Jeffrey Saut: Shrugging off bad news!

Jeffrey Saut: Shrugging off bad news!




Shrugging off bad news!

by Jeffrey Saut, Chief Investment Strategist, Raymond James

For the College Humor Magazine I submitted a collection of many “Laws” and other items, including my “College Course Descriptions”: 1) If it’s green, wiggles or slithers, it’s biology; 2) If it stinks, it’s probably chemistry, but don’t rule out economics; 3) If it doesn’t work, it’s most likely physics – but keep the economics option open; 4) If it is incomprehensible, it’s probably mathematics, but that’s part of economics also; 5) If it stinks, doesn’t work, is incomprehensible and doesn’t make sense – it’s either economics or philosophy.

. . . Ray DeVoe, analyst and author of “The DeVoe Report”

Raymond DeVoe was one of the best stock market newsletter writers on Wall Street. I had the pleasure of meeting him when I moved to Baltimore to be director of research and run capital markets for a brokerage firm. Unfortunately, Ray is no longer with us, having passed away. As written in his obituary:

Tom Keene on Bloomberg Television’s, “Surveillance Midday,” called him a “legend of Wall Street.” DeVoe wrote the weekly “DeVoe Report” for 35 years and continued until August. The newsletter was known for DeVoe’s original thinking on economics, his humor and his wide-ranging interests. He often discussed classic movies along with stocks. The financial website “Global Province,” named The DeVoe Report “The Best Wall Street newsletter” in 2004.

I recalled this “College Course Descriptions” while reading last week’s moribund economic releases. As our economist Scott J. Brown, Ph.D., writes:

The 2nd estimate of 1Q17 GDP growth was stronger than anticipated, not a big surprise given the normal uncertainty in the figures. Consumer spending was revised a bit higher (still soft). Business fixed investment was revised higher. Inventories were more of a drag on the headline figure than in the advance estimate. Underlying domestic demand (Private Domestic Final Purchases, which is GDP less net exports and the change in inventories) was revised higher (a 2.7% annual rate and +2.9% y/y). A pop in military aircraft prevented durable goods orders from falling as expected, but ex-transportation, results were disappointing. Orders and shipments of nondefense capital goods ex-aircraft appear to be on soft trends into 2Q17, suggesting that the 1Q17 pickup in business fixed investment (+11.4%) may be a one-off.

To be sure, U.S. economic data has been disappointing for a while, yet the equity markets continue to shrug off bad news. That action reminded me of one of legendary strategist Bob Farrell’s favorite books “One Way Pockets,” first published in 1917 under the nom de plume of Don Guyon. I like this quip:

Most traders (investors) seem to become convinced of the genuineness of a movement in either direction only when it approaches a culmination. One reliable indication of the start of an upward swing is afforded when, after a period of decline prices, or less frequently, dullness, the market advances or refuses to go down following the receipt of bad news. News can seldom be utilized by the public for market purposes, even when its authenticity is beyond question. For instance, if tomorrow morning’s newspaper should announce the death of a President or the failure of a great “corner house,” or the complete destruction of Gary, Indiana, it is more likely that stocks sold on the news would bring the lowest prices of the day, for the very good reason that each seller would be competing with thousands of other sellers who would have learned the news at the same time.

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