Better Retail Data Doesn't Guarantee Fed Rate Hike

On May 13th I spoke with Neil Cavuto on the Fox Business Network about the impact of the recent retail sales report on a potential rate hike by the Federal Reserve.  My concern is that employment isn’t nearly as strong as the headlines would lead one to believe. FoxBusiness.com wrote an article about my discussion as well as some points made by my co-author for Cocktail Investing, Chris Versace, which you can read here.

In the fourth quarter of 2015, productivity declined by 1.7% then fell again in Q1 by 1.0% while labor input rose 2.5% and non-farm business output averaged around 1%. That means from last October through March, the aggregate hours worked outpaced production 2.5 to 1 – obviously that is unsustainable.

If we look at Challenger’s reported layoffs for the first four months of 2016, we see they were up 24% over the first four months of 2015 and the highest we’ve seen since 2009. In April alone layoffs were up 35%, so the pace looks to be accelerating.

This is the fifth quarter of falling sales and the fourth quarter of an earnings recession, what exactly would drive more hiring when the employees companies currently have are delivering declining productivity?

The three month moving average for retail sales is still at recessionary levels AND today, 47% of Americans don’t have enough savings to cover a $400 emergency! How’s that recovery working for you?

Foreign Leaders Nervous About Trump

On March 8th I spoke with Neil Cavuto about how many foreign leaders, particularly those in Europe, are getting nervous about Donald Trump’s statements. Living a good portion of my time in Italy I am able to have a richer perspective on how the rest of the world views what is happening in the U.S., and while I agree that the U.S. ought not chose its policies based on the preferences of other nations, it is always a good idea to at least listen to our friends and neighbors, just as we do in our personal lives.

The United States has the largest economy in the world and the most powerful military, so naturally the rest of the world has a vested interest in what happens here. Our entertainment industry is also the most impactful in the world, so that American cultural shifts are often rippled throughout the globe. What happens here, doesn’t stay here.

For most Americans alive today, World War II is something we read about in the history books. We don’t sense that it impacted our culture in any meaningful way, at least nothing like the way 9/11 has. In Europe there is a very different memory, one filled with great trepidation over those leaders that seek to use the military in ways that are outside of the law. Donald Trump’s repeated comments concerning how he is confident that the members of the military would defy their oath to uphold the law in order to obey his demands strike an alarming cord in Europe, where leaders in the past who used the military that way brought devastation to a continent.

Perhaps Trump is simply using the type of hyperbole that he found worked so well to garner attention for his reality TV show, but hyperbole of that nature on the global political stage, from a man who could be the commander-in-chief of the largest military in the world, in understandably cause for concern.

Cavuto and Fed Rate Hike

It was all rate hike, all day as I spoke with Neil Cavuto on Fox News concerning the likelihood of a rate hike and its impact on the economy. Please excuse the hair – I have no bloody idea what the hair/makeup department was thinking!  Apparently they thought I needed more body – perhaps this was a bit of an overshoot!?

Hopefully I was able to deliver some thoughtful comments that could override the astounding helmet head!

Neil Cavuto: Fed Policy is the Problem

Neil Cavuto: Fed Policy is the Problem

This morning I spoke with Neil Cavuto on Fox Business about the Fed’s decision to not raise rates earlier this week; my view, Fed policy is the problem!

An economy grows when good ideas are able to get funding, find talented people to work on them and are able to operate in an environment that is conducive to their success; that means limited laws, regulations, and a tax code that are all easy to understand and not costly to follow. 

All the QE (Quantitative Easing) and ZIRP (Zero Interest Rate Policy) have kept interest rates super low. That forces people to put their money into riskier investments than they’d like. Riskier investments by definition have to generate higher rates of return to compensate for their higher level of risk. High levels of risk are also associated with ideas, that normally wouldn’t get funding, but manage to get it by promising really high rates of return. If investors are pushed into more higher risk/higher potential return investments than they’d normally like, that means more of these potentially bad ideas get funding.

This means the economy experiences a higher failure rate than would normally be the case. That means more investors lose their money and more resources get wasted, draining the economy. Add in that the U.S. economy is getting more and more complicated with respect to legislation, regulation and a tax code that even the IRS doesn’t understand and ever great ideas struggle under the burden of trying to jump through all those extra government hoops that just make it that much harder to be successful.

In my discussion with Neil I refer to how we have a record high level of job openings. The chart below is from the Federal Reserve, but can be researched in depth by looking up the JOLTS report from the Bureau of Labor Statistics.

2015-09-18 Cavuto - Job Openings

I also mentioned how the percent of the population actually employed is where it was nearly 40 years ago.  This data is also from the Federal Reserve.

2015-09-18 Cavuto Employment Population

Greek Crisis with Neil Cavuto

On July 6th I spoke about the Greek Crisis with Neil Cavuto, a tragedy which is starting to feel like a Sisyphean set of negotiations stuck in a Groundhog day style loop. Bottom line is Greece cannot be expected to honor its debts. Any additional debt is simply a form of much needed aid, to help the country until it comes to terms with the reality of just how many promises that have been made to its citizens will need to be broken. This Greek tragedy reveals the extent to which all nations within the Eurozone may be forced to give up their sovereignty when things get really tough. The concept of the Eurozone was intended to ensure peace between nations weary of centuries of war and prosperity for all.  Prosperity is a long way off for many and peace, well the level of acrimony is becoming dangerously high.

Stocks Down in January – what does it mean with Neil Cavuto

All the major US market stock indices closed down in January.  Now I don’t put much stock, (pun intended) in correlation myths such as what the market’s movements in the month of January means for stock prices for rest of the year.  What I do look at is what is causing stocks to move in any particular direction.

I look at measures such as the Baltic Dry Index (which measures shipping costs for dry bulk commodities such as minerals and metals, grain and other food) hitting a 28-year low. That’s a serious warning sign!

Earnings growth expectations are being revised lower, but at Friday’s market close the S&P 500 was trading at 16.4x 2015 earnings per share of $122.05. That’s more than a tad rich for what is shaping up to be contracting earnings in the first half of the year, which in our view puts even more pressure on earnings expectations for the back half of the 2015 in order to growth expectations of 4.4% per FactSet.

On top of that, the strengthening dollar is causing serious problems for a lot of large companies. For example, the S&P 500 companies earn roughly 27% of sales abroad. The weak global economy coupled with the appreciating dollar and falling oil has led companies such as Caterpillar (CAT), Procter & Gamble (PG), and Pfizer (PFE) to disappoint analysts last week. Pfizer reported that nearly all of its 3.3% revenue drop was due to the strong dollar while Caterpillar also cited reduction in construction in oil-producing regions, weak demand from mining companies along with a 12% decline in retail machinery sales.

Banks & the Fed – Bail 'em Out then Beat 'em Up

While shoppers were watching their pennies this holiday season, I was grinching over the relationship between the Fed and the big banks as reminiscent of the abusive relationship between Ike and Tina Turner – bail them out then beat them up with an onslaught of massive fines.  According to a global banking study by the Boston Consulting Group, legal claims against the world’s leading banks have reached $178 billion since the financial crisis, with heavy fines now seen as a cost of doing business, a cost ultimately born by shareholders with no banking employees or executives facing charges for wrong-doing.

All these fines do little to deter wrong-doing in the future while taking money out of the hands of those saving for retirement and give it to the government to spend with zero accountability.


 

NSA Surveillance Impact Overseas

On February 10th I spoke with Neil Cavuto on how NSA surveillance affects international communications.

I work internationally, dividing my time between San Diego, California and Italy. I sometimes advise on deals that have involving high-profile, publicly traded companies and the actions my clients take are significant enough to affect the market.  Now whenever you are talking about large amounts of money, someone will always find information valuable.

So… aside from the obvious obscene Constitutional violations by the NSA, their spying has a material effect on how we now communicate, specifically on how non-American entities conduct their business with Americans and with each other. The world has been put on notice that communications, which in anyway interest the US, are subject to interception by an agency that has shown it doesn’t have its house in order and its use of that information is uncomfortably vague.
Some companies in Europe have even taken steps to ensure that their communications do not get routed through any servers that they believe the NSA may observe.  Of course we really have no idea just how pervasive the NSA’s program truly is, so an overabundance of caution is required.
So now, when I am outside the US and I send an email to the US, I have to first think of which account to send it from based on what I’m saying and whom I’m sending it to.  When placing calls from outside the US to firms with whom we work in the US, I am conscious that someone may be listening and cannot trust what they may do with what they hear.  What if I place a call from somewhere like Dubai or have a conference call on with someone from there to a financial institution in the US?  Does that raise any red flags for the NSA?  Would someone then listen to that call?  I have to think about how to protect information that cannot be released before we are ready, which adds more friction to the system. That is not exactly helpful in an economy that is struggling.  Why make it harder for us to work done?

Lenore Hawkins joins Neil Cavuto to discuss Apple and privacy concerns

On June 11th, Lenore Hawkins joined Neil Cavuto to discuss the use of drones and planes to develop high resolution image maps, potentially revealing intimate details of your home as well as Apple and Apple App developers using personal data from your iPhone or iPad without your knowledge.