by Erick Mokaya, Avondale Asset Management

Editor’s note (@skrisiloff): I’ve been off for a few weeks working on an outside project. Erick has done a great job in my place. I may still be in and out of writing these for the time being, but I am still contributing where I can and you are in good hands with Erick.

I was back in the saddle this week though and I’m pleased to report that not much has changed. The economy is still moving forward even though it has a distinctly late cycle feel to it. The perception of the strength appears to be greater than the reality. It’s not that the economy is doing poorly, but it’s just chugging along. Meanwhile market prices reflect a phantom euphoria and no one expects that to change even though the Fed has been raising interest rates.  It’s a delicate cocktail.

The Macro Outlook:

The US hasn’t changed much

“I would say that based on my observation of actual spending behavior and my discussions with our wide range of contacts that I haven’t seen very much evidence that thus far expectations of policy changes have driven substantial changes in either consumer spending or investment spending. So, I really wouldn’t expect any significant pullback, many of our business contacts I think their confidence remains high. They’ve not really changed their plans yet and they have a wait and see attitude.” —Fed Chair Janet Yellen (Central Bank)

“So from the United States point of view, we are still seeing consumers behaving pretty well, so I think the market is doing very well. We see really no different trends than what we had seen before.” —Mastercard CFO Martina Hund-Mejean (Payments)

The economy looks pretty good

“The employment situation looks strong, small business looks strong, and actually slightly improving I would say, slightly improving. So generally speaking, despite perhaps what you might read in some publications or the perspective that some people might take away from the media, I think the economy actually looks very good and we’re seeing that growth as I say across all the credit range.” —JP Morgan Consumer Bank CEO Gordon Smith (Bank)

Even beaten up segments are showing some life:

Credit is being extended to lower prime borrowers

“Yes we have extended slightly into that lower prime, if you like segment, certainly not into sub-prime, but we have extended slightly our credit box. In about 2013 2014, everything that we read in the numbers we feel comfortable that we will get paid for taking that extra risk. We are going to sub-prime lending, but we are seeing growth actually across all segments” —JP Morgan Consumer Bank CEO Gordon Smith (Bank)

Caterpillar sees a solid recovery for mining

“We are seeing a good solid recovery from a really low level… We are seeing a good solid recovery from a really low level.” —Caterpillar Resource Industries President Denise Johnson (Mining)

Grocers are seeing less severe deflation

“The deflationary environment was less severe in the first quarter compared to the fourth quarter…produce, while deflationary for the quarter, showed inflation in the last four weeks of the first quarter and pharmacy was inflationary…We do think there could be a little more inflation by the end of the year than we originally thought” —Kroger CFO Michael Schlotman (Grocery)

Mario Draghi says the risk of deflation has dissipated

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