The Week Ahead
This week brings plenty of news and data, including some important reports.
The “A List” includes the following:
- The employment situation report (F). This is the biggest data point for the week, and a key factor for some of the FOMC members.
- Initial jobless claims (Th). Employment will continue as the focal point in evaluating the economy, and this is the most responsive indicator. It shows only job losses, not gains, so the monthly employment data are more important when available.
- ISM index (T). The calendar quirk pushed this important concurrent indicator into next week. It is important for employment forecasts and overall economic growth.
The “B List” includes the following:
- ADP jobs Data (Th). This might actually be better than the official numbers for private employment, although it does not get the respect. Economists will adjust Friday estimates based upon this report.
- Beige book (W). The anecdotal evidence for the next Fed meeting will get extra scrutiny this week.
- Auto sales (W). Vehicle sales are seen as a good indicator of consumer spending, and truck sales as an independent indicator of economic activity in construction and small business.
- Trade balance (W). Followed more closely as a factor in GDP calculations.
- Factory orders (Th). Expected to be pretty weak.
- Construction spending (T). Everything related to construction is interesting, especially with interest rates rising.
There are also some Fed speeches, including some of the more hawkish members. There will be plenty of sounding off about Syria. President Obama will be in Russia for the G20 meetings, generating unpredictable economic and political news.
You can see why I expect volatility rather than clarity.
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.
Insight for Traders
Felix has continued a neutral posture, now fully reflected in trading accounts which have only a position in gold miners. The overall ratings are slightly negative, so we are close to an outright bearish call. This could easily be the case by the end of next week. While it is a three-week forecast, we update the model every day and trade accordingly. It is fair to say that Felix is cautious about the next few weeks. Felix did well to avoid the premature correction calls that have been prevalent since the first few days of 2013, accompanied by various slogans and omens. The signals have basically lacked a clear direction for most of the summer.
Insight for Investors
The challenge for investors is to distinguish between the major trends and the short-term uncertainty. The main themes are not related to headlines news, even though sentiment may drive market fluctuations. Do not be seduced by the idea that you can time the market, calling every 10% correction. Many claim this ability, but few have a documented record to prove it. Most who claim past success are using a back-tested model. Please see The Seduction of Market Timing.
Here are the key concepts.
- Beware of yield plays. For several months, I have accurately emphasized the danger of yield-based investments – yesterday’s source of safety. The popular name for this is “The Great Rotation.” It is still in the early innings, since bond fund investors are only getting the bad news from their statements. Even the best bond managers (like Gross and Gundlach) cannot win when interest rates are rising. The exodus from their funds is starting. Most investors are emphasizing cash, real estate, and gold. .333 is good in the major leagues, but not for your investments!
It may be a “generational selling opportunity” for bonds. I locked in some positions after the recent big move, but this story is not over.
- Find a safer source of yield: Take what the market is giving you!
For the conservative investor, you can buy stocks with a reasonable yield, attractive valuation, and a strong balance sheet. You can then sell near-term calls against your position and target returns close to 10%. The risk is far lower than for a general stock portfolio. This strategy has worked well for over two years and continues to do so. (I freely share how we do it and you can try it yourself. Follow here).
Last week provided chances to set new positions on down days and also to sell calls against existing energy positions on the Syria news. Take what is offered each day.
- Lose the focus on fear! Many are rewarded for making sure that you are “scared witless” (TM OldProf euphemism). If you are addicted to gold and allegedly safe yield stocks, you need a checkup. Gold works in times of hyperinflation or deflation/crisis. When neither happens, the ball is going between these Golden Goalposts. There is a good transition plan for those with a fixation and fear and gold.
And finally, we have collected some of our recent recommendations in a new investor resource page — a starting point for the long-term investor. (Comments and suggestions welcome. I am trying to be helpful and I love feedback).
Final Thought
It is often a challenge for investors to keep an unemotional, data-based perspective when the headlines are all related to the latest crisis. In the WTWA series I have an emphasis on recent developments. It is also important to do a broader assessment on occasion. Everyone should take a few minutes to review Scott Grannis’s 20 optimistic charts. He writes as follows:
“I continue to believe that the market is dominated by pessimism rather than optimism. Or, if you will, that there is a shortage of optimism.
What follows are some 20 or so charts, in random order, which highlight optimistic developments in the economy and financial markets which I believe are underappreciated. They paint a picture of an economy that is stronger and more durable than the skeptics seem to believe. There’s still plenty of room for improvement, to be sure, but there are few if any signs of deterioration.”
These are all interesting indicators, not contrived with some pre-conceived conclusion in mind. Here is just one example.
Interestingly, this all puts me at odds with my fellow Seeking Alpha contributor, James Kostohyrz, who is bullish for the short term but sees a bubble forming. My own view is the opposite on both counts. We shall see….
