RANDOM READS

What's Up With The ECB?
http://www.fxstreet.com/analysis/be-ready/2014/05/02/

Over Confident?
http://money.cnn.com/2014/05/01/pf/bull-market.moneymag/index.html?iid=HP_LN

Industrials: What's Up With Them?
http://online.barrons.com/news/articles/SB50001424053111903843804579529790056170528?mod=BOL_hp_highlight_4

Why
http://m.thefiscaltimes.com/fiscaltimes/#!/entry/why-the-us-and-europe-cant-stop-putin-in-ukraine,5363e6e1025312186c00d3b9

The Crutch
http://www.reuters.com/article/2014/05/02/us-usa-pennsylvania-municipals-idUSBREA410AK20140502

TABLE OF CONSEQUENCES

If you can find the interesting part of this chart you're pretty sharp.

Earlier this year we took some profits in our energy positions. One of the reasons we took them is because they were at five year highs. The other reason is in this chart. You could call it the German Problem.

Germany gets much of its oil and gas from Russia, not a position we'd much want to be in.Three of the companies in the chart we've owned, we continue to own and we will be buying more on any reasonable weakness.

With the Ukraine mess Germany finds itself being pushed and pulled--pushed by the US and some its allies to impose more sanctions and pulled by Russia to lighten up. Given what we know about the commerce and amount of money changing hands between the two which way do you think Germany's going to go?

Owning energy companies that depend for a large slice of their business on foreign governments can be risky, to say the least, a fact Germany is learning the hard way. There is and has been anti-US sentiment in Germany and other countries. This is hardly new. What is new is it's growing.

The current administration is one of the weakest, least competent to occupy the Oval Office in foreign policy for some time. But there have been plenty of others. It's been an on-going drought in modern America. And as Robert Louis Stevenson noted long ago: "Everyone, sooner or later, takes a seat at the table of consequences." 

To comply with full disclosure we and our clients own three of the stocks in the chart.

IR

To many investors the mention of IR brings to mind interest rates.

And that's logical since interest rates play such a big role in one's life. But there's another IR, one made famous by former Fed Chair Sir Alan Greenspan.

Greenspan popularized the term with the fawning MSM's help during the dot.com bubble, a bubble he did nothing about albeit he's still denying his pivotal role as recently as this week. It's, ok Alan, those who lived it know the truth.

Now the folks at GMO, a huge money management firm led by the noted Jeremy Grantham, are exhuming the term again, most likely something Sir Alan probably won't much care for.

Greenspan first uttered the term in a December 1996 speech by the same name, Irrational Exuberance, a term rumor has it he copped from Yale economist Robert Shiller during a conversation the two had the day before.

http://www.businessinsider.com/gmo-stock-market-irrational-exuberance-2014-5#!Hpgyb

UNEMPLOYMENT LOWEST LEVEL IN SIX YEARS

 

Now that's an eye-catching headline for you, one the current administration will certainly like.

Toss in the wonks at the Fed and main stream members of the Fourth Estate and, as country singer Jerry Jeff Walker noted in one of his songs: "We got a party going.'"

But as one of television's college football talking heads is noted for saying: "Not so fast!" This is a premature quantity over quality celebration by mostly choir members. One of the constant props for the bulls is Joe Q. Public hasn't pried open his wallet yet in this market.

Time again for another "Not so fast!"  According to today's Wall Street Journal http://online.wsj.com/search/term.html?KEYWORDS=retirement+investors&mod=DNH_S retirement investors are flocking back to the equity abattoir:

Retirement investors are putting more money into stocks than they have since markets were slammed by the financial crisis six years ago...Stocks account for 67% of employees' new contributions in March.....That is the highest percent since March 2008, when stocks were teetering under the weight of mounting mortgage defaults, and compares with 56% in March 2009, when the market hit bottom.....

A client of ours, a lady with more money and MSM television watching time on her hands than anyone should probably have, called us back then and insisted on selling everything. It took much time, effort and persuasion to get her to add to rather than sell some of her best holdings.

A while back when the S&P 500 nudged its new high she called again, not to thank or praise us, but to say she knew it all the time. That's human nature. Use it, trade it, but whatever you do, make money off of it. Behind all the companies and the numbers and talk are humans. Unpredictable humans.

Now this is hardly a siren song not to invest. It's a siren song to do your homework. The Fed  has already exploded one bubble and they got their eye on the next. 

Recall all those old westerns where the bad guy and the good guy at some point end up facing each other. The inflection point usual came with the bad guy saying something like: "Fill your hand." Well, here's it's your lap. Make sure its full otherwise those boys and girls will fill it with something you won't particularly like.



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RANDOM READS

Resources
http://www.rationaloptimist.com/blog/why-most-resources-don't-run-out.aspx

Wages Up, Down Or? http://www.marketwatch.com/story/green-shoots-of-wage-growth-dont-believe-it-2014-05-01?pagenumber=2

Manufacturing On The Mend
http://news.investors.com/economy/050114-699243-ism-manufacturing-rose-in-cheery-sign-for-economy.htm

Passive Fed
http://www.bloomberg.com/news/2014-05-02/yellen-s-fed-resigned-to-diminished-growth-expectations.html

Go Or Stay?
http://www.businessinsider.com/states-where-people-want-to-move-2014-5

SANCTION COMPLICATIONS

 

The Ukraine situation is much more complicated than most realize. While the West pushes for more sanctions against Russia not everyone sees clearly through that window, especially Germany.

Germany is Russia's third largest trading partner. Gazprom, the half state-owned Russian gas conglomerate, is the largest gas company in the world and does big business with German businesses lining their coffers with huge profits. 

BASF, the giant international German chemical firm, does billions of euros in business in Russia. And that's just the tip of the business deals the two countries share. Read this for more.
http://www.spiegel.de/international/

FORGET PESSIMISM TRADE ARROGANCE

Don't fire until you see the whites of their eyes is another way of saying let's wait and watch and maybe be too  late.

Given the Fed's past record, timing is not one of their better strengths. Following is. A business associate, a pretty darn solid commodities trader we'll call Harry, refers to the Fed as one of the better lagging indicators out there. 

The thing about Harry is you never know when he's going to hit town. It's usually a surprise phone call, an abrupt arrangement for a brief lunch and a few good glasses of some decent wine.  

We've known Harry for a while and to say he's a bit eccentric is like saying it don't snow in Minneapolis in the winter time. Last time we met with Harry it was at one of those little Italian joints with the red and white checkered tablecloths and tiny white vases with a red rose sticking out in a strip mall near LAX.

Harry's always on his way somewhere. He's one of those investors who likes to visit companies and countries not just read about them. It was dark inside especially coming in from the warn spring Southern California sunshine.

Harry was sitting in the back booth with his laptop ablaze. I slid into the seat across from him and before I could exchange more than a short hello a waitress appeared and took our order. I don't like to drink wine in the middle of the day because it makes me feel fuzzy. Harry informed me he had a plane in catch to Latin America a few hours later so the wine was more welcome than the food.

Harry's got a lot of Hollywood in him, a couple of sips of the red stuff and he's already cut to the chase.

"So what's your take on Yellin?" I asked.  

 

"A good fence straddler; she's swinging for the consensus ball. 
It makes being wrong easier to swallow. There's a crazy bird that lays its eggs in other bird's nests. Substitute mess for eggs and other people's laps for other bird's nests and you gotta good idea what these folks do."

How could so many so-called experts around the same table be so wrong so often?" I probed.

"It's a function of dynamics based on the false assumption that we humans can get our arms around something so big and so nebulous with a bunch of quack econometric models....Arrogance, plain human arrogance."

After some more market talk and a decent lunch, the waitress came, the check got paid and we walked out into the bright sunlit parking lot. 

I stood there for a moment watching Harry stroll to his rental car when he suddenly turned around and hollered: "Forget pessimism! Trade arrogance. It's human nature."

With  that he hopped into his car, pulled the door tight and faded into the heavy mid-afternoon Century Boulevard traffic. 
http://www.minyanville.com/business-news/politics-and-regulation/articles/Pimco-The-Whites-of-Their-Eyes/5/1/2014/id/54816

READ ''EM AND WEEP

A front page story in today's Wall Street Journal, "Can Italy Find Its Way?" opens with the following:

Bernardo Caprotti was a 45-year-old entrepreneur when he agreed to buy a suburban plot of land for a new supermarket.

Building permits recently came through. He's now 88. His Milan-based retail chain, Esselunga SpA, had grappled since 1971 with local bureaucrats who raised shifting concerns about traffic volumes, architectural suitability and proximity to a medieval monastery. 

http://online.wsj.com/news/articles/SB10001424052702303987004579479973324993200?KEYWORDS=can+italy+find+its+way&mg=reno64-wsj 

Now read the paragraph below. It's not about Italy, but the good old USA right here and now.

It takes 40 permits to open restaurants in big cities today...how many small people can afford the time for lawyers or for the money involved and the waiting time to get all those permits, which used to be 4 in number? 85,000 pages of new regulations under the Obama administration in the Federal Register...if you want jobs and growth and young people hired, if you want productivity growth that comes from investment spending, then you want proper fiscal policy, which we have not used at all...you want monetary policy in moderation, and then you want deregulatory policy whereby you make it rational for people to start businesses and get out there and hussle.”
 http://www.financialsense.com/contributors/cris-sheridan/broken-lever-monetary-policy

IT"S ABOUT TAXES, JAKE

In our recent post, "Wonder Why?"we mentioned the tax savings these companies get when moving off shore. In many cases it's bigger than big.

Congress in its infinite wisdom is constantly after China to strengthen it currency, the yuan, to help close the trade gap between the two nations. In economic parlance it's known as beggar thy neighbor. In a broader sense it very similar to countries that have lower corporate tax basis.

Attracting businesses is what its all about whether its the state of Texas or a country like Ireland or Canada. 

The Pfizer-AstraZeneca deal is much in the news now and rumors about such a mega deal were afloat on the street for a while before it hit MSM.  Here's more on the subject from Reuters.
http://www.reuters.com/article/2014/05/01/us-usa-tax-mergers-idUSBREA4003G20140501

WWP MODE

 
Watch, wait and plan mode is how the Wall Street Journal described today's Fed announcement about what investors have come to know and fear as the Fed's tapering program.

Once upon a time in the Land of Monetary Policy there was QE, otherwise known as Fed speak for quantitative easing or let the ink on the printers fly. And fly it did. There are many kinds of highs in life. But for politicians and Wall Street denizens it's liquidity and easy money.

Any threat to that dynamic duo and it 's turn off the fans before you know what starts to fly. So the Fed played a little good cop bad cop announcing earlier in the day growth in the economy barely budged in the first quarter and following it up saying it will continue to pare back its bond and mortgage-back securities purchases in May.

http://online.wsj.com/news/articles/SB10001424052702304178104579533861135944336?mod=WSJ_hp_LEFTWhatsNewsCollection&mg=reno64-wsj