Week in Brief: July 3

July 6, 2015

Nat King Cole called 'em those "Lazy-Hazy-Crazy days of summer -- pretzels, beer and bikinis that never got wet." Well, pour yourself a cold one. Because if the Greeks have any say, this will be an Endless Summer.
Between China and Greece, investors have begun to feel like pro bono rodeo clowns. Every time the coast looks clear? "Here they come again, Gonzo!"
Markets dropped last week on a symphony of negative news from Europe and China.
Sunday, Greece's electorate culminated a run of horrendous decision making with one more colossal misstep. Voting down the bailout package offered by Eurozone creditors. So, given the Fourth of July holiday, the real fireworks were in Europe. More on that later.
The Supreme Court upheld the federal legitimacy of gay marriage and the Affordable Care Act. A tidal surge of support for gay marriage catalyzed by an increasing epiphany that gays have the right to be married. Not to mention all benefits that accompany that privilege.
As Kinky Friedman said, "They have every right to be as miserable as the rest of us."
In another landmark decision, SCOTUS support of Obamacare was predicated on the court's belief that the judicial branch should not be affecting such legislation. As is the due of Congress. And SCOTUS was not prepared to render a decision that could instantly deny healthcare to upwards of ten million Americans. Many disagreed with the decision. Not for ethical purposes. But because both decisions condone the right of the Supreme Court to enact or uphold federal legislation, essentially bypassing Congress.
The irony of that argument? On display in San Francisco last weekend.
An illegal Mexican immigrant -- who also happened to be a five-time felon -- shot and killed a 32-year old girl walking with her father. The killer, though he'd been convicted for the fifth time, was set free against the request of the Federal government. Why? San Francisco has declared itself a "sanctuary city." And so chooses not to abide by federal immigration laws, wishing to provide a safe haven for immigrants. Even though that defies the 1996 law passed by President Clinton against such activity. So, despite the fact the Fed's asked the mayor and city council to keep the guy locked up, he was released. Whereupon he killed an innocent women.
Can a system of federal governance work that chooses to enforce some laws across the board (gay marriage, healthcare mandates), while not enforcing others (immigration and criminal law)? The twisted logic should be lost on no one. Unfortunately, it took an innocent young woman's life to reveal it in stark relief.
U.S. labor markets sit at a crossroads. Hiring has been strong. But wage growth? Tepid. Failing to bring millions of would-be workers off the sidelines. And prompting others to drop out entirely. The catch-22? While the unemployment rate has fallen to 5.3 percent, the number of otherwise capable workers who have quit looking for employment has climbed to multi-decade highs. Some of the data shows that jobs growth may be peaking. If wage growth doesn't pick up soon, the economy won't be able to pull prospective employees from the sidelines. Leading to less productivity. Or stagnation.
Economists wonder about the blighted economic situation. "Vexed as to why more Americans aren't joining the labor market." Well, we believe there are two forces at work:
1) The Affordable Care Act raised corporate healthcare costs to the point that employers are unsure of their ability to commit to more employees and so higher wage expenditures.
2) Non-escalating wages combined with the fact that a large swath of the population is receiving much of what they need from government transfer programs has disincentive many from coming off the sidelines.
For many, the logic is simple: If you have much of what you need and haven't had to work for it, why change the formula?
Global capital markets entered free fall. In fact, as of last week the only market remaining in an uptrend is one of the world's more expensive: the United States. That said, we believe that U.S. markets will eventually move higher. Though likely in fits and starts. And perhaps no time soon. Earnings growth looks optimistic. The economic indicators are positive. In fact, as the chart below indicates, the big four indicators continue to improve and show no sign of a top in the business cycle.
Though the market swings to and fro like grandpa on a porch swing, understand that Greece, China and all other thorns and nettles will not be the hemlock that snuffs the life from this bull market.
Momma always said there'd be days like these. U.S. equities didn't react to Chinese markets on their way up, nor should they have a big reaction on their way down. And the situation in Greece will resolve itself. Then we can set our sights back on Wall Street, where anticipation for Q2 earnings are better than expected. The market may continue its sideways correction for months. But eventually, we believe it will move higher.
The Good
Private employment gains beat expectations... Improving home prices appear sustainable... ISM manufacturing remains solid... Q2 Earnings growth looks good... Construction spending growth improved... Personal income and spending strengthened...
The Bad
Greece remains a Goat Rodeo... Initial jobless claims rose... Labor force participation declined... Wages still not growing...
The Ugly
Do they speak Greek in Puerto Rico. These two miscreant economies share many parallels. Did you know that San Juan's residents don't have fresh water for a 48-hour period every three days? That all imported products must be brought in on U.S. flag ships, keeping the cost of living at NYC levels though the per capita income is only $24,000? Felix Salmon calls Puerto Rico America's Own Greece," here.
Rosenberg Bullish
While the consensus narrative is bearish on the economy and equity markets, David Rosenberg says it's wrong. A recession is three years away. And equities will perform well in the coming year. Article.
Won't Get Fooled Again
Meet the new boss. Same as the old boss. Save for the need to be be factually accurate when it comes to the use of numbers and data points. Politicians. Bloggers. Pundits. Broadcasters. They may not be lying, but they're certainly not telling the entire truth. Article.
Righteously Indignant P.C. Police
British biochemist and Nobel Laureate Sir Tim Hunt cracked an ill-conceived joke about women at a conference. Though, what Hunt thought was light humor, triggered a public shaming and cost him his career. Because in the day of social networking, the P.C. police can kick down your door and ruin your reputation before you can assemble a 140 character response. Story.
Chicago: Midwestern Greece
Chicago's economy? Terrible. So, Mayor Emmanuel is attempting to tax and spend his way to solvency. Unfortunately, the private sector can only give so much. The ultimate result will be fewer startups and a reduction in employment. Which should, ironically, end up costing the city millions in tax revenues. Article.
The Wright Stuff
Searching for scintillating summer reading? Toss Pulitzer-Prize winner David McCullough's book, The Wright Brothers, into your beach bag. Classic story of American grit and ingenuity. David versus Goliath in a free market economy. Did you know that Samuel Langley -- head of the Smithsonian Institute -- was also trying to crack the flight code? In fact, he had a $70k budget at his disposal. The Wright brothers? Did it on a thousand dollars. As we know, Langley never succeeded. But the Wright Brothers did. You'll relish their story. And how Langley and the Smithsonian tried to steal their thunder. Attempting to take credit and coin Langley as the inventor.
The Wright Brothers story provides a synopsis of the American Dream. Success? Dream achievement? Doesn't require a ton of money. With grit, ingenuity and ambition, anyone can succeed in a free market system. Anyone. Regardless of the obstacles. Book link.
America: Our Story
This video discusses the creation of and rationale behind one of the most important documents in mankind's history: The Declaration of Independence. Video here.
Weekly Results
Major markets finished mixed last week. The DJIA fell 1.21%, the S&P 500 lost 1.18%, and the Nasdaq dropped 1.40%. Small cap stocks fell 2.46%. And the 10-year Treasury bond fell 9 basis points to 2.38%. Gold lost $9.35 per ounce, or 0.80%.

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