June 22, 2014: Weekend Linkfest: Inflation Data Getting A Lot Of Attention

Haven’t done one (Linkfest blog) in a while, and it hasn’t really been missed, so not sure why I’m spending the time this weekend, but here goes:

Great blog called “This Week on Wall Street” by Gary Morrow and his Left Coast buddies. Like the chart on the Energy and integrated oils relative to the price of crude. Just cant buy ’em up here though. Gary Morrow and I chat via I/M a few days a week. I trust his technical analysis judgment far more than my own. Here was Gary’s post on Twitter (@garysmorrow), on US Steel, one of our longs.

We still like the Basic Materials sector, which is 3% of the SP 500 by market cap. The simple theme is the “global growth recovery” play. X is a 4th quarter play every year. Alcoa has been a monster so far this year. FCX and BTU not detracting from performance, but not contributing either.

Norm Conley of JA Glynn out of St. Louis on inflation. Agree completely. The 10-year Treasury is the key tell though, and I think the Fed might want to see the May’s PCE deflator too.

Jeff Miller, of A Dash of Insight fame, with another home run article on the Fed and inflation. Absolutely great piece. My only contribution to this discussion, is not just watch the data, but watch the market’s response, particularly the 10-year Treasury. Jeff’s article title is the exact right question too.

Josh Brown – love that picture of the LA Kings player – and his blog’s most read stories. Josh usually has one article every week that knocks it out of the park.

@361Capital and Blaine Rollins: very good blog and tweet info. Here is Friday’s latest – two energy stocks close at all-time highs. The one element about crude I rarely hear is what is “intrinsic” crude price if the country wasn’t such a fall-down mess. $90 – $100 ?

Consistent with Norm Conley’s post above, Soberlook took a look at US inflation on April 15th here, and then on  June 17th here. At some point for this to matter, the US Treasury market has to take notice. Not so much with the 10-year yield rallying from 3% to 2.62% this year.

Even Bob Brinker (@bobBrinker)is re-tweeting inflation tweets, such as here.  Another great tweet from Bob Brinker’s feed on closed-end funds: didn’t know this. We prefer to BUY CEF’s at substantial discounts, and have been trading for a while.

Ryan Detrick and the SP 500 put/call ratio calling a top this week ?

A regular reader of the blog sent me a recommendation on John Auther’s, The Long View. Thanks, Bruce. With all the negative sentiment, sure makes sense. I’ll reiterate, what we said on our Weekly Earnings Update this weekend, that an SP 500 trading at 16(x) forward earnings and expected to grow 10% this year, could see the p.e expand to 20(x) pretty easily.

Our worst prediction this year is that I thought we’d see another 5% – 7% correction before q4 ’14. Waiting, waiting… The sentiment metrics like put/call, etc. and low VIX are pretty extreme.

Lost 12% on a COH trade this week. Bought on Friday, June 13th just before close on horrid sentiment, sold yesterday, down 12%. Ouch. Worst trade in a while. Here is a Street.com story. Not much new though.

Ryan Detrick, formerly of Schaeffer’s, now gone solo, with a great piece from his trading lessons learned. I’ve learned from Ryan the last few years, find areas, sectors with negative sentiment that look to be bottoming. US Steel, and the Basic Mat overweight this year were one example. Started picking away after the sector report horrid earnings in q2 ’13, which we think was the fundamental bottom for the sector.

Last year, the SP 500 grew earnings 6.2% for calendar 2013. If the q3 ’13 JPM charge is excluded, (per Gregg Harrison of ThomsonReuters), SP 500 earnings grew 6.8%. Financials matter, particularly the big banks, now suffering from “the genital cuff” of Dodd-Frank and AG Holder (i.e. Justice). (Think Dirty Rotten Scoundrel with Michael Caine and Steve Martin.)

Gold was thought to have a “breakout” this week. Haven’t owned in a few years. Sold the GLD at $155 – $160. Wont own now. Think bullion eventually trades to $1,000 and GLD to $100. I grew up in the 1980’s and 1990’s when gold was thought to be an inflation  hedge, but it had its 2000 to 2012 record run in the strongest period of deflation since the 1930’s. Im not a gold expert or an aficionado, but I do think gold can be different things at different times in history. From 2000 to 2012, it could have been an alternative currency. who knows…

We get a number of retail earnings this week. I do think q2 ’14 earnings starting July 15th or so, will be pretty strong.

Our key single metric is that 10-year Treasury yield, closing Friday at 2.62%.

We get the May PCE data on Thursday, with Core PCE also as part of the Wednesday GDP release.

Thanks for reading and stopping by:

Trinity Asset Management, Inc. by:

Brian Gilmartin, CFA

Portfolio manager

 

 

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