Praying That The Oil Dividend Will Kickstart The Virtuous Cycle
As always, Dr. Ed Yardeni nails the current macro environment: “There has been quite a bit of skepticism about the likelihood that ultra-easy monetary policies in Japan and now the Eurozone will do much to lift their economies…The question is whether the devaluations of the yen and the euro will boost exports in Japan and the Eurozone. Maybe so, but their gain could be some other economies’ loss. In particular, US exporters could suffer if the greenback continues to strengthen. However, that could be offset by stronger US consumer spending and home building.” Observe: “The dollar’s surge is reducing earnings at American companies from Procter & Gamble Co. to Pfizer Inc. and DuPont Co. that make a large portion of their revenue abroad…While 76 percent of [the S&P 500] companies have beaten analysts’ estimates so far this earnings season…the dollar’s advance is making American goods and services more expensive overseas, eroding sales.” Meanwhile, “consumer confidence jumped to 102.9 (alt) in January from a revised 93.1 in December, first reported as 92.6. The index is at its highest since August 2007, the report said. Economists surveyed by The Wall Street Journal had forecast the latest index to rise to a more modest reading of 95.1.” Also, new home sales made big gains in December: “rose 11.6% to an annualized pace of 481,000…Expectations were for new home sales to rise 2.7% in December.” But here’s what nobody was expecting this morning: durable goods “declined a seasonally adjusted 3.4% (alt) in December from a month earlier…That marked the second consecutive monthly drop. Excluding the volatile transportation sector, orders dropped 0.8%. Economists surveyed by The Wall Street Journal had expected overall orders to rise 0.3% last month.” Keep in mind that “broader trends show a modest pickup in demand for durable goods. Orders rose 6.2% in 2014 compared with 2013.” Meanwhile, “BP will freeze salaries (alt) across the company this year in the latest move to cut costs by an oil major to address the impact of the plunge in oil prices in recent months.” Which really highlights the other (unspoken) major question on everyone’s mind: Are lower oil prices really, truly better for the global economy? Maybe that’s the reason why Yardeni says “On balance, the plunge in oil prices should be stimulative for the global economy.” Here’s another way to look at it: “Main Street and Wall Street are looking at the world in much different ways…Consumers are likely feeling better about the future since gas prices have collapsed. On the Street, the savings are called the ‘oil dividend’ and many investors are waiting to see how investors may spend the money.” Meanwhile, the 10-year is at (drumroll please) 1.764%.
“It isn’t hard to imagine a scenario where the federal government ends up with a budget surplus thanks to a combination of a stronger economy, higher remittances from the Fed, and a shrinking primary deficit. Amusingly enough for the politically-inclined among you, these cyclical forces will probably all culminate around the time of the 2016 elections.” Meanwhile, the Koch brothers are preparing to spend nearly $1 billion to get a Republican in the White House.
“It goes without saying that finance and technology, which together represent over 42% of current U.S. corporate earnings, are two sectors that we should keep a close eye on going forward. Changes within them have driven the profit margin expansion of the last several years, which itself has driven the bull market, having made possible a ‘goldilocks’ scenario in which earnings have been able to grow robustly despite slow top-line growth and almost non-existent inflation.”
“As Starbucks did for coffee, Chipotle and Shake Shack have changed people’s expectations of what fast food can be. The challenge for the old chains is that new expectations spread.”
People are REALLY trying to use the
snowstorm icepocalypse in the East as a scapegoat for other things right now. Go ahead and ignore it.