ONLY CERTAINTY

This is not any kind of prediction, simply an accounting of what's going on as we head into the final lazy days of summer 2013.

Many of the major stock indexes have recently touched new highs, sustainable or otherwise. US manufacturing in some sectors has turned more positive. Money flowing into stock and ETF mutual funds increased recently to levels not seen in five years.

Bond funds, an investor darling over a similar period, have suddenly witnessed money head for the exits. Volatility as measured by the VIX is about as calm as a pond on a painted picture. Investor confidence is rising, some say soaring would be a more accurate term. We'll leave that to the pundits.

On a valuation scale the market may not be greatly overpriced, but it's hardly cheap either. By historical standards September has been the worse month for the stock market. People generally during this period every year pay less attention to Wall Street happenings. It's an end of summer vacation thing.

Notwithstanding the brief June sell off, this is a market that's had quite a good summer run. Sell in May and go away didn't work this time around. The only certainty about what happens next is: We will see.
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DESHEETING

Desheeting and cheating have strangely similar sounds. But sound is not the only trait they share.

If you've haven't heard the term desheeting, trust us it has nothing to do with changing your linens and everything to do with toilet paper and profit: Profit for them and inflation for you.

It what's known as paying more for less. And that holds true for tissues like Kleenex. The term here is fluffing, a technique to make the tissues appear bulkier without adding any more sheets.

As the WSJ recently pointed out the popular tissue paper Kleenex is 15% bulkier with 13% fewer sheets. That translates into 13 fewer sneezes you can catch and potentially 13 fewer smiles. Pick up one of those smaller boxes of Kleenex people put in their bathrooms or automobiles and you'll see: "Soft tissue will pamper you with indulgent softness that lifts your spirits and inspires a smile."

Tissue paper companies like Kimberly-Clark are not alone in this deception. Food companies across the board from juice to chips fill their containers and bags with more air, less juice and fewer chips.

The devil is, as they say, in the details. Congress isn't alone in hiding unpopular regulations and taxes in legislation. It's an old ploy. For these folks it's a ways to hide cost increases and bolster adjusted earnings.
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BITS AND PIECES

Mark Hulbert, the longtime publisher of Hulbert Financial Digest, posted an interesting piece today on Marketwatch about interest rates and P/E ratios.

The crux is what comes down goes back up. Looking at data going back to 1871, Hulbert notes only two well-defined periods, each lasting more than 10 years, where interest rates remained in an extended uptrend.

http://www.marketwatch.com/story/pe-ratios-to-drop-20-in-coming-years-2013-07-31

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WARMED-OVER KEYNESIANISM

The Summers-Yellen plot thickened Wednesday as President Obama reportedly in a closed-door meeting with Democratic members of Congress rejected concerns that Summers was less aggressive in pushing economic stimulus.

Yellen is viewed by many as the more dovish of the two and more likely to push for more QE. Either way, according to some traders, both represent a warmed-over serving of archaic Keynesianism.
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FINANCIAL ENGINEERING

In the stock market brokerage business there's what's known as sell side analysts. They're mostly the ones who produced the garbage to entice you to buy the crap their firm wants to unload.

It ranges from subprime mortgages to anything they think they can book a spread on. You'll usually find the word bundled in there if you search hard enough.  Now two big Wall Street hitters, Blackstone and Deutsche Bank, are toying with bundling monthly rental payments into some type of bond.

Blackstone, a private equity group LP, sucked up tons of foreclosed properties, spending billions of dollars, a move that buoyed demand and essentially is designed to put a floor under the once sickly RE market. Now it payday time.

Blackstone intends to bundle an estimated 1,500 to 1,700 homes into a bond, in this case a new type of security backed by rental payments. If it sounds a bit risky, head to the front of the class. Renters traditionally have less reason not to walk then even zero-down folks did in the last real estate miasma.

To hawk the deal Blackstone needed an enabler. Enter open-palms stage left Deutsche Bank. If the deal goes down, Deutsche will hawk the stuff to investors. Blackstone will recoup its investment plus a profit and the rest of us will wait to see if the deal is the beginning of the other shoe or, as the late radio commentator Paul Harvey used to say, "the rest of the story."

Blackstone, according to one report, spent more than $5 billion since the start of last year acquiring around 32 million homes in a dozen US markets.

Now that's some engineering.
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MAXIMUM PESSIMSM

One of the goals of central bankers as been to kill in the minds of investors the threat of inflation.

To do that in part they needed to curtail the bull market in gold prices. Their weapon of choice became the bond market. The easy-money spigot easily spilled over into equities and real estate.

The ploy reminds one of the day President Reagan was shot and Alexander Haig, then Secretary of State and a former Army general, said: "I am in control here." But the current debate over who should succeed Bernanke as Fed chairman illustrates the real truth: this lighthouse is sans keeper.

In today's WSJ are two brief articles worth a look. If you're a maximum pessimism investor--and we are--you want to own agriculture despite the current so-called commodity malaise.

Demand and supply problems come and go. Except by proxy, demand for US government debt is largely coming from the Feds. Safe harbor buying is only icing on the pineapple upside down bond cake.

The US economy appears in stall mode, extending the possibility of more phoney money creation. Like many things, it can be a good thing as long as it lasts. Forever, however, is no part of that equation.

That's why you should welcome maximum pessimism into your investing abode. It's the obverse side of irrational exuberance.

http://online.wsj.com/article/SB10001424127887323854904578637453999548858.html?KEYWORDS=Heard+on+the+street

http://online.wsj.com/article/SB10001424127887324170004578638082108558320.html?KEYWORDS=heard+on+the+street

SAVING MONEY

Ben Franklin noted about a penny saved being a penny earned. Today, it's more like dollars saved are dollars earned.

What you do with those dollars is your business, but we hope you'll choose to carefully invest some.

In the meantime, if you're a cable tv subscriber, you need to read this article. It could save you some money and put some spare change in your pocket for investing. 

But do your homework.

http://www.moneytalksnews.com/2013/07/30/ask-stacy-can-directv-charge-for-something-i-didnt-order/?utm_source=newsletter&utm_campaign=email-2013-07-30&utm_medium=email

MIDDLE CLASS

There's much talk about middle class in the US today.

It drips from the drooling lips of politicians trying to assuage voters. Economists and MSM love to dwell on it. So what does it mean to be middle class? Here's an example from Marc Chandler's Marc to Market.

This Great Graphic comes from Euromonitor International.  It shows the results of international surveys to see what goods and behaviors are associated with the middle class.  It appears that one's home is the anchor to middle class status.  The survey was conducted online, which, itself says something about the middle class.  Some 6600 people responded from sixteen consumer markets, including many several emerging markets, such as the BRICs, Mexico, Turkey, Colombia, Thailand and Indonesia,   

THE PRINCIPLES REMAIN

Economic principles never change. As an old, quite successful commodities trader told me years ago, the cure for high prices is high prices.

As noted here high prices bring competition and competition begets innovation. And most of us know just one of the benefits innovation brings can be creature comforts like not having to get up and walk across your living room every time you want to change channels on your television. It's a basic, simple now-taken-for-granted once upon a time innovation.

So the guy works for BP. So what?

If you want to get a better handle on energy markets, these two articles are must reads.

The primary role, intended or otherwise, governments play isn't regulation or protection. It's stifling innovation. Incentives that foster wrong, unwanted and often dangerous results are just one example.

The Federal Drug Administration worries about bad medicines instead of spending more time focusing on bad regulations is another.

http://www.linkedin.com/today/post/article/20130730080645-259060403-oil-boom-2-0-an-american-dream-updated?_mSplash=1

http://online.wsj.com/article/SB10001424127887323309404578613792021690244.html?mod=ITP_opinion_0
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NEXT CHAIRMAN

A Larry Summers' chairmanship of the Federal Reserve might sprout something quite different from a warm, tranquil summer feeling markets would like.

One of the top leading candidates, the former US Treasury Secretary under President Clinton, Summers roiled the bond market recently with his comment about QE and its overall effectiveness on the economy.

According to the Financial Times, Summers called QE "less efficacious for the real economy than most people suppose." That's hardly what an already spooked bond market wanted to hear.

The other reported top candidate, now Vice Chairman Janet Yellen, is viewed as being more dovish than Summers and more favorable to those who want QE to continue. So a controversy has arisen.

But since the appointment isn't expected until later this year, the market may have to twist in the wind a bit longer. 
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TALKING DOWN

The term talking down has different meanings to different people. If you talk down an opponent it can come back to haunt you. If you manage a big corporation it can put big bucks in your coffer. 

As most investors are aware 'tis the season for earnings reports. On a basically dull day yesterday investors took what the market gave them--individual company earnings reports for the second quarter. 

Of stocks in the S&P 500, according to a WSJ report, earnings are expected to register a little over 1% gain over the same period in 2012, a number that is well below what analysts had predicted in March. How much below? Try 1.1% versus 4.3%. 

Back in the tech heydays of early 2000 one major S&P 500 darling beat management's projected earning by one penny for 14 straight quarters. Investors ate it up, pushing the stock price ever higher. It was a great gig if you were Wall Street connected. Names like Henry Blodget should come to mind here.

Managements sell more than just their main service or product. Call it reverse psychology or whatever. In the business it's known as talking down earnings expectations so you can surprise to the upside.

Truth be told, absent financial companies, corporate earnings would otherwise be negative. 
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