Monday, December 22, 2014

We Are Infallible: Predictions and Advice for 2015

Forgive us if we don’t wax nostalgic, but auld lang syne never resonated with our predilection to look ahead.  Looking back is un-American, we believe, so we’ll let the weepy old world take a cup o' kindness while we get a leg up on the new year.

Here are 10 things, in no order of particular importance, to expect in 2015:

  • Stocks will have a subpar year as corporate profit growth gives way to wage growth.  Our stock of the year is unloved Elizabeth Arden (RDEN).  You can read about it here and here.

  • Wait until mid-year to buy Treasury bonds, after the Fed raises the Fed Fund rate target and coupons adjust upward on new debt.  Inflation will be nowhere in sight.

  • Oil prices will stabilize as producers halt uneconomic drilling.  Big oil stocks with plump dividends look cheap.

  • The Republican Senate will fail to pass any bill to repeal Obamacare as it comes to the realization that healthcare insurance is already baked into the welfare state cake, on its way to becoming a new “third rail.”

  • Chris Christie will look increasingly ridiculous as Jeb Bush becomes the preferred nominee of adult Republicans.

  • Elizabeth Warren will make Hillary Clinton look like a Republican, setting her up for failure against the real thing in 2016 (see above).

  • The Seattle Seahawks will keep cheating and keep winning.  They will line up offside and manhandle receivers all the way to a repeat Super Bowl championship on Feb. 1.

  • Jeff Samardzija will prove a better acquisition for the South Side White Sox than Jon Lester for the North Side Cubs.

  • Oregon will beat Ohio State in the NCAA football championship after Marcus Mariota takes the randy Florida State scholars to school and the Buckeyes’ third-string QB exposes Alabama’s faux SEC swagger.

  • The University of Oklahoma, led by Bahamian point guard Buddy Hield, will win the NCAA men’s basketball championship.
There you have them, our fearless calls ex cathedra.  Merry Christmas and happy New Year, gentle reader.  We’re off to the driving range as soon as the UPS guy shows up.

Wednesday, December 17, 2014

For Whom the Oil Tolls

We haven’t been shy about pounding the drum on oil prices.  We thought last summer that the slump at the pump would supercharge the holiday shopping season with a huge “tax cut” for consumers long-suffering from stagnant paychecks.  We still think it will do that, enabling retailers to meet their sales and earnings targets.

However, the slide has turned into a crash, with sweet crude well below $60 on the near-month futures contract.  What’s more, the 10-year Treasury yield is flirting with 2%, currently at its lowest level of the year. But employment gains continue apace, and last month wages finally showed some life.  Oh, and the inflation landlord?  We can look that guy right in the eye.

At the risk of getting all Panglossian, it’s a return to the “goldilocks” economy of the Clinton years isn’t it?  Our old friend ROW (rest of the world) has another view.  The oil price has been widely seen in the U.S. as a supply phenomenon.  Shale technology and all that frack.  But elsewhere it’s a demand thingamajig. Europe remains sclerotic, China is slowing and Japan has slipped into recession.  The United States has become the little engine that could – so far.

This state of affairs is obviously salubrious for you and us and all the John Qs with tanks to fill or airplanes to fly.  Even the local motorcycle gang might be able to afford another meth lab.  But is it predictive of bad times to come or contemporaneous with them? 

Surely it’s the latter.  What seller in any market – be it oil or life-saving miracle drugs – wouldn’t gouge the heck out of us if we (or insurance companies) had the coin to cough up.   There’s a limit of course.  Folks would cut back if energy became too dear.  But the oil market is no stranger to pushing the envelope just short of demand destruction.  Apparently, demand can destroy itself just fine, thank you.

WTI Crude Futures Contract

The upshot?  The Federal Reserve Open Market Committee will be reluctant to commit to raising the Federal Funds rate target as early as most expect.  We’ll hear from policy makers today.