Archive - May 2015

Democrats are moving on a “$12 by ‘20” pitch, whereby they hope to have the minimum wage hiked to $12 within the next five years. The rationale is simple: restore the purchasing power Americans once had and you will restore robust economic growth. Ok, maybe it's not that simple, because as Republicans note, raising the pay floor by nearly 70% may well cost America jobs, thus making things worse for the very people the wage hike was meant to help.

BTFD... in 1-lots...

It is the police department created and controlled for decades by Democratic progressive politicians that has committed the atrocities against the people who have been electing these progressives year after year. Baltimore has a corrupt, reckless, out of control police department enabled by a crooked and incompetent Baltimore politicians. It doesn’t take a village to raze, burn, and loot a village. It just takes 50 years of liberal economic and social policies.

Forget about Peak Oil, the new buzzword is Peak Demand.   In short the oil market is a declining business over the next 50 years ....

U.S. Air Force General and NATO supreme allied commander Philip Breedlove is ratcheting up the rhetoric by suggesting to the Senate that Russia is planning to shatter what remains of the fragile ceasefire in Ukraine by launching an imminent offensive. “Many [Russian] actions are consistent with preparations for another offensive,” the general said, without fully explaining how he came to his conclusion.

Oil prices have tumbled this morning ahead of the Baker Hughes rig count data but algos bounced them after the pace of oil rig count decline slowed further. For an unprecedented 21st week in a row, the US total rig count declined this week (down 27 to 905).  Oil rigs fell 24 to 679 for the fastest total collapse in rig counts in history (down over 57% in 21 weeks). This is a faster pace of decline than the previous week for total rigs but a slower pace of decline for oil rigs.

Just as we warned earlier, the April data is not suggesting the kind of post-weather Q2 bounce in economic growth that everyone is praying for  (or not if you're long stocks). On the heels of this morning's tumble in construction spending, The Atlanta Fed forecasts second-quarter real nonresidential structures investment to collapse 20%, leading to a mere 0.8% Q2 GDP growth estimate (dramatically below consensus hope expectations of 3.3% growth).

So if you were sitting then in the turmoil of the economic upheaval and had to get on the phone to the one person that was likely to get you through the mortgage rates hikes and the jobless rates or the spiraling debt and inflationary pressure, then who would you immediately think of?

We know it's a little early for humor... but seriously, meet Beijing Baofeng Technology...

"It seems logical to assume that absent a major international economic accident, the current Fed is bound and determined to continue stimulating asset prices until we once again have a fully-fledged bubble," GMO's Jeremy Grantham says, reiterating his stance that S&P 2250 marks the point where investors should start to get worried.

While it is entirely likely that "economic bulls" will get a bounce in Q2 and Q3 due to pent-up demand from the previous two-quarters, the strength and sustainability of that bounce will be critically important. After all, in just a few short months, the cold breath of winter will once again be upon us.

"We remain constructive on the US for three reasons: 1) economic data should improve in the next few quarters; 2) the Fed does not seem to be in any rush to move early and a June rate hike seems unlikely; and 3) while investors are focused solely on the first rate raise, we think the overall path higher will be gradual, in contrast to previous rate shifts. These factors should create an environment where growth improves and monetary policy stays flexible, which is generally good for equities (higher multiples notwithstanding). We may follow last year’s playbook and ignore the old adage to “sell in May and go away.”

Investors are clearly in a bit of a no-man’s land of market narrative, with the dollar weakening and U.S. corporate earnings slipping.  Market participants, like all pack animals, appreciate clear direction and leadership – and we don’t have much of either right now. When considering how they will react, we can compare the two competing frameworks for understanding market behavior: the "Random Walk hypothesis" and the "House money effect." The first states that markets move in random patterns, with prior activity having no bearing on future price action. The latter shows that individuals do actually consider prior gains and losses when making economic decisions. Let’s just hope investors hold to their belief that it’s the house’s money at work here, and that they don’t walk randomly out of the market.

April's Manufacturing PMI printed a minimally disappointing 54.1 (against 54.2 prior and expectations) - its lowest since January and hardly the post-weather Q2 surge everyone was hoping for. New Orders and Production were the weakest since December and export business fell for the first time in 5 months and input prices dropped for the 4th month in a row; all leading Markit to demand The Fed remain patient. ISM Manufacturing missed expectations and has not risen for 5 months (its longest streak since the recession) with a contraction in the employment index to lowest since Sept 2009. And then Construction Spending plunged 0.6% (against a +0.5% exp.) - the 7th miss in 10 months and worst April print since 2009.