A provoking post on Seeking Alpha this morning that prompted deep thinking on the money flows from the large changes in oil prices over the last 5 years. The basic gist which totally makes sense is that the oil profits are not as important as the consumers’ total cost for oil. The lower their costs, the more they spend elsewhere in the economy. The inference then is that higher oil prices are totally deflationary – they reduce broader consumer purchasing … it doesn’t really matter if the oil profits end up in US, Canada, Russia or Arabian Peninsula.
I have been talking about this for several months, maybe even a year or so, but not to the technical depth that these two people are this past week. I think this is worth considering and baking into your long-term risk management variables. My pontifications have been more cultural evolution derived but these guys are helping me understand the investment implications.
JP Morgan analyst is quoted within the below
GDP ‘3rd’ estimate was released this morning. One paragraph i found most interesting: “The acceleration in real GDP growth in the second quarter reflected accelerations in PCE, exports, federal government spending, and state and local government spending, as well as a smaller decrease in residential fixed investment. These movements were partly offset by a downturn in private inventory investment and a deceleration in nonresidential fixed investment. Imports decreased after increasing in the first quarter.”
I bolded the points i focused on. Government spending was a key catalyst in the figures – debt spending in great degree (?)
This post by a followed article is a good read, and rather than comment on the details (you can read it) … i’ll ask some questions
Eric Basmajian on SA today
- Is college debt for ages 25-35 having an impact on additional debt assumption?
- What is the driver behind the decline – Banks unwillingness to lend, or debtors unable to take on more (other than credit cards)?
This was an interesting look an another indicator that suggests the economic growth continues to deaccelerate.
Rather than comment on different articles this Sunday, i will point them out and make a point
i do not think there’s a needed order to read – but read the comments
Point – risks continue to grow globally across mutliple asset types. there are short term plays but they contain complex variables and winning hands are beyond average investors (myself included). i am comfortable with my recent moves taking more and more capital out of equities and placing in short-term treasuries (<6 months). Might i miss out another 5% of S&P upward melt? sure … but as somebody posted last week (can’t remember who): i want a return OF my capital, not just a return ON my capital.
Reminder: i’m semi-retired with short runway to acquire additional capital
I’m back after vacation …
One of my favorite SA authors posted a great summary of Jeff Gundlach’s recent webcast, and it is definitely a good read. there was one point that i think is critical for non-investors (or investors who know and care about others) https://seekingalpha.com/article/4205991-maybe-listen-jeff-gundlach-says
“Meanwhile, the threat that tariffs will eventually push up consumer prices in the U.S. only adds to the case for preemptive rate hikes. Goldman’s Jan Hatizius released a note this week that carried the title: “More growth, more tariffs, more hikes”. Whether or not the Fed will reach the end of the road in terms of their capacity to raise rates sometime in 2019 is the subject of vociferous debate and I won’t broach that subject here. For our purposes, the point is simply that piling stimulus atop a late-cycle dynamic forces the Fed into hawkishness.
That’s dangerous because it has the potential to create a false sense of confidence among, for instance, small-business owners, who may not appreciate the finer points of what’s going on. On Tuesday, the NFIB said small-business confidence (as measured by their optimism index) hit the highest level in its 45-year history in August.”
A recent post really hit the nail on the head in describing a future scenario where the overwhelming quantity of data and information will require well-educated people to analyze, interpret and make plans (knowledge). It is easy, I think, to infer that those markets (geographies, countries, cities, etc) that are heavily investing into education, training and innovation around mathematics, science and computer science will be the economic, innovation and thought leaders of the future.
Sadly, most of us in the USA watch as our education programs wither from underfunding and especially the under appreciation of teaching as a serious, high-paying profession.
This is a fascinating take on how Trump’s talk boxed in Fed … a bit dramatic for sure but expected from this author (i read almost every thing he posts on SA). When things are going to get way more complicated, i would hate to be the Fed with options being limited – intended or unintended.
With great thanks to authors
My take-away echos most of the 8-10 articles i dove into today … short term looks good, longer term the fabric is starting to fray; tread carefully
This is a delightful and useful read – the comments this time are more about the author’s style, etc than a discourse on the content
I find the use of data, scenarios and inference most welcome … then i can derive my own view and conclusions.
This guy has a great way of pushing aside the noise and superficial headlines that do not help. This set of questions is incredibly important to really dig thru the noise to find your view on job-based inflationary pressures. Other than prices, this is the other big element; after reading these questions, one has to ask how much employment pressure there really is.
There are some nuggets in the post and in the comments. Here is my favorite (bold mine): “Read an interesting article that the currency bottomed Friday afternoon. It was a good article about how the Chinese guys have been wanting to do this but couldn’t. Now they did it & blamed it on the trade war & not on the real reason that they need a weaker currency to stimulate domestic growth. Sneaky guys with a 3000 yr old civilization. What do they know about social order?“
Not to emphasize ‘sneaky’, but that the Chinese leaders have a long history of trials, failures and successes. They also have the ability to influence the Chinese economy with precision and agility that other countries just cannot do. I keep watching for irrational bargains surfacing.
This report helps a bit … while superficial data brush (it’s free afterall) … their summary that a) growth deceleration is not that bad, b) the economic policy transition to consumption is working (while early), c) tech and consumer companies do not carry the same level of troubled debt that manufacturers carry, and d) the trade war is the biggest risk.
This has not changed my favorable long term view on both China technology and Tencent specifically
Lance’s weekly update has a very interesting data set that I assumed was true, but had not seen it so easily / clearly described. I am leaning toward another longer term position in SPY Puts …
Here is the data set – “copied”
However, with the ongoing trade war rhetoric brewing between China and the U.S., a negative surprise certainly maintains a high enough probability to pay attention to.
As I noted over the last few weeks, participation remains concerning as Bob Farrell’s rule #7 states:
“Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names.”
For the year, 10 stocks have made up almost entirely all of the gains of the market. Actually, a better way would be to say:
“The top-10 stocks have more than offset the losses from the rest of constituents so far this year given the markets are only up 3.22% ytd.”
This is an absolutely critical data set to watch thru the Q2 earnings reporting … any company that misses their segment revenue growth is a prime short candidate; any sector collectively less than this, trouble. What i am most interested in is the next version of this w/ >75% of reporting complete. Will these revenue growth rates hold, or will they be revised downward? I am not that interested in earnings at this point.