The Two Sides Of Stimulus: Labor And Profits.

Initial claims for unemployment dropped below 700,000 for the first time since the Pandemic began. While Corporate Profits surprisingly fell by more than 3%. Both reported after this article was written.

I Am Capital.

The S&P 500 Gains Momentum: Tesla Joins On Monday.

The Investment Selection Committee for the Standard and Poors 500 has decided to add Tesla, Incorporated to their Index. Next to the Dow Jones Industrial Average, the Standard and Poors 500 Index is perhaps the most widely followed measure of the Stock Market. Created in 1957, the Index measures the 500 most influential publicly traded companies in the nation. And this addition of Tesla is bound to have a significant effect on the investing community, and perhaps on your retirement account.

Keep Your Eye On Retail

I believe that the key to this economy, is the retail shopper. Consumer sending, after all, in a normal year, represents over 2/3rds of the business activity in the nation. But this year you can feel a decided cooling in the normally hottest time of the year for sales: This Holiday Shopping time.

Can We Save Corporate Debt?

What makes this financial crisis so dangerous, is how weak our corporate sector is. Going into the current crisis, American Corporations are more indebted than at any time in history. It was just a couple of weeks ago that total corporate debt outstanding topped an incredible $7 Trillion Dollars. Never before have the corporate sector piled on this type of leverage.

Price and Earnings.

So, today I thought we would get back to the basics, and build on our understanding of some of the underlying factors that are powering this market. Factors that we may have lost in the headlines. The very first thing that we look at in investing in any stock, is their earnings. Their future profits, which will pass through to those of us who own that stock in the form of dividends or capital appreciation. So earnings are ultimately, I believe, the key to understanding the long range price action of the stocks we own, and collectively of the stock market.

W're Now In A Long Term Market.

And so, when I was recently talking to a group of investors, it came as no surprise, that their basic question was: when will this disruption in the markets, be over? And why not? For over a decade, investors have become used to a market, which basically went in just one direction. Up.

What Is The Bond Market Saying?

But there is another, much larger part of the financial markets. And that is the bond markets. You may be interested to know that at last measure the US Bond Market stood at just under $43 Trillion Dollars, nearly 50% larger than the stock market. And unlike the stock market, this number is likely understated. You see bonds are rallying right now. And the price of the bonds are hitting all time highs. Anyone in the bond market currently is quite happy.

What's A “Correction” Really Mean?

A real correction in the stock market is about changing the way we do business. Correcting the excesses of times past. Working through the bad times that are going to hit, and working toward a better more viable economy.

The Financial Winds Are Changing...

In the movie, Mary Poppins the movie opens with the Sea Captain, who lives next door, pointing out that the winds are changing, indicating a storm is on the way. The same could be said of the Stock Market today. Markets have been hammered this week, and its mainly due to a change in the financial winds.

Have We Started A Bear Market?

So we've had a couple of down days in the market. How will we know if after almost 11 years of a Bull Market, we've now changed direction and are beginning a Bear Market?

John Deere and the Two Tiered Market.

So its against this gloomy background, that something extraordinary happened. A company which has been relegated to the financial backwater lately, scored a major gain on Friday. And its not just because of what you read in the headlines. John Deere and Company, the old line maker of those distinctive green and yellow tractors, reported solid, if not spectacular earnings.

Should the Government Buy Stocks?

We all know that Stock Market Crashes are bad. Investor wealth is destroyed. People can end up on the Street, And the “Social Net” can be stretched to breaking. So why not have the government, or more specifically the Federal Reserve Bank, step in and buy stocks. That would support the markets and help avert a crash? It was a question that recently came up in a discussion between Janet Yellen, the recently retired Chairman of the Fed, and several Kansas City Bankers.

The Wisdom of the Thirty Year Bond.

I present for your consideration, a possible bell. A signal that has not occurred in the financial markets for 48 years. And when it came last time it portended one of the worst equity bear markets of all time. This “bell” or indicator, it the price action of the 30 year US Treasury Bond. This bond is considered among the safest investments in the world, and one of the longest duration. As such it is the perfect sanctuary for those who are seeking long term safety.

The Toughest Milestone.

Happy Valentine's Day. And all eyes are on the Dow Jones Industrial Average as it edges ever closer to the magic 30,000 level.

New ArticleYesterday, Chairman of the Federal Reserve Board, Jerome Powell began the first of his two part testimony before Congress. Yesterday, before the House Committee on Financial Services, today before the Senate Banking Committee. The Fed Chairman provides this testimony twice a year, and it is perhaps the most important and detailed presentation by the Federal Reserve of their current monetary policy. This is all part of a process by the Congress to fulfill their oversight obligation of the Federal Reserve. But it is also an opportunity for the Fed Chairman to outline what he sees in the economy, and how the Fed is seeking to meet its twin goals of full employment and stable prices. And on those two measures, things have been looking very good for a long time now. Unemployment, the flip side of the employment coin, is at or near historic lows. Meaning that the Fed's objective of full employment is on target. Inflation is also well under control. In fact the economy has operated so long with low inflation, that the Fed would actually like to see inflation heat up just a little, to help provide some additional price momentum in the economy. Now its important for investors to be aware of these Macro Dynamics of the economy. These two factors, full employment and low inflation, combined with growing corporate earnings, have made up the dominant driving factors of this bull market in stocks, which has now reached 11 years. One of the longest bull markets in history. The only reservation Powell seemed to have for the domestic economy, was the softening he noted in the manufacturing sector. Although he does not see that as significant right now. However, when he turned to the Global Economy he noted the weakness in both the European and Asian Economies. This weakness began back in 2018, according to Powell. And was due to a slump in Global Manufacturing, trade tensions, and political unrest in several countries. That comment on “Trade Tensions” was no doubt, Powell's way of saying that he's not entirely on board with the Trump Tariffs. Here Powell also acknowledged the potential impact of the Coronavirus in China. An imporant recognition, that the Fed may need to be accomodative in its monetary policy if this pandemic should continue to grow. Finally, and most importantly from my perspective. The Chairman acknowledged that the Fed's Balance Sheet transactions should be consistent with their monetary policy. In fact a special adendum to the testimony on this topic was provided by Chairman Powell. Briefly stated this is a recognition, by the Fed, that their actions in buying or selling securities, needs to be roughly equivalent with their interest rate policy. If the Fed is being accomodative by lowering interest rates, they should also be accomodative in their open market actions. In other words don't lower interest rates, while you withdraw funds from the system. This is a big deal. And about a year ago, during that period the Fed called “Normalization” the Fed's interest rate action was mildly restictive, but its open market action were dramatically restrictive. Drawing down system reserves rapidly. So that while from an interest rate perspective it looked like not too much was happening. From a reserve perspective, there was dramatic tightening going on. This statement by the Fed Chairman will do a long ways in having a consistent Fed Policy going forward. So Part 2 of the Fed Chairman's Testimony before the Senate Banking Committee will take place this morning at 10am eastern time. #3

None of this is news to any of you who have worked in a large corporation or bureaucracy: a new boss comes in, and the old line establishment is dead set against him. Oh, there doesn't have to be any particular reason, they just don't like change. And so they begin to slow walk everything, to cut against his objectives, and generally make life miserable for the new leader. For the past 3 years we've seen the same thing aimed at President Trump. Only this time the steaks in this struggle are much higher. When you consider that Trump is the Chief Executive of a work-force of over 2 million people, perhaps this should come as no surprise.

Fed Chair Powell: A Team Player

Yesterday, Chairman of the Federal Reserve Board, Jerome Powell began the first of his two part testimony before Congress. Yesterday, before the House Committee on Financial Services, today before the Senate Banking Committee.

The Chinese Coronavirus: How to Keep ScoreNew Article

It was just over 2 weeks ago, that the Chinese Celebrated their News Years, the Year of the Rat. Legally the New Year's celebration last an entire week. And businesses and factories are often closed for most of that time. But this year, in light of the Coronavirus, the Chinese Authorities extended the holiday for another week, and closed many shops and manufacturing plants.

John Maynard Keynes Endorses BREXIT.

So, John Maynard Keynes, the iconic economist of the left, would see Brexit as pretty close to the ideal family of nations. One in which “Ideas, knowledge, science, hospitality, travel--” flow freely among countries. But, according to Keynes, Quote: “let goods be homespun whenever it is reasonably and conveniently possible, and, above all, let finance be primarily national.”

Coronavirus: The Numbers Don't Add Up.

With that mindset, we come to the outbreak of the Coronavirus in China, with a very different perspective. We try to look past the wild speculation that we see on the internet and much of the main stream press. Just as we look beyond the official proclamations of the Chinese Authorities. Why? Because those sources may not have the information and/or they may have an agenda, that will slant the information that they provide. To me, the best current information on the Coronavirus, is the actions of the companies and businesses in China.

OK For Markets To Fall?

For the Street, the Crash was part of our culture. Of course, these people knew, perhaps better than any others, the terrible tragedy of that time. The memory of men jumping out of windows to their death, was very real. The lost fortunes, and desperate lives were all part of the Street's tradition.

How Profitable Are American Companies?

Each quarter all of the publicly trade companies in the country report their profits. This is a closely watched, carefully measured exercise, that is vital to the workings of the financial markets. From my perspective, these earnings reports are the primary driver of the stock market. If we boil investing down to its simplest terms: investing is the purchase of a company's future profits.

Coronavirus: An Investor's Challenge.

Since the outbreak of the Coronavirus, just a couple of weeks ago, the Chinese Authorities have carefully managed this epidemic. Quarantining entire cities, limiting travel, and closing the stock market for an extended “holiday.” For investment professionals this presents a particular challenge. Like any investor, they must decide whether to hold on to their current positions, or to sell. Whether to maintain their current course, or correct to a new direction.

Coronavirus Impact? Look To Second Order Reactions.

It's the governments and authorities which will control the full impact of the Coronavirus.

Trouble With Dr. Copper?

Copper is one of, if not an essential component for much of manufacturing. In fact many analyst and economists look to Copper as a harbinger of the future of global industrial production. Copper has proven to be one of the best early warning signs of any significant down turns in factory production. So its move over the last 9 days has to be disconcerting to say the least. In a little over a week, the price of Copper has declined over 10%.

Did Earnings Season Become Meaningless?

This week we will see about 1/3rd of the major S&P 5000 companies report their last quarter results, and give guidance on what they see ahead. Now the earnings are already done. That's all history, and it ended last December 31st. But the guidance, well that's a different matter entirely. As you know, we have been carefully following the developments in the spread of the Coronavirus, 2019 n-CoV.. Over the past week, we have seen this new, novel virus infect literally thousands of residents in China, and most unfortunately kill dozens.

How The Fed Is Managing The Economy.

Today the Federal Reserve Open Market committee, the Central Bank's chief interest rate setting body, will conclude their 2 day meeting. There will be 8 of these meetings scheduled throughout the coming year. And this is the first one.

How An Investor Should Approach The Coronavirus.

This is a time, when just such a crisis is threatening. The Wuhan China Coronavirus. Before we begin there are three basic questions that we want to ask in any crisis like this: 1. How close are we to a resolution of the problem. 2. How serious might this problem be and 3. How might this crisis affect my personal portfolio.

How To Manage Your Invstments In A Crisis, Like The Coronavirus.

There's a true story told, about a young Peter Lynch. You may have heard me talk about it before. The year was 1987, and Peter Lynch was the manager of one of the most successful, and largest mutual funds of all time: The Magellan Fund. Now Peter had been working very hard for years, shepherding the fund as it grew and grew. It was time for a well deserved vacation, and as he was an avid golfer, he choose a vacation in Scotland, the home of sport. Well just as Peter was teeing off on the third green, a caddy came running across the fairway. Mr. Lynch, Mr. Lynch, you have a satellite phone call from the United States.

Coronavirus: Where Did It come From?

For those of you who follow this podcast, you know that our primary interest are the financial markets. But sometimes outside events can be so strong, that they affect the world's stock markets. I think this is one of those events. So, today a look at this new Coronavirus. Known to scientist as: 2019 n-CoV, the “Novel” Coronavirus.

Next Prez? It's The Economy.

Forget the polls, ignore the impeachment, if you really want to know who will win the Presidential Election: watch the Federal Reserve.

Investing Unknowns.

From my perspective, the markets are currently living in a time of “known unknowns.” That is we know that there are certain things that will play out in a way we don't exactly know, but we feel comfortable that we can handle any eventuality. In the stock market there is always a whole list of things like this. We don't know, for instance, what the comings corporate earnings will be. But we're comfortable, that they will fall within an anticipated range. Next week we will get the latest number on the Gross Domestic Product, we don't know exactly what that will be, but current estimates are that it will be about the same as the last estimate, a 2.1% growth rate. And we are comfortable with that. Same with interest rates, also announced next week. We're comfortable that they will remain about where they are. And so it goes throughout the financial world right now. We think we know what lies ahead, and we're reasonably assured that it will be a smooth ride ahead.

Coronavirus: A New Health Threat

Its that time of the year again: the Flu Season. We see it every year at this time, and we try to take all the necessary precautions. If you're more conscientious than I am, you have probably taken a flu shot. My daughter, who works at a local school, told me recently that 40 of their students were home sick. That's a large number for this small school. And we try not to come in contact with any strangers. At Church, our Priest has instructed that there will be no passing of the Peace, until Flu Season is over. Perhaps most surprising to many, even the Stock Market took note of the recent outbreak of the Coronavirus in China, by opening down on Tuesday's opening. And I think that financial markets are right in begin concerned about a possible outbreak of this new strain on Viral Infection.

How To Manage Cash.

Let's talk about cash. Cold hard cash. The Green Stuff. Our primary economic medium of exchange. For the last 12 years, we've treated cash pretty poorly. Many of the major banks will pay you essentially nothing for keeping cash with them. The Federal Reserve Bank has continued a strategy of lowering interest rates so that the return for those of us who hold cash is next to zero. But it doesn't have to be that way. Cash is a very important component of your overall wealth strategy. And I feel, that you should spend some time managing your cash position, just like you manage your stock portfolio. So if you'll bear with me, I'll walk you through the way I manage cash for my own account and my clients.

China: What a Deal!

To me, trade representative Robert Lighthizer and Treasury Secretary Steven Mnuchin, reached for the brass ring, and they got it. I encourage you to take 10 minutes and read the Agreement especially Article 1. In Article 1, you'll find a complete outline of the Agreement on Intellectual Property. I doubt that you've heard much if anything about this, if you've listened to the mainstream media. But to me, this is the heart and soul of this agreement.

The Big Four Bank Results.

Collectively, about 45% of us use one of these banks, they are the Big 4 US Banks: JP Morgan Chase, Wells Fargo, Citigroup and the Bank of America. And its no accident that these 4 banks lead off the “official” beginning of earnings season each quarter. They are that important to our financial system. Collectively they have 9 Trillion in Bank Assets, not counting their custodial and trading functions. Both of which would increase those numbers geometrically. The Federal Reserve, the nation's central banker, uses these four institutions both to measure the health of the overall banking system, and to implement various fed policies. So, as investors it is important that we always keep an eye on these 4, even if they don't happen to be in our portfolio currently.

China Comes To The Table.

As you know the United States is currently billions of dollars in the hole each year in their trade with China. According to the latest figures from the Census Bureau, which keeps track of these things. The US Trade Deficit with China exceeded $360 billion dollars last year. Clearly that is not a number that is sustainable over time. And no rational nation would seek to continue such a relationship. So the goal of the Trump Administration is clear, stop the bleeding. Bring trade from China, somewhere close to balance.

The Roaring '20's, p.2

There is something special about the '20s. Historically the '20s have been a time of renewed optimism, a beginning of a new century, and most especially a time when financial speculation seems to hit a peak. Yesterday we traced the most famous of all '20's speculative bubbles. What's most interesting of all of these is that they are essentially financial phenomena. It is not, the production side of the economy that has been involved in these mania's, its the financial side. In fact in the case of Gregor MacGregor, much like Bernie Madoff, there was no real product or service provided. It was a pure swindle. And purely financial. This list of Roaring '20s gives us an excellent perspective on what is happening in our own financial markets today.

The Roaring 20's

There is a “meme” going around the Traders on Wall Street. The meme is that the stock markets always have a bubble during the second decade of a new century. Its the “Roaring 20's.” The most famous of the Roaring 20's, was, of course, our own Roaring 1920's. A time of the tin Lizzy, flappers and a stock market that just wouldn't quit. When everyone became a speculator in stocks.

The Trouble With Good News.

As a lifetime member of the Wall Street Curmudgeon's Club, I'm beginning to feel just a little bit uncomfortable. Yes, I know its just the beginning of the new year, and that everyone is still basking in the glow of the holidays. But still there's just a little bit too much good cheer to make me feel right. Oh sure, we still have too much debt in the system, and I've noted that the Fed has to constantly inject funds into the overnight repo markets just to keep them afloat. And all that seems about right, it lets me get together with my other Curmudgeons and discuss, over a vintage glass of Chardonnay, how the world's falling apart. But I have to tell you that this next week is trying my patience...

A Dramatic Change In Trade With China.

Now when Washington and Wall Street think of international commerce, they usually think of the country's balance of trade. And fair enough. The Balance of Trade Numbers are an excellent score card of how a country in doing in the international arena. And for the last quarter of a century or more, the balance of trade numbers show that the United States has been loosing, and loosing bad when matched up against the Peoples Republic of China. For 25 straight years, China trade with the US showed a trade deficit for the Americans. Unrelenting, always growing. Money flowing to China from the US coffers. Until last November. In a report released on Tuesday, the Bureau of Economic Analysis is reporting that for the first time in memory there was a drop in the American Trade Deficit. And not an insignificant drop, an 8% drop, representing a reduction in that trade deficit of $43 billion dollars. Washington is scratching their head, Wall Street is puzzled. What just happened?

Debt Claims The Nation's Two Largest Dairy Producers.

Two Dairies Companies In Bankruptcy.

Investing in a World of Uncertainty.

How to invest after a terror event. Like the recent killing of Qasem Soleimani.

The Trillion Dollar Club.

It's the most exclusive club in the world, with just two members: Apple Computer and Microsoft. But don't underestimate their influence on the stock market.

Markets Reaction to the Death of Qasam Soleimani

Wall Street's reaction was predictable: equity markets fell sharply, futures off more than 300 points earlier. As it was “Risk off” on the Street. Conversely safety was the new objective with both bonds and gold gaining a big bid.

Labor vs. The Globalists

It has been those lost jobs, that has caused the American Labor Force participation Rate to drop. And I believe that it has been this relatively poor employment outlook that has caused many workers to change their basic world view. Although like most consumers, these workers have also benefited from the imported low cost goods at, for instance, Walmart. There is now a growing realization that those low cost items, have been purchased at the cost of US Jobs. And the person who made that point, more than any others, was a rough and tumble business man from Queens New York, named Donald Trump. This multi-billionaire has somehow bonded with the American middle class, the wage earners and small business men, who have been hurt by globalization.

2020: Back To Fundamentals.

It is a simple shorthand, used to convey a point. But for investors, this kind of thinking can be a real danger to your returns. We need to go beyond this kind of reporting and look at the important factors underlying our investments. What used to be called the fundamentals of stock investing. You know like earnings, management and market share, to determine whether to invest in a given stock. And perhaps that's a good resolution for the New Year, let's get back to the fundamentals.

What To Expect For 2020.

Well, It's New Year's Eve, that time of the year when we say goodbye to another year and look forward to what's in store for the next 365 days. For many, if not most corporations, today marks the end of their fiscal year. The time that they account for all of the business over the last 12 months, and will use those numbers to report their profit or loss to their shareholders. But this is a very special year-end celebration: as in addition to ending the year of 2019, it is also the end of the first and second decades of the new 21st century.

2019 Was A Good Year, But Not A Great Year.

Yes 2019 was a good year in the stock market, but it was no where near the boffo year that most on the Street are bragging about. If you were to listen to the financial press, you would think that this was one of the all time best years for stocks in years. A real home run, with returns for the year running at nearly 28%. That this was year to end all years. And indeed, the press is correct IF you just look at the 365 days that make up the calendar year 2019...