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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).
Meanwhile, Back at the Ranch...
by Scott Brown of Raymond James,
With worries about Europe and the individual mandate of the Affordable Care Act behind us, we can go back to looking at the economy. At issue is whether recent signs of slowing were an illusion or more real. In particular, the June job market figures will be critical.
Perspective; or where you stand is a function of where you sit!
by Jeffrey Saut of Raymond James,
Perspective is the capacity to view things in their true relations or relative importance. And last Thursday the stock markets perspective changed abruptly. The day started out well enough with an opening 20-point pop to the upside, but from there the Dow Dive commenced. The causa proxima for the dive was more softening economic reports from China and Germany followed by a lame Philly Fed report, which saw that index accelerate its swoon from Mays -5.8 reading to -16.6.
Mood
by Jeffrey Saut of Raymond James,
M-O-O-D: That is the important word right here. And, what a difference a few weeks makes for last week the markets seemed to switch from the glass being half-empty to half-full leaving Mr. Market in a more forgiving mood. Importantly, market mood frequently sets the near-term trend. If the mood is positive, all things are possible; if it is negative, little is.
Atlas Shrugged?!
by Jeffrey Saut of Raymond James,
The call for this week: Over the weekend the eurozone agreed to lend Spain up to 100 ($126 billion) to shore up its teetering banks. That decision prompted this from my friend David Kotok, captain of Cumberland Advisors: The fact is the absence of banking collapses is good news. That is correct. Good news! We establish that good news by what we DO NOT see on TV. We do not see banks collapsing and failing to pay depositors. This means we may not witness the euro system collapsing and failing. Bank runs and deposit failures are symptoms of liquidity constraints.
1-800-GET-ME-OUT?!
by Jeffrey Saut of Raymond James,
The call for this week: Friday was the first day of hurricane season here in Florida, yet the storm didn't hit our beaches but rather blew onto the Street of Dreams with a 275-point "storm surge." The media attributed Friday's Flop entirely to the disappointing employment numbers, but the truth was the market was already headed down before the release of those numbers. And when the SPX's 1290 level was breached, the rout was on. And despite the break below my 1290 pivot point I can't shake the feeling that all of this is just part of the bottoming process.
Job Recap/How Big of an Impact from Europe?
by Scott Brown of Raymond James,
Job growth has slowed. However, its unclear exactly why or even, despite all the hand-wringing on Friday, whether its something to worry about. A European recession would have a moderate impact on U.S. exports, but there are some positives.
There are a number of other possible explanations for the recent slowdown in (seasonally adjusted) job growth.Firms may be reluctant to hire for a number of reasons: political uncertainty, fiscal policy uncertainty, higher gasoline prices, and worries about the fallout from Europe.
Being There
by Jeffrey Saut of Raymond James,
The call for this week: I am out of the country seeing institutional accounts, so these may be the only strategy comments for the week. In my absence the stock market will likely resolve its near-term directionality because the "selling stampede" is now 18 sessions long and such stampedes tend not to last for more than 17 to 25 sessions. Despite the decline, by my work there has been no Dow Theory "sell signal," although there are some Wall Street wags who are using very short-term pivot points and believe otherwise.
I Should Have?!
by Jeffrey Saut of Raymond James,
The brilliant Lee Cooperman, captain of hedge fund Omega Advisors, quoted Joe Rosenberg on CNBC last week, You can have cheap equity prices, or you can have good news, but you cant have both! Clearly, we currently have bad news, which in my opinion has resulted in cheap equity prices. Playing to that quote, my father always told me, Good things tend to happen to cheap stocks. As stated, the real question is, If we get a rally from this oversold condition is it the start of a new up leg, or is it just a compression rally that will be brief followed by still lower prices?
Balance, Grasshopper
by Jeffrey Saut of Raymond James,
The stock market has been consolidating its huge gains from the October 4 undercut low for roughly three months in a ~75 point range (1350-1420). That consolidation has allowed the markets internal energy to be rebuilt and the oversold condition to be worked off. Because of that process, I continue to think the odds that we will see a move below the 1320-1340 zone remain pretty dim. Accordingly, I suspect the stock market is going to put in an intermediate bottom probably this week.
Austerity Its All In The Timing
by Scott Brown of Raymond James,
One problem with designing fiscal stimulus is determining how rapidly to move back toward fiscal balance. The U.S. economy has already faced some degree of austerity. According to the National Income and Product Accounts, government consumption and investment subtracted 0.6 percentage point from GDP growth over the last six quarters, where in normal times, it would have added about 0.3 percentage point (consistent with population growth). Real GDP averaged 1.8% growth over the last six quarters. It would have been nearly a full percentage point higher if not for the contraction in government.
Toto, I have a feeling were not in Kansas anymore.
by Jeffrey Saut of Raymond James,
While most people know The Wizard of Oz as one of the most popular films ever made, what is little known is that the book was based on an economic and political commentary surrounding the debate over sound money that occurred in the late 1800s. Indeed, L. Frank Baums book was penned in 1900 following unrest in the agriculture arena due to the debate between gold, silver, and the dollar standard. I revisit the dollar/gold topic this morning because I think the most important chart in the world may be in the process of breaking down. The chart in question is that of the U.S. Dollar.
The Labor Market Outlook
by Scott Brown of Raymond James,
The April Employment Report disappointed stock market participants. However, it really wasnt a bad report. Private-sector job growth has been moderately strong this year. The Household Survey data suggest that the economic expansion has been strong enough to absorb the growth in the working-age population, but not enough to take up much of the labor market slack that was generated during the downturn. These figures tell us nothing about where the labor market is headed. Job growth over the next six months will have important implications for investors and for the November election.
Truth or Consequences?
by Jeffrey Saut of Raymond James,
When youre wrong you say youre wrong; at least thats what the pros do. Clearly, I have been somewhat wrong by being conservative, but not by much because the INDU is actually 70 points lower than at the April 2, 2012 intraday high. Given the aforementioned litany of cautionary indicators, my sense remains the S&P 500 (1403.36) will spend some more time below 1425 while the short-term overbought condition is alleviated and the stock markets internal energy is rebuilt. Fridays market action only reinforced that belief with the indices gapping higher and then closing well below those highs.
Growing Concerns
by Scott Brown of Raymond James,
Real GDP rose less than expected in the advance estimate for 1Q12. However, the details were a mixed bag. The report added little to the debate about where the economy is headed. The first thing to remember about the advance GDP report is that the figures will be revised, and revised again. There is often a larger difference between the advance estimate and subsequent estimates. However, the underlying story behind the numbers typically does not change much. Consumer spending, which accounts for about 70% of GDP, helped by mild weather. Yet, the personal income figures suggest caution.
Dow Direction Dictates
by Jeffrey Saut of Raymond James,
This week we will see more major companies reporting earnings. From our research universe, stocks that are favorably rated by our fundamental analysts and appear positive on our proprietary algorithms are: Brinker ; Baidu; Pultegroup; and Caterpillar. For the past few weeks I have wrongly suggested that my sense is the S&P 500 (SPX/1378.53) will remain mired in the 1385 1425 consolidation zone. Subsequently, the SPX dropped below that envisioned zone, yet has rallied back into the 1375 1385 zone, which has now become an overhead resistance level.
Blowin in the Wind
by Scott Brown of Raymond James,
Recent economic data have been mixed, but generally consistent with moderate economic growth. The recovery continues, but has failed to gather much steam and remains relatively fragile. Were on our way, but weve a long way to go. Over the last year, the economy has faced a number of headwinds, capping the pace of improvement. Those headwinds appear to be lessening to some extent although there are uncertainties, particularly as one looks to 2013.
The Outlook for Earnings
by Scott Brown of Raymond James,
The stock market has risen nicely this year, partly on improving economic data, but are such gains justified by the earnings outlook? The level of the S&P 500 Index does not appear to be out of line with earnings expectations, but there may be some pressure on profits over the longer term. As the election approaches, we may hear more about class warfare. Its unclear what role the distribution of income will take in this years election, but investors should pay attention.
Pigs and Panics!
by Jeffrey Saut of Raymond James,
As stated, this is a key week for the equity markets and we continue to wait and see how the equity markets resolve themselves on a short-term basis, a trading stance we have been in for weeks. Meanwhile, for investors, I met with a portfolio manager last week whose investment style I think is suited for the current stock market climate. The investment style of Troy Shaver, PM of Dividend Asset Capital, sub-advisor to Goldman Sachs Rising Dividend Growth Fund (GSRAX/$15.05), is to invest in companies that increase their dividends by 10% per year on average for 10 years in a row.
Shrugging Off Bad News!
by Jeffrey Saut of Raymond James,
March came in like a bear, but went out like a bull, capping the best first quarter since 1998. For the quarter the SPX gained 11.99% for its 10th best start of the year ever. For me it was almost like dj vu as I recalled the best first quarter of my lifetime, which was 1975s surge of 21.59%. Why dj vu? Well, it is because I began writing strategy In November of 1974 with the line, I believe now is the time to accumulate stocks. At the time the Dow was trading below 600, having fallen from its March high of 891 for a 34% decline.
Better News On Consumer Spending, But ...
by Scott Brown of Raymond James,
The monthly report on personal income and spending rarely gets much interest from the financial markets. However, the spending figures are a direct part of the governments GDP calculation. The latest numbers (through February) paint a much brighter picture than they did a month ago. While the outlook has improved from a month ago, its not enough for most Fed policymakers. It will take much more substantial economic growth to undo fully the recessions damage to the labor market. QE3 is still seen as unlikely, but its not off the table completely.
Patience
by Jeffrey Saut of Raymond James,
I continue to exercise patience with the equity markets while I sit on the cash raised over the past number of weeks. Unlike many, I consider cash an asset class. Indeed, to assume the investment opportunity sets that are available to you today are better than ones that will present themselves next week or next month is nave. To take advantage of those opportunity sets one needs to have some cash. For those wishing to be more aggressive, it looks to me as if the U.S. dollar is in the process of breaking down.
Results 1,351–1,400
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