Financial Review

Thursday, May 29, 2014 – First Quarter GDP and Extreme Weather

First Quarter GDP and Extreme Weather by Sinclair Noe   DOW + 65 = 16,698 SPX + 10 = 1920 NAS + 22 = 4247 10 YR YLD + .01 = 2.44% OIL + .79 = 103.51 GOLD – 2.70 = 1256.90 SILV + .02 = 19.14 The economy was worse than expected in the first quarter. The first estimate of first quarter gross domestic product showed 0.1% growth. Today, we got the second estimate and it showed 1.0% contraction. We figured the second estimate would show contraction but most estimates were calling for just 0.1% to 0.6% contraction. The newly revised estimate incorporates additional economic data released in recent weeks. Higher-than-expected imports and slower-than-expected inventory growth dragged the economy into negative territory.   US based corporations posted slightly lower, after tax, seasonally adjusted, first quarter profits of $1.88 trillion for the quarter, down from $1.905 trillion in the fourth quarter; but those numbers were not adjusted for inventory valuation and capital consumption adjustments; we know corporations are still holding bloated inventories. A big buildup in private inventories boosted economic growth in the third quarter of 2013, but left a hangover that weighed on growth in the first quarter of 2014. Inventories subtracted 1.62 percentage points from GDP growth, compared with an initial estimate of 0.57 percentage point subtracted from growth.   Business investment declined at a 1.6% pace, revised from an initially estimated decline at a 2.1% pace. Spending on structures fell at a 7.5% pace and spending on …

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Financial Review

Wednesday, May 28, 2014 – Reflecting the Economy

Reflecting the Economy by Sinclair Noe   DOW – 42 = 16,633 SPX – 2 = 1909 NAS – 11 = 4225 10 YR YLD – .08 = 2.43% OIL – 1.03 = 103.08 GOLD = 4.70 = 1259.60 SILV – .01 = 19.13   The major stock market indices were lower, but it wasn’t a big move, and we’ve been 4 up days, so today’s pullback was nothing but a pause. What was interesting today was the move in the bond market. The yield on the 10 year treasury dropped all the way to 2.43%; that’s the lowest rate in almost a year. The 10 year treasury has dropped 22 basis points this month, meaning treasuries are on track for the best month since January. Now, remember that the Federal Reserve is supposed to be tapering, cutting back on large scale purchases of treasury bonds.   What’s fueling the move? It’s hard to pinpoint one thing. Europe is facing some sort of monetary stimulus package from the ECB next week; meanwhile, a report showed German unemployment rose and that pushed yields on the 10 year bund to 1.28%; that trade then spilled over to the US markets, toss in end of month window dressing and there was likely a short squeeze. There are some big short positions on treasuries right now; more shorts than longs.   At the end of the day, the bond market is supposed to reflect the economy; not an exact image but rather a mirror …

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Financial Review

Tuesday, May 27, 2014 – Currently Trending Here

Currently Trending Here by Sinclair Noe DOW + 69 = 16,675 SPX + 11 = 1911 NAS + 51 = 4237 10 YR YLD – .02 = 2.52% OIL – .24 – 104.11 GOLD – 29.20 = 1264.30 SILV – .40 = 19.14   The S&P 500 Index closed at another record high. The Dow Industrial Average is just a little below the May 13 record of 16,715. The Russell 2000 index of small and mid-caps confirmed the uptrend. The Russell had been lagging and there was a concern that small caps might drag the blue chips lower. While the Russell is still down about 2% year to date, on Friday it moved above its 200 day moving average.   Any time the market is trending, it makes sense to look for divergences, or any indicator that might signal a change in trend, but the most important thing to watch is still the trend itself; in other words the market scorecard is measured in price. And right now the trend is up.   Let’s start with some economic news. The S&P/Case-Shiller Home Price Indices continued to show gains in prices for existing home sales; the 10-city composite was up 0.8% and the 20-city composite was up 0.9% month over month; and respective year over year gains of 12.6% and 12.4%. Nineteen of the 20 cities showed positive returns in March; New York was the only city to decline. As of March 2014, average home prices across the United States are …

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Financial Review

Friday, May 23, 2014 – Always Check Your Spreadsheets

Always Double Check Your Spreadsheets by Sinclair Noe   DOW + 63 = 16,606 SPX + 8 = 1900 NAS + 31 = 4185 10 YR YLD – .02 = 2.54% OIL + .67 = 104.41 GOLD – .80 = 1293.90 SILV – .01 = 19.58   The S&P 500 Index closed at a record high of 1900.53. It was a record high close but not a record high considering intraday pricing. The S&P hit an intraday high of 1902 on May 13, however it closed on that day at 1897. Today, the intraday high was 1901, but I’ve always considered the close to be a more significant number than the intraday high. Since the start of the year we’ve been on a roller coaster ride in the markets, but as of today the Dow is up 0.2% year to date, the Nasdaq is up 0.2% for the year, and the S&P is up 2.8% since the start of the year.   If you are a regular, you might wonder why we aren’t celebrating a record high. The first answer is that 1900 is just a number with no special significance; the second answer is that we only celebrate when the Dow Industrial Average hits a record high, and the last record high close on the Dow was May 13 at 16,715. We don’t celebrate S&P records, and like so many things, the reasoning is entrenched in archaic traditional dogma.   An example would be Memorial Day, which started after …

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Financial Review

Thursday, May 22, 2014 – A Heckuva Business Model

A Heckuva Business Model by Sinclair Noe   DOW + 10 = 16,543 SPX + 4 = 1892 NAS + 22 = 4154 10 YR YLD + .02 = 2.55% OIL – .31 = 103.76 GOLD + 1.80 = 1294.70 SILV + .10 = 19.59   Yesterday we told you Russia and China had signed a 30 year, $400 billion dollar deal for Russia to deliver natural gas to China. Today, both countries vetoed a United Nations Security Council Resolution seeking to refer Syria to the International Criminal Court for possible war crimes. In the short-term, the Russia-China gas deal won’t have a big impact. The deal will not be in place until 2018 and even then will only see Russia selling a fraction of its gas exports to China every year, exports to the EU could still well be two to four times the size.   The economic links between Russia and Europe will continue to be significant and they will continue to be reliant on each other when it comes to energy; the former to sell the latter to buy, but this link gives an advantage to Russia, especially when the weather turns cold. At least symbolically the deal highlights Russia’s desire to move away from links with Europe. Combine this with Europe’s desire to increase energy security and the relations between the two sides could become increasingly cold and distant. Although, some countries due to geographical proximity, such as Bulgaria or Hungary; or due to long standing …

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Financial Review

Wednesday, May 21, 2014 – Congratulations Graduates, Yada, Yada, Yada

Congratulations Graduates, Yada, Yada, Yada by Sinclair Noe   DOW + 158 = 16,533 SPX + 15 = 1888 NAS + 34 = 4131 10 YR + .02 = 2.53% OIL – 33 = 103.74 GOLD – 2.40 = 1292.90 SIL  un = 19.49   Earnings season is winding down; about 96% of S&P 500 companies have reported results, with profit growth this quarter of 5.5% and revenue up 2.8%. While more companies have topped earnings expectations than usual, fewer have beat on the revenue side. This has been an ongoing theme for corporate profits; bottom line growth without corresponding sales. If this formula sounds unsustainable, it is, unless there is some other factor pumping up the markets.   Follow-up from yesterday: China has signed a 30-year deal to buy Russian natural gas worth about $400 billion. The gas deal gives Moscow an economic boost at a time when Washington and the European Union have imposed visa bans and asset freezes on dozens of Russian officials and several companies over Ukraine. It allows Russia to diversify its markets for gas, which now goes mostly to Europe; essentially opening the door to Asia’s gas market and potentially closing the door on the petro-dollar.   The Federal Reserve today released the minutes of the most recent FOMC meeting. Fed policymakers considered several approaches to tightening monetary policy, but decided to remain flexible; which is another way of saying QE is a big experiment and they are just hoping nothing explodes in their …

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Financial Review

Monday, May 20, 2014 – Protected Species

Protected Species by Sinclair Noe DOW – 137 = 16,374 SPX -12 = 1872 NAS – 28 = 4096 10 YR YLD – .02 = 2.51% OIL + .87 = 102.98 GOLD + 1.70 = 1295.30 SILV + .05 = 19.49 Today is Tuesday and that means that General Motors has announced another recall; this time 2.6 million more cars. Last week, GM recalled 3 million vehicles. So far this year, GM has announced 29 recalls affecting more than 15 million cars globally. The list of recalled vehicles is long. It’s easier to list the vehicles that haven’t been recalled; they have recalled 58 versions of Chevrolet and GMC pickups.   Last week the Dow hit a record high; since then it has been floundering. For the fourth straight session, the Nasdaq Composite has posted more 52-week lows than 52-week highs; 55 lows versus 38 highs. The Russell 2000 Index of small and mid-cap stocks hit a high on March 4th and since then it has dropped almost 10%.   Meanwhile, interest rates have been moving steadily lower despite winding down of large scale asset purchases under the Fed’s quantitative easing, and the talk about raising interest rates at some point down the road. With yields on the 10-yr Treasury note dipping down around 2.5%, that means somebody is buying Treasuries, but if not the Fed, then who?   Well, it’s certainly not Russia. Putin sold off more than $100 billion in Treasuries in March; he was probably expecting Treasury …

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Financial Review

Monday, May 19, 2014 – Still Too Big to Jail

Still Too Big to Jail by Sinclair Noe DOW + 20 = 16511 SPX + 7 = 1885 NAS + 35 = 4125 10 YR YLD + .02 = 2.54% OIL + .58 = 102.16 GOLD – .10 = 1293.60 SILV – .01 = 19.44   Merger Mania Monday. Late yesterday, AT&T announced an offer to buy DirecTV for $48 billion, or $95 per share. The combined AT&T-DirecTV would serve 26 million customers; that would make it the second-largest pay TV operator behind a combined Comcast-Time Warner Cable, which would serve 30 million under a $45 billion merger proposed in February. The Comcast deal still faces regulatory hurdles.   AT&T and DirecTV promised consumer benefits like more economical bundles that tie mobile phone, pay TV and Internet service together on a single bill. The deal could face regulatory scrutiny from the Federal Communications Commission and Department of Justice. Unlike the cable company tie-up, the AT&T-DirecTV merger would effectively cut the number of video providers from four to three for about 25% of US households. That’s a situation that could result in higher prices for consumers and usually gives regulators cause for concern.   The value that DirecTV offers that no other national TV provider offers is a special deal for football fans; for $240 to $330 you can buy a special package that gets you all the NFL football games, including your hometown favorite no matter where you live. That’s why DirecTV paid an estimated $4 billion to the NFL …

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Financial Review

Friday, May 16, 2014 – Nervous About Recovering in the Recovery

Nervous About Recovering in the Recovery by Sinclair Noe DOW + 44 = 16491 SPX + 7 = 1877 NAS + 21 = 4090 10 YR YLD + .02 =  2.52% OIL + .68 = 102.18 GOLD – 4.10 = 1293.70 SILV – .11 = 19.45   Stocks were all over the place this week; we had record highs for the Dow Industrial Average and the S&P 5oo Index, topping 1900 for the first time, even as small caps slipped and internet stocks tumbled. For the week, the Dow slipped 0.6 % and the S&P 500 dipped 0.03 %, while the Nasdaq gained 0.5 %. Bonds enjoyed a very nice week indeed, with the yield on the 10 year Treasury note moving from a high for the week of 2.66% to a low of 2.47%. Isn’t it awesome when the Dow hits a record high but everything else flatlines or shrinks? Maybe we are in a recovery, but maybe we need to recover from the recovery. Recent economic data has been mixed, and reports released Friday added to concerns about the lackluster recovery. The preliminary Reuters / University of Michigan consumer sentiment index for May was at 81.8, down from 84.1 in April. Housing starts increased in April at a seasonally adjusted annual rate of 1,072,000. This is 13.2 % above the revised March estimate of 947,000 and is 26.4 % above the April 2013 rate of 848,000. Earlier in the week we got the PPI and CPI inflation numbers. …

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Financial Review

Notice to Readers 05-16-2014

We will be undergoing some site renovations in the next few days (weeks); trying to build a better site. Hopefully it won’t be an inconvenience. Thank you for your patience. Sinclair

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