Once More Unto the Breach


“Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery.” – Charles Dickens, David Copperfield

In 2014 equities again were a hit,
Prices rose faster than profits ever did.
And if stocks should ever fall out of bed,
They had only to call on their friends at the Fed.

Investors now worship at the church of Doc Yellen
Though when the Fed moves there isn’t any tellin’.
But chair Janet can be trusted with market volatility,
It seems that it’s bad for the rest of the economy.

Mario still promises he’ll do whatever it takes,
The markets simply love his QE head fakes.
Yet in 2015 it remains to be seen,
If the German stoplight will ever turn green.

China we read gets worse every week,
So of course their stocks have the hottest of streaks.
That stuff about earnings is outdated you see,
What matters is free money from the PBOC.

Our economy will take off next year we are told,
A cheerful little phrase that has grown alas quite old.
But don’t you worry if valuations are now dear,
We can always make it up in some other year.

Once it was dot.com there was just no stopping.
Til all the tech stocks started a-dropping.
Then it was home prices that never fell,
‘Til too much credit sent them to hell.

Now central banks are the new magic charm,
Printing the money that saves stocks from all harm.
Maybe it’s so, but if you ask me,
All it really means is bubble number three.

Happy New Year!

The Economic Beat (in holiday time)

Housing wrapped up its monthly data with a Case-Shiller reading that showed a strong seasonally adjusted (SA) monthly gain of 0.8% in October (led by the red-hot San Francisco market), a moderate not seasonally adjusted (NSA) loss of (-0.1%), and an easing in the annual rate of price gain to 4.5% from 4.8%. Pending home sales showed a monthly gain of 0.8% for November; the pending figures did not match up particularly well with subsequent existing home sales data in 2014.

Consumer confidence continues to climb, reliably driven by falling gas prices and rising stock prices. Now above 90, the index has returned to early 2007 levels. Spending, however, doesn’t look so good, as the weekly chain store reporting services are pointing towards a weak retail sales number for December. Much of their weakness should be offset by online purchasing, of course, but how much remains to be seen. Regardless of venue, I suspect that retail margins are under pressure.

On the manufacturing side, regional surveys included Dallas with a reading of 4.1 (0 is neutral), Chicago with 58.3, down from 60.3 the prior month (50 is neutral), and the national ISM purchasing survey for manufacturing, eased somewhat to 55.5 from 58.7 (consensus 57.5). The change isn’t very significant. Abroad, European purchasing surveys were close to neutral overall with France showing steady weakness; in China, the surveys are edging down to neutral and below, driving stock prices frenetically higher on the fervid gamble that the government will now have to blow another pile of money on stimulus. Perhaps in 2015 China will double its lead in ghost cities.

Construction spending was reported to have fallen by 0.3% in November. The category is subject to big revisions, but should it hold up, it will mean some additional downward pressure on fourth-quarter GDP. Jobless claims have been steady and indicate another positive adjustment factor for December jobs, the report being due a week from today.

Besides jobs, the other highlight of the first full week of 2015 will be – what else? – news from the Fed, in the form of the release of the minutes. Since the meeting was held in the midst of a turbulent stock market, the tone could very well reflect more dovish anxiety on the part of the stability-obsessed members, a tone that should launch equity prices ever higher.

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