What Comes Down Must First Go Up
Here’s a good question: What does the contrarian do when someone nicknamed “Dr. Doom” turns bullish on the economy? The Financial Times argues that American stocks are likely to continue their momentum in 2014 and that the market will “melt-up” into a bubble that could burst sometime possibly 2 years from now. Bulls still feel pretty confident about historically low bond yields and also don’t seen any rabid froth coming from retail investors yet. Speaking of which, less than 40% of Americans think that the stock market is a good investment. Also, the market has its own momentum and we haven’t seen any volatility which normally accompanies the end of a bull market. Moreover, money market funds are sitting on record amounts of cash. Finally, and perhaps most importantly, Yellen seems like she isn’t raising rates anytime soon and excessive stimulus should continue. Speaking of interest rates, here is a great outline of the composition of nominal interest rates – one part “real interest rate” (the rate at which a society is able to transform “goods today” into “goods in the future”) and one part inflation rate. So if inflation looks stable, a rise in interest rates should indicate more demand from businesses to borrow funds to expand and grow and hire; all of which make the bullish case stronger. What might stand in the bulls way? Disappointing earnings for one. As the economy continues to recover it will be interesting to see which companies set their earnings higher or lower than expected. Also, stocks dropped on the first day of trading in 2014 yesterday which may not bode well for the January Barometer.
There is a pretty blatant “TEAM ‘MERICA!” bias going on in this article, but it does point out a pretty startling figure about how much Russia has spent on hosting the Olympics in Sochi: “At $51 billion, the Sochi Games are the costliest ever, surpassing the $40 billion spent by China on the 2008 Summer Olympics.” Also, in case you missed it: two suicide bombings in Volgograd on Sunday and Monday killed 34 and have “intensified fears of terrorism following a threat earlier this year from a Chechen extremist group to use “maximum force” to disrupt the Olympics in February.” As goes with any act of terror, most people just want to know why there, why now? Especially so in this case, however, since Volgograd is 14 hours away from Sochi and this is a month earlier than the Olympics. Perhaps the best explanation: “Terrorists carry out dramatic acts of violence to attract attention to themselves and their causes and to create an atmosphere of fear and alarm.”
What Does a Cockroach Like Most of All? A Place to Hide
SNL Financial: “the country’s five largest banks (JPMorgan, BofA, Citi, Wells and USB) own 44% of the industry’s total assets. That continues a march higher that has been going on since at least 1990, when 9.67% of the industry’s total assets came from the top five banks…While some observers had predicted a wave of M&A among smaller institutions to deal with the increased regulatory costs, those deals have failed to ‘move the needle’ in terms of asset concentration.” Meanwhile, FINRA is squashing bugs on Wall Street: the regulatory authority “is forming a six-member team to examine the activities of stockbrokers with long track records of violations and investor complaints, including those who move from one troubled firm to another, a practice known as cockroaching in the industry.”
The Pipeline and Hazardous Materials Safety Administration is reinforcing their requirement that all crude oil shipments by rail should be “properly tested, characterized [and] classified” before they go hurtling into a Canadian nightclub.
The rich are no longer pretending to be poor: high end luxury cars like the Mercedes SLS AMG ($237,000) and the Rolls-Royce Ghost ($300,000) are leaving luxury auto lots faster than you can say “trickle-down economics.” Eric Shepherd, President of Rolls-Royce America says, “our customers never lost the ability to buy. They may have lost the appropriateness to buy.”
National Bureau of Statistics: “The official purchasing managers’ index (PMI) for the non-manufacturing sector dropped to 54.6 in December from November’s 56.”
Markit: “The euro zone’s manufacturing sector expanded for a third straight month in December, despite further weakness in France…The final December manufacturing purchasing managers index rose to 52.7, unchanged from the preliminary reading and up from November’s 51.6.”
NAmerica: Household Moving Migration Patterns