January 15, 2016

It’s Never Just One Thing

The markets had a volatile week that from the perspective of the press was filled with fear while my perspective, as you may have already guessed is not. That isn’t to say my concerns aren’t keeping me alert, just not necessarily awake at night. It is also a matter of my perspective from a portfolio manager with much experience and more than my own skin in the game.

There admittedly have been some mixed economic signals in the past few weeks that have earned some attention, the most obvious is the dramatic decline in energy prices. While always good for the consumer the severity of the decline does raise legitimate concerns that the global economy, and not just China, might be cooling off. Another concern was today’s first glimpse at last quarter’s inflation, weak, and retail sales, weak. The latter especially noteworthy because it covers the holiday season. But as I like to avoid hanging my hat on any one hook and prefer to see the crowed plate of issues that help signal an assumption I offer the following responses.

There is clear evidence that the Chinese economy is slowing down and that can count, however evasive the value, for some slowdown is energy sales. However since the middle of last year Saudi Arabia and other members of the OPEC cartel have made a clear effort to keep oil flowing more the demand would suggest necessary. Not the first time those countries have manipulated oil prices and not the last, but in the past few months the US producers have been granted the ok to export oil and gas long denied by the current government. While that may not make oil go up it will to some extent even out some of the challenged earnings that have forced the industry to cut back on exploration and workers.
Retail Sales
Retail sales is an elusive measure. First because it is clear that the move to shop on the internet has been spiraling away from brick and mortar establishments for over a dozen years and is here to stay. And while there are some obvious push backs to this theory it will take a measure of understanding the scope and scalability of internet sales to understand how important a measure it will become when the data is under control.

Last week unemployment report was a very good report, growing jobs by nearly 300 thousand and a stable unemployment rate confirmed what had been a very good year for job growth. That could mean much for retail sales going forward, and it may also suggest that companies had the capital to expand personnel. The point here is it’s a positive influence on the economy that will have to still be seen in other reports.

The Fed
The Federal Reserve board released their quarterly Beige Book last week. The document is a summary of the discussions and forecasts that shaped recent fed meetings. The importance is especially striking since the Fed is in the role of raising interest rates these days and the report does not suggest any reason them veering from that aim.  Whether this is a negative for the economy remains to see how flexible the Fed body is if the economy does slow down.

While the above is not meant to calm all concerns it is meant to show that there are many reasons the markets must continue digesting information. In the meantime, in my opinion, none of which strongly suggest a recession around the corner.