Friday, March 24, 2017

Stepping on Rattlesnakes

Years ago, I ran the Rattlesnake Roundup 10K in Sweetwater, Texas.  All along the road, rattlesnakes were positioned on one side or the other.  Fortunately, each was tended by a "snake-charmer" who had a long tool to control the rattlesnake.  At the beginning of the race, the announcer gave us some advice I never forgot:  "If you must step on a rattlesnake, step on its head, not its tail."  The reasoning was that the rattlesnake would turn around and bite your leg if you stepped on its tail.

While Democrats invented the sin of gerrymandering, Republicans perfected it.  Unfortunately, they stepped on the tail and are getting poisoned by it.

The reliably Republican Wall Street Journal opined today, in an editorial titled "The Freedom-From-Reality Caucus" that "by insisting on the impossible over the achievable, these self-styled guardians of conservative purity could become the worst friends of conservative ideas and free markets have had in decades."

Extremist Republicans are no worse than extremist Democrats, but they are in power now.  Extremist Republicans are hurting the Republican Party more than extremist Democrats are hurting the Democratic Party.  For their own good, Republicans should renounce gerrymandering.

Wednesday, March 22, 2017

We're # 14 !!!

The latest "Happiness" survey listed Norway as the happiest nation on Earth.  It may be just a happy coincidence that Norway also has the highest financial literacy, compared to the U.S., which was 14th, just behind the Czech Republic.

So, should high school students be required to take a financial literacy course?  I doubt anybody would object to increasing financial literacy before students enter the adult world, but the courses I have reviewed for high school students look more like a laundry list.  It is not overly-important that a young person distinguish carefully between a preferred stock and a zero coupon bond.  My experience suggests that knowing your behavioral type is more important.  Are you an aggressive 18-year-old who is bullet-proof and can easily pick the next Apple, but who panics at the first pullback or market dip?  If you are, how do you manage your portfolio?  How will you learn to have a strong stomach?

Memorizing a laundry list of financial products is nice, but studying the different investment behavioral types is more important.

Physician - heal thyself!  Investors - know thyself!!

Tuesday, March 21, 2017

The Unthinkable

Q.  When is it time to start thinking about the unthinkable?
A.  When you find yourself awake at night, staring at the dark ceiling, and worrying.

Q.  Will the President be impeached?  If so, for what impeachable offense?
A.  Yes, but the offense doesn't really matter at this point.  "High crimes" can include most anything.  Impeachment is not about right or wrong.  It is about power.

Q.  How many presidents have been impeached?
A.  Three - Andrew Johnson, Richard Nixon, and Bill Clinton.  Johnson and Clinton faced a trial in the Senate and were acquitted.  Nixon was the only president to ever resign, and he was quickly pardoned by Ford.

Q.  Does it matter if the President is removed from office?
A.  Yes, it would, but it has never happened.  Plus, two-thirds of the Senate can agree on exactly nothing.  Think of an impeachment trial as another "OJ" trial, except everybody is angry.

Q.  Would impeachment be good for the country?
A.  No.

Q.  Would it be good for the stock market?
A.  Not at first, but the market would rebound when the outcome becomes more clear.

Q.  When will it happen?
A.  Not until 2019, following the midterm elections, when Republicans lose control of Congress.

Q.  What should investors do?
A.  An old Wall Street adage is "the trend is your friend."  Enjoy the ride for now, but be sensitive to the 2018 midterm elections.  If it appears likely the Democrats will regain control, increase cash levels.  When the House Judiciary Committee begins impeachment hearing, increase cash substantially.  When the actual trial begins in the Senate, start buying.

Friday, March 17, 2017

Another Good JOLT

Wall Street, politicians, and the media pay very close attention to the monthly "Jobs Report" on the first Monday of each month.  Announcing the rate of unemployment, it is the "headline news" on the labor market.

On the other hand, economists pay closer attention to the JOLT report, which stands for Job-Openings, Labor-Turnover.  An increasing number of job openings is always a good thing, of course, and an increasing labor turnover tells you the attitude and confidence level of workers.  Job openings can increase but workers may be too afraid to give up their current jobs to look for another one.  How do you measure the amount of worker confidence?  Look at labor turnover.

The latest report shows about 5.6 million open jobs, which is the highest level this century.  In addition, about 3.2 million workers gave up their jobs, which is the most since 2001.  The labor market is solid.  (Even President Trump admits the labor reports are no longer "fake.")

Normally, a tight labor market would encourage the Fed to increase interest rates at a faster rate, but the average hourly earnings of workers is still not increasing enough to be inflationary.

A strong labor market with little indication of inflation is not a bad economy for a President to inherit . . . is it?

Wednesday, March 15, 2017

No Pomp and Circumstance ??

Do you remember the mixed emotions when your kid graduated from high school?  There was pride that they had accomplished something worth doing.  There was relief that your efforts to get them functioning in the real world had some measurable success.  There was excitement that they would now be standing on their own two feet, facing their own challenges.

That's how I feel about the Fed raising interest rates today.  Since the global financial crisis nine years ago, they have single-handedly sustained the economy, with no help from Congress.  Every move was scrutinized too-closely by everybody.  But, with today's increase, I feel they are graduating and passing the baton back to Congress where it belongs.  Fiscal policy returns to center-stage today.

Like high school graduates, the Fed will face continuing challenges.  Their next challenge will be accusations of  playing politics with interest rates.  The stock market clearly sees this increase as a vote-of-confidence in the strength of our economy.  But, no president has ever wanted higher interest rates, and President Trump will be no different.  He will soon be criticizing the Fed for raising rates and making the dollar too strong, which hurts our exporters.  There is zero possibility that he will reappoint Janet Yellen to the Fed chair when her term expires next year.

Now, where is my hankie??  Sniff, sniff . . .

Tuesday, March 14, 2017

Only Five ?

Bobby Doll is the Chief Equity Analyst for giant Nuveen Asset Management and has long been one of my favorite thought-leaders.  An affable, humble man with an ability to write succinctly, he remains confident in both the economy and the stock market.  However, his most recent commentary lists five risks we should pay attention to, and they are quoted as follows:

1.  U.S. Politics: Despite growing signs of disunity between President Trump and the GOP Congress, investors still appear optimistic about prospects for pro-growth economic policies. However, we expect investors may lose patience if specifics about issues such as tax policy and health care reform are not forthcoming.

2.  European Politics: Perceived risks in Europe have faded as Marine Le Pen’s standing in the French polls has dropped. But the rise of such nationalist candidates may pose a risk to economic growth and equity markets.

3.  Earnings: Corporate earnings have improved over the past couple of quarters, but
forward-looking expectations may be too high. Consensus expectations are for a double-digit advance in earnings growth for 2017.4 That level will be difficult to achieve, especially since profit margins remain under pressure.

4.  Economic Growth: We have seen an almost uninterrupted string of positive growth surprises in the U.S. economy over the past several months. We don’t expect growth to slow, but more bumps are likely in the coming months.

5.  The Fed: Investors have largely shrugged off prospects for higher rates, but rising rates could eventually dampen equity market momentum. Additionally, we see a great deal of uncertainty surrounding who Donald Trump will nominate to the Federal Reserve Board of Governors.

Now, about all those other things you were worrying about . . . STOP IT!

Saturday, March 11, 2017

Freaky Libertarians

Easily, the most readable book on economics in this young century is Freakonomics by Levitt and Dubner.  There is also a Freakonomics podcast (which is available in the App Store).  I often listen to one of those podcasts when running.  A recent one concerned the Libertarian political party, complete with an interview by Gary Johnson, who ran on the 2016 ticket and garnered a slightly surprising 3.2%.

Libertarians are usually those who prefer less government in their life, both in their wallet and their bedroom.  This is in contrast to the stereotypical Republican who wants less government in their wallet but doesn't care how much government is in their bedroom.  It is also in contrast to the stereotypical Democrat who doesn't care if the government gets a little deeper into their wallet, as long as the government stays out of their bedroom and personal life.

Don't you wish life was that starkly simple?  That's why stereotypes are occasionally useful -- for drawing contrasts.  But, which is worse -- stereotypes or purists?

This podcast focused on the purist or extreme positions of Libertarians.  They would abolish most of the Departments in the President's cabinet, including the IRS, in favor of a regressive tax on consumption.  They would legalize most currently-illegal recreational  drugs.  The U.S. would practice isolationism from the rest of the world, like it was a religion.

The conclusion was that the purists of the Libertarian party have more control over that party than the purists in either the Republican or Democratic parties, but there is now a movement among Libertarians to shed their purists.  Maybe then, they can garner 3.3% of the popular vote?

I hope so!

Thursday, March 9, 2017

Oh, What A Relief It is . . .

During the Era of Gridlock, the United States was a one-armed boxer.  Gridlock made fiscal policy useless, as Congress was unable to do anything that mattered.  All we had was monetary policy, which is controlled by the Federal Reserve.  Therefore, Wall Street held its breath every time the Fed met to decide any changes.  If the Fed did anything unexpected, Wall Street invariably over-reacted.

Next week, the Fed will meet and is expected to raise interest rates.  Before the election, the stock market would have taken a swoon.  Now, we realize that increased interest rates are both needed and acceptable to investors.  This is a healthy sign.  It will actually be a relief to be able to raise rates without the market over-reacting!

When the Fed raised rates in December, they expected to raise rates three or four more times this year.  I didn't believe that then, as Chair Yellen is a dovish labor economist and has another year in that job.  Now, I think the stock market rally may have "sucker-punched" the Fed into believing the economy is better than it is.  It is only good but is not great!  The tepid signs of inflation are not enough to make that assumption.  One or two increases this year would be good.  Three or four would be bad.


Also, there is another important difference between fiscal and monetary policy.  Fiscal policy is the right arm of a right-handed boxer.  It is stronger than monetary policy.  During the Era of Trump, the United States is now a two-armed boxer.  As long as we don't punch ourselves, we are either more powerful or just more dangerous.

Tuesday, March 7, 2017

Arithmetic Matters ?

I would like a tax cut.
Who doesn't want more spending money in their pocket?

I would like Obamacare replaced with something "better," as the President promised.
Who doesn't want better health care?

I would like a stronger military forces.
Who doesn't want stronger defense?

I would like a modern infrastructure.
Who doesn't want better roads, bridges, port, airports, etc?

That's a nice wish list that collides with the reality of www.usdebtclock.org
Have you been there lately -- go now!

Keynesians don't mind the increasing debt.
Supply-siders assume growth will always cover deficits.
Austrian or classical economists believe arithmetic matters.

Sunday, March 5, 2017

An Economic Week

During the past week, did you observe and absorb the following economic data points?

1.  On Monday, we learned home prices increased 5.8% last year, with 0.8% coming in December.  The Pacific Northwest led the way.  On Wednesday, we learned New Home Sales rose very modestly in January, showing increased cancellations due to rising mortgage rates.  Still, New Home Sales in 2016 beat the prior year by a healthy 12%.  On Thursday, we learned that Pending Home Sales actually decreased in January.  This is a leading indicator that is constrained by the low inventory of homes for sale nationwide, higher mortgage rates, and a 9.8% decrease in the West, primarily due to weather.  Bottom Line:  The residential market is just fine.

2.  Construction outlays during winter should normally be ignored, as they are just too volatile.  Such spending still increased in January but barely.  The three-month moving average is still 4.4% better year-over-year.  Bottom Line:  While both residential and commercial construction look fine, the weakness is in the public sector -- nothing that a major infrastructure redevelopment wouldn't fix!

3.  Both the ISM Manufacturing Index and the ISM Non-Manufacturing Index improved.  This suggests both the manufacturing sector of the economy, as well as the services sector, are doing well.  Despite NAFTA, manufacturing employment is increasing.  Since inventory levels of manufactured goods are so low, continued job growth should be expected.  Most interesting, despite a stronger dollar, manufacturing exports are increasing.  Bottom Line:  Things are fine.

4.  Personal income growth and spending growth started the year nicely with 0.4% and 0.2% in January respectively, but looked somewhat anemic with inflation approaching 2% . . . finally.  Also in January, we saw Durable Goods Order improve, primarily due to the always- volatile increase in airplane orders.  In February, consumer confidence improved nicely, which should support increased consumer spending.  In a consumer-based economy like the United States, this is all good news.  Bottom Line:  Things are fine.

Does the economy look steady?  Yes.  
Does this mean the stock market cannot go down?  No!
Am I worried about either right now?  No.

Saturday, March 4, 2017

Consorting With The Devil ?

As a boy, I remember being told that the oratorical skills of Adolph Hitler would rob a person of their own internalized principles and beliefs.  That was added to the growing list of things I didn't understand as a boy about the grown-up world.  Later, I was told that I would understand the holocaust IF I would just read Mien Kampf.  I did but still didn't understand.  In high school, certain books like Catcher in the Rye were banned, because they might corrupt my weak mind, causing me to forsake my own internalized principles and beliefs.  Of course, I searched for and read as many of those books as I could and was left wondering what was the point of so much consternation.

All these thoughts came back during one recent hotel stay, when I channel-surfed my way into RT television.  RT stands for Russia Today.  It is an English-language version of the Russian perspective on international news.  Frankly, I thought the international coverage was surprisingly thorough.  (Later, I learned it is available 24/7 online at www.rt.com )

Watching saturation coverage by the American news media of Trump's problems with Russian connections, I wondered how the Russian media was covering it and went to their website on Friday night.  The lead story was about a demonstration in Grand Central Station by activists urging the U.S. to get out of Syria.  Five stories later, they barely mention "media claims" that Trump and his associates had improper contacts with Russian officials.  No big deal, nothing to see here, keep moving on . . .

Now, I am really suspicious!

Friday, March 3, 2017

Gridlock = Gridlock

In 1792, some "wannabe" stock traders gathered under a buttonwood tree on Wall Street to develop some agreement to trade stocks and the New York Stock Exchange was born.  Today, over twenty trillion dollars of stocks trade there and is the biggest in the world.  It has become synonymous with "the market."

Initially, it merely traded existing stocks.  Later, it allowed new companies to sell stocks or initial public offerings.  (Eventually, economists noticed it was often a predictor of economic activity, usually six-to-nine months.)

Warren Buffett's mentor was Benjamin Graham, who famously said the market was a voting machine in the short run and weighing machine in the long run.  He meant that popular stocks rose in value and unpopular stocks fell in value in the short run, while the market carefully assesses the substance of each stock in the long run.  But, what would he say when all stocks become popular, like they are today?  I suspect he would say . . . be patient, they will stop rising in the short run and may even fall in the long run.

It is hard to discuss today's market without looking through the prism of politics.  There is a litmus test of whether you are willing to give President Trump the credit for the market rally or not.  I don't see it as that simple.

First, the market rallied with the death of gridlock.  Then, the market rallied, when analysts re-crunched 2017 and 2018 earnings with the lower corporate tax rate, increased infrastructure spending, and increased defense spending.  Now, the market is in rally-mode because President Trump finally acted presidential in his "SOTU" speech, but I suspect this will be the final and weakest leg in the bull market we've enjoyed since November.

At some point soon, the President will run up against the faceless wall of 485 egos in Congress.  My concern is that the new gridlock will not be between Republicans and Democrats but between Trump and Republicans.  Still, gridlock is gridlock.

Will the new gridlock bring us back down to pre-election levels?  I doubt that, but current stock prices are too high for any gridlock.  The new gridlock in Washington will be reflected on Wall Street in New York.

Tuesday, February 28, 2017

Wisdom From Uncle Warren

I love Warren Buffett!  He is not just another egocentric, egomaniac billionaire.  He remains humble and even makes jokes about himself.  He gives mostly excellent advice to investors.  Of course, he can sometimes confuse investors, as he did this weekend.

The media coverage was that he believes passive investing is always superior to active investing.  There has been an ongoing debate about this within the investment community for the last two decades.  A passive investor simply buys the S&P 500 (or NASDAQ or whatever) index fund or ETF and holds it passively thereafter.  An active investor prefers individual securities and timing the market.

Some years ago, he offered to bet $500 thousand with any active manager who could beat the indexes used in passive investing.  Only one investor took up that offer, and that one investor is losing.

The confusion exists because there are more than two types of investors, not just polar opposites like active and passive.  Buffett himself is both.  He takes many large positions in individual stocks.  His investment performance has lagged the stock market many times, but he has been in the market long enough to still be very successful.  Also, his description of active managers applied to very active managers, like hedge funds, which have done relatively poorly the last few years.

He was not talking about mutual fund managers with constrained investment parameters, such as mid-cap growth, for example.  My experience is that passive investing works best for large-cap stocks but not for small-cap stocks.  There is a time and place for both schools of investing.  Little in life is either-or!

Just as extremist politicians should have no place in legislation, extremist advisors should have no place in investing.  Pure passive investing makes as little sense as pure active investing.

Saturday, February 25, 2017

Snoozng Thru SOTU

Most of us know the simple, guilty pleasure of falling asleep during the annual State-of-the-Union (SOTU) address by the President.  These speeches are usually bombastic partisan ranting without meaning, which make the sleeping even better.  However, the next one should be worth an extra cup of coffee at dinner.  It will be different.

Since the election last November, the bulls have been happily running down Wall Street.  The press was quick to label it "the Trump Bump," but that ignores the different legs to this rally.  The first leg following the election was a relief rally, which happens when something bad was avoided.  Just prior to the election, the market had priced in four more years of gridlock.  With gridlock gone, America can get moving again, and the stock market began pricing that in.  It was relieved!

That gridlock-relief rally stalled in January before beginning the second leg, which was the real Trump Bump.  It was at that point that analysts had restated their corporate earnings estimates, based on real reform of our tax code and a real stimulus program to rebuild our infrastructure.  But, the market is already becoming anxious as there are no details on either, as well as no sign that the Republican Congress will work with the Republican President.  More worrisome is the possibility that Trump will waste his political capital on social issues or personal grudges, like Bush II wasted his political capital like Don Quixote, on privatizing Social Security following his reelection.

If the President does not provide some clarity in the speech or at least a deadline when we will receive that clarity, I expect this second leg of this stock market rally will end quickly.  It will be same reaction if it becomes obvious that he is wasting his political capital.

Take a nap if possible before the speech, but don't miss it.


Thursday, February 23, 2017

Political Cancer

I've written many times that the cancer on the body politic of America is gerrymandering.  It is the core of the political pollution that we see daily.  It discriminates against moderate Republicans and moderate Democrats, in favor of extreme Republicans and extreme Democrats.  Moderates can compromise and accomplish things, extremists cannot.

Unfortunately, the fight has taken on a partisan tinge.  Make no mistake, both political parties are GUILTY!  The Democrats invented it originally, but the Republicans now practice it religiously.  Gerrymandering must be eliminated, regardless of who is practicing it.

The OneVirginia2021 group has been fighting this battle for several years, and they are making progress, but still fell short in the last General Assembly session.  For a good recap of their crusade, go to:

https://www.youtube.com/watch?v=vD3ZZ-wzrHQ 

No Promise, No Expectation

I have written several times that every President since Reagan has been a failure, because each has promised to "do something" about LOUD commercials on television.

Bush II and Obama both claim at least partial credit for the Commercial  Advertisement Loudness Mitigation" (CALM) Act, which theoretically limited the LOUDness of commercials to the programming before and after.  That new law became effective at the end of 2012.

Prior to CALM, the most common complaint received by the Federal Communications Commission concerned the LOUD commercials.  Since CALM, that number of complaints has decreased significantly.  Does that mean television commercials are less LOUD?  No, it means complaints on loudness now have to follow the parameters required by CALM.  This new law is as big a failure in regulating LOUD television commercials as all these Presidents have been.

Did these Presidents lie to the American people?  No, I think they had good intentions.  But, no President is more powerful than the advertising industry.  It is the most powerful industry in America, more powerful than even the defense industry.

Despite exhausting Bing and Goggle searches, I have found no promise by Trump to control LOUD commercials.  Could it be the only President who didn't promise it . . . may actually accomplish it?

No, not even a thousand tweets about the advertising industry will help.

Monday, February 20, 2017

Know Thy Custodian!

"Must-see TV" consists of only two shows for me, i.e., Fareed Zakaria's GPS on CNN and Sixty Minutes on CBS.  Last night, I was slow finding the remote after Sixty Minutes, when some fictional show began.  Before I could cut off the TV, I heard the word "Ponzi" and was hooked.  I had to listen!

It seems a prominent lawyer decided to retire and move to France, because her investment portfolio had done so well.  Unfortunately, as soon as she resigns her partnership, she learns she has been a victim of a Ponzi scheme.

I am not insensitive to such victims, but Ponzi schemes are so easy to spot that it is hard to generate a great deal of sympathy.  Remember this:  if there is not an independent third-party that holds the actual assets and sends reports directly to the client, you should assume it is a Ponzi scheme and stay away.

Please re-read that last sentence again and again.  Tell your friends!

For my clients, their assets are held by TD Ameritrade, who also sends monthly statements directly to the client.  Other good custodians include Schwab and Pershing.  If you don't know who your custodian is, stop what you are doing right now and find out!

Sunday, February 19, 2017

Janet's Woes

The two primary methods of controlling the economy are monetary policy (by the Fed) and fiscal policy (by Congress).  Since the 2008/9 Global Financial Crisis, the United States has only had monetary policy to control the economy, as Congress has been worse than useless.  To the extent that our economy has recovered, we can thank the Fed.  However, the good news is that, as monetary policy has reached its limits, fiscal policy may come back to life, thanks to the elimination of gridlock last November.  For years, the stock market has over-reacted to any possible action by the Fed.  Today, it is starting to over-react to anything on Capitol Hill.

This should be good news for Fed Head Janet Yellen and the Board of Governors.  They want to "normalize" interest rates, which is Fed-speak for raising rates, and they should, but they face some conflicting pressures.

First, there are the Libertarians, who believe anything-the-government-does-is wrong.  They believe that holding interest rates so low for so long was an illegal action to punish one class of Americans, i.e., the savers.  They believe low interest rates have chased money out of bonds and into stocks, creating a terrible bubble, which is untrue.  Also, because the government is always wrong, they are worried that the government now agrees with them and want to increase interest rates, which must therefore be wrong.  They also want even more audits of the Fed, as well as reducing the Fed's independence.

Second, there are the Republicans, whose sole belief system is that they-get-credit-for-anything-that-goes-right-and-Democrats-get-blamed-for-anything-that-goes-wrong, which perfectly mirrors the sole belief system of the Democrats.  More to the point, they would not confirm Jesus Christ to the Fed's Board of Governors if nominated by a Democrat.  There are now four vacancies on the Board of eight governors.  In a population of 340 million people, they cannot find four qualified people???  The governor tasked with bank regulation just resigned.

Then, there is the Presidential problem.  Libertarians wanted to raise interest rates years ago, and now so does Janet.  But, the President has already said the dollar is too strong, which hurts American exporters.  Raising rates will normally make the dollar even stronger, reducing demand for American-made products.  In addition, rising interest rates cause income capitalization rates to rise, which causes the value of commercial real estate to fall.  So, professionally and personally, the President doesn't see the need for higher interest rates.

My expectation is that she will get the "last laugh," raising rates once or twice before her term expires next January, when she will be ceremoniously dumped by the President and will exit like Frank Sinatra, doing it her way!

Saturday, February 18, 2017

Needless Hypocrisy

Last time . . .

The Democrats were right, and the Republicans were wrong.

This time . . .

The Republicans are right, and the Democrats are wrong.

You will recall the summer of 2011 when the Republicans threw such a hypocritical hissy-fit about the Debt Ceiling that Standard & Poor's actually lowered the credit rating of the United States for being ungovernable - not for having bad credit but for being ungovernable.  Since then, we have either raised the debt ceiling or suspended it several times.  Guess what happens again next month?

Because the Republicans are in power, the Democrats will hiss that "something" must be done about our growing debt, that we can no longer waste money on tax cuts for the rich and must raise those taxes.  It is hypocrisy writ large!

Long ago, the debt ceiling had already outlived its usefulness.   We are the only advanced nation with such a meaningless device.  Not only does the debt ceiling not help, it actually makes debt management more difficult by unleashing the hypocrisy of Republicans and Democrats, further polluting conversations.

If you think the arbitrary debt ceiling limitation has done any good, take a look at this chart:



An arbitrary debt ceiling as a curb on spending never made sense and obviously has never worked.  It is time to dispense with the notion . . . and actually negotiate with each other.

Thursday, February 16, 2017

Crazies In The Senate

The difference between my children and my guns is that . . . I know how many children I have.

The difference between the NRA and myself is that . . . I am a SANE gun-lover.

The difference between the Senate Republicans and myself is that . . . I have a conscience!

I am appalled the Senate Republicans are restoring the right of crazy (yes, crazy, not merely the mentally handicapped) people to buy guns.  They are parroting the NRA excuse that keeping guns out of the hands of a few crazy people will not prevent ALL gun deaths -- no kidding?  Nobody ever said it would!

Reducing senseless gun violence has no "silver bullet."  Reducing such unnecessary violence will require many, many, many small things.  For example, teaching gun safety in school will not prevent ALL gun deaths either, but it WILL help in some small way.  There are numerous other small steps.  Of course, the first step is to stop worshiping at the checkbook of the NRA.

To the Senate Republicans . . . Shame on you!!


48 Hours

During a mere 48 hours this week, the following information was released:

1.  The Small Business Optimism Index rose again in January, as it has for the last three months, driven largely by the increase in small business owners who think the next three months will be a good time to expand their business.  (This is good!)

2.  The Consumer Price Index showed inflation has picked up this year, rising a surprising 0.6% in one month.  However, this core level of only 0.4% was skewed higher by the rising price of gasoline.  (Inflation is so much better than deflation.)

3.  The Producer Price Index was very similar to the CPI, which is somewhat unusual in itself, showing a 0.6% increase in January that was also skewed upwards by energy prices.  The core level of inflation at the producer level was only 0.2% in January.  (That is a little too low.)

4.  Rising inventory levels mean the consumers are buying less or that businesses are more optimistic and are building inventory levels to meet expected sales.  In December, inventory levels rose 0.4% . . . for the latter reason.  (The 2016 inventory correction is over!)

5.  Home Builder Sentiment dropped 2 points last month, not because homebuyers stayed away, but because the cost of building is rising so rapidly.  (Evidence of real inflation?)

6.  Utility Output declined 0.3% in January.  Normally, this is not a good thing, as it might indicate declining demand by business for electricity.  However, this decline was due to warmer weather this January compared to last year.  (No big deal.)

7.  Retail sales include auto sales, which are more volatile.  If you strip out those volatile numbers, retail sales increased a very healthy 0.8% in January, compared to a 0.4% increase in December.  (The consumer is stronger than expected.)

This was not all the economic data released during this 48 hour period and ignores the normal gushing of financial data from thousands of public companies.  It also ignores the unusually heavy flow of geopolitical events.

Now, how does a person consume and digest so much information?  How does a person "drink from a fire hose?"

It's simple . . . their financial advisor should be their "designated fire hose drinker!"

Wednesday, February 15, 2017

Quick & Dirty Simplicity

Momentum investing, channel investing, trend following -- all are buzzwords and/or excuses for not knowing economic pressure points or individual stocks.

Addiction to these approaches stems from their quick and dirty simplicity.  Here is a good example:

Chart of the Day

You can quickly see the Dow shows no indication that it is going to break out of its upward channel.  Investors should  therefore rest comfortable that disaster is not imminent.

This "quick and dirty simplicity" is worth a thousand words -- turning a thousand words into one instantly understandable chart.  My sanguine view of the market comes from understanding economic pressure points, but it simply reassuring to see the chart agrees.  It should only be used to confirm your market expectations, not to make them.

Plus, it saves me the trouble of typing a thousand words and saves the investor the trouble of reading a thousand words . . . whew!

Sunday, February 12, 2017

Look Who's Back ?

Nobel prize-winning investment theory Modern Portfolio Theory found that performance is increased, while risk is decreased, over the long-term, if the portfolio is allocated across the many investment classes, which includes European stocks.  However, those investors who had any European exposure lost badly a few years ago and are reluctant to to embrace that hot coal again.  Once burned, twice shy, I guess?  And, I do understand.

Still, it is time to reconsider.  For the first time since 2012, corporate profits in Europe turned up 5.05% in the fourth quarter.  "The mother's milk of stock prices is corporate profits."  As confirmation and to everybody's surprise, the euro is up 1.2% so far this short year.

More surprising are the "bullets missed."  Nobody expected the different European stocks market to recover so quickly after the stunning Brexit vote nor after the stunning Trump victory.  Those markets are displaying a resilience that was not thought to be there.

Of course, governance is the Achilles's Heal of the European Union.  It will survive the exit of Britain, largely because the Brits continued using the pound as their currency, not the euro.   France is different and uses the euro.  It also faces an election this Spring.  If far right candidate Marine La Pen wins, she is expected to return France to the franc, leaving the euro, which is a direct threat to the stability of the European Union.

Money invested in the bond market is often considered "smarter" than money in the stock market.  The European bond market has a clear case of the jitters.  The difference in yield between French bonds and German bonds has risen over the last four months.

No discussion of Europe is complete without mentioning the "wild child," who is Greece.  After its near-death experience five years ago, it returned to the bond market triumphantly in 2014 when it refinanced much of its debt.  However, the first payment of about $2.1 billion comes due in July, and it is not clear how they will repay it.  The bond market thinks it will not be a problem as the value of those bonds has increased significantly in recent weeks.  Importantly, Europe has already had five years to adjust to this eventuality.  Default now will not be as destabilizing as default in 2012.

My sense is that it will soon be time to allocate more money into Europe, but not before the French election and maybe not until it is clear the Greeks have changed their profligate entitlements.  Stay tuned . . .


Friday, February 10, 2017

Slippery Slope

It happened the first Saturday after the November presidential election.  I was watching The Golf Channel, when they started talking about the impact of Trump on golf and how his election might affect play at his already-expensive golf courses.  It got me thinking about Trump, but it was Saturday, which is my "news-free" day.  I decided to just "tough-it-out" and endure the election coverage.  But, I was soiled . . .

That afternoon, I got in my car and turned on the radio, which was on CNN, and I started listening.  Soiled again!  Twice on my news-free day, I was soiled with news!!

Each Saturday since then, I have felt less and less adamant about maintaining my news--purity.  I started watching local news, just for the weather forecast . . . of course!  That spread to network news, because a little news wouldn't hurt . . . would it?

The world is different without 24/7 saturation news coverage, and abstinence gives you a better perspective on the news the other six days of the week.  Therefore, I must redouble my efforts to regain that perspective . . . by avoiding news-noise on Saturday.

Wednesday, February 8, 2017

A Caffenated Clue

Starbucks has always been an enigma to me.  Its customers seem fiercely loyal to the brand, for some reason.  My perception has been that the coffee is too bitter and too expensive.  Now, it seems there is a relationship to love of Starbucks and political leanings.  Take a look at this chart.

Trump Immigration Ban: Why Starbucks CEO Isn't Too Concerned About Backlash and Boycotts - starbucks consumer survey

The more you like Starbucks, the more likely you are to vote Democratic.  The less you like it, the more likely you are to vote Republican.

Now, we have yet another way to label people!  If a person praises Starbucks, don't praise Trump around them.