Fingers Crossed


“Silence is not always a Sign of Wisdom, but Babbling is ever a Folly.” – Benjamin Franklin (ed.), Poor Richard’s Almanack

Markets were basically sideways again last week, as the pattern of waiting for what the next administration might do continues. If one wants to be bullish, you can claim that the sideways pattern of the last month was a much-needed consolidation of gains, and that further good times await. For the opposite persuasion, it represents the coming of the sell-the-inauguration theme that many have put forth.

A strong reason for the lack of movement in the last month must surely be related to Mr. Trump himself and his impending inauguration on Friday. Many professional traders don’t have any more idea than you or I about the next move and are simply waiting to see what the market does afterwards – sell the news, as it were, or spring higher?

Strenuous arguers abound on both sides, with the lack of clarity reinforced by Mr. Trump’s penchant for cutting very large swaths across the landscape in his tweets and public statements. His cabinet nominees are overall quite wealthy and the most rightward-leaning since the days of President-elect Ronald Reagan, but Mr. Trump often comes out with statements that nobody but Mr. Trump and his self-identified “core” seem to agree with. It’s unheard of for a card-carrying Republican to express the kind of fondness for a Russian prime minister that Mr. Trump seems to have, or to be going about bashing multi-nationals for making products elsewhere and threatening tariffs.

Democrats have heard almost nothing that they like from Mr. Trump, but that is to be expected. What is less expected is the tremendous sense of uncertainty about what will happen – nobody knows, this writer included. Some sense of sobriety has crept in over the likely pace of Mr. Trump’s economic program, which still only exists as campaign promises. A stream of analysts have been pointing out that it will probably take until the summer for a comprehensive tax bill. The fiscal stimulus concept suffers from a broadly based lack of enthusiasm – Republicans aren’t excited about running up the deficit, Democrats are wondering where the projects are and the Fed believes (correctly) that the time for stimulus is over. Tell that to all the traders who were buying infrastructure stocks with both hands in November.

I don’t know what the coming week will bring, and I sincerely doubt that anyone else does either, including Mt. Trump. Time will tell.

The Economic Beat

The report of the week was the December retail sales report. For the month, retail sales were up 0.6%, versus an expected 0.7% (seasonally adjusted), driven by auto sales: excluding autos and gas, sales growth was flat.

November was revised upwards from 0.1% to 0.2%, giving the quarter a respectable bump of 3.95% (unadjusted) and allowing the yearly rate to climb up to 3.3%, compared to the year-ago 2.3%. The most telling part, as usual, is the trailing-twelve-month growth rate. The ex-auto, ex-gas category of sales finished the year with a 4.2% rate of growth (unadjusted), matching the 4.2% average for 2016 (that is, the average monthly TTM rate was 4.2%). The three-year average is 4.3%. The main growth has been in autos, fueled by scads of cheap credit, a phenomenon that will come back to haunt us in the next recession – for a while, anyway.

There was more news in employment, with the Fed’s Labor Market conditions index slipping back into negative territory at (-0.3), though the revisions can be large: the previous month went from 1.5 to 2.1. As I have often said, the Fed hardly ever mentions it, so the market doesn’t pay any attention either. The labor turnover report for November came out, with the same story it has had for months now – openings remain up year-over-year (3.7% vs. 3.5%), while hiring remains slightly down (3.5% vs. 3.6%).

Inflation is slowly rising, though it really seems to be all related to the recent rally in oil. After more than two years of declines, import prices are finally up year-on-year at 1.8%, while export prices are up 1.1%. Over in producer price-land, the overall rate is up 1.6%, the same as the core rate that excludes food and energy.

Wholesale sales picked up with a 0.4% gain, seasonally adjusted, but the inventory-to-sales ratio was fractionally higher along with an inventory build. The TTM rate of sales continues to improve, up to (-0.9%) from (-1.6%); it has not been positive since May 2015. Once again, the most likely motivating factor is the energy business.

Next week has the two main regional manufacturing surveys, New York on Tuesday and Philadelphia on Thursday. Wednesday brings a full slate with the consumer price index (CPI), December industrial production, the homebuilder sentiment index and the Fed’s Beige Book, or compendium of regional business summaries. Housing starts are on Thursday, but the main event should be Mr. Trump’s inauguration on Friday and his subsequent speech – if not all the tweets in between.

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