5 Things To Ponder: Labor Day Edition

Submitted by Lance Roberts of STA Wealth Management,

The financial markets are set to wrap up the month with roughly a 3.5% gain, depending on where today's action ends, which is historically on the positive end of returns for the month. The histogram below shows the annual percentage change for the month of August.  Since 1930, there have been a total of 47 positive months versus 38 negative (55% win ratio) with an average return of 1.47%.  However, if we strip out the 37.7% gain in 1932, the one outlier, the average monthly return falls to just 1.04%.

 

September's prospects improve a bit from August with the overall win ratio improving to 58.3%. However, unlike August there is bigger propensity of market declines of between 5-10%.

 

With the Federal Reserve ending their support of the markets by October, and as discussed yesterday, corporate share buybacks on the decline; two of the biggest supports of asset prices over the last couple of years is fading.  What does this mean for investors going forward? That is the subject of this Labor Day Edition of "5 Things To Ponder."

 

1) A Classic Warning For Investors by Michael Mackenzie via Financial Times

"A look at the growing and already large divergence between the S&P 500 and the 10-year government note yield illustrates how the two big US markets are not only not cheap, but are also sending conflicting messages.

Here, equities and bonds can probably prosper in the near term until economic data conclusively settles the issue. Only then will the huge divergence between the S&P and 10-year yields snap shut with serious repercussions for some investors."

Financial-Times-082914

 

 

2) The Fed Has Become The Fundamentals by Jeffrey Cooper via MinyanVille

"A bull market will always find the silver lining, no matter how insignificant. Mirror image of human emotions and hysteria." – Marc Eckelberry

 

"There is a notion out there that the bull market has a long way to go since there is no sign of elation, such as in the months leading up to the top in March 2000.  Fear is driving the market, not greed.  Equities are up out of lack of choice, not out of reason.

 

Ebullience has not been a hallmark of the advance at any point in the last 5.5 years. Does a grand top require a manic phase? The top floor can be reached by an escalator just as well as an elevator."

Minyanville-SPX500-082914

 

 

3) It's Time To Be Defensive, Very Defensive via ZeroHedge

"What is wrong with changing your mind because the facts change? But you have to be able to say why you changed your mind and how the facts changed." – Lee Iacocca

"It’s important to underline that major US investment houses, and certainly every single sales person I talk to, believe US is about to accelerate in growth not slow down. Q3 could be ok but the real damage will come in Q4 as the lead-lag factor of geopolitical risk, lack of reforms and excess global supply leads to low inflation. Despite recent Fed optimism about an exit strategy the fact remains that few institutions are worse than the Fed in projections as even its simple target goals show."

Saxo-Bank-GDP-Projections

Read Also: The Bubble Of All Bubbles – European Bonds by EconMatters

 

4) Equity Markets Running On Fumes by Izabella Kamins via Financial Times

"It is widely accepted the Fed’?s QE programme has inflated asset prices way above fundamental values (higher inequality being one unwelcome by-product). Andrew Lapthorne has identified the mechanism whereby QE, by shrinking the available stock of investable government bonds, has encouraged investors to instead gobble up other debt assets all along the risk spectrum. Companies issuing at low yields into this buying frenzy are doing what they always like doing with debt in the final throes of an economic cycle they issue cheap debt to buy expensive equity. Decent profit (cashflow growth) may be more than sufficient to cover capital expenditure and dividends, but a gargantuan funding gap emerges as companies also undertake their corporate finance zaitech activities (see chart below, Andrew also calculates that currently almost a third of all buybacks are to cover the expense of maturing management share options QE is indeed making the rich richer!)."

Soc-Gen-Valuation-082914

 

5) Get Ready For S&P 500 2150 by Mark Hulbert via WSJ MarketWatch

"This incredible bull market, which pushed the S&P 500 above 2,000 earlier this week, is still alive and well. By the end of the year, the benchmark index may rise to around 2,150, about 8% higher.

 

So says Sam Eisenstadt, who has more successfully called the stock market in recent years than almost every other market timer I can think of — including many who I have featured in this column.

 

Eisenstadt, for those of you who don’t know of him, is the former research director at Value Line Inc. Though he retired in 2009, after 63 years at that firm, he continues in retirement to update and refine a complex econometric model that generates six-month forecasts for the S&P 500."

Bonus Read: Because There Is An Extra Day This Weekend

 

The Greater The Stock Bubble, The Less Monetary Theory Holds by Jeffrey Snider via Alhambra Partners

"I think the full answer lies in monetarism not being a flow of “money” and funds but rather a corruption of expectations, and thus activity. The idea of “easy money” now spans not just some marginal speculators touring the contours of the pink sheets for grand slams, but rather it has taken hold of everyone from the should-be-conservative retirees looking to regain their balances from even two bubbles ago to corporate boardrooms looking to get paid as much as possible before reality closes in once more and the bottom falls out. In trying to gear marginal economic activity toward financial means, central banks have instead totally financialized the entire affair to the point that far too much psychology, and thus attendant flow, goes only in that direction. In other words, instead of enhancing marginal economic activity it directly suffocates it."

ABOOK-Aug-2014-Fischer-Buybacks

Also check out my post from earlier this week: "Next Stop 2100"


Wishing you a happy and safe Labor Day weekend.

"My therapist told me the way to achieve true inner peace is to finish what I start. So far I’ve finished two bags of M&Ms and a chocolate cake. I feel better already." – Dave Barry




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David Harsanyi Reacts to the Left’s Reaction to Burger King

Burger King plans to merge
with Canuck coffee-and-doughnut chain Tim Hortons
 and base
the company’s headquarters in Canada, where it will enjoy the kind
of reasonable corporate tax structure that Democrats continue to
obstruct here in the United States. And the move has provoked
fresh
round
 of moral panic, faux patriotism, and confusion from
those on the left. 

But the Burger King move isn’t really about tax “inversion”
anyway, argues David Harsanyi. This is a merger. Tim Hortons has a
$9.9 billion market cap and generated more revenue than Burger King
last year, so it seems implausible that the deal was made for
reasons of tax sedition alone. When you merge with a company from
another country, one that helps diversify your reach worldwide, it
seems like a basic fiduciary responsibility to place your
headquarters in the spot that offers you the best business climate.
And that’s probably what’s driving a lot of the overwrought
reaction to this merger: The consequences of high corporate
taxation could not be more apparent. 

View this article.

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Obama Won’t Talk Immigration Plan, Pentagon Has Spent $560 Million in Iraq, Ukraine Wants to Join NATO: P.M. Links

  • The White House today
    refused
    to give a date by which President Obama intends to take
    executive action on immigration reform, and will likely delay until
    after the midterm election. Obama himself
    will be scarce
    from battleground states until after the
    election.
  • The Pentagon says it’s spending about
    $7.5 million a day
    in Iraq, and we’ve spent $560 million so
    far. The U.K. raised its terror threat level to “severe.”
    Someone found ISIL’s “laptop of doom,” which contains all kinds of
    instructions on nasty things like
    weaponizing the bubonic plague
    . Nadal Hasan, the Fort Hood
    Shooter, wrote a letter to the leader of ISIL
    asking for citizenship
    from the Islamic State.
  • Ukraine announced today it wants to become a
    member of NATO
    … for obvious reasons. Russian forces
    captured
    a strategic town on the Azov Sea. Nearly 3,000 people have been
    killed
    since Russia began its war in Ukraine, says the U.N.
    Putin warned the world “It’s
    best not to mess with us
    ,” presumably while stroking a nuclear
    warhead.
  • Israeli forces are in Golan Heights trying to find
    44 U.N. peacekeepers
    captured by Al Qaeda-linked militants in
    Syria. 
  • The NFL is toughening
    its domestic violence policy
    following outcry over Ray Rice’s
    two-game suspension for allegedly beating his then-fiancée. How
    about lightening up on drug penalties while they’re in the mood for
    change?
  • After 11 years on the air, Dancing With the Stars featured

    its first same-sex couple
    .  

Follow Reason and Reason 24/7 on
Twitter, and like us on Facebook. You
can also get the top stories mailed to you—sign up
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.

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Did Armed GOP Thugs Try to Keep Libertarian Party off Illinois Ballot?

File this under incredibly
creepy. The Chicago Sun-Times is reporting the private detectives
hired by the Illinois Republican Party have been intimidating
people gathering signatures to get the Libertarian Party on the
state ballot for November. Check it out, from
columnist Dan
Mihalopouls
:

A couple of months after Julieus Hooks signed [the Libertarian
Party’s] nominating petitions, a man with a gun walked up to Hooks
as he left his home in Oak Park.

The man said he was a private investigator. He told Hooks the
petition that he had signed was fraudulent and asked him to sign
something. Hooks hastily agreed to sign the paper.

“I did not have time to fully review this document because the
man with the gun instructed me to sign it, and I was afraid of him
and what he may do to me if I refused,” Hooks says….

Hooks had signed a petition for the Libertarians in May. He
recanted his story in the affidavit that the man with the gun got
him to sign. But then Hooks swore a second affidavit saying he did
not mean what he said in the affidavit for the armed man.

According to the most recent version of his story, Hooks said,
“On or about July 20, 2014, I was exiting my house when a tall
Caucasian man and a woman approached and startled me. The man had a
gun, which was visible. They told me that the woman who had
circulated the petition sheet that I had signed had violated the
law because she had obtained too many signatures and committed
fraud. I was then given a piece of paper and told to sign.”

Sarah Dart, who was paid to circulate petitions for the
Libertarians and obtained Hooks’ signature, told me a similar
story. Dart says a private investigator named Carlos Rodriguez
contacted her, asking about a missing girl who knew someone she
supposedly knew.

She believes the story about the missing girl was a ruse. When
she met with Rodriguez, Dart says he confronted her with a stack of
petitions and asked her to admit that the signatures for the
Libertarians were obtained fraudulently. She refused, and the
state’s hearing officer later found that her signatures were
legitimately gathered.

Dart says Rodriguez displayed a holstered gun when he met her.
He gave her a business card showing he works for Morrison Security
in Alsip. The company’s owner is the Palos Township Republican
leader, Sean Morrison.


More here.

The Sun-Times

also reports that
:

Bruce Rauner’s spokesman says the Republican nominee for
governor knew nothing about the unusual strong-arm tactics used by
his allies in their failed effort to keep the Libertarian Party
candidates from appearing on the November ballot.

The statement from Rauner’s campaign followed my column last
week on the Republican deployment of armed private investigators to
challenge the Libertarian slate’s nominating signature
petitions.

“Bruce wants as many people engaged in the political process as
possible,” Rauner spokesman Mike Schrimpf said in an e-mail. “Bruce
has no knowledge of these alleged activities, and if they are true,
he strongly denounces them. Bruce doesn’t agree with any form of
voter intimidation.”

As of now, the state election board has ruled the LP has
gathered enough valid signatures to be on the ballot in the fall,
where the Libertarian is expected to take votes away from the
Republican candidate Rauner.

The story isn’t over yet, though: the Illinois LP has filed
criminal
complaints
 with the state attorney general the Cook County
state attorney over the alleged intimidation. Here’s hoping
the whole story comes out and is dealt with quickly, publicly, and
fairly.

Hat tip: John
Avlon.

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“Unrigged” Close Buying-Panic Saves S&P 2,000 For Long Weekend

For the 6th week of the last 8, Treasury yields declined with 30Y pressing to 3.05% (and 10Y 2.32%) handles to 15-month lows. US equity markets saw volume crater as the early high-stops were run in the EU session and low-stops run in the US session before the ubiquitous EU close ramp lifted futures to VWAP and S&P cash to 2000.xx where it stayed for the rest of the day in a wholly unrigged way. Trannies ended the week red and Russell the best. The USD Index closed at 13-month highs (up 7 weeks in a row). Despite USD strength, gold and silver rose 0.5% on the week but oil was the big winner +2.4% (testing $96) as copper tumbled 2%. Credit markets closed at their wides (as stocks closed at their highs). Interestingly, once the Sept POMO schedule was released, TSYs sold off on the day to close red (but end 4-7bps lower on the week). VIX closed unch today but the ridiculous late-day panic-buying spree in futures grabbed stocks back above the crucial 2000 level for the S&P. Year-to-date, Treasuries lead +16.75% as the S&P (+8.5%) overtook gold (+6.7%) in the last few days.

 

Stocks top gold YTD for the first time this year but bonds are winning…

 

From Cameron's Speech this morning, futures sold off and rebounded…

 

Driven by VIX…

 

and GBP!!??

 

But most (aside from Trannies) remain green on the week…

 

Even as Treasuries continue to rally (note the weakness into the close though)

 

As the divergence grows…(just this week)…

 

 

And credit's not buying today's buying panic close…

 

FX markets were quiet today but chatter of large orders this afternoon sent the USD to the highs of the day/week – highest in 13 months

 

Though Cable surged into the close…

 

But gold ansd silver cloed green on the week, oil suged and copper purged…

 

Charts: Bloomberg




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Obama’s Anti-ISIS Strategy Summarized In 1 Cartoon

"Do nothing stupid…"

 

 

Source: Cagle

Bonus Strategy Chart… (via William Banzai)

 

Remember of course, none of this matters…

Since, as long as Qatar has a strategy on how to progress on its Gazprom-bypassing pipeline to Europe, whether Obama had a strategy or not, is completely irrelevant.




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Hillary Clinton Finally Comments on Ferguson, Focuses on Race-Based Enforcement Injustices

Did it really take that long to get the comments focus group-tested?Hey, remember when Paul Waldman
in The Washington Post
wondered
where the libertarians were on Michael Brown’s killing
in Ferguson, Missouri, and then Sen. Rand Paul wrote a
big op-ed in Time
the next day denouncing both the
militarization of the police and the racial injustices of the way
blacks are treated by law enforcement and courts?

Just thought I should remind folks about that happening nearly
two weeks ago.

In completely unrelated news, presumptive Democratic candidate
for president Hillary Clinton finally weighed in on the events in
Ferguson yesterday. The Washington Post has some video
footage of her prepared comments
here
. She makes a vague reference to the militarization of
police by saying “Nobody wants our streets to look like a war
zone,” but she focused much more on the racism inherent in how our
current justice system operates:

Imagine what we would feel and what we would do if white drivers
were three times as likely to be searched by police during a
traffic stop as black drivers instead of the other way around. If
white offenders received prison sentences ten percent longer than
black offenders for the same crimes. If a third of all white men –
just look at this room and take one-third – went to prison during
their lifetime. Imagine that. That is the reality in the lives of
so many of our fellow Americans in so many of the communities in
which they live.

Her comments aren’t bad at all (though her vagueness on
militarization suggests to me that she doesn’t see the distribution
of equipment as a problem but rather its use in these
circumstances). But it certainly took her a long time to articulate
simple thoughts about racial injustice that aren’t actually all
that controversial or new and haven’t already been said in response
to Ferguson. Remember, this is the woman who campaigned against
Barack Obama with the famous “3 a.m. phone call” that she would be
more ready to lead at a moment’s notice than any of her Democratic
rivals:

There’s nothing wrong with taking a day or so to get your
thoughts together over the complex issues that drove what happened
in Ferguson. But two weeks after everybody else? It makes her look
like she wanted to evaluate what everybody else was saying first.
 

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The Year Armond White’s Historical Perspective Broke

I know very well that you don’t read Armond White’s articles to
be convinced by them, and I feel a little silly taking up my pen to
argue against something he wrote. Still, his latest piece
for National Review is bizarre even by his gloriously
strange standards, and I feel compelled, as though mesmerized by
some magickal Troll Crystal, to debate it.

It’s called “The
Year the Culture Broke
.” The year in question—the time, White
tells us, that partisan division finally overtook the country, as
“no-longer-impartial media used their prominence to drive those who
disagreed into quiet but resentful enclaves”—is 2004.

No, really:

THIS IS WHEN IT ALL WENT WRONG.In the spring of 2004, there was the
media’s lynch-mob excommunication of Mel Gibson and his film
The Passion of the Christ, soon followed by the Cannes
Film Festival’s ordination of Michael Moore’s anti–G. W. Bush
documentary Fahrenheit 9/11. These events proved the
effectiveness of pre-release hype, furthered acquiescence to
cultural authority, and discouraged social unity. This was a moral,
aesthetic, intellectual, and political shift—a break and a
decline.

Through these two films, religion and politics—topics one had never
argued about in polite company—became the basis for categorizing
moviegoers as members of factions. Beliefs and positions calcified.
Passion became a red-state movie, and Fahrenheit
became a blue-state movie.

That turning point may also be where the canard of calling for a
“conversation” (about race, sex, violence…take your pick)
began.

I included that last sentence just to show how much recent
history White has forgotten. No, people did not start calling for
national conversations in 2004. The phrase
took off in the ’90s
, most famously when Bill Clinton called
for a “national conversation
about race
.”

That’s a minor point, but it underlines how much amnesia is at
work in this essay. When White finally alludes to some earlier
moments of partisan division, near the end of his article, he
treats them as a mere prelude to the Moore/Gibson face-off, though
every one of the examples he cites had a more lasting impact than
either film did:

One of the forgotten pioneers who paved the way for Mel Gibson and Michael Moore.This break in public
civility—unbridled hostility for Bush, disrespect for the office of
the presidency, ruthless personal attacks on ideological
opponents—resulted from pent-up political differences and partisan
complaint going back to Robert Bork’s dismissal, Clarence Thomas’s
Supreme Court nomination hearings, Bill Clinton’s impeachment, and
Al Gore’s concession in the 2000 presidential race.

“Pent up”? There’s nothing pent up about that series of events.
They exploded, one after the other, making a rubble of “public
civility” each time. Needless to say, it’s easy to extend the list
of rancorous battles long
before Bork
. And needless to say, the parallel universe of
conservative alternative media—what White calls “quiet but
resentful enclaves,” though they’ve never been quiet in my
lifetime—existed
long before 2004
. If anything, in the last 10 years it has been
unprecedentedly easier, not harder, for outsiders to hear what
those once-enclaved voices have been saying. That’s part of the
actual significance of Gibson’s film: It proved that those
alternative networks could make a movie a hit.

But what makes 2004 an especially odd place to locate the break
is that Fahrenheit and Passion, despite the hype
around them, were not irresolutely opposed. Gibson and Moore,
unlike Bush and Gore, actually admired each other. Here’s a New
York Times
report from
January 2005:

THE FIREWORKS NEVER STOPPED. CURSE YOU, MICHAEL MOORE.Asked if he had seen Mr.
Gibson’s film, Mr. Moore lighted up.

“I saw it twice,” Mr. Moore said. “It’s a very powerful film. I’m a
practicing Catholic. My film might have been called ‘The Compassion
of the Christ,’ though. The great thing about this country is the
diversity of voices. When we limit the voices, we cease being a
free society.”

When Mr. Gibson walked to the press room lectern, he and Mr. Moore
seemed delighted to meet each other.

“I feel a strange kinship with Michael,” Mr. Gibson said. “They’re
trying to pit us against each other in the press, but it’s a
hologram. They really have got nothing to do with one another. It’s
just some kind of device, some left-right. He makes some salient
points. There was some very expert, elliptical editing going on.
However, what the hell are we doing in Iraq? No one can explain to
me in a reasonable manner that I can accept why we’re there, why we
went there, and why we’re still there.”

I suspect there was more than a little overlap between the two
films’ audiences too. Certainly much more overlap than there was
between the supporters of Clarence Thomas and Anita Hill.

Bonus link: In a sidebar of sorts, White
offers capsule
descriptions
of 20 films that “effectively destroyed art,
social unity, and spiritual confidence.” If you ever wondered what
would happen if they asked Ed Anger to fill in for Leonard Maltin,
here’s your chance to find out.

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Chart Of The Day: Dear Future American Generations, You Are Screwed

Faith that the future will be better than the present is slipping, as despite President Obama’s demands that Americans not be “cynics,” a new report shows there is a major lack of confidence that the next generation will have it better than the last one. As WSJ reports, most strikingly, only 16% of respondents agree that job and career opportunities will be better for the next generation than for their own – a drop from the 56% who were optimistic about this measure in 1999 and down even from the 40% who agreed in November 2009, well into the recession.

 

 

As WSJ adds,

In addition, a majority of those surveyed believe the recession permanently altered economic conditions in the U.S.

 

The numbers, while measuring individuals’ feelings rather than more objective measures such as employment or income, paint a picture of a workforce scarred by personal experience with unemployment or close proximity to others who suffered.

 

And despite more than six consecutive months of companies adding 200,000 or more jobs, workers are still pessimistic about their prospects for finding decent work. “Only 20 percent of currently employed work­ers feel extremely or very confident they could find another job if they were laid off,” the researchers found.

*  *  *
Cynics!!




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Fed Unveils Only 11 Days Of POMO In September For A Mere $15 Billion

As they say in England, we appear to be getting to the vinegar strokes of the Fed’s buying efforts. As expected, the NYFed announced its Permanent Open Market Operations (POMO) schedule for September which covers just 11 days (including no Fridays at all) summing to a mere $15bn of Treasuries planned to be purchased… (with only 5 days in size).

 

 

Source: NY Fed




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