Thursday, April 30, 2015

Sell In May -- No Way !!

For those who have seen the movie Great Gatsby, you have some appreciation of how sweltering the summer heat can be in New York City.  For many decades, those who can afford to flee the city for the seashore have done so.  The result is that there are fewer people doing anything on Wall Street.  Therefore, it shouldn't be surprising that the stock market just saunters along without purpose during that time.  Wall Streeters urge each other to "sell in May and go away."

There is some justification to this, as shown on this graph:

Chart of the Day

You can see the gold line, representing performance of the S&P 500, is relatively flat-lined between May and November most every year.  History suggests you should not expect much good news from Wall Street during the summer . . . nor bad news either.  So, take the summer-off from your everyday worries about the sky falling,  and . . . go to the beach!

But, don't sell everything before you go, as that would be market-timing, and we all know what happens to market timers.  They miss it!

Wednesday, April 29, 2015

Roping The Fed ?

Libertarians rail against the Federal Reserve System.  Both Ron & Rand Paul want the Fed audited as a predicate to eliminate the Fed, even though over 800 audits are performed on the Fed every year.  This animus toward the Fed by Libertarians grows out of their belief that capitalism is supposed to be efficient, which means completely unfettered (forgetting that Karl Marx agreed with them that capitalism is efficient but is doomed because that efficiency also makes it cruel).

A more moderate discussion is whether the Fed should be "rules-driven" or not.  This would require the Fed to take a particular action if a certain set of economic conditions existed.  This would be a blessing for Wall Street, which has created a cottage-industry is guessing the Fed's next action.  I listened to a lecture on this today by John Taylor.  He is a former Under-Secretary of Treasury, where he labored to make the Iraqi & Afghanistan monetary systems work again.  He is now an economics professor at Stanford and is best known for the "Taylor Rule" to limit the Fed's discretion.

A good deal of "the sky is falling" school of investment thought today grows out of the fact that the Fed has undoubtedly done some things very new and very unproven, in the aftermath of the Global Financial Crisis of 2008/9.  Because nobody has ever seen the Fed unravel quantitative easing before, they assume the Fed will fail to do it properly, and the sky will indeed fall.

My thought is that requiring familiar predictable actions by the Fed is fine, as long as they face familiar predictable economic conditions.  Setting arbitrary rules for the Fed now, when we don't know what financial conditions may present themselves later, just doesn't make sense to me.  I don't want their hands tied, especially when fiscal policy is impotent.

Monday, April 27, 2015

We're # 2 !!!

Was it yesterday or even today?  Maybe, it will be tomorrow.  We know it will be any day now.

In 2013, economists estimate the global GDP, for the entire world, was $101.8 trillion.  The United States represented 16.5% of that total.  China represented 15.9%.  However, the size of their economy is expected to eclipse our economy this year.

Does that really mean anything?  Some argue that GDP per person is much more important.  The U.S. has 4.4% of the world population, compared to a whopping 19.1% for China.  This drives down their GDP per person.  In the U.S., it is about $54 thousand, easily eclipsing China at only $12 thousand.

Maybe size doesn't matter, but I do think it means China can afford more aircraft carriers as their economy gets bigger!

It is also interesting that income inequality is increasing in both nations but for different reasons.  In China, this is due to uneven and arbitrary industrialization.  In the U.S., this is due to reasons that apolitical people cannot discuss.

The Winner Is . . .

The award for the most creative T-shirt seen at the 2015 annual convention of the Investment Management Consultants Association in Las Vegas goes to the young man whose T-shirt read:

Financial Planning:   It is NOT just for baby boomers anymore.

Future Shock redux ?

I attended a lecture entitled "The Age of Abundance" yesterday.  That title reminded me of a book I read back in the 1970s called The Age of Leisure which argued that technology was making work unnecessary and that Americans were ill-equipped to deal with too much free time.  It never said "idle hands are the devil's tools" but it might have.  I concluded this was just mindless optimism on steroids and have rarely thought of it since then.

Yesterday's speaker is a unique person.  Peter Diamandis has degrees in molecular genetics and aeronautical engineering from MIT and a medical degree from Harvard.  He is a bright person, indeed.  He has started several hi-tech companies in Silicon Valley and has numerous university assignments.  He is most famous for orchestrating the X-Prize, which awarded $10 million to the first company sending a manned spacecraft into space twice within two weeks.

Some of his key points were:

1.  Mankind used to be "local & linear", meaning everything that affected him was in the general locality and change occurred at a linear pace, e.g., 1,2,3,4,5,6 and so forth.  Mankind is now "global & exponential", meaning we are affected by events around the globe and change is occurring at an exponential pace, e.g., 1,2,4,8,16,32,64 and so forth.

2.  Five billion more people will have access to the internet in 10 years, and IBM's monster computer called "Watson" will be available to everyone everywhere.

3.  If you are not disrupting yourself, you will be disrupted by someone else.  In 1920, the average age of the companies in the S&P 500 was 67 years.  Today, it is only 15 years.  In ten years, 40% of the companies in the S&P 500 will no longer exist.

Afterwards, I recalled reading Future Shock by Alvin Toffler in 1970, who argued that change is coming at a logarithmic rate, meaning the rate of change was getting faster and faster everyday.  Fast change produces even faster change.  Most of us would probably agree with that.  I think Diamandis is repeating Toffler's change but concluded with the statement that we haven't even seen 1% of the change yet.  Technology has big plans for us!

Sunday, April 26, 2015

The Value of Unhealthy Fast Food

People who make their living by buying one currency and selling other currencies often have a stressful life.  They make long-term bets but have to constantly and continually make course corrections.  For example, most believed the euro was in a slow, downward trend, which reflects their economy.  Then, the European Central Bank (ECB) announced a program of quantitative easing (QE), which would benefit the economy in long-run but kill the euro in the short-term.  Currency traders who did not instantly sell all their euros lost substantial money, especially because they are usually leveraged or bought with borrowed money.

Currency traders are also noted for their "gallows humor."  One of their favorite economic indicators is the Big Mac Index.  Since the fast-food sandwich is the same worldwide and needs the same amount of meat, lettuce, tomato and sesame-seed bun everywhere, we can compare the cost of a Big Mac in each country.

Assuming the unhealthy sandwich sells for $4.79 in this county, we see that it sells for 57.5% more in Switzerland, which means the Swiss franc is 57.5% over-valued, compared to the dollar at current exchange rates.  It does not necessarily mean the Swiss franc must come down, but it does mean the currency exchange relationship between the franc and the dollar is not at equilibrium and therefore must change.  The dollar may well increase in value against the franc while losing value against another currency, like the pound.

Continuing this examination, we can see the British pound is 8.8% under-valued, the euro is 11% under-valued, the Japanese yen is 30.1% under-valued, the Chinese yuan is 42.2% under-valued, and the Russian ruble is a whopping 71.5% under-valued.  Another way of looking at this data is that the dollar is that percentage over-valued against the currency.  In other words, the dollar is 8.8% over-valued against the pound.  Nonetheless, I do not see the dollar decreasing any time soon!

Bottom Line:  currency exchange rates are seldom static, but the current set of rates convinces me there is indeed a currency war going on, and we are losing.  A strong dollar gives export advantages to other nations.  It amounts to a subsidy from U.S. taxpayers to foreign exporters to the U.S.

We might as well act like a strong dollar is some cause for celebration this Fourth of July and have lots of parades with lots of flags.  Afterwards, we can all go to McDonald's for a dose of cholesterol?

Thursday, April 23, 2015

Unpaid Commercial and/or Cultural Announcement

It is true that music can calm the savage beast.  It can also bring peace to a tormented soul, at least temporarily.  It is a type of medicine for most.  I hate to see it suffer.

For the first time, I ask for your support of the Virginia Symphony (VSO) in general and their patriotic July 4th performance in particular.  Here is their request:

You are probably aware that the funding for the VSO July 4th Celebration has been withdrawn.  Williamsburg is one of only four places on the east coast (Williamsburg, Boston, New York and Washington, D.C.) that has a symphony playing wonderful appropriate music to enhance the celebration

We are trying to continue this symphonic enhancement of the Celebration for all of us to enjoy. In order to do that, Bert Aaron and Adam Steely have opened a KICKSTARTER crowd funding site. We urge you to please pass on this link to all of your contacts, media and otherwise. 

Click on this link to go to the KICKSTARTER site.

If you lose the link, just Google KICKSTARTER Virginia Symphony.  The more people who are aware the more the possibility of success!

Wednesday, April 22, 2015

Kindly Advice

Somebody needs to call Central Casting in Hollywood and tell them the perfect stereotype for a kindly uncle is Dr. Jeremy Siegel of Wharton.  However, his kindly demeanor hides his razor-sharp mind and legendary forecasting record.  Here are some of his latest thoughts:

Despite lower gas prices and improved consumer sentiment, consumer spending was disappointing during the first quarter.  He thinks GDP estimates for Q1 will be reduced a full 1% when released next week.  Largely because of this, he sees no chance of the Fed increasing interest rates in June and only a 50/50 chance in September.  (I think the odds of any increase this year are less than 50/50.)

He thinks the wild 280-point drop in the Dow last Friday was all about Greece, which will continue to unsettle the markets.  The EU will never expel Greece, and Greece will realize the impact of leaving the euro will hurt even worse than staying with the euro.  This is because their own currency, the drachma,would lose value so quickly that "hundreds of billions of dollars of Greek wealth could be destroyed in a day."  (I do feel sorry for the Greek people, but their older generations have robbed their younger generations.)

Corporate earnings have been better than expected so far, but the full impact of the strong dollar is only just beginning.  For example, it is costing P&G some 7% in corporate earnings.  The strong dollar will continue to hurt corporate earnings for the foreseeable future.  Nonetheless, the stock market is NOT currently OVER-valued.

You just have to believe anybody so kindly, don't you?   No, but I do believe this one!

Monday, April 20, 2015


Part of your job as a concerned American is to visit this website frequently: 

In fairness to those who can sleep well after looking at this website, it should be pointed out that the website does not show the declining ratio of debt-to-GDP, which is improving, unless you consider the present value of entitlements like Social Security and Medicare, which are getting worse.

Which is worse:  Tax and Spend . . . or Don't Tax and Spend?

Saturday, April 18, 2015

Quarterly Column

Inside Business is the Hampton Roads Business Journal, and I write a column for them each quarter.   Here it is: 

Thursday, April 16, 2015

Disproving A Negative

How can I promise the world will not end tomorrow?  How can I promise the stock market will not drop 50% tomorrow?  How can I disprove something negative?

A friend in Europe sent me an interesting article titled "Damned if they raise, damned if they don't:  The Dilemma of U.S. Central Bank" by Stewart Richardson.  It begins with a quote from well-known perma-bear Marc Faber, who lives in Thailand and writes the "Gloom, Boom, and Doom" newsletter.  Enough said!  Faber is paraphrased as saying:  "equity markets are going to fall a long way but it could be from a higher diving board."  How can anybody promise that will not happen?

It also quotes Ray Dalio, manager of the world's largest hedge fund, as saying …“We don’t know — nor does the Fed know — exactly how much tightening will knock over the apple cart,…What we do hope the Fed knows, which we don’t know, is how exactly it will fix things if it knocks it over. We hope that they know that before they make a move that could knock over the apple cart.”  Of course, we don't know!  If we knew everything, there would be no uncertainty.  In graduate business school, we called it "conditions of uncertainty."  There is always uncertainty!  And, Ray Dalio knows that as well as anybody.  (I don't know where his quote comes from but suspect it is taken out of context.)

Yes, if the Fed doesn't raise interest rate enough and soon enough, we do risk asset inflation, especially in the stock market.  Yes, if the Fed raises interest rates too much and too soon, we do risk going into another recession.  And, yes, that is always true anyway.  This is not a unique situation.  Since the Fed was born in 1913, it has occasionally erred between too tight or too easy.  But, the last time I looked, we're still here?

So, the argument becomes -- until we have perfect certainty, bad things may happen.  Just the opposite, I can promise that bad things will certainly happen --  but does that mean they will happen tomorrow?  Does that mean anybody knows which particular bad things will happen?  (Believe or not, there is more to life than stock markets.)

Rather than ask for a promise against uncertainty, think about an action plan for when something bad does happen, because it will.  In the meantime, continue as if the bad things will only happen later.  The alternative is to go back to bed, pull the blanket over your head, and suck your thumb!

"The New Oil Order"

The research department of Goldman Sachs just did an excellent analysis of the oil industry.  They explain that the $60/bbl decline in oil prices over the last year is due to three reasons -- normal supply & demand fundamentals, cost deflation, and technological shifts.

$25 of the $60 decline was due to increased supply, $10 was due to decreased demand, which explains $35 of the $60 decline.

Shale oil mining turns out to be easier, less costly and less risky than expected.  "There is no such thing as drilling a dry hole."  This reduced the cost of oil by another $25.

Improved, less expensive technology decreased the demand for capital needed to drill, leaving this industry over-capitalized.  I know that is a little nerdy, but it means a smaller share of revenue is due to capital, further reducing costs and ultimately prices.  The impact of this goes into the future, deferring a new point of equilibrium until early next year.

They believe oil will remain near $40/bbl most of this year, before establishing a new equilibrium price of about $65/bbl next year.  And, they should know!  After all, nobody ever said Goldman Sachs was not "oily".

By the way, guess which legendary Wall Street investment bank just announced great quarterly earnings this morning, crushing forecasts . . .

A Cut In Pay

Imagine your boss telling you that he needed to cut your pay by 7% -- you would probably survive, but you would not be happy, and that job would be a whole lot less valuable to you.

Johnson & Johnson, the huge multi-national consumer staples company announced their quarterly earnings this week.  Sparring you the many details, one item jumped out at me -- their profits were down 7% because of the strong dollar!

Also, the International Monetary Fund routinely estimates GDP growth of most countries.  They just cut our 2015 GDP growth estimate by half of 1%.  That doesn't sound like much, until you recall our estimated growth rate was only about 3.5%.  That means our GDP growth is expected to decrease by about 14%, due to the stronger dollar.

Now, what is so patriotic about having a strong dollar?  Tell me again!

Does this mean stock prices will necessarily drop?  No, history shows us that a rising dollar usually accompanies a higher price multiple.  In other words, investors are willing to pay more for each dollar of earnings when the dollar is high.  This is probably because a strong dollar sounds so patriotic??

Does that mean our exports will decrease?  Yes, because we sell our exports for dollars, which are now more expensive for foreigners to purchase, to pay for the stuff we export to them.  If your job is making stuff to be exported, update your resume.

Tuesday, April 14, 2015

First Quarter Slow Down

The four pieces of economic data released today confirmed what we already knew, i.e., that the first quarter was a disappointment -- not a tragedy, just a disappointment.

Today,we learned that retail sales increased less than expected.  Expecting higher sales, retailers naturally increased their inventories.  Not surprisingly, today we learned that inventories rose more than expected.  Holding inventory is not without cost to retailers, suggesting lower retail profits later.  Today, we also learned that small business optimism decreased broadly, which should not be surprising with disappointing retail sales.

The fourth piece of economic data released today was that the producer price index actually rose this month, after dropping three straight months due to dropping oil prices.  Firmer prices in the supply chain suggests some firming of demand, which might be the "green shoot" we're looking for.

Knowing the first quarter was a little slow is simply confirmed by today's releases.  More importantly, how does the second quarter look?  So far, so good . . . stay tuned.

Time For Golf

I live in a fancy condo on the beach, where I can watch sunbathers, ships, and dolphin.  I live with a lady who is lovely both inside and out.  I even drive a fancy car.  So, life is good!  Except . . .

I have bronchitis.  Coughing myself awake at 2AM, I slipped into the guest room and turned on the TV, finding that the old movie Dirty Dancing was playing.  At first blush, it is about the sweetness of first love and the bittersweet joy of dancing.  At second blush, it is a requiem for a lost version of America, as well as a study in the pain of class distinctions.

I smiled at the swing music from the 1940's and the early be-bop music of the 1950's. I laughed at the dated clothes and fashion in this period piece.  But, the thing that really grabbed my attention was wholly irrelevant to the story.  Late evening scenes contained that "symphony of nature" when frogs, crickets, and other critters make that cacophony of sound that has lulled me into sleep so many times.

While it certainly not a hardship to live here on the beach, listening to the waves breaking onto the sand, the movie did make me nostalgic for wilderness living, for sleeping on the ground, counting the stars, enjoying the sounds of nature, and for re-asserting my independence from the narcotic comforts of easy living.

Instead, I think I'll just go outside and play golf . . . after I stop coughing and take a nap!

Monday, April 13, 2015

Patience Is A Virtue ??

Checking into the Marriott World Center in Orlando for a conference some years ago, I noticed the quiet, unassuming guy in front of me was having trouble with the front desk.  After displaying an unusual amount of patience, I finally stepped in front of him and said to the desk clerk "I'm sure if you called Mr. Marriott, he would be pleased to offer Dr. Blinder the Presidential Suite FREE.  Maybe, you should call Mr. Marriott NOW!"  Suddenly, the seas parted, and a reservation was discovered.

I chuckled about that incident this morning, while reading the excellent article by Alan Blinder on the Opinion Page of The Wall Street Journal   He was Vice Chair of the Federal Reserve System and is now one of America's most respected economists.  I read anything he writes, and I'll bet Mr. Marriott does too!

Today's article argued that the Fed is not going to raise interest rates in the near future.  I love it when the "big cheese" economists agree with me!  The logic is the same:  (1) there is no inflation on the immediate horizon, and (2) the true employment picture is not as good as the unemployment rate suggests, primarily due to still-large number of the long-term structurally unemployed.  He does not argue that raising interest rates should be delayed in order to keep the dollar from getting even stronger, which hurts large multi-national companies.  (Obviously, I think that is a bigger deal than he does, but he is the "big cheese.")

 He concludes the article with:  "To be sure, the Federal Reserve will not maintain near-zero interest rates and a $4.5 trillion balance sheet forever.  Monetary policy will eventually begin to normalize.  But not in June, and maybe not in September.  Timing, they say, is everything.  This is a time for patience."

I wonder if he appreciates that I ran out of patience behind him at the Marriott front desk?

Theory vs. Practice

Some things, oddly enough, work better in practice than theory, such as quantitative easing.  Most things, however, work better in theory than in practice, especially within the investment world.

The hot debate within the investment world for the last decade has been the argument that index investing beats active management.  In other words, you should just buy the S&P 500 index without trying to buy any particular stocks to beat the market or reduce the risk.  There have been numerous theoretical studies to show this argument is correct, at least in theory.  (Interestingly, it seems to work better in bull markets than bear markets.)  In practice, however, there are mutual funds and hedge funds who do routinely outperform indexes, disproving the theory.

The conventional wisdom within the investment world for the last three decades has been Modern Portfolio Theory, which says you can improve investment performance over the long term, while reducing risk, by allocating portions of your portfolio to all the asset classes, e.g., large caps, bonds, cash, commodities, international, etc.  The problem in practice is knowing how much to put into each asset class.  This is called the "efficient frontier."  I can graph that frontier for you, but there is one problem -- it changes every day.

The latest fashion within the investment world is something called "robo-advisors."  Your portfolio will be invested in the index of each asset class.  As an example, Schwab has introduced something called "Intelligent Portfolios" which has taken in over $500 million in just three weeks.  The theory of combining index investing with Modern Portfolio Theory sounds great, but what you don't know in practice is how much is invested in each asset class and how often is that allocation changed and how is that decision made.  The lack of a flexible, understandable "efficient frontier" dooms robo-advisors.

I will start using a robo-advisor when I start letting a computer drive my car with my kids inside.  Theoretically, a computer can already drive a car safely . . . but not with my kids!  Some things are just too important for any nice, neat little theory.

Friday, April 10, 2015

The Russian Rat

A rat is a small animal but can be vicious when cornered.  Russia is a large nation but can also be vicious when cornered.  That's why I've so been worried about Russia's ability to be rational over the past year.  However, the latest economic data from that country is a little better than expected.  Their GDP actually had a positive growth rate in Q4 of last year -- not much, only 0.4% but still positive.  Of course, it is expected to be slightly negative in Q1 of this year, before falling even further.

Their economy went into free-fall last year when it was battered both by the fall in the price of its primary export (oil) and the impact of economic sanctions due to its actions in the Ukraine.  Their currency, the ruble, collapsed 50% against the dollar in just six months.  This caused two big problems for the Russian people.  First, their central bank raised interest rates from 8% last October to 17% in December, a catastrophic increase.  Second, the weak ruble drove up the price of their imports, igniting an inflationary outburst over 16%.  Yes, you read that correctly - 16%!

While the ruble has recovered somewhat this year, it is still badly devalued.  The worst is not yet over, especially for the Russian people.  We should not expect Putin to become any more rational in the near future.  He hasn't backed into the corner yet . . . but is getting closer.

I hate to sound like an old Cold-War-warrior, but Putin is still the most dangerous man on the planet!  It may be hard to believe, but he is a greater threat than even Iran or Isis.

Thursday, April 9, 2015

Clash of the Brainiacs

Why is it so much fun to watch intellectual titans clash?  Ben Bernanke has been a lifelong Republican, who has been roundly criticized by Republicans for leading an activist Fed.  Larry Summers has been a lifelong Democrat, whom Republicans prevented from getting Bernanke's job at the Fed.

Bernanke believes that interest rates don't need to drop any further, as the economy is getting stronger, albeit slowly.  In fact, it is about time to raise them.  Summers believes growth is slow because interest rates are obviously still too high, preventing necessary investments from being made.  He advocates "negative" real interest rates.

Bernanke believes that there is a global savings glut, i.e., too much savings and too little investment.  Summers argues that is because the interest rate on savings exceeds the rate of return on investments, which justifies lower real interest rates.  He argues we are in a period of secular stagnation, a point of equilibrium where the economy is simply stuck at minimal growth rates.  To disturb that equilibrium so that growth can increase, we need to kick-start investment by lowering real interest rates (or having a large stimulus package, which is impossible politically).

Because these titans are pure "brainiacs," it has been a purely intellectual fight with no name-calling.  It has been fun to watch, because of that - just a clash of ideas only, not people !  Now, if only Republicans and Democrats could clash that pleasantly . . . 

Sunday, April 5, 2015

Winter's Death

Religion has done great good for mankind.  Unfortunately, religion has also done great harm to mankind.  In addition to being a river of condemnation, religion also helps us mark the seasons.  All religions (that are based in temperate climates) mark the birth of winter with good cheer, like Christmas or Hanukkah.  Arriving with first birds of Springtime, those religions mark the death of winter, like Easter or Passover.

Passover celebrates something bad that did not happen.  Easter celebrates the good that can come from bad.  Both celebrate something without condemning others.  They celebrate the sun on your face and the simple pleasure of being in God's world . . . which is outdoors.

So, to all the gays, adulterers, thieves, Republicans and Democrats out there, Happy Winter's Death!  Now, get outside and enjoy God's kiss of sunshine . . .

Saturday, April 4, 2015

"The Virginia Way"

Before partisan redistricting gerrymandered Virginia into hardcore red districts and hardcore blue districts. the expression of "The Virginia Way" described our legislature in Richmond.  It was a time when elected politicians forgot the heated rhetoric of campaigns and worked together across party lines to actually deal with issues.  Honor and honesty were taken for granted.

Today, heated rhetoric continues to the Chamber floors, making it impossible to work across party lines.  And, our last governor is headed to jail, along with his wife.  "The Virginia Way" has become a sad reflection of an earlier age.

While I no longer feel the pride of being a Virginian, I still love the geographical diversity, the four seasons, and the abundance of history. However, a new survey has given me some cause for pride again.

Can you believe that Virginia is now one the top ten states in terms of financial literacy?  Our high school dropout rate is down to 1.9%.  The percentage of Virginians with a savings account is up to 40%.  We are #3 in "Knowledge and Education" about personal finance!

How did this happen?  Who deserves the credit?  Regardless, I'm delighted to see it and wish I could "high five" somebody . . . Keep it up, Virginia!!

Friday, April 3, 2015

The Jobs Juggernaut ??

Forgetting that GDP growth in the first quarter has averaged a miserable 0.5% since 2010, the market was still expecting a robust 248 thousand jobs to be created last month.  However, today's Jobs Report indicated a mere 126 thousand jobs were created.  I guess all those people expecting the higher number of jobs spent the month of March on the beach in south Florida and didn't realize how lousy the weather was up here?

Today's report also lowered the estimate of jobs created in January and February by 69 thousand, remembering that weather wasn't exactly great either.  The jobs juggernaut has apparently come to a halt?

But, something else is happening.  Average hourly earnings increased 0.1% last month and were expected to increase 0.2%.  Instead, they increased 0.3% -- a nice surprise.  Also, the percentage of the working-age population that is actually working or looking for work (AKA the Labor Force Participation Rate) increased from 62.5% to 62.7%.  In addition, the "oil patch" only lost 12 thousand jobs last month,  substantially less than expected.  Most importantly, the U-6 level of employment, which includes those working part-time because they cannot find full-time work, dropped to 10.9% -- the lowest since August of 2008!

We may be seeing the U.S. jobs market changing from that of a recovering economy to that of a healthy economy.  Let us pray!

The immediate impact was that the euro soared, as investors guessed the U.S. economy is really not that much better than the European economy.  However, there is no way that the increase in the value of the euro can be sustained in the face of quantitative easing by the European Central Bank.  Also, the futures for the stock market suggest a modest sell-off when the market opens on Monday.

Over the longer-term, this reduces pressure on the data-dependent Fed to begin increasing interest rates this year.  The stock market will realize this before Monday, and I expect it will react more positively than the futures currently indicate.  

Thursday, April 2, 2015

Step Away From The Ledge!

If the stock market rose 20 points every single day, then investors would overreact on the one day it only rose 19 points.  There are only two guaranties to investing.  The first is that the stock market will always overreact to geopolitical news, and the second is that investors will always overreact to the stock market.

Certainly, the stock market was forced to digest a huge amount during the first quarter.  First, there was the brutal winter weather.  Second, there was the latest flare-up in the Greek tragedy, with a deadline next week.  Third, Putin continues to prove he is a better warmonger than economist.  Fourth, the "just-in-time" supply savings used for corporate budgets nationwide was wasted on the west coast cargo strike.  Fifth, the Fed all but officially announced an interest rate hike is certain this year.  Sixth, the dollar got too strong, seriously hurting the earnings of large multinational companies, causing small caps (who are not export dependent) to outperform large cap companies (who are export dependent).  Seventh, did I mention ISIS?

The stock market is shifting gears from a zero-interest-rate economy with the U.S. being the world's economic engine to a rising-interest-rate economy with the rest of world finally starting to catch-up.  This is also being done during a period of increased geopolitical uncertainty (think Iran negotiations).  While it may not be fun, it is still not a bad thing,  Stay invested and, most importantly, stay calm!

If you do need a little something to help you stay calm, take a look at this chart:

Chart of the Day
It shows that April is the best month of the year for the Dow.  What it doesn't show is that all that impressive gain traditionally enjoyed during the month of April actually occurs during the last half of the month.  During the first half, investors are often selling stocks to pay their tax bills due at mid-month.

So, stay calm . . . and stay patient!