November 14, 2014

Stocks are mixed in early trading (Dow -14 pts; SPX flat). Many of the cyclical sectors (industrials, tech, discretion) are higher. Healthcare and consumer staples stocks are falling into the weekend. WTI crude oil bounced a bit (now at $75.20) this morning after hitting a fresh four-year low of $74.20/barrel yesterday.

Speaking of oil, the Int’l Energy Agency (IEA) says falling prices show no sign of turning around. Weak demand, lots of supply and a stronger dollar are to blame. By the way, CNBC reporters were lamenting the fact that they are having a difficult time finding any interviewees from Wall Street firms who’ve actually “been right” about oil. Almost no one predicted the sharp drop in oil prices.

US consumer sentiment rose to 89.4 this month vs. 87.5 expected. That’s a 7+ year high for the index, which has been boosted by an improving job market, and falling gasoline prices. But while overall expectations rose, it’s interesting that “most households still expect a declining standard of living.”

Retail sales were up .3% m/m in October, slightly better than expected. Excluding gasoline, sales rose a very strong .6% in the month. On a year-over-year basis, retail sales (which account for 1/3 of total consumer spending) are up 3.3%. One of the floor traders from Wunderlich Securities told a CNBC reporter that “The real trade will be when everybody wakes up and realizes lower oil prices are a tailwind for the consumer.” He believes that fact is not yet priced into the stock market. We did get better than expected third quarter earnings from Wal-Mart yesterday, and that’s quite a departure from the norm over the last several years.

The Import Price Index reminded us this morning that inflation just isn’t a factor in this economy. Prices for imported goods fell 1.3% month-over-month and 1.8% year-over-year. That the largest decline in two years. The simple fact is that over the last half-year the US Dollar has appreciated roughly 10%, and this is making imported goods cheaper.

Third quarter mortgage delinquencies dipped to 5.85% of all outstanding loans, from 6.04% in the prior quarter. Delinquencies haven’t been this low since the end of 2007.

We got some economic data from Europe this morning. Eurozone economic growth (GDP) rose .2% following .1% in the prior quarter. Germany and France posted GDP growth of .1% and .3%, respectively. So for all intents and purposes, Europe has flat-lined. “We see a picture confirming an outlook of weak growth but with limited risks of a relapse into recession,” says the chief Euro economist at UniCredit Global Research.

The head of O’Leary Financial Group addressed Alibaba (BABA) on CNBC this morning. He’s not touching the stock until the company 1) announces a plan to begin returning cash to shareholders (i.e. dividend), and 2) proves it can grow free cashflow. “All the rest is crap…”

September 12, 2014

Stocks opened lower this morning but quickly turned around and starting filling in the gap. The Dow is off 25 pts and the SPX is down .27% at the moment. Financials is the only sector in the green. Energy and utilities are getting hammered as the dollar strengthens. Not surprisingly, oil and gold prices are lower on the day. The VIX Index is hovering around 13 and VIX October futures are steady at 14.6. Bonds are lower on the day as yields rise. Believe it or not, the 5-year Treasury yield shot up to a 1-year high of 1.81%–hence the rise in bank stocks this morning. The 10-year Treasury yield surged to a 2-month high of 2.61%. Bloomberg blames this move on speculation the Fed will begin raising short term interest rates sooner than expected based on today’s retail sales and confidence data. So it looks like this is a good-news-is-bad-news day.

US retail sales rose .6% m/m in August, in line with economists’ forecasts. Excluding the more volatile autos & gasoline categories, sales rose .5%. In addition—and just as important—July retail sales were upwardly revised to a .3% m/m gain from the initially reported flat reading. Very few sub-categories declined, suggesting consumer spending improvement is pretty broad-based. On a year-over-year basis retail sales are up 4.1% in August (the highest since July of last year). The upward revisions will be an addition to third quarter GDP. In fact, some economists are saying GDP could touch 3%. So this is a big deal; about 70% of our economy is driven by consumer spending. As an aside, I’ll point out that overall wage growth of 4.3% y/y pretty much matches consumer spending.

US import prices fell .4% y/y in August after rising .8% in the prior month. Prices for imported oil and natural gas have obviously fallen, as well as building materials. Prices are rising for agricultural goods and durable goods. But the bottom line is that we are not importing any inflation.

The University of Michigan Consumer Confidence Index rose to 84.6 this month from 82.5 in August. This reading is significantly higher than economists were expecting. It’s the highest reading in over a year, and very close to a post-recession high. Bloomberg cites the reasons for improving consumer attitudes: “continued progress in the labor market, gains in stock portfolios and a decline in gasoline prices.”