I am often accused of wearing rose-colored glasses, and it’s something I am proud of whether it’s seeing the best in people or in our country; I am not going to change.

However, that doesn’t mean I am unrealistic about problems; heck, I’ve been talking about them for years.  It’s easy to say that the market will crash one day; of course it will, and then it will come back.

While we wait for that fateful day, there could be a new trend that takes stocks a higher (the bigger the bubble, the better the pop after all).  The great bond rotation that was promised since the start of the great recession could finally be here. I know there have been many false alarms and false starts, as long as there is $12 trillion in negative yields and 2/3 of the developed world’s debt yielding less than 1.0%.

On Friday, as the S&P 500 and NASDAQ reached all-time highs, the ten-year yield popped-coming off a double bottom that was formed earlier in the week.  We will watch this development very closely as there have been a number of times when it looked like bonds were yielding too little and had been rallying too long.

 Equity Rotation

We’re also seeing rotation in equities as the strongest sector on Friday was the weakest; the weakest year-to-date was the strongest. Although financials were +1.9% on Friday, they are still lower for the year, while utilities were the only sector in the red; still, well ahead of the past-year-to-date.  I think it’s time to start to ring that register on those names.

Sector Rotation	Today	Y-T-D
Financials	+1.9%	-1.1%
Utilities	-1.4%	+18.9%

 Campaign Trail

This week, Donald Trump and Hillary Clinton will campaign in Detroit. The billionaire real estate developer will be unveiling his updated tax plan today, along with the former Secretary of State who will make her pitch on Wednesday.  For many, Detroit is the ultimate poster child for the destructive results of progressive policies, which go beyond economics to even things such as education and other issues that impact the quality of life.  (A couple of years ago, reports showed less than 50% of adults in the city  once dubbed the ‘Paris of the West’ were illiterate.)

Interestingly, both Detroit and the state of Michigan have made strides in the last couple of years in total employment and in manufacturing.  Employment is up from the free-fall that marked the start of President Obama’s term in office.  Serious problems include the fact that jobs are still down from its recent peak.

Total Employment Trends	2000 Peak	Jan 2009	Jun 2016
Michigan	4,728,8000	3,863,900	4,390,000
Detroit -Warren- Dearborn	2,213,900	1,783,100	1,966,000

 

Motor City’s Flat Tire

When we think of Detroit, we think of the auto industry and manufacturing. There is the sore point for those that live in the town and for those Americans that once took immense pride in the Motor City.  Many private businesses have begun to move into Detroit; bringing hope, although it’s going to be difficult to employ locals with major employment shortcomings. 

Manufacturing Employment Trends	2000 Peak	Jan 2009	Jun 2016
Michigan	893,700	466,500	596,200
Detroit -Warren- Dearborn	386,100	177,600	239,500

 Pay Recession

While jobs have begun to come back, they are doing so with an unhappy new reality of lower pay.  Although both U.S. and Michigan wages continue to rebound, both (as of 2014) are below pre-recession levels.

Median Household Wages	2008	2014	1 Year Change	3 Year Change
United States	$57,211	$53,657	+1.04%	+0.93%
Michigan	$53,430	$49,847	+1.60%	+2.98

America has mostly benefited from a DNA of excellence and competition, which is a major reason the free-fall stopped and the economy is holding on.  However, regulations and other factors are the reason the economy is barely just holding on; it can all be unleashed.   

Today’s Session

The big news this morning is the rebound in crude on yet another sign there could be some kind of moratorium on crude.  There is scuttlebutt that Russia is ready to put a freeze on production output increases if Saudi Arabia is willing to do the same.  

West Texas Intermediate is bouncing off a double bottom, but is still in a downtrend and it needs to close above $44.00 to gain real momentum.

The big deal of the morning is Mattress Firm being bought for more than 100% over Friday’s close. Although harder to find, there is value out there for sure with lots of upside. 

Comments

Since we will always have problems and challenges in life, optimism is crucial to moving through them. It reminds of a quote I found years ago... The optimist proclaims that we live in the best of all possible worlds; the pessimist fears this is true! Please keep those rose colored glasses Charles, we need the encouragement out here in the trenches! Ray Weldon on 8/8/2016 10:58:12 AM

Please check out my premises and see who is the winner? Trump does not have to put in place any duties on imported products. The more acceptable way is to produce any item for exportation tax free: state taxes, federal taxes, sales tax, in other words all the products that are used to manufacture US products slatted for export are tax free. The states and the fed will tax the income of the US workers. The amount of taxes that are buried in any product is in the order of 30% plus. This will be a huge competitive advantage and no import duties are necessary. We know that 62% of the working population is working; therefore 38 % are not working. The American working force is half the general population, once you remove the retirees and the less than 18 years old. Rounding off the US population at 300 million, 150 million are the working population. 38% are no longer looking for work or 57 million, assume that only 20 million will find work and pay 15% of their income in income taxes. The average income is let say average $50K per years. The potential federal tax revenue is $150 billion. The taxes on US manufactured and consumed US produced products will remain tax as it is today. This tax of $150 billion is only for export products. Why have duties?? By the way, some European countries do that: France! Philippe on 8/10/2016 6:41:43 AM

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