Noise vs. News

By Jeff Kelly on September 27, 2019

Noise vs. news. In our world we have a lot of noise presented as news. We are certainly going to see a lot of noise in the coming days, weeks and months. There will also be a lot of news. Trying to sort out what is one and what is the other will be daunting. For us as market participants, we want to understand how all of the coming noise and news are going to impact our investments. I see several things as more likely over the coming weeks as a result of the impeachment process begun this week.

• The President may push through some kind of a deal with China sooner than many believed possible. It may be only an interim deal, but any progress is likely a market positive.
• The ratification of the trade deal with Mexico and Canada now seems likely to be put off into at least next year.
• The potential for a Geopolitical event increases as it’s perceived we’ve taken our eye off the ball.
• The President is probably less likely to pursue further tariffs against the European Union while this process plays out. This is also market positive.

It seems counter-intuitive, but the stock market bottomed in 1998 when the House of Representatives voted for the impeachment inquiry into President Clinton. The news was important, the noise leading up to the vote wasn’t. It also signified a resolution was on its way. The much bigger concern now is the performance of the economy and the reluctance of the Federal Reserve to see the slow down.

Given how the markets have taken this week’s news, a combination of a more favorable Federal Reserve and some reduction in the trade war rhetoric could lead us to better data. This combined with the positive seasonal factors kicking in over the next couple weeks could help to end the year higher.

Charts From The Week Past

The two charts below show the year over year change in U.S. Durable Goods and Capital Goods orders.

Not exactly sunshine and light.

Sources: Bloomberg, NBER, Census Bureau, Hedgeye

Sources: Bloomberg, NBER, Census Bureau, Hedgeye

US Real GDP growth looks lower.

Sources: Oxford Economics

One source of positive economic data has been the increase in new home sales.

Interest rate decreases have given this a big boost.

Source: Macrobond

Other positives this week were the Chicago Fed numbers and the Markit PMI for the U.S.

The conference board consumer numbers were poor.

Source: Bloomberg

“U.S. based companies announced 159 CEO changes in August, 28% higher than the 124 CEO exits in July and the most ever in a month, according to business and executive coaching firm Challenger, Gray & Christmas.”

Sources: Challenger, Gray & Christmas, CNBC

Insider selling is at a two-decade high.

Along with CEO departures and CEO confidence below, this might be telling us a story.

Sources: Smart Insider, FT

U.S. CEO confidence and stock prices going in opposite directions.

Sources: Chief Executive Magazine, Bloomberg, Crescat Capital LLC

U.S. construction spending and stock prices have usually traded together, until recently.

Sources: Refinitiv, Datastream/Stock Board Asset

Services are a huge part of the world economy.

Source: How Much

The Conference Board Consumer Expectations is at lows, and the chart is ugly.

Sources: Daily Shot, Conference Board

Profit margins are contracting, and wages headed higher.

This is good for workers and tough on profits.

Source: JP Morgan

The amount of Corporate Debt has exploded higher while the spread on that debt is at multi year lows. 

Sources: Federal Reserve, BEA, BBG Barclays Corp High Yield minus 10yr Tsy Yield

Value is looking like it can begin a long-awaited comeback vs. growth.

It’s a long way to go but it looks like something has started.

Source: BofA Merrill Lynch, US Equity & Quant Strategy

Eurozone manufacturing Purchasing Managers Index continues to contract. 

SourceS: IHS Markit, @FactSet

How the PMI contracting has looked vs. Eurozone GDP.

Sources: IHS Markit, Eurostat

Trade volumes are down significantly.

Is this really a good thing? 

Sources: Macrobond, Nordea

Blame climate change, bad luck or whatever else you want, natural disasters have cost a lot more over the past 10 years. 

Sources: Munich Reinsurance Co., Geo Risks Research, NatCatService

Gotta love the NY post-obituary for Bill de Blasio’s presidential campaign.

A bad Mayor, a bad candidate and a great obit!

Source: NY Post

There is always something to be afraid of according to the media. 

Source: Time, The Atlantic

Having said “calm down” to my wife exactly once, I confirm this is true.

Source: Truck Yard

Weekend Homework

Patrick O’Shaughnessy’s podcast, Invest Like the Best, Bill Gurley – Direct Listing vs. IPO – addresses the question of what’s the best way to IPO a company. This is great podcast. It unpacks yet another reason the traditional investment bank is a relic headed for extinction. Peloton went public yesterday. The stock priced at 29, opened for trading at 27 and closed at 25.76. The current pricing mechanism is poorly conceived and needs to be changed.

The Ride of A Lifetime – Robert Iger became CEO of The Walt Disney Company in 2005, during a difficult time. Competition was more intense than ever, and technology was changing faster than at any time in the company’s history. His vision came down to three clear ideas: Recommit to the concept that quality matters, embrace technology instead of fighting it, and think bigger—think global—and turn Disney into a stronger brand in international markets. Twelve years later, Disney is the largest, most respected media company in the world, counting Pixar, Marvel, Lucasfilm, and 21st Century Fox among its properties. Its value is nearly five times what it was when Iger took over, and he is recognized as one of the most innovative and successful CEOs of our era.

I really liked this book. It’s a great story about persistence and vision. I highly recommend it.

I’m sure we’ll see a ton of news on the events of the day before Monday. Ignore the noise and spend some quality time outside. Enjoy family and friends. Have a terrific weekend. Tomorrow isn’t promised to any of us.