Question of the Week

Theresa May has the swagger of Thatcher but her economics swing towards Sanders. Have conservatives abandoned capitalism?

Yes- to win
Yes- they’ve had an epiphany
No- but needs fixing
No – It’s a myth nothing changing

Irrational Indifference Survey Results for Week Ending 7/6/2016 Data represents what direction members feel the stock market will be in the next six months: BULLISH 31.1% HISTORICAL AVERAGE: 38.5% NEUTRAL 42.3% HISTORICAL AVERAGE: 31.0% BEARISH 26.7% HISTORICAL AVERAGE: 30.5% American Association of Individual Investors

Another day and another record for the Dow and the S&P and yet, there isn’t a lot of celebrating anywhere.  Maybe a generation that’s lived through up to three full-fledged crashes knows better than to get excited or perhaps that generation is missing this ride.

This year has seen anywhere from $2 to $5 trillion in weekly domestic equity mutual fund outflows – and money fleeing foreign markets are mostly finding a home in our government bonds. 

There is no irrational exuberance.

In fact, there has been irrational yawning at best, as bullishness and bearishness are both below historical averages. However, the read on neutral is more than ten percentage points higher.

Of course, many are wondering if it’s too late.

(Hint...it’s not.)

It’s not just investors; the bears have to go back to the drawing board as well. It’s especially painful because the last part of this rally which began after a record-breaking swoon has been in reaction to reports of good or improving data.

The ‘good news’ is the kind that gets the Federal Reserve to hike rates. Of course, less accommodation is supposed to torpedo this rally in a blink of an eye.   Whereas the announcement of the conclusion of quantitative easing and the removal of quantitative easing was going to be the death knell, surely hiking rates would do the trick.

To be sure, the Fed hiked rates in December and the market sank into the New Year, and 2016 began with the worst few weeks ever.  Janet Yellen made her mea culpa-a vow to make sure the data is there before the Fed touches that punch bowl again.

The data is there and mounting.  It cannot be ignored, which explains some of the doom & gloom. There was a time when the market used to wish for and celebrated good economic data.

Instead of going back to the drawing board, market watchers should go back to the past when it was a much simpler task to game the market. 

The Curious Case of Flight to Safety

So, the Bank of England took a powder and our own Federal Reserve is leaning toward hiking rates while the rest of the world’s central banks are, to borrow a phrase from Star Trek: “giving it all she’s got!”  The Central banks of Japan, China, and Europe are not only pumping out the cash but they are ready to pump even harder.  It’s only successful in pushing investors into negative yielding bonds or into U.S. Treasuries. No one talks about the bond bubble, but at some point that Great Rotation happens and THEN all that safe haven money will go into U.S. equities.

Note: I am not sure if American investors will join the ride then either…

World Gone Mad

Q: Who said this?  “A country that works for everyone, not just for the privileged few.” 

A: If you said Bernie Sanders you’re right, but if you said new UK Prime Minister Theresa May you’re also right. She also made the following comments this week:

 “Injustices” of people from poorer backgrounds having less chance of going to university or getting top jobs or even living a long life.”

“Workers being exploited by unscrupulous bosses.”

“Irresponsible behavior in big business.”

“Irrational, unhealthy and growing gap between workers' and bosses' pay.”

I get the political winds and frustration with capitalism, globalism, and trade. I am worried the cure will be worse than the ailment, which really is big government and crony capitalism.

Today’s Session

Our hearts and prayers go out to the victims of Nice, France attack #prayforNiceToday’s Session

Global markets have been under pressure after yet another terror attack that’s left scores of lifeless bodies in its wake.

The US market trying to gain some traction after better-than-expected earnings results from Citigroup and PNC although Wells Fargo reporting in-line results putting some pressure on those shares.

Notes:

Citigroup deposits +3% as reported or 5% constant currency

Wells Fargo lending is higher but more for businesses not individuals.

• Commercial loans $494.5 billion + 12.9%
• Consumer loans $462.6 billion +2.7%

The news really moving the needle for the market, however, is retail sales.  Wall Street consensus called for an increase of 0.1% but the actual result of +0.6%.  Interesting this morning’s report on consumer prices (CPI) shows food prices at home (grocers) -0.3% versus food away (restaurants) +0.2% and coupled with higher gas underscores why restaurant sales lower in June.

Building and Materials continues to surge. Last month was the biggest monthly increase since 2010.

Retail Sales % Change	M/M	Y/Y
All items	0.6	2.7
Auto	0.1	1.2
Furniture	0.5	2.7
Electronics	0.0	-4.7
Building Materials & Garden	3.9	7.6
Grocery	0.3	2.5
Restaurants	-0.3	4.9
Health Stores	0.7	8.4
Gasoline	1.2	-9.6
Clothes	-1.0	-0.9
Department Stores	0.7	-3.7
Internet	-0.3	4.9

I’m not worried about the CPI result although tends in medical care +1.1% mean pressure on consumers that’s not going away.

If the market can make a new high today it will make five straight sessions- the longest streak since 1998. There are headwinds and an urge to cash in but economic data and earnings have thus far shown the rally to reflect the market’s old role as harbinger of things to come not of things that are or were.

Comments

They are not actually conservatives, they are STATISTS in conservative clothing, changing the definition of conservative in classic Orwellian fashion. Daria Schooler (DoctorObvious) on 7/15/2016 9:47:16 AM

I am having difficulty in finding evidence that England is a major economic player. What do they produce? What natural resources are there? What is the National Debt? How much of an impediment is their tax structure? Why did Varney leave? Need answers. z on 7/15/2016 10:30:37 AM

Is it me, or what? I was looking at the photo of the front of the truck and the windshield had some bullet holes, but none on the driver's side. Charles, how did they teach YOU to shoot? Cheers, - Al al M. on 7/15/2016 1:59:02 PM

The DNC is totally responsible for the hilarious and imbecile condition of the Democratic Convention. One, if the Russians did not expose the emails, then the DNC and Hillary have lied once again. Two, if the Russians did expose the emails, the DNC is responsible for not having a secure cyber-system in place. Poor Russia, always getting blamed for something or other. :>). Diane on 7/25/2016 2:04:03 PM

Slow to start but have confidence she will bring the economy to a good place Christina Terrusa on 7/26/2016 12:11:44 AM

Nice Job Chris geno on 7/29/2016 6:28:11 PM

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