The Mess That Greenspan Made - Part 12

The latest issue of the Iacono Research Weekend Update has been posted to the website and is now available for subscribers here. There will be no changes to the model portfolio or the buy ratings this week, but a few little noticed developments from last week are covered along with the ongoing covered call sales in the following discussion topics:

The executive summary is as follows:

After new record highs for U.S. stocks early in the week, a subdued outlook for global growth from the World Bank and violence in Iraq that led to surging oil prices tempered stock investors’ enthusiasm leading to modest declines for U.S. equity markets. Fresh stimulus in China pushed stock prices higher there and developments in Iraq led to renewed safe haven demand for Treasuries and gold.

The price of both agricultural goods and base metals saw sharp declines, but the energy market surged along with precious metals as shares of oil producers and mining companies saw big gains, the latter reestablishing itself as one of the best performing asset classes so far this year. For the week, the model portfolio jumped 1.9 percent and is now up 6.0 percent for the year.

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CNBC cheerleader Bob Pisani is clearly a bit concerned that the stock market rally is being threatened by developments in Iraq and Art Cashin does little to improve Bob’s mood by pointing out a number of foreboding signs, most of which are just Wall Street folklore.

What is decidedly not folklore is the rise in oil prices and the possible impact this could have on equity markets, though the ^VIX volatility index currently shows little concern.

As noted in the interview above, what has been remarkable about the recent advance of ISIS (the Islamic State of Iraq and Syriain) insurgents is that the people of Iraq appear to be welcoming them with open arms as the military just “melts away”.

Of course, this is in Sunni areas (where there is little oil) and things will get much more difficult should ISIS attempt to take control of Shia areas in Baghdad and to the south.

 

Friday Morning Links

MUST READS
Iraq conflict sparks oil price rise – BBC
Iraq’s Long Unraveling – The Atlantic
Militants Seize Towns as Advance Continues – Bloomberg
No immediate risk to Iraq’s oil supplies: IEA – MarketWatch
Iraq’s civil war threatens structure of global energy supply – Telegraph
As Iraqi crisis escalates, Anglophone press slams Obama, Maliki – France24
This map shows how violence in Iraq could threaten the oil supply – Vox
IEA sees much higher demand for OPEC oil for rest of 2014 – Economic Times
Subprime Trading Like It’s ’07 in Car-Loan Bonds – Bloomberg
Ukraine says ‘Russian tank incursion’ unacceptable – BBC
Wall Street loses a good friend in Eric Cantor – CNBC
Political Polarization in the American Public – Pew
How Smugglers Made America – Mises

MARKETS/INVESTING
Stocks: 6 things to know before the open – CNN/Money
How Should Investors Handle Iraq? – Ciovacco Capital
Bullish Sentiment Spikes to Highest Level of 2014 – Bespoke
Iraq flight to safety dangerous for stocks, but good for gold and oil – Arabian Money
The Reason for Interest Rate Declines: Bullish Sentiment is a Problem – Comstock Funds
Treasury Yield Curve Flattens Amid Fed Interest-Rate Speculation – Bloomberg
Palladium falls to one-month low as S.Africa wage deal looks to be in sight – Reuters
Gold Set for First Back-to-Back Weekly Gain Since April – Bloomberg
India’s gold imports soar in March but may now be in hiatus – Mineweb
March Indian Gold Import Highest In 10 Months – In Gold We Trust
Iraq chaos lifts gold price – still cheap vs oil – Mining.com

ECONOMY/WORLD/HOUSING/BANKING
Spending Worries? – House of Debt
Amid Upbeat Economic News, Many Reasons for Pause – WSJ
Yes, Theoclassical “Economists [are] Basically Immoral” – NEP
Japan’s Abe unveils plan to cut corporate tax rate – Reuters
Osborne pledges criminal action against banks and traders – BBC
Mark Carney: Interest rates could go up sooner – Independent
Carney Sees Housing Debt Risk as Rate Increases Near – Bloomberg
Here comes the echo boomer to save Canada’s housing market – Financial Post
No Miracle In the Offing for China’s Housing Market – WSJ
IMF Warns Global Housing Market Overheating, Including In U.S. – Forbes
Americans are moving back to the suburbs, but now as renters – Quartz
Senate Confirms Two Fed Governors, Makes Fischer Vice Chairman – Businessweek

 

The Commerce Department reported(.pdf) that May retail sales came in lower than expected, however, upward revisions to the April data offset much of last month’s disappointment.

Overall retail sales rose 0.3 percent in May, well short of the consensus estimate for a gain of 0.6 percent, as strong auto sales were partially offset by lower receipts at department stores and clothing stores. April sales were revised up from a gain of just 0.1 percent to a relatively strong 0.5 percent, this following a surge in both February and March after a sharp winter slowdown due largely to severe winter weather.

Excluding the 1.4 percent jump in auto sales, receipts rose just 0.1 percent last month and, excluding both autos and gasoline, sales were flat. Leading the advancing categories, miscellaneous store retailers saw a sales increase of 1.8 percent, home improvement store sales rose 1.1 percent, and nonstore (internet) retailers improved 0.6 percent.

Surprisingly, 8 of the 13 major categories saw lower sales, paced by drops of 0.6 percent at both general merchandise stores and clothing stores, 0.3 percent at electronics and appliance stores, and 0.2 percent at restaurants and bars.

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