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

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

Financial Review for Wednesday, April 30, 2014 – Record Highs in First Gear

Record Highs in First Gear by Sinclair Noe DOW + 45 = 16580.84 (record close)SPX + 5 = 1883 NAS + 11 = 411410 YR YLD – .04 = 2.65%OIL – 1.59 = 99.69GOLD – 4.60 = 1292.30SILV – .29 = 19.25 Back on December 31st, we finished the old year with a record high close on the Dow Industrial Average at 16,576; since then the index has bobbed up  and down, briefly hitting an intraday high of  16,631 on April 4th, but on that day we finished in negative territory. Today, a record high close. The S&P 500 is closing in on the record high close of 1890, but not today. Now, when you hear the Dow is breaking records, you might think the economy is roaring, cruising along the highway in fifth gear. You would be wrong; the economy is stuck in first gear and the clutch is slipping. The Commerce Department reports the economy expanded at a mere 0.1% annual pace in the first three months of the year, one of the weakest rates of growth in the nearly 5-year-old recovery. A slowdown had been expected due to the harsh winter weather that froze business activity across a large swath of the country, but this report was worse than expected. The gross domestic product had been expanding at a 3.4% pace in the second half of last year. No worries, the weather has warmed and everything is returning to normal. Yeah, not exactly. There has been a …

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Thursday, March 27, 2013 – Certain Assumptions

Certain Assumptions by Sinclair Noe DOW – 4 = 16,246SPX – 3 = 1849NAS – 22 = 415110 YR YLD – .03 = 2.67%OIL + 1.02 = 101.28GOLD – 14.10 = 1292.70SILV – .05 = 19.79 Stocks fell for the fourth time in 5 sessions. This year’s first quarter, which ends Monday, isn’t nearly as bullish as last year, when the benchmark Standard and Poor’s 500 stock index soared 10% in the first three months of the year on its way to a 29% gain. The broad market is unchanged in 2014.  The losing sectors today included banks and biotech. The Nasdaq Biotechnology Index, up 304% in the last five years, has fallen 11% since the end of February, while the Russell 2000 gauge of smaller companies has slipped 2.7% after rallying more than 230%. If you really want a great investment, it’s hard to beat collecting $7,250 for every $1 you spend. That’s the benefit Boeing will reap from a ramped-up lobbying push in Washington state that ended with a massive $8.7 billion tax subsidy. A new analysis of lobbying data shows the tax break came as part of a deal to keep production of a new jet, the 777X, in the Seattle area. Lobbying data is notoriously difficult to parse because matching individual dollars to specific legislative priorities is often impossible. It’s plausible that the company could have achieved the same result with a single phone call, given how terrified state officials were that the company might ship …

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Friday, February 28, 2014 – Tantrums

Tantrums by Sinclair Noe DOW + 49 = 16,321SPX + 5 = 1859 NAS – 10 = 430810 YR YLD + .02 = 2.66%OIL + .05 = 102.45GOLD – 5.10 = 1327.70SILV – .06 = 21.30 Broadcasting from the Renaissance Esmerelda in Indian Wells for Financial Fest Palm Springs edition.   Remember last summer when various Fed officials floated the taper balloon? The hinted that the Fed might taper from $85 billion a month in QE asset purchases. The result: Wall Street had a taper tantrum; the yield on the 10 year note spiked up to 3%; mortgage rates shot up and made many question the strength of the housing recovery; stocks swooned as the froth escaped the market. The tantrum didn’t last long, even when the Fed announced the actual taper. Markets treated the announcement with a yawn. Stocks resumed their climb to record highs; Treasuries settled down; the housing market, well that’s always a local story, so it depends; and the economy continued to muddle. The markets seemed to accept the idea that the economy could handle a little less Fed stimulus, after all, they gave forward guidance that interest rates would remain low until the cows come home. In retrospect, last summer’s taper tantrum seems nothing more than a blip. Not so fast. A new paper released today before the Monetary Policy Forum in New York argues that the tantrum might portend a negative response as taper continues and as the Fed moves closer to someday raising …

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Thursday, January 30, 2014 – Where Water Flows

Where Water Flowsby Sinclair Noe DOW + 109 = 15,848SPX + 19 = 1794NAS + 71 = 412310 YR YLD + .02 = 2.69%OIL + .59 = 97.95GOLD – 24.60 = 1244.10SILV – .57 = 19.24 Gross domestic product grew at a 3.2% pace in the fourth quarter of 2013, which was down from the 4.1% growth in the third quarter. Consumer spending rose at a 3.3 percent rate, the strongest since the fourth quarter of 2010. Inventories increased $127 billion, the most since the first quarter of 1998. That added 0.42 percentage point to GDP growth. Inventories had risen $115 billion in the third quarter, contributing 1.67 percentage points to output. Excluding inventories, the economy grew at a 2.8% rate, up from the third-quarter’s 2.5% rate. We might reasonably expect inventories to decline again in the first quarter. Consumption in the fourth quarter came at the expense of saving. The saving rate slowed to 4.3% in the fourth quarter from 4.9 % in the prior period. Income at the disposal of households after accounting for inflation rose at a tepid 0.8% rate. That was a sharp slowdown from the 3.0% pace in the third quarter. Income is one of the biggest constraints on growth. Exports rose at their fastest pace in three years. Exports combined with declining petroleum imports helped narrow the trade deficit. Business spending on equipment accelerated at a 6.9% rate in the fourth quarter after rising at only a 0.2% pace in the prior three months, …

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Thursday, December 05, 2013 – 46664

46664 by Sinclair Noe DOW – 68 = 15,821SPX – 7 = 1785NAS – 4 = 403310 YR YLD + .03 = 2.87%OIL + .18 = 97.38GOLD – 18.20 = 1226.10SILV – .28 = 19.54 Nelson Mandela is dead. News reports say the former South African President died peacefully at his home. He was 95. Nelson Mandela will be remembered as the person who, more than any other, brought an end to apartheid, the heartless policy of “separate development” in which white, black and South Asian South Africans were obliged to live apart. It is part of his towering achievement that the very notion of racial segregation is anathema throughout the civilized world. Yes, the stock market was down again today but the economy is doing better than you thought. Third quarter gross domestic product grew at a 3.6% pace, revised up from earlier estimates of 2.8%. Wow, sounds great, until you dig into the numbers. A large part of the revision, almost half, comes from an increase in inventories. Businesses were stocking the shelves. Were they predicting a gang-buster holiday shopping season or were they caught flat-footed by a lack of demand? We won’t know with certainty until we get through the fourth quarter, but most indications are that the economy is still slogging forward, and there doesn’t seem to be a need for such a large inventory buildup. We know businesses accumulated more than $116 billion in inventories in the quarter, the most since the first quarter of …

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Thursday, November 07, 2013 – The Road Not Taken

The Road Not Taken by Sinclair Noe DOW – 152 = 15,593SPX – 23 = 1747NAS – 74 = 385710 YR YLD – .03 = 2.61%OIL – .51 = 94.29GOLD – 10.00 = 1308.60SILV – .14 = 21.77 Big story on Wall Street today was the Twitter IPO. I will now tell you everything you need to know about it in 140 characters or less. TWTR IPO 2day. Priced @ $26. Pop 2 $50. Close @ 44.90 up 72%. Market cap = $24 bil, earnings = < zero. Smooth not Facebook. #bubblicious Economic growth accelerated in the third quarter. Gross domestic product grew at a 2.8 percent annual rate, the quickest pace in a year, after expanding at a 2.5 percent clip in the second quarter. Inventories, however, accounted for a 0.8 percentage point of the advance made in the third quarter, as businesses restocked shelves, but the slowest expansion in consumer spending in two years suggested an underlying loss of momentum. Consumer spending expanded at a 1.5 percent rate, the slowest pace since the second quarter of 2011. It grew at a 1.8 percent rate in the April-June period. So, unless there is a surge in 4thquarter demand, we might see future production reduced to clear out inventories. The economy grew at a 1.8 percent rate in the first half of 2013, expect growth of around 1.5% for the fourth quarter. The private sector decelerated over the summer, providing less of a cushion for the government shutdown in October. …

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Thursday, October 17, 2013 – No Winners, No Free Lunch

No Winners, No Free Lunch by Sinclair Noe DOW – 2 = 15,371SPX + 11 = 1733NAS + 23 = 386310 YR YLD – .08 = 2.58%OIL – 1.59 = 100.70GOLD + 37.40 = 1321.10SILV + .47 = 21.99 The S&P 500 closed at a record high. We don’t celebrate a record high on the S&P. When the Dow hits a record high we have milk and cookies. No particular reason, we just don’t celebrate. “There are no winners here,” that was the declaration from President Obama this morning. He then cited the damage done: families going without paychecks, home buyers and small businesses unable to get loans, consumers cutting back on spending, businesses pushing back hiring plans, and increased borrowing costs which add to the deficit. Washington’s budget battle could result in a $24 billion hit to the US economy. That estimate comes courtesy of ratings firm Standard & Poor’s; they say the 16-day government shutdown and the wrangling over the debt limit shaved at least 0.6%, maybe a full point, off fourth quarter GDP growth. They had been estimating 3% annualized growth in the fourth quarter; now they peg it at 2%. The $24 billion loss is substantial, especially for a self inflicted wound. But wait, there’s more. Macroeconomic Advisers says the whole fiasco likely cost 900,000 jobs and possibly more in the months ahead. And one of the little noticed side stories is that the fiscal cliff inspired sequestration cuts, inspired by the debt ceiling debates of …

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