Note: Minyanville is an interactive community and we encourage ye faithful to share their thoughts and insights. Please know that none of the opinions expressed below are intended as advice nor do they reflect the thoughts of Minyanville or the critters.
I'm not an active trader so my thoughts tend to gravitate towards the longer term macro views vs. technicals and trading ideas. With that said...
During the first part of the year, we heard that things were improving with the exception of jobs. Earnings were better than the low expectations that had been set, the economic data improved sequentially through 2003 and year to date. The employment numbers have become robust, as much as I dislike the government numbers, it is a baseline.
I'm concerned about a few things though, so bear with me as I write this off the cuff. Industrial production falls this morning, inventories have been rising, and consumers continue to spend as evidenced by retail sales. Yet, employment isn't sufficient, inflation is rising (i.e. I paid $1.87 per gallon of gas yesterday. If prices were to remain constant, based on my driving pattern to and from work, gasoline expenses would equal 8% of gross income, plus I have three kids so my wife drives as well, so estimates would be closer to 10-12% of gross income. As you know, I can't spend gross income (so that number is higher yet as part of disposable income). With the stimulus gone and none on the horizon, where and how will consumer spending be supported? That is concern number one.
If industrial production is falling as evidenced this morning, and consumer and corporate spending decline, then there is no need for production to rise and it will become equalized between the two. Less jobs are needed to produce less goods. Auto sales, while good, have to abate, which means those suppliers to the auto markets will begin to get squeezed as well, likely resulting in fewer jobs. 0% financing and remarkably low mortgage rates are stolen sales from the future.
Macro risks: If Kerry gains any momentum and eliminates the Bush tax plan, economic growth will fall off of a cliff as government spending in all likelihood will not replace discretionary income spending. Certainly there will be significantly more noise surrounding Iraq as we approach June 30. My brother, 347th Moody AFB, will be leaving for overseas very very soon to "a not so nice place" in his words. (God bless him, I am so very proud of my big brother).
If the market is lead by earnings and perceptions: Are earnings going to be "good enough" in the second half: doesn't sound like it. I'm tired of hearing about the second half. I am in the stagflation camp as well and have been arguing as such with my former econ professors for 6 months or so. At some point the piper has to be paid.
All the best,
A faithful Minyan
Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at firstname.lastname@example.org.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter