Monday, August 15, 2016

Tell me if you've heard this one "Stocks at all-time highs again..."

So, another day another record as the stock market computer simulation continues its one way march to higher and higher levels.  Since the "catastrophic" Brexit vote in late June stocks have been on a relentless tear higher and have bounced over 10% off the post Brexit lows. 

So, a rational person might ask - wow, what kind of great news is driving this enthusiasm?

Could it be....

* the fact that earnings for the S&P 500 fell about 3% in Q2 on the heels of a 5% decline in Q1 (wait don't we want earnings to be growing?)?

* the fact that companies the S&P 500 have never been more leveraged (ie, they owe more debt relative to their cash flow than at any time in history?)?

* data that shows 8 of the 40 worst months in history for year over year retail sales have occurred in the last 2 years (wait, that doesn't sound good at all)?

* US productivity numbers that fell in the latest quarter dragging the 4 qtr average to 0.175% or basically 0 over the past year (hey, I'm sensing a pattern here - this doesn't sound very good either)?

* the Empire Mfg Survey which slipped back into contraction in the most recent month (contraction is the opposite of growing, right?)?

* signs of a collapsing economy in both China and Japan (oh, I don't like the sound of the word collapsing)?

* tumbling US GDP expectations - down from 3% in January to around 1.6% now?

* climbing oil prices based on hopes and rumors vs. the global oil glut?

 Okay, obviously I'm be a little facetious. The data has been abysmal for the past 6-12 weeks and yet stocks continue to be bid.  The simplest explanation is that there are two pillars holding up the stock markets:

1) The worse things appear in the global economy the more the central banks seem to be willing to do anything to support stock prices.  Unfortunately, there is no model for how to manage the global economy when it's growing 1% and stocks are at all time highs. At some point this experiment will unwind but

2) There is active futures buying occurring every night/morning from 2-3am.  This requires only a little capital to sway the markets that are controlled by algorithmic traders.  Once a direction is established overnight, the programs continue to move the market in that direction after the traditional market open.  Until someone decides to call this buyer's bluff, they recent trend may continue.

It may take something dramatic to move our markets back to a reality based environment but for the time being enjoy the stock market recovery that continues without a true economic recovery.

I'll try to provide a heads up when I think trends are shifting.

Friday, August 05, 2016

Clueless: The Economist's edition

So for the third straight month not a single economist was in the ballpark of the jobs number released this morning.  The magnitude of the "beat" this month will clearly get people excited but since I've been following these reports for close to 20 years I thought I'd share some insight that you might not get from the screaming commentators on CNBC.

Payrolls continue to be driven by voluntary and involuntary part-time work.  This is important because of the way the BLS measures part-time work. If I work job 1 for 15 hrs on the weekend and job 2 for 20 hrs during the week and job 3 for 5 hrs in the evening, most people would say that almost equals a full time job (40 hours) but since the BLS doesn't weed out for duplicate job holders, this person working 3 part-time jobs counts as 3 JOBS for the government statisticians.  It's hard to quantify the impact this is having on the jobs data, but my belief is that the impact is substantial.  As employers look for ways to avoid added costs tied to full-time employees, the percentage of part-time employees has jumped substantially.  However, given our old methods of collecting data I don't believe we're getting an accurate picture of the US jobs market.

We also have to contend with the issue of seasonal adjustments.  Seasonal adjustments make sense as long as they are consistent with those used historically as they allow us to compare July jobs with those in January when the weather impacts are more substantial.  However, this month the BLS seems to have pulled a completely random number out of the air.  The adjustment factor accounted for the majority of this month's outperformance (non-adjusted payrolls added 85,000) and was much more significant than any recent adjustments.  Again, it's too hard for most reporters to provide this level of detail in a 30 second piece on the jobs report but it should give us pause when we see a headline number that varies this much from the underlying data.

Ironically, this "good news" should mean an end of the perpetual panic mode for Central Banks like Federal Reserve and that should remove the bid underneath the stock market.  However, in a very thin Friday session the computers are having their way with the markets and we've pushed through to new highs again (look for a note on how the oil markets were manipulated this week coming soon). 

Thanks again for reading. 


Wednesday, August 03, 2016

Just trust us...

A couple of stories today to highlight the growing reach of corporations and their seemingly never-ending quest to know everything about you.

First, via a group of privacy experts at Princeton comes news that a security flaw that could allow companies to track a user's web traffic via their battery status is actually being used on the web to actually track your user's web patterns.  Some of this is fairly technical but I highlighted the key components.

"Two security researchers from Princeton University have shown that the battery status indicator really is being used in the wild to track users. By running a specially modified browser, Steve Engelhard and Arvind Narayanan found two tracking scripts that used the API to “fingerprint” a specific device, allowing them to continuously identify it across multiple contexts.

 And while it is only tracking scripts using it now, Olejnik warns that unscrupulous actors could do more.

Some companies may be analyzing the possibility of monetizing the access to battery levels,he writes. “When battery is running low, people might be prone to some – otherwise different – decisions. In such circumstances, users will agree to pay more for a service.”

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Then comes news that Comcast - one of the behemoths of the cable/broadband industry - 
is arguing to the FCC that "charging consumers more money to opt out of "snoopvertising" should be considered a perfectly acceptable business model."

Comcast is arguing that protecting your own privacy should be a paid luxury option, and stopping them from doing so would raise broadband rates.  So in their version of the world if you would like to not have Amazon, Walmart, UnitedHealthcare, Pepsi, etc., not receive a notice of every move you make online you should have to pay more for your broadband access.  If the FCC were to allow this line of thinking I imagine our beloved TimeWarner/Charter would be the next in line to apply this logic to your monthly bill.

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Finally, this story on our favorite little vampire squid - Goldman Sachs - who agreed to pay a whopping $36 million fine for leaking confidential Federal Reserve information to clients.  This begs the questions

a) Um, why the **** does Goldman Sachs have "access to confidential Federal Reserve" information?

b) How much incremental business and revenue was derived by Goldman by leaking this information?

However, I'm sure hitting them with a fine of 0.1% of revenues or roughly 5 large bonuses will really teach them a lesson.

Cheers!

I'll have some thoughts on an increasingly dangerous set up we are facing in the global markets soon.