Morning Briefings
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US Stocks’ Boon Is Global Stocks’ Bane
(1) More good news for US economy, which is bad news for other economies. (2) US economic strength giving confidence to Trump to escalate trade war and to Powell to raise rates. (3) Three whammies for emerging market economies. (4) New factory orders tumbling in Germany. (5) Wage inflation unnerves bond yield, which remains a tad below 3.00%. (6) US yield would be higher but for global influences. (7) No weakness yet in global forward revenues. (8) Global M-PMI is down since late last year. (9) Commodity prices also signaling global weakness.
Inflation, Where Art Thou?
(1) Technology is inherently deflationary. (2) The Gig Economy’s low-fee freelancers are disrupting lots of services businesses. (3) No-fees ETFs and brokerage accounts. (4) How inflationary would tariffs on Chinese imports be for the US consumer? (5) Record-high profit margins could absorb some cost increases. (6) Productivity could be making a comeback. (7) Regional and national prices-paid indexes up sharply since 2015, but looking toppy recently. (8) No sign of inflationary pressure in CPI goods excluding food and energy. (9) CPI services inflation boosted by rent increases, which are starting to slow.
US vs Them
(1) Trump vs Hamlet. (2) Strong US M-PMI bodes well for S&P 500 revenues growth. (3) Consumer Optimism Index is strong, led by current conditions component. (4) Jobless rate on the way to 3.0%. (5) Less exuberance in China. More pain in emerging economies. (6) Stay Home! (7) Sandra goes to Europe. (8) From Greek crisis to an Italian one. (9) Brexit is hard to do. (10) Trump rejects Europe’s generous offer. (11) Weighing on Europe: Italy, immigration, Brexit, and Trump.
A Sustainable Meltup?
(1) The meltup question is back. (2) Nothing to fear but a trade war and an emerging markets crisis. (3) Precisely defining terms. (4) Must a meltup be followed by a meltdown? (5) S&P 500 revenues growth remarkably strong. (6) S&P 500 earnings even stronger. (7) Record profit margin. (8) Trump’s tax cuts boosted after-tax earnings, undistributed profits, and cash flow. (9) US equities have been a risk-off trade compared to equities abroad. (10) Mr. Wonderful’s meltup scenario. (11) Movie review: “Operation Finale” (+ +).
Full Pipelines & Killer Robots
(1) Too much of a good thing in the oil patch. (2) Frackers still fracking. (3) Rigs in search of pipelines. (4) Shipping costs rising along with costs to build pipelines as a result of steel tariffs. (5) Railroads better equipped to bring sand to frackers than to take their oil. (6) Terminators are coming. Can they be stopped? (7) Beautiful swarms can be deadly.
Dancing with the Stars
(1) The yield curve question gets a brief mention at Jackson Hole. (2) It may not be different this time, but the yield curve has yet to actually invert. (3) What’s really different this time is that the federal funds rate is 2%, while the comparable ECB and BOJ rates are slightly negative. (4) The 2-year Treasury is predicting a 2.6% fed funds rate in a year. (5) Italy’s new euroskeptic government may frustrate ECB’s hopes of normalizing policy. (6) How do you say “bond vigilantes” in Italian? (7) The chairman’s first speech: slow and steady. (8) Powell rejects navigating by the stars. (9) Academic portion of Jackson Hole was intellectually interesting, without much practical usefulness.
What If . . . ?
(1) Six bullish “what if” scenarios. (2) What if the trade war results in less protectionism? (3) Trade war escalating with China, deescalating with Mexico. (4) Our guess is that deregulation boosts S&P 500 earnings by $4 a share. (5) Small is beautiful: S&P 600 up 50% since Election Day! (6) Productivity growth could make a comeback. (7) Rapid pace of technological disruption keeping a lid on inflation. (8) Distressed asset funds are acting as shock absorbers. (9) If we are all minimalists now, this expansion may have a ways to go.
Teamsters & the Stock Market
(1) Social media can be downright anti-social. (2) Bull-market haters. (3) How many Teamsters does it take to change a light bulb? (4) Charles Dow is resting in peace. (5) The breadth issue rises again despite record highs for S&P 500/400/600 and several key sectors. (6) Stock buybacks and dividends continue to pump lots of liquidity into stock market. (7) S&P 500 share count is down for the count. (8) Record-high forward revenues and earnings driving stock prices to record highs. (9) Raising our 2019 S&P 500 earnings-per-share estimate by $4 to $173.
Trucks & Batteries
(1) Charles Dow is bullish. (2) Railroads are chugging along. (3) Truck freight index is off the charts again. (4) The next new new thing might be good old batteries. (5) The race to make more and better batteries is charged up. (6) The Tesla connection. (7) Solid-state batteries.
Superstars
(1) Nice view of the Grand Tetons. (2) Hot topic: “Changing Market Structure and Implications for Monetary Policy.” (3) Are multinationals getting too much market power? (4) And what about online shopping? (5) How has banking evolved since financial crisis of 2008? (6) “Superstar firms” are either depressing or boosting productivity. (7) Not enough creative destruction? (8) Expect déjà vu all over again from predictable Powell.
Superpower
(1) Trump, the newsmaker. (2) The Great Disruptor continues to do what he does best. (3) Nations have interests, not friends and enemies. (4) Method in the madness: Flexing America’s muscle. (5) What if he wins? (6) Trade war goes bilateral with ceasefires and some deal-making progress. (7) Trump talks loud and carries a big stick. (8) Tariffs and sanctions as economic artillery.
The Long Good Buy
(1) Benchmark framework remains bullish on economic expansion. (2) The longest bull market in history? Sure, why not? (3) Discounting what may soon be the longest economic expansion in history. (4) Age of bulls doesn’t predict their DOD. (5) Stock prices high on record-high revenues, earnings, and profit margin. (6) The yield curve is just one of 10 leading indicators. (7) Coincident economic indicators showing moderate growth. (8) What if they call a trade war and everyone declares a ceasefire? (9) Might productivity be making a comeback? (10) Movie review: “BlacKkKlansman” (+ + +).
Consumers Unchained
(1) As tax-cut-happy consumers go to town, retailers have been raking it in. (2) Amazon threat? So last year! (3) S&P 500 Consumer Discretionary sector’s earnings and revenue forecasts reflect the strength. (4) So do stock valuations, near historical highs, boosted by Amazon and Netflix. (5) In telecom, the 5G race is on—among countries and companies. (6) But does who comes in first really matter?
Trump vs Xi: Tiger vs Dragon?
(1) China more vulnerable in trade war with US. (2) Xi aspires to Mao’s power. (3) Xi’s “new era” off to a bad start. (4) Deng nostalgia. (5) US targets Xi’s “Made in China 2025.” (6) Bad medicine. (7) Stress cracks in China’s economy. (8) Chinese stocks coming under pressure. (9) Birth dearth. (10) Banking on more credit.
Big Revisions, Small Net-Net
(1) An old joke that remains relevant today. (2) Lots of offsetting benchmark revisions in real GDP that don’t add up to much. (3) Shift to more first-half annual growth and less second-half growth. (4) BEA concedes that seasonally adjusting quarterly real GDP is hard to do. (5) Revisions give real tech spending and real imports (like cell phones) a boost. (6) Personal saving data revised up sharply. (7) Lots of components of personal income revised up sharply.
Trump’s World
(1) No place like home. (2) Stay Home isn’t just about trade war; tax cuts also giving the US an edge. (3) The strong dollar isn’t just about trade war but also central bank policies—i.e., Fed normalizing while ECB and BOJ policies remain abnormally easy. (4) Copper price isn’t just about strong dollar but also reflects some global weakness. (5) Forward earnings of US MSCI outpacing rest of the world since start of current bull market. (6) So far this year, cyclical stocks beating interest-rate-sensitive ones. (7) SmallCap outperformance isn’t just about less exposure to trade war.
Robot Advisors & the Magic Kingdom
(1) New, new thing in passive asset management, robo-advisors. (2) Assets under management growing fast. (3) AI-enabled investment allocation also enables low to no minimums, low to no fees. (4) Big traditional players: “Can’t beat ’em, join ’em.” (5) Robo segment hopping with new mergers, partnerships, and offerings. (6) Flavor of the month or here to stay? (7) Let the investor beware: Know what’s under your algorithms’ hood. (8) Vacation-happy consumers shoring up hotel industry stats. (9) Beneficiaries include Marriott and Disney. (10) Even so, S&P 500 Hotel, Resorts & Cruise Lines stock price index is down ytd-undervalued?
Tuning Out the Noise
(1) Two remarkable back-to-back quarters for earnings. (2) Two more to go. (3) Getting closer to our year-end S&P 500 target of 3100. (4) Three happy earnings hooks. (5) Forward earnings converging to higher 2019 estimates. (6) Lots of earnings power in S&P 500 sectors. (7) Jamie Dimon is bearish on bonds. (8) Bears warn that corporate pensions’ tax-related bond-buying will end in September. (9) Inflationary pressures are mounting, but broad inflation measures remain subdued. (10) US bond yield tethered to German and Japanese yields. (11) Noise about escalating trade war weighing on global manufacturing.
Slowing? Not So Fast!
(1) Watch our first video podcast. (2) The pre-tariffs scramble to export boosted Q2 real GDP. (3) Y/y growth rates in real GDP, along with consumer and capital spending, nothing out of the ordinary. (4) Signs of weakness may be misleading. (5) Pay little attention to surprise index and NM-PMI. (6) Minimalist Millennials may be depressing demand for homes and autos. (7) Haven’t run out of human workers yet, while rent-a-robot may be the next new, new thing.
Babies & Help Wanted
(1) Demographic collaborators. (2) From Generation Z to Generation Zero. (3) Marriage continues to lose market share. (4) Singles outnumbering married couples. (5) Getting married later in life. (6) Birth dearth getting worse. (7) Signs of life in household formation and homeownership. (8) Record full-time employment. (9) Payroll employment revisions series is timely business-cycle indicator, which is upbeat currently. (10) Quitters at record high, yet wage inflation remains subdued. (11) Some Millennial quitters doing so to see the world rather than to get a better job with more pay. (12) Movie review: “Three Identical Strangers” (+ + +).
Artificial vs Material Worlds
(1) AI will power the next Industrial Revolution, or kill us all. (2) Fritz Lang saw it coming in 1927. (3) Racist robots. (4) Algos have a “black box” problem. (5) From virtual to fake reality. (6) Weaponized drones and Terminators turning war into a video game. (7) Kissinger says the end is near for the Enlightenment. (8) FANG workers of the world unite! (9) High fives in China. (10) Materials sector has winners and losers. (11) More on prime-working-age males: vets and ex-cons.
New York, Tokyo, and Mumbai
(1) Earnings hotter than expected. (2) Forward revenues and earnings of S&P 500/400/600 rising to fresh record highs at end of July. (3) Lots of good reasons to be bearish on bonds, yet yield of 10-year Treasury remains calm just under 3.00%. (4) US bond yield is tethered to near-zero yields in Germany and Japan. (5) Trade uncertainties depressing Germany. (6) BOJ keeps priming inflation pump, which continues to run dry. (7) Inflation remains relatively subdued in US. (8) One person’s debt is another’s asset. (9) A guided tour of the latest developments in India.
Growth & Inflation in Trump World
(1) Is there an internal contradiction in Trump’s agenda? (2) Over-the-top growth. (3) Donald Trump vs. Adam Smith. (4) Is Trump a mercantilist or not? (5) Donald Trump vs. Charles Koch. (6) Trump’s ceasefire with Europe. (7) Exports boosted by beating the tariffs. (8) Strong capital spending. (9) Five regional business surveys showing lots of strength. (10) Trump’s tax cuts and tariffs stress-testing our low-inflation scenario. (11) Record profit margins may be inflationary shock-absorber. (12) Regional, national, and Beige Book surveys all seeing more cost pressures.
Why Work?
(1) Despite not much slack in labor market, wage inflation likely to remain subdued. (2) A depressing trend: Men without work. (3) Baby Boomers are no longer “prime.” (4) Lots of prime-working-age male dropouts are disabled, ill, and/or on pain meds. (5) Government welfare programs providing incentive not to work. (6) As the proverb states: “Idle hands are the devil's workshop.” (7) Powell’s justification for gradual tightening: He is hoping more adult men drop back into labor force. (8) No 9-5 jobs for them: Wi-Fi allows Millennials to combine less work with more play. (9) Movie review: “Mission: Impossible—Fallout” (+).
Industrials Under Some Duress
(1) Cost pressures mounting for Industrial companies. (2) Will they cut costs, boost prices, or both? (3) Labor shortages in Europe too. (4) Tariffs are the new costs on top of labor and commodity costs. (5) Analysts may be too optimistic about the sector. (6) IMO 2020 rules will force commercial ships to run on low-sulfur fuel, rather than on the stuff at the bottom of the barrel. (7) Higher fuel cost for maritime shipping companies. (8) Refiners scrambling to meet prospective demand. (9) Ford wants you to spend less time driving your car, while AT&T wants you to watch more HBO in your car.