Week in Brief: December 11

December 14, 2015

U.S. equities ended the week in a barroom brawl. With bulls and bears breaking stools and pool cues over each other's heads. And overwhelmed staff cowering beneath tables until the police could arrive. Nasty.
Crude oil crumbled. High-yield bonds were beat down. Currencies, feeling left out, quivered like fearful spectators. Treasures rallied. As investors fled the melee. Looking for anything resembling a hug and a hot meal.
The culprit? Well, that's a can of worms.

Fact is, there is growing unease over the Fed's apparent decision to begin lifting rates this week. A spreading belief that Yellen and Co. could be on the precipice of a grievous error. Preparing to raise rates for the first time in a decade. Despite a slowdown in U.S. factory activity. Carnage in bond and energy markets. And a continuing lack of inflation.
But, we believe there's something deeper at work.
On one hand, investors fear the consequences of the Fed's decision. On the other, the nation has come to accept Washington's abject rejection of economic growth initiatives from D.C. In fact, most of the nation not only believes that the handling of the U.S. economy has been poor, but that the nation's current partners-in-charge simply don't care.
The electorate has come to realize that this economy has crawled, hand over fist, from the bog. Despite the best efforts of D.C.'s denizens to prevent it from going anywhere. To say that recent economic policy has been toothless would be an insult to people with severe dental problems.
Last week's circus triggered a 65 percent jump in the S&P 500 Volatility Index (VIX), or "fear gauge." Representing one of the largest one-week moves in history. Remember, fear begets fear.
America's burgeoning shale energy industry has been kneecapped. Contributing to the ongoing decimation of the high-yield bond market. Even while the nation's shale industry contributed the only real jobs, innovation and consumer relief incurred these last seven years.
So, does Washington engage in a serious discussion about allowing U.S. energy companies to export shale oil? No. Does D.C. go to our alleged allies in OPEC and ask for relief in the form of decreased production and so higher prices in return for continuing military and economic assistance? Course not. Washington has enjoined the global environmental crusades. To the detriment of the U.S. economy. Jobs market. Technology innovation. And middle class.
The moment at which point a nation should be most guarded about political enthusiasms is exactly when the opinion of elites is most perfectly aligned. And when I'd read the postscript on last week's Paris climate conference, I shuddered.
This can be "a turning point for the world" President Obama preached. He continued, adding that it is "the best chance we have to save the one planet we've got."
Yea.
The economy is a liaise faire train wreck. And the additional regulations that result from the Paris meetings will not be economically positive. And who really believes that the world's first (China) and third (India) biggest carbon emitters will even abide by voluntary restrictions to the detriment of economic growth?
Naivety is cute. Until the age of eight. Then it becomes disingenuous, dangerous, or both.
Further, the nation harbors massive insecurities about the defense and safety of its citizens. And yet we've actually had a presidential candidate state that global warming was the real cause behind the Islamic fundamentalist violence.
Additionally, American millennials, unable to find real jobs, are living in their parent's basements in record numbers.
But fear not, citizens of earth, the global political elite just saved the planet's very existence.
Observing those in the nation's capital, one cannot help but feel that one's watching a cheesy show about politics. Or children playing at politics. As opposed to elected leaders conducting real-world, reality-based politics.
No, I'm not saying that human-based climate change is not a reality. The problem I have is that too many brilliant people say that they cannot prove it is. The climate changes over a millennia. Are we responsible? We're not sure. And so perhaps we should be wary of taking the lead on this yet unproven scientific claim. Especially when it will hamstring American industry. While many of the world's guiltiest parties simply will not abide by the same rules.
Edmund Burke wrote, "Circumstances give in reality to every political principle its distinguishing color and discriminating effect. The circumstances are what render every civil and political scheme beneficial or noxious to mankind."
It appears that political principles have unhinged from reality. And while future circumstances will someday validate the gravitas or folly of the Paris meetings, present circumstances concretely reveal that, given the available facts, this nation has taken its collective eyes off of the ball.
Sorry for the rant. But Sunday's unvalidated, delusional and messianic exclamations were galling. So, let's get back on point.
Where, we might ask, is that pesky Christmas Rally?
Recently, the investment community has enjoined the general population in serving up dire entreaties on the market's direction. Exclamatory cries of "Too far too fast!" Or, "The next big move is down!" have been echoing down the otherwise pragmatic hallways of detached analysis. And thank God for that.
You see, we know that bear markets are not born on the wings of pessimism, but from the wombs of irrational exuberance. And so long as investors believe that the end is nigh, then we remain, in fact, in the clear.
Following the drastic recessions of '82 and '91, stocks soared. In fact, on a relative basis, they soared much longer and further than our current achievements. Allowing us to believe that stocks could, perhaps, continue trending higher for some time to come.
So a bit of patience is merited, dear investor. The Stock Trader's Almanac tells us that the S&P 500 has risen in December during 73 percent of the years dating back to 1930. As written previously, however, those gains have typically come in the latter half of the month. With the first two weeks traditionally trending sideways to lower.
Along those same lines, the New York Stock Exchange McClellan Oscillator has dipped into the negative mid-fifties range. Traditionally, once that index reached such oversold levels of negative sixty or lower? Rally time!
Following the recent volatility, things could turn up quickly. So, keep your spirits up, ye of little faith. And keep some powder dry. For bullish yuletide spirits could be lurking around the corner.
The Good
Small business sentiment has flattened...Gas prices remain below $2... Mortgage application have shown strength... Michigan consumer sentiment posted a small gain... Core retail sales rose...
The Bad
Initial jobless claims edged higher... Indicators continue to reflect a soft economy... Business inventories were flat... Technical support for stocks was broken...
Weekly Results
Major markets finished down last week. The DJIA fell 3.26%, the S&P 500 lost 3.79%, and the Nasdaq dropped 4.06%. Small cap stocks lost 5.05%. And the 10-year Treasury bond yield fell 13 basis points to 2.14%. Gold lost $12.10 per ounce, or -1.11%.

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