This Week’s Message…

So last night, while driving home from the office, I’m listening to CNBC Asia. The guest, an American analyst, or guru, told the story of a U.S. economy that is on the cusp of recession and a Fed that was not only not going to raise its benchmark interest rate this year, but that there’s a 50% chance that they’ll cut it back to zero at their December meeting. He contended that the dollar’s going to tank and the yen is going to rally hard. “Go cash and gold” were his parting words, then came the commercial break.

So I hit my car radio preset that sends me to Bloomberg Radio — in the evening you get Bloomberg Asia. Their guest, an American analyst, or guru, told the story of a U.S. economy on the upswing and a Fed that’ll very likely raise its rate this December. He contended that the dollar’s risk is to the upside and that the yen is destined to finally do what the Bank of Japan has been efforting mightily to make it do, tank! His advice was, if recollection serves (the message from the CNBC guy seemed to stick harder with me), to stay long global equities and beware the bond market and gold.

So what — amid such divergent expert commentary — is an investor to do? Well, let’s first distinguish investor from trader, and ask, what’s a trader to do? Well, let’s first distinguish between short-term traders and long-term traders, and ask, what’s a short-term trader to do? My advice for the short-term trader (someone trying to make money today) is to completely ignore others’ opinions and stick to whatever technical strategy (chart lines and such) you’ve adopted.

Okay, so what’s the long-term trader to do? Well, let’s first identify the time horizon of a “long-term trader”. Being that the term “trader”, to me anyway, denotes short-term by nature, if we’re to distinguish among traders based on time horizons, I’d say a “long-term” trader is someone who gives him/herself, say, one to six months to work with on any given trade. For that individual I’d say stick with your technicals and, if you’re so inclined, track the economic data yourself — and forget the gurus!

Okay, so now, what’s an investor to do? Well, I’d love to say forget the gurus, stay diversified, re-balance periodically and enjoy the iPhone 7 when you can get one (that last quip speaks to the rush we’re seeing and to the contradiction it poses for guru #1 above) — so I’ll say it; forget the gurus, stay diversified, re-balance periodically and enjoy the iPhone 7 when you can get one!

I know, you want more! If only to get a feel for what to do when you’re due for your semi-annual (or whatever interval) re-balancing. For you, therefore, it’s not about the technicals, it’s about the data.

So here are the guts of my September trends file — from the first of the month to yesterday:

The following is how I titled each piece that I deemed worthy of devoting to this month’s file:

  • Stocks have tended to rally the first half of September and tank the second half, historically speaking.
  • Bank stocks, globally, exhibiting strong technicals.
  • Volatility, the world over, is very cheap at the moment (pertains to options pricing).
  • The dollar — per its typical relationship to interest rate differentials — should either rally from here, or interest rates are due to fall.
  • Economic surprise indices have turned lower, across the globe, the past few weeks.
  • GDP trackers show good Q3, but a trailing off for Q4.
  • U.S. personal income and spending solid, however, pce inflation still not showing up.
  • August jobs missed, but July revised higher by 20k. Augusts have have tended to get revised higher as well.
  • Wage growth in August was modest, hours worked was weak.
  • Employment in the 18-34 year-old cohort is rising, as is employment for the “under-educated”.
  • 7 of the 20 cities in Case-Shiller’s Home Price Index have surpassed their all-time highs.
  • Eurozone sentiment indicators, both individual and industrial, make a notable move lower.
  • ISM Manufacturing survey scores in contraction territory.
  • Brazil’s industrial production, currency, stocks and bonds rise in the wake of Rouseff’s impeachment.
  • Canadian stocks doing well amid higher commodities prices.
  • S. African Reserve Bank ups its growth forecast for the country.
  • Money rushing back into gold ETFs as fed hike risk dims.
  • Canadian Central Bank doubts growth going forward, loonie takes a hit on that headline.
  • The German DAX Index is positive year-over-year. Lead by automakers (ironically given weakening economic signals of late). The weak signals have depressed the Euro, which bolsters the outlook for the multinationals (i.e., automakers).
  • Draghi to cite Brexit as undercutting stimulus measures: Which allows him, in my view, to keep the pumps running.
  • IMF and World Bank are very concerned with global protectionist sentiment. As am I!
  • Britain scrambling to make trade ties in the wake of Brexit.
  • JOLTS (job openings and labor turnover) report shows strong U.S. labor market.
  • High yield spreads have tightened measurably across the board since last year’s big spike. But, except for staples, still have room to rally (in price) to get to tightest levels of the past year.
  • Oil rallies hard on huge 12 million barrel draw in inventories (weather).
  • Yuan selling pressure on strong daily fixings shows pent up selling demand.
  • China will beat up on yuan bears at least until October (when it’s included in the IMF’s SDR basket).
  • Options traders are betting that the dividend trade is ending. That’s actually a bullish sign for the economy considering the rotation to tech.
  • China’s export and import numbers improving.
  • ISEE call/put ratio flashing bullish signs.
  • Framing lumber price trend bullish for single-family housing construction going forward.
  • Relative (to sp500) strength in staples and discretionary is an ominous sign re; the consumer.
  • Foreign markets trading better than U.S. of late.
  • China’s and India’s charts (stocks) remain bullish.
  • Most commodities in decent up trends.
  • History suggests that the Fed may hike despite softening data.
  • Jobless claims remain crazy bullish, in terms of what they signal for the U.S. jobs market.
  • U.S. job openings at all-time high.
  • U.S. layoff rates at lowest level ever! Another strong statement about the labor market.
  • ISMs tank! Paints a surprisingly mixed, to negative, picture against other data.
  • The consumer credit picture looks quite good overall.
  • AAII sentiment weakening, that’s good!
  • Yale’s sentiment reading is generally bearish, that’s good!
  • Pound’s drop exacerbates picture for UK inflation.
  • China online retail sales growth up 26.7%, but that’s a slowing.
  • Analysts bullish on Brazil, Russia and Indonesia debt on prospects for aggressive monetary easing.
  • China’s improvement hinged highly on govt investment, while private sector isn’t participating; tough picture as they attempt to rebalance and open new investment channels.
  • China shadow banking slowing amid regulatory moves, but remains too fast and loose for comfort.
  • U.S. consumer income growth was very positive in 2015, particularly among low income earners, minorities and women.
  • U.S. poverty rate dropped measurably in 2015.
  • JP Morgan expanding big-time in China.
  • Trump’s threats would deal a monster blow to China trade. So, if China was a problem for U.S. markets last year, you ain’t seen nothing yet! Thus, highly unlikely those threats will be carried out should he win.
  • Substantially higher container throughput at the world’s largest transshipment point (Singapore) is a good sign for Southeast Asia, and world trade in general.
  • Retail sales disappoint with 8 sectors declining and 5 advancing month over month. Bars and restaurants, and clothing, had best showings. Miscellaneous and building materials the worst.
  • Online retail off slightly month over month, but up 10% year over year, vs 1.9% for brick and mortar.
  • Philly Fed Business Confidence Survey beat, but the internals weren’t great. However, manufacturers are upbeat going forward.
  • The Producer Price Index, while suggesting faster core inflation going forward, poses no threat of influencing the Fed to hike rates.
  • The 2s/10s Yield Curve signaling extremely low odds of recession in the near future.
There! Now you have the cold hard data. So now you know where guru #1 (the doom and gloomer) is coming from, right? Or, depending on how you filter the world, maybe you know why guru #2 is so optimistic. Seriously, both blokes have access to all of the data that you and I do, and we should presume they’re assessing it. Which is precisely why we should dismiss those who would profess to know precisely what’s next.
As for yours truly, allow me to offer my current economic assessment (we’ll save my sector analysis for another day [so not much rebalancing help this time]) by contrasting our two protagonists. I’ll assign guru #1’s opinion a 1 — on a 1 to 10 (gloominess to rosiness) scale — and guru #2’s a 10. The above data, filtered through my personal filters, presently places me — imprecisely of course (I don’t want you dismissing me) — at around a 6.839, give or take. A month or two ago, I might’ve been a 7.527, roughly. 🙂
Near-term bottom line: I’ll be surprised if the Fed hikes in September. And I see — barring some exogenous shock (never know!)— a zero chance, a la guru #1, of a rate cut in December. For now (only for now) I see maybe 60/40 odds of a December rate hike.
Have a great weekend!
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