Wednesday , September 18 2019
Home / oldprof

oldprof



Articles by oldprof

Weighing the Week Ahead: Is Falling Confidence a Threat to Markets?

3 days ago

The economic calendar is more important than usual. There is an emphasis on housing data as well as reports on leading indicators, industrial production, and regional Fed surveys. The most important story of the week will be the Fed’s Wednesday rate decision. Market prices imply a high probability of a 25 basis point rate cut. Many market participants are counting on the Fed, but the real question is broader. Pundits should be asking:

Is falling confidence a threat to markets?

In last week’s installment of WTWA, I asked whether it was time to worry about crowded trades. That was indeed the question on financial news to start the week. Hunting for Cheap Stocks is Back in Favor. A massive market rotation called into question much of the “wisdom” of the last few months. Interest

Read More »

Weighing the Week Ahead: Is it Time to Worry about Crowded Trades?

10 days ago

The economic calendar is normal with an emphasis on the consumer. Both PPI and CPI data will be reported, but little change is expected. Central bank fans will have to make do with the ECB Thursday announcement. Democrats will have another debate on Thursday (now down to only ten on stage!) but it is too early to think about policy effects.

In the last two weeks the market rebound has included a change in tone. Thinking about this during my recent travels it seemed a bit like a puzzle. There are pieces of evidence that we have been monitoring for many months. A broader discussion has emerged in the financial media, leading pundits to wonder:

Is it time to worry about crowded trades?

In last week’s installment of WTWA, I discussed whether Presidential politics might change the

Read More »

Weighing the Week Ahead: Can Presidential Politics Change the Course of Economic Policy?

16 days ago

The economic calendar is among the biggest, but politics and personalities are playing a larger role in financial news. With the upcoming Democratic debate and increasing criticism about the economy, we have an unusual situation. Normally, the economic situation is taken as given and the politicians respond. This year we have a very different question:

Can the political debate change the course of current policy?

In last week’s installment of WTWA, I took a break from our travels to update the indicators and identify a few key issues. My general idea was that the reaction to the tweetstorm of ten days ago might give policy a nudge in a new direction. The reactions continued, but the policy effect, if any, is unclear. We did learn that the current environment does not lead

Read More »

Weighing the Week Ahead: Can Feedback Alter Trump’s Course?

25 days ago

The economic calendar is significant, but fundamentals are taking a secondary role. The Friday Presidential tweetstorm raised uncertainty on trade, the global economy, Fed policy, taxes, and traditional alliances. Attention now turns to the reaction.

Can the widespread negative feedback alter President Trump’s course?

In last week’s installment of WTWA, I focused on the recent inversion of the yield curve and the upcoming meeting in Jackson Hole. That was a good guess for the top market issues until Friday morning. With Chairman Powell’s speech in the books and markets calming, the tweets began. The trade war moved a notch higher, and that was only one of many issues.

I always start my personal review of the week by looking at a great chart. This week I am featuring

Read More »

Weighing the Week Ahead: Is the Yield Curve Inversion on the Jackson Hole Agenda?

August 18, 2019

The economic calendar is very light with reports on only three days. Existing and new home sales reports could be interesting and there are many fans of the leading economic indicators. The combination of empty airtime and some Fed news is like an aphrodisiac to the pundits, all of whom are self-affirmed experts on the Fed. The week includes the minutes from the recent FOMC meeting as well as the annual Jackson Hole Symposium. The theme, Challenges for Monetary Policy, could include nearly anything. The full agenda is announced on Thursday and we know that Chairman Powell will speak on Friday morning. Since market commentators believe that the Fed should focus on the most recent market concerns, I expect the question:

Will the yield curve inversion be part of the Jackson Hole

Read More »

Weighing the Week Ahead: Get Out, Hide Out, or Ride It Out?

August 11, 2019

The economic calendar is normal, featuring housing starts, retail sales, and Michigan sentiment. The CPI will be important someday, but only when it breaks the recent path of gentle increases. With summer vacations in full swing (even Congress is on a five-week recess) the punditry turns to tried and true topics – the spike in volatility, mistakes by the Fed, how near is the next recession, and how the bull market will end. Whatever the subject, the answer is often a call to action. Expect the pundits to be looking at the week behind to find material for the week ahead, asking:

Should you get out, hide out, or ride it out?

In last week’s installment of WTWA, I summarized what we learned from an especially jam-packed week of news, and then asked whether the facts changed your mind?

Read More »

Weighing the Week Ahead: Have the Facts Changed Your Mind?

August 4, 2019

The economic calendar is one of the smallest of the year. With last week’s market decline and increased volatility, pundits who are not on a summer vacation can do some navel-gazing and reconsider their conclusions. Or not. Most will be highlighting evidence that makes them seem smart, of course. What they should be asking is:

Did any of the new information change your mind?

In last week’s installment of WTWA, I described the four risky hurdles facing the market. My purpose was to provide a framework for analyzing the avalanche of news and data we would see in a very short time. The market did well with the early hurdles but failed to jump all four. I found last week’s matrix table helpful as I watched events, and I hope you did, too.

I always start my personal review of the

Read More »

Weighing the Week Ahead: Four Risky Hurdles

July 28, 2019

The economic calendar is massive, and that is just the start. Earnings season is in full swing. US/China trade talks resume. And finally, the FOMC announces its interest rate decisions. Expect plenty of commentary on the individual news items, but the real question is:

How deftly can the market leap the four hurdles? (Data, Earnings, Fed, and Trade = DEFT).

Investor need a framework to interpret the breaking news.

In last week’s installment of WTWA, I drew upon some recent articles from others to address the question of “dumb money.” There were some excellent reader reactions, especially on Seeking Alpha. I hate it when blogs start name calling instead of analyzing data. The authors’ time would be better spent taking a deeper look at their own methods. As I suspected, the

Read More »

Weighing the Week Ahead: Are You Part of the Dumb Money?

July 21, 2019

The economic calendar is light but includes some home sales data and the (old news) Q2 GDP first estimates. Fed speakers will be on the sidelines for the pre-meeting quiet period. Earnings reports remain the most important fresh data for both traders and investors. And of course, there is always the chance of a tweet or two.

In quiet times the punditry loves to look at the markets through the prism of a bull-bear debate. I am seeing some new takes on both sides, but the most colorful is the question:

Are you part of the “Dumb Money?”

In last week’s installment of WTWA, I asked how much global economic weakness was affecting corporate earnings. We still don’t have a definitive answer to that question, but it certainly was a hot topic. FactSet’s John Butters reports that earnings are

Read More »

Weighing the Week Ahead: How Much Has Economic Weakness Hurt Corporate Earnings?

July 14, 2019

The economic calendar is normal and includes several important reports. I am especially interested in the housing data and retail sales. More important than the economic data is the start of earnings season. With everyone convinced about economic deterioration, expect the pundits to be asking:

How much has the weak global economy affected corporate earnings?

In last week’s installment of WTWA, I asked who was really running the Fed. That was a good forecast for the week’s theme. CNBC led with similar stories at the start of the week, and the discussion continued through Thursday’s Powell testimony. Bloomberg and online financial publications also featured the issue of Fed independence. This was also a question during the hearings, as Powell was asked what he would do if the

Read More »

Weighing the Week Ahead: Who Really Runs the Fed?

July 7, 2019

The economic calendar is modest with a focus on monetary policy. Minutes from the last FOMC meeting, Congressional testimony by Fed Chair Powell, more inflation data, and continuing discussion of Friday’s employment report all put the Fed in focus. In addition, President Trump has identified interest rates and Fed policy the “most important problem” facing the nation. Pundits and financial media will follow that lead, raising the question:

Who is really running the Fed?

In last week’s installment of WTWA, I predicted that the improvement in the US/China trade debate would spark an initial rally, only to be met by objections. As the rally faded on Monday, you could check off each of the viewpoints I said we would hear. As the week progressed, the emphasis on spinning held true. The

Read More »

Payroll Employment Data: You Can’t Believe Your Eyes

July 4, 2019

The payroll employment report is regarded as the most important economic news of the month. It is also the most misunderstood.

To illustrate, please consider this chart. Does it represent a relatively straight line?

More about that below, but first we need some background.

Each month the Bureau of Labor Statistics makes an estimate of the entire number of payroll jobs in the U.S. By subtracting the estimated total for the prior month from that of the current month, they calculate a net change in payroll jobs. It is this change that is the center of attention for financial markets. It is often wrongly cited as the number of jobs created. No! It is the net effect of jobs created and jobs lost. Creation and destruction are each over 2 million per month, so the net effect is

Read More »

Weighing the Week Ahead: Chinese Fireworks?

June 30, 2019

The economic calendar is a big one, featuring the employment situation report on Friday. The rest of the data – ADP employment, auto sales, and the ISM surveys – will be released over 2 ½ days. The US Independence Day celebration on Thursday will provide one type of fireworks. And of course, we have Canada Day on Monday. The combination of events, data, and the calendar make the week ahead even murkier than usual. I expect an initial focus on the US/China trade truce, a shift to discussion of the implications for Fed policy, and a fast exit for the beach. The all-important employment report will be covered by the “B Team” with further reaction next week.
This leaves the remaining pundits to sort out the implications of the trade truce:
Will the market see fireworks from the trade policy

Read More »

Weighing the Week Ahead: Can US/China Trade Talks Save the Global Economy?

June 23, 2019

This week’s economic calendar is important, including reports on personal income and spending, consumer confidence, and the Fed’s favorite inflation indicators. Despite this, the punditry will be looking toward the week’s end and news from the G20 meetings. Naturally, we can expect some advance leaks. Everyone will be wondering:

Can a US/China trade truce boost the global economy?

In last week’s installment of WTWA, I questioned the ever-growing Fed mandate. While not phrased exactly in those terms, much of the last week’s financial commentary had a Fed focus. Somehow, most have come to believe that this is the fundamental force behind financial markets – whether driven by opinion, the President, or financial futures.

Whether you agree with this conclusion or not, it is important

Read More »

Weighing the Week Ahead: A De Facto Expansion of the Fed’s Mandate?

June 16, 2019

The economic calendar is normal, highlighting housing data, leading indicators, and the FOMC decision. The pundit conversation remains all about the Fed, but a new angle is getting more attention. The talking heads will not raise the question explicitly – sticking to personal ideas of what the Fed should be doing. The implication?
Are we witnessing a de facto expansion of the Fed’s dual mandate?

In last week’s installment of WTWA, I guessed that, despite the economic data, the punditry would be focused Fed policy and how it might affect stock prices. That was indeed the headline for both news articles and TV segments. The speculation continued all week, and will no doubt continue this week as well.

I always start my personal review of the week by looking at a great chart. This week

Read More »

Weighing the Week Ahead: Should Investors Bank on the Fed?

June 9, 2019

The economic calendar is important, featuring inflation data, two elements of the NBER “big four,” consumer confidence, and the JOLTS report. Those needing a fix of FedSpeak are out of luck since it is the quiet period for them. The data all point to an intersection between economic strength and the Fed. The question for stock investors will be:
Should equity investors rely on the Fed to support stock prices?

In last week’s installment of WTWA, I expected a search for meaning in the conflicting market messages. I also predicted that developments on the imminent tariffs on Mexican trade would be our biggest “tell.” Markets certainly found a direction, but there is no consensus on meaning. No one really knows what to expect next.

I always start my personal review of the week by

Read More »

Can the Market Rally Without FAANG?

June 7, 2019

The market rally has occurred without much help from FAANG stocks (Facebook, Apple, Amazon, Netflix, and Google). Financial media, with the typical hunger for a story, asks, “Can the market rally without Apple (AAPL).” The entire FAANG group is frequently suggested as an alternative proposition.
The question rests on the hoary market concept of “leadership.” In order to simplify the daily news, financial pundits create armies of bulls and bears. These require stocks that are leaders and bellwethers. This makes for interesting news, but it has little basis in fact.
My research shows significant over-valuation at the top of the S&P 500. This has been exacerbated by market-weighted ETF trading. As the over-valued leaders are replaced, sometimes involving a dramatic fall, the underpriced

Read More »

Weighing the Week Ahead: Is there Any Sense in the Conflicting Market Messages?

June 2, 2019

The economic calendar is a big one, including the major employment reports and the ISM indexes. In normal times, this would be the theme. But these are not normal times. Fed Speakers will be on the trail with every casual utterance parsed by algorithms and traders. The debate over the most recent tariff announcement will grab headlines. And who knows what the next tweet might be?
The punditry will operate with advocacy in mind. Instead, we should all be asking:
Can investors make any sense out of the conflicting market messages?

In last week’s installment of WTWA, I said that a “sputtering economic engine” would be a big theme during the holiday-shortened week. That was pretty accurate, as was my comment that “any tweet or Pres. Trump’s visit to Japan might spark a trading move.”

I

Read More »

Weighing the Week Ahead: What Should We Make of a Sputtering Economic Engine?

May 26, 2019

The economic calendar is normal but we have a holiday-shortened week. We can also expect a slow return from the weekend marking the unofficial start of summer. Despite the interesting calendar, the biggest economic news will come in two weeks. While any tweet or Pres. Trump’s visit to Japan might spark a trading move, the key question is one of analyzing recent trends. We should all be asking:
Do current trends imply a sputtering economic engine?

In last week’s installment of WTWA, I described a very light calendar with few planned events. This suggested a “quiet” week ahead. So much for that conclusion! The trade war give-and-take was not a surprise, but the gap opening on Monday came from information known the week before. Theresa May’s resignation was probably in the cards, but

Read More »

Weighing the Week Ahead: What Determines the Agenda for Investment News?

May 19, 2019

The economic calendar is one of the lightest, and a long holiday weekend impends. How will this news vacuum be filled? Probably with celebrity news, following the latest tweets, analyzing any new Democrats running for President, and interviews with B-level guests. Rather than guessing which of these will dominate – an exercise in futility – I will take the suggestion of a wise reader. He encouraged me to choose what I thought was most important. That was good advice. We should all be asking:
What determines the agenda for investment news?

In last week’s installment of WTWA, I noted the big economic calendar and the abundance of news. My surprising conclusion was that there was a stalemate on all fronts. The tweeting and news-driven market moves continued, but there was little real

Read More »

Weighing the Week Ahead: Stalemate?

May 12, 2019

The economic calendar has plenty of important data. Fed speakers will be on the circuit. There is plenty of political and geopolitical news. On all of these fronts we see a stalemate.

(Learn more about stalemate tricks from Grandmaster and PhD mathematician Karsten Müller)
The financial punditry will ask:
What does political stalemate mean for financial markets?

The President “marveled” at how one of his tweets seemed to move the stock market! (Business Insider).
Paul Schatz (Heritage Capital) writes:
After 30 years in the business, I keep saying that few things surprise me anymore, but I have to say that watching traders and market participants glued to Twitter for any sign of tariff walk back by the president is certainly a first for me. I can’t imagine what the great investors of

Read More »

Weighing the Week Ahead: Should Investors Fear A Market Top?

May 5, 2019

The calendar is modest, with the big reports all hitting last week. Investors will never have more current information on the economy, the Fed, corporate earnings, and various risks than they do right now. It is difficult to guess what the punditry will do when given an open slate. We should be asking:
Should we fear a market top?

In last week’s installment of WTWA, I took note of the avalanche of relevant data, suggesting that it was time for some synthesis and analysis. I didn’t expect any help from the pundits, who analyzed piecemeal as expected. I hope that readers did better by using my suggested framework. More about that below.

I always start my personal review of the week by looking at a great chart. This week I am featuring Jill Mislinski, who packs a lot of relevant information

Read More »

Weighing the Week Ahead: How to Watch the Information Avalanche

April 28, 2019

The calendar is massive, and it comes at a crucial time. I have never seen so much fresh information in a single week: the biggest economic reports, the heart of earnings season, and an FOMC meeting. And that is without any Washington surprises.
It is a week where we should be paying special attention. Even though the pundits will report story-by-story, astute investors should wonder:
What can we learn from this avalanche of new evidence?

In last week’s installment of WTWA, I asked why the market was so quiet, reviewing several possibilities. This was indeed a topic of significant discussion during another quiet week. Also, as I predicted, some jumped on the idea of a lull before the storm. As I wrote on Twitter, if you seek omens, you will find them!
One example was some research

Read More »

Weighing the Week Ahead: Why is the Market so Quiet?

April 20, 2019

The economic calendar is light so attention will again focus on Q1 earnings reports. Non-financial news will, no doubt, take center stage. The biggest market story seems to be the lack of action, as shown in our updates below. That might be fine for you and for me, but not for the punditry. They are all scratching their heads in wonderment, asking:
Why is it so quiet?

In last week’s installment of WTWA, I suggested that the general focus would be on Q1 earnings and possible confirmation of recent economic data. There was a lot of competition from important non-financial news, but the earnings stories got plenty of play.

I always start my personal review of the week by looking at a great chart. This week I am featuring Jill Mislinski, who packs a lot of relevant information into the

Read More »

Weighing the Week Ahead: What Will Q1 Earnings Reveal About Economic Strength?

April 14, 2019

The economic calendar is normal and includes some important reports. Despite this, the data will be overshadowed by Q1 earnings reports. With opinion sharply divided on future economic prospects, many will want to know how companies are doing and what their leaders think. They will be asking:
What will Q1 earnings tell us about the strength and prospects for the economy?

In last week’s installment of WTWA, took note of the persistent discussion about the end of the economic cycle. Despite some of the typical crowding out from political stories, that topic got continued attention. On Friday, the story took a new turn as a touch of positive economic news from China was enough to tilt opinion. I agree with Eric Basmajian that we need to look beyond the PMI reports for real evidence. He

Read More »

Weighing the Week Ahead: Are We Near the End of the Economic Cycle?

April 7, 2019

The economic calendar is normal with an emphasis on inflation and sentiment data. None of the big reports is on the calendar, leaving pundits free to take up the biggest current issue. They will be asking:
Are we near the end of the economic cycle?

In my last full installment of WTWA I asked whether the Fed would hint at a new course. Impressions from the meeting were mixed. It has remained a prime topic of conversation fueled by Presidential tweets, comments, and potential Fed appointees.
In my “vacation edition” I summarized the most important aspect of the Fed meeting as well as the unusual reaction of the markets. I promised that I would write something if an important issue arose. The questionable analyses of the yield curve fit the bill.
I followed up with Making Sense of the Fed

Read More »

Weighing the Week Ahead: An Avalanche of Housing Data

March 24, 2019

It is a big economic calendar with almost every report on housing released in a single week. This is the result of the shutdown delay. Now we can get more clarity on this important sector. Pundits will be asking:

Are lower mortgage rates helping home sales?

In last week’s installment of WTWA I suggested that we watch the Fed for hints of a new course. That was an accurate prediction, since there is now a clear signal of a pause on interest rate hikes. More than that, the Fed seems to have recognized a problem with their model of low unemployment implying incipient inflation. Fed expert Tim Duy explains the significance of this change.

It is hard to understate the importance of this shift. The Fed’s models haven’t worked this way in the past. In previous iterations of the

Read More »

Weighing the Week Ahead: Will the Fed Hint at a New Course?

March 17, 2019

With a light economic calendar including a lot of old data and an FOMC meeting, the choice of focus for pundits is obvious. Investors might well wonder what new information about the Fed might be available, but that won’t stop the speculation. Pundits will be asking:
Will the Fed hint at a new course?

In last week’s installment of WTWA I took on a very ambitious question: Would a slowing Chinese economy lead to global recession. Since you could write a book or two on this topic, I acknowledged that it was much too big for a WTWA theme. So why bring it up? I am dedicated to highlight an important issue each week. It was the facile explanation in a declining market but got less attention during a week of rallying. The punditry seemed confused about market strength in the face of

Read More »

Weighing the Week Ahead: Will Slowing Chinese Growth Spark a Global Recession?

March 10, 2019

We have a big economic calendar with some reporting still catching up from the government shutdown. Inflation data, small business and consumer confidence, and retail sales lead the list. In addition to the U.S. economic data, there is increasing concern about China. Pundits are wondering:
Will weakening Chinese growth drag the world into a recession?

In last week’s installment of WTWA I suggested renewed attention to what was “baked into” current market prices. While the topic attracted frequent mention, the daily market declines and political news attracted more attention.

I always start my personal review of the week by looking at a great chart. This week I am featuring Investing.com. In addition to several choices of index, they include versions for both cash and futures. The

Read More »

Weighing the Week Ahead: What is “Baked Into” Current Market Prices?

March 3, 2019

We have an important calendar with employment and housing news. Some important market worries have been avoided, at least for a time. What is behind the rebound in stocks. Trying to explain the reasons for changed market perceptions is a wonderful topic for pundits! Anyone can play since no credentials or expertise are required. Everyone can have an opinion. There is no way to determine who is right. I expect many to be asking:
What assumptions are baked into current market prices?

In my last edition of WTWA (two weeks ago) I questioned whether those who had inferred economic disaster from December’s stock decline now had a different viewpoint. That was a good guess. The daily commentary, while still featuring recession stories, has taken note of the new market mood. On to the

Read More »