THREE THINGS I THINK I THINK

  • President Obama isn’t taking the Scott Brown victory lightly.  He has just announced some stunning measures to curb bank risk taking.  The news is taking Wall Street (myself included) by surprise as stocks tank on the news.  The measures appear to be an early move back towards the Glass-Steagall Act.  Specifically, Obama said no banks will own hedge funds or private equity funds.  The details are few at this time, but that is stunning, must sell stock news.  We continue to believe the secular bear market is with us, and such policy action creates a sense of uncertainty that is simply staggering.   I would use strength in the coming days and weeks of earnings season to reduce risk until some of these clouds clear.  Stocks cannot and will not rise substantially when the government appears to be on the attack against Wall Street and that appears to be the only response from the White House after the Brown win.  While this is likely a very positive measure in the long-run, it has the potential to cause a great deal of near-term volatility.  The combination of uncertainty in the Eurozone, China’s liquidity restraints, and this new policy reform in the United States creates a three pronged reason to avoid owning stocks in the near-term.  While I hate to sell into downturns it’s best to take the meager gains since the beginning of the year and look for a better entry point.  Uncertainty is a markets worst friend and there is a growing abundance.
  • Earnings continue to come in quite robust.  Goldman Sachs crushed analysts estimates and Ebay reported a solid quarter last night.  Unlike previous quarters, investors are largely ignoring the earnings season as the above three macro themes dominate the headlines.  A continuing concern is a lack of strong revenue growth.  Corporations are still largely relying on cost cuts to generate their better than expected earnings growth.
  • This morning’s data is compounding matters.  Jobless claims spiked to 482K vs expectations of 440K and the Philly Fed surprised to the downside.  A Labor Department analyst says the week’s gain is “not economic, but administrative” and due to under-staffing at the Labor Department over the holiday weekend.  Continuing claims improved to 4.59MM and continue to point to the likelihood of job gains in the first quarter.  Philly Fed data also surprised to the downside at 15.2 vs estimates of 18.  Despite the downside surprise, the 15.2 reading is not the negative many are viewing it as.  New orders and the employee index were both higher on a month over month basis.

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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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