If The Fed Is Upset On The CPI Drop And Stubbornly-Low Interest Rates, It Must Be A Good Friday

It's Good Friday and some of us have just finished doing our taxes (such as this writer), so, some of us are wondering what's so good about this particular Friday.

Aside from the generally-obvious religious conventions (Shouldn't it be called Bad Friday because it's the day Jesus Christ was crucified, and that doesn't seem so good?), there probably are some good things afoot.

First, the financial markets are closed, always a bonus. Second, the Labor Department announced today that the Consumer Price Index (CPI) dropped 0.3 percent, the first decline since February 2016. They said that lower cell phone service and gasoline costs outpaced higher rents and a slight increase in food costs (0.3%).

If those food costs are to be believed, since the amount of food most people eat (and buy) can be self-regulated, higher food costs aren't really an issue at all, especially since practically nobody in America is starving at the present time.

This CPI number brings up some interesting possibilities. If the United States is actually experiencing deflation (or, as the TV pundits like to call it, because deflation is bad, you know, "disinflation") then prices are going down, everything is going to cost less. That's the bane of a strong dollar. Imports are cheaper, and, in an economy that relies on lots of imports, that drives domestically-produced goods and services down as well.

It's a win-win-win for everybody, except, possibly, the Federal Reserve, banks and bond investors who are getting anxious and perhaps a bit desperate for higher interest rates.

Well, crocodile tears are the order of the day for them. Higher interest rates are not going to happen unless the economy is strong, meaning many excess jobs are being created, pushing wages higher, and producers are experiencing strong pricing power. Both of those items - jobs and pricing - seem to be going in reverse over the short term. Bond prices have been soaring because yields have been stubbornly opposed to any kind of rise, the now nearly constant urging and jawboning from the genii at the Federal Reserve, Janet Yellen, Stanley Fisher, et. al. notwithstanding.

The 10-year note is hovering around 2.25% yield. That doesn't bode well for inflation. No, not at all.

Stocks were lower for the week, but they're still within a few percentage points of all-time highs. Rich people and people with 401k or pension plans are probably not very concerned with their stock holdings.

In conclusion, this may actually be a pretty good Good Friday after all. Cheaper gas and phone service is a plus and eating a little less is probably not a bad idea in a nation of fatties. Plus, if the people over at the Fed are perplexed or constipated or otherwise annoyed or agitated, that's a huge bonus.

Happy Easter. Don't eat too much ham, lamb, or hard-boiled eggs.

At The Close, Thursday, April 13, 2017:
Dow: 20,453.25, -138.61 (-0.67%)
NASDAQ: 5,805.15, -31.01 (-0.53%)
S&P 500: 2,328.95, -15.98 (-0.68%)
NYSE Composite: 11,324.53, -98.64 (-0.86%)

For the Week:
Dow: -202.85 (-0.98%)
NASDAQ: -72.66 (-1.24%)
S&P 500: -26.59 (-1.13)
NYSE Composite: -121.05 (-1.06%)

Cyprus Banks Re-Open; S&P Makes New All-Time High

Not certain which of these two historic events will eventually bear more weight, but the banks in Cyprus opened at noon (Cyprus time) on Thursday after being shuttered for more than two weeks and the S&P made an all-time closing high.

For investors, the S&P event is a watershed moment, capping a long bull run of just over four years that began at 666 on the index and now closes nearly 100 points better.

For the citizens of Cyprus, the events of the past two weeks and the reopening of the banks today will have great weight, but in the opposite direction. Now that the banking situation in the Mediterranean island nation are more or less "normalized" - with uninsured depositors (over 100,000 euros) likely to lose 40% or more of their deposits - and the country headed directly into a depression, the contagion, for now, limited, though anybody with large deposits in any European bank has to be walking on eggshells presently.

The limits for Cypriots are stiff: withdrawals from banks are limited to 300 euros per day; checks cannot be cashed, only deposited; leaving the island with more than 3000 euros is outlawed. Welcome to the Cyprus debt prison and hotel. Payrolls are exempt from limits as the banking officials want to see money circulating to some degree, though people will be surely more frugal in their spending habits.

The Dow closed at another record high and ends the quarter (Markets are closed Friday) up 11%, marking the best quarterly returns since 1998. The S&P was right behind, clocking a 10% return for the quarter.

As the market has shown throughout the four-year bull run, news doesn't matter; it's all good on Wall Street. The Chicago Purchasing Managers' Index fell to 52.4 in March, down sharply from the 56.8 reported in February.

Initial jobless claims also cam in worse than expected, rising to 357K, up from 341K in the prior week.

Monday is the start of a new month and a new quarter, as well as being April Fool's Day, which begs the question: who will be the fools, those who exited on the record high today or those looking to squeeze more gains out of the long-running bull market?

The highs on the S&P are nominal ones, slightly above levels hit in 2000 and 2007, more commonly known as a triple top.

It's never a good idea to buy high, because you're likely to end up selling lower, but it's really tough to bet against Ben Bernanke and the Fed printing presses churning out $85 billion a month in free money. The sprinters are far ahead at the moment, but investing is more of a marathon. And, don't forget, this rally has been built not only on quickly depreciating greenbacks but on horrifyingly low volume. Additionally, the advance-Decline line has been exhibiting much less breadth than one would normally associate with a raging bull.

Pick your poison, but don't keep all your eggs in one basket.

Happy Easter!

Dow 14,578.54, +52.38 (0.36%)
NASDAQ 3,267.52, +11.00 (0.34%)
S&P 500 1,569.19, +6.34 (0.41%)
NYSE Composite 9,106.83, +36.38 (0.40%)
NASDAQ Volume 1,555,418,875.00
NYSE Volume 3,481,085,250
Combined NYSE & NASDAQ Advance - Decline: 3865-2537
Combined NYSE & NASDAQ New highs - New lows: 557-32
WTI crude oil: 97.23, +0.65
Gold: 1,594.80, -11.40
Silver: 28.32, -0.289

Stock Streak at Six Straight

The Dow added another 30 points on Thursday, the day before the markets take a break for Good Friday. While the Dow advance was reasonable, the NASDAQ actually outperformed on a percentage basis for the second straight day, gaining 0.51% to the Dow's 0.24. It's about time the bargain-hunting moved from the Blue Chips to the techs, and we could be witness to a dramatic shift in investor priorities shortly.

After all, many of the NASDAQ stocks represent relatively young, nimble enterprises, as opposed to the relatively stodgy businesses in the Dow 30. Tech is much better prepared to face the challenges of the 21st century and some of these companies are yet to embark upon long, long histories of solid earnings.

The Dow companies, on the other hand, are engaged in very segmented businesses which rely heavily upon manpower and raw materials. They are exposed to margin squeezes on the edges of their businesses and their ability to expand and react is questionable.

The Dow companies are, however, led routinely by strong managers and they have solid balance sheets. In this current market environment, though, it's all about profit and share price. Some of the Dow stocks are only going to levitate from M&A activity or aggressive cost-cutting, whereas the techs are innovative and potentially explosive (both ways).

Dow 12,560.20 +0.15; NASDAQ 2,471.34 +12.65; S&P 500 1,443.76 +4.39; NYSE Composite 9,426.97 +28.01

Volume was muted on Thursday, but that's nothing new. Market volume has been tepid for most of 2007. With earnings reports due next week and for three weeks after that, there's likely to be more trading, though it may not be any great shakes.

There's a strong rally brewing, as the numbers suggest. The new highs-new lows figures continue to be lopsided in favor of the highs, 396-69 on the day. Advancers held a 7-5 edge over declining issues.

Oil was under pressure, hitting a low of 63.60 before closing at 64.28, off just 10 cents. Gold gained $2, silver was up 12 cents, both again approaching the high ends of their channels. Something may be up. Then again, it could be nothing more than simple dollar arbitrage.

Happy Easter.