News for the Week of February 21 – February 24, 2017
by David Abuaf, CFA
Investment Manager, RJFS
Government / Political / non-Economic
- The administration set sweeping changes on immigration enforcement, making clear that people in the US illegally who have committed crimes are now subject to deportation
- A former CIA agent living in Portugal lost her final appeal to avoid prison in Italy for her role in the kidnapping of suspected terrorists.
- South Sudan declared a famine, saying more than 100,000 people were at risk of starvation and death
- Top US officials arrived for talks in Mexico and found a government refusing to accept Trump’s immigration and deportation policies. Well, is that really surprising!?
- To those that don’t know the details…Trump’s immigration plan, whether you agree or disagree, has one glaring problem; it says that all illegal immigrants will be deported to Mexico, regardless of their nationality! The real question is how will Trump make Mexico take in all the illegals?
- Trump cabinet members tried to soften the message on expanded US immigration enforcement during talks in Mexico, but officials there signaled little progress had been made on differences. In other obvious news, water and oil still don’t mix
General Markets / Economic
- Auto makers asked the EPA to undo the Obama administration’s decision to lock in future stringent fuel-economy standards
- Car insurance rates in the US are climbing as smartphone use by drivers leads to more accidents
- The administration is considering changing how it calculates US trade deficits, a shift economists say would inflate the numbers
- Lawmakers are mounting efforts to bolster government scrutiny of Chinese investment in the US
- Treasury chief Mnuchin laid out ambitious goals for a tax-code overhaul by August and economic growth not seen in over a decade.
- Greece must embrace further structural overhauls before the IMF can provide aid, says the IMF chief
- The aviation industry is heaving under the strain of building new jetliners after years of surging orders
- Carl Icahn has taken a stake in Bristol-Myers, fueling speculation the firm could soon be put on the block. The news came as the drug maker shook up its board to satisfy activist investor Jana
- Verizon and Yahoo agreed to shave $350m off the purchase price of Yahoo’s internet business and share data-breach costs
- Nissan CEO Ghosen ruled out a merger of Nissan and Renault as long as Paris holds a stake in the French car maker
- Boston Scientific recalled its Lotus Valve heart devices from sites in Europe because of manufacturing defects
- A 76-year-old Boston woman was fined $200 for not shoveling her sidewalk. The find could have been $50, however it was $200 because her brother runs an insurance office out of her home. Ya know, I have zero problems with this. As someone who was raised in NYC – the actual city, not a suburb – and who has lived in Chicago since 2006, it is pretty heinous to not shovel your sidewalk. They gave her two weeks, usually you get a ticket after 2 days! While the sidewalks are “public property,” it is common knowledge that they are to be expressly maintained by the owner of the home or building!
- Dozens of workers lost their job after participating in “A Day Without Immigrants” across the country. While I support everyone’s right to protest, I do not support stupidity. Folks in Oklahoma were fired because they didn’t tell their boss of their expected absence, “we expected to be reprimanded, but not dismissed.” Really!? If you didn’t show up to work and didn’t let your boss know and then the next day you told him/her that you decided a few weeks ago to protest and not tell them, would you expect your boss to not fire you!? That would be some lenient employment contract!
- For the next few months in Nigeria, hundreds of flights a month will be relocated from the capitol to Kaduna because “goats have chewed some holes on the runways”!
Commentary for the Week of February 21 – February 24, 2017
by David Abuaf, CFA
Investment Manager, RJFS
Chart from Barrons
11 straight days of gains for the major market indices. Strong economic data and rising doubts about the Federal Reserve’s intentions to lift interest rates next month contributed to the gains, although no single piece of news seemed compelling enough to spark this much bullish activity.
Politics did not appear to help. The White House and House Republicans are reportedly at odds on plans to impose a border adjusted tax on imported goods. Infighting could cause a delay in corporate-tax reform, which is the underpinnings of the recent rally.
Treasury Secretary Mnuchin said that he expects tax reform to happen by August, but Wall Street does not share his optimism. Not even 25% of fund managers polled by Bank of America think it will get done by Congress’ August break.
Nonetheless, economic data indicate that the economy remains relatively strong. Home sales jumped in January, with US manufacturing production also showing continued strength, while the retail sector had a number of companies report better than expected earnings and boosting their dividends. According to Jason pride of Glenmede Trust, “the data are providing more evidence of an economic expansion.” As a reminder, retail spending is huge when assessing the health of an economy. While Government spending most often outweigh consumer spending (almost 2 to 1 in the US), its consumer spending that is significantly more volatile (almost 2 to 1 in the US).
All that said, investors are often wary that the Fed could spoil the party. Public prices of US treasury futures show more than half think the central bank will wait to raise rates; just 40% expect a March hike, down slightly from last week. Though, don’t listen to the official word as “many” Fed officials expect a hike “fairly soon,” according to the minutes from January 31st. that said, members don’t seem too concerned about inflation, indicating that they may be in no rush to tighten (raise interest rates) monetary policy. According to Joe Carson at Alliance Bernstein, “the bond market seems to be of the opinion that the Fed is waiting for more evidence of strength before they move,” and to that I ask, “do you wait for the world’s strongest man to bench press 1,000 pounds after he already bench pressed 975 pounds to proclaim the world’s strongest?”
However, according to Carson, there’s not much evidence that the Fed is getting cold feet; “they’ve indicated that if the economy continues to improve along with their expectations, they would consider raising rates relatively soon. They said the exact same thing in November and they raised rates in December. The data since the meeting are much stronger than in the fourth quarter.”
But not everyone is so sanguine. David Rosenberg at Gluskin-Sheff writes that other data point to a sluggish economy, including a continuing drop in gasoline consumption (better tell OPEC) and weak earnings reports from consumer staples companies, “the consumer staples can’t raise prices, who can?” – maybe Rosenberg should revisit the definition of an elastic good!
All opinions presented are those of David Abuaf, and not of Raymond James or Forman Investment Services.
This information is not a complete description of the securities, markets, or developments discussed and has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein.
The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal. NASDAQ composite is an unmanaged index of securities traded on the NASDAQ system. Index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary. Commodities’ investing is generally considered speculative because of the significant potential for investment loss. Their markets are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. Inclusion of these indexes is for illustrative purposes only. Keep in mind that individuals cannot invest directly in any index. Individual investor's results will vary. Past performance does not guarantee future results.
To opt out of receiving future emails from us, please reply to this email with the word “Unsubscribe” in the subject line.