Thur., Dec 31, 2015 – Market & Economy Checkup

Thursday, December 31, 2015

Market and Economy Checkup

Data retrieved and compiled 12-31-15 (after market close)

 

Through 12-31-2015 (at the close)

As you can see, today, this week, this month, and spanning over the past 12 months has been a disappointment for equity investors. The only bright spots have been the Nasdaq (ticker ONEQ +5.93% YTD) and the Nasdaq 100 (ticker QQQ +8.43% YTD), and Biotech (tickers IBB +11.47% YTD, and XBI). The Cohen & Steers Realty Majors Index, matched by ticker ICF, posted a +5.96% return in 2015.  Additionally, U.S. Total Stock Market Index, formerly known as the Wilshire 5000, (ticker VTI) posted +0.40% YTD. Winning sectors in the S&P500 (which finished 2015 -0.73%) included Technology Sector (ticker XLK), Health Care (ticker XLV), and Consumer Discretionary (ticker XLY), and Consumer Staples (ticker XLP).

Click here for quotes on the ticker SPY, and all of the SPDR Sector ETFs which match the performance of the sectors constituting the S&P500. Here’s how some indices and sectors and their ETFs did for 2015, ranked in order, from biggest winners to biggest losers (results were taken from a price chart, so this includes price performance only, not including dividends, and also does not include capital gains distributions):

1. IBB the Nasdaq Biotech Index, a widely followed sub-sector of health care wins first place.
2. QQQ, the Nasdaq 100, wins second place.
3. XLY, Consumer Discretionary wins third place.
4. XLV, Healthcare, wins fourth place.
5. XLP, Consumer Staples, wins fifth place.
6. XLK, Technology, wins sixth place.
7. The S&P500 itself finishes for seventh place, down for the year.
8. DIA, the DJIA finishes down for the year, in eighth place.
9. IJH and MDY, the S&PMidCap400 finishes down for ninth place.
10. IWM, Russell 2000 finishes worse, down for the year, and in tenth place.
11. XLF, Financials, were next, finishing down for the year, in eleventh place.
12. XLI, Industrials were next, finishing down for the year, and in twelfth place.
13. XLU, Utilities, were next, finishing down worse still for the year, and in thirteenth place.
14. XLB, Basic Materials, finished down, second to last, in fourteenth place.
15. XLE, Energy, finished down and in last place, fifteenth place. (And after being down so sharply over the past 18 months, something tells me that the energy sector could prove to be a winner going forward, at maybe some point between now and the next six months or so.)
16. Worse still were many foreign stock ETFs, of Europe, the Middle East, China, India, Brazil, The frontier markets, South Africa, Africa, S.E. Asia, Latin America, etc. (click here for quotes on these losers), know that it can always get worse before it gets better, so don’t be too tempted to buy these foreign stock ETFs.  I’ve always said foreign stocks are like gambling and/or lottery tickets! Now there’s always exceptions to what I’ve said, e.g. I like CS, DB, GSK, MNK, BCS, and LYG, which are all foreign domiciled “big pharma” and financials. On that note, checkout ETF ticker ADRU, which is laden with foreign companies (mostly ADRs listed in the U.S.) that might maybe be worth an investment.

There are three strategies that can be put into action on the last day of the year, the first is called “The Bridesmaid Strategy,” second, “The Dogs of the Dow Strategy,” and lastly, the third, “The Small Dogs of the Dow.”

1.  The Bridesmaid Strategy is simple, you simply select the 2nd place winner among all S&P500 sectors, which is healthcare for 2015, and you invest solely in that sector for the following year, being 2016. This strategy is said to beat the S&P500 by over four hundred and eighty basis points (meaning by +4.80%) per year on average, over the long run. So, 2016’s Bridesmaid Strategy would entail investing in the S&P500’s Health Care Sector, matched by ETF ticker XLV.

For further info on “the Bridesmaid Strategy” click here. The article claims The bridesmaid strategy has an annualized return of +14.50% since 1991, and over that same span (since 1991) the S&P500’s annualized return was +9.70.  Seems as though the bridesmaid strategy is absolute dynamite!!!

I’d also note that biotech (which is not a sector of the S&P500, it’s its own index), matched by the ETF ticker IBB, and other healthcare related ETFs could prove to be great investments in 2016, see tickers IHE, XPH, SBIO, and others.

Know that despite the health care sector’s strong performances over the past few years, like everything else, past performance is not indicative of future performance, and does not guarantee future results.  Swim at your own risk!

2.  Also, Click here for 2016’s Dogs of the Dow Components. Click here for an explanation on how (A) the Dogs of the Dow (and (B) the Small Dogs of the Dow) are selected. It’s really a great time tested strategy.  The Dogs of the Dow strategy involves selecting and investing in an equal weight 10% allocation, the 10 highest yielding stocks taken out of the DJIA (on the last trading day of the year); The Small Dogs of the Dow Strategy then chooses only five (out of ten) from that list, in equal weight (20% each), which are the lowest in price per share.

Leading the way down in 2015 was the energy sector (XLE) (and iShares ticker IYE, -22.21% YTD), plagued by sharply declining crude oil prices, from too much supply, rather than lack of demand.  Their man made supply side shock could put them out of business, and has also caused terrible recessions in Brazil (in 2016 many believe Brazil could turn, and ticker EWZ (-41.27% YTD) could prove to be a major opportunity for speculators, after nearly 8 to 9 years of steep declines!), terrible recessions in Russia (ticker RSX -0.56% YTD), and troubles in Turkey (ticker TUR, -31.46% YTD), Saudi Arabia, and Kuwait, etc. Basically, OPEC is too productive.  There could be nasty times ahead for the energy sector still (and for OPEC nations), even after 18 months of steep declines in oil prices (coming off of 104 per barrel in 2014, to the current 37.04 (for WTI; and 37.28 for Brent) [oil prices retrieved from here, oil-price.net] per barrel on December 31, 2015). Oil peaked in July of 2008 at just over $145 per barrel [click here for that chart], so its been declining for eight years now. There could be easily be consolidation, further layoffs, the slashing of dividends across the board, many bankruptcies, and general doom and gloom for the entire energy sector.  In addition to a very weak energy sector, joining in on the way down, and putting negative pressure on the S&P500 was its sectors including basic materials (XLB), utilities (XLU), and industrials (XLI). Despite lower oil prices, the Dow Jones Transportation index finished down by -17.85% YTD (ticker IYT finished 2015 down by -16.85%).

In addition to ticker EWZ, there may be some great opportunities in the S&PLatinAmerica40 index, matched by ticker ILF (-31.40% YTD).  Additionally, I like to follow the performance of ticker IDV as well, “the International Select Dividend ETF” by Blackrock’s iShares, which posted losses of -10.92% in 2015; and IXG (-4.40% YTD) the iShares Global Financials ETF; and ticker EUFN (-4.99% YTD) the iShares MSCI Europe Financials ETF.  Check them out!

Somehow, I’m still bullish for 2016, as I see lower and low oil prices acting like a tax cut, which is good for consumer sentiment and consumer spending. Low and lower oil is great for the U.S. economy.  Also, the entire energy sector represents only 2.59 to roughly 6.5% of all the U.S. broad based stock indices (just 3.03% of the S&PMidCap400, matched by ticker MDY and IJH).

Sometimes I wonder if too many believe that the USA is a very very oil intensive nation.  We’re not, and we’re certainly not Kuwait, Saudi Arabia, Russia, or Brazil.  I also worry that a lot of the selling “of everything” indiscriminately on low and lower oil (which is the trading action we’ve seen lately) is program trading, or algorithmic trading, or high frequency trading, and if so, eventually, they’re going to have to re-program their machines to interpret low and lower oil prices as beneficial and bullish for the USA and its stock markets, and inflationary outlook, and thus for fixed income prices and yields.  Low and lower oil only hurts two things, (1) the energy sector, and (2) OPEC nations; It is absolutely fantastic for everyone else.

To me, I can’t figure out why so many are so foolishly bearish at this juncture, at mid-cycle, after the first rate hike off of zero interest rate policy. There is no nasty boogey man looming for the markets, in 2016 in my view. Instead, the market could really boogey woogey higher in 2016!  I believe 2015’s performance was a little crummy due to that I describe as “a hang over” from 2013’s unusually strong performance, where many of the U.S. broad based indices rose over +30.00%.  In 2013 e.g. the S&PMidCap400 rose by +31.57%, and the S&P500 rose by +29.60% (the S&P500 can be matched using the ETF ticker SPY), and the DJIA (matched by the ETF ticker DIA) rose by +26.50% in 2013. To me, it’s a shame that 2013’s thirty percent gain couldn’t have been spread out more evenly over the course of three years, in ’13, ’14, and ’15, everyone likes consistency.

High yield U.S. corporate junk bonds (and their indices, matched by the ETF tickers HYG (-5.54% YTD), and JNK) also didn’t do too well in 2015, they’re both down nearly five and a half percent, including their streaming income… on a price performance basis, they’re both down nearly ten percent); It has been odd in the sense that there is no recession in the USA, yet the junk bond market has posted a negative return. The negative sentiment about the energy sector’s fixed income has led to losses in high yield.  Some are worried about many energy sector bankruptcies.

Personally, in the high yield junk bond sector, I like sovereign U.S. dollar denominated high yield junk fixed income, as is indexed by the JPM EMBI, matched by ETF tickers PCY and EMB. Click here for Payden & Rygel’s analysis on the JPM EMBI for this week.  There is also the JPM EMBI Local Currency Bond Index, I really don’t recommend this foreign currency (aka “local currency”) denominated bond index.  King dollar is back!

The markets in 2015 were also worried about slowing China (see tickers FXI -11.91% YTD, ASHR, ASHS, HAO -2.05% YTD, PEK -1.20% YTD), slow Europe (EFA -0.90% YTD), Greece (GREK -39.95% YTD) and its debt crisis, Puerto Rico’s debt debacle, and rising rates in the USA off of its zero interest rate policy (ZIRP), while the rest of the world has been and still is in rate reduction and stimulus mode. None of this was a surprise however, and many have been talking about these issues for years.  China could also prove to surprise to the upside, and not slow as much as is widely believed. Additionally, there’s been worries about global and domestic terrorism, after the tragic events in Paris and California. I believe there is a terrorism discount weighing on the markets right now.  Lastly, there could be worries about the political risks in the U.S. since 2016 is an election year, in what appears to be “the Donald” versus “Hill & Bill” (or really just Hillary). The republicans can’t seem to coalesce around any of their numerous candidates running for president; and the democrats apparently only have leadership from solely one candidate, Hillary.

In the USA, GDP is expected to expand at a faster pace next year, from approximately 2.50% in 2015, to roughly +2.7% to 2.8% in 2016.  Inflation is expected to creep up, but remain low, maybe going from roughly 0.00% to 0.30% to roughly 1.50% to 1.75% percent in 2016. Additionally, I believe and expect the real estate markets in the U.S. will strengthen, and the U.S. labor market will strengthen as well.  Interest rates are expected in the USA to go from 0.25% percent, to roughly 1.25% at the short end.  On December 31, 2015 the 30 Year Treasury Bond yield currently rests at 3.02%, the 10 Year Note Yield rests at 2.27%, the Five Year Note closed at 1.76%, and the 13 week T-Bill Yield rests at 0.15%. I expect the yield curve to flatten slightly, but remain steep, as all rates should creep up a bit. Maybe the 30 year bond yield will increase 75 basis points in 2016, while the short end rises 100 basis points.  We shall see. Globally, GDP is expected to grow worldwide, at roughly +3%. China is expecting roughly 6 to 7 percent GDP growth, S.E. Asia expects to see +4% growth. Even Europe is expecting to grow in 2016, at a faster pace than 2015’s sluggish growth.

(Chart #1) 12 Month Performance of the U.S. Broad Based Stock Indices

(Chart #2) October 21, 2015 – December 31, 2015

 

In the charts above I have charted the 12 month performance of the broad based U.S. stock indices (chart #1).

Also above (in Chart #2), I have charted October 21, 2015 through December 31, 2015, because usually, October 21st through February 19th of the next year is a great time for equity investors.  Normally, we see seasonal strength in the stock indices between October 21st and February 19th of the following year.  I’ve done research on this and have determined it’s usually because of and due to increases in consumer spending (primarily holiday and travel expenditures), seasonally strong 4th quarter EPS of all the components of the broad based indices, mutual fund window dressing, the Santa Claus Rally, the January Effect, Congress being out of session, new government spending proposals, abatement of tax loss selling, and 401k and IRA contributions, etc. There are many reasons for the markets to do well at year end, and into the new year.  This year’s year-end-rally hasn’t been that great, so far (except for Biotech, see ticker IBB, from October 21st through December 31, 2015) Click here for ticker IBB’s main components. Now, it’s never over until the fat lady sings! And it’s not February 19th of 2016 yet. But so far, performance hasn’t been that great. Regardless, I’m bullish going forward, full steam ahead. I firmly believe that if there is no recession looming, then there will be no bear market. And I firmly believe that there will be no materialization of any recession in 2016, or even early 2017.

2015 also saw some fantastic “blow ups,” including tickers FXCM, MNK, CMG, and VRX (click here for quotes on these). Bottom fishers might want to speculate in these, with high risk funds.  Click here, for list of potential bottom fishing candidates; Know that it can always “get worse” before it “gets better!”

Within the energy sector are also many many stocks that have absolutely stunningly declined substantially off their mid 2014 highs.  There’s plenty to choose from if you dig around a little, which could satisfy the bottom fisher’s quest for the rebound.

Also, BitCoin (click here for the wiki article), was listed in 2015 somehow as a commodity!  GBTC is managed by a company called Grayscale, a Digital Currency Group Company. Click here for the commodity wiki article. I like to say the so-called BitCoin crypto-currency (whatever that means!) is like the board game Monopoly, and its Monopoly Money (backed by absolutely nothing!!! HA!!!).  I suppose even Monopoly money is worth something, like maybe the paper its printed on. This BitCoin BS is the ultimate BS hype bubble right now, and it’s inflating very very rapidly!  See ticker GBTC, it should prove to be highly amusing.  Speculative asset bubbles are fun while they’re inflating, but they’re no fun at all when they go pop for those speculating in them!  So, BE CAREFUL if you play with fire! I like to say it’s currently appreciating due to the greater fool theory, or kinda like hot potato.  Bubbles to me are also like musical chairs, and at some point the music will end, and the bubble speculators will be left without at place to sit.  Click here for the wiki article on bubbles.

I believe Monopoly Money is very similar to BitCoin.

Bubbles can inflate rapidly, but they can also pop, and suddenly burst;  Stunningly devastating losses can mount up and materialize.  Investors might be better off investing in literally trash versus BitCoin (ticker GBTC).  Try what I describe as “The Four Kings of Trash,” Waste Management, Waste Connections, Republic Services, and Covanta, tickers WM, WCN, RSG, and CVA.

This BitCoin (ticker GBTC) mania and euphoria reminds me when the ETF ticker GLD first became listed on the exchanges. GLD (in my opinion) attracted so much money out of the securities markets (after it was listed as an ETF for securities investors for the first time) that it created a bubble in gold, which inflated, over the course of seven years, by roughly +311% gain (from 45 to 185), before popping and imploding.  Today, I believe GLD is still in the process of popping (in my view), and has come back down to 101.46, as of 12-31-2015 (from the roughly 185 peak in July of 2007).  I do not think gold (or the ETF ticker GLD) will see its prior peak for a very very long time.

I like to say: “Bubbles go Pop!“  If you’re interested in reading up on bubbles see the book, available at Amazon, by Daniel Gross: “Pop, Why Bubbles are Great for the Economy.”  You may also be interested in “Extraordinary Popular Delusions and the Madness of Crowds,” and perhaps also “Manias, Panics, and Crashes.” Click here, for a historical long term list of recessions, depressions, and panics in the United States, on Wikipedia, which might also tickle your fancy.

I think commodities shouldn’t be listed on the securities exchanges.  To me, commodities are not securities, and so they should not be listed on the AMEX, Nasdaq, NYSE, etc. for investors to trade like stocks.  To me, commodities, belong at the NYMEX or Chicago Mercantile Exchange, and should solely be traded by commodities traders, in commodities accounts.  I’m not sure why the CFTC, SEC, or the IRS has allowed the subversion of many commodities to be listed as ETFs on the securities exchanges for securities investors.  Speaking of commodities gone wild, it looks to me like coffee, ETF ticker JO, is finally “on the move,” and 2016 could be the year of coffee bean prices!

Wrapping things up, I wanted to leave you all with a quote list of my favourite high yield stocks, in no particular order;  Click here for that list.

Lets all hope that the god (or really goddess) of securities and investing, and of wealth, fortune, and prosperity, Lakshmi, brings better times ahead for investors!

Here are three great reports to assess the state of the economy: (1) Click here for the FOMC’s statements and minutes and estimates; (2) click here for the most recent edition of The Economic Indicators; and (3) click here for JPM Asset Management’s “Guide to the Markets” publication and analysis.

Lastly, here’s the current assessment of the U.S. Economy and its markets by Deutsche Asset & Wealth Management [click here for their current report].

Happy Trading!,

Andrew G. Bernhardt

PS- Here’s a great resource on (1) how all iShares are doing, click here; Also (2) here’s how all SPDR ETFs are doing, click here.

[Click here for my comments on the business & economic news daily]

[Click here for my Great Investment Links Page]

[Click here for my Great Investment News Page]

Weekend Update and On The Securities Action of Friday, January 30, 2015

Weekend Update

And On The Securities Action of Friday, January 30, 2015

BIG SELLOFF ON WALL STREET! Friday was a tough day for equities at Nassau & Wall, Stocks slumped mostly in the final 30 minutes of action. The VIX surged +11.78% or +2.21 points to close at 20.97. The S&P500 was down for most of the trading day, but reached an intra-day bottom around 11am central time, before reversing and rallying back to unchanged; it then actually registered a slight advance into positive territory for a short time, before reversing again, and selling off hard in the final 30 minutes. Sovereign fixed income rallied, while high yield corporate fixed income sold off. On Friday the DJIA fell -251 points or -1.45% to 17,164.95. The S&P500 was down -26.26 points or -1.30% to 1,994.99. The S&PMidCap400 fell -20.25 points or -1.39% to close at 1,435.10. For the week most major U.S. Stock indices shed two to three percentage points, except the S&PMidCap400 which traded down -1.42% for the week. Despite Friday’s action, I’m still bullish and believe stock prices will go higher.

Jan. 30, 2015, Major U.S. Stock Indices

The DJIA is now -5.18% off its highest point reached in the past 12 months, the S&P500 is -4.71% of its 12 month peak, the S&PMidCap400 is -2.92% off its 12 month peak, the Nasdaq Composite is -3.73% off its 12 month peak, and the Russell 2000 is now -4.59% of its 12 month peak, the Wilshire 5000 is now -4.29% off its peak. XLF, an etf basket of financials, was -1.62% to 23.01, and now stands 8.47% off its peak reached in the past 12 months. Despite today’s bearishness, the highly telegraphed in advance global slowdown, and Russia’s turmoil, I remain optimistic, and I don’t see any real reason to panic.

Quotes of Interest

It’s hard to be bearish on the DJIA when the PE Multiple is so low at 16.35 when compared to the other indices, additionally its dividend yield has increased in the past 12 months and is substantially higher than the other indices.

USO (oil) traded sharply higher +6.83% to close at 17.82, XLE was up +0.87% to 75.55, RSX was down -1.28% to 14.62, CUBA was +2.75%% to 8.96. I believe that oil will trade sharply higher and lower, but I believe it may have reached rock bottom on January 29th. [http://finance.yahoo.com/futures]

In the Fixed income markets, ZROZ traded higher, up +2.89% to 138.99, TLT traded up +1.77% to 138.28, IEF traded higher by +0.88% to 110.55, TIP was up +0.72% to 115.63. EMB was up +0.09% to 111.76, PCY was up +0.14% to 28.78, HYG was down -.28% to 90.23, JNK was down -0.21% to 38.94, and QLTC traded down by -0.88% to 48.57. The 30 year Treasury yield settled at 2.25%, the 10 year Treasury yield settled at 1.68% [data from here: http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield]. I continue to believe, and will reiterate, that if oil can ever find rock bottom, and/or stabilize in a trading range, or start to appreciate, that there will be some major opportunities in the energy sector in equities, and in their high yield fixed income; Also I believe that when oil stabilizes (or begins to appreciate) that there will be some major opportunities in high yield fixed income funds, such as the ones listed above, EMB, PCY, HYG, JNK, and QLTC.  Lastly, with the current yield on the DJIA at 2.54%, and the 30 year Treasury bond yield at 2.25%, it’s difficult to be bearish on equities.  Everyone knows rates are going to eventually go higher; But what is everyone going to do next, sell bonds and purchase stocks?!  Imagine that when it develops when rates begin to rise.  Perhaps they’ll (investors will) “sell everything”?  Below I have obtained some historical noteworthy data from the Federal Reserve Economic Data research center website, which plots the effective yield of high yield fixed income.

The US Dollar traded slightly lower versus the Euro on Friday, the Euro gained approximately +0.20%, to 1.1285. I continue to believe the Ruble and the Euro are still too high, and will further deteriorate, making the dollar stronger. Check up on current cross rates here: http://finance.yahoo.com/currency-investing/majors. Russia roiled the markets by reducing its key interest rate from 17% to 15%; This sparked a Ruble sell off, the U.S. Dollar can now purchase 69.65 Rubles. QE is nearly everywhere now, which may bode well for equities globally this year.

I believe the catalysts for today’s stock market selloff were the economic data releases, Russia’s spur of the moment rate reduction, and worried on Greece’s debt and its ability to pay interest on its sovereigns fixed income. U.S. Economic data releases were all quite good, except GDP, which came in weaker than was expected, at +2.6% for the quarter, when economists were widely expecting 3.2%. For highlights on the GDP report (1 page) click here: [http://www.bea.gov/newsreleases/national/gdp/2015/pdf/gdp4q14_adv_fax.pdf]; For the full 17 page report click here: [http://www.bea.gov/newsreleases/national/gdp/2015/pdf/gdp4q14_adv.pdf]. Economists speculate that the trade deficit, which widened, due to a strong dollar, creating an environment of fewer exports, and more imports, scraped a full percentage point off of this quarter’s advance GDP figure. The chain deflator (a measure of inflation/deflation) came in at 0.00, consensus was for +1.0%, and the Employment Cost Index came in at +0.6% while economists were expecting an increase of +0.3% to +0.5%. The Chicago PMI came in at 59.4 while expectations were for 57.5 to 58.0. Lastly, Michigan Consumer Sentiment came in at 98.1, expectations were for 97.5 to 98.2.  Below I’ve obtained a nice trade deficit chart.  I’d expect with a strengthening dollar the trade deficit will increase.

Next week, I believe economic data releases will likely be dominated by the labor force figures due on the 6^th. Economists are expecting unemployment to hold steady at 5.6%. I believe there’s risk that figure could come in better than expected. Also next week newsworthy reports will be Monday’s Personal Income and Outlays, PMI Manufacturing index, ISM Manufacturing Index, and Construction spending. Tuesday, Motor Vehicle Sales and Factory Orders are due for release. Wednesday, the ADP Employment Report is due, as is ISM Non- Manufacturing Index, and the EIA Petroleum Status Report. Thursday, International Trade, and Jobless Claims, as well as Productivity and Costs are due.

In notable eps reports due next week, I think CMG will be amusing, as will WYNN, both eps are reports due after the market close on Tuesday the 3rd. On the 4^th after the close YUM and GMCR both report their eps, GMCR expectations are always quite high; It’s hype. Thursday the 5^th will see CME and TWTR eps both after the close, TWTR will surely be surrounded by hype, if I had to guess. Surely, these reports will be entertaining.

I remain bullish still on equities, for 2015; I do fear that we could have another day or two of selling before we get liftoff again though. I continue to believe (as I’ve said earlier) that the stronger dollar and weakening oil prices will bode well for consumer sentiment and for consumer spending, which is the largest component of GDP. I think also a strengthening U.S. dollar, weaker inflation (aka disflation), and a weakening global economic outlook will result in the Federal Reserve raising rates at the earliest this summer, if not delaying further, possibly until early 2016.

In other news, there were stunning eps reports at MA and V; while CVX beat expectations but saw its eps decline by -38%. MSFT is now down roughly -19.28% off it’s peak reached in the past 12 months, it was down by another -3.83% on Friday alone.  Also MCD was down on Friday by -0.89% and is now -10.93% off its peak reached at some point in the last year. The new MCD president said that they’re bringing back their old “I’m Lovin’ it!” slogan.  The new CEO of MCD also said that for a limited time, 1% of customers in select restaurants will get their food for free, if they publically display an act of love; e.g. a child hugging their parents. Before you know it the Federal Trade Commission in a joint effort with the Department of Justice will be investigating MCD for price discrimination and/or fraud! CVX traded lower by -0.46%, and is now -24% off its peak reached in the past 12 months.  The entire energy sector has been slaughtered, as CNBC’s Jim Cramer would say. GOOGL missed its 7.11 eps target, but rallied strongly Friday(!!), trading up by +24.32 or +4.74% to 537.55 per share, I had speculated that it might move roughly 22 dollars higher or lower in an earlier blog post; and I suggested that perhaps (for educational purposes) a bull call ratio back spread with net credit characteristics may be lucrative (when and if also combined with a bear put ratio back spread with net credit characteristics).  Happy earnings speculation!  GOOGL now stands -12.60% off its peak of the past 52 weeks. Lastly, AMZN handily beat its eps forecasts, and traded higher by +44.75 per share or +13.71% to 354.53.

Yesterday Bill Gross wrote on what he described as the anemic recovery in the USA, see the chart below. I brought up the point that yes, it may be a weak GDP rebound recovery, compared to previous recoveries. While the GDP recovery and growth rates have not been so strong, relative to the past’s recovery rates, the stock market performance has been very strong since early March of 2009; A lot stronger than prior recoveries! We won’t likely see +200% (or greater) returns in equities over any six year period again, anytime soon in the United States. 200% in six years annualizes to +20.09%!!! Yes that’s right, +20.09% for six years in a row on average! Derived from 3^(1/6). Still I don’t believe that equities are overvalued, they’re reasonable on a PE multiple basis. The alternative of U.S. Treasuries (and other high credit quality sovereigns) at exceptionally low yields (or even negative yields elsewhere in sovereigns worldwide) is the conundrum we find ourselves in today.

It’s time for the 2015 Super Bowl, XLIX of the New England Patriots vs. the Seattle Seahawks. Stay tuned for the commercials! They’re priced this year at 30 seconds for $4,500,000; which is $150k per second. Thirty second ads were priced at $3.8 million in 2013, and $4 million in 2014. That’s a lot of money for those intangible airwaves!

The markets are making me a little jittery here, it’s been a tough week or two for equities.  My crystal ball tells me, if Greece can get its act together, and if Russia will stop saber rattling, then the markets would have nowhere to go but higher.  Eventually, with oil at such depressed prices, Russia will not be able to afford its military fiascoes against its neighbors, so the end of Russia’s foolishness is near.  In the meantime the political and financial market instability (the geopolitical risk) in that region of the world will be stomach churning.  The VIX in my view doesn’t have much higher to go, if at all higher, I couldn’t or don’t really see it breaking 25, or especially 30.  If it gets through 30, all bets are off, and I’d expect a 10% correction (or worse) would have occurred, or would surely be in the cards.  Still if that’s in our future, I’d expect some major buying opportunities.  Longer term, I’m bullish.  I think the USA is not going to have a recession for at least another year or two, if not further away into the distant future.  Full steam ahead.

By Andrew G. Bernhardt

2:55amCT, Tuesday, January 20, 2015 “Going Bananas Over Prices of Gas & Milk!”

Et lac de industria sumptus insanire!

“Going bananas over prices of gas & milk!”

Can someone please tell me why the price of a gallon of gasoline, averaging today $2.054, according to AAA (Press here to see their “Daily Fuel Gauge Report”) is less than the price of a gallon of milk, averaging in December 2014 in the USA at about a price of $3.82!?

See the graphics below from the BLS, who tabulates the CPI.  They are now releasing CPI and current and historical price figures of individual components of the CPI (Press Here to search and discover the CPI’s component data).  They have info on prices everything from bananas to oil to milk, and much more!  As you can see, according to the BLS the average price of a gallon of gasoline in the USA in December 2014 was $2.56 (for unleaded regular), but also the average price of a gallon of milk in the USA in December 2014 was $3.82.

Now, we all know that there are many scare goods and resources, and cattle, who produce milk are scarce, but oil is a fossil fuel, and is depleted every year surely faster than Mother Earth can produce it, so it’s very scarce!

To me then, I can’t seem to figure out how in the world a gallon of gasoline is cheaper than a gallon of milk!  I’ve gone bananas!  Gas to me, in my mind, is more scarce than milk; therefore gasoline (aka fuel or petro) should cost more than a gallon of milk.  It’s amusing to me how we as a society all pretend, in the financial markets, that fuel, gas, petro, is an unlimited natural resource, and that we can extract from the earth as much of it as we want, when we want to!

Someday, the earth will run out of oil altogether.  Imagine that scene!  Oil prices would shoot up and rapidly spiral upwards higher, going parabolic, like a shooting star!  Prices of light sweet crude oil would increase towards the heavens faster than NASA’s Space Shuttle launches!  The financial markets would plummet, people would panic!!!  This is just the beginning.

How would goods and services be distributed?  Nearly everything in today’s modern contemporary society would fail.  There would be lawlessness and utter and complete chaos.  There would be an enormous recession, no… An ENORMOUS DEPRESSION!  The depression that would ensue would make (what I call “The Greater Depression,” or “The Greater Slump” of) late 2007 to early 2009, or even the Great Depression look like a total joke!  People would (or may) starve, and dehydrate, and die in mass.  It would be an utterly tragic disaster for humanity to deal with.

Perhaps there would be enough alternative vehicles (powered by hydrogen fuel cell or electricity) to transport food and water to the people in mass?  There would have to be a huge humanitarian aid governmental response.  Workers would have to be shuttled to the water treatment facilities and coal fired power plants in governmental electric or hydrogen fuel cell busses. The government would have to transport food and water via hydrogen fuel cell and electric vehicles to the masses perhaps from rail road (which also would have to immediately switch to hydrogen fuel cell powered locomotives).  It would be an immediate disaster and a major state of national emergency.

The world’s financial markets, the stock and bond markets would go absolutely hay wire!  People would likely “sell everything!” Surely, stocks would plummet worldwide.  If that day ever comes, I hope to short the stock indices using options, most likely I’d go long stock index puts.

Perhaps when oil is so cheap, the governments worldwide, should seriously be considering replenishing their Strategic Petroleum Reserve for any potential national state of emergency or disaster?  What are our nation’s leaders thinking (if at all anything!)?  Can they think?

Gasoline cheaper than milk!  Seriously?!  WTF is or has been going on?!  It sounds like a nutty fictional book or crazy fallacy of mankind.

Speaking of “going bananas,” the average prices of bananas in the USA were in December of 2014 just $0.585 per pound.  On average ten years ago, in the USA, prices of bananas, in December of 2004 were just $0.474 per pound (see the graphic, or press here for the root source of the data).

So there you have it… I’ve “gone bananas” over the price of milk and fuel per gallon in the United States!

By Andrew G. Bernhardt

Historical prices of Gasoline & Milk per gallon.

 

Historical prices of bananas, per lb.