|Dow||-268.05 to 17,533.15|
|S&P 500||-33.68 to 2,026.14|
|Nasdaq||-82.44 to 4,684.03|
|10-YR Yield||-0.051 to 2.169%|
|Gold||-$5.20 to $1,226.80|
|Crude Oil||-$2.46 to $61.36|
I almost fell out of my chair when I saw the headline this morning at the Washington Post website:
“Deal reached on $1.01 trillion spending bill”
The story goes on to note that Congress managed to conjure up a 1,603-page bill, one that will fund the federal government all the way through September. Hundreds of billions of dollars worth of military spending and federal agency funding is in there, as well as billions of additional dollars to fight Ebola, ISIS, and other assorted threats.
The move takes care of 11 of 12 annual appropriations bills that legislators have to tackle each year. The only exception is the Department of Homeland Security; Congress is only funding it through February due to the fight over immigration policy with President Obama.
|Will we go through the budget season without the madness of previous sessions? Things look good so far.|
Technically, the legislation hasn’t passed yet. But that is widely expected in the next couple of days – and President Obama will probably sign it. And that means that we won’t have to deal with any Washington budget madness (more than the usual kind, that is!) this year.
How different is that from recent experience? Just consider this recap of the Washington action from Politico:
“The last-minute drama is a fitting way to end the 113th Congress, an intensely partisan two-year span that included a 16-day government shutdown, a near-default on the nation’s debt, the politically disastrous rollout of Obamacare, a wave of voter discontent that booted the No. 2 House Republican from Washington, a resurgent GOP and a wave of foreign policy crises that knocked official Washington off balance.”
Or in plain English, we’ve grown accustomed to bitter partisan fights over spending and taxation policy during the holidays. We’ve seen multiple, down-to-or-past-the-wire fights, including last year’s two-week-plus shutdown. Those fights led to massive bouts of market turmoil — big declines on initial bad news about partisan rancor, followed by big rallies on the inevitable deals that emerged.
This year it’s a different story, and I say “Good Riddance!” We can focus on other things like actual market fundamentals. That’s exactly what I’m doing as the remaining days of 2014 pass.
|“We can focus on other things like actual market fundamentals.”|
So what do you think? Is this the start of a new trend, where we can ignore Washington budget battles? Or is this just a temporary reprieve, one that will be followed by huge new battles in 2015, 2016, and beyond?
Why do you think Republicans and Democrats decided to hammer out a deal, and does it look like a good one to you? Share your answers to these questions at the Money and Markets website.
|Our Readers Speak|
Carry trades. Wireless phone service. Oil prices. McDonald’s (MCD, Weiss Ratings: C+) food. All those topics and then some were hot, hot, hot on the website in the past 24 hours!
Reader JPF. said the following in regards to whether and how we should invest in resources: “Does gold or oil look attractive now? The world RUNS on oil … not so much on gold. There’s the answer!”
I tend to agree with you, JPF. While I like gold as a long-term store of value, I believe energy stocks and related investments are incredibly cheap now. They have the most potential for a vicious rebound – as long as you invest in the right names!
With regards to McDonald’s food, Reader Roger offered the following anecdote: “I have retired from motor coach driving. I would try to call ahead to let the restaurant know when I was bringing in a large tour group so they could keep staff on hand to efficiently handle our orders.
“It was embarrassing to park in the McDonald’s lot, open the door, and watch students cross the street to Panera Bread (PNRA, Weiss Ratings: B-), Subway or Wendy’s (WEN, Weiss Ratings: B). Whether they were soccer teams or snowboarders, they knew they wanted quality and were willing to pay to get it.”
Great observation, Roger. Thanks for sharing!
As for carry trades, Reader Joe asked: “Isn’t the short-term rate on dollars also low? Is there a ‘carry,’ or leverage, or margin, whatever it might be called in dollars, too? Even if those dollars are also invested in U.S. assets? If the Fed does verbally tighten by removing the ‘considerable time’ language, shouldn’t we expect that some investors will begin to unwind their borrowed dollar investments?”
Great questions, Joe. Yes, current short-term rates are very low here in the U.S. But investors expect the Federal Reserve to be more hawkish than its counterparts in Europe, Japan, and elsewhere. As a result, the U.S. interest rate market is starting to price in future tightening in the U.S. … while foreign markets are not.
Those expectations about future policy are what’s encouraging carry trade money to flow here from there, rather than the other way around. If anything causes the trade dynamic to shift (say, worsening economic news here … better economic news out of Europe … a dovish shift in Fed chatter … etc., etc.) though, the very crowded trade will start to “blow up.” And that will lead to some serious countertrend moves.
Finally, Reader Steven offered the following thoughts on my decision to switch wireless service providers:
“You will find that you get what you pay for. Here in Southern California with its mountainous terrain, Sprint (S, Weiss Research: D+) has become a dirty word. Yes, its service is cheaper. But so is its quality of service. Maybe in Florida which is flat swampland, cell tower placement is not an issue. But here in SoCal and in the western states, cell towers, or the lack thereof, is a very big issue.”
Thanks for your insight, Steven. We heard about network quality worries from a couple of friends. But the price difference is so large, that I’m willing to see how things go.
I’ve had my problems with AT&T’s (T, Weiss Ratings: B-) network in the past, and Kim has had hers with Verizon (VZ, Weiss Ratings: B). And while it has only been a few days, I haven’t noticed anything glaring — just one dropped call and a little more time spent on a 3G network versus an LTE one.
Want to add your own voice to the mix? Then don’t wait — hop on over to the website and sound off!
|Other Developments of the Day|
Time Magazine could have chosen any number of candidates for its Person of the Year for 2014. But the magazine went with the Ebola-fighting doctors, nurses, and other medical personnel who helped beat back the deadly plague here and abroad. Your thoughts?
T-Mobile USA (TMUS, Weiss Ratings: C-) just launched its latest foray in the great American wireless service war. It will now offer two lines with unlimited talk and text — PLUS unlimited data — for $100 a month. Just another reason why the behemoths AT&T and Verizon have been suffering.
Meanwhile, Yum! Brands (YUM, Weiss Ratings: B) served up some not-so-tasty news for investors. Profit per share will rise at a “mid-single-digit” rate this year, rather than 6-8 percent as previously forecast. That’s the second cut in expectations this year,
Yum owns the Taco Bell, Pizza Hut and KFC restaurant chains, and it’s having serious performance issues in China. Same-store sales plunged several percentage points there, reviving investor concerns about food safety headaches, shifting consumer demand trends and possible market saturation.
More negative news on petroleum demand helped send the global oil benchmark – Brent crude – below $65 a barrel for the first time since 2009. Specifically, OPEC said demand for its oil will fall to 28.9 million barrels per day (BPD). That’s the lowest since 2003.
But as I’ve noted, energy sentiment is so negative that the stage is set for a potential counter-trend move. The only question: What news might set it off?
If you have any comments on these news stories, or others you’ve stumbled across, hop on over to the website to weigh in. I read as many of the remarks as I can, and I know your fellow investors appreciate them.
Until next time,