Tuesday, September 29, 2015

So Much Noise !

As we know, stocks don't always move up, nor always move down.  Often, they bounce along sideways in a range.  For the last two months, the U.S. stock market has traded in a range.  This is not unusual.  What is unusual is the violence of the moves within the range.  We keep slamming into the upper and lower edges of the range.

Yesterday, the Dow lost 312 points or 1.92% and approached the lower edge of its range.  Even worse, the S&P lost almost 50 points or 2.57%.  The day got off to a bad start with the news that corporate earnings in China were less than expected.  Then, we learned that debt-ridden commodity giant Glencore in England may be in serious trouble, following the unimaginable self-immolation of Germany's largest employer, VW.  Then, investing legend Carl Icahn released a video promoting his new website by saying "the end is near."  Lastly, Nasdaq's 50-day-moving-average crossed below its 200-day-moving average, which is the "fourth horseman" of the "death cross."   That is considered a very ominous market signal.

In the background, investors are facing up to the continued dysfunction in Washington with a naive President and a Congress that cannot even spell c-o-m-p-r-o-m-i-s-e.  Remember the Fiscal Cliff?  This year could be far worse, with a government shutdown - plus a government default if the debt ceiling is not increased.  This could happen shortly before Christmas - throwing a terribly dark cloud over the joyous holiday season and crushing holiday sales.

The next important market signal is whether the S&P will break its previous low.  The belief is that the recovery begins when the stock market re-tests its previous low and bounces upwards.  The previous low was 1,867 on August 25th.  Closing yesterday at 1,881 - it is less than one percentage point away.  If the S&P goes below 1,867, it will set a new low that then must be re-tested before recovery can begin.

Is the world coming to an end?  Of course not!
Should you sell everything and get out of the market?  Of course not!

Would you run out of a store that just put everything on sale?
Stocks in America's greatest companies are now 12% cheaper.

Friday, September 25, 2015

Justice Defined ?

You may remember some years ago when a Chinese toy maker allegedly used a toxic red paint on toys that infants were prone to put into their mouths.  I happened to be in China shortly afterwards and read the English translation of the Shanghai newspaper about the incident.  It said the CEO was arrested and tried, where it was determined that the CEO had prior knowledge of the harm to children.  Without appeal, he was taken out of the courtroom and executed.  I respected that rule of law.

All during the aftermath of the 2008/9 global financial crisis, I kept hoping I could find an article about some bond salesmen, who making $5 million a year to sell subprime bonds that he knew was trash, (even referring to selling those bonds as "putting lipstick on a pig"), eventually being executed for ruining the retirement of good and decent American workers and the education of the next generation of Americans.  I'm still waiting for some justice.  Apparently, people who knowingly caused genuine harm were not guilty, simply because they worked for a corporation.  Some corporations were executed (think - Lehman) and hundreds of thousands of people lost their jobs, but I guess nobody did anything wrong . . .

But, there is hope!  The CEO of a Peanut Corporation of American was just found "guilty on dozens of felony counts, including conspiracy to conceal that many of the company's products were contaminated with salmonella.  Between 2008 and 2009, nine people died and more than 700 others fell ill after eating peanut butter . . . "  The 61-year-old man was sentenced to 28 years in prison, where he will receive better health care than many poor people in this country and elsewhere.

It's too bad our judicial system could not sentence him to 28 years in hell instead!

Wednesday, September 23, 2015

Patience Will Be Rewarded

The current turbulence in the stock market has not been following the conventional script.  Does that mean we are facing a potential market collapse?  No!  There is no financial crisis on the horizon.  If anything, U.S. banks have TOO MUCH capital, not too little.

But, the current turbulence is slightly different from the normal garden-variety bear market that precedes the normal garden-variety economic recession.  The economic data for the U.S. remains remarkably good.

The difference is that we have never experienced a normal garden-variety bear market in such a highly globalized world.  For the first time, it is not international news, such as a war, that drives down the U.S. stock market.  Instead, it is slowing global growth, not slowing national growth.  Further, there is a free-floating anxiety that global growth is actually negative, meaning a real global recession might be possible.  Possible - yes, anything is possible.  Probable - no!

Making it more difficult for analysts is the lack of quality information about economic conditions in other countries.  Regardless of what conspiracy-theorists in Congress imagine, the U.S. economic data is believable.  On the other hand, Chinese economic data is notoriously skewed for political purposes.  Naturally, this lack of "trustable info" increases the one thing Wall Street hates the most . . . uncertainty!

How long will it take Wall Street to figure out the sky is NOT falling?  I don't expect that before the holiday season begins in late November, when we normally enjoy a "Santa Claus rally," which is my favorite holiday present.  Your's too, I'll bet?

Monday, September 21, 2015

Pandering Season

If Greece is the birthplace of democracy, they failed to teach the U.S. one important lesson - short campaign seasons are a blessing.  Yesterday, Greece held a national election for President.  The people of Greece were able to make a decision in a mere five weeks.  (The recent campaigning for British election was also five weeks.)  Why then does it take Americans 18 months to do the same?  No other sport has an 18 month season.  Our Presidential election is just another sport, isn't it?

We still have to suffer through another fourteen months of meaningless, anti-intellectual pandering before we can vote.  Can we learn nothing from the rest of the world?

Good Custodian !

Like most everything in life, technology is a double-edged sword.  It can open new worlds for you or trap you in a circular hell.  That is especially true for financial advisors.

Since TDAmeritrade is custodian for the funds of my clients, I was pleased to see their technology offerings are the top-rated in the country.  49.4% of all respondents reported they were "very satisfied" with TDAmeritrade's technology offerings, which easily out-paced runner-up Schwab at 39.8%.

Technology is not inexpensive, and I appreciate TDAmeritrade spending enough money to be the best.

Let Him Pray !

We were in Philadelphia most of last week and were quite impressed with all the preparations the City is making before the Pope's arrival this week.  I'm expecting it will be a first-class spectacle and well worth watching.

However, I remember working in D.C. when foreign heads-of-state would visit and the preparations for those visits.  There seems to be a difference, at least to my untrained eye.

Preparations in D.C. were all about security, i.e., closing streets, removing trash cans along the routes, prohibiting parking on certain roads, insuring access to rooftops to post snipers, sealing manhole covers, etc.  Preparations in Philadelphia seem to be all about pageantry, i.e., hundreds of flags and huge banners, large stages with speakers and outdoor video.  That does not necessarily mean Philadelphia is ignoring security, but it does appear that the pageantry is over-shadowing the Pope's security.  Let us pray for a peaceful papal visit! 

Saturday, September 19, 2015

Take It From The Top

When I was a boy, I aggressively pursued learning.
When I was a teenager, I aggressively pursued "wine, women, & song."
When I was a young man in my twenties, I pursued my career goals.
When I was a man in my thirties, I pursued "ostentatious consumption."
When I was a man in my forties, I pursued wisdom.
When I was a man in my fifties, I pursued meaning.
Now, as a man in his sixties, I pursue "continuing education credits" to feed my certifications.

Huh . . . maybe, I should just start all over again . . . ??

Friday, September 18, 2015


Most economists are delighted when their prediction comes true.  While I predicted the Fed would not raise interest rates this year, I was secretly hoping they would - not because inflation was out of control, not because unemployment was too high - but because it would reduce uncertainty and be good for the stock market.

The Fed should be above politics.  Instead, they have become a political football, with much of the Republican party indignant that the Fed even exists.  Democrats are not defending the Fed, meaning the Fed has no defenders.  Raising interest rates by a quarter of a point would not damage the economy in any meaningful way.  Yes, the dollar will rise, hurting our exports.  Yes, it would slow our GDP growth a small amount and world GDP growth more.  But, it would take the heat off the Fed and help preserve an important U.S. economic instrument.

Some cynics suspect the Fed "punted" just before Congress must deal with the budget, as a reminder that fiscal policy is more important than monetary policy.  Congress is too constipated to do the right thing, meaning we have no fiscal policy.  Apparently, the Fed is also too constipated, meaning we have no monetary policy.

Looking at the futures market this morning, it looks like the stock market also wanted an increase, as it appears the Dow will drop about 200 points at the open.  With a rate increase already priced into the stock market, the Fed missed a perfect opportunity to raise the rate.

Other critics of the Fed are complaining that the Fed actually paid attention to the rest of the world, alleging the Fed's two mandates are to reduce both unemployment and inflation in this country.  The Fed has no responsibility for the rest of the world.  However, the rest of the world affects our economy.  Those critics have apparently never heard of globalization.

No change to my prediction - the Fed will not raise rates until next year.

Wednesday, September 16, 2015


Wall Street believes the Fed will raise interest rates modestly this Thursday but rallied in the face of the expected increase anyway.  This is a good sign.  We may witness the market bulls running after the increase is announced, which is the opposite of earlier expectations.

I'm confident the Fed does not want to raise rates, due to political pressure both at home and abroad.  The IMF and the World Bank have asked the Fed not to raise rates, because an economic slowdown here also slows growth worldwide.  Additionally, U-6 unemployment is still 10.3%, which is way too high, although the headline rate of 5.1% is good.  Lastly, an increase in interest rates will cause the dollar to strengthen, hurting our exports.

Of course, Libertarians want the Fed to allow market forces to determine interest rates, because anything the government does is, by definition, wrong and/or stupid.  Who needs the Fed anyway?

No matter what the Fed does on Thursday, it will tell us more about the Fed, than it tells us about the economy or the stock market.

Actually, watching the Fed is a lot more fun and the analysis much more intellectual than anything we will see watching presidential debates.

Tuesday, September 15, 2015

Obsession du Jour

Everybody knows that "Wall Street is always climbing a Wall of Worry."  We sometimes forget that it is a series of Walls.  For most of this year, Wall Street worried about a Greek default.  This summer, Wall Street fretted about slowing growth in China.  Now, we are fixated on the Fed raising interest rates this week.

Since the Fed has long said it will only raise rates when the economy was strong enough, you would think comments by the Fed, that the economy was actually good, would be bullish on Wall Street.  After all, if they said the economy was weak, it would be bearish on Wall Street.

I don't know if the Fed will raise rates this Thursday or not.  I seriously doubt it but hope they do, just to get this behind us.  There are many people on Wall Street who cannot even remember the last time that interest rates were increased nine years ago.  It is an irrational fear of the unknown.

I do know that the economy is strong enough to survive a quarter-point rate increase.  Wall Street knows that as well.  The real fear is that the Fed is launching a series of rate increases to eventually get interests rates up to 3%, which is often called the "terminal point."

This irrationality is why most long-term investors encourage other investors to ignore the "bear-bumps" along the way and hold onto their stocks forever.

Oh, did I mention there will be yet another government shutdown at the end of this month?  It must be time to start fretting about that as well!

Sunday, September 13, 2015

Refugee Tsunami

You would be less than human if you didn't feel some sorrow for the refugees flooding into Europe.  They are mere "collateral damage," which is not an uncommon result of war.  But, that doesn't make them less than human, does it?  That is the moral dimension of this refugee tsunami.

I read an op-ed piece in The Wall Street Journal, alleging it was all Obama's fault for not being a neo-conservative and for not aggressively invading/controlling both Syria and Libya.  That is the political dimension.

I recall the aftermath of the long Algerian War from 1954-1962, when the withdrawal of French forces lead to another refugee tsunami of 900 thousand Muslims from Algeria into France, who was completely unprepared for the onslaught.  The Muslims ended up in French ghettos, where under-education, unemployment, and poverty created a new generation of extremists.  They were not integrated into French life, which was a terrible mistake.  There is a lesson here for all the European nations today.  That is the sociological dimension.

Europe has the same problem as the United States, i.e., they're not manufacturing enough young people to sustain entitlements to old people.  They need young people to have jobs and pay taxes.  Keep the new refugees out of ghettos, get them educated, get them jobs, and - most importantly - get them paying taxes.  That is the economic dimension.

There is no way to avoid short-term pain for Europeans, but they must integrate these refugees quickly to avoid long-term pain for the next generation.  That is the truth. 

Friday, September 11, 2015

Fourteen Years Later

We still vividly remember 9/11.  We had a normal 30-40 minute drive into work, dropping off Renee at her office, before going into my underground parking garage.  Later that morning, a young man who worked for me came into my Alexandria office, saying a plane had crashed into the World Trade Center in New York.  I went online, looking for more info.  Then, we gathered in the conference room to watch the television, just in time to see the first tower collapse into a mushroom of ghostly white dust. 

Being close to Reagan National airport, we noticed we couldn’t hear the normal plane traffic and soon learned why.  Then, we heard the Pentagon had been hit.  I could see the Pentagon from my office window, but was not watching when the plane hit.  Still, I watched the flames and the smoke pouring out of it.  I could see the smoke blowing toward Renee’s office, which filled with smoke.  (To this day, she still wonders about breathing dead bodies into her lungs.  120 people had died.)  Our downtown office was at 15th and New York, with a view of the White House.  Our co-workers there told us people were not merely evacuating but were running out of the White House.  There was a report the Federal Reserve Bank on Constitution Avenue had been struck by a car bomb, which turned out to be untrue, but nobody knew it was untrue at the time.  I gathered my staff around me, saying that America was forever changed, but we would survive just fine.  I ordered pizzas for everybody to eat, so we could watch the TV coverage.  After lunch, I sent them home.

The roads got crowded quickly.  I could see the street below, where people were even driving on the sidewalks to escape faster.  Renee had a doctor's appointment that afternoon, but the doctor called to cancel it, as he was leaving town.  I started to leave the office myself, when the “big cheese” decided to hold a manager’s meeting in my office to discuss the impact on the bank’s business.  I thought this was in bad taste at the time.  Finally, standing up to leave the office, my phone rang.  Quickly, I grabbed it.  It was my daughter in Texas, who had been trying for hours to get through.  She just wanted to know I was okay.  After picking up Renee, it took us 3 ½ hours to drive home.  It was incredible!  Washington was evacuating itself, without being told to do so.  

There was little conversation during those long hours on the road, as we searched different radio stations for news.  Some estimates of the body count were up to 30,000.  Mere words failed us.

My, how the world has changed since then . . .

Bouncing Along

Generally speaking, rules-of-thumb shouldn't be rules-of-thumb.  They often turn something overly-complex into something overly-simplistic.  Nonetheless, they have a purpose when they explain how other people are thinking.

One rule-of-thumb is that stock market corrections (down at least 10%) and bear markets (down 20%) don't bounce off the bottom and then go up.  They have to hit bottom twice.  It is called "testing the bottom."  If it doesn't pierce the previous bottom and then goes back up, we say the bulls are running again.  If it does pierce it and goes lower than the previous bottom, the bears will run until that new bottom is tested.

The current bottom for the broad market S&P 500 was 1,867 on August 24th.  (It is about 1,950 now.)  So far, we have not yet tested the bottom.  That suggests the bulls will not run until we do approach 1,867.  Of course, by that point, many people will be lining up at the window to jump.

When we approach 1,867, don't be scared - just rejoice, because we may just be putting the correction behind us . . . where I like it!

Wednesday, September 9, 2015


A few years ago, a dear aunt got the "death sentence" from her doctor, giving her only 3-6 months to live.  She promptly got into her car and started driving all over the eastern United States to say good-bye to her friends and relatives.  She was not remorseful, but she did feel it was important to put a "finishing touch" on her relationships.  I'll never forget standing on the driveway with her, as she gave me a hug, told me she always loved me, got back into her car and drove away.  She didn't even have a tear in her eye, but I sure did.

Recently, I was visiting with an 88-year-old friend who told me that he had another 18 months to live, at most.  But, he was not upset at all.  He said."the nature of this disease is that I could drop dead at any moment, and that's OK."  He has no fear of death -- just a quiet, almost friendly, acceptance of the inevitable.

She was a born-again Christian, and he is loosely Catholic.  So, religion doesn't explain their emotional calmness in the face of death.  Maybe, it is just the final stage of dying described by Dr. Elisabeth Kubler-Ross in her hallmark 1969 book, On Death and Dying, which she called acceptance.

I think they were closet existentialists, even if they didn't know it.  They were never terrified of death, not just when they faced it.  They were not fatalistic.  They just didn't see the point in being afraid.

Monday, September 7, 2015

Jobs Report -- Labor Day Edition

The U.S. Department of Labor publishes the "Jobs Report" on the first Friday of each month.  It is the most closely watched economic report on Wall Street and often moves the stock market.  The report closest to Labor Day, which was last Friday, usually gets the most scrutiny.

Analysts were expecting 205 thousand jobs were produced during August, but only 170 thousand were actually produced.  However, we learned that the two previous reports had under-reported 44 thousand new jobs.  Also, August has historically been the month most often revised upwards.  The rate of unemployment dropped to 5.1%, and Labor Force Participation Rate remained unchanged.  Lastly, the U-6 rate of unemployment, which includes those people forced to work part-time because they cannot find full-time jobs, continues its long, slow decline.  Overall, the American jobs report was a good report.

So, why did the Dow lose 272 points?  Because good news is bad news.  Huh?  A tighter jobs market makes the Fed more likely to raise interest rates when it meets next week, and the stock market fears that . . . too much.  (Of course, the possible worldwide slowdown in economic growth largely caused by China was also a factor, but certainly not the only factor.)  If the Fed does increase interest rates next week, which I doubt, it will have been the most widely-heralded increase in history.  Wall Street will not be surprised.

I have long argued that the only thing predictable about the stock market is that it will over-react to whatever happens.  For the last three years, the Fed has been promising to raise interest rates when the economy is strong enough.  So, why is it bad news that the Fed thinks the economy is strong?  Will the increased interest costs of one-quarter of one percent actually slow down economic growth?  Yes, but not 272 points worth.  It over-reacted as usual.

For Labor Day 2015, just celebrate the good jobs market . . . but borrow now before rates go up?

Saturday, September 5, 2015

Goldman "Good"

My late mother taught me to never say anything bad about somebody, because everybody has some good in them.  I have found the "good" in Goldman Sachs.  It is their excellent research department!  Here are a few of their latest observations:

1.  The S&P will rise 8.1% to 2150 over the next twelve months.  Asian stock markets will rise 12.0%, and European will rise 14.2% during that time.

2.  The fear that a Chinese slowdown is a risk to global growth is "over-stated."  They estimate China's GDP growth at 6.8% this year and 6.4% next year, compared to the U.S. at 2.5% this year and 2.4% next year.

3.  The dollar will continue to strengthen over the next twelve months -- 4.9% against the pound and a whopping 15.3% against the Euro.  However, the yen will appreciate 7.4% against the dollar.

4.  Oil will rise 23.9% over the next twelve months, and gold will fall another 7.3%.

5.  The Fed will increase interest rates in December, not September.

In addition, they took an interesting look at the relationship between "politics and portfolios," finding the stock market enjoys a "glad it's over" bounce after each presidential election, regardless of the winning party, presumably because it reduces uncertainty.  Annual stock market gains the year after the election have averaged 11% since 1928.

The conventional wisdom has long been that stocks do better under Democratic administrations than Republican administrations.  That is true if you measure the years from the time they take office until leaving office.  However, if you lag that analysis by one year for policy implementation, the Republicans out-perform the Democrats, albeit by a smaller amount.  Bottom Line:  It doesn't really matter!   Try telling a politician that . . .

Thursday, September 3, 2015


Existentialists emphasize self-determination and self-reliance as individuals.  It is consistent with that most popular image of the philosophy as a lone person adrift on an ice floe.  You are on-your-own!  It is all about the individual, not the family, not the village, not part of any identity politics -- just the lonely individual.

The documentary Race to Nowhere by Vicki Abeles is a fascinating look into the amount of emotional pressure on teenagers today, a result of too many expectations.  They are over-worked with homework and over-scheduled with sports and over-anxious about college acceptance.  Oh, by the way, the teenage years have always been difficult enough with social acceptance by peers and with those immature minds inside those mature bodies -- don't you remember?

Although not discussed in the film, I suspect this tendency to over-schedule teenagers grew out of the drug wars -- keep your kids too busy to slip into the drug culture.  You know --"idle hands are the devil's tools" and all that.  It was a moral necessity to keep your kid as busy as possible.  Applying more pressure to get into college also helped keep them busy.  Besides, parents get "bragging rights" about how hard their kids are working.

In addition, "No Child Left Behind" legislation under the Bush II Administration put enormous emphasis on test scores, consistent with our culture of the "metrification" of everything.  There is the belief that everything can be quantified, especially learning . . . or memorizing.

Looking through the lenses of existentialism, I feel the pain of those pressured teenagers, but they are individuals adrift on an ice floe in a cultural river of numbers.  While they must figure it out for themselves, other individuals can throw ropes to the teenagers.  Society is too metrified and cannot help.

I'm glad my teenage years are far behind me.  But, maybe, I could mentor some stressed-out teenager? 

Tuesday, September 1, 2015

Here We Go Again . . .

It gets old, watching the same movie over and over again.  There is a problem, the stock market over-reacts and then goes on to new record highs.  Remember the scary days of 2008 and 2009?

Now the stock market is over-reacting to the slowdown in the Chinese economy, reducing worldwide growth somewhat.  Remember a few months ago, we were over-reacting to a potential default by Greece.  Earlier, we were over-reacting to the Ukraine invasion.  Have we already forgotten when we over-reacted to the Fiscal Cliff?

Of course, it's different this time.  It is always different this time, even if not significantly different.

There is an important distinction to keep in mind.  Slowing economic growth in China, invasions of second- or third-world nations, political turmoil and so forth are all routine, expected, and pose minimal systemic risks for the financial system.  They will always be part of the investing world and can best be described as "buying opportunities."  The distinction is that a financial crisis, such as a Lehman Brothers blow-up or a default by Greece during the early days, can easily dislodge any number of derivatives, creating a potential systemic problem.  This is not the time!

The stock market is expected to lose about 400 points when it opens.  This is not a systemic risk.  This is a buying opportunity!  But, be careful not to "catch a falling knife."