February 9 – 12, 2016: Random gleanings from business, investments and economics, Odd Lots

“Even though February was the shortest month of the year, sometimes it seemed like the longest.” ― J.D. Robb

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Dow Industrial Average, 1916-2016

Fintrust Investment Commentary: Markets

With respect to J.D. Robb, no month of can feel longer than this past January. We tracked down the chart above – 100 years of the Dow Industrial Average – just to remind ourselves that the market actually does tend to go up over time.

The Dow dropped 5.5% in January. The NASDAQ fell 7.9%. If the rest of 2016 is going to be like January, investors may decide to quit opening their brokerage statements.

Much has been said lately about the “January Indicator”, the market barometer that uses January’s performance to predict the stock market’s performance for the rest of the year. Does the January Indicator mean we’re in for a bad 2016? Maybe not.

According to Mark Hulbert of the Hulbert Financial Digest, the January Indicator works best when the market is going up. His statistics:
• Since 1896, when the Dow Industrial Average was created, there has been a 75% probability that rest of the year will be positive when January is positive.
• If January is a down month (as it was this year), there is still a 52% probability that the market will be up. So all is not lost.

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Comment: Maybe just open statements after the good months?

Economics – China

Typical street traffic in Shanhai

Many of the market’s woes are blamed on a weak economy in China. China’s economy isn’t collapsing…it is only misunderstood, says ValueWalk. The case for optimism:

• Chinese factory wages were up 5-6% in 2015, reflecting a tight labor market.
• Per-capita disposable income rose 7% in China last year.
• Retail sales in China increased 11% in October and November.

Comment: Kentucky Fried Chicken is still China’s number one restaurant chain.

Meanwhile, Chinese workers are moving to a 4.5 day work week, as reported by Reuters. The idea was endorsed by China’s state council late last year. The shorter work week is intended to boost travel and leisure spending. The new shorter week is still in the experimental stage – used in only a few cities – but early reports indicated productivity hasn’t suffered and companies report higher morale.

Comment: More leisure time to dine at KFC.

Supply and Demand

Beverage prices set NFL records at the Super Bowl. Business Insider reports that a glass of wine at the Super Bowl cost $25. A light beer was $13, and a bottle of water $7. Those prices sound high until we consider that the average ticket price was $4639.

Comment: Adding insult to injury for Panthers fans.

Inflation

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Inflation is low, but MarketWatch reports that five consumer items are likely to cost you more in 2016:

Hotels – rates are rising world-wide, and prices are expected to rise 4.3% in the United States.
Health Insurance – expect your premiums to rise between 6 – 7.5%
Groceries – prices expected to rise an average of 2-3%.
Netflix – new subscribers pay $1 more per month now, current subscribers will see a $1 rate increase later in the year.
College – expect rates to rise 2.9% for state schools, and 3.6% for private colleges and universities.

Comment: The cruelest blow of all? Girl Scout cookies are expected to rise 25% this year.

Liquidity

Americans are broke. Two surveys – one from GoBankingrates.com, and one from Bankrate.com found that 62% of all Americans don’t have even $1000 in emergency savings. If faced with a cash emergency (for example, a car repair or a health care bill), two out of three Americans said they would have to skip paying other bills, turn to family and friends for help, or use a credit card.

A glimmer of hope: more than half of millennials between ages 25 and 34 actually do have the $1000.

Comment: They may have to loan it to their parents.

Financial Planning

IRA charitable giving finally goes permanent. At the end of 2015 Congress renewed the Quality Charitable Distribution option. Congress has been temporarily renewing the QCD every year for the past several years – but this go-round they finally made it permanent, sparing donors the year-end suspense.

The QCD allows IRA owners over age 70 1/12 to fulfill required minimum distributions (and more, up to $100,000) with contributions made directly from IRA accounts to charity.

The benefits can be significant. A direct transfer may allow the IRA owner to avoid the loss of exemptions and deductions, avoid the alternative minimum tax, avoid the 3.8% surtax on investment income, and avoid the increase in Social Security premiums for Medicare B and D.

Comment: A boost for not-for-profit organizations, as well.

Energy

Have you ever wondered why oil prices are quoted in barrels instead of gallons? Nobody stores oil in barrels anymore, but that’s how the liquid is traded. We ran across the story in a publication put forth by the American Oil and Gas Historical Society (a fun crowd after they get lubricated). A little oil history: When America’s first oil was discovered in 1859, in Pennsylvania, oilmen had no way to store it, so they stored their oil in 42 gallon water barrels. The practice was prevalent, so in 1866 the 42 gallon barrel was officially adopted as the national measure of oil trade.

To this day, the 42 gallon barrel is the standard unit of oil trade. One Brent Crude oil futures contract covers 1000 barrels of oil, or 42000 gallons.

Comment: The average American uses 22 barrels of oil a year.

The Week Ahead: Plenty of earnings reports to drive the markets, and Retail Sales on Friday.

Economics

Tuesday: Small Business Optimism Index
Wednesday: MBA Mortgage Applications
Friday: US Retail Sales (January)

Earnings

Tuesday: Coca Cola, Viacom, Walt Disney, Western Union

Wednesday: CenturyLink, Cisco, Prudential, Tesla, Time Warner, Twitter, Whole Foods

Thursday: AIG, CBS, Groupon, Kellogg, PepsiCo

Watching the Tape is a compilation of news, observations and views written and edited by Bill Kibler, Senior VP, FinTrust Investment Advisors, bkibler@fintrustadvisors.com. Information is provided by sources believed to be reliable, but FinTrust is not responsible for accuracy. The information herein is not a recommendation to buy or sell any security. Past results are no indication of future performance.
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