That Was The Week That Was-3rd Week February

 

Breaking Client News…Tax Documents in Mail. If you don’t get them by the end of this week call or e-mail me. 

 

Stock Forecast from the JP Morgan’s  Michael Cembalest in the 2/14 Interview section of Barrons.com  states that the U.S. markets should have ‘lots’ more turbulence but ‘good gains’ in 2014. Cembalest clarified that over the very long run investors could expect to earn 4% to 6% over inflation in real terms. ‘Usually, that translates into nominal returns of 8%-10% with 16% to 18% volatility….now we are going back to where we used to be.’ He explained that the last few years we’ve had the reverse, with volatility that was half the returns. He also predicted U.S GDP at 4% in 2014.

Applied Global Macro Research has three economists who advise clients and also, according to Barrons.com 2/15 put their money where their mouth is and currently have their hedge fund invested in S&P 500 Consumer Discretionary and Home Builders stock indexes. Demand for new homes- and the outlook for economic growth- are understated, they say. Also, contrary to others they expect 4% GDP while investors expect 2014-2015 growth in the 2.7% to 3% range. Tuesday Homebuilders Fell The Most Since Last May as Weather & Builder Expectations Collided Causing a 10 point drop in the Index.

The Japanese Stock Market Has Lost 10% in 2014-Mainly on concerns over the USA and China. The weak data coming from their chief importing nations has tripped growth in the first weeks of the year for the Japanese. WSJ 2-18-2014. On Tuesday the Bank of Japan surprised markets by announcing double the incentives to spur borrowing. The effect weakened the yen and lifted stocks just at a time when the economy was showing signs of trouble. The key word traders focused in on was ‘double’.

Speaking of Banks. Domestic Banking Officials Have Been Cashing in On 2013 Rally. Bank stocks overall rose 41% last year. January was a busy month as insiders sold shares to compensate for loss of cash of year-end bonuses and instead were given shares of stock. MarketWatch commented that these folk have expensive lifestyles and took advantage of 2013 increased share price by selling shares in 2014. MarketWatch 2/18/2014.

Zacks on 2/14 wrote in their  Profit From the Pros: It’s like nothing ever happened. The bull market is in place until a recession looms or stock valuations get bubblicious. Tuesday opened flat- mixed indices. Silly market day with snow affecting traders and saw penny stocks climb on speculation and large caps flat.  Congressional Budget Office declared that the $10.00 minimum wage would bump some people out of poverty but also cause a loss of about 750,000 jobs. Every time we’ve seen the minimum wage increase the very same thing happens. This is nothing new but this time its on the small to medium sized employer who’s not hiring because of the current political uncertainty, and now rules changed forcing them to pay more if they do hire someone. What we’re seeing in Washington is like a bunch of high school kids playing ‘government day’. It’s not that this administration wants to do bad things- they just don’t know what IT is they’re doing. Federal Reserve Informed Foreign Banks they had to hold more capital if they want to do business in the U.S.A. Arguments by the foreign banks that the increase in capital requirement would ‘systemically reduce their footprint’. The Fed may have said,’That’s fine with us!’ or something like that. Deutsche Bank has 37% of its group assets in the U.S. WSJ 2/19 What a great time for U.S. mega banks. The recession washed out 1/2 of their competition in the small to regional banking category and extended low interest rates allow them to make extraordinary profits. And then the Fed muscles their foreign competition. What a country!

Wednesday- Markets Toast! It started off with investors seeing more action in large caps and the small caps were being bludgeoned, then the tide turned and everything got seriously ugly. According to Barron’s Income Investing 2/20 it was a knee-jerk reaction to the latest Fed minutes, which showed members united in their bond-buying and now focused on raising interest rates. We’ll probably see our first interest rate hike this year so strap on your seatbelt. Before the sell-off the S&P was approaching the previous high for the year and then did the U-turn. CNBC reported stocks look ‘fatigued’, as traders ignored data. What data you ask? Like the 16% drop in housing starts- which traders blamed on the weather. Still the S&P closed at a healthy 1,828. Jeremy Siegel in ThinkAdvisor 2/19 said, ‘Stocks were undervalued 10%-15% under fair market value.’  He also expects interest rates on the 10-year to be 4%-4.5% by year-end. 

Market Up Thursday! Lots of noise out there but nothing that was of any real consequence. It was just enough good news that percolated around to boost all indices.  FB bought a messaging firm for a whole lot of money and I have a feeling some people are seriously wondering what’s going on when the messaging doesn’t support advertising. Softer than expected Chinese manufacturing numbers and rioting in Ukraine did little to damper enthusiasm for stocks. Anyone peek at the price of gold? At one time it was about $600 more expensive than it is on Thursday 2/21. Even utilities sparkled, and worries about that sector late last year may be unfounded for 2014. Utilities were on our underperform list at my Breakfast Meeting.The Gap gives 65,000 minimum wage workers huge pay increase to $9.00 in 2014 and over $10.00 in 2015.

  Warren Buffett’s ‘Business Wire, a high speed distributer of press releases has put the kibosh on allowing high frequency traders purchase direct access to its service. The NY attorney general applauded. He also called it a ‘Great Victory!WSJ 2/21/2014 

Friday Dow, Naz and S&P off Gold up. Disconcerting News from Art Cashin, UBS director of floor operations at the NYSE, speaking to Bon Pisani on CNBC around mid-day Friday. He sees a serious band of resistance at a technical level around the S&P 1848-1851. If the markets break out everything would be ‘great’, Cashin said. If not it could be very troubling.

Info collected last week from Bloomberg.com, WSJ, Barrons.com, CNBC and MarketWatch.com along with other sources deemed responsible.

Questions call Paul @ 586 295 0430 or write him at pstanley@westminsterfinancial.com . Share this blog with someone who cares about their money.

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