CATCH THE DRIFT

We knew it was bound to happen, just a matter of time.

It's part of the new meme, thanks in large part to political correctness, no one is responsible any more for his or her actions. 

It ain't the devil that makes them do it. It's the monopoly on healthcare by the giant pharmaceutical companies.

Here's the headline from a recent Financial Times article: "US more open to obesity drugs."

US regulators are becoming more open to drugs for tackling obesity, according to Lars Sorensen, chief executive of Novo Nordisk, as the Danish company pushes for approval of a weight-loss medicine that analysts forecast  could generate $1bnin annual sales.

Type II diabetes, the kind most folks eat their way into, is a huge money maker. If you don't believe us here's more from Sorensen and his company.

Growth in obesity drugs could provide a new source of momentum for Novo Norkisk on top of its role as the world's biggest maker of insulin for diabetics.

Rising incidence of diabetes across the world has helped Novo Nordisk over-take GaxoSmithKline to become Europe's fourth-biggest drugmaker by market capitalisation after Roche, Novartis and Sandofi. 

Mr Sorensen said 10 per cent of global  healthcare costs were attributable to diabetes. He said the 'enormous business potential' in treating diabetes meant Novo Nordisk had no need to join the rush of mergers and acquisitions among drug makers this year.

Back in the 1990s another anti-obesity drug, called fen-phen for short after its ingredients, fenfluramine/phentermine, captured the public's attention. Though it had been around since the early 1970s, phentermine when mixed with fenfluramine sales began to take off. 

Up until that time fenfluramine was not popular because it only temporarily reduced weight. Later it was discovered that this and a similar weight-loss drug has serious side effects. 

If you're paying attention, there are two five-letter words here. One is drift and the other is greed. Once again what could be done naturally gets an artificial, painless solution. Natural is big pharma's biggest nightmare.

For a decent recap on the history of fen-phen and its problems, here's an interesting link.
https://www.dartmouth.edu/~chance/course/Syllabi/97Dartmouth/day-2/fen-phen-1.pdf

IT'S ABOUT THE SLACK

Forget the cat. It's now about the slack.

Most are familiar with the old saying about the cat being out of the bag. With the Fed's two-day FOMC meeting starting today, the real question on many minds is: How much slack is still in the bag?

Up to now Fed policy has been slow and steady as you go. Growth in the U.S. has picked up, according to many watchers, notwithstanding claims that inflation remains below the Fed's target rate of two percent. 

Wage pressures also remain low by some accounts. But others are saying that wages never receded enough during the The Great Recession to begin with and are thus starting from a level that won't take too much of a hike to pressure employers.

Stock market pundits near and far of course have rolled out their historical charts that show the market continues to rise during the first few Fed rate hikes, especially if those increases are orderly. But history buffs are like people, they come in all shapes and biases.

Today's Wall Street Journal "Ahead of The Tape" column quoted bond guru Jeffery Gundlach, saying "Yellen will be in no hurry to raise rates since U.S. economic growth is no stronger than in 2012." But  today's Financial Times noted in three previous occasions, 1994, 1999 and 2004, the Fed jumped on higher rates when conditions were less favorable than they are today, notwithstanding that each situation is different.

Confidence is a fragile thing. The longer the Fed waits to clearly signal what's on it's connect-the-dots mind, the greater the possibility investor confidence wanes. A Bank of America Merrill Lynch fund manager survey for September released earlier today cited the second quarter of next year as "48% expect the central bank to deliver its first rate hike then, up from 38% a month earlier" 

The end of the Fed's asset purchase gig, set to end next month, is actually a statement about declining slack left in the bag. Sitting atop a $4.4 trillion bond portfolio and after five years of  look-no-hands-zero interest rates, there's more than enough room for some unpleasant surprises. 
t. man hatter

THE ROAD AHEAD

Investors might not have to wait past Wednesday's Fed FOMC meeting and the Swiss rate decision Thursday for some volatility.

According to the Wall Street Journal, Fed Chair Janet Yellen when she was vice chair at the Fed was "an unabashed advocate of easy money who pressed colleagues to embrace her view."

Leopards aren't reputed to change their spots, but some apparently do. And Yellen seems to be one of them.

As the head honcho, per the Journal, she now is taking a "more restrained consensus" view like her former boss Ben Bernanke. One of the things investors will be looking for is any change in the long-standing Fed phrase "considerable time." It's etched in investor psyches and the Fed knows it.

It's been three years since the S&P 500 witnessed a 10% correction. That's a party few want to walk away from. Unification is a lot like new stuff; it hardly ever goes down easily.

So the most skillful tap dancing appears in order. Any riff here among members could cause a much bigger riff in the market. Though short-lived, most investors remember the first time bond tapering made its way into investors' lexicon.

So now the wait is only a day away.

Having said that, there is another meme making the rounds. One could call it the absence of any meaningful alternatives. With low interest rates in Europe and Japan looking as if they'll be hanging around a while money continues to flow into U.S. bonds and equities.

Fear of rising interest rates and a stronger dollar have sent investors away from smaller caps stocks into safer havens like utilities and consumer necessities.

Given those low rates in the EU and Japan, for stateside investors that means buying larger cap domestic companies rather than multinationals that don't face currency risks. For EU investors buying higher yielding U.S. bonds it's just the opposite.

For certain, few things have been more anticipated and discussed than the eventual upswing in interest rates. But jittery investors are as jittery investors do. And any unclear road ahead will most likely make them even more jittery.
t. man hatter

A PROXY: IRON ORE

 

The Japanese market might have been closed Monday but that didn't stop much of the rest of Asian markets from taking a hit. With the Japanese market being closed it might have lessened the damage.

It was Asian markets lowest level in over a month based on what many believe was China's recent negative economic news. The MSCI, the broadest Asian-Pacific index excluding Japan was down again, according to Reuters, hitting its lowest level since early August.

Numbers released over the weekend  showed weaker Chinese factory output in August accompanied by a slowdown in other sectors. Commodity currencies like the Australian dollar took the brunt of the blows as Chinese officials noted they would spend more efforts on employment and were comfortable with the current rate of growth. Translation to investors: further government stimulus will remain on hold for foreseeable future.

Look no further than American-based Cliff Natural Resources (CLF). Cliffs manages and operates five iron ore mines located in Michigan and Minnesota. The U.S.-based mines currently have an annual rated capacity of 32.9 million gross tons of iron ore pellet production, representing 59 percent of total U.S. pellet production capacity  to get an idea about the metal.

 So far in 2014 iron ore prices are down around 40 percent, adding more pressure on commodity currencies and the concerns about a global recovery. Falling copper and energy markets have added to the weakening signs.

About the only bright spots have been U.S. markets and the rally in the dollar. But that could change too pending this week's Yellen report.
t. man hatter

NOT SO FAST

The idea that the European Union in its current state will survive may be naive. Besides many politicians now within the EU who are calling for an easing of the three percent GDP rules, there are others who want the EU dismantled entirely.

Some anti-EU groups have been gaining popularity. Catalonia and Scotland could also be bellwethers should they exit they current ties. If the ECB's latest magic fails to repair the EU's current ills, things could get interesting fast.

Alternative for Germany, founded last year with a platform of dismantling the euro area, was projected to take 12 percent in Brandenburg and 10 percent in Thuringia. The party, known as AfD, won its first state parliament seats in Saxony last month.

“This gives us huge momentum,” party leader Bernd Lucke said in televised comments. “We won’t just sit back and let the other parties spout their empty rhetoric.”

In a sign of a possible shift of the political landscape in Europe’s biggest economy, the AfD’s ascent mirrors the decline of the Free Democratic Party, a traditional junior partner of both Christian Democrats and Social Democrats. Merkel has ruled out alliances with the AfD, which failed to win seats in national elections on its first try last September

http://www.bloomberg.com/news/2014-09-14/anti-euro-party-widens-challenge-to-merkel-in-german-state-votes.

PRO FOOTBALL AND POLITICAL HYPOCRISY

 

We recently wrote a piece about fracking, "What the Frack Is Happening?"

It's a subject we've been writing about for a while now.

Fracking as you know is much hated in many circles. States like New York have passed legislation to ban or halt the process. New York Governor Andrew Cuomo, a leftist Democrat, is reportedly waiting for one more study to decide fracking's future in the Empire State.

In Colorado a recent controversy about fracking was headed to November's ballot with the prospects of hurting the state's take from fracking fees and taxes until heavy-hitting local and national Colorado politicians did a one eighty.

It's easy to dislike something until one needs it. And that's why the story at this link is about fracking but it's also about something even more important to real people--hypocrisy of the worse kind, the bureaucratic-politically-driven kind.

http://blogs.platts.com/2014/09/12/new-york-fracking-ban/

WEEK UPCOMING

Language as most of us realize to subject to misunderstandings.

If you've ever tried to make what you thought was a simple, innocuous point to your significant other that turned into a you-said-I-didn't-mean-that-but that's-what-it-sounded-like tussle you know what we're talking about.

Well, language will certainly be on the plate of investors this week when the FOMC meets. One of the things investors will be looking for is any hint of a change in the Fed's so-called guidance about interest rates.

Monday, September 15

US Economics (Time Zone: EDT)

08:30 Empire Manufacturing (Sep) - expected 16.00, prior 14.69
09:15 Industrial Production (Aug) - exp 0.3%, prior 0.4%
09:15 Capacity Utilization - exp 79.3%, prior 79.2%
11:00 Fed buying $950M-$1.15b Treasuries in 25 to 30-year range
11:30 Treasury to sell $24b 3-month bills, $23b 6-month bills

Global Economics (Time Zone: GMT)

09:00 EUR Eurozone Trade Balance

Earnings

No reports scheduled

Tuesday, September 16

US Economics (Time Zone: EDT)

08:30 Producer Price Index Final Demand (Aug) YoY - expected 1.8%, prior 1.7%
-- MoM exp 0.0%, prior 0.1%
08:30 PPI Ex Food & Energy YoY - exp 1.8%, prior 1.6%
-- MoM exp 0.1%, prior 0.2%
4:00 Net Long-term TIC Flows - prior -$18.7B
4:00 Total Net TIC Flows - prior -$153.5B
11:00 Fed buying $2b-$2.5b notes in 7 to 10-year range
11:30 Treasury to sell 4-week bills, $25b 52-week bills

Global Economics (Time Zone: GMT)

08:30 GBP CPI & PPI
09:00 EUR German ZEW Economic Sentiment
5:30am BoJ Kuroda speaks in Osaka

Earnings

After
Adobe Systems (ADBE)

Wednesday, September 17

US Economics (Time Zone: EDT)

07:00 MBA Mortgage Purchase Index
08:30 Consumer Price Index YoY (Aug) - expected 1.9%, prior 2.0%
-- MoM - exp 0.0%, prior 0.1%
08:30 CPI Ex Food & Energy YoY - exp 1.9%, prior 1.9%
-- MoM - exp 0.2%, prior 0.1%
10:00 NAHB Housing Market Index (Sep) - exp 56, prior 55
2:00 FOMC Rate Decision
11:00 Fed to buy $350m-$450m TIPS in 5 to 30-year range

Global Economics (Time Zone: GMT)

08:30 GBP BoE Minutes
08:30 GBP Jobless Claims Change
08:30 GBP ILO Unemployment Rate 3M
09:00 EUR Eurozone CPI (Aug final)
2:45pm BoE's Carney speaks to Parliament

Earnings

Before:
Lennar (LEN)
Fedex (FDX)

After:
Pier 1 Imports (PIR)
General Mills (GIS)

Thursday, September 18

US Economics (Time Zone: EDT)

08:30 Initial Jobless Claims - expected 304K, prior 315K
08:30 Continuing Claims - prior 2487K
08:30 Housing Starts (Aug) - exp 1040K, prior 1093K
08:30 Building Permits - exp 1040K, prior 1052K
10:00 Philly Fed - exp 23.0, prior 28.0
12:00 Household Change in Net Worrth (2Q)
11:00 Fed to purchase $250m-$350m Treasuries in 10 to 17-year range
1:00 Treasury selling $13b 10-year TIPS (reopening)

Fedspeak

8:45am Yellen (dove, chair) speaks in Washington

Global Economics (Time Zone: GMT)

NZD GDP
JPY Trade Balance
01:30 CNY China August Property Prices
07:30 CHF SNB Rate Decision
08:30 GBP Retail Sales
7:35am Kuroda speaks in Tokyo

Earnings

Before:
ConAgra (CAG)

After:
Oracle (ORCL)
TIBCO Software (TIBX)

RiteAid (RAD)
RedHat (RHT)

Friday, September 19

US Economics (Time Zone: EDT)

10:00 Leading Index (Aug) - expected 0.4%, prior 0.9%

Global Economics (Time Zone: GMT)

Japan Investors Purchases of Foreign Bonds/Stocks
04:30 JPY All Industry Activity Index (Jul)
06:00 EUR German PPI
12:30 CAD CPI
7:05am BoJ's Kuroda speaks

Earnings

No reports scheduled

Twitter: @MichaelSedacca

GREAT CHART

If you're a contrarian on energy you have to love this chart. It appeared on zero hedge.com



http://www.zerohedge.com/news/2014-09-12/oil-price-plunge-its-global-economy-stupid

KITCHEN REPERCUSSIONS?

During the first few days after Magic Mario Draghi, the ECB top gun, opened his new bag of economic magic tricks, the euro shed two percent of its value and is  now down about six percent since early July.

Across the wide Atlantic the U. S. dollar of late has been on its own tear upward against most major currencies. A strong dollar and a weak euro are Milano opera house music to the ears of  Draghi and his minions at the ECB.

And the Chinese yuan has undergone a similar rebirth to the upside, regaining about half of what it previously dropped against the greenback. In the Land of the Rising Sun it's a similar story with the yen falling against the U.S. dollar.

From a macro point the strong dollar and yuan will help the EU and Japan to perhaps export their way to economic nirvana. At least that's the theory. And it's a good one as far as theories go. This is a backdoor way around what these bureaucrats hate to face most, painful, much-needed structural changes. But theories are often like the best plans of mice and men.

When Japan's chief cook and bottle washer, Shinzo Abe, captured Japan's big kitchen in late 2012, he set out to scrub the yen. And so far so good, since the currency is down over 20 percent against the dollar  in less than two years.

If you're in the asset bubble business, it's a good recipe since the upswing in the  Japanese stock market pretty much tracked the down swing in the yen. Some might suggests that's what usually happens when you print a lot of currency.

According to reports we've seen, however, the effect on Japanese exports and its real economy have been less stellar. Now to be sure every situation is a bit different, but in this case not that much. Both Japan and the EU are in a global world of hurt and both are looking to the U.S. which is not that much ahead of them, in the view of some, for help.

Everything has a repercussion. So what's this one? 
t. man hatter

AVAILABLE TO ALL

Forget a horse and all that about my kingdom for such. Most of us would give a bunch for a revision.

 
What's a revision? Well, the ability or opportunity to go back and change the unpleasant or unwanted in life, try that for starters.

Here's an example from http://www.marketwatch.com/story/an-economic-puzzle-has-been-revised-away-2014-09-12.

Payrolls growth has been strong, the unemployment rate has come down, manufacturing and service sentiment was buoyant, consumer credit was expanding, the stock market continues to improve, house prices are still mending, consumer confidence was improving — but consumers weren’t spending?

Well, the new Commerce Department report on retail sales indicates that, actually, spending wasn’t so disastrous.

Not only did retail sales grow 0.6% in August, but that growth came from a better base, as both June and July figures were upwardly revised.

And while the retail sales figures were bolstered by car sales — in turn, juiced by subprime lending — most other categories also had a solid month. Furniture and home-furnishings stores had sales growth of 0.7%. So, too, for electronics and appliances stores.

OK, gas stations had a bad month, and department stores continued to struggle, but the former was due to good news (falling prices) and the latter is a secular story, one of a shift toward Internet-based shopping. In the last 12 months, nonstore sales have climbed 7.1%, while department-store sales have slipped 1.2%. (See: Greed is not good for Macy’s investors.)

The August report — and, importantly, the revisions to June and July — now fit with other pieces of the U.S. economic puzzle.

It's nice to be able to go back and make everything fit. One might say it ought to be available to all.
t. man hatter