Volatility returned after Friday's economic reports suggested a weakening economy. The economy contracted in Q1 and Consumer Sentiment fell to a six-month low. The Fed may want us to believe that the economy is rebounding but reality has a nasty habit of spoiling best laid plans.

Market Statistics

The U.S. markets were already poised for a decline following market drops in Europe and the weak economic reports just added weight to an already heavy futures session.


The Chicago Purchasing Managers Index (PMI) for May fell from 52.3 to 46.2 and well under consensus for a rise to 53.1. The Chicago PMI has now been in contraction territory under 50 for three of the last four months. All five components dropped into contraction territory with employment falling to the lowest level since April 2013. The February drop to 45.8 was a five year low and May was only slightly higher at 46.2. This is for May so analysts can't blame it on the weather.

New orders declined -13.8% to 47.5 while prices paid spiked to the highest level since December. Orders falling and prices rising are never a good combination. More than 42% of companies said their inventory levels were too high compared to only 12% several months ago.


On top of the lousy Chicago numbers the GDP revision for Q1 declined from +0.25% growth to a -0.75% contraction. This was widely expected by knowledgeable analysts but the investing public was apparently out of the loop as futures plunged on the news. Weak exports, government spending and consumer spending were a drag on the headline number. Corporate profits declined -5.9% after declining -1.4% in Q4. Consumer spending rose only +1.23% in Q1 after a +2.98% rise in Q4. Gross domestic income rose only +1.43% after a +3.71 rise in Q4. Exports declined -1.9%.

Analysts continue to blame winter weather in Q1 for the slowdown but that had nothing to do with the drop in exports and fall in corporate profits. They also correctly put some of the blame on the decline in the energy sector since a 55% drop in drilling activity is a major drop in capex spending.


The Atlanta Fed real-time GDPNow is still only forecasting +0.8% GDP growth in Q2. All we need is a few weak economic reports in June and it could go negative as well. The textbook definition of a recession is two consecutive quarters of GDP contraction. You can bet the pencil pushers will be doing everything they can to keep the Q2 number positive.


It was not only the U.S. GDP that contracted. Canada reported a -0.6% contraction in Q1 after +2.2% growth in Q4. This was the first quarterly contraction in Canada since Q2-2011. It was also the third consecutive quarter of declines from a high of +3.4% growth in Q2-2014. Analysts said "the decline in Q1 was attributable to a reduction in domestic demand due to lower business investment and private consumption of goods." They did NOT say it was due to winter weather.

Final domestic demand (consumer spending) declined -1.6% after a +1.6% rise in Q4. Household consumption rose only +0.4% in Q1. Goods production (manufacturing) declined -5.5%. Spending on structures fell -19.7%, machinery and equipment -7.4% and investment in intellectual property fell -21.2%.

I think we can safely say the economic decline was not specifically a U.S. problem but a North American problem and that makes it more difficult for the Fed to stimulate. It also suggests the Fed is not going to be raising rates in the near future.

Moody's Canadian GDP Chart

Consumer sentiment for May declined -5.2 points to 90.7 but that was much better than the initial release at 88.6. It is still a six month low and that does not bode well for consumer spending in the months ahead. The present conditions component declined from 107.0 to 100.8 and the expectations component declined from 88.8 to 84.2.

With gasoline prices rising and consumer sentiment declining the retail sales numbers for the next couple of months could be disappointing.


In Yellen's speech last week she said "growth in many other parts of the global economy, including China and some other emerging market economies, has slowed. Weak growth abroad and the strong dollar has dented U.S. exports and weighed on our economy." I think that is a safe bet that is broadly evident today.

Yellen also said, "If foreign growth is weaker than anticipated, the consequences for the U.S. economy could lead the Fed to remove accommodation more slowly than otherwise." I think Yellen is on to something. Despite the Fed's desire to raise rates they are struggling with the fact that the economic reality is not cooperating. Investors are also catching on to the fact that the economy is not recovering as fast as the Fed has promised and equities may suffer as a result.

Economists had fallen into the trap of expecting cheap oil to power a sharp uptick in consumer spending and a period of economic acceleration. What we are seeing is the reverse. Companies have announced capex reductions or postponements of roughly $800 billion in the form of reduced drilling, cancelled or postponed projects. This has caused the loss of roughly 100,000 high paying jobs in industries directly related to energy and tens of thousands more in industries that depend on the spending from energy companies and their employees.

Consumers are not spending their gasoline windfall and instead using the money to pay down credit cards or pay bills. With drilling activity still declining the economic weakness spreading out from the energy sector could continue to weigh on the U.S. economy all year.

The economic calendar for next week could go a long way towards changing the economic view. If the payroll reports come in lower than expected the Fed is going to have to temper its rate hike posture. Whether that has any impact on the markets at this point is unknown. They have warned of their plan to hike rates for so long that easing off that warning could be more of a problem. They may be forced to keep their pro hike posture just to prevent having to start all over from square one when/if the economy begins to grow again.

The ISM Manufacturing report on Monday could be disappointing given the recent weakness in the regional reports. The Fed Beige Book on Wednesday will try to keep up the economic cheerleading even if conditions have deteriorated. Conditions would have to be bleak before the Fed economists that prepare that report would actually say anything negative. Going from "moderate growth" to "modest growth" and back again every other month is hardly a real analysis of regional conditions.

The weekly jobless claims have been rising for the last four weeks and that suggests trouble in the employment reports. However, analysts are expecting a big jump in the ADP numbers from 169,000 last month to 192,500 for May. I wish them luck.

The Nonfarm payrolls surprised to the upside last month and analysts are expecting a gain of +220,000 for May. With all the regional reports showing declines in their employment components I would not be surprised to see a number under 200,000.

Lastly the OPEC meeting begins on Friday and nobody expects them to change their current stance of "produce everything possible" but there are some really irate countries in the cartel. These are the ones that can't produce any more and depend on oil for the majority of their national budget. I would not be completely surprised if there are not some kind of concession to those minorities. Meanwhile Saudi Arabia and Iraq are producing at record levels and promising more to come. You never know how much of the headlines ahead of the meetings are posturing rather than reality.


The split calendar gained another entry with Nippon Telegraph (NTT) announcing a 2:1 split. This should have no impact on the stock and should be ignored. The Exponent 2:1 split was approved by shareholders and the split date will be June 4th. Shares are testing a four-month low so I doubt there will be any impact on the stock.


Shares of Humana (HUM) spiked +20% late Friday after the company said it was approached by Cigna (CI) about a potential takeover. Humana said it had hired Goldman Sachs (GS) to advise them on the process. The Wall Street Journal said Aetna had also expressed interest in Humana. The company has almost 14 million members. A Morningstar analyst said Humana was interested in selling itself because it was very dependent on Medicare and the government is trying to impose additional cost cutting measures. Humana needs to be part of another company that has a broader customer base.

The rest of the insurance sector also spiked higher because nobody knows who will step up to try and capture Humana or be acquisition bait themselves. Aetna (AET) gained +1.4%, Anthem +2.2%, Wellcare (WCG) +4%, Healthnet (HNT) +1.5%, Centene (CNC) +4%, Molina (MOH) +1.4%, Anthem (ANTM) +2.2% and Cigna +3.7%.


Bristol Myers Squibb (BMY) declined -7% after the company reported some trial results at the American Society of Clinical Oncology (ASCO) conference. A lung cancer drug approved by the FDA in December showed a doubling of life expectancy in one class of patient but there was no benefit in other classes. After the report analysts said this could open the door for Merck (MRK) and Roche when they release their own drugs targeting the same cancers in the coming months.


Gamestop (GME) rallied +6% after reporting earnings of 68 cents that easily beat estimates for 59 cents. Revenue of $2.061 billion also beat estimates for $2.01 billion. The company also raised its full year guidance. Gamestop is the most shorted stock in the S&P at 47% and those shorts paid the price today.


ITT Educational Services (ESI) reported the results of an audit of their 2014 financials and the stock soared +81%. Yes, +81%. The key point here is that the company now believes the Department of Education composite score for measuring an institution's financial stability rose to 2.0 and the score must be above 1.5 to be deemed financially stable and not require governmental oversight.

Shares had fallen from $10 to $2 after the SEC filed fraud charges claiming the company hid financial information from investors relating to student loan programs that were deemed risky. The company rebutted the charges and filed the audited financial to prove their case. I think the gain today is simply another short squeeze since many traders expected them to fail.


Rosetta Stone (RST) rallied 18% after it received an "expression of interest" from RDG Capital Fund Management. The company said the board will carefully evaluate the expression if interest and declined further comment. Rosetta offers language learning courses in 30 different languages. Shares had declined -22% year to date.


EPlus (PLUS) reported earnings of $1.22 per share on revenue of $267.3 million. The company is a computer products reseller. Apparently that was not good enough for investors and the stock fell -8% on the news.


Heron Therapeutics (HRTX) reported their drug Sustol significantly reduced chemo symptoms in patients in late stage trials. The drug eliminates nausea and vomiting, which are common side effects of chemotherapy. Nearly 8 out of 10 people experience these symptoms while taking chemo. The drug Sustol is injected about 30 minutes before the chemo and is "remarkably effective." The company said it will file an application with the FDA in a "couple of months" and approval should take as little as 6 months. The drug will be ready to market two months later and could bring $850 million a year to Heron.


Prothena (PRTA) shares were initiated with a buy rating by UBS and the stock rallied +14% on the news. UBS said early data on the drug NEOD001 are clearly suggestive of an active therapy in a high unmet need indication. Near term data is positioned to increase investor confidence on the outcome of the phase-3 trial. The drug treats AL Amyliodosis. A second drug, PRX002 in the treatment of Parkinsons is also under appreciated. UBS said for multiple reasons we see Prothena as a "top M&A target" in biotech. Shares rallied +14%.


The Chinese markets crashed over the last two days after brokers tightened margin requirements in the overheated market. On Thursday the Chinese markets declined -6.5% on record volume. That was the biggest one day decline since the financial crisis. The Shanghai Stock Exchange traded a record $193.57 billion in shares on Thursday. The Chinese market has risen +140% over the last 12 months despite a slowing economy. The market rules change several months ago opened the door for anyone to own stocks and brokerage accounts were being created at the rate more than one million a week. Stocks bought on margin hit a record 2 trillion yuan on Tuesday. On Thursday morning three brokerages hiked margin requirements ahead of what is expected to be a similar move by regulators. Two other brokerages hiked requirements earlier in the week.


Crude oil had a rough week. After dropping to the low for the month at $56.51 on Thursday the futures rebounded to nearly $61 on Friday. The movement on Friday came from the falling dollar and news that active oil rigs declined -13 for the week. Investors had been expecting a positive gain in the rigs after only a minimal decline the prior two weeks. This suggests the bleeding may not have stopped.

Earlier in the week Iraq said it was going to ship 26% more oil in June or roughly an additional 800,000 bpd to 3.75 mbpd. This may be posturing ahead of next Friday's OPEC meeting because the oil minister said export capability is capped at 3.1 mbpd. The headlines still weighed on oil. Also, a sudden surge in the demand for supertankers caused a spike in rates from $52,987 per day on May 6th to $83,412 per day on May 20th. That is the highest rate since 2008.

At the start of June OPEC members will have nearly 485 million barrels in transit to buyers and the most at any time so far this year. Another 20 million barrels are stored on ships at sea. OPEC produced 31.3 million barrels per day in April and probably more than that for May. Their official quota is for 30 mbpd but they threw that out at their last meeting when they decided to punish high cost producers and try to grab as much market share as possible at lower prices. That is not expected to change.

However, since the November OPEC meeting Saudi Arabia has a new king and a new oil minister. They burned through $36 billion in forex reserves in March/April. That is the budget for the entire year. The new king may have a different outlook on low oil prices. In order for Saudi Arabia to agree to production cuts Russia would also have to agree. Assuming Russia did agree how would anyone police their production since Putin lies about everything?


For the week ended on the 29th the active rig count in the U.S. declined -10 to 875, down from a high of 1,931 in December. Oil rigs declined -13 to 646, down from 1,609 at their high. That is a drop of -963 oil rigs or -59.8%. Gas rigs gained +3 to 225. Offshore rigs were unchanged at 29, down from 60 in January.

If Iraq really ships that additional oil and OPEC continues flooding the market with crude the rig count could go a lot lower. Investors were expecting oil prices to rebound over the summer and producers to begin putting rigs back to work in July. Depending on the OPEC news next week that may not happen and crude prices could move lower.


Markets

Tuesday's drop was erased by Wednesday's M&A generated short squeeze but sellers returned in volume on Friday. The economics were blamed but it may have been simply end of month profit taking. The first trading day of June has the worst record of any month in four of the last seven years. Since 1998 the Dow has averaged a loss of -87 points on the first day of June. Source

I don't know what causes that June swoon but it is regular enough that traders could profit from exiting in advance and then buying the dip.

June has not been kind to the major indexes over the last ten years. The Dow has posted losses in 8 of the last 10 years with an average -1.6% decline. The S&P lost 6 out of 10 with an average decline of -1.3%. That is the worst month of the year for the S&P over the last ten years. The Nasdaq lost in 7 of 10 with an average decline of -0.9%.

Another factor impacting the last day of May and first trading day of June is the Russell index rebalance. On Friday Russell re-ranks their stock universe for the Russell 3000. That is the Russell 1000 and Russell 2000 combined in one index. The ranking sets up for the actual rebalance that happens after the market close on June 26th.

There is roughly $4.4 trillion indexed to the Russell 3000 index. The R3K includes more than 95% of the U.S. market cap. That means whenever Russell changes the ranking some stocks leave, some are added and some move from the Russell 2000 to the 1000 and others move backwards.

The Russell 3000 is the top 3,000 stocks by market cap in the USA markets. The Russell 1000 is the largest of those 3,000 stocks and the Russell 2000 is the bottom 2,000 stocks in the index. As stocks grow they move into the top 1,000 and if they shrink they move from the 1,000 back down to the 2,000. Quite a few other stocks fall out of the index altogether because their market cap declined and other stocks not currently in the index take their place. Analysts expect more than $43 billion in rebalance related trades over the next three weeks.

Now that you have the ground rules you are free to game the system. Numerous hedge funds have developed this to an art. Large organizations like Deutsche Bank have an entire group of certified strategists that attempt to predict the ranking and therefore predict which stocks are moving in or out of the indexes. Knowing this in advance is very advantageous because those leaving will decline and those being added or upgraded will rise.

The formulas are complex and it takes a serious amount of effort by a lot of people to come even close to the same results as the Russell analysts. Some stocks are easy. For instance Shake Shack (SHAK) will be added because it did not exist in the 2014 rankings. Stocks that have IPOed recently and have a significant market cap are definitely going to be included. Each one that is added means somebody gets ejected. Another addition would be Vista Outdoor (VSTO), they were spun off from Orbital ATK several months back.

Other new stocks would include Cyberark (CYBR), Box Inc (BOX) and Radius Health (RDUS). Any company that was acquired or merged with another like Forest Labs (FRX) or Fresh Del Monte (FDP) will be removed from the indexes and the surviving entity will have a larger weighting.

Here is a complete list of stocks expected to be added and deleted from the Russell 3000 as composed by H.C. Wainwright. Russell Addition/Deletion List

The speculation over who will be deleted and added could easily account for the unusual string of negative trading days on the first day of June.

For those of us without access to super computers and unlimited download capability of all the data on each individual stock we get to sit on the sidelines and watch the big boys make the trades. Fortunately Russell does publish the actual list of proposed additions and deletions on June 12th and a revised list on June 19th. Anyone that wants to game the actual rebalance on the 26th can do so with a couple weeks left in the process.

Volume on Friday rose to 7.16 billion shares and the most since May 6th. However, much of that gain was rebalance related with 40% of the volume coming at the close. Thursday's volume was 5.68 billion shares.

Last week we saw a continued decline in the Dow Transports, which are now down about 10% from their highs in 2015. The Dow Industrials are up +1% over the same period. This divergence is becoming more extreme as each day passes and has the potential to drag the industrials significantly lower.

This could be one of the reasons the Dow weakened over the last couple of days. Eventually divergences matter and we may have reached that point on the transports.


The S&P posted four consecutive lower highs and missed out on five only because Monday was a holiday. This is not bullish. However, the low from Tuesday at 2099 was not repeated the rest of the week. Friday's -13 point decline came despite the $2.50 gain in oil prices or maybe I should say as a result of the rise in oil prices. Energy stocks did not rise with oil.

Bond yields declined sharply all week with the yield on the ten-year closing at a five-week low of 2.095%. Stocks declining and treasuries rising sounds an awfully lot like investors are starting to decide the economy is actually weakening and it is time to move to safety.


Since the primary uptrend on the S&P has not failed and the index is just slightly more than -1% (-23 points) from a new high it is hard to paint a bearish scenario just from the charts. Dips happen and this one has been very minor so far. Stocks do tend to retrace their moves when they fail at new high levels. They drop back to consolidate and then make another run at the highs. If that happens and those highs are not broken then we really do have something to worry about. So far this has been just some weak profit taking.

If the S&P declines below that 2099 low from Tuesday then the 2075-2080 level becomes the target. The 100-day average is 2080.


The Dow did make a new low for the week on Friday at 17,967. In round numbers the 18,000 level held as support but the lower low suggests there may be trouble ahead. The financial sector is declining since the odds of a rate hikes are slipping farther into future as each day passes. The industrials are fighting lower demand and the high dollar and it appears to be a losing battle.

The key support level IF this is going to be just a garden variety dip is 17,800 or possible 17,600 but that lower level is critical. Initial resistance remains 18,200 and despite Wednesday's short squeeze that level was not tested.



On the bullish side the Nasdaq refuses to drop. The -28 points on Friday was just a haircut and not even a decent trim. Wednesday's new high close at 5106 is only 36 points away and the Nasdaq is showing no signs of collapsing. However, a lot of that strength is due to the biotechs and the merger activity in the chip sector.

The biotechs are up +21% for the year and they are holding at their highs. The chip sector was lifted to a new high by the Broadcom acquisition and speculation that Intel will buy Altera (ALTR) next week.



The Nasdaq could vault to a new high at any time as long as it continues to hold at that 5100 resistance. This is the most bullish of all the indexes but there is a lot of drag from those others. Rarely does one index breakout to new highs while the other indexes are setting new monthly lows. There is solid support at the 5000 level so a protracted decline would be a major change in market sentiment.



The AAII sentiment saw a slight adjustment from neutral to bullish because of the Wednesday rebound that saw the Nasdaq close at a new high. That lured about 1.8% of the survey respondents away from neutral and into the bullish camp but by far the neutral category is still the winner.


The Russell 2000 only declined -0.45% last week and was the second best performing index behind the Nasdaq 100 ($NDX) at -0.41%. The R2K did post a lower high but there was no real weakness. Monday will be the day for the Russell as the rebalancers begin selling those stocks they believe will be ejected from the R3K. Russell futures dropped -3 at the close on Friday. The Russell is not showing us any direction despite the lower high. It is still in an uptrend and still holding above that 1230 support. If we do see the Russell begin to decline next week it could provide additional drag on the large cap indexes. Likewise a rebound over resistance at 1260 would be very bullish.


Last week I suggested we could see some fund managers begin to put some of their extra cash to work in June as they window dress the midyear statements. A decent dip this week would give them a buying opportunity and we will see if that window dressing theory plays out. Just remember, I am expecting June to finish higher rather than go higher in the next week or two.

I remain in the cautiously long until proven wrong mode. I would be a dip buyer at any of the clear support levels like 17,800 or 17,600 on the Dow. Watch for a bottom to form rather than just jump in if those levels are touched. That would be 2075-2080 on the S&P and 5000 on the Nasdaq. If we dip below those levels I would wait for a rebound back above them before testing the water.

If you like the market commentary you have been receiving and you are on a free trial then now is the time to subscribe. Don't wait until you miss a newsletter to decide you want to take the plunge.

subscribe now

Random Thoughts

The U.S. GDP fell into contraction in Q1 and the third time in contraction since the financial crisis. The last time that has happened was in the mid 1950s. The recovery is so lackluster and erratic that the Fed has not hiked rates since 2006. I reported last week that the U.S. government is going to change the way they calculate GDP in order to erase the negative numbers for the last two first quarters. If you don't like the numbers just change the way they are calculated. The general public will never know and everybody can be happy. Unfortunately in deciding what calculations to change they found out that by changing the parameters for Q1 to raise the growth the same calculations would probably lower growth for Q2 and Q3 so the bottom line would remain nearly the same. I guess 2+2 = 4 regardless of how you try to change it.

Since 2010 the U.S. has averaged +2.2% growth. That is only 65% as fast as the national average since the 1930s. A slow growth economy is at risk for all kinds of shocks that can push it back into contraction. Weather, dock strike, strong dollar, etc can all significantly impact growth. In the last three major expansions the economy never had a negative quarter. You have to go back to 1973-1975 to find a negative quarter in an expansion period.


The Greek tragedy continues to play out despite several deadlines that have come and gone. Greece has a flurry of payments due to the IMF in June and they claim they can only pay the first one.

Payments due to the IMF

June-5th 300M euros
June-12th 300M euros
June-16th 558M euros
June 19th 335M euros

Not making those payments when due does not constitute an immediate default. They have until the end of June to make the payments without defaulting. If they do fail to make the payments to the IMF it does not trigger default clauses in other debt classes. The odds are about 100% that Greece will not make all these payments without a bailout from the Troika.

The bigger problem is the 7 billion in euros due to the ECB in July and August.

Greek citizens continue to withdraw money from banks at a record rate. Banks have received more than 80 billion euros from the Emergency Liquidity Assistance program extended to the Bank of Greece in order to offset the withdrawals and prevent bank failures. Deposits have fallen from 240 billion euros to 142.8 billion since the Greek economic problems began. Bloomberg Article

Bloomberg Chart

Treasury Secretary Jack Lew warned the G7 last week there was the potential for an accident in the global economy if Greece and its creditors did not reach a deal before the existing bailout expires on June 30th. Lew said, "There is great uncertainty in there at a time when the world needs greater stability and certainty" Source


The NYSE said margin debt hit a new record high at $507 billion as of the end of April and $30 billion more than March. It is now about 50% higher than it was in 2007 just before the market crash. Despite more than $100 billion in funds flowing out of the market so far in 2015 the market is still making new highs. If we ever do have a decent dip that monster margin debt could accelerate any decline. Source


Adjusted pretax corporate profits fell -5.9% in Q1 and the second consecutive quarter of declines. Profits declined -$125.5 billion in Q1 for the biggest decline in seven years. In Q4 profits declined -1.4% or a drop of -$30.4 billion. This is not the same profit numbers you are used to seeing in a company's quarterly reports. These figures are adjusted for depreciation and the value of inventories. How much longer can corporations continue to post slowing profits before the equity market figures it out? Source


Amazon (AMZN) is planning on producing and marketing its own brand of foods under the Elements brand. Earlier in May Amazon filed for trademark protection for more than two dozen categories under the Elements brand. Amazon has been selling diapers and baby wipes under the brand and is going to greatly expand its offerings to include coffee, soup, pasta, water, milk, cereal, baby food, vitamins, dog food and assorted household items. Amazon has approached private-label food manufacturers like TreeHouse Foods over a partnership. The company also has other product lines marketed under the Basics, Strathwood and Pinzon brands. Market research firm Information Resources said private label goods were a $120 billion market in 2014. Source


Costco (COST) loses $40 million a year selling $4.95 rotisserie chickens. The company sold 76 million of those chickens in 2014 because customers love them and like the $1.50 hotdog at the snack bar they come into the store because of the cheap snacks and then purchase a cart of regular products. Most other stores have raised their prices to $5.99 because the price of chickens had been rising. With the ban on exports to some countries because of the bird flu epidemic the cost of chickens could actually decline in 2015. Source


May set a record for M&A with $241.6 billion of deals already announced. That tops the prior record of $225.8 billion in May 2007 according to Dealogic. January 2000 is in third place at $212.7 billion. PricewaterhouseCoopers (PWC) said the deal train is showing no signs of slowing. They believe 2015 could be a record year and that will not be a small feat since 2014 is the current record holder.

June may rocket off to a fast start if the rumored Intel/Altera (ALTR) acquisition is announced next week. Add in the potential deal for Humana (HUM) and we could be off to a fast start.

Notable deals in May included Verizon buying AOL, Charter buying Time Warner Cable and Bright House Networks. Ann Inc (ANN) being acquired by Ascena Retail (ASNA). Avago (AVGO) buying Broadcom (BRCM).


Michael Feroli of JP Morgan said the Fed is in such a hurry to hike rates that the economic bar has been lowered dramatically. According to Feroli the Fed will hike rates in September if the economy is on pace for annual growth of at least 2% and nonfarm payrolls rise by at least 175,000 per month. Krishna Guha, vice chairman of Evercore ISI said GDP growth could average as little as 2.25% to allow the Fed to hike in September as long as payrolls averaged about 200,000 per month. Payrolls in 2015 have averaged +194,000 compared to +260,000 in 2014.

Yellen continues to remind us that a rate hike "will be appropriate at some point this year." The fed funds rate has been at zero since December 2008. Vice Chair Stanley Fischer did express some caution last week when he said "If the economy is growing very, very slowly we will wait" to hike rates. With -0.8% in Q1 and the Atlanta Fed GDPNow showing only +0.8% growth in Q2 or zero for the first six months that should qualify as "very, very slowly."


Google announced ten new products and innovations at its developer's conference last week. Read about all of them Here


The growing number of Russian military soldiers captured in the Ukraine makes it nearly impossible for Putin to continue claiming Russia was not involved in the conflict. Despite the growing number of soldiers injured and/or captured claiming they were there under orders with their units, Putin claims they deserted and went to the Ukraine on their own or were there helping out while on vacation. Obviously anybody with a fifth grade education can see through that BS but Russian citizens still believe Putin. Family members of the captured soldiers are being forced to say on Russian television that the men had deserted and left their families to go fight for Ukraine in order for Putin to keep the ruse alive. Source

Meanwhile Russia is massing heavy firepower consisting of tanks, artillery and hundreds of mobile rocket launchers on the Ukrainian border. All identifying number plates and marks have been removed as well as the insignias on the soldier's uniforms. The amount of weaponry is three times the buildup in March that eventually moved into Ukraine and joined the fight. Reuters article


Global central banks have printed the equivalent of $5.7 trillion to stimulate markets. That is enough cash to pave a six-lane highway circling the world TWICE with $100 bills according to Mark Haefele of UBS. Betting against that infusion of cash has been suicidal. Even worse, because of the very low interest rates everyone under the sun has been selling debt. Since 2010 global banks have added $22 trillion in bonds to their balance sheets.

Anyone that does not believe there will be a selling panic in the bond market once the Fed begins to normalize rates is living in a fairytale world. Source


 

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

"It is better to be out of the market and wishing you were in, than in and wishing you were out."

Albert W. Thomas

 

subscribe now