Jeff Miller | Oct 05, 2014 02:45AM ET
Last week was all about data. This week will be the opposite. The calendar already dished up the big news, and the major earnings reports are still a week away. Meanwhile, we have more conferences and speeches than I can remember seeing for many months. For those of us who think of data as the signal and politicians and pundits as noise, we must get ready for a low ratio!
This week will emphasize commentary rather than data, with world leaders, Fed types, and pundits all joining in.
h3 Prior Theme RecapIn my last WTWA I predicted that the media would focus on how to interpret the deluge of economic reports. That was an accurate guess with plenty of discussion leading up to Friday’s employment report. This week will be tougher.
Feel free to join in my exercise in thinking about the upcoming theme. We would all like to know the direction of the market in advance. Good luck with that! Second best is planning what to look for and how to react. That is the purpose of considering possible themes for the week ahead.
h3 This Week’s ThemeIn sharp contrast to last week’s data deluge, we have little important fresh news. Instead there is the biggest speech calendar that I can remember. It includes the following:
World Leaders
Fed Participants
Central Bank Decisions
The noise of the speeches will overwhelm the signal of fresh data. We confront a week of interpretation. With the global focus, the question will be:
Will worldwide economic weakness drag down the US economy?
Here are some key takes:
China – chief economist of the Asian Development Bank.
Japan – Economists are BOJ tweaking of policy.
This is a complex story, with no easy answers. I expect it to be the focus for the week ahead.
As usual, I have a few thoughts about this topic. First, let us do our regular update of the last week’s news and data. Readers, especially those new to this series, will benefit from reading the background information .
h3 Last Week’s Data/h3Each week I break down events into good and bad. Often there is “ugly” and on rare occasion something really good. My working definition of “good” has two components:
The Good
There was a lot of very good news, supporting the general thesis of economic strength.
Scott Grannis is less impressed , noting that the long-term growth of private employment is about what it has been.
Bob Dieli sees something for everyone:
This report is a spinner’s dream. As we shall see, there is something for those who want to spin “it’s good and getting better” as well as for those “it’s as good as it’s going to get” as well as for those who subscribe to the “it’s another pack of lies” school of thought. I will offer my conclusions as we go through the charts.
Here is a crucial one, where he analyzes labor force participation, the unemployment rate, and the Fed.
Special thanks to Bob, who has agreed to share his most recent employment update with readers of this site.This report, published monthly, covers every aspect of the employment story. The big themes that you see in other sources – labor force participation, part time employment, household versus establishment surveys – are all treated with Bob’s special insight and wit. There is also a great package of charts. Here is the link for this month.
The Bad
There was also some softer economic news.
Trade data were mixed at best despite beating expectations. the FT )
The Ugly
This week’s “ugly award” goes to the U.S. Secret Service. Protecting the President is a bipartisan issue that united Congressional inquisitors. Congress has an official oversight function (making sure that policies are implemented as intended) and also an investigative function (to help in planning new laws). After one day of testimony before the House Oversight Committee, Director Julia Pierson resigned.
There has been a sad recent shift in performance after a long and storied tradition of heroic efforts by Secret Service agents.
The Silver Bullet
I occasionally give the Silver Bullet award to someone who takes up an unpopular or thankless cause, doing the real work to demonstrate the facts. Think of The Lone Ranger.
This week I was intrigued by the dueling videos of the “bendgate” controversy. Originally I was impressed by the apparent inconsistencies in the original video, Phil’s Stock World )
Now there are more “uncut” videos and stories about bent iPhones in store displays. I cannot decide who wins!
I do know from personal experience that if someone leaves an iPod on a car fender where it can fall if, and then runs over it, you will need a new iPod.
h3 Quant CornerWhether a trader or an investor, you need to understand risk. I monitor many quantitative reports and highlight the best methods in this weekly update. For more information on each source, check here .
Recent Expert Commentary on Recession Odds and Market Trends
Doug Short : An update of the regular ECRI analysis with a good history, commentary, detailed analysis and charts. If you are still listening to the ECRI (three years after their recession call), you should be reading this carefully. Doug includes the most recent ECRI discussion concerning continuing economic weakness in Japan. Doug covers the possible implications for the US. The ECRI has an update criticizing the Fed analysis of labor markets. This deserves discussion, but is beyond our scope in the weekly article.
It is time for an update of Doug’s regular analysis of the Big Four economic indicators . If you had to pick one source for a pulse of the economy, this would be it.
Read the entire post , but be prepared to add context from your other work.
improve performance from low-volatility stocks . I am following his results and methods with great interest.
I added to the recession discussion with some comments on the 2011 ECRI forecast and a possible repeat given current commodity prices.
Bob Dieli does a monthly update (subscription required) after the employment report and also a monthly overview analysis. He follows many concurrent indicators to supplement our featured “C Score.”
h3 The Week Ahead/h3We have an extremely light week for economic data and events.
The “A List” includes the following:
The “B List” includes the following:
There are a few early earnings reports, but the main feature of the calendar will be speeches. As has become customary in recent weeks, news from the world’s hot spots may well have an effect.
How to Use the Weekly Data Updates
In the WTWA series I try to share what I am thinking as I prepare for the coming week. I write each post as if I were speaking directly to one of my clients. Each client is different, so I have five different programs ranging from very conservative bond ladders to very aggressive trading programs. It is not a “one size fits all” approach.
To get the maximum benefit from my updates you need to have a self-assessment of your objectives. Are you most interested in preserving wealth? Or like most of us, do you still need to create wealth? How much risk is right for your temperament and circumstances?
My weekly insights often suggest a different course of action depending upon your objectives and time frames. They also accurately describe what I am doing in the programs I manage.
h3 Insight for Traders /h3Felix has continued the bearish call initiated last week. Most sectors have a negative rating and the broad market ETFs are also tilting negative. As I predicted last week, our Felix trading accounts are now invested in two inverse ETFs for the first time in more than a year.
You can sign up for Felix’s weekly ratings updates via email to etf at newarc dot com.
h3 Insight for Investors /h3I review the themes here each week and refresh when needed. For investors, as we would expect, the key ideas may stay on the list longer than the updates for traders. The current “actionable investment advice” is summarized here . In addition, be sure to read this week’s final thought.
We continue to use market volatility to pick up stocks on our shopping list. We do this because we also sell positions when they reach our (constantly updated) price targets. Being a long-term investor does not require you to “buy and hold.” Taking advantage of what the market is giving you is always a good strategy.
Here is our collection of great investor advice for this week:
Seasonal Strength. This is the strongest quarter of the Presidential cycle, often the source of major gains. Regular readers know that I am not a big fan of these seasonal analyses, preferring to emphasize the fundamentals and conditions of the moment. Having said this, we mention the negative seasonal factors and they certainly get plenty of media buzz. Just for balance you should read these two excellent posts:
This seems like the right conclusion:
The takeaway? Seasonal patterns and cycles are general tendencies formed over long periods. As such, they should be treated as secondary indicators. That said, the Presidential Cycle has been one of the more consistent seasonal cycles. Therefore, while it is not a lock, the next 3 quarters should provide a slight tailwind for stock investors.
Watch out for bond ETFs with illiquid holdings. David Merkel’s thoughtful analysis describes how these holdings are priced during the time when there is no trading. He also shows what might happen if there was a rush to sell the ETF. His advice? You had better know what you own!
Look more broadly for dividends. Morgan Housel notes the declining dividend rate in the S&P 500 and suggests some alternatives – technology and overseas.
The dollar has made an extended move, but may be nearing resistance according to this post from Josh Brown . This has been a major factor in helping some stocks while hurting others.
If you are stuck in gold or out of the market completely, you might want to reconsider your approach. The current economic cycle is in the fifth inning. This is one of the problems where we can help. It is possible to get reasonable returns while controlling risk. Check out our recent recommendations in our Schwab Market Perspective article:
The Schwab team summarizes the other major economies as follows:
Outside the United States, Europe is flirting with another recession and deflation, Japan is trying to pull itself out if its long-standing malaise, and Chinese growth is slowing. Emerging markets look attractive.
They also note that despite the international risks, a US recession does not seem to be imminent.
This is completely consistent with the excellent indicators that I update each week, so my answer to the headline question is “No.”
In looking at the expected speeches, the negative stories were prominent. Whenever there is a long list of widely-known negatives, investors should also ask whether something might go right!
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