Week in review (17-Apr-2015)

Daaaaaang!!!  We were having another great week of investing to build off of last week’s.  It was a boring but steady move upward—through Thursday the markets were up about 1% for the week.  And then Friday came along and the bottom fell out of everything, erasing the gains for the week.  The US markets took the worst of it, ending the week down 1.0%.  But all the markets were down about 0.5% or a little less.  So what ruined the party?

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Earnings, earnings, earnings:

As we mentioned last week, we have entered earnings season, and that is rightfully dominating the news.  By and large, it seems like things have been going well.  Several banks came in with strong earnings.  While the banking industry is the one everyone loves to hate, whether we like it or not, 2008 proved that a healthy banking industry is pretty critical to a healthy economy.  Commercial banks came beat expectations on the meat-and-potatoes business of holding money and lending money.  Investment banks like Goldman Sachs were pocketing nice profits from all the deal-making going on (which we discussed last week).

General industry seemed to have mixed results.  Oil companies like Schlumberger are feeling the pinch from low oil prices, softening their earnings and leading them to start more lay-offs.  Others like GE, despite reporting a loss, are showing that their industrial and manufacturing businesses are really strong.  Plus you had stories like Etsy’s IPO showing that growth and innovative business models are creating value.

Any earnings season is going to be mixed, but I view this one as largely positive.  Banks tend to be a bellwether for the economy at-large and they’re doing well.  Other companies are showing moderate growth that are the green shoots of an economy that is continuing to grow and emerge from a really long period of doldrums.

 

Inflation:

On Friday everything went to hell and one of the causes is that the CPI released March numbers that showed that inflation is starting to come back.  That by itself isn’t a bad thing, many argue that low levels of inflation are actually a good thing, so what’s the deal?

Remember that the Fed (it always comes back to the Fed) has been holding interest rates down because they haven’t observed any inflation.  I’ll write a whole blog on my thoughts on the Fed in a future post, but the short story is: once the Fed starts seeing inflation, they’re more likely to raise rates.  I think today was a reaction to the reality that rates are going to go up before too long.

 

Greece:

I promised I wouldn’t discuss the Greek epic, but what can I say?  Friday details of talks between Greece and its lenders started to come out showing that Greece really doesn’t have a plan to emerge from their debt problems.  Remember a few weeks back, that the ECB and IMF said they had a deal with the Greeks, contingent upon the Greek government putting a credible plan togetherThe market reacted to the news like it was catnip, and no one really seemed to ask themselves the question: Can Greece put together that credible plan?

It’s looking like they can’t.  This week Greece’s finance minister, Yanis Varoufakis, faced off with his lenders at a gathering in Washington DC.  Basically he blasted the previous Greek administration and the lenders for putting together a program that clearly hasn’t worked (he’s probably right on that).  He the claimed that it is Europe’s best interests to liberalize the lending terms for Greece (I’m not sure he’s right on this one).  Of course, it’s going to come down to if Europe is willing to allow Grexit.  Varoufakis is fearmongering, hoping they don’t call his bluff.

As always, this is a steaming mess.  I personally believe that the sooner the world accepts that Greece won’t pay its debts the better off we’ll all be.  Maybe it will be rocky for a little while, but then things will improve because this Greek drama won’t rattle the markets every other week.

 

Everyone have a great weekend.  Grandpa Lynx (Lil’ Fox and Mini Fox’s grandfather, my father-in-law) came in to town yesterday.  Lil’ Fox woke up at 5:30 this morning trying to go into Baba-Lynx’s room, so I had to put the kybosh on that until 7am.  We have a fun-filled weekend planed where Lil’ Fox will take Baba-Lynx to the local playground about 14 times.  I hope you have equally fun plans with your family and friends.  I’ll see you Monday when I post on “Managing your debt”.

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