THE SWEDISH AFFAIR

Affairs for whatever reasons can go either way, bad or good.

The Swedish one doesn't appear to be a very happy one at this point as reported in the Financial Times today. 

Leading Swedish executive have decried what they see as anti-business rhetoric of Sweden's new centre-left government.

According to the report, several Swedish executives complained to the newspaper after the new one-month old coalition government floated several new proposals than included closing the Stockholm's city airport, capping profits on private companies running public services and the closing of several nuclear reactors.

One of the concerned, chief of Sweden's largest bank, Nordea, Christian Clausen, characterized the new proposals: "Of course it is a worry that their rhetoric is so negative."

The new government apparently intends to raise taxes and, as some of the concerned put it is "taking some steps against private ownership."

Brain drain is one thing, an entrepreneur drain, though closely related, another. What many apparently fail to realize, or just don't care so long as they get their way, is the global market race for growth and jobs given all the deflation concerns just kicked up several notches.

OUR VIEW

Of the 25 European banks that failed the so-called rigid financial stress test, nine were Italian.

Now most are familiar with Italy's long standing record on the lack of fiscal discipline, ask just about any German. But has anyone--and we're sure they have-- looked at the possible hidden message in the ECB's findings as a shot across the bow of  Italy's young, brash, newly elected leader Matteo Renzi?

Renzi along with some obstreperous French leaders has been an unwanted thorn in the side of Brussels bureaucrats since he arrived on the national scene.

That Spain,which seems since the crisis erupted, has fallen into the EU party line, came through unscathed suggests Machiavellian tactics are still alive and functional. Spain is the country remember during the downfall that had 25 percent, most likely a soft number, of unemployment during the crisis.

Taking a page from their French counterparts, Italian banking officials, according to the Financial Times, "..criticised parameters in the regulatory stress test as unrealistically harsh on the nine Italian  banks that failed and disputed the exact number of failures by the European Central Bank."

Anyone surprised here?

European central bankers and their MSM cohorts have a clear-cut message for those who care to swallow hard. We are doing something and things are not so bad after all. 

It's about restoring investor confidence. And they don't care how they do it, especially when it comes to the old fashioned way, fudging the truth.

True to its code MSM resorted to semantics, including the Times. 

"However, many of those failures were in effect technical ones, because banks raised money from investors subsequent to the December 2013 cut-off date."  

Translation: We're coming to your house in six months. Please don't hide the worst in obvious places.

We don't know about other countries, but in the U.S. random on-the-job drug screens have been around for a while.There is even a proposition on the California ballot in next month's election for random drug testing of health care workers, the first of its kind in the nation.

What these banks really need is a good old fashion random drug screen to get at the real truth.

Some are claiming this stress test was much more stringent than its predecessor. But if that one were any softer it could've been served over toast for breakfast.

The beat goes on. And so does the sham.

That's our view. We hope you know yours.

OVERNIGHT

                                        

Thin trading volume may set the market tone ahead of the Federal Reserve's upcoming two-day meeting this week where it's  expected they will announce QE is toast. At least that seems to be the cases overnight in Japan.

Though it's been in the news for a while now, one gets the feeling many investors are, to paraphrase an old saying from a black day in baseball history, "Say it ain't so, Janet!"

Odds are, however, it is so and investors will be trying to gauge the lay of the economic investment landscape as they adjust or go through withdrawals. In Europe investors will be trying assess the results of bank stress testing.

A cynic having seen the numbers--25 naughty banks out of 130 and the amount of under-capitalization a mere €48 billion--might say it smells a bit over cooked. But there aren't any more cynics around are there?

TOKYO, Oct 27 - Japanese stocks rose on Monday to a 2-1/2 week high as upbeat U.S. data and a weaker yen lifted sentiment in the overall market, but volume was thin as investors awaited the outcome of a two-day U.S. Federal Reserve policy meeting this week. The Nikkei share index ended 0.6 percent higher at 15,388.72, the highest closing level since Oct. 9. But only a total of 1.81 billion shares changed hands on the broader Topix, the lowest since Sept. 8. 

EBOLA CONTROVERY GROWS

One never hesitates to take on the mighty New York Times and their higher-than-high claim about printing accurate information.

The Times recently, commenting on the infectiousness of the Ebola virus, published the following, "people infected with Ebola cannot spread the disease until they begin to have symptoms, and it cannot be spread through the air."

The good editors at the Times obviously have never heard of--or worse yet, chose to ignore--the term "viral sloughing." In the case of  a well-known and widely spread affliction today, Herpes, it is believed to be infectious during a "sloughing phase" when the person infected with the virus is totally asymptomatic.

People can debate what they want about the differences, but they are viruses and viruses, like you and me, want to survive. And viruses mutate. Some of the information from the recent outbreak suggests that's already happened since the last outbreak owing to the increased temperatures being recorded in those newly infected cases.

In fact, one could argue that we humans are just giant two-legged viruses roaming the planet and every time we build up antibodies to fight off an infectious disease it's a form of mutation to survive.

As the Ebola controversy heats up, here are some guidelines being provided to health care workers who work in certain clinic environments to follow when a patient may come in complaining of Ebola-like symptoms or expresses he might have been exposed to someone with the disease.

 1. Make every effort to keep your distance from the patient--at least three feet--and avoid any contact with possibly contaminated surfaces and any direct contact with the patient.

2.  Get the history and review of systems from a distance at least three feet away from any contaminated area or the patient.

3. Based on your evaluation, categorize the patient as a) unlikely infected b) likely exposed or possibly infected

4. If infection unlikely, proceed as usual

5. If asymptomatic but may have been exposed to Ebola, notify local health officials.

6. If symptomatic and possibly infected, place patient in room, put Do Not Enter sign on door, immediately notify local public health officials or call 911.

7. Do not make any attempt to decontaminate room once patient is gone and do not enter room until cleared by public health officials.


Does any of this sound reassuring to you? It's taking precautions at best.

Another issue is how long will it take public health officials to decontaminate a room or an entire area?  In a worse case scenario one can see whole areas shutdown and people quarantined, not to mention a logjam that might well develop owing to the volume of places that need to be decontaminated.

The controversy about quarantining health care workers returning from areas where they have been helping victims is now pitting the White House against various states like New York, New Jersey and Mr. Obama's home state, Illinois. The states are right on this one.

In the new millennium, the centuries-old strategy of quarantine is becoming a powerful component of the public health response to emerging and reemerging infectious diseases. During the 2003 pandemic of severe acute respiratory syndrome, the use of quarantine, border controls, contact tracing, and surveillance proved effective in containing the global threat in just over 3 months. For centuries, these practices have been the cornerstone of organized responses to infectious disease outbreaks. However, the use of quarantine and other measures for controlling epidemic diseases has always been controversial because such strategies raise political, ethical, and socioeconomic issues and require a careful balance between public interest and individual rights. In a globalized world that is becoming ever more vulnerable to communicable diseases, a historical perspective can help clarify the use and implications of a still-valid public health strategy.

http://www.cdc.gov/quarantine/historyquarantine.html

The other controversy here is whether Ebola is an airborne threat. And the real answer to that is no one, not the New York Times or 60 Minutes or Mr. Obama's top advisers, virologists or otherwise, at this point knows for sure
  
One can call it precaution all he or she wants. But precaution is often a euphemism for: "We don't have a f****** clue!" And like it or lump it, that's just about where we are right now.

If Ebola turns out positively not to be airborne, it will be the exception, not the rule.

CALL FOR UK RATE HIKE

Spare capacity in the UK's fast recovering economy, according to Reuters, has at least one central bank official calling for hiking interest rates now, as concerns about how much spare capacity margin remains grow.

One of two central bank rate-setters who voted for rate hikes last August, Ian McCafferty, again, called for raising interest rates now even though British inflation remains at a five-year low of 1.2 percent below the central bank target of 2 percent.

There's something to be said for McCafferty's claim amidst all the deflation talk. If there's anything more in the media than deflation and more out than inflation we have not seen or heard it. It's been
over five years since the Bank of England cut rates to 0.5 percent in 2009.

Britain's unemployment rate is now down from 7.7 percent a year ago August to this past August. So McCafferty's concerns about wage hikes not being far behind is part is an argument others are also making.

McCafferty also called sinking commodity prices a one-off event partly affected by the strong sterling pound. There nine other members on the rate-setting committee. So far they are opposed to any rate hikes.

The market has priced in the first rate hike sometime around mid-next year. 

LOOKOUT: PRIVACY THIEVES ARE COMING

Barack Obama, the man who gained office for his first term running on a platform for change, has become noted for his wait-and-see approach during his second term.

There are at least three instances--Syria, the Ebola virus cases and the resistance to antibiotics program that critics say doesn't go far enough. We'll leave out for now his perpetual stalling on the now infamous KXL pipeline project.

While most at the moment are focused on the Ebola outbreak, resistance to antibiotics, according to sources familiar with the latest reports, last year in the U.S. alone was responsible for 2 million illnesses and 23,000 deaths.

One of the critics' major concerns is the rampant and some claim excessive use of antibiotics in farming and live stock feed.

Much of the use goes to preventing rather than treating disease in live stock, a fact many claim leads to creating antibiotic resistant bacteria. 

There is little doubt antibiotics get over used in treating humans, though not all the fault rests with medical practitioners. The public must bear its complicity since much of the public demands the medications for infections that antibiotics don't and won't help like viral colds.

Lawyers and insurance companies also contribute mightily to the problem as these people have input to so-called community standards. Medical providers are often put on the defensive not just for what they do do but also for what they don't.

Prescribing antibiotics for routine, non-contaminated wound repairs has become almost standard practice owing to push back fears. Infected wounds if they become complicated often bring with them lawsuits in what might be every trial lawyer's dream in America, the most litigation filing society on the planet.

 If you don't think lawyers and litigation is more about the money and less about safety and privacy, you're not familiar with California's Prop.46 on the ballot in the upcoming election. 

Remember, California for all its wackiness is often a trendsetter in many areas.

Prop. 46 if approved would create the first law in the United States to require the random drug testing of physicians and health care providers. 

It  would increase the state's cap on non-economic damages that can be assessed in medical negligence lawsuits to over $1 million from the current cap of $250,000. It will increase the cost of medical care, decrease access and in some instances threaten patient privacy.

Consumers, taxpayers and patients will pick up the tab and  California healthcare providers and pharmacists will be forced to refer to a massive statewide data base filled with each  person's personal medical prescription history without regard to patient privacy, sort of a California version of NASA.

There's yet another side to this as noted here.

For the past year, the fate of antibiotics R&D at AstraZeneca AZN.LN -0.16% has been uncertain. The drug maker, which possesses what is generally regarded as having the strongest antibiotics pipeline in the pharmaceutical industry, indicated that spending on this area would be reduced as part of a larger cutback and strategic refocusing. Ever since, speculation has grown that antibiotics may be abandoned altogether.

Now, an unconfirmed report suggests AstraZeneca may, in fact, be ready to walk away from the field. 

Any move by AstraZeneca will be closely watched because of the timing – public health officials, notably the World Health Organization, have been warning about the growing threat of resistance to existing antibiotics and the need to develop new products. Last month, for instance, the Obama administration released a game plan for combating antibiotic resistance. The pharmaceutical industry, however, has largely drifted away from research into this area.
t. man hatter

BULLS BEARS AND YOU

Perma bull Jeremy Siegle, the Wharton School of Finance professor, appears to be getting some cold feet when it comes to his prediction earlier this summer about the DJIA closing out the year at 18,000.

It's amazing what a little volatility will do for one's courage. But this isn't the first time Siegle has had to back off his bullishness. 

Seigle actually came to notice in 1994 with his then best seller, Stocks for the Long Run, and he rode that tide until early 2000 when during a Business Week interview he was asked about the future of the market and he responded:

"Seven percent per year [average] real returns on stocks is what I find over nearly two centuries. I don't see persuasive reasons why it should be any different from that over the intermediate run. In the short run, it could be almost anything."

History records what happened soon after that.

Last July he had this to say after he suggested the market might be over-valued at 20 or 21,000 

 "I would say my biggest worry would be on the inflation front. If we start seeing some supply constraints, if the low unemployment brings wage increases that are not matched by productivity increases, oil stays high and gets higher, that'll be a problem," he said. Much higher gasoline prices, too, "would certainly be a problem." 

The above was in July. On August 19th he said this:

Right now, the market is selling at 16.5 times 2014 earnings, Siegel noted. To get Dow 18,000, it would need to sell at 17.5 times earnings, "a very reasonable multiple given the interest rates." On top of that, in 2015, earnings are expected to increase another 6 percent to 10 percent.  
 
He's also not too concerned about the uncertainties around the globe, like the conflicts in Ukraine and Gaza, affecting his thesis because the market has learned to live with them. 

"We live in a world of uncertainty and bull markets actually climb the wall of worry," Siegel said. "When we see nothing in the future that can worry us at all, I'll get worried and I'll probably tell people to sell stocks." 

September 16th the following: 

Standing by his prediction of 18,000 on the Dow Jones Industrial Average by year end, Siegel again made his case for why the bull market still has legs. He sees second half economic growth of 3 to 4 percent, S&P 500 earnings near $120, and the start of Fed rate hikes in the spring or summer of 2015.

A little over one month later on October 24th, he told CNBC:

It looks like the stock market hit its recent bottom last week, long time stock bull Jeremy Siegel told CNBC on Friday. But the Wharton School professor of finance said his prediction for the Dow to reach 18,000 by year end is now only 50-50.

Perhaps I've been sticking my neck out too much," Siegel joked in a "Squawk Box" interview, but added that 18,000 still appears more likely than it did last week. He also pointed to the historic strength for stocks in the months of November and December.

There are bulls and there are bears and then there is you. 

Siegle is a professional investor connected to some big, popular funds. In the face of all his bullishness for months, if a little nine percent correction jangles his nerves so much, why should ordinary investors pay him and his views much heed?

UPCOMING WEEK

 
 Who knows what normal is?

Talk on the Street about Federal Reserve's two-day meeting next week when it's expected the Quantitative Easing training wheels come off ranges the gamut. Expected on Wednesday is the announcement that says the party's over.

But to be sure, next week brings a bunch of important data like third quarter GDP, durable goods and some heavy corporate earnings announcements. Exxon, Merck, Pfizer, BP and Facebook, to name a few.

The recent outbreak in what many apparently took for granted, the prolonged absence of volatility, jangled many investor nerves in the face of the expected ending of QE.

For some, earnings are now more important than the Fed. The S&P 500 rallied this week, settling at 1,964 fewer than 5o points off its all-time high in September.

For many investors the Fed stayed too long and imbibed too much at the big QE party. So a certain uncertainty lurks over the market. And all of this is suppose to lead to what is normal after six years of some very abnormal stuff.

Best of wishes with that one, too.

---

Monday, October 27

US Economics (Time Zone: EST)

10:00 Pending Home Sales MoM (Sep) - expected 0.8%, prior
 -1.0%
10:30 Dallas Fed - exp 11.0, prior 10.8
11:00 Fed to purchase $850m-$1.05b notes in 23 to 30-year range
 (last purchase)
11:30 Treasury to sell $24b 3-month bills and $30b 6-month bills

Global Economics (Time Zone: GMT)

Brazil election results to be released Sunday evening
ECB Asset Quality Review (AQR) results to be released at 5pm ET
09:00 EUR German IFO - Current, Future Expectations

Earnings

Before:
Allergan (AGN)
Merck (MRK)

After:
Buffalo Wild Wings (BWLD)
Cliffs Natural Resources (CLF)
Masco (MAS)
Amgen (AMGN)
American Capital Agency Corp (AGNC)
Twitter (TWTR)
T-Mobile (TMUS)

Tuesday, October 28

US Economics (Time Zone: EST)

08:30 Durable Goods Orders (Sep) - expected 0.5%, prior -18.2%
08:30 Durable Goods ex Transports - exp 0.5%, prior 0.7%
08:30 Cap Goods Shipments Nondef Ex Air - prior 0.1%
08:30 Cap Goods Orders Nondef Ex Air - exp 0.5%, prior 0.6%
09:00 S&P/Case Shiller 20 City MoM (Aug) - exp 0.13%, prior -0.5%
09:00 S&P/CS YoY - exp 5.70%, prior 6.75%
10:00 Consumer Confidence Index (Oct) - exp 87.0, prior 86.0
10:00 Richmond Fed - exp 10, prior 14
11:30 Treasury to sell 4-week bills
1:00 Treasury selling $29b 2-year notes

Global Economics (Time Zone: GMT)

JPY Retail Sales
01:30 CNY Industrial Profits
05:00 JPY Small Business Confidence

Earnings

Before:
Corning (GLW)
Cummins (CMI)
DuPont (DD)
Noble Energy (NE)
Parker-Hannafin (PH)
Pfizer (PFE)
AGCO (AGCO)
Arch Coal (ACI)
Spirit Airlines (SAVE)
CIT Group (CIT)
HCA Holdings (HCA)
Whirlpool (WHR)
Aetna (AET)
Sirius XM (SIRI)

After:
McKesson (MCK)
Gilead Sciences (GILD)
Invensense (INVN)
Marriott International (MAR)
Aflac (AFL)
Anadarko Petroleum (APC)
US Steel (X)
Western Digitial Corp (WDC)
Panera Bread (PNRA)
Electronic Arts (EA)
Express Scripts (EXPR)
Vertex Pharma (VRTX)
Newfield Exploration (NFX)
Eagle Materials (EXP)
Wynn Resorts (WYNN)
Facebook (FB)
Freeport-McMoran (FCX)
TD Ameritrade (AMTD)

Coach (COH)
Burger King Worldwide (BKW)

Wednesday, October 29

US Economics (Time Zone: EST)

07:00 MBA Mortgage Apps
2:00 FOMC Rate Decision
11:30 Treasury selling $15b 2-year FRN
1:00 Treasury selling $35b 5-year notes (probably moved to
11:30am)

Global Economics (Time Zone: GMT)

JPY Industrial Production (Sep prelim)
01:45 CNY Consumer Sentiment
09:30 GBP Net Consumer Credit, Mortgage Approvals

Earnings

Before:
Hess (HES)
Automatic Data Processing (ADP)
Eaton (ETN)
Hershey (HSY)
Penske Automotive (PAG)
Carlyle Group (CG)
Sunpower (SPWR)
WellPoint (WLP)
McGraw Hill Financial (MHFI)
Southern Co (SO)
Ally Financial (ALLY)
Ralph Lauren (RL)
Phillips 66 (PSX)

After:
Cavium (CVM)
Kraft Foods (KRFT) 

F5 Networks (FFIV)
Avis Budget (CAR)
Williams (WMB)
Atmel (ATML)
Range Resources (RRC)
Allstate (ALL)
JDS Uniphase (JDSU)
Shutterfly (SFLY)
Norwegian Cruise Line (NCLH)
Weight Watchers International (WTW)
Metlife (MET)
Whiting Petroleum (WLL)
Dreamworks (DWA)
Williams Partners (WPZ)
Visa (V)

Exelon (EXE)
Goodyear Tire & Rubber (GT)
Akamai (AKAM)
 

Thursday, October 30

US Economics (Time Zone: EST)

08:30 Initial Jobless Claims, expected 281k, prior 283k
08:30 Continuing Claims - exp 2355K, prior 2351k
08:30 GDP Annualized QoQ (3Q advance) - exp 3.0%, prior 4.6%
08:30 GDP Price Index - exp 1.9%, prior 2.5%
08:30 Core PCE QoQ - exp 1.4%, prior 2.0%
1:00 Treasuty selling $29b 7-year notes

Fedspeak

9:00am Yellen (dove, chair) gives opening remarks to Fed Board's
National Summit on Diversity of Economic Profession

Global Economics (Time Zone: GMT)

Japan Investors Purchases of Foreign Stocks/Bonds
03:00 GBP Home Prices
07:00 CHF UBS Consumption Indicator
08:55 EUR German Unemployment Change
13:00 EUR German CPI (Oct prelim)

Friday, October 31

US Economics (Time Zone: EST)

08:30 Employment Cost Index (3Q) - expected 0.5%, prior 0.7%
08:30 Personal Income (Sep) - exp 0.3%, prior 0.3%
08:30 Personal Spending - exp 0.1%, prior 0.5%
08:30 PCE Deflator YoY - exp 1.5%, prior 1.5%
08:30 PCE Core YoY - exp 1.5%, prior 1.5%
09:00 ISM Milwaukee (Oct) - prior 63.18
09:45 Chicago PMI (Oct) - exp 60.0, prior 60.5
09:55 University of Michigan Consumer Confidence (Oct final)

Fedspeak

3:00am Williams (dove, nonvoter) speaks at South African Reserve
 Bank

Global Economics (Time Zone: GMT)

JPY BoJ Rate decision
JPY National CPI (Sep), Tokyo CPI (Oct)
JPY Household Consumption, Jobless Rate
00:30 AUD PPI
05:00 JPY Housing Starts
10:00 EUR Eurozone CPI
12:30 CAD GDP (Aug)

Earnings

Chevron (CVX)
Clorox (CL)
Exxon Mobil (XOM)
Weyerhaeuser (WY)
Madison Square Garden (MSG)
Abbvie (ABBV)
Hilton Worldwide (HLT)
Legg Mason (LM)
Charter Communications (CHTR)

Twitter: @MichaelSedacca

DEFLATION HAND-WRINGING OVERDONE

Tom McClellan and his McClellan Oscillator have been around before all those financial talking-head shows on television today.

Now we don't know or have we ever met him but we are familiar with his work for longer than he most likely would like us to say since it tends to date him.

His most recent chart covers something our readers know we have been discussing for some time, all the hand-wringing about deflation. Put simply, it's about too many folks on one side of the boat.

In terms of MSM and the coverage--in our view--it's way overdone.

 As Oscar Wilde once said: "I know that's a secret because I hear it whispered everywhere."

There is inflation in the use of "deflation."

Tom McClellan, editor of the McClellan Market Report, wrote in a post on Thursday that the number of reports about impending deflation have been surging, which could mean the opposite is coming to the market.

"I cannot believe the volume of the news stories I am seeing in the financial media, with people worrying about impending deflation," McClellan wrote. "And as any card-carrying contrarian knows, when a topic gets too popular, you are near a turning point."

Over the last several months, worries about deflation — or falling prices, which economists say indicates a contracting, not expanding, economy — particularly in the eurozone, has been the story in markets.

McClellan further continues: The basic point for beginning contrarians is to disbelieve most of whatever you are hearing repeated in the financial media. And the more it is being repeated, the more you should disbelieve it. Learn to trust your own analysis, rather than listening to the talking head du jour on TV, even if it is me."
 
The appearance of "deflation" in news stories is at its highest level since October 2010, and as McClellan sees it, this might put us closer to the opposite occurring in the economy.




http://www.businessinsider.com/markets-chart-of-the-day-october-24-2014-10

LEADING OR LAGGING?

There's a lot of talk about leading and lagging indicators in the market. Tune into any of those talking-head financial networks daily and one can hear it.

Not to criticize or poke some fun at all of it, but indicators like the old battery in one's car is good until it isn't any more.

Anyway, Mark Hulbert, the editor a popular newsletter that tracks of financial newsletters and a columnist for MarketWatch, in his latest article, "This stock market index is almost like a crystal ball," cites the Dow Jones Transportation Index and its recent upswing, gaining 10% since the downturn last week.

Considered a leading indicator by many, the Transportation stocks reflect any upcoming economic weakness according to these folks.

 

The reason this is such encouraging news: The Transports are often considered a leading indicator of economic weakness, on the theory that transportation companies should be among the first to reflect any slowdown in economic activity that begins to appear on the horizon. There turns out to be statistical support for this theory: A study conducted by the Bureau  of Transportation Statistics in the U.S. Department of Transportation, titled “The Freight Transportation Services Index as a Leading Economic Indicator.” The authors found that their department’s index over the past three decades “led slowdowns in the economy by an average of 4-5 months.”

  http://www.marketwatch.com/story/this-stock-market-index-is-almost-like-a-crystal-ball-2014-10-24