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Ouch
by Jeffrey Saut of Raymond James,
While equity markets can certainly do anything, if the SPX declines to the lows registered in March of 2009, which is what Walter Zimmerman thinks, and if the current earnings estimates are anywhere near the mark, it would leave the S&P 500 trading at less than 6x earnings with a dividend yield (excluding any dividend increases) approaching 5%. I just dont believe this is in the cards, given my assumption the economy is NOT going to double dip. Amid such market machination I think investors should keep their heads screwed-on straight and begin compiling their buying lists.
The Policy Stakes Are Raised
by Scott Brown of Raymond James,
Its well known that recessions that are caused by financial crises are much more severe, are longer lasting, and are followed by gradual recoveries. Another lesson from history is that during these recoveries, policies are often tightened too soon. In 1937, efforts to balance the budget led to a recession within the Great Depression. Its said that those who dont remember the past are doomed to repeat it. Following the financial crisis, consumers and nonfinancial businesses deleveraged. However, that paydown in debt pales in comparison to the deleveraging seen in the financial sector.
There You Go Again
by Jeffrey Saut of Raymond James,
Last Wednesday was a 90% Downside Day, meaning 90% of the total points lost, and 90% of the total volume came on the downside. Typically, such Downside Days are followed by upside rebounds. Clearly, that did not happen, bringing into view the SPXs April intraday reaction low of 1294.70. Violating that would imply 1250 and then 1230. While I dont think that is what will happen, the stock market doesnt care much about what I think. Hence, the SPX had better hold above the April reaction lows or we will be forced to raise even more cash.
A Slow Patch
by Scott Brown of Raymond James,
The recent economic data have been disappointing, but hardly a disaster. The broad range of indicators suggest a slowing in the pace of growth not a contraction. One month does not a trend make, but the data have generated some anxieties about whether the current slow patch could be a lot longer lasting or turn into something more severe. We started this year with a good deal of positive momentum. Inflation-adjusted consumer spending rose at a 4.0% annual rate in 4Q10. The economy still faced a number of headwinds. However, the positive momentum was expected to offset these headwinds.
The Growth Outlook: Long and Short
by Scott Brown of Raymond James,
For decades, GDP growth has averaged a little over 3% per year, and most of the time, the level of GDP has been within 3% of this long-term trend. Theres some debate about whether this trend will continue. If it does, then we may see much stronger growth in the next several years (as we catch up). If not, then we have something to worry about. Its unclear exactly why 3% should be the norm. GDP is simply the amount of labor input times the productivity of labor. Growth in labor input and growth in productivity vary over time. Theres no special reason that they should sum to 3%.
Efficient Markets?!
by Jeffrey Saut of Raymond James,
I am writing this Monday night without the benefit of seeing Tuesday mornings pre-opening futures because I will be on a plane. Still, I am optimistic given last weeks backdrop. While it is clear economic statistics have softened, we believe this is largely attributable to Japan (Fukushima), the European debt debacle, the Middle East, and our continuing weird weather. That optimism is reinforced by another all-time high in corporate profits (before tax and adjusted for inventory valuation adjustment and capital allowance adjustment), which is good for capex and employment.
The Federal Debt Ceiling
by Scott Brown of Raymond James,
Last week, the federal government breached the current debt ceiling, $14.284 trillion. The Treasury had begun taking evasive action the week before, but warned that it couldnt do so beyond early August and Congress would have to raise the debt ceiling before then. Will the government default? The strong betting is that it wont. The bond market doesnt seem to be worried. However, the increased rhetoric could have a bigger impact on the equity and currency markets. Why does the government have a debt ceiling? For the most part, its an historical artifact.
A Few of My Favorite Things
by Jeffrey Saut of Raymond James,
To begin, commodities are likely on summer vacation before they resume their secular bull market, however, I continue to like a number of special situations. Williams Company (WMB/$30.76/Outperform) reported a solid 1Q11 quarter. Our bullish thesis on Williams is supported by (1) we believe the companys E&P assets will garner a higher valuation in the market place as a stand-alone entity when the company splits itself into two parts; (2) we believe the market is undervaluing Williams ownership of the Williams Partner GP, and (3) we expect strong growth from the Canadian midstream assets.
Inflation What Me Worry?
by Scott Brown of Raymond James,
Despite rampant hysterics about "runaway inflation" in recent months, core inflation has remained at a moderate level, inflation expectations remain well-anchored, and there is little inflation pressure coming through the labor market. Is it time to declare victory? Not just yet, but the inflation outlook still does not appear to be particularly troublesome.
Plantar Fasciitis?
by Jeffrey Saut of Raymond James,
In past missives I have opined that China is slowly revaluing its currency in an attempt to create more domestic demand, dampen its inflation rate, and placate U.S. leaders. To be sure, the Chinese realize in the long-run the manufacturing/export driven economic model will eventually morph to the lower cost of labor, which is quickly becoming the Vietnams of the world. Accordingly, they are following what Brazil did with its currency (the Real) a few years ago. To wit, Brazil raised interest rates and increased the value of its currency.
Me, Lord Marlboro and the Dow!?
by Jeffrey Saut of Raymond James,
While the intermediate/long-term internal stock market energy remains fully charged for a move higher, the markets short-term energy still needs some time to rebuild. This probably means another week, or two, of consolidation and/or attempts to sell stocks down before we begin another leg to the upside. Even so, I dont think any selling will gain much downside traction, implying the zone between the S&P 500s (SPX/1340.20) 50-day moving average (DMA) at 1320 and the 1340 level should provide support for stocks.
Good News, Bad News, But Mostly Good
by Scott Brown of Raymond James,
The April Employment Report was better than expected, reflecting a strong trend in private-sector job growth. However, the economy continues to face a number of headwinds, which should restrain the pace of growth in the near term. The establishment survey data typically show large unadjusted increases in payrolls each spring. Prior to seasonal adjustment, the private sector added 1,159,000 jobs last month, the largest April gain since 2005. Last year, the rate of job destruction trended to very low levels. This year, new hiring finally appears to be picking up.
Lucky People
by Jeffrey Saut of Raymond James,
Since last June my unencumbered observation has been, You can get cautious from time to time, but dont get bearish. That mantra has served us well, especial since last September, because beginning on September 1, 2010 the senior index has not experienced anything more than a one- to three-session pause/pullback making today the 174th session in its upside skein. Such a stampede is unprecedented in my notes of over 40 years. Still, It looks like its going up to me.
Bernankes World And Ours Too
by Scott Brown of Raymond James,
There were no fireworks at Bernankes first post-FOMC press briefing. All five Fed governors and 12 district bank presidents contributed revised forecasts of growth, unemployment, and inflation last week. The central tendency forecasts exclude the three highest and three lowest projections. Fed officials lowered their outlook for GDP growth this year, reflecting a slower than anticipated rate of growth in the first quarter. Unemployment is expected to decline gradually. Inflation will be higher this year, but the Fed continues to expect that commodity price pressures will be transitory.
Rude Crude
by Jeffrey Saut of Raymond James,
Oil that is, black gold, Texas Tea; yet, rude crude still feels a bit stretched in the short-term given that West Texas Intermediate (WTI) is ~30% above its 200-day moving average (DMA). Indeed, over the past few weeks oil has become almost as extended above its 200-DMA as it was in July 2008, and we all know how that ended. Not that I am predicting a similar collapse in the price of Texas Tea, but rather that a consolidation/pullback period is likely, which could provide the backdrop for another leg up in stocks (even the energy stocks).
Gangs of New York
by Jeffrey Saut of Raymond James,
I love New York City! Still, as I walked from the airplane into the terminal last Monday, I got the feeling I was traveling back in time, La Guardia is in need of a refresh. All in all, I felt like I was in a third-world country, not the greatest city in the world. Nonetheless, my trip started with a couple of hedge funds. At noon a segment on Breakout." From there, it was off to see some PMs before the next media hit at Fox Business with, Brian Sullivan. While I am kindred spirits with these media anchors, by far the highlight of last Monday was dinner with President Bill Clinton.
The Return of the Carry Trade?!
by Jeffrey Saut of Raymond James,
There may be an increase in the carry trade in both dollars and yen, but I dont think this is the main factor behind the rise in commodity prices and demand for risk assets. Bank policies matter a lot for currencies. However, the U.S. is not going to raise rates anytime soon, implying a somewhat softer dollar. Youre hearing inflation concerns among some of the district bank presidents, but that is a minority view. The Fed sees higher oil prices as bad for growth, not a catalyst for a higher trend in underlying inflation; but officials will be watching the trend in core inflation, and wages.
Seizing The Narrative
by Scott Brown of Raymond James,
Later this month, Bernanke will hold his first post-FOMC press conference. The press conference is meant to present the Federal Open Market Committee's current economic projections and to provide additional context for the FOMC's policy decisions. The real goal is to reclaim the narrative. The Fed was caught off guard by the criticism and second guessing it received in 2010. These press conferences should help clear things up regarding monetary policy not that well receive clear signals of future Fed policy moves rather, well get information on how the Fed will decide what to do.
Shad Rowe?!
by Jeffrey Saut of Raymond James,
Since the 1980s I have read articles by Shad in Forbes, Fortune, Barrons, etc. and always found them insightful. Moreover, I have often used his sagacious comments in these missives to emphasize those gleanings in an attempt to help investors profit from them. This morning is no exception. Shad outlined why he is a steadfast bull on the American stock market. Said bullishness does not stem from his nature, for a couple of decades ago he enjoyed great success as a short seller. Nope, Shads bullishness is based on the belief that innovation is thriving in America.
Good, But Its Not Enough
by Scott Brown of Raymond James,
Happy days are here again. The job market is now adding jobs at a pace stronger than population growth however, not by much. Its been clear for some time that large-scale job losses are far behind us. The problem in the labor market has been weakness in hiring. Small and medium-size firms have begun to add jobs in recent months. Yet, with so many jobs lost in the downturn, there is a huge amount of ground to make up. The private sector shed a net 8.8 million jobs during the Great Recession (starting in December 2007 and bottoming in February 2010).
Will The Job Market Rev Up?
by Scott Brown of Raymond James,
Over the last year, the level of job destruction has trended very low. The problem has been a lack of job creation. Normally we look to small, newer firms to account for the bulk of new hiring in an expansion. However, small firms have been constrained by a variety of forces, the most significant being tight credit. That may be starting to change. The job market has a strong seasonal component. The next couple of months will be key to the outlook for jobs and the overall economy.
Be Conservative, Not Conventional
by Jeffrey Saut of Raymond James,
Whether the March 16 ?low? gets retested is now doubtful. Still, a partial pullback to 1275 on the S&P 500 cannot be ruled out because the recent rally has occurred due to more of a decline in Selling Pressure rather than enthusiastic buying. The decline from February 18 into the March 16 ?low? was accompanied by two 90% Downside Days. As well, there were two nearly 90% Downside Days during the decline. Typically it takes at least one Upside Day to conclude that a correction is over and so far we have not seen that. Still, I think a lot of the price risk has been removed from select stocks.
As The World Turns
by Scott Brown of Raymond James,
Japan?s earthquake/tsunami/nuclear tragedy and heightened tensions in the Middle East and North Africa have led to some concerns about the global economy, and in turn, the strength of the U.S. recovery. A weaker Japanese economy and supply-chain disruptions are detrimental to U.S. growth, but moderately and only short-term in nature. Developments in the Middle East and North Africa are more uncertain, but are likely to keep oil prices relatively elevated. None of this is expected to jeopardize the U.S. recovery, but it could keep growth from being as strong as was hoped for just a month ago.
Seismic Window
by Jeffrey Saut of Raymond James,
It is not the threat of earthquakes that keeps me cautious on the stock market. Despite the fact that we still have not had more than three consecutive down days since Sep 1, 2010, and therefore the Buying Stampede remains intact, I can?t shake the feeling it ended on Feb 18. Stampedes (both up and down) typically last 17 ? 25 sessions before they exhaust themselves. Previously the longest stampede chronicled in my notes was a 52-session upside skein, of course that is until the Sep 2010 to Feb 2011 affair, which if ended on Feb 18 was legend at 117 sessions. If not, today is session 137.
Go Opposite to Hysteria
by Jeffrey Saut of Raymond James,
September 1, 2010 to February 18, 2011 was a pretty good ?year? with the D-J Industrial Average (DJIA) gaining roughly 23.7%. Indeed, the ?buying stampede? that occurred over those months is now legend with today being session 132 without anything more than a one- to three-day pause/correction (recall it takes four consecutive down days to break the back of a buying stampede). Previously, the record stood at 52 sessions, and while the current stampede is not officially over, as stated three weeks ago ? my hunch is it has ended.
Inflation Expectations, Budget Decisions
by Scott Brown of Raymond James,
Many investors fear that the recent surge in oil prices will lead to a significant uptrend in the underlying inflation rate. However, that depends on whether inflation expectations become unanchored. There's little evidence of that so far. On the deficit, lawmakers are sharply divided on the appropriate path for government spending. However, trimming nondefense discretionary spending is not going to solve the problem.
The Philosophy of Tops
by Jeffrey Saut of Raymond James,
This week I am celebrating the two-year anniversary of the stock market's bottom by attending our institutional conference where more than 300 companies will be presenting to nearly 600 portfolio managers. It's a great conference, as well as an appropriate time to reflect on the past 24 months. Recall, the bottoming process began on October 10, 2008 when 93% of the stocks traded on the NYSE recorded new annual low prices. It was then I declared, "The bottoming process has begun."
The Job Market, Oil Prices, and the Fed
by Scott Brown of Raymond James,
Higher oil prices have raised new concerns about the strength of the economic recovery. If sustained, the rise in gasoline prices will restrain the pace of economic growth noticeably, but does not appear to be large enough (so far) to derail the expansion. Meanwhile, a federal government shutdown looms as lawmakers bicker over the future path of expenditures. Austerity at all levels of government is well-intentioned, but is not advisable at this point in the economic recovery.
Oil that is
by Jeffrey Saut of Raymond James,
?Oil that is, black gold, Texas tea,? Jed Clampett (Buddy Ebsen) got rich in the hit series The Beverly Hillbillies by discovering oil on his property. Similarly, investors have become enriched recently by owning oil stocks. Verily, crude oil has surged from ~$84 per barrel in mid-February into last week?s peak of $103.41 with an ascent for most oil stocks. As stated in Friday?s verbal strategy comments, ?Libya is particularly troubling because I think there is a fifty-fifty chance that Gaddafi, rather than cede power, will begin blowing up Libyan oil pipelines ? it?s either me or chaos.?
Oil And Vinegar
by Scott Brown of Raymond James,
Higher oil prices have raised new concerns about the strength of the economic recovery. If sustained, the rise in gasoline prices will restrain the pace of economic growth noticeably, but does not appear to be large enough (so far) to derail the expansion. Meanwhile, a federal government shutdown looms as lawmakers bicker over the future path of expenditures. Austerity at all levels of government is well-intentioned, but is not advisable at this point in the economic recovery.
The Monetary Policy Outlook
by Scott Brown of Raymond James,
Fed Chairman Bernanke is set to deliver his monetary policy testimony next week. There?s not much suspense. The release of the FOMC minutes from the January 25-26 policy meeting included senior Fed officials? revised projections of growth, unemployment, and inflation, as well as a thorough discussion of the uncertainties. No change in monetary policy is expected for some time. However, the Fed will have to consider when to lose the ?extended period? language and eventually move to a more normal policy position. That doesn?t look likely for 2011.
The Clock Has No Hands?
by Jeffrey Saut of Raymond James,
Recently, if you threw a brick out of a Wall Street window, it would go up! This stampede has not given up since it began on September 1. Indeed, the DJIA has not experienced anything more than the perfunctory 1 ? 3 session correction since this stampede began, not giving anyone an easy entry point. I was pretty constructive on stocks until the beginning of this year when I wrong footedly, like my gray-haired lunch friends, turned too cautious. Still, in this business you have to play the odds; and currently I just don?t think the odds are favorable enough to be aggressively bullish.
The Cocktail Theory
by Jeffrey Saut of Raymond James,
?How can you be sure that the pullback, you have wrongly been expecting, is for buying?? Since 1940 there has never been more than one 10% or greater pullback in a bull move; we had a 17% pullback last year between April?s high into June?s low. Moreover, the retail investor is nowhere close to fully embracing this rally, which is typically what occurs around intermediate/long-term stock market ?tops.?
Inflation Anxiety ? Misplaced?
by Scott Brown of Raymond James,
Commodity prices have moved sharply higher over the last several months, leading to increased worries that the Fed is ?behind the curve,? ?debasing the currency,? or ?monetizing the debt.? Such fears are based on a poor understanding of the inflation process and how the Fed conducts monetary policy.
It Doesn?t Take A Weatherman ...
by Scott Brown of Raymond James,
You don?t need a weatherman to know which way the economic wind blows. Lower payroll taxes will boost disposable income in 1Q11, supporting consumer spending growth. Production should advance in response to lean inventories. The pace of the recovery should pick up, but it?s still unlikely to lead to dramatic improvement in the labor market this year.
'Conversation'
by Jeffrey Saut of Raymond James,
While it?s true the DJIA and SPX have made new reaction highs many indices have not. Many emerging markets are declining, the MACD has been negatively configured since Jan 18th, Lowry?s Buying Power Index is falling and it's Selling Pressure Index is rising, and the 30-year Treasury Bond?s yield is about to break out above a spread triple top. The top gaining sector since November has been the Financials, but in the past few weeks the Financials have weakened noticeably. All of this continues to keep me cautious (but not bearish) as we enter February, a historically down month.
Contrarians!?
by Jeffrey Saut of Raymond James,
John Templeton once remarked, ?For those properly prepared in advance, a bear market in stocks is not a calamity but an opportunity.? And while I don?t think this is just a counter-trend rally in an ongoing bear market, I continue to believe we are into an uptrend within the context of the wide-swinging trading range stock market we have experienced since the turn of the century.
4Q10 GDP: Back To The Drawing Board
by Scott Brown of Raymond James,
The advance estimate of fourth quarter GDP growth was relatively close to expectations. However, two major components, net exports and the change in inventories, were much larger than anticipated (net exports added to GDP, slower inventory accumulation subtracted). Underlying domestic demand was roughly as anticipated, but the inventory story (assuming that it holds up in revisions) implies stronger growth in the near term. Instead of GDP growth of 3.0% to 3.5% in 2011 (4Q-over-4Q), it now appears more like 3.5% to 4.0%
'Fear, Hope & Greed'
by Jeffrey Saut of Raymond James,
I believe the evidence for a pullback is mounting. Since September 1, 2010, every time the Russell 2000 (RUT/773.18) has closed below its 20-day moving average (DMA), buyers have showed up the very next day. Not so last week. In fact, last week was the first down week for the SPX in eight weeks as the divergences in the stock market continue to grow. As legendary Dow Theorist Robert Rhea observed, mounting divergences suggest stocks are being distributed (read: sold) by smart money.
Fed Policy Outlook: Waiting It Out
by Scott Brown of Raymond James,
The economic outlook largely remains a good news/bad news story. The good news if that the recovery is continuing, even gathering a little more steam. The bad news is that the pace of growth is insufficient to push the unemployment rate down significantly. The Fed has a dual mandate: stable prices and maximum sustainable employment. While these goals may be seen to be in conflict from time to time, Fed officials (and most economists) believe that economic growth can be maximized over the long run by keeping inflation low.
How High is High? (To Whom?)
by Jeffrey Saut of Raymond James,
The current buying stampede is legend with the DJIA experiencing no more than three consecutive days on the downside over the past 93 sessions. This, combined with numerous other negative indicators, continues to leave me cautious in the short-term on both stocks and commodities, but not bearish. As for buy ideas, as stated I do like Tech.
TW3?!
by Jeffrey Saut of Raymond James,
?That Was The Week That Was,? also known as TW3, was a satirical TV comedy first broadcast on the BBC in November of 1962 and subsequently moved to America. The program was radical in that it chronicled events of the previous week and broke new ground in lampooning the establishment. It was also the first show to demonstrate it was truly television by allowing the cameras and boom microphones to be seen, giving the program an exciting and modern feel. I revisit TW3 this morning because despite last week?s holiday-like environment there were some pretty amazing headlines.
The December Labor Market Data
by Scott Brown of Raymond James,
The ADP estimate of private-sector payrolls rose sharply in December (+297,000), leading many economists to revise their forecasts of the official BLS payroll figure higher. Instead, the BLS data disappointed (+103,000). The unemployment rate fell sharply, generating some confusion regarding the difference between the household survey and the establishment survey. In the end, nothing much has changed in the job market outlook. Economic growth is expected to continue in 2011, just not fast enough to reduce the unemployment rate more significantly.
The White Hurricane
by Jeffrey Saut of Raymond James,
I believe that in the short-term, the odds are not tipped decidedly in investors? favor. The Volatility Index is down to ?complacency levels? last seen in April. Ditto, Investors Intelligence data shows advisory sentiment approaching the bullish extremes of October 07. Meanwhile, stock market leadership is narrowing, internal momentum is waning, and every macro sector except Utilities is overbought. Correlations between various asset classes are decreasing, implying that investors are becoming increasingly selective. All of this suggests more caution is warranted as we enter the new year.
Job Growth ? The Key To The 2011 Outlook
by Scott Brown of Raymond James,
While the outlook for economic growth has improved, a number of headwinds remain in the near term. Lingering problems in the housing sector, tighter state and local government budgets, and the decrease in the federal fiscal stimulus will restrain overall economic growth. In addition, higher gasoline prices may dampen the pace of consumer spending growth. However, stronger job growth would help counter these pressures, providing fundamental support for the housing market and helping to lift state and local government tax receipts.
Lessons
by Jeffrey Saut of Raymond James,
Lessons, I?ve learned a few over my 40 years in this business: A fool and his money are soon parted. There is no free lunch. Don?t put all your eggs in one basket. Spend interest, never principal. You cannot eat relative performance. Don?t be afraid to take a loss. Watch out for fads. Act. Take the long view. Remember the value of common sense.
Do You . . . Sincerely?!
by Jeffrey Saut of Raymond James,
For themes in 2011, I continue to embrace no double-dip recession, slow economic growth, dividend yield, stuff (energy, agriculture, water, electricity, metals, etc.), emerging/frontier markets and their consumers (although the emerging markets are well overbought currently), technology, financials, active investment management over passive (indexing), and hedging portfolios to reduce the downside risk.
What To Watch For In Early 2011
by Scott Brown of Raymond James,
One of the key themes for investors in early 2011 is likely to be a shifting economic picture. The tax cut package has taken the double-dip recession scenario off the table, but the data for the next few months are likely to be mixed, suggesting strong growth in one set of figures and more moderate growth in another. That back and forth should create some opportunities for investors.
Opposing Forces
by Scott Brown of Raymond James,
Economic recoveries are never straight-line expansions. They tend to be uneven across time and across sectors. That means a continuation of mixed economic figures over the near term and further volatility in the financial markets as investors attempt to gauge the underlying strength. Volatility creates opportunities.
Dr. Copper
by Jeffrey Saut of Raymond James,
The most important chart patterns of December (at least so far) are the charts of the 10- and 30-year Treasury bonds, whose yields have backed up more than 10% since the end of November (see the first chart on page 3). The second most impressive chart for the month is copper, which is up 10.8%. Copper is often referred to as ?Dr. Copper? for it has a better predictive record on economic growth than many economists; and last week copper came a cropper as it traded to new all-time price highs.
Results 1,701–1,750
of 1,795 found.
