the great wall of media creations (remember Y2K?)." Whether you call it Armageddon, or "orchestrated drama," there is nothing in my bag of tricks that suggests this is the beginning of a massive decline for stocks.
The Fed: Targets, Thresholds, Guideposts, and Goals
by Scott Brown of Raymond James,
As expected, Federal Open Market Committee announced that purchases of Treasuries will be added to QE3 in 2013 (the Fed will continue to buy $40 billion per month in mortgage-backed securities and $45 billion per month in long-term Treasuries). Fed policymakers also announced threshold guidance on the overnight lending rate, which will make the Fed's policy intentions clearer, and that's a good thing.
I'm Dreaming of a Green Christmas
by Jeffrey Saut of Raymond James,
While last week, and this week, often see distortions in individual stock prices due to tax loss selling, Santa Claus tends to arrive the following week. Indeed, the last week of the year, into the first two days of January, has a pretty good track record on the upside with a rally coming about 65% of the time. As stated in previous missives, I expect the same Santa rally this year driven by a "staged in" solution to the fiscal cliff. Most readers know that I have lived in the D.C. Beltway and have a good working knowledge of how our system works.
Fiscal Cliff-Hanger
by Scott Brown of Raymond James,
The recent economic data are consistent with a moderate pace of growth in the near term. The manufacturing sector is mixed, but generally weak, reflecting a global slowdown and an inventory correction. The consumer appears to be hanging in there. The Bureau of Labor Statistics said that Hurricane Sandy did not have a significant impact on the November employment data. However, other economic indicators did reflect weather-related disruptions, which appear to have been only temporary. Meanwhile, the economy heads toward the fiscal cliff.
New York, New York
by Jeffrey Saut of Raymond James,
I have loved New York since working on Whitehall Street in the early 1970s. Every year I return around this time of the year to attend Minyanville's Festivus event to raise money for the financial education of underprivileged children. Last week I spent time attending said event, seeing institutional accounts, doing media, and renewing friendships. I was surprised, however, to see pumps still sucking water out of the subway.
Tumbling Down the Fiscal Staircase
by Scott J. Brown of Raymond James,
Revisions to the 3Q12 GDP data have altered the near-term consumer spending outlook, adding to the anxiety surrounding the fiscal cliff. However, even if much of the fiscal tightening is postponed, more will be needed in the years ahead. The estimate of 3Q12 GDP growth was revised to a 2.7% annual rate, vs. 2.0% in the advance estimate. Good news, right? Well, no, just the opposite. Much of the revision was due to an increase in the estimate of inventory accumulation.
Paintballs?!
by Jeffrey Saut of Raymond James,
Alas, if only it was that easy to paintball the rapidly approaching fiscal cliff. For those of you traveling the North Yungas Road in Bolivia and unaware of the approaching dangerous cliff, let me explain. Before beginning, however, let me preface by recalling Bill Buckleys famous lament that he would rather be governed by folks listed in the Boston phone book than Harvard professors. To be sure, there are some good politicians inside the D.C. Beltway, but not many!
Illegitimum Non Carborundum
by Jeffrey Saut of Raymond James,
In my opinion Richard Fisher said in plain English what Ben Bernanke is trying to say in a much more politically correct way hey Congress, get your act together because I have done just about all I can do on a monetary basis, so it is up to y'all to make the tough decisions on fiscal policy that need to be made to get this economy going again. Surprisingly, I think Congress, and the President, will rise to the occasion because if they don't, and the country falls off the "fiscal cliff" for an extended period of time, it most assuredly will put us back into a recession.
Monetary and Fiscal Policy in Early 2013
by Scott Brown of Raymond James,
The fiscal cliff refers to a substantial tightening of fiscal policy in 2013. Monetary policy cannot offset the cliffs negative effect on the economy. However, it would be surprising if a deal were not reached, if not by the end of this year, then in early 2013. Due to concerns about the long-term budget picture, some of the cliff is almost certain to get through.
I'll Be Back
by Jeffrey Saut of Raymond James,
The call for this week: Obviously, I am back from Europe and y'all have done a pretty poor job of holding the markets together in my two-week absence. Indeed, since the election the SPX has lost 6.28% from its intraday high to last Friday's intraday low. The biggest losing sectors over that timeframe have been Energy (-6.2%), Financials (-5.9%), and Technology (-5.9%). Given the President's views on energy and banks the weakness in those two sectors should not come as a surprise. Still, I think the surprise is going to be a more cooperative environment from our leaders going forward.
Monetary and Fiscal Policy in Early 2013
by Scott Brown of Raymond James,
The fiscal cliff refers to a substantial tightening of fiscal policy in 2013. Monetary policy cannot offset the cliff's negative effect on the economy. However, it would be surprising if a deal were not reached, if not by the end of this year, then in early 2013. Due to concerns about the long-term budget picture, some of the cliff is almost certain to get through.
The Election
by Jeffrey Saut of Raymond James,
As most of you know I was in Glasgow, Edinburgh, London, Zurich, and Geneva during election week seeing institutional accounts and speaking at conferences. Of course the question on all the portfolio managers' (PMs) minds was about the election, the subsequent effect on the economy and the various markets, currencies, and the Fiscal Cliff.
Addressing the Fiscal Cliff
by Scott Brown of Raymond James,
The 2012 election put a major uncertainty behind us. We now know that Barack Obama will remain president and that Congress will be split. However, a major uncertainty lies ahead with the fiscal cliff. The danger is that a deal wont be reached soon and may get tangled with efforts to raise the debt ceiling
Job Market Improves, But Is It Enough?
by Scott Brown of Raymond James,
The economy plays a critical role in voter decisions. However, historically, it's been more about the direction than the level. The October Employment Report was stronger than anticipated, suggesting that we're doing significantly better than just treading water in the labor market. However, we have a lot of ground to make up and the pace is not especially strong. Regardless of Tuesday's election outcome, the data suggest that the ground may be set for further improvement in 2013.
A New Queen Bee
by Jeffrey Saut of Raymond James,
By the time a queen bee is five she is old and no longer reproduces, leaving her army of honeybees torn between loyalty and survival. Since the hive cannot survive without a productive queen, the beekeeper reached into the hive with a long-gloved hand and squashes the enfeebled queen. With the entire hive as witness, all know the queen is dead. Absent the scent of their leader, the honeybees panic. Something similar to that "queen bee" sequence may be happening currently. The "old queen," at least in the private sector, was driven by exports and manufacturing.
A Moderate Recovery More Of The Same
by Scott Brown of Raymond James,
The advance estimate of 3Q 12 GDP growth was not far from expectations. Consumer spending growth was moderately strong, while business fixed investment was a bit weak. The details suggest that some of the headwinds may be abating, although risks are tilted to the downside.
The White Hurricane
by Jeffrey Saut of Raymond James,
I revisit The White Hurricane this morning because it potentially looks like another 100-year storm is heading pretty close to Manhattan. So in addition to dealing with the Benghazi scandal, Syrian atrocities, Euroquake, the "fiscal cliff," a stalled U.S. economy, softening earnings momentum, waning revenues, a dysfunctional government, the nastiest campaign I have ever seen, and who Taylor Swift should date next, Wall Street now has to contend with the potential of being flooded out.
The GDP Outlook
by Scott Brown of Raymond James,
On Friday, the Bureau of Economic Analysis will release the advance estimate of third quarter GDP growth. Theres always a lot of uncertainty in the advance estimate. The BEA will have to make assumptions about inventories, foreign trade, and a few other missing components. However, the report should continue to show the U.S. economy in recovery mode.
Silver Anniversary
by Jeffrey Saut of Raymond James,
It was Friday October 16, 1987 as I looked across Wheat First Securities' trading desk only to see a stark look on the face of my second in command, Art Huprich. At the time the D-J Industrials (INDU/13343.51) were down about 100 points with 30 minutes left in the trading session. And, as stocks swooned I said to Art, "Today is just for practice!" Little did I know how prophetic that statement would prove.
The September Employment Report
by Scott Brown of Raymond James,
Nonfarm payrolls rose about as expected last month. However, figures for July and August were revised significantly higher. The unemployment rate fell sharply and unexpectedly, but one should take that with a grain of salt considering the seasonal adjustment issues (the start of the school year). Sifting through the details, the report suggests more of the same. Job gains have been roughly consistent with the pace of population growth. However, we're still not making up much of the ground that was lost during the economic downturn.
A Kid's Market
by Jeffrey Saut of Raymond James,
Last week a particularly wily Wall Street wag asked me, "Hey Jeff, do you know why everyone is underperforming the S&P 500?" "Not really," I responded. He said, "Because the S&P has no fear!"
That exchange caused me to recall an excerpt from the book The Money Game. I like this story...
Me, Lord Marlboro, and the Dow?!
by Jeffrey Saut of Raymond James,
Mark Twain once remarked, "October, this is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August, and February." However, if the typical presidential election year trading pattern continues to play, after a pause/pullback stocks should trade higher. And, this week is full of economic reports that could cause a pause/pullback. This week we get the global manufacturing data and the U.S. jobs data. The wildcard, however, is Spain.
The Fed to the Rescue?
by Scott Brown of Raymond James,
Citing concerns about the pace of improvement in the labor market, the Federal Open Market Committee extended and amplified its forward guidance and started a third round of large-scale asset purchases (what most people call "QE3"). The FOMC said that economic conditions are expected to warrant exceptionally low levels of the federal funds rate target through mid-2015 (vs. "late 2014" in the previous policy statement) and added that "a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens."
The Philosophy of Tops
by Jeffrey Saut of Raymond James,
The call for this week: To me the only question is if the stock market is going to correct its current overbought condition by going sideways, or if it is going to correct back to the 1400 - 1422 support. In either event I have been pretty confident that the Fed has already begun printing money. That has been eminently evident by the overall action in the commodity markets, the dollar, and the fact that stocks were unable to correct in the normal timing band for a daily cycle low. Indeed, I actually expected an easing of monetary policy out of last month's Fed meeting.
The August Employment Report and the Fed
by Scott Brown of Raymond James,
The August job market report was disappointing. Nonfarm payrolls rose less than expected and previous figures were revised lower. The unemployment rate fell, but that was due to a decrease in labor force participation (dont read too much into that).
Performance Anxiety?!
by Jeffrey Saut of Raymond James,
In last week's verbal strategy comments I suggested participants study the chart pattern of the S&P 500 (SPX/1437.92) and then think about what it would feel like if you were an underinvested portfolio manager (PM), or even worse a hedge fund that is massively short of stocks betting on a big decline. The concurrent performance anxiety would be legend because not only would you have performance risk, but also bonus risk and ultimately job risk.
Civility
by Jeffrey Saut of Raymond James,
Webster's defines "civility" as: civilized conduct; especially: courtesy, politeness. But, there was no civility last Friday afternoon. The place, CNBC; the time 3:05 p.m.; the anchors Michelle Caruso-Cabrera and Bill Griffith; the show "Closing Bell"; the guests were myself, Bill Spiropoulos, Lee Munson, and Matt McCormick. The interview started off well enough with each interviewee responding to the anchors' questions.
The Federal Budget Outlook and the Election
by Scott Brown of Raymond James,
With one month remaining in the fiscal year, the federal government appears to be on track to record a deficit of about $1.130 trillion, down from $1.296 trillion in FY11 and $1.294 trillion in FY10. Such large deficits can't continue indefinitely and this year's election should, in part, be about how, and how fast, the deficit will be trimmed in the years ahead. However, it's important to look at where the deficit came from.
Letter From Fed Camp
by Scott Brown of Raymond James,
The minutes of the July 31/August 1 Federal Open Market Committee provided clear insight into the Fed's policy debate. At that meeting "many" FOMC members felt that "additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery."
Janitor's Job
by Jeffrey Saut of Raymond James,
Peter Drucker was a writer, consultant, and teacher who was deemed the father of modern management theory. His groundbreaking work turned management theory into a serious discipline, and he influenced or created nearly every facet of its application. He coined such terms as the "knowledge worker," which plays to the intangible capital theme often discussed in these missives.
The Magic of Compound Interest
by Jeffrey Saut of Raymond James,
When compound interest works in your favor, it is a blessing. But when it works against you, it is a curse. Just ask Washington Mutual, or General Motors. More recently ask Greece, whose "debt chickens" have come home to roost. When yields are double-digits the power of compound interest working against the borrower is awesome.
The Outlook for Inflation and Fed Policy
by Scott Brown of Raymond James,
The odds of further accommodation from the Federal Reserve have decreased significantly in the last few weeks, as the level of fear has diminished. The financial markets now expect most of the fiscal cliff to be avoided. In Europe, leaders will still have to act against the region's crisis, but theyve also continued to express a strong resolve "to do whatever it takes" to keep the eurozone intact. Perhaps more importantly, U.S. economic data reports have generally improved.
Invest with the Best?!
by Jeffrey Saut of Raymond James,
I have been a "fan" of the astute Claude Rosenberg ever since hearing him speak. Some will remember him as the author of Investing with the Best, which deals with the daunting task of selecting an investment manager. Given the plethora of investment managers, picking a manager is difficult. That's why many individuals' selection process consists of nothing more than looking at a portfolio manager's track record for the past few years. We think such a simplistic approach is a mistake.
Job Outlook: Not Great, But Not Terrible
by Scott Brown of Raymond James,
Nonfarm payrolls rose more than expected in July, reducing fears that the economy may be headed back into recession. One shouldn't put too much weight on any one particular month, especially July. However, the figures are consistent with the broad range of data suggesting moderate growth over the near term - not especially strong, but not terribly weak either.
Yogi Berra
by Jeffrey Saut of Raymond James,
"It's hard to make predictions, especially about the future." ... Yogi Berra. To be sure, "It's hard to make predictions, especially about the future," and last week was no exception. I began the week noting that there would be a trifecta of potentially market moving news events. The first was the two-day FOMC meeting where I thought the Fed would change its policy statement with a lean toward more accommodation. WRONG.
Never Lost?!
by Jeffrey Saut of Raymond James,
Wall Street folklore suggests that in 10 years any fool can make every mistake there is in the stock market and that a really smart person can do the same in half the time. I don't know how long it took me, but I have tried to learn from those mistakes and avoid repeating them! Indeed, everybody who finally learns how to make money in the stock market learns his own way. I like this tale.
Fed Outlook: An Itchy Trigger Finger
by Scott Brown of Raymond James,
Fed Chairman Bernanke's monetary policy testimony to Congress was not expected to be a big deal. The economic projections of senior Fed officials were already published and the minutes of the June 19-20 policy meeting showed the Fed in a wait-and-see attitude However, most of the economic data released since the Fed policy meeting were weaker than expected. While Bernanke did not signal that policy action was imminent, the tone of his testimony was clearly concerned.
Cognitive Dissonance
by Jeffrey Saut of Raymond James,
At the race track if too many participants bet on the same horse, the betting odds on that horse go down and if he wins the payout is small. Popularity reduces the reward. Similarly in the stock market if too many participants put their money on the same stock, and it becomes a market favorite, driving the price ever higher, the upside potential is diminished. Popularity reduces the potential reward.
One Way Pockets
by Jeffrey Saut of Raymond James,
This morning I awoke to headlines "Asia Signals Drop In Global Demand," "Euro Zone Fragmenting Faster Than EU Can Act," "European Worries Send Shares Lower," and "Investors Brace For Shaky Earnings Season." Such musings have the S&P 500 futures off about six points. Somewhat offsetting these negative quips are these headlines, "Fed Officials Favor QE3" and "Obama To Seek One-year Extension For Some Of Bush Tax Cuts;" but alas, this morning the negatives are outweighing the positives.
A Closer Look at the June Employment Data
by Scott Brown of Raymond James,
Given the discrepancy in job growth between the first and second quarters, seasonal adjustment may still be an issue. However, there's concern that a high level of uncertainty in the outlook could undermine hiring in the remainder of the year.
Gleanings
With this Gleanings report, we begin a monthly chart presentation and discussion, which attempts to pull together the separate disciplines of Economics, Fundamentals, Technical analysis, and Quantitative analysis.
The report contains what we think are currently some of the most important charts. We will have an overview and then highlight some of the key near-term variables that we believe could have a measurable effect on where the various markets are going.
The Virtue of Necessity
by Jeffrey Saut of Raymond James,
The call for this week: In my opinion, last week the Commodity Index bottomed and the Dollar Index topped. If so, recession fears should abate in the months ahead. Moreover, if a recession was really on the horizon "junk" bond yields would be rising on worries of increased defaults and that is not happening with the iShare High Yield Fund (HYG/$91.29) attempting to make a new reaction high (i.e., lower yields).
Results 1,301–1,350
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