WAIT AND SEE

 

Humorist Will Rogers once said: "I only know what I read in the newspapers."

That was a while ago, in the early stages of radio, long before television and the Internet.

Today with the information explosion discretion more so than ever might be the better part of what one reads. 

Now that QE has been tabled--a cynic might say, for now, the big bond buying spree was said to have to given a lift to emerging markets. 

So that raises another question: Will QE Japanese and European style do the same? Perhaps not having the royalties of the international currency of trade on your side, the short answer is most likely no. The Japanese economy has been in a funk for a generation, a stark reminder to all of what can go astray given the paucity of effective leadership in the world today.

The debate about whether QE actually did or didn't help will, like those Christian soldiers in the old hymn, march ever onwards. Our answer is a simple one. The only folks who claim to know for sure are not from this planet.

Yesterday, we got the big surprise, the economy grew 8.1% over two quarters--that's, 4.6% in the second quarter and 3.1% in the third for a average  of 4.05%, a number the extrapolating crowd will love. But as they say, the devil sometimes resides in the small print.

Though consumer confidence hit a seven year high, consumer spending, the nightly prayer the globe over of central bankers--believers and non-believers alike--grew at a paltry 1.8%, down from 2.5% in the second quarter. So that gives us 4.3% divided by two or 2.15% average. 

Man, this is getting fun. 

Faster overall GDP growth, we are told, was also down from the second quarter.  According to the Financial Times, "Structures, equipment and residential investment spending growth all slowed. What seemed to deliver the most growth--and offset a substantial drag  from inventories--was a reasonable export performance, coupled with a decline in imports and a big surge in the erratic defense component of government spending."

Not to be cute, but maybe all the seemingly global turmoil did after all have a positive effect on spending.

Given the ambiguity of these economic indicators, maybe it's best to split the difference. The concerns about deflation are right up there with when will the Fed hike rates, about as shopworn as anything gets.  

With few exceptions we have been buying not selling.

Just like using discretion in your reading, nobody worthy of the name claims these economic road signs are accurate. Next week's election, just like in Brazil, could hold a lot of promise. And just like in Brazil it could disappoint.

The best months to be in the market historically are from November to May, the extrapolating crowd's dream. For our humble money we're going to follow an investment theme popular in the policy of this administration: Wait and see.

LIKE A GOOD MOTORIST

Some messages go unheeded.

Despite all the media hand-wringing about falling energy prices, this doesn't appear to be one of them when it comes to the major oil companies if what we read is even remotely accurate.

According to the Financial Times, ConocoPhillips "plans to cut it capital spending next year as falling oil prices squeeze its  revenues."

Ryan Lance, the company's chief executive recently told analysts that it plans to cut 2015 expenditures, less than the $16 billion it spent in 2014. Lance also said Conoco had "increased flexibility" to respond to market conditions that included the option to cut "back its drilling in less-developed shale areas of the US." 

If the big boys have that financial flexibility, what's that say for all those smaller marginal shale drillers? 

Over at Royal Dutch Shell they just appointed a new chairman, Chad Holliday, an American industrialist-turned banker, who's known for having an environmentally-friendly lean in his corporate makeup, an area where not only Royal Dutch but other majors have had their problems. Holliday is set to start next year.

Royal Dutch, like its brethren Conoco and others, has said it already is factoring in the volatility of energy prices, according to today's Wall Street Journal.

Part of the point of the majors is that their heft allows them to keep investing for the long term regardless of market volatility, so companies won’t slam the brakes on spending. Balance sheets are pretty strong: Shell’s net debt to total capital is about 12%, with BP at 15% and France’s Total at about 21%. Most big oil companies use an assumption of $70 or $80 a barrel when assessing potential projects.

Based on the past year’s experience, though, investors will reward companies that pledge to trim investment and costs further. So the majors, who argue that some 90% of near-term investment is already committed, will need to find room to maneuver.

That should be possible. BP has spent more slowly than intended this year, with capital expenditure set to come in $1 billion to $2 billion below target. Total’s new chief executive is asking his team to budget for further savings. Total also has more room to trim, in that past investment and project startups should already help cash flows in the coming years.

Meanwhile, the majors are pledging already to work their suppliers harder, aiming to time the contracting of rigs and other equipment for new projects to take advantage of a falling market. That is good news for investors looking for a hiding place amid oil’s volatility, but not so much for the beleaguered oil services sector.

So like good motorists taking advantage of lower gasoline prices, be a good investor and take advantage of all the hand-wringing to own some solid companies with decent dividends on the cheap.

LOOKING FOR SOME INFLATION

Abernomics takes another hit to its economic recovery story as in an unexpected move the JCB eased monetary policy, sending the market to a seven year high.

The Bank of Japan said it would increase its asset purchases by between 10 trillion yen and 20 trillion yen ($90.7 billion to $181.3 billion) to about 80 trillion yen ($725 billion) annually.

The absence of inflation, falling oil prices and a weak job market were reasons some analysts cited for the added stimulus as Japan faces another proposed national sales tax increase next year.

That may be off now given the weakness of the latest report for September.

BLINDER LEADS THE BLIND

  

Anything economist Alan Blinder gripes about is just that, Blinder griping

Blinder is just another empty suit. An academic economic empty suit. But not one without an agenda.

In today's WSJ opinion page, "Enough With European Austerity, Bring on the Stimulus," Blinder rolls out MSM's tried and trite criticism of austerity. The object of his objections is none other than those rule-abiding Germans, Keynesians everywhere love to criticize--and secretly abhor.

Usually I don’t gripe about other countries’ economic policies—at least not on this page. It’s their own business. Besides, there is normally more than enough bad policy right here at home. But I have to make an exception for current macroeconomic policy in the eurozone, for two main reasons. One is that it is impacting other countries, possibly even our own, though that effect is often exaggerated. The other is that the mistakes are so painfully obvious.

European economic performance since 2008 makes the lackluster U.S. look marvelous by comparison. Unemployment in the eurozone today is higher than it was in 2009-10. Not only is real GDP still below its 2008 level, but it hasn’t grown for more than three years and may be heading down again. Meanwhile, deflation is more of a worry than inflation.

Coming from a guy who was Vice Chair of the Federal Reserve Bank under Greenspan during the creation of one of the worst stock market bubbles that was so painfully obvious in history, if his comments weren't so pathetic, they'd be laughable. That's for openers, Mr. Blinder.

Blinder then tackles Germany's current economic picture. 

But what about Germany? Isn’t it the success story of Europe? Well, cumulative German GDP growth over the five-year period 2008-13 is a paltry 2.2%. That’s not 2.2% a year, but 2.2% in total. Germany looks good only because the rest of the eurozone looks so bad. Furthermore, Germany’s comparative success can be traced mainly to reforms made prior to the financial crisis, not to what’s happened since.

This is the old economic apples-to-oranges sham, the equivalent to the question: If you're so rich, why aren't you smart? To which the answer is: If you're so smart why aren't you rich?  The two are about as unrelated as academics are to common sense.

But here's the best part of Blinder's rant. Notice the word creative in his description of ECB President Mario Drahgi's Keynesian-MIT-trained leadership.

First, Germany’s central bank, the Bundesbank, is doing its level best to restrain the European Central Bank, which, under Mario Draghi ’s creative leadership, would like to do more to spur growth. “More” includes quantitative easing along Federal Reserve lines, which in Europe might mean buying sovereign debt, corporate bonds, or asset-backed securities. But Bundesbank President Jens Weidmann objects strenuously to further ECB stimulus, recently telling this newspaper that purchasing more government bonds would be moving down a “dangerous path.” 

Whatever Keynesians do is creative, those who favor economic common sense are obstreperous and obstructive.

Then Blinder tosses out the real those-damn-stubborn-Germans hate bomb. 

Second, the German government is cajoling other European governments to continue (or resume) the budgetary austerity programs that have held back European growth in recent years. Earlier this month Finance Minister Wolfgang Schauble opined that “the worst thing we could do would be to repeat yesterday’s mistakes” by using deficit spending to boost growth. No, the worst thing German policy could do would be to push Europe, including Germany, back into recession.

The damage done, Blinder then resorts to one of the ploys of one of the left's most hated political figures, Richard Nixon, when he once noted: "I like Kennedy. I don't know why he doesn't like me."

To be fair, the Germans are not alone in paying homage to fiscal austerity. You hear that sentiment in other countries, too—even in the U.S. But Chancellor Angela Merkel , Europe’s most powerful leader by far, has hitched her luminous political star to balancing the budget, and her nation is Europe’s dominant economy. If Germany says no, it is hard to get to yes.

There's no semblance of anything even remotely fair in the minds of political-economic-agenda wonks like Blinder.

Make no mistake, these are dangerous people to the everyday health of everyday Americans and the WSJ ought to be ashamed of itself for printing such tripe.

THE RUSSIAN RUBLE

 

We recently wrote in "The Next Move" the following:

If one is long BP in particular and oil in general one is long the Russian ruble which has taken a huge hit. We think there's much money there once the sanctions get lifted and they will barring Armageddon.

The link below gives an excellent example of just how hard the Russian ruble has been hit. If you follow the investment philosophy of one of the legends, the late John Templeton, you're looking at, give or take, maximum pessimism.

Or if you're a Warren Buffett groupie here's a quote from him dating to 2008 when all this gloom erupted.

"...A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.
 
No risk, no opportunity. Just don't try to tell the regulators.

http://static4.businessinsider.com/image/54516b726bb3f7fb324beeda-960/cotd-russia-currency-tom-keene.jpg

OVERNIGHT

LOS ANGELES (MarketWatch) — Japanese stocks extended their gains in early Thursday action, helped by some strong earnings and a weaker yen. The Nikkei Stock Average was 0.7% firmer in initial moves, adding to a 1.5% rise a day earlier, while the Topix also added 0.7%. Helping underpin the market was a bump up for the U.S. dollar after what some economists saw as a hawkish tone to the Federal Reserve policy statement out overnight. Early in Tokyo session, the greenback was changing hands at ¥108.94, up from around ¥108.11 at the previous close.

US companies reporting later today include:

  Q3 2014 Avon Products Inc                 
  Q3 2014 ConocoPhillips                    
  Q3 2014 Kellogg Co.                       
  Q4 2014 Starbucks                         
  Q3 2014 Time Warner Cable Inc             

NOT ALL OF THEM ARE GOOD

 
Here is a quote from Former Fed Chairman Alan Greenspan we posted earlier in our "House Painters" article.

But quantitative easing has been a “terrific success” in getting the real rate of return on long-term assets down, boosting all income-earning assets.

“It hasn’t been a success in the demand side,” he said, because banks are simply parking the reserves at the central bank.

 They just let it sit. Unless or until that happens, you don’t galvanize economic activity,” he said. “When that starts, all things can happen - and not all of them are good,” he said.

It's important because you have an ultimate insider telling you where most of the money from QE given to the banks wound up. Now view the chart on the below link.

The key point here is those who argue, as one Bloomberg columnist noted today, Speculation that the Fed’s almost $4 trillion of bond purchases since 2008 would cause runaway inflation has yet to be proven.  Even Greenspan hints at the reason why.

http://www.economicpolicyjournal.com/2014/10/so-what-has-fed-been-doing-since-start.html

STUPID STATEMENT FOR THE DAY

The news is out. The Fed has ended its QE hand-holding fiasco. For now.

Commentators, like a bunch of kids on Halloween night, were out in droves. Opinions and reactions are about as varied as those costumes people don on Halloween, too.

There's never been a paucity on Wall Street of stupidity. So here's our post-Fed report for the most stupid comment of the day.

Jack Bouroudjian of Index Financial Partners, also on "Closing Bell," said he thinks Fed skeptics are full of hot air. In a rather heated exchange he said Janet Yellen and the Federal Reserve deserved nothing but praise.

"I call this brilliant. I think what Janet Yellen has been doing is absolutely wonderful. They have been able to maneuver through the cycle with low inflation; they're starting to create jobs and we have companies making money."

He added: "It's about time we quit knocking the Fed. People are not unemployed because the Fed is keeping rates low."

Well now, Mr. Bouroudjian, you're correct. People are not unemployed because Yellen and her mad band of house painters kept interest rates artificially too low too long. 

They're just too income poor to purchase the necessities they need to live a relatively dignified life.

WAKE UP BUREAUCRATS

 
What do you expect is usually a fair question to ask.

And it couldn't be more appropriate when you put an infectious disease specialist in charge of a huge bureaucratic organization like the World Bank.

Open the curtains and let the saga begin. Doctor Jim Yong Kim, the Iowa-born Korean former president of Ivy League Dartmouth College took over the bank's presidency a little more than two years ago, an unlikely choice to many at the time, given Kim's apparent lack of credentials in this area.

But who among either his supporters or detractors saw the Ebola virus turmoil coming? It just goes to show the only real expected certainty is the unexpected. Even before the recent Ebola uproar, Dr. Kim started a funding program for those areas with the virus by pledging $200 million from the bank's special humanitarian crisis fund, a sum recently increased to $400 million, according to the Financial Times.

World Bank economists calculate the Ebola outbreak could whack west Africa for $32 billion by the end of next year as fear fuels the fallout to much of the rest of Africa as tourists and others cancel their plans to travel there. Think business conferences and such.

What comes to the fore in the debate about the World Bank's unusual response to what is seen as a health crisis, not the usual fare on the WBO's menu, is it a one time thing in a clear-cut time of crisis or something else again?

At a time when global central banks with their stress tests and so forth have been trying to gauge the financial system strength to withstand future calamity, Dr Kim noted:

"We really have to look carefully at these downside risks to the global economy that only come to our attention in these kinds of disastrous moments."

Should the Ebola crisis spread significantly outside Africa's borders, $32 billion will be a pittance of the real global costs.

To be sure, Ebola is not just an individual health risk. Out of control it's a global economic risk.

So wake up bureaucrats.