Bottom-up Stable, Government Data Volatile

I didn’t read the employment report too closely, but did see the headlines. I continue to believe the best economic data comes from businesses, not the government. I believe Q2 2016 earnings and outlooks suggest not much has changed with the economy. At best things are mixed. I see very few pockets of aggressive hiring that would confirm today’s strong jobs data. That said, I am also not seeing aggressive layoff announcements. There have been restructurings in more cyclical businesses, but relatively I don’t think this has changed much over the past few quarters. So I’m not bearish or bullish on jobs, just seems like more of the same.

While the economy appears to be growing very slowly with some industries in recession, from a bottom-up perspective, things seem relatively stable in the real world. Meanwhile, government data is painting a volatile economic picture. Some reports such as employment suggest a strong economy, while other reports like durable goods orders show a severe recession. Deciding which report is accurate seems practically impossible given all of the adjustments and eventual revisions. Meanwhile the government’s economic reports move financial markets by hundreds of billions of dollars – it amazes me. In effect, I don’t see how value can be created by making investment decisions based on volatile and questionable government data, especially when bottom-up data isn’t supportive.

From a bottom-up perspective, Q1 2016 and Q2 2016 appear to be very similar quarters (feels like 1-2% nominal GDP growth). Based on management commentary and outlooks, in my opinion, it looks like Q3 isn’t expected to change meaningfully either. I suppose another round of asset inflation (new highs on stocks) could give the consumer a lift and pull more demand forward. However, based on consumer earnings reports this quarter, the Fed’s asset inflation policies appear to be only benefiting a narrow range of consumer companies. In previous posts we discussed PNRA, WOOF, and TPX’s ability to increase sales and earnings by raising prices (their customers’ are more willing to pay higher prices as they’ve benefited from asset inflation policies).

On another topic, the blog is now one month and 26 posts old! I want to thank all of you for visiting. I plan to keep going until I run out of things to say. In this environment that might be a long time! In addition to writing the blog, I’ve really enjoyed many of the email exchanges. Please feel free to contact me to ask questions or to simply talk markets and stocks. I’m also working on a mailing list (thanks for suggestions on this) and have a few things to work out before it can go live. For now, it’s safe to assume I’ll post most weekdays late evening. Also to contact me please use my gmail address as the contact option was not functioning properly so I took it down.

I’ve been pleasantly surprised by the number of readers and feedback. Apparently absolute return investing isn’t dead! Is it possible investors who simply want an adequate return on their money relative to risk assumed are the silent majority? Feel free to forward the site to other absolute return investors you know, or relative return investors you either want to reform or simply wish to push their buttons (it’s too easy).

Have a great weekend!