Let this note be another ‘Knocker-Up’…
If you haven’t gotten the wakeup call by now, there are plenty of dislocations in the markets. The chart of the US Dollar below remains a long stick that continues to whip commodities, energy equities, and emerging markets equities and debt. Now it is about to knock on the window of the Q3 earnings season. The question is will the strength in the Dollar be enough to break the window or wake investors to buy assets on sale for a Q4 bounce?
Benjamin’s on a rope then…
@EddyElfenbein: Gold has been demoted to second-place at the Olympics. From now on, forward dollar contracts will be given out to first-place finishers.
Ford Motor Company (NYSE:F) ran the U.S. Dollar thru its models and then proceeded to break the window last week…
Ford slashed its projected 2014 pre-tax profit to $6 billion from a previous range of $7 billion to $8 billion, citing in part the economic slowdown in Europe and the emerging markets. Shares of the world’s sixth-largest automaker have fallen 10 percent on the week and are down 15 percent on the month. But while some might be tempted to dismiss Ford’s troubles as simply Ford’s problems, others see them as cause for broader concern. “This is a big deal for U.S. companies that are starting to really start to feel the pain in the bottom line,” said Sanchez, a CNBC contributor. “We’re also starting to see the strong dollar seep in. It’s depressing currencies all around the emerging markets, and that’s also starting to hurt anybody who is selling abroad.
My friends at Leuthold will show you that Stocks prefer a Stable U.S. Dollar…
@LeutholdGroup: #Dollar stability is best for stocks (S&P 500 +10.6% ACR) vs. strong dollar (S&P +4.5%) or weak dollar (S&P +1.8%).
Friday showed us a very strong Jobs report but wage growth was still missing which likely means more of the same for the Fed…
The strong Dollar will help to keep the Fed’s hands folded across their chest…
It won’t be just muted wage growth that keeps inflation tame. The dollar’s recent gains will damp price gains as imports become more competitively priced versus U.S.-made counterparts. Slower growth abroad, particularly in China, will give overseas manufacturers added impetus to cut prices for U.S. market share. Meanwhile, oil and agricultural-commodity prices have fallen sharply. That will weigh on energy and food prices. This disinflationary impulse won’t keep the Fed from raising rates from their current, near-zero level sometime in the middle of next year; if anything, jobs strength argues for the central bank giving a stronger signal of that when it meets next, late this month.
But the stage is set for a pitched debate within and outside the Fed on how far rates should rise. Hawks will point to a strengthening economy as a reason to push rates toward the central bank’s longer-range goal of about 3.75%. Doves will say that until inflation rises to 2%, the Fed is missing on its mandate to bring employment to its maximum level without allowing embers of inflation to glow too hot. They also will point to the dangers of too-low inflation, including the increased risk of deflation when the economy, inevitably, enters recession again
As the King Dollar continues to climb, let’s look at where the damage to assets lies for U.S. based investors…
The good news is that every asset on the above list is still outperforming Bitcoins…
@SoberLook: Bitcoin collapses – down 21% just today and falling
As J.C. Parets notes, Oil Services will need to find a lamp with a Genie in it to save their stock prices given the fundamental and technical damage that has been done to the group…
Here are the Oil Services themselves where we can see that last week prices not only broke the uptrend line from the 2012 lows, but also the horizontal support from prior resistance last year. These are very bearish developments, particularly as it breaks down relative to the rest of the market as seen in the chart below.
Besides the strength in the U.S. Dollar, Oil prices are now wrestling with disagreements at OPEC…
But for U.S. Consumers, falling Oil prices are a windfall. XLY stocks haven’t outperformed yet…
…But if they do, expect Retail Stocks to lead…
Meanwhile, the internals of the market are tapping you to be more cautious. As credit spreads tighten and financial conditions lose some of their velocity, it is the Stocks with the best balance sheets that have moved to outperform…
Also suggesting a more defensive positioning is the continued underperformance in Small Caps…
As Barron’s wrote this weekend, Active Portfolio Managers have had another tough quarter of underperformance…
In a turbulent third quarter marked by new geopolitical crises and continued concerns about the strength of the U.S. economy, stocks eked out a slight gain. But many mutual-fund investors had to console themselves with losses, as actively managed funds, in the aggregate, failed to keep pace. The 8,112 diversified U.S. equity funds, with a collective $5.9 trillion in assets, lost 1.95% for the quarter, while Standard & Poor’s 500 index funds returned 0.99%. This was the first loss for actively managed stock funds since the second quarter of 2012. But it was hardly the first time that active managers failed to beat the broad market; they trailed index funds in seven of the past 10 quarters.
Judging from the direction of fund flows, investors are worried that the bull is getting fatigued, which isn’t so surprising after a five-year run. According to data from Lipper, $12.9 billion flowed out of domestic equity funds in the quarter, while $25 billion flowed into money-market funds, even with interest rates near zero. The move into cash reversed the trend from the first six months of the year, when nearly $150 billion flowed out of money markets.
If you wanted to underperform on the long side YTD, here are some of the assets that you likely owned…
For you Contrarians out there, the CNN Fear & Greed Index hit a recent low last week…
For the week, you wanted to avoid any business that pulled a raw material out of the ground. Take notice that Utilities and Staples were the gaining sectors = RISKOFF week…
More broadly, the U.S. Dollar crushed all of your foreign holdings. Bonds gained but credit spreads widened = RISKOFF week…
Speaking of Bonds, a big win for Muni Bond investors last week as a California judge rules that Muni Bond holders do not have to take a back seat to Pensioners…
On Wednesday, Judge Christopher Klein, the federal judge overseeing Stockton’s bankruptcy, ruled that CalPERS and GO bondholders are both unsecured creditors. Payment of claims to CalPERS will not come prior to those of bondholders in a plan of adjustment; they will be equally secured on the same basis. This is a big deal for three reasons. First, it asserts the power of the federal government in the relationship between state and local governments. We take Klein’s decision to mean that state and local fiscal relationships fall within the jurisdiction of federal courts. This has been called into question by CalPERS who has argued that state law and constitutional protections cannot be altered by federal government. This is very much a 10th Amendment issue. Second, the ruling reinforces the government’s power to amend, modify, and break contracts, a power reserved solely to the federal government under the “Contracts Clause” of the US Constitution. Third, it is a positive for bondholders
15 years ago I knew a good Denver based equity PM who left the business to go help his family buy up Iowa farmland. Not a bad trade…
@PlanMaestro: Farmland ~ you can’t go wrong buying land?
Could not agree more… Bob Iger has killed it as the head of Disney (NYSE:DIS)…
Just how good has Iger been? He took over an incomparable American brand that was doing OK under Michael Eisner (if inviting too much personality drama in the executive ranks) and returned it to a producer of entertainment and financial magic. A focus on durable, cross-platform brand franchises and brilliant acquisitions (Pixar, Marvel, Lucasfilm) has meant an enormous wealth creation for Disney investors. Since Iger became CEO in September 2005, Disney shares are up an astonishing 265%, or 15.5% annualized, compared to 65%, or 5.6% a year, for the Dow Jones Industrial Average.
But as good as Disney has done, even its stock price got hit last week. Is the market trying to tell us that no stock is safe right now?
Time for the ‘Blow Your Mind’ chart of the week…
If you are looking for signs of excess in the world…
@FT: Teatime reading, says Capital Markets Editor @RalphAtkins: the next financial apocalypse is imminent because…
And another: @felixsalmon: The art market in one quote…
“If you don’t know what the price is,” Mr. Deitch told me, “it’s probably $3.5 million. Anytime I don’t know what the price of a painting is, it’s $3.5 million.
Finally, help your kids to LOVE math, science & computers…
Majors that emphasize quantitative skills tend to have graduates with the highest lifetime earnings. The highest-earning majors are those in engineering fields, computer science, operations and logistics, physics, economics, and finance.
If you like the ideas Blaine Rollins shares each week in the 361 Capital Research Briefing…
Then you should learn more about how he incorporates these ideas in the new mutual fund he is managing, the 361 Global Macro Opportunity Fund. Contact 361 Capital or your advisor for additional information.
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