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Marvin R. Clark is the Managing Principal of Monsoon Wealth Management (MWM). Monsoon offers affluent individuals and business owners’ wealth management, economic, and market advice throughout America. Based in Scottsdale, Arizona, Monsoon’s major task is employing a macroeconomic top-down... More
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  • Before The Deluge

    Manufacturing grew in September at the slowest pace in more than two years. The Institute for Supply Management said its manufacturing index dropped to 50.2% last month from 51.1% in August, reflecting a stronger dollar and weaker global economy that is hurting U.S. exports of many major American-made goods. That's the weakest reading since May 2013, although any reading above 50 indicates growth.

    The number of people who applied for unemployment benefits rose by 10,000 to 277,000 in the week ended September. 26, but initial claims remain extremely low in a sign of steady improvement of the labor market. The average of new claims over the past month, meanwhile, fell by 1,000 to seasonally adjusted 270,500.

    The level of new claims sank below 300,000 in early March and has remained there for 30 straight weeks, a feat last accomplished in 1973, when the nation's working population was 40% smaller. Tomorrow morning is the monthly jobs report from the Labor Department.

    Construction spending increased 0.7% in August, and gained 13.7% over 12 months. Residential construction rose 1.3%, while nonresidential construction grew 0.3%. Construction of lodging climbed 2.8% and has climbed 41.4% over 12 months.

    Not all American homes are rising in value and not all markets are experiencing the recovery evenly. According to a report from Zillow, almost 30% of all homes lost value in August from a year earlier; that's down from a high of 65% in 2009, although a normal housing market would be closer to 20%. Overall, the median value of homes rose 3.3% year-over-year to $180,800, but appreciated at half the pace of August 2014.

    President Obama has signed into law a bill that extends federal funding until December 11 after the Senate and the House yesterday passed the proposal, as expected. Had Congress not approved the measures, the government would have shut down today, the first day of the new fiscal year. Republicans and Democrats now have around ten weeks to formulate a long-term budget, with the parties looking to strike a two-year deal.

    Hurricane Joaquin is headed for the East coast, maybe. Where it lands is still uncertain. Joaquin is a Category 3 hurricane with winds of 125 miles per hour and gusts to 155 miles per hour; an increase of the sustained winds to 130 MPH would make it a Category 4 storm. Right now it is hitting the Bahamas and within the next 24 hours, it is expected to head north, possibly hitting the Carolinas, or Virginia, or even making land near New England. The best guesstimates have it headed for New York City.

    If the hurricane heads for the coast, it will lose some of its punch and slow down to a Category 1 or possibly a tropical depression before landfall. Even if it veers to the northeast and heads out into open waters, it is expected to produce serious flooding. Beyond the wind and the rains, there is a strong possibility of waves approaching 30 feet and storm surge of 8 feet.

    Even as the track of the storm is uncertain, the governors of Virginia and New Jersey have already declared a state of emergency. We all remember Hurricane Sandy but if current projections hold, Joaquin won't be another Sandy, but nature is unpredictable. Parts of the eastern U.S. from Florida to New Jersey are under flood watches and warnings today, with more than 10 inches of rain already having fallen in some areas this week.

    The weather is a staple for the commodity markets. The rain and flooding is expected to be a big problem for cotton farmers in Georgia and the Carolinas. Atlantic hurricanes can be mildly bullish for energy markets as oil and gas platforms could be shut down as a precaution. They could also damage infrastructure, such as refineries and transportation. Traders now expect minimal disruptions to energy markets.

    The big three U.S. automakers - GM, Ford, and Fiat Chrysler - reported a jump in September sales as cheap gasoline and ultra-low interest rates drove demand for sport utility vehicles and pickup trucks. Total U.S. auto sales, an early glimpse of consumer spending each month, are expected to have risen about 14% last month.

    According to auto industry consultancy sales got a boost from the calendar, with the entire Labor Day weekend falling in September for the first time since 2012. GM said its total sales in September rose 12%; Ford posted sales gains of 23%; and Fiat Chrysler says September sales were up 14%.

    Deere and the United Auto Workers union have reached a tentative agreement to replace the six-year master labor contract that ended at midnight last night. The deal is for another six years and will now go to a vote of the 10,000 Deere manufacturing staff that the UAW represents.

    Ratification of a contract between the UAW and Fiat Chrysler appears to be impossible after workers at assembly plants in Ohio and Michigan on Tuesday overwhelming voted against a proposed four-year deal.

    Samsung is now accused of Volkswagening its TV's. Yep, that's the new word for cheating on environmental tests. Independent lab tests show Samsung televisions use less power when they are tested for energy efficiency ratings than during real world use. Sweden's government has also been looking into TV's from unspecified manufacturers that "clearly recognize" the video used in testing, and which "immediately lower their energy use by adjusting the brightness of the display" in response.

    Google and Microsoft have ended a long-running patent spat involving about 20 suits in the U.S. and Germany. Microsoft had alleged that Google's former Motorola Mobility unit infringed its IP. Google, which held onto most of Motorola's patents following its sale to Lenovo, alleged that Xbox consoles infringed its patents. Now they've made nice with each other, Google and Microsoft plan to cooperate on various patent issues.

    The Centre for Economic Policy Research says the Eurozone recession is over. Like the National Bureau of Economic Research in the U.S., the CEPR labels recessions based on a variety of economic indicators and not the informal definition of two consecutive quarters of negative GDP growth. The CEPR said the period from the third quarter of 2011 to the first quarter of 2013 represented the second post-financial crisis recession in the Eurozone. The reason the CEPR feels confident in saying the Eurozone is out of the recession is that the duration of the recovery has made up for its slow speed. However, the Eurozone recovery has been "unusually lackluster" by historical standards.

    The third quarter was ugly for stocks, but there were a few winners. More than 3 dozen companies in the S&P 500 posted double digit gains for the quarter. Chipotle, Amazon, and Google posted 20% gains for the quarter. Merger news also pushed some stocks higher, such as Teco, AGL Resource, Cablevision, Chubb, and Molson Coors. Also making the list: Activision Blizzard, Nike, Under Armor, Best Buy, Royal Caribbean, Southwest Airlines, Reynolds American, and Altria.

    Merger activity has been strong in 2015. According to data from Thomson Reuters, $3.19 trillion in deals were announced year-to-date, just 2% below 2007 levels. Many of the transactions were worth more than $10 billion, making up 36.5% of the total. In the third quarter there were fewer deals than in any other three-month period this year, yet the dollar volume surpassed $1 trillion.

    Energy has been the top industry by value, as companies sought strength in consolidation as the price of commodities plummeted. There was also a slew of health care transactions, especially in insurance and pharmaceuticals. Goldman Sachs and Morgan Stanley were the top-ranked financial advisers on these deals.

    Bankers like to make big dollar deals; they don't like to get their hands dirty with smaller loans, but that doesn't mean they won't take a cut. For many years the big banks have bankrolled smaller consumer lenders, also known as payday lenders. In the past they were known as loan sharks, and even as the names changed, the terms did not; these lenders are still charging outrageous rates, sometimes more than 200%.

    But now the Consumer Financial Protection Bureau (CFPB) is starting to tighten regulations on the consumer lenders. The lenders have come under scrutiny for a range of practices that can lead borrowers to believe they are paying far less in interest and fees than they actually are. Now that regulation is getting tighter, the big banks are trying to protect their loans to the subprime lenders; the big change is an amendment that says that if one of the loan sharking companies faces regulatory action that has a material impact on its business, it would constitute a default. And a default would give the big banks the right to seize the lender's assets, at least in theory; or a pound of flesh if it suits them.

    JPMorgan Chase shareholders have won court permission to pursue their securities fraud lawsuit as class action against the bank over the "London Whale" trading scandal, which caused a $6.2 billion loss. Shareholders led by pension funds in Arkansas, Ohio and Oregon alleged that JPMorgan, CEO Jamie Dimon and CFO Douglas Braunstein knowingly hid increased risks at the Chief Investment Office operating in London, including on an April 13, 2012 conference call when Dimon called reports about the synthetic portfolio a "tempest in a teapot."

    It turned out to be a $6.2 billion loss by the London Whale and fallout contributed to even bigger losses for shareholders as market capitalization dropped by $40 billion from April 13 to May 21, 2012. And don't forget the $1 billion in fines reached in a settlement with regulators that included a rare admission of wrongdoing.

    Oct 02 8:29 AM | Link | Comment!
  • Investing Through The Summer Fog Of 2012

    The economy continued to throw off mixed signals for the month of July, whipsawing traders and making investors even more squeamish and paranoid about where to tuck their wealth.

    Added to this seesaw of economic data from everything from July's consumer confidence of 65.9, up from a revised 62.7; the July Chicago PMI of 53.7 up from 52.9.

    The May S&P Case-Shiller HPI 20-city M/M rose 0.9%, however, the Yr/Yr fell 0.7%. The June New Home Sales figure fell to 350k from a revised up 382,000. The M/M Pending Home Sales Index for June dropped -1.4% from a revised downward 5.4% increase.

    The Richmond Fed Manufacturing Index for July fell from -3 to -17. Conversely, the Empire State Manufacturing Survey, Kansas City Fed Manufacturing Index, Philadelphia Fed Survey all improved from the previous month.

    The Dallas Fed Manufacturing Survey, consisting of a Business Activity Index and Production Index, found both indexes falling.

    The knowledge that short-term markets are driven first by news headlines and central bank policies rather than primarily macro and macroeconomic data forces a perverse reaction onto the market in this unfamiliar climate we find our capital in.

    Deteriorating economic statistics brings hope, by some, of additional stimulus measures from the Feds. Today, August 1, the Feds may shed some light onto their contingency plans, if there are any plans, for supporting a decaying economy between now and the November elections.

    If Quantitative Easing III (QE III) or some variation of yield repression doesn't materialize from the Feds, markets will have an excuse to move lower, decaying as well.

    Secondly, European Central Bank President, Mario Draghi, kicked off last Thursday's stock market rally by stating that he will do whatever it takes to save the Euro. A quick recap; in theory, generally, saving the Euro and the EU requires capping rising Spanish and Italian debt yields by the ECB agreeing to purchase their sovereign debt.

    Because of inflationary fears, many German politicians, including Chancellor Angela Merkel's coalition government, vigorously oppose this action and similar bailout schemes. Two days ago, Monday, Treasury Secretary Timothy Geithner met with German Finance Minister Wolfgang Schaeuble and Mario Draghi, reaffirming their commitment in solving this crisis.

    On Thursday, the European Central Bank will hold another policy meeting to find common ground. If the meeting fails to produce the proper response in the eyes of the market, this too will reverse last week's rally and send the market lower.

    A third item that will send stocks lower in August, extending the S&P 500 incarceration in the current trading range between 1,099 and 1,419, if the realization sinks in of the draconian effects of federal budget automatic sequestration.

    When austerity begins appearing in budgeting decisions in government, and workers begin preparing for possible layoffs and downsizing by reducing personal spending, and when businesses relying on government contracts to purchase their goods and services recalculate their cash flow and revenue, GDP will decline.

    The May 2012, G.19 Federal Reserve Statistical Release, dated July 9th, shows "consumer credit increased at an annual rate of 8 percent in May. Revolving credit increased at an annual rate of 11-1/4 percent, while non-revolving credit increased at an annual rate of 6-1/2 percent." It's hard to imagine this type of credit activity continuing in the third and fourth quarters of 2012.

    Our anemic economy grew 1.5% in the second quarter, down from 2.0% in the first quarter, with major help from consumer credit. Subtracting significant credit in the third and fourth quarters will exacerbate any weakness.

    Individual savings rates were reported up 4.3%, annualized, in the first three months of this year, starving an already malnourished economy of vital disposable income. The minuscule interest currently being paid on savings is also problematic for an economy in need of greater money supply velocity.

    An economically weakened Europe and a weakening China will inadvertently push the US economy over the edge unless smaller emerging markets can somehow re-accelerate the global economy while avoiding the developed nations' debt contagion.

    The final culprit with the motive and opportunity to assassinate the economy is stagflation. As 2012 futures' prices on corn, oats, soy beans, and wheat reached multiyear highs, 1,300 counties spread over 29 Midwest states have been declared natural disaster areas by the USDA.

    In the 1970's, President Richard M. Nixon imposed wage and price controls in an attempt to snuff out stagflation and inflation. President Gerald Ford attempted to talk down inflation with a Whip Inflation Now (NASDAQ:WIN) campaign, complete with WIN buttons. Inflation ran rampant throughout the 1970's until a new Sheriff rode into town in 1979.

    The newly appointed Federal Reserve Board Chairman, "Tall" Paul Volcker, ended inflation by jacking up short-term interest rates to 22%. Although, lifting interest rates to nosebleed levels induced at the time the deepest recession since the Great Depression, inflation did not return.

    Another smart decision made by the government at the time was issuing callable long-dated treasury bonds and zero coupon bonds to minimize interest expense. This morning, Treasury announced it is investigating issuing floating rate notes; while interest rates are lower than they have been in the past 100 years. I'm puzzled by such a decision.

    This earnings' season, restaurants such as McDonald's (NYSE:MCD), Chipotle (NYSE:CMG), Buffalo Wild Wings (NASDAQ:BWLD), have admitted to struggles with cost inputs, missing earnings estimates, and are now lowering guidance for upcoming quarters. Food suppliers like Hormel Foods Corporation (NYSE:HRL), Tyson Foods, Inc. (NYSE:TSN), and Smithfield Foods, Inc. (NYSE:SFD) are experiencing these headwinds, as well.

    Brent Crude oil is priced north of $100 dollars a barrel. Members of OPEC require the price of oil to stay north on $80 dollars a barrel to maintain political stability at home. That price level is in conflict with jump-starting the global economy that is continuing to deleverage from the previous decade.

    Regardless, if the price of oil should rise or fall short-term, the global economy will be petroleum-based for decades to come. Therefore, an essential building block for any inflation defensive portfolio requires an integrated oil company such as Exxon Mobile (NYSE:XOM) or Chevron (NYSE:CVX).

    One final thought; although, we have experienced deflation in many things since 2008, technology, of course, real estate and virtually any asset requiring financing, and the cost of capital itself, this economic period will end, too. And once more, we will again face and fight inflation.

    Unappreciated is the two-stage intermediate step between deflation and inflation - stagflation. Ben Bernanke has spent years and trillions of dollars attempting to re-inflate asset prices. One day he will succeed. At that point, Stage One, the rising cost of living, or cost-push inflation kicks in, whereby, too few dollars are available for rising prices.

    Stage two of the stagflation equation is flat wages and personal income. Whether one draws a paycheck from a job or clip coupons from investments, purchasing power begins contracting, not growing.

    This reality of less disposable income relative to prices, combined with an aging population and extended life expectancy is a recipe for structural economic arrested development until we surrender to full-blown inflation in future years.

    Politicians will feel obligated to rectify the former condition and then, the more radical and dangerous phase of inflation occurs, demand-pull, leading to too many cheapened dollars chasing too few goods.

    Confidence or the lack thereof, in a nation's currency, is the thin line straddling inflation and hyperinflation.

    And, it is here, that your portfolio of hard assets such as gold and silver, agricultural commodities providing food security, natural resources such as land, timber, water, energy, selective adjustable rate debt, and very selective stocks, will pay off for the patient, long-term, investor during inflationary times.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Aug 01 12:28 PM | Link | 3 Comments
  • SPY Gains Of The XXX Olympiad

    The long-term bearish market metronome produced by Europe's impotence and incompetence and Spain's acknowledged insolvency, rounding out the PIIGS (Portugal, Ireland, Italy, Greece, and Spain) destiny, is neither surprising, or, heretofore, improbable. Spain is now headlining the limited engagement of southern European sovereign nations surrendering to the Über rich EU member, Germany.

    Yet, angst-filled equity investors in Europe, and here in the U.S., remain engaged in stock trading; Friday's close before the Greek election saw the European Indexes, FTSE 100, DAX, CAC 40, TR Europe, all higher. The major U.S. averages also rose.

    The bondholders of PIIGS unsecured debt obligations await their probable near-term default and surely inevitable write-downs. Regrettably, for this non-fictional, Shakespearean Mediterranean tragedy, even the wishful powers of the European Central Bankers (ECB), International Monetary Fund (NYSE:IMF), and European Monetary Union (EMU), on a scale of Greek mythological proportions are insufficient.

    From CNBC, Wednesday night: Moody's Investors Service cut its rating on Spanish government debt by three notches on Wednesday from A-3 to Baa-3. Moody's rating puts it one notch above junk status. Standard & Poor's rates Spain two notches higher at BBB-plus with a negative outlook.

    Egan-Jones also cut Spain's sovereign rating to "CCC+" from "B," pushing the country's debt deep into speculative territory. The rating cut, Egan-Jones's fifth for Spain this year, carries a "negative" outlook.

    Fitch Ratings cut Spain's rating by three notches on June 7 to BBB, one notch above Moody's, and put a negative outlook on the credit.

    All eyes will be on Greece on Sunday, waiting to learn if the New Democracy Party can overcome inroads made last month by the Coalition of the Radical Left - the Syriza Party, to form a coalition government. If the Syriza party should win enough seats for form a government, they have pledged to reject the negotiated austerity terms for the Greek bailout funding but will not exit the EU.

    France's Legislative Second Round election results will show if the Socialists have taken control of the government. Both countries' elections occur on the same day.

    Over the past two years, knowledgeable talking heads had informed us that Greek and Portugal insolvencies were complicated but manageable. However, if the banking crisis reached Spain, then, its economy was too large and any effort to contain this contagion would be overwhelmed. Well, that time has come. Spain officially asked for a €100 billion bailout. They are insolvent.

    Terms of the announced bailout package for Spain is structured loosely on the Ireland model. The double quote below, the first from Gluskin Sheff of David Rosenberg, and the second from the blog site Zerohedge commenting on Rosenberg's comment succinctly summarizes the folly of this and other rescues:

    Rosenberg - When you realize that of the potential $100 billion to spend, 22% of that has to be provided by Italy and their lending to Spain is at 3% but Italy has to borrow at 6%. They have to lend to Spain $22bn at 3% - it is just madness. Everybody is getting worried again. The solution that they seem to have come up with seems to be worse than the problem in the first place.

    Zerohedge - As we have pointed out vociferously over the past few days, even though the assistance is being earmarked for the banks, the Spanish government assumes the responsibility and so this once 'low national debt' sovereign is following in Ireland's footsteps as its debt/GDP takes a 10pt jump to 89% (based on the government's data) and much higher in reality (when guarantees and contingencies are accounted for).

    Unfortunately, the EU's Long Term Refinancing Operations (LTRO), or European Financial Stability Facility (EFSF) or European Financial Stabilization Mechanism (EFSF), or its successor entity, the European Stability Mechanism (ESM), cannot create a Deus ex mechina that will successfully reverse more than a decade of relentless debt issuance.

    If the too big to contain (OTCPK:TBTC) equation about Spain was true two years ago, it's no less true, today. Taken all together, this vortex of the western financial system is a continuation of the crisis and fallout from 2008. Greece is in a depression. Europe will soon enter a depression. No one is talking about or thinking about growth which is the only remedy to cure excessive debt.


    A fortnight ago, we stared into another abyss after receiving the latest monthly economic reports on real estate and non-farm payroll. This humbling report card of doom and gloom was sandwiched in-between periods of misplaced optimism about the outcome of Europe's banking crisis and wishful thinking of future global growth.

    On June 1, treasury rates made their final approach and landed into the history books reaching 1.45% on the 10-year note and 2.51% on the 30-year bond, exceeding the previously all-time lows reached in the fourth quarter of 2008. Gold also awoke from its $1,500-$1,600 dollar trading range to the upside that Friday.

    Helping precious metals and treasuries move were two previous months' downwardly revised already punk GDP data, fulfilling a realization that a new Fed punchbowl must be prepared for the economy by those wanting a soft landing. Meanwhile, Presidential hopeful, former Massachusetts governor Mitt Romney chances for defeating Mr. Obama and capturing the White house in November are brighter than ever.

    In recent testimony before congress, Fed Chairman Ben Bernanke downplayed any urgency in enacting Quantitative Easing III (QE III). One member of congress suggested during an exchange that the fed should remove the punchbowl from the table; you can be sure that it will remain. Since, without QE III, many politicians and many portfolio managers alike fear for their jobs; and a prone economy, too.

    On June 19th, the Federal Open Market Committee (FOMC) two-day meeting begins. Opinion is split as to whether or not an announcement regarding QE III will be made from this gathering. Throughout the rest of June economic data should experience an elevated sensitivity because the current atmosphere of presidential politics supercharges all things economic.


    The U. S. stock market has given us over the past six weeks all the thrills of a summertime Six Flag amusement park ride. This serrated performance of risk on/risk off greed and fear rests upon the painful to watch unraveling of the EMU. Only in these perverted times does bad news make the stock market happy.

    Therefore, I think, the U.S. equity markets will climb this particular wall-of-worry and a summertime rally will emerge, albeit in a saw tooth pattern, if only because so few people believe that it can or should. This is how market rallies start. The stock market is as much a psychological and emotional occurrence as any endeavor imaginable.

    The S&P 500 Index 52 week range is 1,074.77 - 1,422.38. The close on June 13th was 1,314.88. Its 6-month high was 1419.04 and low was 1205.535, a ten handle move on the index before Labor Day is not unreasonable.

    On a technical basis, the S & P 500 has bounced off of the 1,280, 200 DMA, and is now approaching its 50 DMA, at the 1340 area. A summer rally can encompass a rotation in stock leadership as portfolios move away from exposure to Europe. If, and to what degree, the Supreme Court ruling against The Affordable Care Act (Obamacare) before the court adjourn this summer could force the market to make allocation adjustments in the health care sector is another material event.

    The market can ignore reality (bad news) for weeks, sometimes months, at a time. This summer's rally may take out the year's highs and may be the last opportunity for money managers to enhance long returns in 2012. One or both might be true.

    When the stars and stripes are waived in London at the Games of the XXX Olympiad this summer, and gold, silver, and bronze medals for individual effort and achievement are being collected by young men and women on behalf of our republic, we will lay down our various political blood sports, for a brief moment, anyway, and swell with national pride.

    Two of the best bull market rallies over the last 30 years occurred in the summer of 1984, during the Los Angeles hosted Olympics, and in 1996, during the Atlanta, GA hosted Olympics. As with this month's the Queen's Diamond Jubilee celebration, America will be standing with the UK from the opening ceremony, as allies, friends, and cousins. On this level, we share the 2012 Olympics.

    Is a summer rally certain because the nations around the planet are watching their fellow countrymen represent and excel in their sport of passion, as a payoff for years of dedication through their blood, sweat, and tears, while also inspiring the next generation to compete and succeed? No; past results do not guarantee future results.

    Show me a coherent rationality in a de-levering world of microscopic interest rates promoting austerity programs that allegedly spurs economic growth. How sane is the issuance of derivative contracts with a notional value several times over total global wealth.

    What is, but hope, an insolvent global banking system that extends and pretends the day of reckoning, and a financial world that believes somehow, someway, helicopter Ben will save the day.

    We all need to believe in something. This summer, I believe in an S&P 500 Olympics rally.

    Let the games begin.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Jul 27 5:47 AM | Link | Comment!
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