Weekly Update, February 18, 2018

Random Weekly Reads – Economy Focused

  • A new author for me posted this and it has echos of “Jubillee” as something in the future – where in the future, who knows  https://seekingalpha.com/article/4147943-worst-threat-face-right-home
    • As with all these Jubilee related posts, i am not suggesting nor planning for this event (yet), but i find these articles incredibly important to understand the logic (lack thereof) behind some of the government decisions and actions.
    • Here is another “Jubilee” like post – the debt must be restructured https://seekingalpha.com/article/4147977-america-go-bankrupt-slowly-first
  • This NFIB report is interesting on several fronts, and many people will focus on the sentiments expressed.  I really latched on to one specific risk to small businesses  http://www.nfib.com/surveys/small-business-economic-trends/
    • Quote:  “Twenty-two percent of owners cited the difficulty of finding qualified workers as their Single Most Important Business Problem (up 3 points), exceeding the percentage citing taxes or the cost of regulation as their top business problem. Thirty-four percent of all owners reported job openings they could not fill in the current period, up 3 points from December.”
    • The employment / jobs challenges are not ‘another pair of hands’ or a ‘warm body’ but specific skills … this is something that cannot be solved w/ higher wages.
  • A dose of fear to keep your due diligence focused  https://seekingalpha.com/article/4145588-think-correction-bad-wait-grizzly-bear-market-arrives
  • This post about real and nominal interest rates gets you thinking in a slightly different way than most people are pontificating on raising rates … https://seekingalpha.com/article/4145670-u-s-rates-real-expectations
    • It may be more of a supply issue than an inflation problem
    • This is going to be very interesting to see how it pans out both in terms of rates moving forward as well as how politicians describe their positions vis-a-vis spending (stimulus) and budget deficits (debt) … i am guess it is going to be hard for conservative republicans to rally the fiscal conservatives
  • Lance Roberts published another provoking post https://seekingalpha.com/article/4147008-will-economic-boom
    • At the heart of Lance’s point is the stimulus introduced by both the tax cuts and the large spending bill just passed in the US will turn out to be more of a drag (boat anchor) on the economy than a catalyst for higher growth
    • Quote:  “The reality is that the majority of the aggregate growth in the economy since 1980 has been financed by deficit spending, credit creation and a reduction in savings. This reduced productive investment in the economy and the output of the economy slowed. As the economy slowed and wages fell, the consumer was forced to take on more leverage to maintain their standard of living, which in turn decreased savings. As a result of the increased leverage, more of their income was needed to service the debt – and with that, the “debt cancer” engulfed the system.”
    • Put this together with the bullet above on supply / demand and interest rates and you have a very, very tenious view of future economic growth in US
  • David Stockton piles on similarly https://seekingalpha.com/article/4146932-swan-song-central-bankers-part-3-goldilocks-economy-delusion
  • This post highlights a nuanced paradox at face value that can be confusing – near term inflation and long term growth; the author uses this to help describe the forces behind flattening yield curve https://seekingalpha.com/article/4147423-yield-curve-flattens-financial-stress-spikes
    • The one piece here for me is to carefully watch longer-term growth measures in US, EU and Asia (Japan, India and China)
  • Jeff Miller’s WTWA  https://seekingalpha.com/article/4147936-weighing-week-ahead-coast-clear
    • S&P Weekly chart  – 5 up days (short term overbought?)
    • Brian Gilmartin on S&P earnings estimates (currently over 20%) http://fundamentalis.com/?p=7557
      • Quote:  “That is a big number, now over 20%, which means that the forward estimate today of $157.78, is 20% higher than the forward estimate of $131.39 on 2/17/17 or 52 weeks ago. … The problem is the bond market: if the 10-year yield continues to rise, the SP 500 will be like trying to push a beach ball under the water – the higher yields will keep a lid on equity returns until there is some sense the rate of acceleration is over.”
    • Inflation break down
    • A good weekly indicator summary from New Deal Democrat  http://community.xe.com/blog/xe-market-analysis/weekly-indicators-payroll-tax-withholding-falls-cliff-edition
      • Quote:  “Because the mixed to negative numbers in several coincident indicators have persisted, and have spread to yet another one, I am downgrading the nowcast to neutral. But because the coincident tail does not wag the leading dog, I still expect this to resolve higher.”
      • 10yr rates continue upward
      • The short term picture is less positive

Weekly Reads – Company Focused

Actions / Plans

  • Continue vigilence with stop-loss orders on VZ, O
  • Purchased MSFT 2027 3.30% bond w/ 3.34% yield – hitting my mark for >3.3% w/ AAA rating … i will continue to look for another couple bond positions but only as value surfaces within my return guardrails for capital preservation – >3.0% income
  • IOTS and CY are both interesting but need much lower entry points

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