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Frank Fahey: Market News for the Prepared Mind: 10.30-11.6.2017

October 30, 2017


“Chance favors the Prepared Mind.” – Louis Pasteur

“If I panic, everyone else panics.” – Kobe Bryant

“Any bull market covers a multitude of sins, so there may be all sorts of problems with the current system that we won’t see until the bear market comes.” – Ron Chernow

“The key to risk management is never putting yourself in a position where you cannot live to fight another day.” – Dick Fuld

“In November you begin to know how long the winter will be.” – Martha Gellhorn

“Panic is a natural human response to danger, but it’s one that severely compounds the risk.” – David Ignatius 

 

Tech stocks led the NASDAQ and S&P 500 to new highs. Euphoria has not accompanied these new highs. Global central bank support has resulted in an environment where every market pullback is a buying opportunity. I continue to be skeptical, wary and to this date, wrong. The markets seem to have a continuing ability to shake off and and all bad news. The major concerns are higher inflation and the appointment of a new Fed chief. Either could force central banks and the fed to take a more hawkish stance.

Here is an overview of the US market behavior last week and for 2017 YTD:
Index 27-Oct Change % Weekly 2017 YTD Volatility of Index
Dow Jones Industrials (DJIA) 23434.19 105.56 0.45% 18.58% 11.89% (VXD)
S&P 500 (SPX) 2581.07 5.86 0.23% 15.31% 9.80% (VIX)
NASDAQ 100 (NDX) 6213.47 104.65 1.71% 27.75% 14.30% (VXN)
Russell 2000 (RUT) 1508.32 (0.96) -0.06% 11.14% 13.49%(RVX)
S&P 100 (OEX) 1140.09 4.83 0.43% 14.99% 8.27%(VXO)
Dow Jones Transportation (TRAN) 4784.36 (82.44) -1.69% 18.09% NA
Crude Oil (CLz7) 54.19 2.12 4.07% 0.56% 25.18%(OVX)
Gold (GCZ7) 1274.60 (7.20) -0.56% 10.64% 11.48%(GVZ)
CBOE Volatility Index (VIX) 9.80 (0.17) -1.71% NA

Data Source: OptionVue8

The biggest news on the VIX front is the return of Russell Rhoads blogging at http://www.cboe.com/blogs about the VIX and associated volatility issues. The cash VIX was lower for the week, while the November through January monthly futures were higher. The behavior of the monthly futures and the CBOE longer term indexes (VXST, VXV, and VXMT) are showing near support for current volatility levels.

Here is an overview of last week for the VIX and related products:

Indexes Ticker 27-Oct 20-Oct Change % Change
CBOE Volatility Index VIX 9.80 9.97 -0.17 -1.71%
VIX November Future (11/15/2017) VXX7 11.425 11.325 0.100 0.88%
VIX December Future (12/20/2017) VXZ7 12.225 12.125 0.100 0.82%
VIX January Future (1/17/2018) VXZ7 13.325 13.275 0.050 0.38%
CBOE Short-term Volatility Index VXST 8.61 8.41 0.200 2.38%
CBOE 3 Month Volatility Index VXV 11.96 11.96 0.000 0.00%
CBOE Mid-term Volatility Index (6 month) VXMT 14.48 14.35 0.130 0.91%
VIX of VIX VVIX 92.78 90.53 2.250 2.49%
CBOE SKEW Index SKEW 135.70 148.81 (13.11) -8.81%
Long VIX ETP’s
ProShares Ultra VIX Short Term Futures ETF UVXY 15.62 15.26 0.36 2.36%
iPath S&P 500 VIX Short Term Futures ETN VXX 34.26 33.79 0.47 1.39%
ProShares VIX Short Term Futures ETF VIXY 28.43 28.05 0.38 1.35%
iPath S&P 500 VIX Mid-Term Futures ETN VXZ 19.25 19.23 0.02 0.10%
Inverse VIX ETP’s
ProShares Short VIX Short Term Future ETF SVXY 106.33 108.19 (1.86) -1.72%
Daily Inverse VIX Short Term ETN XIV 110.66 112.68 (2.02) -1.79%

Data Source: OptionVue8

The last few days of October and first few days of November include several important economic reports. The Fed will hold a regularly scheduled meeting on Tuesday and announce its policy decisions on Wednesday. It is “Employment Week.” A host of October employment reports will be released at the end of the week. These reports used to move the markets. In addition, we will get reports on the S&P CoreLogic Case-Shiller Home Price Index and U.S. Motor Vehicle sales.

Earnings announcements will be coming fast and furious this week. FANG components Facebook and Apple will announce quarterly results on Wednesday and Thursday respectively. Earnings announcements include: Mondelez Int’l, MasterCard, Cummins, ADM, Pfizer, Mosaic, Ecolab, MetLife, Facebook, Estee Lauder, Qualcomm, Prudential, Marathon Oil, Williams, Yum! Brands, CBS, ADP, HCP, Apple, Apache, Starbucks and Duke Energy. Confirm the date and time of any company’s earnings announcement before trading any earnings announcement strategy. The most accurate source of this information is the company’s investor relations website.

Advice to stimulate your imagination:

“Ideas come and go, stories stay.” – Nassim Nicholas Taleb

“What we learn from history is that people don’t learn from history.” – Warren Buffett 

“A point of view can be a dangerous luxury when submitted for insight and understanding.” – Marshall McLuhan

“It takes a man a long time to learn all the lessons of all his mistakes.” – Jesse Livermore

“Freedom is what you do with what’s been done to you.” – Jean-Paul Sartre

 

Monday, October 30: 

Economic: Personal Income and Outlays – 8:30, Dallas Fed Manufacturing Survey – 10:30, Farm Prices – 3:00.

International: Germany Retail Sales – 2:00AM, Germany Unemployment – 4:55AM, Eurozone Economic Sentiment – 6:00AM, Japan Industrial Production – 7:50PM.

Other: Bank of Japan Announcement.Earnings:

SYMBOL B/A 10/27 CLOSE SHORT INT% AVGVOL AVG MOVE SMA 10 50% FIB
ALSN AMC $40.97 1.79% 1,847,810 4.54% $39.08 $37.87
D AMC $80.41 3.28% 2,124,520 1.63% $79.63 $78.34
EIX AMC $78.73 1.31% 1,774,440 0.69% $78.78 $78.38
MAC AMC $57.05 2.96% 1,466,310 2.54% $57.20 $55.59
MDLZ AMC $40.91 1.27% 8,443,140 2.08% $41.10 $41.02
OHI AMC $31.32 7.12% 1,835,500 2.88% $31.82 $31.87
SBAC AMC $146.55 5.29% 1,499,030 1.99% $148.10 $146.59
SRE AMC $115.11 1.65% 1,080,200 1.10% $114.34 $113.52
SUM AMC $31.94 21.24% 1,211,320 3.24% $31.66 $31.62
UDR AMC $38.25 2.43% 1,236,460 1.67% $38.51 $38.36
VNO AMC $72.98 1.70% 1,077,800 2.37% $75.75 $76.36

 

Tuesday, October 31: 

Economic: Employment Cost Index – 8:30, Redbook – 8:55, S&P Corelogic Case-Shiller HPI – 9:00, Chicago PMI – 9:45, Consumer Confidence – 10:00, State Street Investor Confidence – 10:00.

International: Japan PMI Manufacturing Index – 8:30PM, China PMI Manufacturing Index – 9:00PM.

Other: FOMC Meeting Begins.

Earnings:

SYMBOL B/A 10/27 CLOSE SHORT INT% AVGVOL AVG MOVE SMA 10 50% FIB
ADM BMO $43.01 2.20% 2,842,280 5.45% $43.52 $43.37
AET BMO $178.60 4.77% 1,814,420 1.58% $159.66 $167.34
AMT BMO $138.45 1.24% 1,842,170 0.60% $0.00 $0.00
BP BMO $38.65 0.27% 4,509,400 2.63% $38.84 $38.39
CMI BMO $178.64 6.64% 1,198,170 4.90% $176.01 $173.05
ETN BMO $79.50 1.40% 2,559,190 3.30% $78.73 $77.78
FIS BMO $95.94 1.29% 1,220,310 1.97% $95.22 $94.25
HCA BMO $76.89 2.47% 2,405,130 1.14% $78.13 $76.47
INCY BMO $115.56 2.84% 1,561,860 2.59% $114.78 $113.06
K BMO $60.55 1.70% 2,733,810 3.05% $61.43 $62.49
LL BMO $35.55 37.81% 1,392,790 14.91% $34.94 $36.58
MA BMO $146.59 0.70% 3,124,460 2.13% $146.02 $143.10
OLN BMO $35.35 7.48% 1,884,530 5.40% $35.09 $35.14
PEG BMO $49.36 2.53% 2,589,390 1.97% $48.90 $47.45
PFE BMO $35.74 5.23% 17,085,000 1.67% $36.16 $35.98
SERV BMO $45.09 1.51% 1,228,080 6.05% $46.28 $46.38
SHOP BMO $104.11 5.12% 3,647,270 7.76% $100.31 $105.41
APC AMC $47.69 3.42% 4,985,230 1.44% $48.31 $48.45
CHRW AMC $79.59 15.37% 1,675,790 4.20% $77.97 $76.67
CXO AMC $130.12 6.67% 1,185,510 4.06% $132.25 $130.74
EA AMC $115.83 1.78% 2,499,160 1.09% $114.94 $115.40
EVHC AMC $43.27 5.96% 2,275,640 0.82% $42.84 $42.81
EXAS AMC $49.33 13.98% 1,571,150 13.57% $48.14 $47.28
OKE AMC $53.43 8.17% 3,016,200 1.86% $55.45 $54.95
VOYA AMC $40.21 1.85% 1,402,900 2.10% $40.00 $39.77

 

Wednesday, November 1: 

Economic: MBA Mortgage Applications – 7:00, ADP Employment Report = 8:15, Treasury Refunding Announcement – 8:30, PMI Manufacturing Index – 9:45, ISM Manufacturing Index – 10:00, Construction Spending – 10:00, , EIA Petroleum Status Report – 10:30

International Economic: No major announcements.

Other: FOMC Meeting Announcement – 2:00. 

Earnings:

SYMBOL B/A 10/27 CLOSE SHORT INT% AVGVOL AVG MOVE SMA 10 50% FIB
AGN BMO $176.33 1.48% 2,946,060 2.54% $189.38 $195.83
BG BMO $69.96 1.74% 1,014,400 9.98% $70.88 $70.59
COMM BMO $31.73 3.47% 1,700,820 8.08% $32.05 $32.38
CTSH BMO $74.58 1.23% 2,881,650 4.50% $74.34 $73.28
DVN BMO $34.91 3.81% 4,104,940 2.73% $35.13 $35.71
EAT BMO $31.12 11.42% 1,341,320 3.83% $31.68 $31.81
EL BMO $111.79 3.35% 2,168,340 4.90% $110.35 $109.25
HFC BMO $36.10 5.45% 2,854,370 3.79%3 $36.28 $35.30
ICPT BMO $59.32 28.85% 1,543,740 9.41% $64.72 $77.42
LITE BMO $61.65 19.18% 1,725,960 6.83% $58.37 $57.30
MD BMO $43.49 8.53% 1,282,090 6.74% $43.33 $43.33
NVO BMO $48.86 0.22% 1,991,450 8.52% $49.70 $49.15
PPL BMO $37.69 1.56% 2,926,890 0.68% $37.70 $38.08
SBGI BMO $31.40 17.93% 1,796,420 3.53% $30.55 $30.45
SO BMO $52.06 2.51% 4,572,820 1.59% $51.75 $50.44
SPR BMO $79.67 7.08% 1,081,600 7.86% $79.87 $79.07
TAP BMO $80.37 2.87% 1,441,160 2.19% $82.83 $82.63
TEL BMO $88.59 1.43% 1,122,650 2.23% $88.18 $85.17
TEX BMO $46.76 1.68% 1,250,040 2.77% $46.18 $44.81
ZBH BMO $121.00 3.44% 1,299,240 4.15% $120.94 $118.24
CAKE AMC $44.18 25.63% 1,365,400 6.04% $43.28 $42.44
CF AMC $37.45 7.57% 4,143,010 6.51% $36.99 $35.97
CLVS AMC $74.35 17.98% 1,593,120 4.87% $78.54 $79.12
CTRP AMC $46.60 7.99% 4,773,320 2.96% $50.81 $51.52
DXCM AMC $44.46 14.71% 2,029,600 8.07% $44.92 $56.53
EFX AMC $108.95 3.61% 3,786,560 3.35% $109.25 $104.86
ES AMC $62.24 2.38% 1,469,580 0.90% $61.96 $61.22
EXR AMC $78.70 2.61% 1,009,340 2.13% $81.38 $79.78
FB AMC $170.63 0.99% 15,285,100 2.35% $173.42 $169.15
FLS AMC $44.74 6.34% 1,398,270 3.88% $44.67 $43.55
GXP AMC $32.40 1.88% 1,788,370 0.71% $32.07 $31.20
JUNO AMC $43.53 18.87% 2,633,820 6.88% $43.52 $44.19
KHC AMC $77.30 2.50% 3,294,540 1.58% $77.21 $78.29
LBTYA AMC $30.99 1.16% 2,060,820 1.16% $31.76 $32.72
LBTYK AMC $30.00 1.43% 2,999,920 1.12% $30.77 $31.66
MET AMC $54.21 1.65% 5,238,120 2.55% $53.28 $52.14
OXY AMC $64.62 1.27% 3,542,010 2.84% $64.99 $64.24
PRU AMC $111.89 1.36% 1,798,980 3.22% $110.26 $108.41
PXD AMC $142.31 5.65% 2,129,160 4.59% $143.74 $147.19
QCOM AMC $53.80 1.49% 7,906,630 2.57% $52.94 $52.65
QRVO AMC $71.56 7.54% 1,077,590 1.68% $71.34 $70.55
SGMS AMC $44.00 27.20% 1,068,680 5.68% $43.71 $44.58
SYMC AMC $31.86 3.61% 6,188,580 3.56% $32.22 $32.56
TDOC AMC $31.75 28.16% 1,055,830 6.63% $33.13 $32.67
TSLA AMC $326.17 24.15% 5,785,630 5.70% $344.49 $350.01
WBMD AMC $66.48 15.85% 1,312,380 1.25% $66.46 $66.36
XPO AMC $69.14 18.94% 1,518,780 3.88% $67.01 $66.28
YELP AMC $45.00 15.66% 2,015,850 15.99% $44.02 $44.04

 

Thursday, November 2: 

Economic: Chain Store Sales, Challenger Job-Cut Report – 7:30, Weekly Jobless Claims – 8:30, Productivity and Costs – 8:30, , Bloomberg Consumer Comfort Index – 9:45, EIA Natural Gas Report – 10:30, Money Supply – 4:30.

International: Germany PMI Manufacturing Index – 455, Eurozone PMI Manufacturing Index – 5:00AM.

Earnings:

SYMBOL B/A 10/27 CLOSE SHORT INT% AVGVOL AVG MOVE SMA 10 50% FIB
ABC BMO $78.77 3.40% 1,711,590 6.75% $80.97 $81.64
ADP BMO $117.30 2.23% 4,309,180 5.96% $115.38 $112.07
ALL BMO $93.96 0.88% 2,029,120 3.17% $92.70 $92.14
ALR BMO $50.99 7.11% 1,523,300 3.13% $50.35 $49.39
AN BMO $47.77 10.80% 1,519,450 3.99% $45.41 $46.41
APA BMO $39.59 7.26% 3,683,130 5.06% $41.30 $42.92
BABA BMO $170.32 8.92% 18,040,300 2.68% $175.56 $175.62
BDX BMO $209.84 1.96% 1,134,670 0.80% $207.65 $203.12
BLL BMO $42.73 7.43% 2,088,440 3.61% $42.39 $41.84
CAB BMO $61.50 14.11% 1,276,250 2.80% $61.39 $56.73
CHD BMO $45.76 5.71% 1,421,300 4.15% $46.78 $47.30
CI BMO $198.75 1.04% 1,268,920 1.21% $190.91 $191.13
CNQ BMO $32.83 2.50% 1,812,820 3.92% $32.91 $33.30
DLPH BMO $99.07 2.23% 1,607,670 2.92% $97.74 $99.96
ENB BMO $37.96 1.47% 1,844,330 0.98% $39.83 $39.95
EXC BMO $39.88 2.65% 4,813,300 0.86% $39.71 $38.59
ICE BMO $65.61 1.18% 2,346,080 2.56% $66.96 $68.08
LNC BMO $76.99 1.78% 1,255,760 1.14% $75.64 $74.57
NWL BMO $40.40 18.39% 4,726,930 4.60% $41.12 $41.95
PCG BMO $56.74 1.05% 4,108,360 0.56% $56.77 $59.75
PWR BMO $37.83 5.46% 1,414,400 1.96% $37.52 $37.58
RL BMO $91.26 7.78% 1,268,510 8.16% $88.25 $88.05
SNY BMO $47.54 0.19% 1,080,140 1.73% $49.16 $48.94
TDC BMO $32.57 12.90% 1,453,800 8.35% $32.53 $33.03
TRGP BMO $40.69 13.66% 1,480,830 1.91% $43.72 $44.16
VMC BMO $123.01 2.42% 1,266,250 3.43% $119.94 $119.27
W BMO $63.83 38.03% 1,616,780 6.37% $67.31 $73.75
WRK BMO $60.47 2.20% 1,403,460 1.75% $60.06 $58.09
YUM BMO $75.87 2.18% 1,835,370 1.81% $75.80 $74.77
ZTS BMO $63.74 1.06% 2,120,240 5.09% $65.24 $64.56
AAPL AMC $157.41 0.78% 27,509,400 3.48% $157.64 $155.01
AIG AMC $64.85 1.25% 5,083,100 2.89% $64.42 $62.78
AKRX AMC $32.84 20.01% 2,371,840 2.55% $33.19 $32.77
ALNY AMC $114.49 10.50% 1,304,250 8.16% $117.60 $117.14
ATVI AMC $62.06 1.80% 5,799,050 3.45% $61.84 $62.66
CBS AMC $57.04 3.75% 3,163,470 1.96% $57.34 $58.48
CC AMC $56.61 4.75% 1,937,830 2.23% $56.44 $53.81
CRUS AMC $54.26 7.56% 1,023,520 6.86% $53.94 $52.94
ED AMC $85.50 5.16% 1,436,380 0.72% $84.47 $83.07
FLR AMC $42.69 5.41% 1,691,150 6.72% $42.70 $42.08
HLF AMC $71.23 36.18% 1,554,530 5.35% $74.89 $73.25
LNT AMC $43.38 1.91% 1,141,380 0.87% $43.46 $42.51
LYV AMC $42.26 4.47% 1,819,320 4.35% $42.47 $42.58
MNST AMC $56.75 1.69% 1,824,830 3.42% $56.38 $55.62
MOH AMC $65.53 18.08% 1,175,180 5.64% $63.85 $63.88
SBUX AMC $54.91 1.89% 10,265,100 3.01% $54.79 $54.90

 

Friday, November 3: 

Economic: October Employment Situation Report – 8:30, International Trade = 8:30, PMI Services Index – 9:45, Factory Orders – 10:00, ISM Non-Manufacturing Index – 10:00, Baker Hughes Rig Count

International: No major announcements.

Other: Minneapolis Federal Reserve Bank President Neel Kashkari to participate in moderated Q&A with Women in Housing and Finance, in Washington, with audience Q&A – 12:30PM.

Earnings:

SYMBOL B/A 10/27 CLOSE SHORT INT% AVGVOL AVG MOVE SMA 10 50% FIB
AEE BMO $61.38 2.39% 1,326,400 0.81% $61.21 $59.76
CBG BMO $39.59 2.55% 1,626,470 4.28% $39.67 $38.69
CNK BMO $36.78 3.63% 1,367,710 1.05% $35.95 $37.10
DUK BMO $87.36 3.00% 2,227,390 0.94% $87.49 $85.97
EOG BMO $96.92 2.91% 2,760,990 0.61% $96.71 $95.80
RLGY BMO $32.37 2.12% 1,307,490 3.25% $32.65 $33.24
XRAY BMO $61.37 3.62% 2,054,850 3.26% $60.42 $58.57

 

Monday, November 6: 

Economic: TD Ameritrade IMX – 12:30.

International: Germany Manufacturers’ Orders – 2:00AM.

Other: New York Federal Reserve Bank President William Dudley will speak about Lessons from the Financial Crisis at a luncheon event at the Economic Club of New York, with moderated Q&A, in New York – 12:30PM.

Earnings:

SYMBOL B/A 10/27 CLOSE SHORT INT% AVGVOL AVG MOVE SMA 10 50% FIB
CAH BMO $64.75 2.04% 2,233,600 2.05% $65.71 $66.59
CTLT BMO $42.58 5.54% 1,138,840 6.55% $42.40 $40.98
CVS BMO $73.31 1.36% 5,744,370 2.15% $74.36 $76.39
KORS BMO $49.76 6.69% 2,237,780 9.65% $49.20 $47.81
MYL BMO $38.57 5.23% 7,222,180 1.27% $38.40 $35.19
SYY BMO $54.86 4.27% 2,443,960 1.74% $54.76 $54.22
CAR AMC $41.29 51.48% 2,831,590 10.96% $41.20 $39.38
FANG AMC $100.88 5.30% 1,205,020 1.22% $101.47 $99.43
FMC AMC $93.14 8.70% 1,108,850 7.19% $94.06 $90.28
GDDY AMC $45.75 30.17% 1,442,080 3.93% $44.71 $44.31
KNX AMC $41.38 14.86% 2,260,040 3.43% $39.78 $39.94
LVLT AMC $52.85 1.52% 2,675,280 3.56% $53.49 $54.12
MCHP AMC $93.12 12.11% 1,808,790 3.13% $92.46 $90.92
PDCE AMC $46.25 10.91% 1,014,680 4.09% $47.40 $47.71
QGEN AMC $33.71 1.55% 1,201,430 2.45% $34.12 $33.78
RSPP AMC $32.00 12.01% 2,048,160 3.38% $33.13 $33.12
SWKS AMC $105.52 4.94% 1,500,290 2.40% $105.69 $103.26
TRIP AMC $37.75 20.21% 3,024,210 6.73% $39.47 $40.95
WTW AMC $44.63 71.96% 1,443,700 17.20% $45.96 $44.97
ZAYO AMC $35.75 3.31% 2,083,820 2.21% $35.63 $35.13

 

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Kevin O’Neill: They Think We’re All Full Of…

October 4, 2017


I hoped to get to this subject on the air this morning, but we ran out of time. It’s follow-up to Tuesday’s on-air discussion about the choices voters made last November.

Joan C. Williams, the Distinguished Professor of Law and Founding Director of the Center of WorkLife Law at the University of California’s Hastings College of the Law, wrote this Harvard Business Review article almost a year ago. Williams’ recently published book, White Working Class: Overcoming Class Cluelessness in America, expands on the topic.

Please take a few minutes to read the article before you continue.

Williams describes a point of view that is not typically represented on the Stocks and Jocks radio show. Keep in mind that the article was published days after the election, so the passages that describe feelings about Trump probably have changed over time. Nevertheless, I believe the overriding themes still apply.

I use the article in a management class. I don’t do political discussion, but I do think it’s important for prospective managers to understand the people who are most likely to be reporting to them in their first supervisor or manager jobs. Because most of the class is product of the working class, the students tend to agree with Williams’ descriptions based on first hand experience. In fact, they tell me that the distinction between white working class and all working class as it pertains to straight talk, political correctness, men’s roles, and resentment of professionals is mostly non-existent.

I’m posting the article today hoping to build an understanding about how people react to news whether it be North Korea, hurricane relief, the shooting spree in Las Vegas, or NFL protests. Williams writes near the end of the article, “But to write off WWC anger as nothing more than racism is intellectual comfort food, and it is dangerous.” The point is important, but I think it applies beyond racism. It applied just as easily to claims that the working class is anti-intellectual, sexist, and/or just plain stupid.

Races work side by side in the working class world more than they do in most professional settings. Races serve side by side in the military with a disproportionate number of people serving raised in working class homes. The Venn diagrams of what white, black, Asian, and Hispanic working class people believe and treasure overlap significantly. I think that’s really important to recognize as we dig in our ideological heels while discussing politics. It’s also important to recognize that most working class people think those of us who have advanced degrees and professional careers are all generally full of (poop) regardless of our political leanings.


Kevin O’Neill: Backfire

October 2, 2017


October 2nd, 2017

Disclaimer

The opinions expressed in this article are mine. They are not necessarily shared by other Stocks and Jocks hosts and contributors.

Definition

back·fire

verb

(of an engine) undergo a mistimed explosion in the cylinder or exhaust.

“a car backfired in the road”

(of a plan or action) rebound adversely on the originator; have the opposite effect to what was intended.

“overzealous publicity backfired on her”

Take a Knee Has Backfired

When Colin Kaepernick began the NFL’s anthem protest wave a little more than a year ago, he said:

“I am not going to stand up to show pride in a flag for a country that oppresses black people and people of color. To me, this is bigger than football and it would be selfish on my part to look the other way. There are bodies in the street and people getting paid leave and getting away with murder.”

One might disagree with his message. One might disagree with his method. However, there was no denying that the man had a purpose; and I believe he honestly believed in both his cause and his method.

Fast forward to October, 2017… As more NFL players have made Kaepernick’s protest into a movement that was growing even before President Trump fueled it with his comments at a September 22nd political rally, the purpose of the protest has been lost to a debate over honoring the flag and proper decorum when the anthem is played. Comparatively, discussion of police treatment of minorities is trivial.

We know NFL players are protesting, but who or what are they protesting? Is it Trump? Is it an expression of unity with Kaepernick? Is anyone discussing oppression of black people and people of color or bodies in the street, or is the conversation about the method of protest and whether the NFL should allow it? The original purpose of the protests has been lost.

The Sound

The sound of an engine backfiring is distinct, loud explosion. The backfire of NFL protests is equally distinct and loud. Yes, it’s the sound of booing when players take a knee for the anthem; but there is more. It’s also the louder than ever roar of the crowd when the flag is unfurled. It’s the sound of more people singing the anthem than ever before. How can the protesters counter that? They can’t. The subject has been changed.

The problem is that the NFL players chose a provocative act for their protest. That those who cherish the country and, therefore, its symbols took offense at the provocation was entirely predictable. It isn’t insensitive. It isn’t racist. It’s taking precisely the offense that the protest was intended to provoke.

The majority reaction should not have surprised anyone. The method of protest never was a method that would sway the majority. Many of the people who don’t understand why others are offended have the same reactions when their own favored institutions are attacked. Even when it’s deserved, dare to criticize their families, their alma maters, or their political affiliates. What reaction will you get?

The Big Mistake

Protest without action plan is shallow. Complaining without a solution is an unappealing personal trait. Have many players become involved outside of their anthem protests? Have they given their spare time to the cause? Have they engaged with law enforcement, city officials, civic leaders, and activists?

The football players are a bunch of amateurs in the protest biz. They have failed to anything other than create a more intense pregame ritual of patriotism.

The NFL hasn’t done better. The league has allowed itself to be neutered by failing to enforce its own policy. Was there a choice? Isn’t this a free speech issue?

Writing for the Society for Human Resources Management (SHRM), HR legal expert Shari Lau clarified the First Amendment issue.

No federal statute protects private employees who want to express their political opinions at work. The right to free speech under the First Amendment of the U.S. Constitution only guards against government censorship. So while public employers must be aware of their limitations, private companies have no such obligations under the amendment. Therefore, when Joe Employee says he has the right to free speech at work, you can confidently tell him otherwise.

Further, the NFL Operations Manual says the following.

The National Anthem must be played prior to every NFL game, and all players must be on the sideline for the National Anthem.

During the National Anthem, players on the field and bench area should stand at attention, face the flag, hold helmets in their left hand, and refrain from talking. The home team should ensure that the American flag is in good condition. It should be pointed out to players and coaches that we continue to be judged by the public in this area of respect for the flag and our country. Failure to be on the field by the start of the National Anthem may result in discipline, such as fines, suspensions, and/or the forfeiture of draft choice(s) for violations of the above, including first offenses.

Why is the NFL allowing the players to violate the code with impunity? Here is NFL spokesman Brian McCarthy’s absurd explanation. “It’s policy. It’s not a rule. I think where people are getting confused is, rules, that’s like holding or defensive pass interference, that’s a rule. This is policy.”

McCarthy is correct that policies and rules are different, but his reasoning is wrong… as in Management 101 wrong. Policies are high level statements of what an organization requires. Boards of Directors and/or the C-Suite specify policies which are commended to managers who make rules to support them. Policies are not suggestions. Policies guide the rules.

Regardless of that important distinction, a policy is worthless if the league can’t or won’t enforce it. A policy that nobody follows is a waste of paper and ink..

TheNBA

The NBA says it will enforce its policy, as it did when it suspended Mahmoud Abdul-Rauf in 1996. Abdul-Rauf said standing for the anthem was against his Islamic beliefs because the flag was a symbol of oppression and that the United States had a long history of tyranny.  Eventually the parties reached a compromise. Abdul-Rauf stood during the playing of the national anthem; but he closed his eyes, looked downward, and prayed.

But the league is not stopping at the hard line. In addition to enforcing its policy, the NBA will provide a forum for players to take a stance in different ways. Deputy Commissioner Mark Tatum issued a memo last week that stated:

  • The league office will determine how to deal with any possible instance in which a player, coach, or trainer does not stand for the anthem.
  • Individual teams “do not have the discretion to waive” the rule that players, coaches and staff stand for the anthem.
  • The league has the discretion to discipline players who violate the rule.
  • The league does not want teams independently disciplining players.
  • The league suggests that teams address the current political climate by having players and coaches give a joint pregame address at their first home games, a message of unity and how the team is committed to bringing the community together this season.
  • The league also suggests teams might prepare a video tribute or public service announcement featuring “team leadership speaking about the issues they care about.”

The commissioner’s office sent a separate letter to all teams outlining six ongoing NBA community initiatives. The letter encouraged leaders from each team to provide any further ideas on how the NBA can be a presence in communities and assist with issues in society.

Better still, the league and the players union are working together. Commissioner Adam Silver and the union’s Executive Director Michele Roberts have pledged their joint support for players who address issues that matter to them. Tatum’s memo does the same, suggesting several other ways teams can develop their own impactful community programs “including mentorship programs, community gatherings, using basketball to build bridges between segments of a community and inviting community leaders to speak to the teams.”

I predict that the NBA’s approach will have impact. It will not backfire.


Frank Fahey: Market News for the Prepared Mind: 9.18-9.25.2017

September 18, 2017


“Chance favors the Prepared Mind.” – Louis Pasteur

“If I panic, everyone else panics.” – Kobe Bryant

“Any bull market covers a multitude of sins, so there may be all sorts of problems with the current system that we won’t see until the bear market comes.” – Ron Chernow

“Remember, I’m neither a bear nor a bull, I’m an agnostic opportunist. I want to make money short and long-term. I want to find good situations and exploit them.” – Jim Cramer

“Panic is a natural human response to danger, but it’s one that severely compounds the risk.” – David Ignatius 

 

Investors were caught of guard last week. September is historically a very poor performing month. There have been litanies of problems: Hurricane Harvey, North Korea, Hurricane Irma and Bitcoin. What happened?

The Dow hit record highs four days in a row. The S&P 500 closed the week at another new record high – up 1.58% for the week. The other major indexes turned in equally stellar performances. The small-cap dominated Russell 2000 led the way with gains of 2.31%. The rally left the cognoscenti struggling for explanations.

Here is an overview of the US market behavior last week and for 2017 YTD:

Index 15-Sep Change % Weekly 2017 YTD Volatility of Index
Dow Jones Industrials (DJIA) 22268.34 470.55 2.16% 12.68% 9.84% (VXD)
S&P 500 (SPX) 2500.23 38.80 1.58% 11.70% 10.17% (VIX)
NASDAQ 100 (NDX) 5988.00 74.33 1.26% 23.12% 12.51% (VXN)
Russell 2000 (RUT) 1431.72 32.30 2.31% 5.50% 11.83%(RVX)
S&P 100 (OEX) 1105.11 18.13 1.67% 11.47% 7.80%(VXO)
Dow Jones Transportation (TRAN) 4603.58 42.71 0.94% 13.63% NA
Crude Oil (CLV7) 50.37 2.81 5.91% -6.53% 26.65%(OVX)
Gold (GCZ7) 1323.50 (27.70) -2.05% 14.89% 12.06 (GVZ)
CBOE Volatility Index (VIX) 10.17 (1.95) -16.09% NA

Data Source: OptionVue8 

The biggest news on the VIX front is the return of Russell Rhoads blogging at http://www.cboe.com/blogs about the VIX and associated volatility issues. Russell is also a terrific guest on Stocks & Jocks every Thursday morning (listen live)! Of special interest are his series of reports from the CBOE Risk Management Conference.

The monthly September VIX Futures contract goes off the board on the open Wednesday.

Here is an overview of last week for the VIX and related products:

Indexes Ticker 15-Sep 8-Sep Change % Change
CBOE Volatility Index VIX 10.170 12.125 -1.955 -16.12%
VIX September Future (9/20/2017) VXU7 11.125 13.275 (2.15) -16.20%
VIX October Future (10/18/2017) VXV7 12.925 14.325 (1.40) -9.77%
VIX November Future (11/15/2017) VXX7 14.175 14.875 (0.70) -4.71%
CBOE Short-term Volatility Index VXST 8.30 11.29 (2.99) -26.48%
CBOE 3 Month Volatility Index VXV 12.96 14.69 (1.73) -11.78%
CBOE Mid-term Volatility Index (6 month) VXMT 15.09 16.37 (1.28) -7.82%
VIX of VIX VVIX 90.63 100.12 (9.49) -9.48%
CBOE SKEW Index SKEW 144.54 135.39 9.15 6.76%
Long VIX ETP’s
ProShares Ultra VIX Short Term Futures ETF UVXY 24.69 31.83 (7.14) -22.43%
iPath S&P 500 VIX Short Term Futures ETN VXX 42.80 48.52 (5.72) -11.79%
ProShares VIX Short Term Futures ETF VIXY 35.57 40.26 (4.69) -11.65%
iPath S&P 500 VIX Mid-Term Futures ETN VXZ 21.38 22.47 (1.09) -4.85%
Inverse VIX ETP’s
ProShares Short VIX Short Term Future ETF SVXY 86.04 76.33 9.71 12.72%
Daily Inverse VIX Short Term ETN XIV 89.61 79.70 9.91 12.43%
Data Source: OptionVue8

This will be one of the most important weeks of the year when it comes to economic data. We are in the midst of a Central Bank bull market. The Federal Reserve holds its regularly scheduled meeting, and is expected to detail a timetable for reducing its balance sheet. We, also, get data on existing home sales and housing starts. The wild cards remain North Korea and the District of Columbia.

The god’s are conspiring against me. I will include my usual scans of earnings announcements next week. There are very few earnings announcements this week. The highlights include: Adobe Systems, Autozone, Fedex, Bed Bath and Beyond, Analogic, General Mills, Herman Miller, and CarMax. Confirm the date and time of any company’s earnings announcement before trading any earnings announcement strategy. The most accurate source of this information is the company’s investor relations website.

 

Advice to stimulate your imagination:

“Ideas come and go, stories stay.” – Nassim Nicholas Taleb

“There is no training, classroom or otherwise, that can prepare for trading the last third of a move, whether it’s the end of a bull market or end of a bear market.” – Paul Tudor Jones 

“A point of view can be a dangerous luxury when submitted for insight and understanding.” – Marshall McLuhan

“Don’t give me timing, give me time.” – Jesse Livermore

“Freedom is what you do with what’s been done to you.” – Jean-Paul Sartre 

 

Monday, September 18: 

Economic: Housing Market Index – 10:00.

International: Eurozone HICP – 5:00 AM.

Other:  Listen to Frank Fahey on “Stocks and Jocks” Listen Live

 

Tuesday, September 19: 

Economic: Housing Start – 8:30, Current Account – 8:30, Import and Export Prices – 8:30, Redbook – 8:55.

International: Japan Merchandise Trade – 7:50 PM.

Other: FOMC meeting begins.

 

Wednesday, September 20:

Economic: MBA Mortgage Applications – 7:00, Existing Homes Sales – 10:00, , EIA Petroleum Status Report – 10:30/

International Economic: Germany –PPI – 2:00 AM, Great Britain Retail Sales – 4:30 AM.

Other: FOMC Forecasts – 2:00 PM, Fed Chair Press Conference – 2:30 PM. September VIX Futures contract (VXU7) goes off the board on the open Wednesday.

 

Thursday, September 21: 

Economic: Weekly Jobless Claims – 8:30, Philadelphia Fed Business Outlook Survey – 8:30, FHFA House Price Index – 9:00, Bloomberg Consumer Comfort Index – 9:45, Leading Indicators – 10:00, EIA Natural Gas Report – 10:30, Money Supply – 4:30.

International: No major announcements.

 

Friday, September 22:

Economic: Retail Sales – 8:30, Empire State Manufacturing Survey – 8:30, Industrial Production – 9:15, Business Inventories – 10:–, Consumer Sentiment – 10:00, Baker Hughes Rig Count – 1:00.

International: France GDP = 2:45 AM, France PMI Composite Flash – 3:00 AM, Germany PMI Composite Flash – 3:30 AM, Eurozone PMI Composite Flash – 4:00 AM.

Other: San Francisco Federal Reserve Bank President John Williams to speak at the Swiss National Bank Research Conference 2017 – Monetary Policy Design, Conduct and Effects in Zurich, Switzerland, with media Q&A – 6:00 AM, Kansas City Federal Reserve Bank President Esther George to deliver the keynote at the “Global Oil Supply & Demand: Prospects for Greater Balance” Conference in Oklahoma City, with audience Q&A – 9:30 AM.

 

Monday, September 25:

Economic: Chicago Fed National Activity Index – 8:30, Dallas Fed Manufacturing Survey – 10:30.

International: No major announcements.

Other: New York Federal Reserve Bank President William Dudley will speak about workforce development at Onondaga Community College in Syracuse, New York, with audience Q&A – 8:30 AM, Chicago Federal Reserve Bank President Charles Evans to speak about current economic conditions or monetary policy at the Economic of Grand Rapids Luncheon Meeting, with audience and media Q&A, in Grand Rapids, Michigan – 12:40PM, Minneapolis Federal Reserve Bank President Neel Kashkari to participate in Eye of the Hawk Town Hall Event in Grand Forks, North Dakota, with audience Q&A. – 6:30PM.

 

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Hal Snarr: Will the cocktails the policy mixologists keep serving result in the nastiest economic hangover ever?

September 13, 2017


When the economy begins to sink into recession, politicians, economists, policy wonks, and bureaucrats at the Federal Reserve (the Fed) start serving up cocktails of fiscal and monetary stimulus. Although history has shown that the cocktails that these mixologists concoct ultimately gives us a nasty economic hangover, it seems that they have not learned this lesson.

The graph below shows how inflationary monetary policy affects the Case-Shiller Home Price Index. In this diagram, quarterly home prices are plotted versus the M2 money stock from just over two years earlier. Since both variables are in log-scale, the red line in this graph implies that after the Fed raises the growth rate of M2 by 1%, the home prices rise by around 0.367%, nine quarters later. Since the average quarter-to-quarter change in the M2 growth rate is about 16% (this was the case between 1995 and 2004), the line it the graph implies that raising M2’s growth rate by 16% per quarter causes the growth in home prices to increase by 6% per quarter.

The compounding effect of a 16%-quarter-to-quarter rise in M2 has a substantial effect on home prices. For example, suppose the M2 growth rate is 2% (M2 growth rate was 1.7% in the third quarter of 1995) at a time when the Fed decides to set interest rates low for an extended period of time. After 12 consecutive quarters of compounding, the quarter-to-quarter M2 growth rate would accelerate up to 10% (the M2 growth rate was 10.2% in the second quarter of 1998). Further, suppose that the quarter-to-quarter home price growth rate is 12% nine quarters prior to the Fed commencing its inflation (the average growth rate in the home price index was 12% from 1997 to 2007). With home prices accelerating at 6% per quarter, the quarterly growth rate in home prices would reach 119% after 12 consecutive quarters of M2 growing at 16% per quarter.

The acceleration in an asset’s price is referred to as an asset bubble. These are popped after the Fed pokes bubbles with restrictive monetary policy. Poking asset bubbles usually pushes the economy into a recession. This seems obvious in the graph below. It shows that prior to every recession since the early 1980s, a rapid rise in the federal funds rate has resulted in a recession a few months later.

The graphs below illustrate how restrictive monetary policy slows economic growth. In these diagrams, quarterly economic growth rates are plotted versus the quarterly federal funds rate from the previous year. Since both variables are in log-scale, the red lines in these graphs imply that after the Fed raises the federal funds rate by 1%, the economic growth rate declines by 0.4% (0.37% for the earlier period and 0.46% for the latter period). Since the Fed’s average quarter-to-quarter adjustment of the federal funds is 23% (this was the case between 2009 and 2017), the two charts imply economic growth declines by 10% per quarter after the federal funds rate is raised by 23% from the previous quarter.

The compounding effect of a 23%-quarter-to-quarter increase in the federal funds rate is substantial. For example, suppose the Fed wants to normalize rates after it had set its target at 1% for an extended period to push economic growth back up to 3%. Further, suppose that 4.25% is considered “normal” for the federal funds rate. To raise the fed funds rate from 1% to 4.25%, the Fed has to boost its target by 23% a quarter for eight consecutive quarters. Doing this dampens economic growth by around 10% per quarter. After the dust settles and negative compounding kicks in over eight consecutive quarters, the economic growth slips to 1.43%, two years after it had recovered to 3%.

The chart below plots the average annual federal funds rate over time. It suggests that the monetary policy mixologists at the Fed have failed to learn the lesson that its policies cause the business cycle. The first part of this lesson, call it Lesson 1, is: Economic expansions, the white areas in the graph, begin after the Fed pushes the price of credit too low for too long. The second lesson, Lesson 2, is: Economic recessions, the shaded vertical bars in the graph, begin after the Fed pushes the price of credit well above the natural rate of interest.

Is it comforting that the tail end of the above graph, from 2009 and on, appears to show that the Fed has learned Lesson 2? The graph shows that the Fed has slowly pushed the federal funds rate from near zero to around 1 percent in the nine years following the 2008 financial crisis. Keeping the price of credit near zero for such a long time seems to show that the Fed has finally learned that normalizing interest rates from a very low rate triggers recession.

On the other hand, the right tail of this graph also suggests that the Fed has not learned Lesson 1. The last time it kept interest rates at around 1% for a few years resulted in the longest recession since the Fed was given the keys to the economy. Since 2008, the Fed has kept interest rates at an even lower level for nine years and counting. If Austrian Business Cycle Theory is correct, then the historic monetary stimulus party of the last nine years may trigger the most painful economic hangover ever.

 

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