Week In Brief: Aug 25th

August 28, 2017

Last week saw equities rise. Happy, perhaps, to see Congress on vacation. while the private sector continues providing jobs, products and services. As companies continued to post excellent earnings. Still, investors saw reason to despair -- a positive contrarian indicator.
Yet, a troubling trend has resurfaced. Indicative of the Credit Crisis. As rising home prices have made borrowers comfortable with the idea of tapping homes for cash.
Home-equity lines of credit and cash-out mortgage refinances, products that enable consumers to spend the windfall of home ownership, are back. Reflecting growing economic confidence. Not to mention the age-old American ideal, spend it if you've got it.
After years of positive household savings, we hope such poor habits don't bite us yet again.
In the defense sector, the federal government is hosting a competition between major defense contractors to determine which will rebuild the aging ICBM missile inventory. A project that will yield over $700 billion. No wonder so many rogues becomes arms merchants!
We've been bullish on select names within the aerospace and defense sector. As well as some of the representative indices. Even more so now. As the government seeks to overhaul conventional and nuclear arsenals. And the global saber-rattling shows no signs of abating.
In the Energy Patch, stocks posted their best earnings since 2014's oil price drop began. Even as the price of WTI crude fell below $50, shares of oil majors rose on excellent revenues and profitability. Many of these shares pay nice dividends. And with so many pundits crowing about permanently low oil prices, it may be time for shares to rally?
Of course, tech stocks continue to set the pace. Looking like the New England Patriots of equity markets. Good year after year.
The bad news? According to JP Morgan, anyone with money in the market should be worried. Having gone on the record, warning of a pending drop in the S&P 500. The bank argues that the long-term low volatility and banded trading of the market could prove to be a major issue in September. That if the S&P 500 can't escape the 2,400 - 2,500 range, then a flight to Treasuries sparked by a mix of policy shifts, geopolitical tension and political turmoil could occur.
Also in danger? The Nasdaq. With the bank explaining, "This is the first time where we're actually actively telling clients, especially in the Nasdaq where it's a more vulnerable setup, it's certainly time to either hedge or reduce exposure here".
To our recollection, however, JP Morgan has rarely been the harbinger of crises. And with no true catalysts cited as evidence, we believe that old J.P.'s bank could provide the contrarian justification for the next move higher. They've been wrong before.
In D.C.'s vapid swamps, President Trump will launch a major push to get tax reform through Congress. As he's preparing to make a speech in Missouri as part of the major effort.
The White House acknowledges that it will rely on Congress to work out the details of the nascent plan. But Trump appears determined to push it through this year. Top White House economic advisor Gary Cohn has made several comments on tax reform, saying "The Big Six have been meeting and we have come up with an outline. We have a good skeleton that we have agreed on."
Speaking about Trump, Cohn said "He will start being on the road making major addresses justifying the reasoning for tax reform and why we need it in the U.S."
God speed.
Still, even as all productivity inside the Beltway has slowed to crawl, the market has persevered. Committing to an almost nonstop rally since the election. The S&P 500 is up 16 percent since early November. And 10 percent this year. America's largest companies are on pace to post two consecutive quarters of double-digit profit growth for the first time since 2011. Helped by years of cost-cutting, a weaker dollar and stronger consumer spending.
In fact, the market does not mind D.C.'s ineptitude. For the less Congress does, the lower the chance of screwing up what's working.
In everything a silver lining, right?
Now, a glance into the battle for the nation's cultural and spiritual soul... We've recently discovered a professor at the University of Toronto named Dr. Jordan Peterson. A clinical psychologist, cultural critic and professor of psychology, Peterson integrates a clinical and academic perspective in his analysis of today's human condition. His intellect, wit and insights are entertaining and profound. And did I mention that he abhors today's societal fixation on politically correctness?
He's written white papers and books. But his new Youtube channel, upon which he's recorded and posted a myriad of insightful snippets and lectures, has caused quite an uproar. As much of his logic appears impregnable. Check out this collection of gold nuggets from a recent visit to the podcast, The Joe Rogan Experience (here). Assuredly, time well spent.
Finally, a note on the elusive hunt for perfection. Which, amid a sea of mediocrity, is what Reds first-baseman Joey Votto has been pursuing these last few years.
There is little doubt as to Votto's talent. Having won the NL MVP award in 2010. He's finished in the top seven for that award in five of the last seven years. Been voted into five All-Star Games. Won the Gold Glove for first basemen in 2011. And has taken an ascetic monk's approach to the game. Leaving dog eared and tattered his copy of Ted William's book, "The Science of Hitting." A timeless tome that Votto rarely does not have nearby.
While he's a career .312 hitter, he's taken some grief for his lack of RBI production. Yet, that's what happens when you bat in a lineup, year after year, with little to no protection. And with few reliable hitters consistently on base before him.
Unlike RBI counts, which is largely out of Votto's control, perhaps the most impressive statistic of all is one that's entirely of his own making. A measure of overall productivity that relies on nobody else. OPS. A metric that combines on-base percentage with slugging percentage. Revealing how consistently a batter reaches base, with how well he can hit for average and power. It is widely considered one of the best evaluative tools for hitters. And Votto's OPS ranks among the best.
In this miserable 2017 Reds season, Votto's OPS ranks only behind Mike Trout. And he ranks 14th on the all-time OPS list. Preceded by a cast of luminaries like Ruth, Williams, Gehrig, Bonds, Mantle, DiMaggio and Musial.
Sunday's game against the Pirates saw Votto go 0-for-0 at the plate. Because he drew five walks. A rare feat during which he spent eighteen-and-a-half minutes at the plate. Took 43 pitches. Fouling off countless near-strikes. Consuming precious digits in the pitch count. Amazingly, all five of Votto's plate appearances ended up in full counts. And each concluded with him on first base.
Votto will finish towards the top of MLB's MVP voting yet again this year. A tally that will go largely unnoticed. As Votto slipped from the national spotlight once the lowly Reds fell from playoff contention in June.
When the season ends, baseball aficionados will not blame Votto for what's become of the Reds. There's little more the man can do.
But passionate baseball fans, as well as those with an appreciation for persistence, tenacity, studiousness and hard work -- in all fields of endeavor -- grow to appreciate Votto and his relentless pursuit of perfection more and more each year.
Weekly Results
The major indices finished up last week. DJIA gained 0.64%, the S&P 500 rose 0.72%. The Nasdaq climbed 0.79%. While small cap stocks gained 1.45%. 10-year Treasury bond yields fell 3 basis points to 2.17%. Gold closed at 1,291.19 up $7.24 per ounce, or 0.56%.

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