February 22-26, 2016: Random gleanings from the world of business, investments and economics, Odd Lots
“Those who have knowledge, don’t predict. Those who predict, don’t have knowledge” Lao Tzu
Fintrust Investment Commentary: Markets
Last week felt great. The enthusiasm may not last, but we’ll enjoy it for now: the S&P 500 rose 2.8% last week, the best week of 2016 so far. Reasons for the buying included rising oil prices, a couple of good economic indicators and investor bottom fishing.
“It suddenly looks like people are starting to dig around for babies thrown out with the bath water,” said John Stoltzfus, the New York-based chief market strategist at Oppenheimer & Co, quoted in Bloomberg.
Comment: A lot of bulls thrown out in the bath water, too. Glad to see a few climbing back in.
The Consumer Price Index was released on Friday. Prices rose an average of 1.4% during January. Highlights:
• Gasoline prices fell 4.8%.
• Heating oil dropped 6.5%
• Electricity prices fell .7%
• Meat prices fell .8%
• Dairy prices fell .2%
• Cereal prices fell .2%
• Furniture and bedding were unchanged.
• Tuition remained unchanged.
Comment: The best of all worlds for college students.
The Art and Science of Forecasting
A few weeks ago Freakonomics Radio broadcast an episode entitled “How to be Less Terrible at Predicting the Future”.
The episode opened with post-game comments from Carolina Panthers quarterback Cam Newton. Cam is an expert on football forecasts…and defying them.
Early in the 2015 season, the Panthers were clear underdogs against the Seattle Seahawks. Prior to the game, 36 out of 40 leading NFL experts picked Seattle to win. The Panthers won.
In the post-game interview, Cam was asked his opinion about all those “expert” NFL forecasts predicting a Panthers loss. He replied, “I find all media comical at times. Because in your guys’ profession, you can easily take back what you say. If there was a pay cut or if there was incentive, if picking teams each and every week, you may get a raise, I guarantee people would be watching what they say then.”
Cam nailed it, according to Freakonomics, going straight to the problem with forecasts. “Experts and pundits are notoriously bad at forecasting”, said the radio show, “in part because they aren’t punished for bad predictions”.
In the weeks ahead, we will bring you excerpts from “How to be Less Terrible at Predicting the Future”.
Comment: Cam learned even more about forecasting in the Super Bowl.
Telecom: Cellphones vs Landlines
The U.S. Bureau of Labor Statistics drilled-down into America’s cellphone spending and released the data last week. The Bureau compared 2014 data to 2007. The stats:
• The average consumer spent $963 for cellular service in 2014. That’s up 58.4% since 2007.
• The average consumer spent $353 for residential service. That’s down 29.7% since 2007.
• Older people accounted for most of the increase. People over age 75 increased their cellphone spending by 135%.
• There is a direct connection between earnings and cellphone spending. The lowest 20% of all earners spent $445 on cellphones in 2014. The highest 20% of earners spent $1503 on cellphones in 2014.
Comment: Not to mention iPads…
Economics – Supply and Demand
MarketWatch reports that the world may soon experience a shortage of bug repellent. The reason is the Zika virus, carried by mosquitos. Bug repellent makers report demand is up as much as 400% over last year.
Manufacturers include 3m, Spectrum Brands and SC Johnson (formerly Johnson Wax).
Comment: By May the shelves may be empty.
Bonds – Thatsa lotta Parmigiano
An Italian firm sold bonds last week backed by wheels of Parmesan cheese. Reuters reports that the cheese company, 4 Madonne, raised $6.55 million.
The bonds will pay 5% interest and mature in 2022.
In the event the bonds cannot be paid off at maturity, bondholders will receive 120% of their original investment paid in Parmesan cheese.
Comment: Better than anchovies.
The Sky Is Falling?
Investment managers are risk managers. Consequently many of us raised an eyebrow a couple of weeks ago, when we heard that a man in India had been killed by a meteorite. What are the odds, right?
National Geographic researched those odds, quoting Tulane University earth sciences professor Stephen Nelson, who calculated that the lifetime odds of being killed by a space rock are 1 in 1,600,000.
That compares to 1 in 90 odds of dying in a car accident, 1 in 250 for fire, 1 in 60,000 for a tornado, 1 in 135,000 for lightning, and 1 in 195 million of winning the Powerball lottery.
So next time you are buying a Powerball ticket, remember that you’re 121 times more likely to be hit by a meteor.
Comment: Some debate about whether the man was actually hit by a meteorite or a ball of frozen sewage from an airliner.
The Week Ahead
Important economic numbers this week.
Earnings probably won’t move the markets. High profile big-box retailers will get the most attention, including Lowes, Home Depot, Best Buy, Macy’s and Kohls.
Monday: PMI Manufacturing
Tuesday: Consumer Confidence, Existing Home Sales
Wednesday: New Home Sales, Petroleum Status Report
Thursday: Durable Goods, Jobless Claims
Friday: Gross Domestic Product, International Trade, Personal Income, Consumer Sentiment
Monday: Allergan, Dillards, Fitbit
Tuesday: Cracker Barrel, Dreamworks, Edison Int’l, Fresh Del Monte, Home Depot, Macy’s, Office Depot, Popeye’s, Papa John’s, Vitamin Shoppe
Wednesday: Churchill Downs, Dollar Tree, Lowes
Thursday: Best Buy, Baidu, Chicago Bridge, Chicos, Campbell Soup, Crocs, Domino’s, GAP, Kohls, Kraft-Heinz, West Marine, Zoes Kitchen
Friday: Sotheby’s, Berkshire Hathaway A&B, Footlocker, JC Penney, EW Scripps