THREE CHEERS FOR PFIZER

The U.S. Economy grew at a less than robust 1.5 percent in the third quarter, some of the heavy hitters in energy fear continued weak prices after booking losses during the quarter and a big shout out goes to Pfizer, the huge drug manufacturer, in their quest to send a shot across the bow of those tax-grubbing, freedom-stifling, anti-business politicians in Potomac Land.

In what could be the biggest nose-thumbing yet, Pfizer continues it's overseas quest to cut U.S. corporate taxes as it pursues an apparent takeover of Ireland's Allergan PLC, a $100 billion-plus pursuit, according to today's WSJ.

The move puts the huge maker of Advil and Viagra besides a host of other drugs once again in the cross hairs of a nasty debate with Congress about a company's right to locate its head office wherever and whenever it wants irrespective of tax consequences. That's really what's at stake here, liberty, absolute liberty, the real American way.

Recall Pfizer waged an earlier battle with Potomac Land's politically self-righteous last year when it tried to merge with UK drug maker AstraZeneca PLC for $120 billion before the deal fell through, bringing out the politically-initiated anti-American catcalls mostly from politicians living, playing and profiting on the left.

Known in the business as inversions, the Journal reports, last year "The Treasury Department announced a plan to make these deals less attractive, mostly by limiting access to overseas cash."
It's no secret that politicians and candidates "in both parties want to reduce the tax advantages of incorporating abroad, but they disagree on how to do it," the Journal said. Pfizer's tax rate for 2014 was nearly 26%.

Just this past week, the Journal reports, billionaire investor Carl Icahn "pledged a $150 million to a political-action committee that would lobby to reduce taxes on  corporate profits earned overseas and support legislation to block inversion."

We don't know Icahn's politics but we suspect they lean more left than right. His proposal is called an incentive though some might call it a bribe, something nearly every state government in the country worthy of the name uses to try to attract businesses from other higher-tax locales here and abroad.

For those who reside in high-tax states like California, it's commonplace to read about and run into bureaucrats from lower-tax areas like Mississippi and Texas trying to cajole local business away with lower tax incentives. And rightfully so. That, too, is called liberty.

The real truth is competitive is as competitive does and as the Journal notes, competition is particularly heavy in pharmaceuticals "where many of the largest players are based in lower-tax countries: 17 of the 25 biggest drug companies by value are foreign and paid an average 17% tax rate last year versus 24% for U.S. companies."

So here it is: Hip, Hip, Go Get 'Em Pfizer!

BEWARE OF BUYBACK MEME

Besides cheap money courtesy of the Federal Reserve, investors for some time have been told the market's run-up owes much to corporate buy backs. A good thing for investors.

Like the old saying what comes around sooner or later goes around, that might be the case now with those stimulating buy backs investors apparently have come to love. There is a story today
 on ZeroHedge, "Goldman-finds-buybacks-no-longer-work-to-boost-stock-prices-two-reasons-why," worth a look.

Here's a couple of charts from the article that pretty much tell the tale, but read it for yourself.



Buying shares back at their highs, as noted, hardly seems like prudent business practices, especially when one recalls all those time businesses were hoarding cash because they could not, on the their terms, find prudent, meaningful investments.

A cynic might argue it's just another way to push up the value of their stock options. But since we don't know any real cynics, we just mention it in passing.
 

THE HINTING GOES ON AT FED

The data prostitutes spoke again this week after their usual two-day meeting, hinting that the door for a December interest rate hike was still ajar.

The template once again centered on their shop-worn and now nearly silly, meaningless drivel about if the data supported a reason for the rate hike. One wonders when someone will come up with a television game show based on which outfit--politicians or central bankers--inspire the least confidence among the masses.

A rate hike when it does come will most likely boost the dollar making the lives of US multi-nationals even more difficult. A good number of the S&P 500 companies earn a good portion of their earnings overseas.

Stocks reacted to the news as expected with the Dow rising nearly 200 points. In September after the market swooned before Fed officials swooned themselves on hiking rates, the Fed pointed to lack of global growth, most particularly in China. Recall when this whole charade started back in 2008 the same Fed was interested only, they opined, in restoring U.S. growth.

After the market swooned in September the Fed sent out six of its hand-picked propaganda ambassadors to assuage investor nerves in its on-again-off-again nonsense. As the free money continues to flow, the Wall Street Journal today reports Fed Chair Janet Yellen is "planning to become more outspoken in the lead up" to the so-called big December decision.

All this data-dependent palaver is colloquially called analysis-paralysis. It's Fed speak for we are really clueless. As we said, the hinting goes on.

OH THOSE SOGGY ENERGY PRICES

A lot this year has been written about about oil and gas prices.

Oil prices recently fell below $50 a barrel, a far cry from the $90 a barrel the oil market was reeling in this time a year ago. With all that carnage you would've thunk central bankers and their economic brothers would be loving it.

After all, the point of these folks and their political shills was to put more lucre in consumer pockets and, Presto!, rally growth. Housing, equities and businesses were parts of that growth. Couple cheaper energy prices with what now amounts to a form of cosmic scale QE--the Fed, EU, Japan and China, to name the heavy hitters-- and the sickly, suffering patient was suppose to be checking out of the rehab ward some time ago.

The Fed claims it can't find any inflation or at least not enough to meet its magical two percent figure that will tell everyone it's okay to start cranking up interest rates. Maybe the Fed should check with Congress?

The current administration in Washington took its lead from the inept Fed and once again stuck it to the COLA crowd, putting a lid on any increase in Social Security payouts for the upcoming year. Meanwhile, Congress voted themselves a raise. It's a given that Congressional folk don't live on fixed incomes like many of their constituents.

Government revenue has to come from some place and pension funds of older retirees is as welcome a place to bureaucrats as any. Meanwhile, those wily politicians from Potomac Land are voting to push up the debt ceiling to cover up more of their bipartisan incompetence and absence of discipline.

One poor, misguided soul and apparent apologist for the bankrupt leadership at the Fed, today wrote:

It’s now clear that China’s economic weakness is having a significant impact around the world, but it is not causing anything remotely similar to a 2008 style financial crisis.  In fact, US economic data has basically continued to muddle through.  It’s weak, but it’s not catastrophic.  And parts of the housing market actually look very strong.  So, the Fed has tilted their position ever so slightly to set the table for the potential that they could raise rates later in the year or early 2016.  I’d still err on the side of caution here and I probably would have communicated a 2016 potential hike more explicitly, but I think this statement is pretty prudent.

1. Let's take the first part of that paragraph. Where was the clarity back when nearly everyone and the camels they rode into Wall Street and the Federal Reserve on knew China was constructing all those huge people-less cities?

2. US economic data has continued to muddle through after nearly eight years in the face of one of the biggest giveaways in the  history of quasi-capitalism and central banking. That should engender a real vote of confidence.

3. The comment that the Fed has tilted the table so slightly for a potential rate hike before year end is almost too ludicrous to deserve any attention. It is the hallmark of this Fed since this whole mess began--pathetic indecisiveness.

Naturally, there will be huge amounts of criticism over every bit of this statement, but let’s be honest – the Fed is navigating the same uncertain ocean the rest of us are and they’re doing the best they can.  So far, I think they’ve done a prudent job.  This was the right move in my mind and markets and commentators will overreact and read more into this than they should.  After all, let’s remember – we’re talking about a 25 bps rate hike.  It’s practically meaningless in the grand scheme of things….

4. Here is another fallacy in this person's position. The rest of us might be trying to navigate an uncertain ocean, but there's a major difference: Most of us have never pretended we knew what was going on. The Fed has and, in its arrogance, still does. In fact, that is what they supposedly get paid to do. Moreover, if this uncertain ocean at this point is as baffling to them as it is suppose to be to us, then why does anyone need the Fed?

5. Finally, the person destroys his own argument. If the 25 basis point hike will be no big deal and, after a short negative reaction, we agree, it won't, why has it taken so much Fed hand-wringing to pull the trigger?

Here's our two word answer: Clueless incompetence.

So soggy energy prices, runaway cheap money or whatever, this is a Fed that more than a year ago first brooked the idea of cranking of interest rates. The excuse then was to prime investors for the eventual fact.  

Nearly 18 months later that priming is about as soggy as today's energy prices.

THEY NEVER GIVE UP

In case you got bored or just missed it, the Chinese last week pulled off their latest version of QE.

As the Wall Street Journal put it: "Central bank dials back rates, reserve requirements, helping extend stock rally,"causing the yuan to settle at "its lowest level in almost a month against the dollar." According the Journal, " China is the latest of the world's big economies to turn to its central bank to stimulate flagging growth."

Given the strength of the dollar, it's a move those buyers at Wal Mart will most likely love.

Couple that with ECB President Mario Draghi's recent comments about more possible QE coming from those quarters and it looks like a good old fashion game of Texas Hold'em when you calculate in the stumbling, bumbling, indecisive leadership at the Federal Reserve. They're all in there.
 
Of course, soothing investor nerves is always good for stock prices and European, U.S. and Chinese markets showed their appreciation by rallying somewhat. But beneath the rally--like that old saying still water runs deep--angst continues to loiter as this is China's sixth rate cut in a year and global economic growth appears to be more anemic than it was just six months ago.

Over in the option's pit puts were selling at a huge premium to calls on the VIX, the well-known volatility index. Could this be another case of  who knows what and when did they know it?

One thing certain about government bureaucrats, they never give up until they usually get it completely wrong. 

LET THE RABBLE BEGIN

It's been said that "No decision is a decision."

That pretty much summarizes the Janet Yellen-led Federal Reserve Bank as talk picks up about a possible rate hike this month as those great economic soothsayers once again meet. In what has become the most anticipated rate hike in the long, inept history of this quasi-Federal institution the financial gossip and guessing continues. What's yours?

Somewhere it's been noted that when one starts with a false assumption or premise the conclusion is likely to be just as false. That fairly characterized the Fed and its policy makers. The false assumption is that these people have any clue about what they're doing and, accordingly, can do anything (something?) worthwhile to help the economy.

With little more than two months remaining for 2015, a rate increase now (though it could happen) is most unlikely given the history of this economic Federal foot-dragging group. When that first hike finally does hit the economic fan, expect a small hiccough and then more business as usual.

This is not another of those reputed "buy-the-dip times," but something quite different as in upgrade your portfolio for the long haul.  In the meantime, stay calm, upgrade and let the rabble rabble on.

GOES AROUND

Back in the early 1980s there was a Federal judge named Harold Green who decided what at the time was a landmark case.

The major telephone company, AT&T or what was then known popularly as Ma Bell, was broken up, owing to his decision, into regional bell companies like Southern Bell, Pacific Bell, Southwest Bell, a total of eight regional companies in all.

All traded on the NYSE and were known as the "Baby Bells." In fact, I owned quite a few, they all paid decent dividends and many appreciated in price. But like most things in life and true to a basic truth of what goes around comes around, less than 25 years later a wave of mergers and acquisitions started until they all merged into now, with few exceptions,what for the most part is AT&T or "Ma Bell."

The issue centered on a 1974 anti-trust filing since AT&T was the sole provider of telephone service in the country. In many quarters at the time it became known as the Green Decision. Little known about Judge Green then and most likely still isn't was his close association with U.S. Attorney General at the time Bobby Kennedy and that Green helped write the 1960 Civil Rights Act.

What makes this story important is really a sidebar about one of the many tens of thousand who worked for one of these Baby Bells, Pacific, named Scott Adams.  Adams was a middle manager who, like many others, was trapped in a job he viewed as boring and monotonous.

To ward off the boredom, he created an affirmation, a powerful one which he took the pains to write down 15 times a day, every day: "I will become a syndicated cartoonist." Adams, you see, had a dream. He yearned to be a successful cartoonist, but most of his work  had only met with rejection.

But as he persisted he noticed certain positive changes  and after several more rejections he landed a position with United Media, a cartoon syndication. Millions today know Scott Adams as the creator of one of the most popular carton characters around, Dilbert. 

There is a law in psychology that if you form a picture in your mind of what you'd like to be, and you keep and hold that picture there long enough you will soon become exactly as you have been thinking. William James                                         
  
For the record James was the brother of famous novelist Henry James and one of the most famous 19th Century psychologist who taught at Harvard.

IT'S ASSET PRICES THAT REALLY MATTER

To assume QE is not one of the reasons interest rates are at historical lows denies the truth.

Part of trying to revamp an economy is to stimulate borrowing and spending, get people to loosen up. It's the part of QE related to the feel good factor by pushing up prices of stocks and bonds. Some might call it a financial mirage.

To claim as many do that this is not something central bankers know and clearly intend stretches the credulitity quotient of even imbeciles. Now from the International Bank of Settlement comes some data many cenral bankers and their  apologists will deny but many others know is accurate.

According to James Mackintosh's Short View today, central bankers at the Fed and ECB might be gazing at the wrong set of prices in their entrail studies. Citing authors at BIS, the so-called central bank of central bankers, paying attention to asset prices and 
not employment numbers is the more important of the two.

Moreover, that "consumer prices measured by inflation statistics have little relevance for future growth. Instead, it is asset price
which really matter, housing in particular."

As Mackintose notes: "...the study makes pretty clear that consumer price deflation in itself is not usually associated with slower growth (the Great Depression was an exception)."

In case you haven't guessed it, the main meme today is deflation fears, the assumption being pushed nearly everywhere deflation is bad. What this leads us to is what we wrote about in Fence Straddling, central banks often paint themselves into a corner.

With high asset prices the Fed faces the dilemma we now have.

FED FENCE STRADDLING CONTINUES

How do you paint yourself into a financial corner?

Head up a central bank and sport the name Janet Yelllen. That's pretty much what came from the  mouth the Federal Reserve oracle aka The Patient Lady Wednesday.

As we noted in Be Careful What You Prepare For, the market was overly long the dollar and painfully myopic about what doves really do--act dovish. We could add confused and clueless doves but we've already taken our meds for today.

And that poses another question: How does June morph into September months before Fall arrives? Simple. Just add another dot to the Fed's nonsensical dot plot scheme, one they didn't count on, in this case a weather dot to screw up the plot.

“Just because we removed the word patient from the statement doesn’t mean we are going to be impatient,” Ms. Yellen was quoted in the Wall Street Journal. Judging from the market's huge rally with the DJIA jumping 227 points to break through 18,000 on the index, it was an all clear ahead for now if you want to dump the dollar and load up on some low-yielding bonds and bloated equities.

Some might say the Fed left the punch bowl half full, opening the door for a possible rate hike but showing some real hesitation about crossing the threshold. At what point does caution become indecision and not caution?

The main point is the Fed reduced its inflation, interest rates and growth outlook given the perceived  slowdown in the economy.

Meanwhile, back at the Fed the fence straddling continues.

BE CAREFUL WHAT YOU PREPARE FOR

Worry that the Federal Reserve led by Chairwoman Janet Yellen has now switched from what the Fed is going to do to does the Fed have any idea what to do if they make a mistake.

Today is the day the Fed is expected to remove the patience safety net beneath the interest rate trapeze it's been flying around on for some time.

Some fear the move will "inject uncertainty back into the financial markets." The key word in that sentence is back. Except for those who believe the Fed knows what it's doing, the truth is the uncertainty never went away.

Fear mongers like the Financial Times economist and main fear jockey, Martin Wolf, claim the problem isn't excessive QE-caused low interest rates but a "managed depression." Wolf writes this beauty in today's column: "Rising risk aversion might be another reason why real rates on safe securities have fallen."

With nearly everyone from hedge funds to mom-and-poppers scouring the dark, four corners of the earth seeking some yield, it's clear Wolf sees with bias through what is a clear prism of bureaucratic bumbling and fumbling.

The truth is nobody including the Fed knows whether they've overstayed their presence at the party that's now been going on seven years. With few exceptions this has been a market that volatility has been as absent from as many members of Congress at vote taking time. It's there version of  don't ask, don't tell.

The Chicago Board of Options Exchange's volatility index sits around 17 for this year so far, slightly up from last year's average 14, but below its average of 21 between 2009-2014. If you're a hedge fund guy or gal you've been screaming for a little volatility most likely. If you're an MSM meme shill you probably need to check out the term in Webster's.

Investor hand wringing about guidance and so-called transparency or the paucity of such has its own nightmarish elements. Last December, Chairwoman Yellen, taking a page from former President Bill Clinton, claimed the "patience promise" meant the Fed would keep rates the same for the next two Fed meetings. That was a shift away from her previous "considerable time" nonsense.

This prelude to an interest rate hike has been more anticipated that the Second coming. Many investors are long a stronger dollar as a result. The potential fly in the investment ointment is recent sluggish economic data.

The Fed and its clutch of bureaucrats is one of the globe's biggest fence straddlers. It's part of their "on-the-other-hand" DNA. The problem with fence sitting, however, is sooner or later the fence falls down.  

Be careful what you prepare for.