COMPLACENCY BY ANY OTHER NAME

                                           C. C. Chance 
A lot of what gets written recently about the the stock and bond markets centers on the risk of investor complacency.

But with a little imagintion and illogic--we prefer both in our assessments--the most complacent of all just might be Fed officials. In a nutshell here's their take on things.

1. QE unwinding will go smoothly because we have carefully planned for it.
2. We have spent numerous hours planning--see comments by a Fed member at Jackson Hole--devisng a scheme that ensures such.
3. We know better than anyone else just when to crank up the interest rate pump.
4. We are "noise" experts
5. And even if things do go a bit awry, we have the tools for correcitng it.
6. Just trust us and let us do our job.
7. We're bureaucrats and we're here to make things better.

Flasback now to the speech Fed Chair Yellen recently gave to the IMF about what's needed and this quote:

"...a regulatory umbrella wide enough to cover previous gaps in the regulation and supervision of  systemically important firms, and markets can help prevent risks from migrating to areas where they are difficult to detect or address."

Now it's a sure bet whether Yellen or whoever wrote or helped write the above felt puffed up with pride after proof readng that puppy. If we didn't know better we'd suspect she was addressing a convention of bird watchers seeking better protection from sun damage.

Yellen then rolled out what's becoming a favorite term of central bankers thoughout the intergalactic solitary universe, macroprudential. Macroprudential is one of those abstract terms that belongs more in an art dealer's studio than in the real push and shove economic world. 

But oh well. We better stop. We're starting to sound a bit....well, complacent.

UP COMING WEEK

If you've heard of Humphrey, then you probably heard of Hawkins. And no they're not distant cousins of yin and yang

It's about the Federal Reserve Bank Chairperson traipsing up Capitol Hill to fill the lads and lassies in on what's up with the economy. 

Several finance firms are on the docket along with some techies to release earnings reports. And a relative biggie June retails sales numbers.

Monday, July 14

US Economics (Time Zone: EST)

No major reports scheduled
11:00 Fed to purchase $1b-$1.25b bonds in 22-30 year range
11:30 Treasury to sell $25b 3-month bills and $23b 6-month bills

Fedspeak:

1:10pm Williams to speak in Sun Valley, Idaho

Global Economics (Time Zone: GMT)

CNY Foreign Direct Investment
09:00 EUR Eurozone Industrial Production

16:30 Draghi speaks to EU Parliament Committee

Earnings

Before:
Citigroup (C)

Tuesday, July 15

US Economics (Time Zone: EST)

08:30 Advance Retail Sales (June) - expected 0.6%, prior 0.3%
08:30 Retail Sales Ex-Auto - exp 0.5%, prior 0.1%
08:30 Retail Sales Ex-Auto & Gas - exp 0.5%, prior 0.0%
08:30 Import Price YoY - exp 1.1%, prior 0.4%
08:30 Empire Manufacturing (July) - exp 17, prior 19.28
10:00 Business Inventories (May) - exp 0.6%, prior 0.6%
11:00 Treasury to sell 4-week bills

Fedspeak

10:00am Yellen (dove, chair) to give semi-annual Humphrey Hawkins testimony to Senate Committee

Global Economics (Time Zone: GMT)

BoJ Monetary Policy Statement
01:30 AUD Minutes of RBA July Meeting
08:30 GBP CPI & PPI
09:00 EUR German ZEW Survey - Current Situation, Expectations
13:00 CAD Existing Home Sales

9:00am Carney to testify to House of Commons Treasury Committee

Earnings

Before:
JPMorgan (JPM)
Goldman Sachs (GS)

After:
CSX (CSX)
Intel (INTC)
Yahoo! (YHOO)
Johnson & Johnson (JNJ)

Wednesday, July 16

US Economics (Time Zone: EST)

07:00 MBA Mortgage Apps
08:30 PPI Final Demand YoY (June) - expected 1.8%, prior 2.0%
08:30 PPI Ex Food & Energy YoY - exp 1.7%, prior 2.0%
09:00 Net Long-term TIC Flows (May) - exp $25B, prior -$24.2B
09:00 Total Net TIC Flows - prior $136.8B
09:15 Industrial Production (June) - exp 0.4%, prior 0.6%
09:15 Capacity Utilization - exp 79.3%, prior 79.1%
10:00 NAHB Housing Market Index (Jul) - exp 50, prior 49
2:00 Fed's Beige Book

Fedspeak:

10:00am Yellen (dove, chair) to give semi-annual testimony to House Committee
12:00pm Fisher (hawk, voter) speaks in Los Angeles

Global Economics (Time Zone: GMT)

02:00 CNY Fixed Asset Investment
02:00 CNY Retail Sales
02:00 CNY Industrial Production
02:00 CNY GDP
08:30 GBP ILO 3M Unemployment Rate (May)
14:00 CAD BoC Rate Decision

Earnings

Before:
Abbott Labs (ABT)
US Bancorp (USB)
Blackrock (BLK)
Bank of America (BAC)
St Jude Medical (STTJ)

After:
Sandisk (SNDK)
Yum! Brands (YUM)
eBay (EBAY)
Las Vegas Sands (LVS)
Kinder Morgan (KMI)

Charles Schwab (SCHW)
PNC Financial (PNC)

Thursday, July 17

US Economics (Time Zone: EST)

08:30 Initial Jobless Claims, June 28, exp. 310k, prior 304k
08:30 Continuing Claims - exp 2583K, prior 2854k
08:30 Housing Starts (June) - exp 1025K, prior 1001K
08:30 Building Permits - exp 1042K, prior 991K
10:00 Philly Fed - exp 16.0, prior 17.8
11:00 Fed to purchase $1.75b-$2.25b notes in 4 to 5-year range

Fedspeak

1:35pm Bullard (hawk, nonvoter) speaks in Kentucky

Global Economics (Time Zone: GMT)

Japan Investors Purchases of Foreign Stocks/Bonds
09:00 EUR Eurozone CPI

Earnings

Before:
Baker Hughes (BHI)
Sherwin-Williams (SHW)
Keycorp (KEY)
UnitedHealth (UNH)
Mattel (MAT)
Fifth Third Bancorp (FITB)
Philip Morris (PM)
Morgan Stanley (MS)
WW Grainger (GWW)

After:
Capital One Financial (COF)
IBM (IBM)
Schlumberger (SLB)
Skyworks (SWKS)
Google (GOOG)

Advanced Micro Devices (AMD)
Blackstone (BX)

Friday, July 18

US Economics (Time Zone: EST)

09:55 University of Michigan Consumer Confidence (July prelim) - expected 83.0, prior 82.5
10:00 Leading Index (June) - exp 0.5%, prior 0.5%

Global Economics (Time Zone: GMT)

01:30 CNY June Property Prices
12:30 CAD CPI

Earnings

General Electric (GE)
Kansas City Southern (KSU)
Bank of NY Mellon (BNY)
Honeywell (HON)

As noted below this data is from the website Minyanville, one of the better sites we follow.

Twitter: @MichaelSedacca

Read more: http://www.minyanville.com/business-news/markets/articles/bank-earnings-earnings-report-china-gdp/7/11/2014/id/55531#ixzz37E5YlSZo

AN OPPORTUNITY READ

Read this quote and read it carefully.

Then read the article.

"By partially replacing term funding in the form of more expensive bank bonds, the [redacted] can create a scarcity of investible assets, which will result in lower yields and easier market funding conditions even for banks that have not taken part in the operations."

It's from today's issue of Minyanville. Here is the link. 
http://www.minyanville.com/special-features/from-the-buzz-banter/articles/Who-Said-It-Public-Official-Behind/

Anyone who appreciates clear, concise English, anyone who ever  read George Orwell's article about debasing a language, anyone who even faintly claims to care about good communication, ought to read this.

But there's a bigger point as the article rightly points out. Buried in here is an opportunity mixed, to be sure, with a bit or mirth. Or should we just call it what it is, central bank humor.
t. man hatter

LOGICAL ILLOGIC

The argument will never be settled.

But just for the drill we'll leap in to see how comfortable the water is.



Pundits of all strips, firms, levels of money under management and data banks have different definitions of over-valued, richly valued or whatever is the latest term making the economic or talk-show rounds. Shakespeare might of said: "To error is human, to forgive divine," but neither of those apply to anyone in the securities business

This is hardly a logical business even though many believe in logic. One could easily make a cogent case that any business that involves humans isn't logical. Can't be. Think politicians and bureaucrats here.

In 1930 a guy named Fred C. Kelley wrote a pretty good book, Why You Win or Lose, about the stock market. In Chapter Five Kelley talked about where being illogical is wisdom. Now as a quick aside, if Kelley were around today we might want to debate his statement when it comes to politician and bureaucrats, but when it comes to investors and the market, we think he's correct.

The bond market this year with all it's yield-chasing investors as was the first half run-up in energy pretty illogical. Toss in utilities and consumer staples stocks leading for the first half and you're getting warmer. And don't forget all that easy money central banks, like in Japan, hoped commercial banks would use to make consumer and business loans.

What happened with that?

Kelley states that speculation gets a bad rap because it is assumed that speculators make their money absent sweat and tears. But everyone is a speculator, Kelley argues, even "every conservative, successful manufacturer is a speculator. He has to be. If he doesn't buy raw materials when they are cheap--at least part of the time, he'll go bankrupt."

Kelley goes on "even buying a home is speculative." How many folks discovered that one during the last Fed-incited real estate bubble?

The bottom line here is you have to decide for yourself--something global leaders hope you'll never, ever get around to--what is rational and what is irrational.

It's a big task but don't let anyone get in your way.
c.c. chance

http://www.marketwatch.com/story/us-stocks-will-be-very-disappointing-for-10-years-2014-07-11

BONDS FOR SALE

t. man hatter

A headline on a story in the Financial Times today, "Corporate bond sales at five-year high," discusses how corporations worldwide, exploiting low rates and investor demand, flocked to the market in the first half of this year, making it the highest sales in the first half of a year since 2009.

The list of sellers reads like a who's-who of corporate royalty: Verizon, Walmart, Cisco and big banks like Wells Fargo, Bank of America and BNP Paribas. One can understand BNP's coming to market. They obviously want to recoup some of that big fine money French politicians are so upset about.

So far $1.8 trillion has been sold with financial firms doing the bulk of the selling, $1 trillion, while non-financial firms sold roughly $836 billion, according to Standard and Poor, the big bond rating agency. 

Most of the bonds had investment-grade ratings, but junk borrowers managed to squeeze in $290 billion. Europe got in its share, issuing around $800 billion, according to the report. 

Corporate default rates remain low, 1.8 percent, for the first half of 2014, giving the yield-starved a further boost of confidence or, as some might say, complacency. So far total returns for dollar denominated bonds, 5.6% to date, for long-dated bonds, those maturing in 10 or more years, add to their attractiveness

By comparison junk bonds have returned 5.5% and U.S. Treasuries 2.5%, again pushing yield-conscious but premium-risk-deaf investors further into what could turned out to be really ugly terrain when interest rates rise.

The huge much-disdained and much-shopped giant, Walmart, floated a $1 billion, 30-year puppy. This was Walmart's first such deal in several years. Though we don't have the coupon rate, one can only assume, given current rates, that in 20 years its holders will most unlikely be unable purchase even the firm's cheapest trinket with the annual interest payment.    

IRRESPONSIBLE?

                                            t. man hatter 
We have to confess we might need a little help here.

But let's see if we can just get this right. Fed chair Janet Yellen from what we've been able to read admitted that her bank's policies have created two things--low volatility and paper asset price appreciation.

We'd say stocks here, but for this exercise we want to try to think in the foggy, stilted language economists are noted for. Those two things in themselves are not too puzzling. What's puzzling is, to use an economic term, the lack of correlation.

Simply put, Fed policies caused the run-up in stock prices, but to hear Ms Yellen those higher stock prices --some would suggest bloated prices--are not the Fed's concern. Seems like a disconnect somewhere here to us.

Now we don't know about you, but if you've ever practiced any kind of serious medicine, what they used to teach in the old days is never treat a lab number. That's a metaphor for: Never make your diagnosis in the lab. In short, treat the patient not the data.

But when one is schooled his or her whole life to worship at the Alter of Data, it's probably unrealistic to expect anything else.

From what we can gather, it's Ms Yellen's position that the lab number here, employment, a proxy for steady, continuous growth, is the more important notwithstanding the role she and her merry central banking friends played in creating what many believe is a paper asset bubble.

Sounds like a good gig if one can get it. We're not responsible. Maybe that should be stated a bit differently. You're not responsible.You're irresponsible.

AROUND THE WEB

 Fiddling Versus Statue Building
http://www.washingtonpost.com/blogs/worldviews/wp/2014/07/10/indias-new-budget-includes-33-million-to-build-the-worlds-tallest-statue-not-everyone-is-happy/

 Crude Oil
http://www.seeitmarket.com/crude-oil-back-on-investors-radars-13671/

Looking For A Reason?
http://www.bloomberg.com/news/2014-07-10/leuthold-selling-stocks-on-concern-s-p-500-may-tumble-8-.html

Where Did The US Dollar Go?
http://www.peakprosperity.com/podcast/86044/mike-maloney-dollar-we-know-will-gone-within-6-years

One More Sign?
http://www.marketwatch.com/story/another-sign-the-bull-market-is-nearing-its-end-2014-07-09?dist=lbeforebell

Market Closes Down For Day
http://worldpress.org/link.cfm?http://feeds.reuters.com/~r/reuters/businessNews/~3/6Ezes-xH2-s/story01.htm

Food Fight Or Political Jockeying?
http://www.csmonitor.com/USA/Education/2014/0710/Are-nutrition-standards-for-school-meals-too-tough-Congress-considers-tweaks

Just How Crazy Are The French?
http://globaleconomicanalysis.blogspot.com/

Portugal May Be Joining Argentina?
http://www.cnbc.com/id/101826369

ONCE UPON SOME BOND OFFERINGS

 
 t. man hatter
Once upon a time there were several peripheral countries in the European Union that witnessed some awful days when their economic Humpty Dumpty lost its balance and crashed.

But things got better, so investors were told, as interest rates dropped and from Greece to Ireland to Portugal to Spain any more economic help from their big brothers in Frankfurt and Brussels wasn't needed. To prove their case a couple of them came to the international market after a long absence and sold sovereign bonds.

The ratings on these bonds were like their yield, lower than a duck's belly after lunch. But no matter. Hungry is as hungry does. And investors lined up like the yield-starved lemmings they are, thanks in part to a global group of trusty central bank Svengali.

The end of the tale remains to be unraveled. But some might suggest this was a clear violation of one of the free market's lessor known rubrics, the Cockroach Theory: If you see one, there's bound to be more. 

And that looks like the story today with the big Portugal bank, Banco Espirito Santo, and some apparently irregularities or what is better played down in the crime world as suspect of interest.

All this sparked concerns over another part of the conglomerate – and Portugal's leading bank -- Banco Espirito Santo, with investors speculating that it could be ready to default on its debt. Shares in Banco Espirito Santo were down 19 percent before being suspended by market regulators and Espirito Santo Financial Group dropped 8 percent before also being suspended. 

These concerns rolled over into the wider European equity markets, triggering a sell-off across the rest of Europe. In the debt markets, Banco Espirito Santo bonds continue to underperform, with the knock-on effect on Portuguese government bonds, with the yield on its 10-year sovereign debt moving higher throughout Thursday. Still shuddering at the memory of the euro zone financial crisis, investors sent the yields for other euro zone "peripheral" countries – Greece, Italy and Spain -- higher during the morning session.

To borrow the words of a popular song some time back: "Things got bad, things got worse and I  guess you know the tune, stuck in Lodi again."

Who might get stuck here is one of those who knows. 

Worse case: Though some pundits may claim otherwise, Portugal may be joining Argentina.

http://www.cnbc.com/id/

OIL UPDATE

 

                                           t. man hatter
                                         
A while back we wrote an update on energy, specifically oil, and we suggested there would be a pullback creating opportunity.

At the time oil was trading near its recent highs. Given all the global turmoil--Iraq, Gaza, Ukraine, Nigeria, the South China Sea, to name a few, one would expect the opposite. True, the Iraqi situation seems to have cooled a bit as oil from there continues to flow while the Ukraine appears set for a showdown and Libya cranked up it pumps again.

None of this means the globe's bad actors have exited the scene. Europe will have a tough time weening itself off of Russian energy. And Mr. Putin's still trying to work his black magic in several other former Soviet possessions. 

In today's Around The Web we posted a story about gas prices in 11 U.S. states falling as demand seems to be down so far this driving season. Brent crude (Aug. 14) hit its 52-week high of $115.18 on 6/19/14. In today's early trading it hit a low of $107.76.

Here's a quote today from Reuters. 
Brent inches down toward $108 on weak U.S. gasoline demand

Brent crude had fallen 20 cents to near $108 a barrel, down for a ninth straight session and matching a similar losing run in May 2010. U.S. crude is down for a tenth consecutive session under $102 a barrel, 60 cents below Wednesday's close. The front-month price is on track to post its longest stretch of losses since July 1984.

A steeper fall in West Texas Intermediate has widened its spread with Brent to more than $6 a barrel after touching the narrowest in nearly a month on Wednesday.

We wrote then and it's still our story now and we're sticking with it. You want to own oil. Keep some powder dry for big pullback and choose wisely.
 
Here's another point of view about the death of oil. We have argued for some time there are no heroes without villains. Part of the rancor about oil is about vilifying it by blaming it for creating more damage than it actually does.

This is a tried and true tactic globalists and the climate change crowd roll out every chance they get. Hydrocarbons are the dirty word of the decade.
http://www.thedailybell.com/news-analysis/35467/Dont-Fall-for-the-Energy-Hype/

Mr. Warren Buffet is pretty tight with the Obama and Hilary clans. Last time we looked he was also pretty rich. So it appears the "Omaha Scold" is quite happy making lots of money transporting the nasty--and now apparently explosive stuff--out of North Dakota.

FOOTNOTE

                                      t. man hatter

In case you haven't been paying attention metals have started to stir. Here's a quote from today's Barron's.

When the Dow Jones Industrial Average stalled in June just shy of the exalted 17,000 level, something very interesting changed beneath the surface. It was not the sexy momentum stocks but rather the opposite -- industrial metals -- that suddenly started to outperform the market. And the charts point to still higher prices ahead.

This sector comprises commodity producers at the very bottom of the economic food chain, including copper miners and steel producers. It is easy to overlook them in a Google-dominated market, so it took a new high last week in miner Freeport-McMoRan Copper & Gold (ticker: FCX ) to put these stocks on anyone's front burner.

We wrote about the sector and, in particular, two of these puppies, FCX and NEM, months ago when much of the market talk centered on China's economic weakeness and the global slow down.

Freeport McMoran had some trouble in Indonesia which now looks as if its resolved. Newmont was earlier in consolidation talks with Barrick Gold (ABX), but both sides couldn't get it done. Now it appears as if those talks may start up again.

Make no mistake the pessimistic crew is still around. Jabbering about these two being two medium-sized bad companies will beget one bigger really bad company if they unite is the stuff we like to see.

Some folks look for happiness. We look for pessimism. Pessimism usually precedes hope as hope does happiness. So we like our chances, if for no other reason than they're ours.

Copper so the story  goes was first mined around 10 centuries ago. Its uses are numerous, construction and electrical wiring, to mention a few. It's the metal many refer to because of it widespread uses as the Ph'd metal.

Freeport just hit a 52-week high $39.30, well off from its high in early 2011 around $60. Analysts at HSBC recently initiated coverage with an overweight rating and a target price of $44. The stock is up over 40% in the last year while the S&P 500 gained close to 19%.

Now we don't put much stock in analyst reports, buy, sell or hold. Hold is actually a sell from these boys and girls. But biases being what they are, we do like our own research.