Pool Dancing

You can have your Usain Bolts, Michael Phelpses and Gabby Douglases; we prefer the anonymous practitioners of synchronized swimming, an athletic art that rivals the music of the spheres for precision and elegance – kinda like the sporting life on this side of the Atlantic.  Not.  Equity prices rose and bonds fell, sending the discordant message that economic growth and rising inflation lies ahead.

Considering the fiscal cliff the U.S. is hurtling toward, financial markets are either blissfully optimistic or whistling past the graveyard.  The Dow Jones Industrial Average gained 0.32% Friday and is up 8.9% so far in the second half of the year.  Meanwhile, the yield on the 10-year U.S. Treasury note has risen 20 basis points since June 1 to 1.65%.

The action came against a skeletal backdrop.  Productivity in the second quarter was reported to have risen 1.6% after falling 0.5% in the first quarter, when hiring was more robust.  The cruelest irony of the soft jobs market is that rising output per worker has meant less pressure for firms to add workers.

Wholesale inventories declined 0.2% in July, signaling either increasing demand or business pessimism – take your pick.  And the federal budget went $70 billion further in the red last month versus a $60 billion deficit in June.

The most encouraging news was the surprising drop in initial jobless claims to 361,000 versus an expectation of 370,000.  Our colleague Rich Bieglmeier was spot on with his call on this high-frequency series.

There will be stronger hooks to hang a hat on this week.  Tuesday brings the biggest number, retail sales for July.  Recall that last month’s report of a 0.5% decline in June kindled fresh speculation that the economy was tipping over and the Federal Reserve would be forced to act.  Economists generally expect a 0.2% increase in sales and 0.3% increase excluding automobiles.

The producer price index for July, also on Tuesday, is seen rising a benign 0.2% including and excluding food and fuel prices.  The consumer price index, to be released Wednesday is seen rising a similar amount.  Also Wednesday, the Empire State Index of August business activity in New York, industrial production in July and the homebuilders index are slated for release.

Also on tap are jobless claims, housing starts and the Philadelphia Fed’s survey on Thursday.

On the earnings front, big retailers are in the spotlight.  On tap to report quarterly results are Home Depot, Wal-Mart, Target and Sears.  The results could be key to setting the tone for the week.

This week, we inaugurate our Houdini Award with a nod to Goldman Sachs for escaping criminal prosecution for touting securities it was betting against, proving once again it’s better to be right and lucky.

And our Laurel Wreath goes to Shakespeare’s “scepter’d isle,” for hosting all the Bolts, Phelpses, Douglases and synchronized swimmers while delighting our teenage daughter with a closing ceremony performance of English boy band One Direction.

Meanwhile, U.S. investors prepare for the post-Olympics fiscal cliff-diving competition in 2013.  Good luck.

Rescue Me

Lumberjacks yelled TIMBERRR!  Golfers bellowed FORE! Markets wailed LEMMEE OUTA HERE!  Yep, last week’s reports from the Institute for Supply Management and the Bureau of Labor Statistics provided scary bookends for the mounting body of evidence the U.S. economy is rolling over.  But are equity prices anticipating rescue?

Though the major stock indices went south Friday, they remain higher than the close on June 1, when the May payrolls report ushered in the specter of recession.  The S&P 500 closed Friday at 1,354.68, down 124 points on the day and off 0.8% for the week, but up 6.0% since June 1. Similarly, the Dow Jones Industrial Average, also down 0.8% on the week, is up 5.4% since June 1.  And the NASDAQ Composite, which managed a gain of 0.1% for the week, is up 6.9% since June 1.  The market’s performance leads us to believe sentiment still clings to the expectation that policy levers will be used to keep the motor running. 

Pessimists sing along with Diana Ross and the Supremes that  “… there ain’t nothin’ I can do about it.”  Fiscal policy is all but sidelined by Washington gridlock in this election year, and some central bankers are dogged by the uneasy sense that more action is futile in an economy caught in a liquidity trap.

But Federal Reserve Chairman Ben Bernanke has rejected the notion the Fed has no arrows left in its quiver and has pledged the Fed is ready to act if necessary.  The upshot, we believe, is that QE 3 is inevitable.  We think another round of quantitative easing, that is, printing money by purchasing financial assets from commercial banks, will be launched at the Federal Open Market Committee’s next meeting in August.  The minutes from the June FOMC meeting will be parsed when they are released on Wednesday.  The policy makers extended “Operation Twist” at that meeting.

The argument for further Fed action got support last week from news that the ISM’s diffusion index of manufacturing activity in the U.S. slumped into contraction territory for the first time in three years, falling to 49.7% in June from 53.5% in May.  The production and employment sub-indexes were up, but a steep drop in new orders was the canary in the coal mine.

And the notion of an incipient downturn grew stronger with Friday’s news that nonfarm payrolls grew a paltry 80,000 in June, below expectations that were raised when ADP said Thursday that its survey of private sector employment showed a gain of 176,000.  The unemployment rate was unchanged at 8.2%.

Abroad, the misery continued as Eurostat reported the unemployment rate in the 17-nation euro zone rose to a record 11.1% in May from 11% the previous month.  Spain's unemployment rate was the highest in the euro zone at 24.6%, while Austria had the lowest jobless rate at 4.1%.

Next week, the producer price index and the University of Michigan consumer sentiment survey will be released Friday.  For now, though, it’s up to earnings season to set the tone.

The Week That Was and the One to Come

Oh what a week it was for relationship building.  Chief Justice Roberts and enough Supremes stopped in the name of love from jilting Obamacare, the European Union got less unperfect and Miss Data wasn’t all that into us but friendly enough.  Mr. Market responded to it all with outsized gains on the last trading day of the quarter.

Ahead, of course, is the June jobs report to be released at the end of a four-day work week.  The May report showed a disappointing 69,000 additions to nonfarm payrolls, so the June statistics will be looked at for trend confirmation or reversal and the impact on monetary policy makers.    

But let’s look at what last week told us.

SCOTUS STOCKS

Shares of hospital companies predictably shot higher because the Supreme Court’s 5-4 decision to preserve the Affordable Care Act largely intact means care providers will have more paying customers.  Insurers sagged because the Act imposes restrictions that could hurt profits. 
Despite the predictable Tea Party exasperation, we suspect corporate America was relieved that one cloud of uncertainty was gone.

A MORE PERFECT (EUROPEAN) UNION

The stock market took great pleasure in the outcome of the EU summit in Brussels.  What that outcome will lead to, however, is harder to figure out.  No matter.  Mr. Market has a story and he’s sticking to it – for now. 

As best we can tell, the EU decided to decide about recapitalizing banks and creating a pan Eurozone banking regulator, taking the first step toward a real fiscal union that would issue Eurobonds backed by everybody, including that old killjoy Germany and the prodigal sons of the south.

THE WEEKLY DATA DATE

We think the most worrisome indicators were two releases from Chicago, the city that works, the poet said.

The little noticed Chicago Fed’s national activity index reached the lowest level in a year, dropping to a three-month average of -0.34 in May from -0.13 in April. The one-month index dropped to -0.45 in May from +0.08 in April. The Chicago Fed asserts that below -0.7 on the three-month average indicates a recession has likely begun.

The much more noticed Chicago Purchasing Managers Index stayed in expansion territory at 52.9% in May vs. 52.7% in April.  But here’s what caught our attention:  New orders and order backlogs were a negative and inventories rose.  That’s not a recipe for growth.

Meanwhile, from Washington we learned that personal income increased 0.2% in May, largely on investment gains.  Personal consumption expenditures, however, were flat vs. the prior month.
Paradoxically, the brightest star in the sky continues to be housing, the keystone of sustained expansion.  The Case-Shiller price index rose 1.3% in May.

THE WEEK TO COME

As noted, the big dog will be the June employment report on Friday.  Economists are looking for about a 100,000 gain in payrolls and unchanged unemployment rate of 8.2%.  ADP will preview the Labor Department’s number with the release of its private sector payroll tally on Thursday.

If the jobs numbers come in as weak as May’s, expect talk of another round of quantitative easing by the Fed.  Ben Bernanke said the Fed was ready to act if the economy required it.
Also on tap are the ISM Purchasing Managers’ Index for manufacturing for June and construction spending for May on Monday.  Factory orders for May is out Tuesday.

The U.S. shuts down Wednesday to celebrate its independence.   Happy Fourth.

The Rock Market Decoded

Imperfection being the constant of the human condition, equity valuations are always undershooting or overshooting, kind of like our putting stroke.  This condemns investors to watching our old pal Sisyphus push the rock uphill only to see it roll down again.  This is what economists, lyrical souls that they are, call “reversion to the mean.”

So, whether pondering the futility of our golf game or the arc of stock prices, one asks: “Where is that damn rock headed?”

To answer this, we are faced with another conundrum.  It can be said that equity valuations are predictors of corporate profitability, which, in the aggregate, depends on economic growth.  Those valuations should adjust as evidence accrues one way or the other.  This is what finance professors, ever the blithe spirits, call the “discounted cash flow or dividend discount model.”

But, as Mitt Romney was laughed at for averring, corporations are people.  If they depend on economic growth for wealth creation, they must – like each butcher, baker and candlestick maker who makes up the economy – be doing the growing themselves.

Or, in the words of another presidential candidate, the sage possum Pogo of yesteryear’s funny papers, “We have met the enemy and he is us.”

Which leads us to yet another riddle (Bear with us; fearless predictions will be forthcoming).  If we assume the market never gets it right, our task is to divine in which direction the rock is undershooting or overshooting.  This is what Wall Street wags mean when they say, “Nobody rings a bell at the top.”

We find it our task, then, to stand athwart the midpoint of 2012 and judge the direction of economic growth and its doppelganger, the rock on the hillside.  As always, the evidence is inconclusive, but try we must and, again like Sisyphus and our erratic putting, take pleasure in the effort if not its result.

First, let’s put the concerns of this vale of tears into four buckets in order of significance:

The Old World: Europe is falling into recession.  Greece is a mess.  Spanish unemployment is 24%. The break-up of the Eurozone appears imminent.

The New World: U.S. real GDP growth slowed to a 1.9% annual rate in the first quarter.  Jobs growth has plummeted from 200,000-plus per month in the winter to just 69,000 in May.  The “fiscal cliff” of 2013 looms.

The Orient: China’s gallop has slowed to what for it is a trot, with GDP growth at “just” 8% or so.

The Golf Course: Can we build a repeatable swing?

Next, let’s parse these concerns and spy which way the rock will rotate.

The Old World: Germany, already caving to the growth advocates, will accommodate them further.  The European Central Bank will cooperate.  Italy’s technocratic compromise, though far from the best of all worlds, will be copied.

The New World:  Romney could very well be president and inherit a recovering economy (the very one he is running against, reminiscent of Bill Clinton’s good fortune in 1992).  If Europe can muddle through (see above) expect the rock to signal economic growth.  Whoever is elected, we can’t believe politicians will be so thickheaded as to let sequestration and tax hikes to kick in January 1.

The Orient:  China may be the model for the rest of the policy makers in the civilized world.  With inflation slowing, the authorities have plenty of room to address slumping growth.  The central bank recently cut interest rates for the first time since 2008, and the government is looking to ramp up public investment projects.

The Golf Course:  Head down, eye on the ball, turn in a barrel, all without thinking about it.

Our conclusion:  Buy the dips and take one more club than your ego tells you.  Sisyphus would do no less.

Jobs Market Goes to the Movies

Payrolls grew in April, so what’s to grouse about?  Edward G. Robinson’s reply in Key Largo to Humphrey Bogart’s observation comes to mind.  “Yeah, that’s it! More! That’s right. I want more.”

The Bureau of Labor Statistics reported that 115,000 jobs were created last month, below the 160,000 or so economists were expecting.  Prior months were revised upward, though.  February job growth was pegged at 259,000, up from the previous 240,000 estimate, and March payrolls are now seen as having risen 154,000 vs. the 120,000 gain previously reported.

The average work week was unchanged at 34.5 hours in April. The manufacturing workweek edged up by 0.1 hour to 40.8 hours, and factory overtime rose by 0.1 hour to 3.4 hours. The average workweek for production and nonsupervisory employees was unchanged at 33.8 hours.

In April, average hourly earnings for all employees on private nonfarm payrolls rose by 1 cent to $23.38. Over the past 12 months, average hourly earnings have increased by 1.8 percent.  In April, average hourly earnings of private-sector production and nonsupervisory employees rose by 3 cents to $19.72.

The unemployment rate dipped slightly to 8.1% from 8.2%, largely because participation in the labor market shrank.

BLS data in all their glory can be found at http://www.bls.gov/news.release/empsit.nr0.htm.

This tepid growth in jobs and stagnation in wages suggests the economy remained aloft in the first month of the second quarter, though its air speed drifted to levels that should cause concern in the cockpit.

Perhaps the warm winter skewed earlier figures abnormally higher and economic growth is settling back to a more realistic level.  Perhaps the specter of the unraveling of that great fossil museum known as Europe weighs on international corporations’ animal spirits.  And perhaps the sleeping housing construction sector is a cork still lodged in the champagne bottle.

Whatever the cause, expect sideways action in the stock and bond markets for the foreseeable future.  With most of the impetus from positive first-quarter earnings surprises now spent, international events (particularly elections in France and Greece) could take center stage in the investment melodrama.

For the faint of heart (and our ticker is none too aroused right now), we nominate dividend payers such as AT&T (T) and Philip Morris (MO).  Americans may not be working as much as they would like, but they’re not going to give up cell phones or smoking.  

Keeping Score

We shot a 97 on a par-64 municipal track this week. Like Mark Twain’s assessment of Wagner, It was better than it sounds. Really.

In fact, we cut 10 strokes off that in a later round – the first time we have broken 90 – by somehow eliminating enough three-, four- and, yes, even five-putts. Mirabile dictu! It's true! Drive for show and putt for dough.

Likewise, the U.S. economy's game won't be mistaken for one of Bubba Watson's Homeric drives, but the advance estimate of first-quarter gross domestic product showed that efficient work by the 14^th club in the bag kept e pluribus unum in the hunt.

The Commerce Department reported Thursday that real GDP advanced at a seasonally adjusted annual rate of 2.2% in the first three months of 2012, down from a 3.0% rate in the fourth quarter of 2011. Business investment and inventories were the big subtracting factors. But the big dog, the consumer, overcame those drags. Final consumption charged ahead at a 2.9% rate, adding two points to growth, up from 2.1% in the fourth quarter. It was the biggest contribution to expansion since the final months of 2010.

In all, the data buttressed our view that the U.S. has reached escape velocity and won't veer into a double-dip recession, like Europe appears to be doing. Indeed, the U.S. is once again the hope of the world. The American consumer is crucial to Europe and Asia, lands that depend on America's appetite for goods ranging from German cars to Chinese T-shirts. The increase in consumption should also translate into more investment and inventory building on these shores in the months to come.

The stock market responded, shrugging off the headline number, helped, obviously, by sterling earnings reports from Apple and Ford. Fully 71% of companies comprising the S&P 500 that have so far reported first-quarter results beat analysts' mean estimates, according to Bloomberg News.

Barring unforecastable cataclysms, we expect the rally to continue. The S&P 500 is trading at a trailing 12-months price-to-earnings ratio of about 16, compared with a historical mean of about 15, according to the Wall Street Journal. We expect the “P” to grow as the “E” keeps swelling in a growing economy. As in our historic breaching of the 90 threshold, momentum is serious scorecard medicine.

Apocalypse (Not) Now

Dare we say it? Those “green shoots” (a false spring in 2009) appear to be sprouting again in the United States, while foreign fields remain fallow. We argue that this dichotomy is seed corn for global economic expansion that can be wrecked only by the four horsemen of the Apocalypse – war, famine, pestilence, death, the latter of which comes to all of us in the long run, as Keynes famously said. We cannot reasonably forecast the other three, so we will stipulate, for the sake of our analysis, they will remain sidelined. This premise is, of course, a bit of a stretch given the apocalyptic tenor of the times, but assume it we must if we are to proceed down this primrose path.

Our first stop is the land of e pluribus unum. Times being what they were, Americans took the jobs, some 200,000 of them a month for a while, according to the Bureau of Labor Statistics. But no, from out of nowhere (as that famous economist Howard Cosell used to intone), job growth slipped in March – a late frost that threatened to wither those ephemeral seedlings seen sprouting. Another month of lackluster job growth could prove fatal to the outlook for the American spring, particularly if hourly wages remain stagnant.

We remain sanguine, though. For one, oil prices have yet to choke and they have likely peaked. We don’t expect one of our four horsemen, war with Iran, to ride again for some time, and the latest American Petroleum Institute data show inventories on the rise. What’s more, economic growth, though far from boiling, should maintain escape velocity with the latest trade data forcing economists to up their forecasts for first quarter expansion toward the 3% annual rate that offers enough momentum to prevent a stall.

No, the US is probably OK until January, when across-the-board federal spending cuts are slated to kick in. Far be it from us to forecast political outcomes, but it’s hard to believe there won’t be some dickering to soften the fiscal blow no matter who is President or which party controls Congress.

Surely what matters now lies elsewhere in the world, specifically the European Union (our pestilential horseman) and the People’s Republic of China (saddling the famine entry). The former is the biggest worry. Contagion is … well, contagious. Recall, the US financial mess that spread abroad and so artfully ameliorated by Bernanke and company. Expect further selloffs in US equities if Spain’s bond auction goes poorly this week. The EU’s German-dominated direction is perversely aimed at austerity when only growth can save the day. But we think it’s more or less baked in the cake.

Strangely, alarm bells are ringing over the famine nag, the world apparently scared that an undernourished China signals a dearth of demand in the western world. China recently reported another slowdown in growth, but lost in the story is that this outcome is exactly what the Chinese authorities planned – slower growth to prevent overheating and achieve the elusive soft landing of which central bankers’ dreams are made.

For those as optimistic as we are, buy the S&P 500 on weakness. Specifically, we like Ford (F) and Riverbed Technology (RVBD). The former is confident enough to have begun paying a dividend again. We like the latter’s prospects in wide-area network optimization as global growth maintains momentum.

For the more faint of heart, tried and true makers of products that cater to our vices should withstand economic turmoil. In this vein, we like Altria (MO), purveyor of the iconic American cigarette for which we and a host of others have a weakness.

However, we don’t think the Marlboro man need ride to the rescue. He can remain dismounted along with the horsemen of end time.

2012 Confidential

With more than a month and a half of 2012 under our belt and the fate of the Western world teetering in the balance, we make these fearless prognostications for the remainder of this anno domini.

Gasoline goes to $5 a gallon and Barack Obama is re-elected anyway. The Republican field is so unpalatable that even Rick Santorum may be a tastier dish than Mitt Romney, which is to say unelectable. The argument has shifted from the Obama defense that the economy “would have been worse” if its life jackets hadn't been distributed to the Republican pout that “it would have been even better” if, for instance, Motown had not been bailed out. Either conceit is a dog that won't hunt.

The world will remain asynchronous. The United States took its lumps and is now pulling out of it. It's Europe's turn now to pay the piper for fecklessness. The Old World will pull out of it, too. By the end of 2012, U.S. consumption growth will be the engine that gets the euro zone and its environs back on the growth path. Buy France Telecom (FTE) for the lush dividend.

Uranium stocks will double as nuclear power gains currency. Buy Denison Mines (DNN) and Cameco (CCJ).

The Southeastern Conference will not have a representative in the BCS championship game. Call us a conspiracy theorist, but the other conferences are so sick with envy of the riches the SEC keeps piling up that they'll rig the computers.

The St. Louis ball club will repeat as World Series champions without Albert Pujols, who will hit .260 for the Anaheim ball club.

Speaking of St. Louis, the University thereof will be the surprise team in the NCAA basketball tournament. The Billikens are quietly 21-5. Pick them to get to the sweet 16 when the office bracket sheets are distributed.

Red Sox manager Bobby Valentine will bow to umpires when presenting lineup cards and curse them only in Japanese, thus avoiding ejection the entire season.

Apple and Nike will announce a joint venture to market smart-phone swoosh logos that athletes can use to tweet with while competing on the field, court or golf course.

The next sports scandal will be a gambling fraud at the next Super Bowl. The National Anthem singer will string out the song beyond the over/under prop bet time at the behest of organized crime. Hey, who would have thought a safety would be the first score of this year's game?

We will break 100 more than once this year and our lost sand wedge will be returned.

Huns and Vandals at the Gate

Where is Pope Leo I when we need him? The sainted pontiff was able to persuade Attila the Hun not to sack Rome in 452 A.D. Would that he would appear at Wall and Broad Streets and stand athwart history yelling “Stop!” Alas, the Vandals sacked Rome a few years later anyway and the Dark Ages were well on their way.

On the first trading day following Standard & Poor’s downgrade of U.S. sovereign debt to AA+ from AAA, which would imply higher interest rates because Treasury paper was now deemed less secure by the S&P Pooh-Bahs, investors flocked to the tarnished instruments sending their already paltry yields still lower.

Perhaps cynical investors reasoned that any agency that had rated “toxic waste” mortgage securities Triple-A could hardly be trusted with assessing the creditworthiness of the world’s largest economy.

But that wasn’t the reason. The real driver is the economy, stupid, to borrow the Clinton campaign mantra. Equity prices have fallen precipitously and government debt prices have risen not because S&P pointed out the obvious. Granted, the move by the rating firm may have had a difficult to measure psychological effect, but the outlook for economic growth is so tenuous that the S&P action, as so often is the case in momentous moves in asset prices, was just an excuse to dump shares.

Buttressing the outlook for anemic growth was the sharp decline in oil prices. S&P didn’t downgrade West Texas Intermediate crude.

Making matters worse is that President Obama is no FDR much less Pope Leo. “I welcome their hatred,” Roosevelt said of the Tea Partiers of his day. Or take Leo’s tack with Attila: “Now we pray that thou, who hast conquered others, shouldst conquer thyself. The people have felt thy scourge; now as suppliants they would feel thy mercy.” We prefer the former. The latter would only encourage the Vandals to complete the rout of the New York Sack, er, Stock Exchange, that is.

Having sworn off the stock market, we note a big win in the sporting realm Saturday, when 500 units on the Scarlet Metacarpals paid 700 units to bring the kitty back to 3,000. Tonight we’ll go against the bloody ankles from Boston with 500 units on the host (ess)Twinkies, for entertainment purposes only.

Note well, we shall delve into the mysteries of the Canadian Football League later in the week, you hosers.

Weep No More, My Lady

Louisianan Mr. Bo-rail rode the name of an extinct Park Slope, Brooklyn, drug store to victory in the 136th edition of the premier equine race in North America. Yes, Super Saver (the colt, not the drug store) hugged the rail and then split a couple of fellow thoroughbreds amid the mud and mint juleps to be adorned with roses.

He was in our trifecta box along with Ice Box. Boxes abound! Alas, Lookin at Lucky finished out of the money to render our ticket another relic of 2010 nostalgia, along with the bull market. Would’ve, should’ve, could’ve. As Dandy Don used to say on Monday nights, if ifs and buts were candy and nuts, we’d all have a very merry Christmas. Got to hand it to Meredith. He knew how to use the subjunctive mood, which Cosell would have applauded when “speaking of sports.” We loved those radio spots.

And if we hadn’t broken our Cardinal rule (pun intended) of going against Roy Halladay of the Philadelphia club today we would be in the money despite the plunging Dow Jones Industrial Average, which forgot to beware of Greeks bearing debt (forget about the gifts). Granted, there may have been someone pushing a button that he thought was a million and turned out to be a billion, but times being what they are, he took the job and took the market away down south in Dixie.

Still, there’s more going on than an errant ring finger on a keyboard. There are too many languages in the old world. You travel 100 miles and you’re in a different land. If you can speak a bit of Spanish, you’re OK in the new world, which awaits the jobs report tomorrow morning. This may be China’s century, but the USA still has a few licks left in her. Expect gains in payrolls but not enough to nick the unemployment rate

We’re betting against the euro and still believe that investors should hold Ford, buy Hovnanian Enterprises (a home builder; ticker HOV) and never go against Halladay.

We can’t say it better than this:

“France was a land, England was a people, but America, having about it still that quality of the idea, was harder to utter--it was the graves at Shiloh and the tired, drawn, nervous faces of its great men, and the country boys dying in the Argonne for a phrase that was empty before their bodies withered. It was a willingness of the heart.”
(F. Scott Fitzgerald, “The Swimmers”)

They Don't Write 'em Like That Anymore

“Green grass ‘round my window
Young leaves that the wind blows…” (Green Grass, Gary Lewis and the Playboys, 1966).

Oh fuggedaboutit. Kev’s trash-strewn Brooklyn thoroughfare sprouts nothing but vile rap lyrics at decibels that make us want to join the NRA, secure a shotgun and blast several engine blocks while blaring Petula Clark from our cute little Sony boom box. “Don’t sleep in the subway, darling,” would be our “hasta la vista, baby.”

But we realize it’s a free country. We ended our popular music infatuation around 1969, extended by a Steely Dan and Allman Brothers habit in the 1970s, and so acknowledge we have become a cranky old man standing athwart history and yelling, Stop! Yeah, I’m feelin’ groovy all right.

Let’s be clear. We’re usually an optimistic sort, and will return to that sunny clime soon enough. For now, we slog through a slough of despond, imploring Miss Market and our zen-like putting stroke to return. Anthony Kim and Hunter Mahan must be going through the same thing, watching the red-shirted master of the universe roll in a 20-foot putt on 16 for the winning margin. Not to mention Andy Roddick, whose serve wasn’t broken until the 30th and final game of the fifth set at the All England Club. As a wise friend of mine has noted, guys like Eldrick Woods and Roger Federer “command the elements.” The rest of us must live with our imperfections. They are legion. Roddick’s defeat was foreshadowed as early as the second set, when he flubbed away a 6-2 advantage in the tiebreaker. Mahan’s 62 was only a tease. He foolishly warmed up on the range for a playoff.

The “green shoots” rally now must face the earnings reporting season beginning this week. And the employment data – not only the payroll losses but the shrinking workweek – point to a different kind of recovery. “Broke, disgusted, agents can’t be trusted,” as the Mamas and Papas intoned (told you we are trapped in the sixties), the American consumer isn’t going on a spending spree this time around. Don’t buy the market. Stick with what we used to call on Wall Street, “special situations.” PALM, NVAX, F, and consider airlines now that oil prices are fading. We’ll be looking for others and will report back.

Luckily, the Hess station next door saves us 45 cents on cigarettes. But we think we’ll soon have to start rolling our own.

Stitch It Up, Doc

Recall the metallic taste and smell of blood? Seldom do middle-aged urban, sedentary adults experience it, but it is one of those startling sensations of childhood, when we are fearless and the physical world abruptly slaps some sense into us and it’s off to the emergency room for a stitch here and there. Needless to say, we and our offspring have been sewn up multiple times, only to be surprised when it happens anew.

The United States Department of Labor reported that employers shed far more jobs than anticipated in June and stocks beat a hasty retreat to the ER, much like Kev and his fellow sissies on the golf course today, who heard the rumble of thunder on the 18th hole and picked up their well-struck balls plugged in the squishy sod of Split Rock where the family Bronks used to live and the Battle of Pelham was waged in October of 1776. The latter “saved the revolution” according to the hole markers. We’ll have to look it up.

Times being what they are, this patriot wished for a shotgun in his bag to bag a family of “wild” turkeys clucking around a tee box, oblivious to the swack of titanium on Titleist as they pecked the ground for their daily bread. Oh well, probably would have sprayed buckshot at the Acela train speeding by on the outskirts and missed the plucky fowl, much like missing the fairway most of the showery day, requiring the services of a savvy lawyer.

The jobs data need a fast-talking spinmeister, too. All of the components – jobs lost, wages, hours worked, average work week – were inescapably grim. We won’t bother you with the particulars, but the anticipated recovery in the second half is thrown into serious doubt.

We remain hopeful, though. Not to put lipstick on a pig, but we remain enamored of the glamour of filthy lucre. It is our opinion that the choice between God and mammon (that is, excruciating destruction of wealth vs. happy days are here again) is a false premise. Listening to Wall Street “economists” bloviate on facts that are apparent to all but the illiterate is the equivalent of reading yesterday’s newspaper. Money supply growth and fiscal stimulus (and more to come until it works) will kick in.

No one will be blamed for taking money off the table (Kev wishes he had done so with his baseball picks last week), but the jobs report makes stocks cheaper. Which means we’ll get back in when they look too cheap. Now, where’s our shotgun? Dinner, like youth, must be served.

Mortality

“And what rough beast, its hour come round at last, slouches toward Bethlehem to be born?” (W.B. Yeats, the Second Coming). Something stalks us, fellow boomers, and it isn't tryng to give us the comeback player of the year award. Popular culture contemporaries are checking out at a frightening clip.

Farrah Fawcett’s high point was as the pin-up girl at her most come-hitherest, despite her best efforts to grow into a serious actress. Michael Jackson’s impressive oeuvre came to be overshadowed by the bizarre personal life. Only Billy Mays’ entertaining sales pitches remain an authentic legacy, in our view. That’s all he did or apparently aspired to do. Here was a guy who could take his work, but not himself, seriously. Aged 62, 50, and 50, respectively.

“What profit hath a man of all his labor which he taketh under the sun? One generation passeth away, and another generation cometh: but the earth abideth for ever.” (Ecclesiastes, King James version).

(We are big on quoting better writers than ourselves today, one an Anglo-Irish poet contemplating the post-Great War world, the other some anonymous Israelite who concluded wisely that all is vanity).

We think these thinkers have something to offer the living who are still toiling, or playing, in Kev’s case, in the vineyards of this sporting life. Catastrophe and other minor setbacks lurk at every corner. Miss Market can look like Farrah Fawcett one day and Phyllis Diller the next, can do the moon walk then retreat to Neverland, can promise stain removal from your favorite shirt with OxiClean and you believe her.

We think this immortal is still on the side of the living. Durable goods orders and personal income data point to recovery, though the savings rate has soared compared to consumption. That transition could be wrenching, but is to be expected. Kev’s transition from genius to nitwit in baseball picks is similarly a shock, but not fatal. At least PALM keeps rewarding (forecasts of positive cash flow by year-end). F will survive. Still with NVAX but looking to take profits soon.

In the meantime, life treats us well. A beloved girl is a softball champion. The U.S. soccer team acquitted itself well in a valiant effort against the Brazilian juggernaut (though whoever passed out those plastic horns to the crowd should be brought up on charges)and Albert Pujols continues to amaze fans of the stumbling Redbirds.

It is hard enough to accept love handles as a fact of getting on in years when, in our heads, we remain 25, rich, witty and irresistible to all women, but the prospect of demise unsettles all but the sunniest of men. Saw a funny poster the other day: “My goal is to live forever. So far, so good.”

Into Each Life

I believe the definition of par is the number of strokes an expert golfer requires to complete a hole. The par for a 72-hole tournament’s completion is four days, which may have to succumb to Mother Nature’s par for the skies of New York lo these many days.

Instead of delivering buttery bucketsful of sunshine, she has deemed it necessary to strap kegs of Poland Spring to the gray clouds. Our promising tan is fading, and the makers of sunblock lotion must be laying off thousands.

In the meantime, Mother Nature’s niece, Miss Market, must be obeyed as well. We cannot bend them to our will. Even Tiger Woods, 11 strokes off the lead after 36 holes as we write, must bow every now and then to the vagaries of nature.

Miss Market will increasingly inflict pain or rain riches according to the broad-brush data released every week. That’s because stock prices will more and more respond to news about the general health of the economy than the efforts at political jockeying on legislation. Change in financial sector regulation is a given, as is health care reform, deficit spending and money supply growth. Barking about reforms being too much or too little is quibbling. Too often, we seek the perfect at the expense of the possible. Recovery is baked in the cake.

Last week, the Conference Board reported that its index of leading economic indicators rose 1.2% in May, the second straight monthly increase. And the Philly Fed index rose to negative 2.2 in June from negative 22.6 in May, the best business condition in the Philadelphia region since September. New orders and shipments improved, as employment remained very weak. Those who still have jobs are running faster on the treadmill.

We will have to run a little faster this week to make up for the baseball picks last week. We picked the wrong day to take the Floridian fish over the pinstripers, the same day we foolishly believed the Coors Field tall boys would turn chilly against the plucky Bucs. Earlier, we put our faith again in young Vin Mazzaro of the Elephant patches against the old Brooklynites in southern California.

Mother Nature and Miss Market can be obstinate, but patience will bring them around. Stay long equities and oil, short bonds. The U.S. Open will crown a champion sooner or later. Here’s hoping it’s later, as Kev has a Thursday ticket good for Monday if they can’t finish today. Long shot investment tip of the week: Go long Duval, short Barnes.

Young Girls They Do Get Weary

One lesson Kev thinks he has finally learned as he approaches the turn to the home stretch is that you can’t tell people how to feel. Least of all Miss Market. Our pouting paramour will not succumb to sunny encouragement, snapping her feral fangs at the hand on her shoulder, laughing maniacally at such bromides as: “Hey, it’s not so bad,” or “Remember all the good times,” or “There’ll be blue birds over the white cliffs of Dover.”

You tell her that Pudge Rodriguez has now crouched behind the plate more times than Carlton Fisk and exhort her to do the same. You tell her that even the graceful, intricate – nay, beautiful – pitching motion of Tim Lincecum must lose a game now and then. To no avail. We must let her edge back to us in her own good time. Not helping her in this direction are the latest economic data.

Wholesale inflation was 0.2% in May. Higher energy prices offset a drop in food prices, according to the government. The core producer price index, which excludes food and energy prices, fell 0.1%. At the retail level, inflation also rose just 0.1% last month.


Industrial production fell 1.1% in May to the lowest level in 11 years and is down 13.4% in the past year, the largest year-over-year decline since 1946. And capacity utilization fell to a record-low 68.3% last month, down from 69%. The Krugmanites have a point. This indicates much slack to be taken up before inflation becomes a problem, a condition much to be wished for.


Inflation and interest rates must rise to convince her she has pricing power again, but the mills of the gods grind slowly. We can’t tell her or anyone else how to feel.

Meanwhile (our fallback transition), stay with PALM. Much chatter about a takeover by industry giants looking for an avenue into the smart phone market. F still has value. Wait for GMGMQ to slip. Hoping NVAX catches fire again.

Wish I had taken the underdog Nationals against the pinstripers last night. Long Islander John Lannan outpitched the suspect Chien-Ming Wang, who nevertheless showed some gumption against the new “first in war, first in peace, last in the American (now National) league” team.

Tell Me You're Coming Back to Me

Is Miss Market a changeling, one of those offspring of elves and fairies that the wee folk exchange for human babies? Why, just the other day we danced merrily through a meadow of green shoots with her. But when the sun arose the next, we found a slain rabbit in our pot when we attempted to make our morning oatmeal. And there she was, tangled hair and pointed ears, hissing like Catwoman in a field of burnt straw.

Suspicions that the economic recovery on the horizon was a mirage were roused by the Empire State survey of manufacturing conducted by the New York Fed. The data showed a decline in May after two months of improvement. Oil prices fell, as did interest rates, the most recent fear of the financial press. These are not indicative of green shoots. Kev is of the opinion that rising commodity prices and higher interest rates should be cheered as a sign of acceleration in the real economy, not brakes on the recovery.

But the familiar arc of expansion and recession that has marked the post-war period has turned unfamiliar. That’s because the model has been revealed as a changeling as well. As the United States turns from consumption to saving, incomes decline as jobs vanish, which reinforces contraction and the great hunkering down. So despite all the reserves the Fed has pumped into the system, banks find fewer viable businesses to loan to. The liquidity trap is not a tender one.

Yet policy makers surely know this. The cleansing power of a collapse in economic activity and the erasure of iconic American enterprises some call for would be so great as to cut serious gashes in the cord that binds a society together. So Bernanke, et al., must keep pushing on the string, hoping that the trauma of change from consumption to saving doesn’t entirely dissolve the rope to which we are hanging by a thread. The effort of government spending and Fed largesse is aimed at supplying a parachute to slow the descent so the pilot can live to fly another day.

For the investor, this means rewiring the brain. Look for things “to begin stop worsening” as the Bank of Japan said was happening in its latest dispatch. Being nimble and not too greedy will be prized attributes. Waiting for GMGMQ, DXO (oil) and SLV (silver) to get cheap again, keeping PALM and F in the portfolio. Plaxico Burress and Michael Vick look as if they will get a second chance in the NFL soon. So shall we. Miss Market will comb her hair, don the cocktail dress and take our arm.

As we heard Jean Arthur say to Cary Grant the other night: “I’m hard to get, Jeff. All you have to do is ask.”

Sentimental Journey

Our radio crackled nostalgically the other morning with the interference of electrical stuff in the ether on a showery morning in old New York. It reminded Kev that we inhabit an imperfect world. As much as we labor to bend the elements to our will, Zeus will hurl his lightning bolts while we wait out the storm in a west Texas college professor’s office, listening to KLBK dj’s spin “Sukiyaki” and “Hello Stranger” in between reports of tornado sightings.

Wait! Wake up, Kev, it’s not the spring of 1963. No need to cower in the civil defense-approved shelter. The storm is passing, but an eye toward the horizon is only prudent. All decisions, though based on the best information our senses and cerebellums decipher, can fall prey to the reptilian brain that sometimes overwhelms and incites us to do foolish things. This is the reason God made lawyers, bookies, bail bondsmen and fore caddies.

The latest dispatches from the data gatherers tell us that initial jobless claims declined in the latest week and retail sales and consumer sentiment rose last month. These latest green shoots are heartening if not concrete proof that things are on the mend. Who knows if some beetle or blight will devour the hopeful young?

This sporting life is a messy affair, but as long as the supply of chewing gum and duct tape holds out, we’ll muddle through. In other words, the recovery effort is a pastiche led by “experts” (Bernanke, Geithner, et al.) who purport to know something we don’t. Yet they and we serfs, as St. Paul said, are looking “through a glass darkly.”

But look we must, however clouded our view. Kev finally triumphed by going with the bloody ankles against the pinstripers, whose manager continues to refuse to think outside the box. Why not put Rivera on the mound in the 8th inning? The Bucs also put bucks in the pocket with a win over the well-fed Cox-led tomahawks.

How can you go against Halladay tonight in Toronto? Because interleague play is a different proposition. The Marlins get to use a DH and the 10-1 pitcher has to lose at some point. And how about taking the Athletics vs. the Giants, even though Lincecum is on the hill for the McCoveyites? Because young Vin Mazzaro (a green shoot?) has yet to give up a run in his two career starts. Jump on this kid.

However, long shots must be cashed in when they prevail. Got out of General Motors (GMGMQ) at $1.15 after buying at $0.88. We’ll look to get back in at a lower price.

Sticking with PALM (the Pre phone is a beauty, according to a friend who’s seen one), F and NVAX (The World Health Organization says there’s nowhere to hide from the swine flu).

Also considering a new business – opening a Zen putting school. See the ball, be the ball. No blindfolds, though.

Our Little Black Book

Every dog has its day. Hooted at as a malingerer by vengeful packs of yapping pinstriper fans, Carl Pavano pitched nine innings of shut-out ball to lead the Tribe over the Pale Hose last week and enrich Kev. And long spurned by her bitter once-burned suitors, Miss Market continues to tame the bears. Methinks they doth protest too much and will soon be checking their cell phone contacts for her number.

Yet we remain wary, knowing that the coquette has the capacity to lead us on and then pout when she doesn’t get her way. What could cause her to spurn us? Three things: geopolitical/terrorist catastrophe, economic indicators that refuse to validate what Bernanke and others perceive as the incipient recovery and the related discovery that stock prices are ahead of what the economy is promising. Well, I guess that’s two things really.

In any event, what matters in the short run for those with dough at stake is the news flow. Job growth should take a while, but stock prices expect that. Key this week will be Thursday’s release of retail sales data and Friday’s University of Michigan report on consumer sentiment for May. Expectations are that both will point to tentative revival. Also to be monitored is the blitz of U.S. Treasury auctions of notes. The yields necessary to sell them will affect the equity markets as much as the bond markets.

The great deflation-inflation debate is for another day. We’ll get to it eventually, but for now we’re concerned about profits to pay greens fees and Mr. Landlord.

Our darling, PALM, has taken a beating recently, though we’re still significantly in the black. Those wishing to take money off the table would be entirely justified. The Pre phone has been released and the battle with Apple and Research in Motion is joined. News is that Apple is cutting the price of the original iPhone to $99. Let’s get physical.

Brave souls who ventured with Kev into Novavax (NVAX) and GM (ticker is now GMGMQ), have been rewarded. If you bet the ranch on these two you would be considerably better off than if you left Summer Bird out of your trifecta box at Belmont. Both are up more than 30% since purchase May 1 and June 1, respectively. Ford is still a keeper.

But Kev picks losers as well. Sonnanstine pitches a superb game for the Rays tonight at the Yankee Stadium launching pad (NASA should consider blasting space probes to Pluto from home plate), but the homers, like the DJs used to say about the hits on AM radio, just keep on comin.’ I’m swearing off going against the pinstripers at home unless Harmon Killebrew, Hank Aaron, Ralph Kiner and Jimmie Foxx are in the opposing line-up.

We Wax Poetic

Is the world too much with us? Wordsworth’s wonderful line resonates far beyond what the simple Anglo-Saxon words represent. They suggest a certain weariness, a sigh at the realization of the incessant to’ing and fro’ing that life demands. Yet, to and fro we must if we are to find profitable enterprises that will keep us to’ing and fro’ing for yet another day.

The nation’s employers continued to shed jobs at frightening levels, according to the Automatic Data Processing survey, suggesting Friday’s employment data from the United States Department of Labor will yield a number close to the consensus estimate of another 550,000 jobs lost in May. Expect renewed sightings of green shoots if the number comes in lower. A good sign – initial jobless claims were lower in the latest week.

Meanwhile, technicians espy hope in the S&P 500 moving above its 200-day moving average this week, a sign, so they say, that the path of least resistance is higher equity values. Speaking of which, Novavax (NVAX) soared 74% today on news that a study of its flu vaccine had begun under the auspices of the National Institutes of Health. If only Kev had bet the ranch! This could be a big winner or big loser and is not for the faint of heart. PALM continued its climb in anticipation of the Pre smart phone to go on sale Saturday.

But enough of serving mammon.

“The world is too much with us; late and soon,Getting and spending, we lay waste our powers;Little we see in Nature that is ours;…” (William Wordsworth)

Respite was found in the soggy turf of Dyker Beach, where carts were forbidden this morning and Kev and his companions walked 18 invigorating holes. A frisky squirrel investigated our ball on the fairway, and for several seconds Kev was sure the furry rascal would carry it away in expectation of a full day’s meal. Thankfully, he realized it was not edible and scampered as we approached with hybrid club in hand. And though the youthful two of our foursome were natural athletes who inspired heroic efforts on the part of the aging, the latter failed to break 100.

But the putting stroke has improved tremendously. Must have had four lip out after perfect reads today. Offsetting, though, was a nine on the fifteenth hole after reaching the rough just off the fringe in three and expecting to chip on and putt for par. Needless to say, disaster resulted. Can someone have the yips with a wedge?

Summertime

Put away the long pants, sweaters, windbreakers, hunched shoulders and sneering cynicism. Forget the calendar. Summer is here. Time to gorge on golf, bask in baseball, tone the tan, pick the ponies, tweak the tennis serve, pen poetry, marvel at Miss Market and indulge in any other alliterative activity that makes the heart soar and shoves the blues to another season. Fly me to the moon.

Scolds who wish the profligacy of the United States in recent decades will visit yet more plagues on the citizenry have seen their best days. They will be left behind, scowling and snorting about “kids these days” while the car stereos blare obnoxious “music” and the car companies, insolvent or not, jockey for position to provide a carapace for one man’s insistence to share his entertainment with the rest of the world walking by.

Auto sales last month were better than expected, even for GM. They were down year-on-year, but up significantly from April. Pending sales of existing homes ratcheted up for the third month in a row in April, according to the National Association of Realtors. Oil rebounded late to close a couple of pennies lower, but it’s fast closing in on $70 a barrel. China keeps growing. To feed itself it must.

Green shoots are showing buds if not flowering, though skies remain menacing. To come tomorrow is the ADP data on layoffs, and on Friday the May nonfarm payroll numbers from the United States Department of Labor will help clarify things.

The arguments for and against recovery are as contentious as the never-ending contretemps among pinstriper fans over whether Joba Chamberlain should start or be the setup man for Mariano. Will a collapsing dollar and rising interest rates sink the USA, or will fiscal and monetary stimuli restore American vigor? Both outcomes are plausible, but for now summer seduces me. Staying in equities and commodities, those things we use to build things, seems the more summery outlook. And we are nothing but summery now after seeing the promised land by breaking the sound barrier of 100 on the golf course.

In the meantime, got a tee time at Dyker Beach on Thursday. Anyone who would care to join me will see a new putting stroke perfected on the living room rug that insures birdies – that’s right, birdies, not par. It’s summer and the fish are jumpin’. Catch ‘em if you can.