Friday, November 22, 2013

Since Kennedy

Those of a certain age have one of these.  Here’s mine:

A sunny midday in November, 350 miles west of Dallas on the hardscrabble turf of Lubbock, Texas, noontime recess.  A spirited schoolyard football game and a bloody knee interrupted by the skinny Cajun kid newly enrolled at Christ the King running breathless onto the field with the declaration the President had been shot.

The Sisters of St. Joseph still wore habits then.  Even the tough ones were tearful, no makeup to soak up the flow of water dripping onto those stiff white boards that spread from collar to bosom.

Not that we wouldn’t smile again.  The Beatles would appear soon, landing at the recently renamed JFK, nee Idlewild, and the Sixties took off, taking us with them.

For John Kennedy, cold warrior, the United States was called upon to bear the burden of a “long twilight struggle.”  To men and women of a certain age — at least to this certain-aged man — the years since 1963 have been a twilight time all their own, always shivering with a frisson of melancholy for the world we lost and the one that might have been.

Why, indeed, did Rice play Texas?

Friday, September 27, 2013

Summer Reading in One Town or Another

With the inmates of the public school system on furlough, our funding source for greens fees was necessarily curtailed during the summer months, so we indulged in a cheaper, but not less loved, pastime.

By the way, we were recently reacquainted with the young scholars and are here to report that boxer-revealing jeans for lightfoot lads and the skinny variety for rose-lipt maids are still the fashion, as is their disdain for a sophomore curriculum that begins with the sermons of Jonathan Winthrop. 

However, our reading addiction remained a demanding mistress this summer.  She led us to a variety of leafy glades and sunny perches.  A favorite was a public bench in front of a Southern state capitol shadowed by a monument to the Confederate soldier, the decorative flora of which, we observed, was tended by the descendants of American slaves.  This is called irony, a device we have tried to explain with little success to the denim-clad lightfoot lads and rose-lipt maids.

Before we turn to handicapping college football and the Federal Reserve, we take a minute to look back at a summerful of books under buttery buckets of sunshine.

We kicked off with an almost forgotten American novelist, James Gould Cozzens.  We had read “The Just and the Unjust” many years ago at the behest of a professor also smitten with Cozzens.  This go-around we picked up “Guard of Honor,” Cozzens’ World War II novel set on an Army Air Force base in Florida.  Sinuous revelations of character sans authorial comment -- from the meretricious to the noble, the weak and the strong -- wash against the background of race relations circa 1943.

It seems all our summer reading was invested in works exploring the variety and universality of the human condition.  We found both in Katherine Anne Porter’s “Ship of Fools” (aren’t we all?), whose cast of characters run from nattering Nazis to Spanish whoredom.  Losers take all in this one.

We also resumed our habit of reading deeply of a writer we have neglected over the years.  We had read Henry James’ “Daisy Miller” and “The Turn of the Screw” and were not inspired.  That was a mistake of callow youth.  In our dotage, we embarked on a gluttonous Jamesian journey through his earliest works:  “Watch and Ward,” “Roderick Hudson,” “The American,” “The Europeans,” and “Washington Square.”  All delineate the interior life exposed in love thwarted and requited.  Our favorite by far was “The American,” in which character is revealed by a self-made Westerner’s courtship of a young Parisian widow from a shabby noble family with a dark past.

For the coward in us all, we met another tortured soul in Conrad’s “Lord Jim.”  The inwardness of Jim rivals that of Hamlet, which we re-read this summer.  The story is told by Marlow, the narrator we encountered years ago when we read “Heart of Darkness” after seeing “Apocalypse Now.”

Speaking of movie-inspired reading, we re-read Fitzgerald’s “Tender Is the Night,” after seeing the re-make of “The Great Gatsby,” a failure, we thought, though DiCaprio was very good.  In any event, we wanted to revisit “Tender,” having re-read “Gatsby” in the spring.  The last lines of the former resonate deeper with us than the iconic close of the latter.

Dr. Dick Diver has lost his troubled rich wife and children to another man after expatriate escapades in France that include a young movie actress, a sodden musician, a fatuous novelist, a duel and some serious mental health issues:

“After that he didn’t ask for the children to be sent to America and didn’t answer when Nicole wrote asking him if he needed money. In the last letter she had from him he told her that he was practising in Geneva, New York, and she got the impression that he had settled down with some one to keep house for him. She looked up Geneva in an atlas and found it was in the heart of the Finger Lakes Section and considered a pleasant place. Perhaps, so she liked to think, his career was biding its time, again like Grant’s in Galena; his latest note was post-marked from Hornell, New York, which is some distance from Geneva and a very small town; in any case he is almost certainly in that section of the country, in one town or another.”

Monday, September 23, 2013

Why the Fed's Non-Taper Is Depressing

Forgive our crowing, but occasions to indulge are so few and far between that the temptation is irresistible.  The Fed’s decision this month to keep its quantitative easing pedal to the metal came as a surprise to most everyone but us (see our Aug. 2 post, “Taper Tigers…”).

The reasons for the Fed’s reluctance to quit printing money have been printed almost daily in economic statistics from job creation to personal consumption and boil down to this: steady erosion that threatens to turn into a landslide as sequestration bites harder and the suicidal impulses in Washington gain traction.

But we think an even more depressing development is persuading the majority of policymakers to believe it is the last, best hope for keeping the American glue from melting.  We’re talking about the uncomfortable reality that nobody but Jamie Dimon and A-Rod are getting ahead.  Wages remain stagnant and nearly all the fruits of the recovery that began in 2009 have gone to those whose plates are already full.

The most disheartening evidence of this comes from the recent walk-outs by fast-food workers and Wal-Mart “associates” seeking higher wages.  This is depressing not because they will almost surely fail but because the mini-strikes speak to the growing realization that opportunity will likely not be knocking down the road. 

Frying hamburgers and stocking supermarket shelves were once transitional jobs filled by students looking for gas money, prom dresses or tuition.  They were way stations on the road to better things.  Indeed, that’s the way the Wall Street Journal opinion spinners and the like-minded still view them when arguing against raising the minimum wage.

But large numbers of employees obviously see themselves going nowhere.  If this is their last stop along the food chain, their only way up is more do-re-mi for singing for their suppers at the Losers Lounge.  Add to that the rotten tomatoes Tea Partiers are throwing at them in their uber-churlish desire to derail affordable health care for low-wage families and you have one nasty commonweal.

Which brings us to the Fed.  More than anything, Ben Bernanke and his team must view themselves as social workers.  To remove the only brick keeping the Losers Lounge from cratering would be dereliction.  Wall Street’s prognosticators didn’t see it even though the data the Fed said it was looking at should have made it clear.
Now there is talk that the Fed will taper its bond buying program next month.  Could be, but if inflation remains quiescent we wonder why it would take the chance.



Friday, August 2, 2013

Taper Tigers: Payrolls and the Fed

Here's the thing. The jobs numbers released this morning are weak enough to persuade the Fed to keep the pedal to the metal, which the market loves, right? At some point, though, stock prices are going to come down from the liquidity high and realize the Fed has a monetary policy for a reason – and it isn't to inflate asset prices.

Nope, Ben Bernanke and the majority of the Federal Open Market Committee must believe the economy is in danger of dipping back into recession, even deflation. Taper, the new Wall Street buzzword for tighter money, is far off. 

Sooner or later, market participants will give up on the idea that six months hence economic growth will justify higher stock prices today. In other words, they'll see monetary policy as acknowledgment that the times ain't a changin' and that valuations are too optimistic.

The Labor Department reported this morning that nonfarm payrolls grew 162,000 in July, well below the 185,000 consensus estimate. What's more June and May totals were revised lower by 26,000 jobs.

Even more significant, in our view, was the drop in the work week and wages. The government said the work week dropped 0.1 hour and that hourly earnings fell by two cents after rising 10 cents in June. Plugging this into our third-quarter GDP model puts growth near zero absent any productivity gains.

Meanwhile, little noticed in the FOMC's release this week affirming its bond buying program was the observation that inflation (the grease for economic wheels) is well below the Fed's target of 2%, yet another reason for the Fed to stick with its quantitative easing regimen.

There have been some bright spots. One significant data point was the increase in imports in second-quarter GDP accounts released earlier this week. Though higher imports subtract from the GDP calculation, they do indicate stronger consumer demand.

But stock prices are too rich, in our view. According to, total capitalization of U.S. stocks is 113% that of GDP. The market could churn higher on momentum, but it is not undervalued in our view. All the easy money on easy monetary policy has been made, we think.

Tuesday, July 16, 2013

A Not So Handsome Devil

We winked at ourselves in the mirror after slapping on the Old Spice the other morning and declared “You've got what it takes, young man.” All this despite not being young and missing a goodly number of teeth. The American commonweal appears afflicted with a similar self-delusion.

Previously, we had been relatively sanguine, but our new back-of-the-envelope calculation for second-quarter gross domestic product growth comes to a meager 0.5% seasonally adjusted annual rate, compared with a 1.8% annual rate in the first quarter. Granted, our estimate could be too pessimistic if exports reverse recent declines and imports continue to fall.

But make no mistake, growth appears weak and could enter contraction territory if the Federal Reserve dares to start squeezing the money spigot. Some are expecting a pullback in the Fed's quantitative easing program come September. We doubt it, even if inflation inches higher. Growth is simply too anemic to risk taking the punch bowl away before the party has started.

Increasing our concern was news yesterday from the Commerce Department that retail sales in June rose just 0.4% and that the gain was almost entirely due to auto sales (a good thing) and gasoline sales (a bad thing because it reflected higher prices). Economists had expected a 0.9% gain in June retail sales.

And today the Labor Department said the consumer price index rose 0.5% in June, again largely the result of higher gasoline prices. That number was in line with expectations and shouldn't worry the dovish majority of Fed policy makers.

We think the sequester and higher fuel prices are big hurts that behooves the Fed to continue using its jaws of life policy tools to keep economic activity above water. Whether that's enough to keep stock market bulls in charge is beyond us, but trimming positions in winners wouldn't be a sin.

Saturday, July 6, 2013

In the Short Grass with Jobs and Money Data

With apologies to Wordsworth, a schoolboy favorite, the world has been too much with us.

It irritatingly remains on our shoulders, but the yoke is easier now. Just as the American economic engine misfires on occasion, we have yet to hit every fairway; nevertheless, driver, wedge and putter are often all we require on short par 4s.

The upshot for investors is that we remain committed to the trade we recommended March 4 (see here). We advised selling homebuilders, which, despite a steady drumbeat of positive housing data, have underperformed the market. The three names we took profits on – Pulte (PHM), D.R. Horton (DHI) and Lennar (LEN) – are essentially flat since that call. We reasoned they were priced for perfection. Turns out they were. Conversely, we recommended buying retailers JC Penney (JCP), flat; Macy's (M), up 19%; Gap Stores (GPS), up 27%; Rue 21 (RUE), up 56%, and Barnes & Noble, flat. We believed they were too cheap given solid consumer buying power. Over the same four-month period, the S&P 500 is up about 6%.

According to the Bureau of Labor Statistics, some 195,000 nonfarm jobs were added in June and previous months were revised upward to that approximate rate of payroll expansion. We acknowledge that this spring has been springier than we expected. We were convinced that the sequester would hurt more than it has. It still might, the lag between cause and effect being unpredictable, but evidence points to a respectable trot, if not carefree canter, into summer.

More encouraging to us than the jobs number itself was the uptick in wages, hinting that competition for workers has sharpened. Average hourly earnings rose 10 cents to $24.01 in June. Over the past year, hourly earnings have risen by 51 cents, or 2.2%, beating inflation. Speaking of which, that ancient result of profligate money supply expansion has yet to accelerate, putting off the date the Federal Reserve will begin moderating its security purchases.

The New York Fed's latest tally shows the M2 money supply measure has grown 6.9% in the past 52 weeks, a rate that has slowed to 4.9% in the last 13 weeks and 4.2% in the last four weeks. In fact, this broad measure of money fell in the latest week for which data are available. And M2 velocity, the ratio of nominal GDP to the money supply, or the rate at which one dollar turns over, continues to fall, according to the St. Louis Fed.

Given this nonthreatening monetary backdrop,, the large number of involuntary part-time workers and the sequester challenge, the chances of a tapering in the Fed's quantitative easing program any time soon appear slim.

In a way, the American commonweal resembles our latest golf excursion. Poised to break 90 for the first time in our career, all we needed was a 7 on the final par 4. Feeling the pressure, our tee shot careened into the wrong fairway. An attempt at rescue resulted in a thin dribble. The third shot was a beautiful cut through a grove of towering pines, the ball coming to rest some five yards from the front of the green but nestling in a rutted valley. Our chip was thin and shot past the green to the fringe in the rear. Shaking, we putted but one foot onto the green. Our next putt was too bold, ending eight feet past the hole. Two putts later and we carded the snowman. Obviously there is more work to be done, but we like our chances.
Note to our readers: This is the first entry in our new blog. All the good old stuff can be found at