Weigh the week ahead: dead end?

The economic calendar contains a lot of important data. The speakers will be on the circuit. There is a lot of political and geopolitical news. On all these fronts, we are seeing a stalemate.

(Learn more about the tricks of the grandmaster and mathematician Karsten Müller)

Financial experts will ask:

What does the political stalemate mean for the financial markets?

Recap of last week

The President is amazed to see how one of his tweets seems to have moved the purse! (Internal business).

Paul Schatz (Heritage Capital) writes:

After 30 years in the industry, I keep saying that there is not much to surprise me, but I have to say that watching traders and market participants glued to Twitter to fear any price sign from the president is certainly a first for me. I can not imagine what today's big investors think as they fall from above. Are the masses really hanging on every tweet of the leader of the free world? Apparently yes.

Mike Williams (TruVestments) captures the action.

Tweets find themselves sheltered from other news, and we can see the effect in our unique diagram story.

The story in a graph

I always start my personal assessment of the week by consulting a good graph. This week, I'm presenting Investing.com. If you visit their interactive whiteboard, you can view each of the highlighted news events. There is also a table for futures, which is very useful for better understanding the meaning of day-to-day trading.

Volatility related to chirps and news resumed as part of a 2.2% loss. The trading range was close to 4% and Friday trading highlighted the possibility of larger losses. As always, the summary of our indicator in the quantitative section below summarizes volatility and the VIX index over different periods.

Personal note

Thanks to the smart economist for including A Dash of Insight in the Top 100 economic blogs from 2019. This list contains many quality blogs, some of which I have never seen. Choices are made about quality, not about school of thought, politics or popularity. This makes the suggestions particularly useful.

Remarkable

The low unemployment rate, due to people saying they work or not, is partly due to the slowdown in the labor market, because of the market economy. The visual capitalist shows the astonishing list of apps that "fuel the economy of the concert".

The news

Every week, I break down the events into good and bad. For our purposes, "good" has two components. The news must be market-friendly and better than expected. I avoid using my personal preferences to evaluate the news – and you should too!

Where relevant, I include expectations (E) and prior reading (P).

The high frequency indicators of the New Deal Democrat are an important part of our regular research. In his message this week, he says the indicators remain positive in all delays. As he attributes this in part to "quality theft" in bonds, NDD remains vigilant.

Good

• Inflation remains under control.
  • PPI increased 0.2%, which is in line with expectations and well above 0.6% in March. The basic PPI increased only 0.1%, E 0.2% and P 0.3%.
  • The CPI rose 0.3% on the stock (higher expectations than beats and March results of 0.4%) and only 0.1% on the core.
• Gain reports continued to beat a higher rate than in the past five years. (John Butters, FactSet). Brian Gilmartin has announced an improvement in its expected earnings for the other months of 2019 and 2020.
• Occupation of the hotel rose 1.2% year-over-year. The results for 2019 are now only slightly lower than in 2018. (Calculated risk).
• Mortgage applications increased by 2.7%, much better than the previous result, which represents a decrease of -4.3%. (Calculated risk).
• Unpaid mortgages in March were down to 3.65% and foreclosures to 0.51%. These rates are close to the lowest records. (Calculated risk).
• The JOLTS report shows the continued strength of the labor market without excessive tension. The official website of BLS contains a lot of data for analysis and a set of excellent graphics.

The bad

• Initial jobless claims continued to a higher level, 228K. It's about the same as last week's 230K, but worse than 220K expectations.
• Rail traffic continues to decline. Steven Hansen (GEI) uses slippery averages from one year on the other to smooth the series. It also follows separately the "economically intuitive sectors", down -5%. Here is one of the charts in this analysis.

• Swine fever devastate the Chinese pork industry and seem to be spreading. (TIME).
• The 10-year note auction was the poor. The yield rose from 2.448% Tuesday to 2.479% at the auction. This created a "tail" of 0.013%. These are big movements in terms of obligations. The WSJ attributes some of the reason to the failure of trade negotiations and a tweet from Trump. For context, readers should refer to the weekly overview of our indicator, including past interest rates.
• US-China trade agreement was not completed before the last deadline, Friday morning. Rumors and tweets whipped the markets during the week. There is no solid evidence of the timing or nature of an agreement. Meanwhile, the US has increased tariffs on an additional $ 200 billion of Chinese goods, and China is committed to retaliating.

The ugly one

The IPO of Uber (NYSE: UBER). The predetermined IPO price reflects the judgment of the company and its bankers as to the appetite of the investors. Many were expecting the first trade to be in the 60s, well above the $ 45 offer price. The action closed at $ 41.57. It was the biggest IPO in the last five years and the worst performer in history. (NYT, Gizmodo). The final valuation was barely higher than those used in recent private investment cycles.

If you follow Beth Kendig, one of our best sources and my colleague from FATRADER, you have been warned in advance of it.

The week ahead

We would all like to know the direction of the market in advance. Good luck with that! Second, plan what to look for and how to respond.

The calendar

The calendar is great. The earnings season is coming to an end, but FedSpeak is on the agenda. I am particularly interested in retail sales and industrial production – two important elements in recession dating. Housing starts and building permits are important indicators in an important sector. Michigan's confidence remains important in determining the spending potential of consumers. Others focus on leading indicators and the Philly Fed, but they are lower on my list.

And of course, one wonders if this matters in the world of tweetstorms and "tips" of current events.

Briefing.com has a good US economic calendar for the week. Here are the main American versions.

Theme of the next week

Despite the important economic calendar, I expect a different direction for the coming week. Economic data has had little effect on the market since the period from December to January. Even then, the focus was on the Fed, not on the economy. Since then, we have been through a season of results with good results compared to expectations with little effect on the market.

The market is focused on geopolitical issues, especially trade. The big problems seem to be in a bind. This leaves us to think:

Does the political and geopolitical impasse imply the same thing for the financial markets?

Context

Financial markets have regained the "delicate balance" I had talked about last fall. It is common to embody organizational behavior and to describe it as "complacency". This lazy shortcut prevents us from seeing the wide range of investor attitudes. A lack of price change and a modest volume may simply represent an approximately equal balance of underlying supply and demand. There are a lot of skeptical investors.

• David Templeton (HORAN) shows the large flows generated by equity funds and ETFs towards bond and fixed income investments. This is true for 2019 despite the weak performance of fixed income securities.

• What happened to the "earnings recession?" Mike Williams quotes Dr. Ed Yardeni's note that she was "avoided".

At the beginning of the first quarter earnings season, analysts had anticipated negative earnings growth. But with nearly 83% of the S & P 500 companies reporting revenues and profits for the quarter, their earnings continue to exceed expectations, and growth is showing a clear positive trend.

As they have often done in the past, industry analysts have been too aggressive to downsize in the final season of earnings. In the worst case, analysts have seen the S & P 500's expected profits lower by 2.5% year-on-year for the first quarter of 2019; it was during the week 4/12. In week 5/2, the combined figure including reported results and estimates of unreported results increased by 1.8%

He keeps on…

It already works (fear) when the money leaves these ugly, very risky stocks 15 to 16 times the profits, and flows into the 10-year bond from 41 to 43 times the profits.

Note: This is the same place where the experts told you to be terribly frightened by the higher interest rates and inflationary pressures as the QE demons come home.

Alas no. Interest did not explode after all.

By the way, that's why Mr. Gundlach, the preferred child of the financial media, wants you to feel that the bear is coming and the market is doomed.

After all, he manages the bonds … and many of them.

And finally….

The commercial agreement

My own "prediction" before the first US-China meeting last fall was a flexible deadline and a possible agreement. It was not going to be easy. The reason is that the initial effects do not seem so harmful. The real-time saving lesson takes time to play. Even when we see the second-order effects, it can be difficult to link them to trade policy. The blockage of foreign trade, traditionally associated with the Democrats and the unions, has always played well for the public. It focuses on jobs. The impact on reciprocal trade and consumers is much more difficult to see. This is the reason why trade presents the largest gap between the conclusions of professional economists and those of the average individual. This duality played even worse than expected.

The president says China pays taxes. The policy of "hardening" plays well with its base. The pundits specialist, who puts his expertise at the service of the political strategy, underlines that recent economic data provide a shelter for policies that could introduce an economic drag. On this occasion, he may be right. Traditional information programs focus on the number of GDP and the unemployment rate. Trump's approval rating has increased, particularly with respect to its management of the economy.

I do not expect China to capitulate soon, largely because it does not need it.

The result is a stalemate, even if everyone is in a worse situation. This may not be resolved before the 2020 election or shortly before. Some argue that Trump "needs" a trade agreement, but why? (NYT) (Business Insider)

Impeachment, subpoenas and investigations

Our daily news is full of new accusations and denials. "Witch Hunt" and "Classified Case" represent a point of view. The other party mentions numerous violations which are certainly prosecutable violations and which could constitute offenses that can not be seized.

What does it mean? Nothing. The executive resists the House in an affirmation of power. This could possibly be decided by the Supreme Court. Investigation laws are easily blocked by the Senate or by a presidential veto. Democratic leaders (although not all members) see the futility of indictment without a solid record and without consensus. Is there anything else we can expect to learn before the elections?

Iran and North Korea

Presidential diplomacy has not advanced in North Korea's record and has intensified tensions with Iran. There are more problems with Palestine and Israel. For us, citizens, these are troubling situations. It is worthwhile to be informed and to express opinions to our friends. The implication for the financial markets is murky. It is difficult to find immediate impacts and problems can remain in their current form for many years.

Deadlock.

Implications for the markets?

Most sources pursue the fragmented approach of these stories, highlighting the negative features. As always, I recommend focusing on fundamentals – valuation, benefits and economic risk. All of this remains appealing to long-term investors who are unaware of Mr. Market's emotional market.

The above findings are widespread in mainstream media. I have some personal conclusions in today's Final Thought.

Corner and risk analysis

I have a rule for my investment clients. Think first about your risks. Only then, should you consider possible rewards. I monitor many quantitative reports and highlight the best methods in this weekly update, which presents the instant indicators indicator.

Short- and long-term technical conditions both remain at the most favorable level. Our fundamentals remained bullish throughout the December decline and rebound. The C-Score has stabilized despite a flatter yield curve and a rise in overall inflation. I continue to monitor this situation closely by analyzing the signs of a possible confirmation of a higher probability of a recession. Our methods warn us quickly and help us avoid costly "false positives".

The sources presented:

Bob Dieli: Analysis of the business cycle via the "C Score.

Brian Gilmartin: All in all benefits, for the market in general as well as for many companies.

RecessionAlert: Solid quantitative indicators for economic and market analysis.

Georg Vrba: Business cycle indicator and market timing tools. The last update of the Georg Business Cycle Index does not signal a recession and he has postponed the date to indicate any concerns that may be identified by his employment model.

Doug Short and Jill Mislinski: Regular update of a range of indicators. Great graphics and analysis.

Guest comment

Professional forecasters in the Philadelphia Fed survey find lower growth in the short term (via GEI). 1.9% this quarter and 2.1% in the third quarter.

Menzie Chinn analyzes the gap over 5 years / 3 months. It examines current values, which imply a probability greater than 40% over one year, higher than we expect. He also considers the distortions of the curve resulting from the intervention of the Fed. While the "fiercely bearish" experts claim that this makes the risks of recession higher, Professor Chinn rightly points out that large-scale asset purchases have resulted in lower yields. It makes an adjustment, with quotes for methods and antecedents, and the result is radically different – about 6%.

Overview for traders

Check out our weekly "Stock Exchange". We combine links to important trading publications, news topics and ideas from our trading models. Last week, we discussed the effect of the information cycle on traders, asking them whether they are negotiating information cycles or market cycles. We have cited some useful sources and discussed the recent choices of our trading models. With all models back in action, there are more business ideas and interesting contrasts with a fundamental approach. Felix ranked the top 20 Russell 1000 stocks and Oscar did the same for the most liquid ETFs. Blue Harbinger, our usual editor, has made that clear.

Insight for investors

Investors should accept volatility. They should join my joy in a well-documented list of problems. As worries (closure, Fed policy, trade) are resolved or even resolved, the investor who looks beyond the evidence can raise good money.

Best of the week

If I had to recommend a single article to read absolutely for this week, it would be The foundation of every good investment plan by Christine Benz (Morningstar). She takes the amorphous concepts of goal setting and wealth creation and translates them into a timeline with specific goals and priorities. The opinion is clear and specific, but it defies the summary. You should read the whole post.

I want to associate this wonderful advice with that of Trent Hamm (The Single Dollar). In a logical way, similar to that of Christine Benz, it clearly describes the steps of any financial decision: problem identification, research and choice. Why is it important? This facilitates the action, not the dithering. Those who over-analyze the search for optimal solutions may do nothing.

If you followed the steps outlined in these two articles, your investments would be far more likely to reach your goals.

Stock Ideas

Chuck Carnevale continues its sector-by-sector research for attractively valued stocks. Each article in this series provides both interesting insights and a lesson on how to do a solid analysis. He has reached the utilities, which seems to be the end of the line. Not surprisingly, he finds "difficult choices". This is an extremely important article, describing the interdependent effects of valuation and dividends. Read his article carefully and you will understand this essential conclusion:

Investing when overvaluation is evident reduces your returns and investing when undervaluation is evident can increase them. Therefore, when growth potential is low, the margin of error or security is low or non-existent. If you are paying too much for a slow-growth security, such as a public service, you will most likely get unsatisfactory long-term returns. In addition, you will get these lower returns at higher risk levels. Higher risk and lower returns are exactly the opposite of what cautious investors want.

Bhavneesh Sharma has another interesting idea in biotechnology, CRSPR Therapeutics (CRSP). Thanks to his experience in medicine, clinical work and finance, he can identify ideas and explain them in an understandable way. In this case, most investors know that CAR-T is a promising approach to fighting cancer through gene editing. Bhavneesh provides just enough technical details. It reports on clinical outcomes and briefly discusses corporate finances. Even if you just want to know more about the subject, it's a good read.

Barron's highlights seven dividend stocks for "unstable times". [Jeff – I’m not sure times will be very volatile and some of these names are expensive. That said, the list is worth a look].

But beware. Ploutos provides A brief history of the collapsed dividends of the aristocrats.

Allen Good wonders Why the market will not sell for Shell? It analyzes improvements to recent problems and compares Shell (RDS.A) with other integrated oil companies.

Do you want a cheap stock that is now attracting attention? Barron's suggests that Mosaic (MOS) could be at the bottom of the list after a profit cut this week. Why? Analyst upgrade after the 7% drop.

Or a sector that remains in landfills? Barron's talks about health care companies.

Lyn Alden Schwartzer is closely examining investments in Thailand via the iShares MSCI ETF (THD) fund. She has a beautiful historical description as well as an analysis of the fundamentals of investment.

Index Funds? Regular readers know that I am not a fan. Why buy the expensive with the cheap? (See Chuck Carnevale above). Index funds overweight the popular values ​​of fashion. If you have to invest in it, why not choose one that avoids this bias? Jack Hough (Barron's) highlights the reverse market capitalization.

Personal finance

Abnormal returns always provide interesting ideas on a wide variety of topics. I subscribe and read it every day. Each Wednesday edition includes an article on personal finances. This week, I particularly enjoyed the work of Michael Batnick. The big risk. Using certain themes of Jeopardy Champion James Holzhauer (former resident of our city and favorite of Mrs. OldProf), he examines the short-term risks of equities versus bonds. He writes:

Stocks are clearly a risky business in the short term, but over longer periods, when one thinks of Why you invest, what feels safe carries a hidden risk.

See the full post for analysis, graphics and some tips from Holzhauer. Maybe he should read another ticket quoted by Tadas Wednesday, Adam After the manna.

Gil Weinreich's series on Seeking Alpha (SA for FA & # 39; s) is apparently aimed at financial advisors. The analysis is much broader than that. Most independent investors will find it very useful. This week, I particularly enjoyed the post, Your money or your coffee. You too. Gil answers a common question about your return on investment by saving money on coffee. He quotes sources on either side of this debate – and there are two sides to it. He then notes the following fundamental principle: "The path to wealth and financial stability involves the active exchange of the transient against the permanent."

Spoiler Alert: It concludes that investors have room for "occasional indulgence". Phew!

In the same vein, Ben Carlson discusses the financial superpowers.

Pay attention to…

Cornerstone OnDemand (CSOD). Gary Alexander has a good post explaining why this possible value trap deserves its low price. It's a very good job, very thorough, serving as an illustration to investors. If you do not do your own analysis, here's what to look for.

Brokers in difficulty. You should always use the FINRA website to consult the file of a broker or advisor. In fact, they are supposed to post the link on the site. This new regulation increases the obligations of "problem firms".

Final thought

First, some random (but important) thoughts.

• Twitter effects seem to use. This is both my own observation and the other comments I've seen. The longer these problems last, the more attentive the algorithms and traders will be.
• The typical causal fault was seen effective Friday. The speeches that cover Uber's story debated whether the market was slowing the IPO or vice versa. Nobody even thought that it could be an independent event! When the day ended with the markets on the rise and Uber on the decline, the writers remained true to their original stories, ignoring the evidence. This always occurs when two events occur at the same time.
• Nobody knows what Chinese leaders think or what motivates their actions. Nobody knows what the president thinks or what motivates his actions. Despite this, many newly formed experts are plausibly telling stories about what you or I might think. This is totally irrelevant. It's just a way to fill the air otherwise dead.
• The mobile tweets of the market provide the seeds of malfeasance. Any trader who had prior knowledge of these events could make a fortune in a few days. This week, one day would have been enough. The moving economic data of the market are embargoed and distributed to everyone at the same time. People know when to watch. Are we comfortable with moving away from this norm? It is easy to forget that there are losers in all the exchanges made by anyone who would appear before the media. Please note that I do not suggest that this happens, and I certainly have no proof. I want to emphasize yet another implication of the rise of social media in public policies. If we do not make the tweeting policy more similar to normal economic publications, we need several assurances.
  • A clean white house and staff, composed of people whose personal financial motives are inferior to the public interest;
  • Total financial transparency, as is generally seen with government employees;
  • Aggressive surveillance by the SEC of suspicious transactions, one of their normal functions.

And finally, how to play the stalemate.

My own approach, which I highly recommend to investors, is to focus on fundamental value by neglecting short-term moves. This week, I discussed this topic in a webinar involving experts from different fields, all interested in the second half of 2019. Watch the free replay of my synthesis, graphics, viewer questions and points of view from my colleagues.

If you are an investor, you need to focus on your personal goals and how to get there. Politics and geopolitics are facets of this trip.

If you have difficulty identifying your goals and the way forward to reach them, we can help you. Send an email to the newarc dot com main address. We will provide you with useful free information and, at your choice, a free consultation.

And also, some longer-term items on my radar

I am more worried about:

• La dette américaine et la limite de la dette. Le Centre de la politique bipartite a une bonne mise à jour et des liens vers des analyses antérieures. La limite de la dette «X Date» (à quel point le gouvernement fédéral ne peut pas respecter toutes ses obligations dans les délais impartis) est maintenant projetée pour octobre ou début novembre.
• Tensions internationales. La démonstration de force américaine en réponse aux essais de missiles iraniens et nord-coréens est en tête de liste. Les implications de ces événements sur les investissements ne sont pas claires, mais la plupart les trouvent déroutantes.

Je suis moins inquiet pour

• Ventes chinoises d'obligations américaines. Cela semble être le dernier sujet effrayant. La Chine doit faire quelque chose avec l'argent de l'excédent commercial. Il existe un énorme appétit pour les obligations d'autres investisseurs. Une grande vente à court terme serait coûteuse pour les Chinois.

Disclosure: Je suis / nous sommes long CRSP. I have written this article myself and it expresses my own opinions. Je ne reçois pas de compensation pour cela. I do not have any business relationship with a company whose shares are mentioned in this article.