Saturday, September 30, 2017

The Closing Bell

The Closing Bell

9/30/17

Statistical Summary

   Current Economic Forecast
                       
2016 actual

Real Growth in Gross Domestic Product                          1.6%
Inflation (revised)                                                              1.6%                     
Corporate Profits (revised)                                                     4.2%

2017 estimates (revised)

Real Growth in Gross Domestic Product                      -1.25-+0.5%
                        Inflation                                                                         +.0.5-1.5%
                        Corporate Profits                                                            -15-0%



   Current Market Forecast
           
            Dow Jones Industrial Average

                                    Current Trend (revised):  
                                    Short Term Uptrend                                 21243-23722
Intermediate Term Uptrend                     18941-26272
Long Term Uptrend                                  5751-24198
                                               
                        2016    Year End Fair Value                                   12600-12800

                        2017     Year End Fair Value                                   13100-13300

            Standard & Poor’s 500

                                    Current Trend (revised):
                                    Short Term Uptrend     (?)                           2483-2758
                                    Intermediate Term Uptrend                         2257-3031
                                    Long Term Uptrend                                     905-2763
                                               
                        2016   Year End Fair Value                                      1560-1580
                       
2017 Year End Fair Value                                       1620-1640         

Percentage Cash in Our Portfolios

Dividend Growth Portfolio                          59%
            High Yield Portfolio                                     55%
            Aggressive Growth Portfolio                        55%

Economics/Politics
           
The Trump economy is providing a marginally higher upward bias to equity valuations.   The data flow this week was mixed: above estimates: month to date retail chain store sales, weekly jobless claims, August durable goods, the September Dallas, Richmond and Kansas City Feds’ manufacturing indices, the September Chicago PMI, the August trade deficit; below estimates: August new home sales, weekly mortgage applications, August pending home sales, September consumer confidence and consumer sentiment, second quarter revised corporate profits, August durable goods, ex transportation, the August Chicago Fed national activity index; in line with estimates: the July Case Shiller home price index, second quarter revised GDP, August personal income and spending.

The primary indicators were also mixed: August new home sales (-), August durable goods (+)/ex transportation (-), revised second quarter GDP (0), August personal income (0) and spending (0).   The call is neutral.  Score: in the last 103 weeks, twenty-nine were positive, fifty-six negative and eighteen neutral. 

Overseas, numbers out of Europe were mixed though the Japanese data showed improvement.

                On the fiscal front,

(1)   the GOP tried again to resurrect the overhaul of healthcare and failed.  Aside from keeping the American people saddled with Obamacare, it also eliminates any cost savings that could be applied to tax reform,

(2)   the impact of Hurricanes Harvey, Irma and Maria.  Damage estimates from them are now in $150-$200 billion plus range.  To reiterate, this will add to the deficit/debt and is not an economic plus no matter what the chattering class alleges,

(3)   the lead story this week was the Trump/GOP tax reform package.  I have gone over the major provisions, so I won’t be repetitious.  For me, the important takeaways were (1) it is not revenue neutral and (2) it will have a difficult time getting enacted.  More on that below.



Bottom line: this week’s US economic stats were mixed, confirming the pattern for the last two years---the economy struggling to keep its head above water.  At some point, I would think that the improving European economy would have some positive influence on our own; but for the moment, that is not happening.

Longer term, with the national debt now larger than GDP, I am less confident in my upgrading our long term secular growth rate assumption by 25 to 50 basis points based on Trump’s deregulation efforts.   In addition, any further increase in that long term secular economic growth rate assumption stemming from enactment of the Trump/GOP fiscal policy is also up to question. 

Our (new and improved) forecast:

A now questionable pick up in the long term secular economic growth rate based on less government regulation.  This hoped for increase in growth could be further augmented by pro-growth fiscal policies including repeal of Obamacare, tax reform and infrastructure spending; though the odds of that are uncertain.  Unfortunately, any expected increase in the secular rate of economic growth could be rendered moot if tax reform (assuming its passes) increases the national debt and the deficit.

Short term, the economy is struggling and will likely continue to do so; though the improving global economy may at some point have an impact.
                       
       The negatives:

(1)   a vulnerable global banking system.  

(2)   fiscal/regulatory policy. 

The Donald still hasn’t gotten the message.  Random attacks [this time on the NFL] are a distraction from governing.  It bothers me that he is wasting time and political capital on non-crucial issues. ‘Every minute he spends dicking around with these issues is a minute not spent on healthcare reform, tax reform and keeping the public safe.’ 

Speaking of reform:

[a] healthcare reform went down again and, with it, any potential cost savings that could be used to pay for tax reform,


[b] Trump did present his/GOP tax reform bill which delivered on the lower, simpler, fairer {?} tax regulation promise.  While I believe that, if passed, it would be a plus for the economy {i} we have no idea of the likelihood of enactment and {ii} we can be fairly certain that, in its current form, it will not be revenue neutral.  As you know, I have long argued that a heavily indebted country adding still more debt, even if it is intended to stimulate growth, is unlikely to achieve its goal of returning to its historical long term secular economic growth rate. 

The Tax Policy Center released its analysis of the tax proposal on Friday afternoon.  Bottom line, ‘fairer’ may have to be dropped from the description of the benefits of the plan (medium):

And as usual, David Stockman has a few choice words on the subject for the ruling class and the tax reform proposal (medium):

And remember that the US national debt is going up whether or not there is tax reform because {i} congress just raised the debt ceiling and [ii] the cleanup and repair expenses from this hurricane season are not yet in the budget mix. 

I am not saying that a revenue neutral tax reform package won’t be a positive impact; I am saying that it won’t be as big as many hope.

[c] finally, this week the US slapped tariffs on a Canadian aircraft manufacturer.  While {i} this action is a long way from being implemented and {ii} we don’t know if this is just more bluff as part of the ongoing NAFTA negotiations, trade wars, tariffs, border taxes are impediments to global growth and as such, I believe, if implemented, it would be an economic negative.

My bottom line on this issue: [a] if the fiscal agenda doesn’t get enacted, it is not bad news.  The result would be continued gridlock and historically, that has been good news.  However, it would mean that the potential economic benefits from tax reform and infrastructure spending would not occur and [b] even if tax reform and infrastructure spending do happen but further increase the deficit spending and the federal debt, that would be a negative, in my opinion.

(3)   the potential negative impact of central bank money printing:  The key point here is that [a] the Fed has inflated bank reserves far beyond any comparable level in history and [b] while this hasn’t been an economic problem to date, {i} it still has to withdraw all those reserves from the system without creating any disruptions---a task that I regularly point out it has proven inept at in the past and {ii} it has created or is creating asset bubbles in the stock market as well as in the auto, student and mortgage loan markets.  

This week’s big monetary news was the Yellen [and other Fed officials] speech that [a] reinforced the impression that the Fed is confused, in disarray and likely scared to death of the market related repercussions of ending QE, [b] but equally scared of the economic repercussions of not ending it. At the moment, it appears that the latter has Yellen’s vote, so the unwinding of QE begins next month.

It just needs to be done faster (must read)

Of course, the Fed isn’t the only central bank that has been pursuing aggressive QE policies---they all have.  But it may be that the latest Fed move has provided the opening for them all to begin steps toward monetary policy normalization: [a] an ECB official said that it should slow the pace of asset purchases and [b] the Bank of England’s Carney said that he was considering ‘taking his foot off the accelerator’.

You know my bottom line: when QE starts to unwind, so does the mispricing and misallocation of assets.  That thesis is about to be tested. 


(4)   geopolitical risks:  Domestic issues held the headlines this week, but tensions between the US and North Korea, Iran and Russia remain high.  Nonetheless, we did get some good news this week: [a] the Chinese ordered all North Korean businesses to close by year end {this assumes that they will really follow through} and [b] Iran said that it would abandon the nuclear deal {is this a face saving move or a calculated risk that the US can’t get the rest of the world back on board with sanctions?  I have no clue}. 

This story isn’t over and there remains a decent probability of an unpleasant outcome. 

(5)   economic difficulties around the globe.  This week:

[a] the September German business confidence was below forecasts while August inflation and unemployment declined; UK GDP growth was below estimates,

[b] the September Japanese Markit flash manufacturing index was strong, CPI was above expectations but the core number was in line, industrial production was above consensus while retail sales were below.
 
             Despite the mixed data out of Europe, our outlook remains that its economy is out of the woods.  The improved Japanese stats are a hopeful sign; but remember the Chinese numbers improved for a short time only to fall back.

            Bottom line:  our near term forecast is that the US economy is stagnate though there is a possibility that the improved regulatory outlook and a now growing EU economy may be stimulative.  Further, if Trump/GOP were to pull off a (near) revenue neutral healthcare reform, tax reform and infrastructure spending on a reasonably timely basis, I would suspect that sentiment driven increases in business and consumer spending would return. 

To be sure, Trump’s drive for deregulation and improved bureaucratic efficiency is and will remain a plus.  As you know, I inched up my estimate of the long term secular growth rate of the economy because of it.  But I fear that thesis is about to be tested if the congress passes non-revenue neutral tax reform---however, simpler and fairer it may be.

The Market-Disciplined Investing
         
  Technical

The indices (DJIA 22405, S&P 2519) keep on truckin’.  Volume was up and breadth continued to strengthen.  Both remain above their 100 and 200 day moving averages and are in uptrends across all time frames. 

The VIX (9.5) fell again  It ended below the upper boundary of its short term downtrend, below its 100 and 200 day moving averages and below the lower boundary of its long term trading range for a third day.  The question remains, did the VIX bottom in July?

The long Treasury was up, finishing above its 200 day moving average (support) and the lower boundaries of its short term trading range and its long term uptrend.  But it ended below its 100 day (I made a mistake previously saying that it was the 200 day moving average) for a third day, reverting to resistance.

The dollar was down, remaining in its short term downtrend and below its 100 and 200 day moving averages.  However, it has negated its very short term downtrend.
           
GLD fell, but still ended above its 100 and 200 day moving averages (both support) and the lower boundary of a short term uptrend.  However, it is developing a very short term downtrend.

 Bottom line: long term, the indices remain strong viz a viz their moving averages and uptrends across all timeframes. Short term, they are above the resistance level marked by their August highs, meaning that there is no resistance between current price levels and the upper boundaries of the Averages long term uptrends.

On the other hand, all those gap openings from two Monday’s ago still need to be closed.   Plus while the nonstock indices are off their highs (lows) from that Monday, each has only challenged one of a number of resistance (support) levels.  So it is not at all clear that reversals are occurring versus just some consolidation.  In economic terms, the question remains as to whether they are starting to discount a stronger economy/higher rates.

I remain uncomfortable with the overall technical picture.

Fundamental-A Dividend Growth Investment Strategy

The DJIA and the S&P are well above ‘Fair Value’ (as calculated by our Valuation Model).  However, it could be rising based on a new set of regulatory policies which could lead to improvement in the historically low long term secular growth rate of the economy (depending on the validity of Reinhart/Rogoff); but it still reflects the elements of a botched Fed transition from easy to tight money and a ‘muddle through’ scenario in Japan and China.

The US economic stats continue to reflect sluggish to little growth.  

On the fiscal front, congress failed at its second try at healthcare reform and robbed itself and the electorate of any cost saving that could be applied to tax reform.  Speaking of which, the Trump/GOP tax reform proposal was presented on Wednesday.  While it clearly hasn’t been passed, if it does in its current form, it will raise the deficit/debt.  To be sure, a simpler, fairer (?) tax code is a plus and may add marginally to the secular growth rate.  However, I remain convinced that, given the magnitude of the current national debt, the current proposal will not provide the impetus to economic growth many hope for. 

As a result, even if passage is achieved, I believe that Street estimates for economic and corporate profit growth are too optimistic based on the improving economy, fiscal reform narrative.  And when it wakes up from this fairy tale that could, in turn, lead to declining growth expectations as well as valuations.  

That said, fiscal policy is a distant second where it comes to Market impact.  The 800 pound gorilla for equity valuations is central bank monetary policy based on the thesis that (1) QE did little to help the economy but led to extreme distortions in asset pricing and allocation and (2) hence, its unwinding will do little to hurt the economy but much to equities as the severe perversion of security valuations is undone. 

That thesis is about to get tested with the Fed announcing the unwind of its balance sheet and other central banks are making noises like they could follow suit.

Bottom line: the assumptions on long term secular growth in our Economic Model may be beginning to improve as we learn about the new regulatory policies and their magnitude.  Plus, there is a ray of hope that fiscal policy could further increase that growth assumption though its timing and magnitude are unknown.  On the other hand, we don’t know if the size of the national debt would negate any potential positive. In any case, I continue to believe that the current Street narrative is overly optimistic---which means Street models will ultimately will have to lower their consensus of Fair Value for equities. 

Our Valuation Model assumptions may be changing depending on the aforementioned economic tradeoffs impacting our Economic Model.  However, even if tax reform proves to be a positive, the math in our Valuation Model still shows that equities are way overpriced.

                As a long term investor, with equity valuations at historical highs, I would want to own cash in my Portfolio and would use the current price strength to sell a portion of your winners and all of your losers.
               
               

DJIA             S&P

Current 2017 Year End Fair Value*              13200             1630
Fair Value as of 9/30/17                                  13074            1615
Close this week                                               22405            2519

Over Valuation vs. 9/30
             
55%overvalued                                   20264              2503
            60%overvalued                                   20918              2584
            65%overvalued                                   21572              2664
            70%overvalued                                   22258              2745


* Just a reminder that the Year End Fair Value number is based on the long term secular growth of the earning power of productive capacity of the US economy not the near term   cyclical influences.  The model is now accounting for somewhat below average secular growth for the next 3 to 5 years. 

The Portfolios and Buy Lists are up to date.


Steve Cook received his education in investments from Harvard, where he earned an MBA, New York University, where he did post graduate work in economics and financial analysis and the CFA Institute, where he earned the Chartered Financial Analysts designation in 1973.  His 47 years of investment experience includes institutional portfolio management at Scudder. Stevens and Clark and Bear Stearns, managing a risk arbitrage hedge fund and an investment banking boutique specializing in funding second stage private companies.  Through his involvement with Strategic Stock Investments, Steve hopes that his experience can help other investors build their wealth while avoiding tough lessons that he learned the hard way.








Friday, September 29, 2017

The Morning Call--Doubts prevail

The Morning Call

9/29/17

The Market
         
    Technical

The indices (DJIA 22381, S&P 2510) had another good day.  Volume was down; breadth strengthened.  Both remain above their 100 and 200 day moving averages and are in uptrends across all time frames. 

The VIX (9.6) fell another 3 %.  It ended below the upper boundary of its short term downtrend, below its 100 and 200 day moving averages and below the lower boundary of its long term trading range for a second day.  The question remains, did the VIX bottom in July?

The long Treasury declined, but still finished above its 100 day moving average (both support) and the lower boundaries of its short term trading range and its long term uptrend.  But it ended below its 200 day moving average (now support) for a second day; if it remains there through the close next Monday, it will revert to resistance

The dollar was down, remaining in its short term downtrend and below its 100 and 200 day moving averages.  However, it has negated its very short term downtrend.

GLD was up, ending above its 100 and 200 day moving averages (both support) and the lower boundary of a short term uptrend.  However, it is developing a very short term downtrend.

 Bottom line: long term, the indices remain strong viz a viz their moving averages and uptrends across all timeframes. Short term, they are above the resistance level marked by their August highs, meaning that there is no resistance between current price levels and the upper boundaries of the Averages long term uptrends.

On the other hand, all those gap openings from two Monday’s ago still need to be closed.   Plus nonstock indices’ pin action was confusing, given the equity market’s focus on the positives to be derived from tax reform.

I remain uncomfortable with the overall technical picture.

    Fundamental

       Headlines

            Yesterday’s economic stats were generally upbeat: the August trade deficit, weekly jobless claims and the Kansas City Fed manufacturing index were better than anticipated;   the revised second quarter GDP was in line though corporate profits were below.  Again, nothing overseas.

            ***overnight, an ECB official said that it should slow the pace of asset purchases, the Bank of England’s Carney said that he was considering ‘taking his foot off the accelerator’, the Fed’s Fischer said that it was important to reverse QE; August German inflation was below expectations while unemployment declined, UK GDP growth was below estimates, August Japanese CPI was above forecasts, but core inflation was in line, industrial product was above consensus while retail sales were below; Iran said that it may abandon the nuclear deal.

            The Market remained focused on the new Trump/GOP tax proposal as top officials were out in force talking up the plan.  There was little newsworthy in terms of any new information or details on the already released provisions.  My only observation is that most of the ‘experts’ either on the live news channels or in the print (1) made the odds of passage, as the proposal in currently outlined, quite low, (2) believed that any bill that did pass would be near revenue neutral and (3) if so, would take a long time to work through the legislative process. 

UBS weighs in on the tax cut (medium):

            Bottom line: as you can probably guess, I don’t consider the ‘experts’ incredulous response to the Trump/GOP tax plan a negative.  To be sure, I would like to see a simpler, fairer tax code, but not at the price of expanding the national debt.  Which means that any positive stock price action based on the current proposal will likely be reversed.  Of course, the recent advance in prices may be reflecting a final bill that is simpler, fairer and revenue neutral. 

            My thought for the day: renown investor, Peter Lynch, was a prolific writer.  He had a number of favorite sayings, one of the most widely quoted was ‘invest in what you know’.  In other words, if you like the iPhone, buy Apple.  What is missed in this small bit of wisdom is that while Mr. Lynch may have started with things he knew but he also did a lot of research before making an investment decision.

       Investing for Survival
   
            Keeping it simple:

    News on Stocks in Our Portfolios
 
Economics

   This Week’s Data

            The September Kansas City Fed manufacturing index came in at 17 versus its prior reading of 16.

            August personal income rose 0.2%, in line: personal spending was up 0.1% also in line.

   Other

            Softer GDP growth expected for third quarter (short):

            Update on household income and wealth (medium):

            Update on oil (medium):

            Digging into the GDP growth number (medium):

Politics

  Domestic

  International War Against Radical Islam

            China orders all North Korean businesses to close (medium):



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Thursday, September 28, 2017

The Morning Call--But will it pass?

The Morning Call

9/28/17

The Market
         
    Technical

The indices (DJIA 22340, S&P 2507) had a good day.  Volume was up; breadth strengthened.  Both remain above their 100 and 200 day moving averages and are in uptrends across all time frames. 

The VIX (9.9) fell 3 ½ %.  It ended below the upper boundary of its short term downtrend, below its 100 and 200 day moving averages and below the lower boundary of its long term trading range.  The question remains, did the VIX bottom in July?

The long Treasury declined 1 ½ % on volume, but still finished above its 100 day moving average (both support) and the lower boundaries of its short term trading range and its long term uptrend.  But it ended below its 200 day moving average (now support); if it remains there through the close next Monday, it will revert to resistance

The dollar was up strong, but remained in its short term downtrend and below its 100 and 200 day moving averages.  However, it finished below the lower boundary of its very short term downtrend and has broken the series of lower highs.
           
GLD was down another 1%, but ended above its 100 and 200 day moving averages (both support) and the lower boundary of a short term uptrend.  However, it has now made a second lower high.

 Bottom line: long term, the indices remain strong viz a viz their moving averages and uptrends across all timeframes. Short term, they are above the resistance level marked by their August highs, meaning that there is no resistance between current price levels and the upper boundaries of the Averages long term uptrends.

On the other hand, all those gap openings from two Monday’s ago still need to be closed. 

Finally, all the indices reacted to the prospects of the passage of tax reform and the assumed result of a stronger economy.

I remain uncomfortable with the overall technical picture.

    Fundamental

       Headlines

            Yesterday’s economic stats were tilted negative: weekly mortgage and purchase applications were down, August pending home sales were down and August durable goods orders rose, but ex transportation they declined.

            The big new item of the day was the release of the new Trump/GOP tax reform plan.  Given the extent of the coverage plus the information in the links below, I am not going to go into the details.  From an analysis point of view, (1) it will make the tax code simpler and, in my opinion, fairer, (2) as yet, we have no idea of the odds of passage and (3) nothing was said about its costs nor has it been scored by the CBO, though most analysts are predicting a $1.5 to $5 trillion short fall over the next ten years.  Here is both a summary as well as the entire document released yesterday morning.

            Here is Goldman’s analysis (medium):

            This is a must read analysis from Lance Roberts (medium):

Bottom line: Tuesday we got confirmation that Janet wants to shift monetary policy from accommodation to unwinding QE.  That means we will now get a test of my thesis that ending QE will have little effect on the economy but a significant impact on the market.  Yesterday, we got the blueprint for tax reform, the second fiscal pillar of the Trump/GOP platform---supposedly one that will be much easier to pass. Assuming it passes and that it is not revenue neutral, we will get a test of whether an already over indebted economy can grow following a stimulative tax break that further increases that economy’s debt. 

You know my opinion on both issues.  Whatever occurs, we are entering interesting times with respect to economic theory.

            My thought for the day: this seems obvious, but don’t start planning for a bear market after it occurs.  If you prepare yourself psychologically for any investment environment ahead of time, it decreases the chances of blowing up your portfolio by making unforced errors at the wrong time.

       Investing for Survival
   
            The big lie of market indicies.

    News on Stocks in Our Portfolios
 
Accenture (NYSE:ACN): Q4 EPS of $1.48 beats by $0.01.
Revenue of $9.15B (+7.8% Y/Y) beats by $120M.


Economics

   This Week’s Data

            August pending home sales fell 2.6% versus expectations of a down 0.2%.

                Revised second quarter GDP was reported up 3.1%, in line.

                While revised second quarter corporate profits rose 7.4% versus the prior reading of up 8.1%.

                The August trade deficit was $62.9 billion versus estimates of $65.7 billion.

            Weekly jobless claims rose 12,000 versus forecasts of 16,000.

   Other

Politics

  Domestic

More problems for public pension funds (medium):

Still more problems (medium):

  International War Against Radical Islam


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Wednesday, September 27, 2017

The Morning Call--Janet remains as confused as ever

The Morning Call

9/27/17

The Market
         
    Technical

The indices (DJIA 22284, S&P 2496) were mixed yesterday (Dow down, S&P up), though they were basically flat.  Volume declined; breadth weakened further.  Both remain above their 100 and 200 day moving averages and are in uptrends across all time frames. 

The VIX (10.1) was down by pennies.  It ended below the upper boundary of its short term downtrend, below its 100 and 200 day moving averages but finished right on the lower boundary of its long term trading range.  The question remains, did the VIX bottom in July?

The long Treasury declined slightly, but still finished above its 100 and 200 day moving averages (both support) and the lower boundaries of its short term trading range and its long term uptrend. 

The dollar was up strong, but remained in short term and very short term downtrends and below its 100 and 200 day moving averages.  However, it has broken the series of lower highs; and it closed very near the upper boundary of its very short term downtrend. 
           
GLD was down 1%, but ended above its 100 and 200 day moving averages (both support) and the lower boundary of a short term uptrend.  However, it has now made a second lower high.

 Bottom line: long term, the indices remain strong viz a viz their moving averages and uptrends across all timeframes. Short term, they are above the resistance level marked by their August highs, meaning that there is no resistance between current price levels and the upper boundaries of the Averages long term uptrends.

On the other hand, all those gap openings from two Monday’s ago still need to be closed. 

Finally, the pin action in GLD, TLT and UUP was a bit confusing.  GLD and UUP pointed to a stronger economy/higher interest rates---probably a reaction to the confused but somewhat hawkish statement from Yellen.  The bond guys seem to remain convinced of sluggish economy.

I remain uncomfortable with the overall technical picture.
            The latest NYSE margin data (medium):

    Fundamental

       Headlines

            Yesterday witnessed the release of a number on economic datapoints: month to date retail chain store sales improved from the prior week, the September Richmond Fed manufacturing index was ahead of expectations; however, August new home sales (primary indicator) were abysmal and September consumer confidence was below estimates.  The July Case Shiller home price index was in line.  Nothing overseas.

            Yellen made a major address in which she explained the Fed still had no clue about what is going on but she is worried about starting to tighten too late.   Note to Janet, you should have been worried about that three years ago.

            And:

            Other Fed officials were also on the stump displaying a perfect lack of consensus (medium):

            As usual there are so many ‘on the one hand, on the other hand’ that it is tough to have a clear picture of what this group of eggheads are thinking.  That said, Yellen said one thing that suggests that the hawkish stance set at last week’s FOMC meeting prevails:  “it would be imprudent to keep monetary policy on hold until inflation is back to 2 percent”

            Janet in Wonderland (medium and today’s must read):

            In addition, there were more leaks on the Trump/GOP tax bill (medium):

Bottom line: the economy continues to perform sluggishly (witness new home sales).  The Fed continues to throw head fakes---in an investor panel on CNBC yesterday afternoon, no one could agree on what Yellen said in her speech; and these guys are professional observers.  Reading her above quotes, it is not surprising.  So while she seemed to be pointing to higher rates and the unwinding of QE, she has left the Fed with the ability to do anything, then point at one or more of the ‘on the one hand, on the other hand’ statements and claim that it told us so. 

My position hasn’t changed.  The Fed screwed up once again; only this time it did it in grand style, expanding its balance sheet to $4.5 trillion with marginal effect on the economy but pushing equity valuations to nose bleed levels.  When this story ends, it will not be a plus for stocks. 

            Here is a reasonable argument on why ending QE won’t end the bull market.  My objection to his argument is that much of the day to day action in US stocks is done by algos/quant traders who could care less about earnings but do focus on Fed policy (medium):

            My thought for the day:  Take emotion out of your investment decision making process.  I have constructed a valuation model that makes my buy/sell decisions relatively easy even at times of market extremes.  It may be involve more time and effort than you want to invest.  But the validity of my particular process is far less important than the point of just having a process that allows you to make sound investment decisions whatever is occurring in the market.

       Investing for Survival
   
            Warren Buffett wins $1 million bet that S&P would outperform hedge funds (medium):

    News on Stocks in Our Portfolios
 
Nike (NYSE:NKE): Q1 EPS of $0.57 beats by $0.09.
Revenue of $9.07B (+0.1% Y/Y) misses by $20M.

General Mills (NYSE:GIS) declares $0.49/share quarterly dividend, in line with previous.

Economics

   This Week’s Data

            Month to date retail chain store sales grew slightly faster than in the prior week.

            The July Case Shiller home price index rose 0.3%, in line.

            August new home sales fell 1.9% versus expectations of an increase of 2.1%.

            September consumer confidence came in at 119.8 versus estimates of 120.2.

            The September Richmond Fed manufacturing index was reported at 19.0 versus forecast of 13.0.

                        Weekly mortgage applications fell 0.5% while purchase applications were down 4.0%.

            August durable goods orders rose 1.7% versus consensus of +1.5%; ex transportation, they were up 0.2% versus projections of up 0.4%.

   Other

            Stripping NAFTA of what makes it great (medium):

            US slaps tariffs on Bombardier (medium):

            Update on oil (medium):

            Apartment vacancy rates (medium):

            Quote of the day (short):


Politics

  Domestic

  International War Against Radical Islam


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