Archive - Aug 1, 2013

Presented without justice...

The optics of the GDP report were 'positive' at first blush, but not upon closer inspection. Growth in the second quarter was better than expected. Recovery period growth was revised up slightly. And the Great Recession, while still catastrophic, now shows a modestly smaller decline in output than it did in the pre-revised data. But underlying GDP growth is frustratingly slow. And growth rates in the very recent past were revised lower. But as Credit Suisse notes, this only deepens one of the unsolved mysteries in US data: buoyant payroll job gains of about 200K per month on average in 2013, juxtaposed against consistently tepid increases in real GDP. This is not a typical pattern. It seems our concerns over Obamacare's impact (and the delayed impact of the sequester) are being ignored by the Pollyanna policymakers for now (though they are well aware of the 'born-again jobs scam').

When we as a species use language to communicate and engage with one another, we have a certain understanding that certain words mean certain things. That is the entire purpose of language, effective communication between human beings that can be easily understood. As a result, we should be able to assume that when government bureaucrats utilize words that are commonplace within society, that these words represent specific commonly understood meanings. That would be a huge mistake. Jameel Jaffer and Brett Max Kaufman of the ACLU have compiled an excellent list of some commonplace words used by the NSA to mislead us into thinking they aren’t doing the bad things that they are actually doing. Words such as “surveillance,” “collect,” and “relevant.”

It seems that just like US equities, a rising price for the booze in American's local bar has done nothing to stymie demand. As Bloomberg Businessweek notes, Americans are increasingly ordering the 'good stuff', buying more from the top-shelf than drinkers elsewhere. Among the biggest alcoholic brands, the US is making up a far greater proportion of profits than revenues (e.g. for Smirnoff Vodka, North America was 40% of profits and 33% of sales) as it seems one should never underestimate the consumer confidence of a 'classy' drunk. Beer sales may have fallen 2% but revenues for InBev (for example) rose 1.5% and profits almost 3% - so it seems, at a time of great uncertainty in the US and middle-class 'better bargains', alcohol providers are 'preying' on that stress relief demand.

If there is an investment theme shaping up for Q3 2013, it would appear to be "Go big or go home."  As ConvergEx's Nick Colas notes, that means being maxed out long U.S. stocks, but how broad a net do you cast?  If you only go with the S&P 500, then your July 2013 return was 5.0%.  Not bad, Colas scoffs, until you consider that the small cap universe of U.S. stocks, as measured by the Russell 2000, was up 6.9% this month.  Before you load up on four letter symbols and/or small cap ETFs though, Nick warns that investors should consider that there are several important differences between these alternative universes.  Among the most important (discussed below) are sector weights are very different, with Russell short Energy and Consumer Non-Cyclicals versus S&P; and, the S&P 500 is heavily overweight its top five names (APPL, XOM, JNJ, GE and CVX), which represent 10.7% of the index.  The corresponding weight of the top 5 names in the Russell 2000 (CGSP, ATHN, CVLT, FMER and AYI) is 1.3%. Be sure you know what all-time high you are buying...

In short, pretty much everything.

The bottom line is that Americans are losing more and more of their medical freedom.  By 2015, so many workers will be trapped in the government-run health insurance exchanges that there will be no going back to the private plans we have today. At this rate, single-payer proponents will drive private insurance companies out of business, which has been their intention all along. Obamacare is a hodgepodge of new regulations, requirements, and penalties. Here are the ten most important points that doctors should tell their patients.

With rates rising amid the glorious faith that recovery is upon us, tapering is a storm in a teacup, and nothing can stop us now, we present the dreadful symmetry of the US leverage situation (Federal Debt-to-GDP) relative to rates. We suggest investors be careful what they wish for on 'rotational' fantasies as GDP growth won't save us this time and the deleveraging effect of any serious retrenchment in debt will feedback into the 'credit-is-growth' drain-circling that has been evident for the last 30 years... So, if we do indeed have perfect historic symmetry, what will be the 'event' that takes total US debt from well over 100% of GDP to less than half of that?

Intra-stock correlation of the top 50 market cap names has plunged in the past month. As Citi's Tobias Levkocich warns that suggests that investors might be overly focused on stock picking and have begun to ignore broader influences such as Fed policy, market valuation, European growth trends, economic surprise indices and the like. As performance issues have forced some investors into higher beta areas in order to boost outcomes, one would think that a more precarious correlative environment such as this would imply taking down more aggressive portfolio risk. Given today's ramp in builders and transports, that appears a far flung idea for now...

It was a confluence of magnificent proportions that led six agents from the joint terrorism task force to knock on my door Wednesday morning. Little did we know our seemingly innocent, if curious to a fault, Googling of certain things was creating a perfect storm of terrorism profiling. Because somewhere out there, someone was watching. Someone whose job it is to piece together the things people do on the internet raised the red flag when they saw our search history. All I know is if I’m going to buy a pressure cooker in the near future, I’m not doing it online. I’m scared. And not of the right things.

Just four months ago, the CEO of Titan International laid down some ugly truthiness on the dismal realities in the united socialist states of France. It was not well-received by the French. But it seems we have been too hasty with our prognostications on the hard-working (or hardly working) French. As Reuters reports, despite France's move to a 35-hour week (a flagship of the socialist government) a decade ago, French workers put in an 'astounding' 39.5 hours a week in 2011. While management complain that these policies have bloated labor costs and hurt their ability to compete globally (as Taylor argued), "this is the problem of France. It's cut in half. Half the French are working like madmen to make up for the other half who stick to their hours." But just for some context, this rise in French (average) working hours, leaves them ranked 21st in terms of hours worked per week out of the 27 states that comprised European Union in 2011.

Sustainable?

Lurking deep in the just filed Bank of America 10-Q (alongside data on its quarterly trading acumen which as usual made a mockery of random statistical probability distribution with just 7 days of losses and profits on 57) is this nugget which shows BAC's litigation expenses may be set to surge once more.

We are told that the Chinese do not have any money left, that the coffers are empty and that they will have to go the same way as the US and start printing presses rolling along so that the banks end up flush again and the economy rebounds.

There is one vitally important number that everyone needs to be watching right now, and it doesn't have anything to do with unemployment, inflation or housing.  If this number gets too high, it will collapse the entire U.S. financial system.