Granite Group Advisors

As the economy enters the final stretch of the year, it is time to discuss the holiday sale season.  A little known fact: roughly 1/3 of all retail sales for the year occur in the last quarter, and retail sales makes up about 2/3 of US GDP. Due to the lateness of Thanksgiving, there are about 5-6 less shopping days.  Wall Street is not expecting a robust holiday season and the data coming out of Black Friday supports their hypothesis with sales coming in down 2.7% even with foot traffic coming in up almost 2% from last year.  However, there are more people shopping on line and it remains to be seen were this takes retail sales numbers.  We do expect margins to be squeezed at the retail level due to the enormity of competition and discounting.

Additionally, we received some good economic data this morning as the ISM non-manufacturing data came in ahead of expectations, but the feel of the market is lukewarm at this point, as P/E ratios are already pushing the limits.  We do expect a pullback,  it is just a question of when?

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With many of the leading and lagging indicators coming just below expectations, it gives reason for the Fed to keep providing liquidity to the markets. The old adage “Don’t fight the Fed” was proven once again. The markets are trading at a price/earnings ratio of 16.5 times 2013, 15.4 times 2014 and 14.4 times 2015, which is above the historical average of 15 times earnings.

As we hit all-time highs again today, the financial  media are starting to focus on “asset bubbles”. Asset bubbles can continue for a while, but bubbles do pop. We are not calling a top, but believe the markets are fully valued in the short term and would use caution for new asset purchases in the equity market.

You can follow Granite Group Advisors on LinkedIn and learn more about our Corporate Retirement Services and Wealth Management in our Website.

The minutes from the federal reserve committee gave us some more information to the state of the economy and the end of QE.  At first glance the fed announced there would be no taper and the markets jumped up quickly (Treat) but the Fed left open the possibility of tapering earlier than the market originally thought (Trick) and stocks sold off.

There are a few things to think about when discussing Fed policy; First,  If the economy is doing well, why does the US need trillion dollars of liquidity added every year?  Secondly, has it gotten to the point where the fed is now in a conundrum with its policy?  If they stop, will the economy stop and if they continue will it create a bubble that will burst?  The Feds have eased long enough. Granite Group’s perspective: It is time to dramatically slow and eventually stop the tapering process as we are creating the biggest “Trick” of all, bankrupting the US Government. The chart below looks more like a bubble than a sound fiscal or monetary policy.

You can follow Granite Group Advisors on LinkedIn and learn more about our Corporate Retirement Services and Wealth Management in our Website.

Last night the US Government voted to end the shutdown and increase the debt ceiling.  Now, investors can go back to what is truly important to the stock market, fundamentals.   For those who are watching, the 3^rd quarter earnings season has begun and this is how the market trades.  The expectation is that firms will generally beat on the bottom line but many will have a tough time on the top line.  This trend started in the last few quarters and should continue for a while.  The economy is not growing at an acceptable pace which means less revenue for many companies. However, firms in general are doing a good job and continuing to squeeze every dollar out of their revenues by continuing to cut costs.  Currently the stock market is fairly valued;  to continue its upward movement we need a P/E expansion.  If earnings come in as expected, that expansion may be relatively small.  Additionally, with the deal made in Washington yesterday we will be back to the soap opera in a few months.

You can follow Granite Group Advisors on LinkedIn and learn more about our Corporate Retirement Services and Wealth Management in our Website.

The beginning of another week on Wall Street brings pretty much the same situation as last week.  Waiting, waiting and more waiting.  Last week the market fell a bit, but nothing too dramatic, and some are wondering why?  Most people believe the shutdown and debt ceiling issue will be worked out.  This morning, the idea that maybe it won’t has come to the forefront, at least for now.  Without a jobs report or any other federal economic report, there is not much to go on.  However, with only a few reports coming out, 3^rd quarter earnings will dictate market sentiment.  We will also get to see the Fed minutes where they chose not to taper.  Most of the government issues are back-round noise and unless something dramatic happens in the markets, no one seems to care all that much right now.  The debt ceiling breach could become a real problem if not solved, but until then we will have some nice private sector reports to trade on including Michigan consumer sentiment.  Our take is still the same, if and when the noise is removed the markets will rebound quickly.

You can follow Granite Group Advisors on LinkedIn and learn more about our Corporate Retirement Services and Wealth Management in our Website.

Over the weekend, the House passed another continuing resolution, which will see the floor of the Senate on Tuesday morning.  Therefore we will probably shut down our government for at least a little while.  The markets obviously don’t like this path and have such shown displeasure by selling down close to 1% so far.   This is just beginning of the volatility we spoke about over the last few weeks.  The debt ceiling is truly the big fight that has yet to be resolved.  We have two weeks to go and there is not even a discussion on the table.  This first little shutdown may push the parties to come up with an agreement on the debt, and that would be a good thing.  Time to buckle down, but know that when this is all over, the market is likely to bounce back quickly.

You can follow Granite Group Advisors on LinkedIn and learn more about our Corporate Retirement Services and Wealth Management in our Website.

With the budget deadline approaching, there is yet to be an agreement in place that will stop the US Government from shutting down.  On Friday, the political grandstanding began, with the house passing a budget which incorporates the defunding of Obamacare.  The Senate proceeded by saying the bill was dead on arrival,  and in response, the market took a nose dive.  This playbook has been written before, there is a probability the US Government could shut down, but history suggests otherwise.  The wise expectation would be, that after the political jawboning, an action by both houses will temporarily resolve the budget issues.  This may cause some volatility ahead as markets trade on headline news. Cooler heads usually  prevail and any market dips will probably be met with equity investors buying.

You can follow Granite Group Advisors on LinkedIn and learn more about our Corporate Retirement Services and Wealth Management in our Website.

With the withdrawal of Larry Summers as Fed Chairman yesterday, the result has been an astounding, thank goodness for stocks.  Larry Summers was the most hawkish of the possible candidates. Most people thought if he were to be the next Fed Chairman, the so called “sugar”  would be taken away from the party.  With his withdrawal, this plan of action seems to be unlikely.  Janet Yellen is now the front runner, and with her dovish perspective, the Fed will probably keep the printing presses on for quite some time. The markets were ecstatic overnight as futures were up close to 200 points, with a follow through as we speak.  Additionally, the bond market is rallying with yields moving lower again.

You can follow Granite Group Advisors on LinkedIn and learn more about our Corporate Retirement Services and Wealth Management in our Website.

With the U.S. about to embark on some form of military action against the Syrian government, we thought it would be appropriate to comment on the possible effect on the markets.  Pre-emptively the market began selling down as soon as John Kerry announced an intended action.  Oil prices are rising as the assumption of a production disruption is building into pricing.  What is important to remember is:  this action will be temporary, and so will the effects to the markets. 

Fundamentals always drive markets in the long term.  Last week we commented that the markets are set to become more volatile due to the debt ceiling fight, the budget debates, as well as the Fed tapering its bond purchases. The S&P 500 is down approximately 3% from the intraday high set on May 22^nd. We are currently trading at 14X next years earnings expectations.  Historically, this would be a little below the long term average of 15X earnings, but in an a low growth environment with low interest rates, a P/E expansion is a more plausible long-term effect.  

This is where Granite Group Advisors stands:  Eventually all this shall pass, and when all is said and done, the markets will get back to fundamentals and the markets will move accordingly.   If the market continues to fall,  it presents a buying opportunity and that is how we look at the current situation. In the next 30 days or so, there will be more clarity as to how the issues will shape the future, and markets love clarity!

You can follow Granite Group Advisors on LinkedIn and learn more about our Corporate Retirement Services and Wealth Management in our Website.