A SERIOUS TONE

A lot people think the gap is a clothing outfit. And it is.

But there are many gaps around. One of the ones most important to consumers is, as the WSJ noted today,  "Gasoline Prices Could Be Even Cheaper," the one between the price of a barrel of crude oil and the price they pay for a gallon of gasoline at the pump.

Crude oil prices have dropped in the last year or so from $100 a barrel to around $50, give or take.
So far this year gasoline prices are down 28 %. A barrel of benchmark Brent crude oil is off 50% over the same period. The prices of the two commodities usually move in tandem.

According to the Journal, citing data from the Energy Information Administration, from "2000 to 2014 gasoline sold for an average 95 cents over the price of a gallon of Brent crude." So what's the big deal. Just this: Over this last year, the "gap climbed to about $1.16," a mere difference of 20 cents on average.

But mere like pulchritude rests with the beholder. "Multiplied by 135 billion gallons of gas sold in the past year in the U.S., that amounts to more than $25 billion." Now we don't want to get into a math buzz here. But even if the population of America is 320 million ( and nobody knows the real figure for sure), a whole bunch of folks don't drive, the terribly young, the terribly old and the terribly poor.

Anyway you slice it, $25 billion is a large number that somehow didn't find its way into the pockets of driving consumers. You can read all the supposed reasons in the article. The point here is auto-laden consumers are not benefiting as much as they ought to be from what the Federal Reserve considers to be cheap energy prices.

Even factoring in places like kooky California with its legions of pathetic politicians, environmental nuts and addiction to automobiles where pump prices are jacked up more than average, the Journal notes, "the difference between wholesale and retail prices and factored in the price of ethanol, a plant-based renewable fuel added to most gasoline," since mid-August this year "drivers have paid between $1 billion and $2.5 billion more than they would have normally."

Meanwhile, your friends in MSM are pushing how gasoline prices are the cheapest in 11 years. That's called slanting the news. A long time ago there was an Illinois senator who said: "A billion here, a billion there, pretty soon you're talking serious money."  Keeping $25 billion from U.S. auto-addicted  drivers, in our view, has a serious tone to it.

GREEDY GOVERNMENTS?

The figures below should tell you much about governments in general. It's from an article mostly about Valeant and it's largest shareholder, hedge fund guru Bill Ackman. We didn't bother to run the total, you can do that on your own. But it's a fair chunk of change.

When you factor in all the others over the period to banks, big oil, etc., it leaves an important question that seemingly never gets answered: Where does all that money go? We think is goes to another one of those categories, Don't ask, don't tell. The chart is from MarketWatch. You can read the story there.

CompanyTotal	Financial Penalties in Billions	Number of Settlements	External Auditor
GlaxoSmithKline PLC	$7.56	20	PwC
Pfizer Inc.	$2.96	15	KPMG
Johnson & Johnson	$2.33	14	PwC
Merck & Co. Inc.	$1.86	27	PwC
Abbott Laboratories	$1.82	12	EY
Eli Lilly & Co.	$1.71	13	EY
Schering-Plough	$1.34	7	PwC
AstraZeneca PLC	$0.954	7	PwC
Takeda Pharmaceutical Co. Ltd.	$0.875	1	KPMG
Novartis AG	$0.793	12	PwC
Bristol Meyers Squibb Co.	$0.789	12	Deloitte
Mylan NV	$0.707	19	PwC
Data Source: Pharmaceutical Industry Criminal and Civil Penalties:An Update published Sept. 27, 2012, and MarketWatch research. Valeant external auditor is PwC.

http://www.marketwatch.com/story/ackman-says-valeant-regulatory-compliance-no-worse-than-rest-of-pharma-industry-2015-10-30

NOBODY KNOWS FOR SURE

There's a lot of  concern around today about the Federal Reserve's inevitable, initial interest rate hike and just what the market will do.

That's a theme more worn than my last relationship with my ex-girlfriend.

There's no shortage of those who think another big as in bigger-than-before downturn hovers somewhere just over the market horizon. A few even predict a big, bad bear market. The market as you know--gratis the global money printers--has rebounded from much of its late summer woes.

In roaming around the web, it's always interesting to come across these various view points. Not that anyone knows for sure. They don't. Today, on a site we like to visit from time to time, The Daily Bell, is a couple reads worth reading: thedailybell.com/news-analysis/36621/Is-It-a-Crash-Yet-Two-Articles-Speculate.

Most of us allow our biases to disturb us. It's seems to be part of the human genetic code. Most likely it's been there before we even found out there was a code. Good investors have biases, but most tend to be directional rather than personal.That is to suggest they will learn from just about anyone.

A trader I once knew claimed he had a pet aardvark that would get scratchy at certain times. The guy claimed it was a decent warning sign that volatility was about to pick up. I never looked at his profit-loss statements, but he stayed in the game a long time and as far as I could determine he was sans a rich uncle.

The Daily Bell is a libertarian site. So for all you socialist, communists and anti-semi-capitalists out there, it might not be your personal bear call or bull call spread. In a semi-free society, we will leave that up to you.

Now we lived through the 1987 crash and recall vividly not only where but what we were doing that day as Sir Alan was on a plane to Dallas and how difficult it was to get a trade off through jammed phone lines to buy the stocks we wanted. In those times the Internet was in its infancy. As were cell  phones.

With the 2000 crash we were at the Las Vegas Money show just a few short weeks before that (what was known at the time as TMT) debacle hit the equity fan. Most of the signs, as people love to say in retrospect, were everywhere. The trouble with that statement is nobody was paying attention.

In December 2007 we closed our office to take a long deserved market respite. It wasn't necessarily owing to our market prescience, though we did a few months earlier pen an article about a lot of  new "Red Price Reduced" real estate signs suddenly popping up in SoCal in neighborhoods we were quite familiar with. But the timing seemed right because just a couple of months earlier our partner decided to retire as he motored his boat off into the sunset.

An interesting point in this author's article about hindsight is "...when your portfolio is down 50 percent it is hard to think clearly." True! But what many miss is it's equally as difficult to think clearly when your portfolio is up 100 percent and the sun keeps coming out every day. And don't forget your uncle Vinnie. Before he became an NFL guru, he was a market guru.

So we remain with a question that nobody knows the answer to, but a good starting point is the Zen notion about accidents: How long does it take before an accident happens? However long it takes.

Nobody knows for sure. But here's a closing market thought for you. It  may seem a bit mystical. Eckhart Tolle in one of his books defines Karmic action as "...the perpetuation of unhappiness."

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.