I am Happy to See That January is Over.

I am happy to see January over.  It was a tough month, in my view one of the toughest months since 2008-09.  Was January the culmination of difficult 7 or 8 months for as I look backwards, April or May was the last time the “expected” had occurred.  Perhaps the Federal Reserve summed up recent events perfectly via the term “irrational developments.”

What will happen in February? A constant theme of these remarks is too expect the unexpected where not that change occurs but rather the velocity of change is frightening.

Some might comment there is a contradiction between the first and second paragraph.  I beg to differ as I have not experienced a period where irrational behavior has consistently occurred.

To make a brash analogy, generally speaking if someone hits you unexpectedly in the face, the expected outcome would to walk away, fight or fall down and cry.  No one would expect you to turn around kiss the person and offer to buy the person a beer.

I will argue the latter has consistently occurred the last 6-8 months.  HopefullyJanuary is/was the crescendo of this behavior.

It is against this backdrop why I believe the markets offer considerable opportunities, with perhaps the greatest opportunities in the smaller cap companies that will not be hurt via a rising dollar and the energy concerns.  I also think there are opportunities in the defense manufacturers given the growing anarchy in the world.  As noted the other day, foreign policy trends do not change quickly.

Conversely I think the bubble in the Treasury market is perhaps greater than the bubble that was present in the NASDAQ 15 years ago.

Today fourth quarter GDP is released.  Has the drop in oil prices impacted the economy greater than consensus is estimating?  The fourth quarter is expected to expand by 3.0%, personal consumption up 4.0% and the price index up 0.9%.

The other day I referenced a report from Mizuho Securities stating in instances that oil has plunged more than 50%, the S & P is up 29% 250 days later.  Wow!  This would be unexpected but not irrational given history.  These gains were the result of stronger than expected growth and earnings.

Last night the foreign markets were down.  London was down 0.51%, Paris down 0.37% and Frankfurt down 0.18%.  Japan was up 0.39% and Hang Sang down 0.36%.

The Dow should open moderately lower on profit concerns, concerns emanating from a rising dollar.  Oil is up today but according to Bloomberg, oil has dropped for greatest number of consecutive months in history, seven.  Crude fell 13% just in January.  Russia unexpectedly lowered its key interest rate which has further weakened the ruble.  The 10-year is up 9/32 to yield 1.72%.

 

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