If anything about todays muted GDP report is a surprise to you then you simply are not paying attention. If I could get my hands on some of these folks telling us how robust and wonderful the US economy is in 2015 I would cheerfully and with great delight smack the gas out of them. It is not wonderful. It is not awful but it is certainly not wonderful. Its better but not good and I do not see anything that will change that picture any time soon.
I keep hearing about the wonderful job market but let’s consider this from the national Employment Law Project. They recently released a study that shows that “Private sector employment has expanded steadily, and the jobless rate has continued to fall. Yet, underlying weaknesses persist, as evidenced by the historically low employment rate of prime-age workers and the stubbornly high number of individuals unemployed for longer than six months. The “real” unemployment rate, which includes those working part time who want full-time work, and those who have stopped searching but if offered a job would take it, remains in excess of 10 percent. Moreover, most workers have failed to see improvements in their paychecks. In fact, taking into account cost-of-living increases since the recession officially ended in 2009, wages have actually declined for most U.S. workers. Inflation-adjusted or “real” wages reflect workers’ true purchasing power; as real wages decline, so too does the amount of goods and services workers can buy with those wages.” Nor robust. Mediocre. Better but not good.
The consumer is starting to lose some confidence in the economy just as close in on the Holiday selling season. Today Bloomberg reported that” The Bloomberg Consumer Comfort Index declined to 42.8 in the period ended Oct. 25 from 43.5. After climbing 5 points from mid-September low to reach a six-month high on Oct. 11, the gauge has given up half the advance in the past two weeks. The measure is holding just below its average for the year.” Hopefully that gets a lot stronger between now and the Black Friday kickoff of Holiday Selling season.
Not that the overall stock market really cares very much. We keep chugging along with the Month of October showing the largest point decline in history. The time between now and the next Fed meeting is going to be torturous for those of us who do not think the focus on a 25 basis point rate hike is the grand end all and be all for the market. It is going to be debated and discussed with each and every data point released and could lead to the office TV going onto a steady diet of the MLB and History channels during the business day.
Tech is helping the earnings season be less than a total disaster so far. Reuters said this week that S&P 500 earnings are forecast to have declined 2.8 percent in the quarter, based on actual results from about 35 percent of the S&P 500 companies and estimates for the rest, compared with a 4.2 percent decline forecast at the start of the month.
European oil companies reported today and it was awful. Shell (RDS), Total (TOT) and Eni (E) had ugly earnings as a result of lower oil prices. Conoco Phillips (COP) also had an ugly report with the largest loss in 6 years. Tomorrow we will see Chevron (CVX) and Exxon (XOM) report and I will not be shocked to see the same result. Although the fact that I do have a great record of predicting oil prices as demonstrated by my 2014 purchased of energy stocks the one observation I have for energy is that while it may be ugly, it will probably be painful in the long run, those who can stand the volatility and occasional vomiting session stand to make a fortune over the next decade or so. If we get any geopolitical event that roils the cure markets the price spike could be epic in nature. Looking longer term, although somewhat distraught by the fact that Central bankers and politicians have too much control over the global economy, I do think we eventually see people’s desire for a better life overcome that stupidity of governments and the economy and oil will eventual rally. I could be wrong but if I am right an enormous amount of money can be made so I will just stay buckled in with the oil stocks I own and take the ride. I can’t time it so I just have to hold on and keep the vomit bag close at hand.
The pain of oil and resources stock has been more than overcome by the opiate effect of community bank stocks. In addition to three takeovers at big premiums in October earnings have been fantastic. We are seeing decent growth in loans, continued credit improvements, increased dividends and buyback announcement. These little banks are the vast majority of my portfolio right now and will be until we get some sort of broad market inventory creation event.
It is probably worth buying a little First Niagara (FNFG) here if a deal is not announced pre-open tomorrow and the stock trades around current levels. The deal should be between $12.50-13 in my opinion. It’s a good fit with Keycorp and a stock deal could back you into a very strong regional bank at a good price. Analyst Laurie Havener Hunsicker at Compass Point Research & Trading wrote just last week that the bank should fetch $13 a share.
We have a big weekend ahead as the youngest looks forward to he last year of tricking or treating with her fancy Doctor Who costume. Hopefully people develop a sense f style and give her lots of Jujyfruits that the old man can steal. We have folks coming in from out of town so big dinners at the steakhouse with lots of wine is on tap and I am hoping to get some serious reading and World Series time.
Have a great week everyone
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I think oil will makes us a lot money over the long run but some days it feels like