News for the Week of August 15-19, 2016

News for the Week of August 15 – August 19, 2016

 

by David Abuaf, CFA

Investment Manager, RJFS

Government / Political / non-Economic

 

1.     The Rio Games are attracting fewer television viewers than the London and Beijing Olympics did

2.     The FBI gave Congress a written summary of interviews with Clinton and some of her key advisors

3.     The administration said it will formally shift authority for much of the internet’s governance to a nonprofit multi-stakeholder entity on October 1

4.     Brazilian officials blocked two US Olympic swimmers from leaving the country as a probe into a robbery they and Ryan Lochte were said to be victims of escalated

5.     North Korea’s deputy ambassador to the UK defected to South Korea

 

General Markets / Economic

1.     When politics and finance intersect…Clinton’s lead over Trump in the polls has contributed to the Mexican peso’ recent gains, say Foreign Exchange traders

2.     Fed officials sought to keep their options open at their July meeting as they tried to reconcile differences over whether it was time to raise rates again

3.     Wild swings in the cattle-futures market have prompted the CME to refuse to list new contracts, leaving ranchers with fewer tools to hedge

·       This is huge news! While many of us look at commodity investing as just that – investing – it is actually a crucial tool to the advent of free markets. In fact the existence of commodity futures, is what spurred the equity and bond market investing. The commodity futures market is a way in which farmers (be it: soy, corn, cattle, oil, cotton, what-have-you) can guarantee a future payment at a set price for their goods in order to ensure they can feed their families. By refusing to list new contracts, this can be seen as deleterious to their livelihood.

 

Company News

1.     Google is rethinking its high-speed internet business after initial rollouts proved more expensive and time consuming than anticipated

2.     Ford plans to release a fully driverless car in the next five years

3.     Praxair is in talks to combine with Germany’s Linde in a deal that would create the world’s largest industrial-gas supplier

4.     Cisco is cutting 5,500 employees (7%) in their latest reaction to market shifts

 

Interesting News

1.     Turkey is releasing 38,000 prisoners to make room for coup plotters

2.     Ex-Red Sox pitcher Curt Schilling is weighing a run against Senator Elizabeth Warren

·       Because people who vote for an uber-liberal like Warren would prefer an uber-conservative like Schilling? Or maybe because people of Massachusetts think having played with a bleeding ankle to win a World Series qualifies someone to make laws?

3.     Ah Egypt; home to the pyramids, mouth of the Nile River, one of the greatest female rulers of all time (Cleopatra), and now fat female reporters. So, the Egyptian State-run TV has ordered its female reporters to slim down – they only have one month. Any guesses for what diet they’ll try?

 

 

 

Commentary for Week of August 15 – August 19, 2016

 

by David Abuaf, CFA

Investment Manager, RJFS

Chart via The Wall Street Journal

Chart via The Wall Street Journal

 

It was a choppy week of trading, with equities finishing effectively flat. Activity was light, with trading desks short-staffed and investors on summer holiday. All that aside, the week was missing many cues, such as earnings results or crucial economic data, leaving the market to look into the notes from the most recent Federal Open Market Committee meeting. More division; the Fed was on balance divided about when to raise rates; though it did reiterate a September hike was still a possibility, and there was hawkish talk from some Fed presidents at public appearances during the week.

 

The market bought it, expectations of the rate rise moved to more than 53% by December, which was previously at 47% (Fed futures prices). According to Christopher Hyzy at US Trust and Merrill Lynch, “it was real summer action [the week’s volume], with the market in limbo, bouncing back and forth between the search for yield and the search for value.” Andrew Ahrens of Ahrens Investments had a nice quote on the market, “The stocks that got us here seem tapped out…[the market could go higher] but it’s like chopping down a tree with a hammer. You can do it, but it takes a while.”

 

What’s most curious about this long bull market, the second longest in history, says Cameron Hinds of Wells Fargo, is that stocks keep rallying in the face of strong pessimistic psychology, almost at the level of a bear market. The market is still near all-time highs, and its missing the typical indicators of a dying bull: overoptimistic investors and markedly excessive valuations. Admittedly, at a P/E ratio of 18.5, the market isn’t cheap by historical lights, but tis remains far below past exuberant P/E levels!

 

 

All opinions presented are those of David Abuaf, and not of Raymond James or Forman Investment Services.

 

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