"The Constitution only gives people the right to pursue happiness. You have to catch it yourself."
-Benjamin Franklin
Last Week in Brief
Global financial data was mixed. Underscored by continuing U.S. strength coincident to ongoing weakness in Europe, Japan and China.
Speaking of China, our interests have been piqued. The last month has seen the iShares China Large-Cap Index rise 3.53 percent. Trouncing the S&P 500's 1.5 percent return. Much of that stems from a recent spate of easing and stimulus from the Chinese central bank. Yesterday, the Shanghai Composite plunged. The likely cause? Chinese leaders will steer growth targets down to 7 percent from 7.5 percent at the coming Central Economic Work Conference.
Many investors will lament the Red Dragon's downward growth trajectory. Not us. Chinese stocks have drastically underperformed U.S. equities these last few years. Posting negative returns two of the last three years. Yet, consider the upside. Investors can purchase stocks in a nation of 1.4 billion people, offering annualized economic growth of at least seven percent. 2.5x our own. What an opportunity!
While China has hit a rough patch of late, we've no doubt the Asian economic powerhouse will not only recover from its woes, but return to global prominence. No less an authority than investment guru Jim Rogers has said that "China is going to be the next great country in the world. You'll see problems and setbacks. But if you find the right industries, companies, people, you will do well."
I'll take him at his word.
We've long said that the best time to purchase any investment is after it has collapsed. Or under performed for a period, and is in the process of recovering. In other words, when the investment has gone from bad to less bad. China seems to be offering patient investors such opportunity.
Domestically, the S&P 500 continues to find support via a surge in M&A deals. Companies, flush with capital, buying other companies.
Essentially, these deals remove stock from circulation, making the market's remaining shares more valuable. Since February, there have been 609 major public and private deals totally $3.753 billion. $89.9 billion of which transpired last week alone. The Merck acquisition of Cubist was a big one. Given the ample liquidity and Wall Street's acquisitive nature, we foresee many more deals to come.
Finally, for those of you worried that the Federal government is missing out on the big returns, don't. Federal tax revenues were up nine percent year over year in November. Reflective of the bigger take from a growing economy. The good news? The deficit has narrowed. The bad news? There remains no correlation between increased tax revenues and intelligent Federal expenditures. They more the government has, the more it will spend. Such is the nature of the beast.
Finally, we'd be remiss if we didn't mention oil prices. Which continue to drop as quickly as Democratic Senate seats. At this rate, somebody has got to get hurt, right? So, let's connect the dots.
Energy companies and their shareholders? Obviously getting squeezed. Canadian banks having seen their investment banking businesses dry up like California's river beds? Their stocks have been decimated.
Railroad, MLPs, shipping and piping companies? Crushed. Transportation and logistics concerns? FedEx is up 16 percent the last three months. Nearly 5x the market. CH Robinson Worldwide? 8.5 percent in three months. More than twice the S&P 500. Union Pacific Corporation? Plus 8 percent. UPS? Up 13 percent.
Oil prices have been walloped. As have energy stocks. But, for every force there is one that is equal and opposite. A winner for every loser. Know where to find them? Volatility goes from foe to friend.
Obama Care Architect Grilled on the Hill
MIT economist and Affordable Care Act "architect" Jonathon Gruber caught an earful from both parties yesterday for his demeaning comments about the American electorate. And I'll bet he doesn't even use Obama Care. Story here.
Top Investment Threats for 2015
What should investors be concerned about in 2015? Not something so evident as to have everyone discussing it. Something a bit more esoteric. Likes these potential threats.
Putin for Prom King
He's a beautiful, conniving, ruthless, former KGB, modern-day mob boss whose popularity numbers are the envy of every leader in the Western world. Why must men want to be him, while women wish to be with him? Article here.
Why the Decline in American Incomes?
Economists like to shape the argument as if workers had nothing to do with anything. As if they were pawns laboring in the hands of forces beyond any scope of control. Though, that's not entirely true. This article explains why American incomes have declined.
Rolling Stone's Egregious Reporting
Yet another prominent example of how American journalism is destroying itself. Employing an agenda. Trying to create, as opposed to simply reporting, the news. Article here.
The Good
ISM surveys were strong, corresponding to economic growth of 5.1%... Declining oil prices provide benefit to consumers and a long-term boost to stocks prices... Investor sentiment has turned more negative - a contrarian bullish signal... Chinese stocks are strengthening... Employment gains continue to improve...
The Bad
Lower oil prices threaten weaker U.S. fracking concerns... The Ford F-150 pickup, often cited as an indicator for construction and small business, has seen sales decline recently... Factory orders have recently decelerated...
The Ugly
Congress is back in session! We all wish to avoid a government shutdown. Yet, the GOP is emboldened, and Democrats are seething. As evidenced by the release of the so-called "Senate Torture Report." We'll likely see failed compromises, unrealistic proposals and underhanded deals. Something to look forward to, I guess. Stay tuned!
Weekly Results
Major markets finished mixed last week. The DJIA rose 0.73%, the S&P 500 gained 0.38%, and the Nasdaq declined 0.23%. Small cap stocks rose 0.78%. And the 10-year Treasury bond yield rose 14 basis points to 2.31%. Gold gained $25.10 per ounce, or 2.15%.
Check out JP Morgan's weekly recap here.
