Tuesday, June 24, 2014

Good Morning America, How Are You?

Yesterday I went fishing with my brother.  I am sad to report we were skunked.  I'm happy to report it was good to be outside breathing clean air and taking in the sunshine.   The river was still too high to fish the still water, and we probably should have used a drift boat.  

Small Business Outlook

Summary: 

·         Yesterday was a see-saw small range low volume day.  The news was plentiful, but the action was non-existent (in my opinion).  S&P closed down slightly as well as the DOW.  NASDAQ closed up a little.  VIX closed up a bit, but it is still finishing near multi-year lows.  If you read my "take" on the markets yesterday, I suggested this was what would happen Monday.  " Friday's stock market activity was nearly non-existent.  Look for more of the same today.  "

·         Treasuries were in the same funk as the stock markets. 

·         I think I will repeat this from yesterday:

o   The media and talking-heads will engage in their favorite sport - second guessing the Federal Reserve.  Everyone with a microphone will expound on the question: Is the Fed "behind the curve"?  My take:

§  The Fed continues to attempt to increase inflation, and there are still major deflationary factors at work.  The Fed uses PCE rather than CPI.  PCE is showing less inflation than CPI.

§  The Fed does not use commodity prices to indicate inflation.  They view moderate inflation as manageable, and much less a threat than trying to fix deflation. (I would concur, while we all know hyper-inflation is not controllable either.  A fine balancing act to be sure.)

§  The Fed policy will tolerate a 2.5% inflation rate on PCE. 

§  The Fed's mandate does not protect emerging markets (such as the Ukraine and the article from MarketWatch indicates they should have.  The Fed does not protect savers, and we all know that after 6 years of stimulus.

§  The Dual Mandate is inflation and employment - not anything else. 

§  Food and Energy are noisy components of inflation, and they do not relate to the mandate.  They cannot control draught or disease in pigs with interest rates.  The same for Foreign Affairs.  They cannot control foreign affairs with interest rates. 

§  Policy does not shift on monthly changes in their data.  Much longer term trends are required.  (However, as with all these points, information is now immediate world-wide, and trends.

·         Did you see Citigroup's report on China?  wow... hard to believe.  Citigroup says they are bullish on renminbi, and that they see China's growth stabilizing.  They believe a cyclical rebound is underway in China, and because of this rebound, the Renminbi/Yaun will gain 3% this year.  That is the first positive report on China I've seen in a long time. 

·         Gold continues to get a boost from the Middle East crises of the day (or each second actually as a new one crops up moment by moment).  We'll see, but once rhetoric calms down a bit, investors will get complacent again.  Again, who really knows what is going to happen in the Middle East, but it worries me more when Russia and USA exchange barbs, and China pushes it military agenda in the South China seas.  Those problems cannot be hidden forever by the Middle-East.  The political situation in the world remains dangerous and volatile.  But then that has been true for some time, and precious metals remained in the doldrums. 

·         As of 6:30 AM PDT, the S&P 500 futures market is just about at where it opened last night.  DOW and S&P will open down.  Expect price to close the gap (go up), and wait for the 7:00 AM PDT news.  For your information the Case-Schiller HPI was announced at 6:00 AM PDT.  It missed expectations badly, and home-price growth slowed sharply.  Was it the weather?  No, finally, analysts are mentioning negative signs are popping up all over the USA.  News reports on Bloomberg, Wall Street Marketplace and Yahoo seem to be lacking at this point regarding home sales.  The pundits may be waiting for the New Home Sales at 7:00 AM PDT and the Consumer Confidence Report.  The Consumer Confidence is expected to rise.  How in the world consumers are more confident is beyond me.  Inflation for consumer goods on a major scale is everywhere, and story after story shows pay is going down; productivity is going down; and home prices are on the verge a downward cycle.  How can consumers be so confident?  I tell you what it is:  "Obama koolaid" even though the President's approval rating is nearing zero.  (Or more accurately, it is the Federal Reserve koolaid that keeps confidence high.)