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No More Games

With the Superbowl done, the nation settles in to the depths of Winter. This has been a hard time of year for many reason, not just the sudden end of football. The last few years have been harder to take than what the Panther fans are feeling about now.

This year? It may yet be worse, according to prognosticators. Then again, the worst may be over. Let’s update last year’s big stories to see how this year is coming along to see if there’s reason to hope.

Big companies have been slow to hire, slow to increase hours

Big companies have been slow to hire, slow to increase hours

The top story is always employment, which seems a bit lackluster. The official Bureau of Labor Statistics (BLS) report came in with a weak 151k job gain, where the much more reliable (no matter what anyone says) ADP report stood at 205k. The headline unemployment rate is at 4.9%, but the more important U6 rate stayed put at 9.9%. Job gains are, at the very least, stalling a bit.

That’s been typical for January lately, but it’s still not good at all. We were hoping for more than to boost consumer spending and really get things going.

If it doesn’t pick up in February there will be a lot of good reason to say the economy is indeed cooling off. The recent swoon in stocks has indeed made companies nervous. We’re not officially in a cyclical bear market, with the S&P500 off less than 9% so far. I’m not a chartist by nature but you have to bow to the psychology of charting if you’re going to be serious about this. The S&P500 has bounced off the August low of 1858 and shows no signs of breeching.

It will take news to take stocks down further, which is to say something has to change. That’s what we have to watch for.

TBills used to look like this. Today, they are electrons.

TBills used to look like this. Today, they are electrons.

Through all this, however, the yield on the 10yr bond has been swooning heavily. From a high of around 2.32% yield it’s down to 1.85%. Talking heads see it testing the lows down near 1.5%, but that seems unreasonable. I’ll still stay with the call of settling in at 1.75% as the markets in general move sideways through the first half of this year.

What news could come? It’s unlikely to come from China, despite the fact they’re still bleeding money. But the rate has not accelerated, nor decelerated adequately, as the (still) centralized government clamps down on currency flows. They are still on a pace to shed $1 trillion this year from the central bank alone, but that’s not enough to really kill things. They still haven’t found a way to realize their dream of being an international currency while giving up control over the Yuan (Renminbi) – and probably never will because it’s impossible.

For now, they’ll stop the bleeding and give up on imperialist ambitions.

What keeps the global economy keepin' on.

What keeps the global economy keepin’ on.

The US Dollar is still strengthening like mad, which is what really has everyone spooked. That effect is more dramatic than Barataria was counting on, which is to say that this is a bad time to be in manufacturing in the US. Then again, when in the last 20 years was there a good time? The pressure is on the economy in more ways than we were all counting on, meaning that this is not going to be easy.

If the Chinese money comes to the US gradually, rather than in a flood, it will only be a good thing all around. But it all still points to better times through investment later in the year.

Go ahead, take us on!

Go ahead, take us on!

The question continues to be, “Will the Fed raise again?” In this environment, the short answer is that they should pause for a while. Janet Yellen doesn’t care about the stock market, but with signs of only deflation on the horizon there’s no reason to raise yet. They said it would be slow and that is what we should get.

Where does that leave us? Stocks are likely to stay low and move sideways for a while. Earnings won’t rise unless consumers start to feel better, and that will take an improvement in U6 broad unemployment. The strong Dollar is attracting investment, but nothing crazy is going to happen as China continues to act like, well, China.

Revisiting the stories that were hot in 2015 shows that it’s all going more or less according to Hoyle. For all the noise at the start of the year, we should expect it all to soon become as boring as the day after the Superbowl, when there’s nothing to talk about

10 thoughts on “No More Games

    • That is exactly how I feel. But part of the problem is that stock prices got ahead of themselves. It’s all in the PE, and when P goes up there’s trouble.

    • I might very well. If it doesn’t end up a bit we will have breached the 1858 low on the S&P500. That’s not good at all. The next support is 1814, from two years ago.

  1. Pingback: Risk Aversion | Barataria - The work of Erik Hare

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