Thus far, earnings season has been bipolar. Positive for some popular momentum stocks. Weak in those areas sensitive to the dollar. It's obvious that, in addition to the strong dollar's adverse affects on exporters, a weak economy has finally taken a toll on profits.
Yet, despite terrible news from Greece, China, poor earnings and mediocre economic data, this market remains quite resilient. Off only two percent from its all-time highs. Which leads us to conclude, quite contrarily, that this market could rally. As so many expect the opposite. And with the market existing to disappoint the largest amount of investors as frequently as possible. Things could go higher. Even above the high water mark of this interminable trading range in which we've been since November.
Which leads me to an oft mentioned yet little followed bit of wisdom we tend to repeat in these missives. The day's news events should rarely impact the methodology by which one trades or invests. Yes, one must keep on eye on the headlines. But only if one can remain calm in so doing. And then stay the course. The idea? Be well informed but cooly detached. Because those who let the hand-grenade headlines transpiring worldwide dictate their investment process will only make poor decisions.
Some weeks ago, we linked to an article positing that today's 24/7 punditocracy (media, politicians, bloggers, analysts and so-called experts) often misleads viewers by using data so as to reveal half truths. That is, constructing the data to serve a point. Failing to provide full context. Which often might have relegated the story to the dustbins of triviality.
You need only consider the stories currently trending to understand what the media, and much of the public, prioritizes: 1) Polar bear attack goes viral, 2) Kid sets cup stacking world record, 3) "Emoji: The Movie" coming soon, 4) Rapper Ghostface responds Action Bronson's hurtful comments, 5) Amazing makeup artist transforms into Kanye and Justin Bieber.
No wonder NASA eliminated the shuttle program. We've much more pressing concerns.
Cooly monitor the news. Do not be driven by it.
Remember, the risk of a 10- to 20-percent correction is ever-present. But the much feared 40-percent-or-more correction must usually be accompanied by a recession. For which, as of now, there remains scant evidence. Stay the course.
Hacked Off by Government Hypocrisy
In its 2014 review, the Federal Trade Commission (FTC) bragged of having brought over 50 cases against companies that put consumer's personal data at unreasonable risk. Why? Because the private sector is always held accountable. By shareholders. The public. By civil or criminal investigation. And by the market forces that drive the economy. If we expect federal agencies to properly police private companies, then perhaps we should expect that they begin with some accountability.
Despite clear warnings to the Office of Personnel Management (OPM), the agency failed to heed any. And so millions of current and past personnel files, with reams of sensitive information, rest in the hands of Chinese hackers. Nobody has been held accountable.
Until those heading our federal agencies enact the same safeguards expected of the private sector -- cyber security measures like strong authentication, network monitoring, data encryption and system hygiene -- the U.S. will continue to play patsy to sophisticated, well-funded, ill-intended adversaries. Yet, the OPM refuses to take responsibility for its actions (or lack thereof). And has yet moved to address its significant deficiencies. Leading us to conclude, again, that there will always be vast, inherent inefficiencies within the federal bureaucracy. As well as the need for leadership change at the OPM.
Donald Trump and the Politics of Controversy
Two weeks before the first GOP debate, some polls have Donald Trump leading all Republican candidates. The punditocracy loves it. As do Democrats. But they misread the tea leaves.
The Donald's current success has little to do with his follow nomination seekers. But with the state of American politics. American's have tired of the same old pandering delivered by both parties. Followed by an ad nauseam lack of results.
The press calls The Donald "oafish and vulgar." But, the public has thus far found him unscripted and refreshing.
Since the '08 Credit Crisis, the U.S. economy has managed to grind incrementally higher, despite the best efforts of D.C.'s political duopoly. Government shut downs, wholesale and controversial changes to the largest sector of the U.S. economy, tax increases, increased regulation and massive indebtedness have all contributed to a lack of faith in the government's management of the economic recovery. Translating to a lack of hiring in those "career positions" that enhance the balance sheets of American households. Permitting them to begin families. Buy homes. And contribute to economic growth.
Americans increasingly realize the lack of vision within both party's leadership. Accordingly, when an independent-minded candidate like Trump emerges, he moves the dial. Remember Ross Perot?
As a candidate, Trump is not viable long term. He can be clumsy, inarticulate and, on occasion, offensive. Yet, he resonates with a large portion of undecided voters. Which is the point. Americans want honesty, fresh ideas and a new perspective. For all his faults, Mr. Trump offers those attributes in spades. Though controversial, he has touched a nerve. So he will continue to play a role in the GOP nomination process.
The Good
The Greek agreement remains intact... Earnings, as measured by the 'beat rate,' have been solid... Leading indicators showed strong gains... Existing home sales beat expectations... Initial jobless claims set an all-time low on a population-adjusted basis... Commercial real estate is strong...
The Bad
L.A.'s June port traffic was weak... New home sales disappointed... Q2 revenue reports have disappointed - though energy accounts for most of that...
The Ugly
The Louisiana shootings. These disturbing incidents have gotten so repetitive that it's only a matter of time before we reach a tipping point and Congress does something. Likely bordering on the irrational.
Bottom Line
Bulls and bears were in equilibrium entering the summer. They remain so today. Markets hit highs when it appeared that Greece would resolve itself positively. And that the Fed rate raises were on hold. Then, the eurozone began trembling like a cold, wet chihuahua. Followed by China's going on life support and the Fed stating that it was closer to raising rates. Bears temporarily gained the upper hand, but did not have the muster to send stocks much lower. Now, bulls have regained the advantage. Though they deserve no more credit than their meandering competitors. But, they may be facing their best chance yet to steer markets to new highs. And while the indices have fallen from their recent perches, bulls remain in striking distance. Some chance earnings or economic data may be all it takes. For now, expect a bit of extended weakness before bulls swing for the fences yet again.
How a Harvard Economist Screwed Up Her Retirement
Retirement expert Alicia Munnell made some poor decisions regarding her retirement. She then worked very hard to correct them. This article touches on her trials and tribulations.
The Rise of, and Mystery Behind, ISIS
How did a radical organization created by a failed student and video store clerk come to control territory larger than Jordan? Threaten the very existence of recognized nation states? And foment its brutal brand of terrorism throughout the world? These book reviews provide insight into those questions and more.
Why the Iran Deal is in Trouble
As the Senate Foreign Relations committee began its scrutiny of the Iran deal, cracks in the damn have begun to appear. The public does not support it. Support in D.C. is scant. For the administration, the issue will come down to simple algebra. Does opposition to the deal in the Senate and House reach a level whereby the Senate could vote down the deal, and then vote down the presidential veto? All of which equals plenty of intrigue over the next month and a half. Article.
ISIS Might Win. Here's What That Means.
Those in the U.S. defense and foreign affairs establishment increasingly believe that ISIS may prevail in its attempts to establish a caliphate in the Middle East. Here is what that means.
Hillary's Pro-Growth Message Targets Everything But Growth
The New York Times' David Brooks summed up Hillary's neopaleoliberal economic philosophy as follows:
"This neopaleoliberalism is built...on a tremendous faith in government to manage the economy more intelligently than the private sector. It's...an optimistic faith in the power of planning. The private sector is not evil or power hungry, just kind of dumb." Article.
America at a Crossroads
American history suggests that the nation's evolution has consisted of three unifying themes, each of which involved political consensus and lasted generations. James Piereson's new book, Shattered Consensus: The Rise and Decline of America's Postwar Political Order suggests that the U.S. sits on the verge of yet another era. Article.
America Needs Optimists
Optimism, while not without its costs, lends itself to better health, wealth and happiness. Not to mention the ability to better cope with setbacks. We need more optimists today. Especially in our politics. Here is why.
Look Out Below!
Two of the nation's leading investors believe that junk bonds could be the next crisis. This article discusses their rationales.
Weekly Results
Major markets finished lower last week. The DJIA fell 2.86%, the S&P 500 lost 2.21%, and the Nasdaq dropped 2.33%. Small cap stocks lost 3.24%. And the 10-year Treasury bond yield fell 8 basis points to 2.26%. Gold lost $35.42 per ounce, or 3.12%.
Check out JP Morgan's weekly recap here.
