Long/Short Equity, Portfolio Strategy
Contributor Since 2008
After a month of lackluster involvement that saw the worst performance for stocks since May 2012,
everyone is back and ready to wait around and see. Probably, there is some pent up demand for stocks, and there will be money applied from fund in-flows, but this September will be all about reaction rather than action. That being said, there are a lot of important economic reads this week that should sway the needle, but the biggie comes on Friday. To set the table, we have to guess at the mindset of the market.
Watching the reaction to news of late it seems the Street has come to grips with the Federal Reserve tapering its bond asset purchases, although I'm not sure why the Fed would alter this form of accommodation if their goal was to fund the government's relentless spending and to spark the housing market. Be that as it may, the sooner the Fed pulls back on the program the better. You must remember or understand Fed tapering is not the same as the Fed raising rates. The ultimate sign the economy can operate on its own comes with the Fed hiking rates, and there is no doubt by the time that happens inflation will be a problem.
But, that's a 2015 problem.
Many market observers speak of the Fed hiking rates as akin to taking off the training wheels, but the fact is any parent will tell you that kids still fall when those wheels are initially taken off. My daughter took to bike riding quickly and needed the training wheels for a couple of days. Her first big push around the park with the basketball and handball court in the center went well except for one corner-a sharp left-handed turn. She fell three times, cried just a little but got back up and soon was zooming around the park making all the turns with the newfound liberation of controlling her own destiny. The Fed is very reluctant to let the US economy tumble through any turns even though it's part of a natural process.
But taking the Fed out of the equation for stocks is the best thing that could happen for investors even if it means we take a few early tumbles from money only parked in stocks for the cloak of Fed safety. Like any weak link, it's best we shed such investors and find true holders and a true bottom. From what I can see, that bottom is near and those weak links are fewer and far between. Still selling begat selling, and the thing the market might dislike more than the notion of the Fed putting risk ahead of reward with its mindless purchase program-uncertainty.
A Month of Question Marks
September 6 jobs report-forget about the Fed and hope for 200,000+ on Friday. The consensus calls for a lot fewer net jobs created, which means the best case scenario is better-than-expected joy over yet another mediocre jobs number.
September 9th Congress reconvenes and there are a ton of fireworks and landmines laid out in front of these guys and gals. First up is the war in Syria. The Obama Doctrine is clear; we will not fight protracted wars or put boots on the ground but will sway and manipulate outcomes by lobbing bombs from destroyers or using drones.
You rack up a lot of kills that way but don't win wars. Moreover, it's very haphazard, creating excessive civilian casualties but that's for people like the Nobel committee to consider, not bleeding heart Americans who apparently go into hiding when there isn't a Republican in the White House. We are simply going to teach Assad a lesson.
Friend or Foe?
In the process, we are aiding an eclectic bunch of interesting bedfellows, many of whom do not have our best interests at heart. Of course cynics say this whole thing is a distraction away from scandals that were heating up and not going away. In fact, some see a direct connection to bombing Syria and the phony scandal of Benghazi.
I'm not sure the GOP will green light Syria, which boils down to mitigating the embarrassment of President Obama.
Then there are very real wars over the battlefields of continuing resolution (must be resolved before October 1st) and the debt ceiling which gets hit mid October. The wars will rehash sequestration and giving White House a blank check. Then there's Obamacare, which kicks in amidst an array of hiccups and false starts.
Then it's back to the Fed, which holds a two-day meeting on the 17th and 18th when they'll have to really make a case for a new normal. If they're taking a victory lap, then it has to be this is the new economy of 2.5% GDP and not enough job creation to cover job entrances let alone the millions that lost their jobs or their will to work.
While America dithers with trying to get government to stop spending money it doesn't have and move out the way so private enterprise can make investments with money it does have there is more evidence that belt-tightening in Europe is beginning to pay dividends. I never liked high taxes that came with so-called austerity on the continent but there was a dose of heavy spending restraint medicine that seems to be working.
The global economy is coming on just in time to prop our sluggish economic recovery.
While global equity markets were melting down last month, actual economies were picking up momentum. Manufacturing data out yesterday points to robust growth in the most unlikely places. The Euro Zone saw overall PMI expansion with the reading at a 26-month high. Note: Greece bringing up the rear but coming on strong and tax-happy France the dog of the bunch.
The sooner all markets can get away from central banks money-printing and focus on the economics of people getting it done in a disciplined yet aggressive manner the better for investors all over the world.
In the meantime, even as global PMIs came in well above consensus (China's 50.1 reading first time in expansion in four months) Morgan Stanley lowered its global GDP estimate to 2.9% for 2013 and 3.5% for 2014 from 3.1% and 3.9%, respectively.
Move Over Bale Boys
It's been a tough week for parents looking to get their children interested in a career other than acting or sports. The Bale boys (no relationship) have it all, and that was underscored when Christian Bale turned down $50.0 million to play Batman again and Gareth Bale got $132.0 million to play soccer (he'll make more in endorsements and is a handsome dude on top of it all). For parents worried their kids are too narrowly focused on future career options you can bring up the name Stephen Elop.
Elop left Microsoft in 2010 to run Nokia (NOK). His tenure at Nokia in my mind was uneventful at best yet Microsoft is paying $7.2 billion to acquire the handset business from the company that was once the world's leader in the space and sported the highest market cap in Europe. Nokia bet it all on the Microsoft operating system so I'm not sure why the company was bought other than as a way of bringing Elop back into the fold and perhaps to elevate the once head of hardware to the role of CEO.
If that's the case then his value exceeds the Bale boys by millions, heck exceeds by billions!
I've been a proponent of Microsoft using its huge cash hoard to make acquisitions rather than higher dividends, but this deal is too expensive and a reminder of the dire striates the company is in and the desperate moves it must make to get back its groove. Of course the move makes more sense than Ben Affleck playing Batman, I would have taken Gareth Bale or maybe Stephen Elop (get him a screen test) before that selection.
Looking at early bump will be interesting to see if it can build momentum. There are still a lot of traders out until Friday morning. Economic data has been upbeat.