Some Common Cents for April 14th, 2017

A couple of weeks ago, we raised a little cash in the vast majority of our client accounts. In the grand scheme of things, it was relatively minor across the board. While we would ordinarily send out an email detailing our actions, we didn’t this time as we didn’t want anyone to misprocess our actions as “the sky is falling.” Thus far, the trade has been mostly a wash in terms of overall portfolio performance.

Currently, the general consensus of our investment team is we would be more inclined to reduce our overall allocation to equities than add to it, at least in the short-term. However, no one believes a massive correction is imminent either. The reason is pretty simple: the economy appears poised for continued moderate/mediocre growth. This should provide a base, of sorts, for corporate earnings. As long as this remains in place, another 2008 or even 2002, which is what most investors fear, isn’t terribly likely outside of a major, global conflagration.

Even so, in order for the markets to have another strong leg up, two things must happen: 1) 1Q 2017 reported earnings have to come close to or exceed some pretty lofty expectations, and; 2) at some point in the not so distant future, Washington HAS to start addressing and/or tackling some measure of meaningful tax reform. I am not sure which is more important than the other, as they are both critical.

First things first, it is too early in the 1Q earnings season to make a clear determination, but initial observations suggest things are at least okay. Tax reform? As I type, I am not clear on where that stands other than the somewhat vague promises about ‘later this year’ and ‘not before August or September.’ Perhaps I have missed a story with specifics or didn’t get the meeting invite from the White House; I don’t know which. …Read More…

The opinions expressed within this report are those of John Norris as of the initial publication of this blog. They are subject to change without notice, and do not necessarily reflect the views of Oakworth Capital Bank, its directors, shareholders, and employees.

Some Common Cents for April 7th, 2017

You would think 60 Tomahawk missiles into a Syrian airbase might cause some consternation in the world’s financial markets. I certainly thought so last night when the news came across the television. In fact, the first thing I did was look at stock futures and the Asian exchanges to see how they were responding. At the time, they wobbled a little, but not as much as I would have thought. This morning, it would appear as though “God is in His heaven and all’s right with the world.”

Outside of the anticipated condemnations from Syria, Russia, and Iran, it appears the rest of the world, those countries which matter at least, is okay with United States wiping out a sizable chunk of the Syrian Air Force. Certainly, not everyone will be in personal agreement with the Administration’s decision, but if actions speak louder than words, the global response has been: so what? At least up until 9:37 CDT on April 7, 2017, that is.

As an aside, in today’s political correct society, I am frankly kind of surprised we still call these intermediate-range missiles Tomahawks. It seems this nomenclature would offend someone, somewhere. I suppose “one-handed ax used as a tool and weapon by pre-contact Native Americans in the United States” doesn’t have the same ring. It would certainly take up more space on the side of the thing to no real effect.

The real story today is the Employment Situation report for March 2017. The Street had been looking for an increase in non-farm payrolls of around 180K, with a range in the official estimates being 100K to 267K. Back when I was at Regions Financial Corporation, I used to participate in this survey, and others. So, I know the work that goes into concocting the numbers. As a result, I don’t put too much faith in them. Ha. While a fun thing to do when I was younger, it really is kind of a waste of time. …Read More…

The opinions expressed within this report are those of John Norris as of the initial publication of this blog. They are subject to change without notice, and do not necessarily reflect the views of Oakworth Capital Bank, its directors, shareholders, and employees.

Column: Norris: Alabama’s economy is underperforming

According the St. Louis Federal Reserve, the Gross State Product for Alabama in 2015 was $178.566 billion, in constant 2009 dollars. That is a fancy way of saying when adjusted for inflation using 2009 as the base year. Using that same technique, it estimates our GSP was $171.723 billion in 2005.

The good news is we have increased our economic output over the last decade. The bad news is we haven’t increased it by very much, only 0.39 percent per year when annualized. While the country hasn’t been growing like gangbusters, our growth has trailed by a pretty decent margin, roughly 0.89 percent per year. That might not sound like much, but it can add up when you are talking about billions of dollars.

To that end, had we just grown at the national average, our GSP would have been about $16.5 billion larger in 2015 than it was. If we assume there are 4.9 million people living in our state, that amount of difference works out to be about $3,371 per person.

While our state has had a few bright spots, the data suggests we have underperformed overall. Shoot, you don’t have to venture too far outside our major population centers to conclude we haven’t been hitting on all cylinders. Who knows? If only we had been average, maybe the Pizza Hut in Evergreen wouldn’t have closed. It was a good one.

It annoys people when I throw these numbers around, and most of them counter with something along the lines of: “timber prices haven’t really rebounded since the housing bubble burst, and the Obama Administration pretty much killed the coal industry. Do you know what happened to cotton prices after 2010? So, what do you expect Norris?”  (Read the full article as previously published in the Montgomery Advertiser on April 3rd, 2017)

Some Common Cents for March 27th, 2017

This week, you might think investors are agonizing over the particulars of the proposed healthcare legislation. Some might be; however, I would argue the details aren’t as important as the Administration’s ability to get legislation through the Congress. After all, the markets assume President Trump has a pretty aggressive pro-growth agenda, and this is the first major test of his actual political clout in Washington.

If this fails, what will happen when the tax reform proposals hit Capitol Hill? That is what really interests investors, and for good reason.

At this time,  it is difficult to imagine a sudden surge in corporate earnings, at least one which would engender another significant ‘leg up’ in the stock market. Sure, increased business owner and consumer sentiment might drive an increase in economic activity. However, I would counter with much of that increase in sentiment has to do with the prospect for meaningful tax reform. If it doesn’t happen, or is so watered down in the sausage making, it could be a more tricky year than it would currently seem.

The reason is simple: economic conditions suggest the need for a higher overnight lending target. Put another way, historically, the overnight rate would not be as low as it has been, and currently is, given the overall level of economic activity and expectations for inflation. On the flipside of the coin, in a simpler time, the Fed probably wouldn’t be ‘raising interest rates’ given, again, the current overall level of economic activity and expectations for inflation.

The Fed apparently believes conditions are strong enough to warrant a more ‘normalized’ interest rate environment, and is behaving accordingly. Obviously, this will raise borrowers’ debt service on floating rate obligations, both individual and corporate. Without a corresponding increase in revenue, this will have a compressing effect on earnings. Period. …Read More…

The opinions expressed within this report are those of John Norris as of the initial publication of this blog. They are subject to change without notice, and do not necessarily reflect the views of Oakworth Capital Bank, its directors, shareholders, and employees.

Column: Norris: Federal Reserve doesn’t have all the answers

Recently, a reporter buddy of mine in Birmingham asked me for a quote about the Fed’s recent rate hike. Did I think it adequate? Was it premature or overdue? That sort of thing. I have known him for long years, and know he is typically looking for a quick soundbite. Of course, funny is always nice.

I pretty much gave him what we have been telling clients for the better part of a year now. The Fed wants to normalize the yield curve, but not invert it. The national data has been strong enough to support a higher overnight lending target for quite a while. This past rate hike, plus the next two, really aren’t data dependent. Finally, Fed Chairman Janet Yellen wants to do what she can before Trump fails to reappoint her at the beginning of next year. That sort of thing.

No, it wasn’t funny, but monetary policy normally isn’t hilarious. (Read the full article as previously published in the Montgomery Advertiser on March 20th, 2017)

Column: Companies relying more on self-service kiosks

This past week, Wendy’s announced plans to provide self-service kiosks to around 1,000 outlets across the country, roughly 15 percent of its restaurants. It beta tested the technology at select locations in central Ohio with good results. So, for an estimated $15,000, franchisees will be get three of the things. Of course, the company went to great lengths to say no one has to use or install them. It is only going to make the service available.

Hmm. Three kiosks for $15,000? Think any of them will call in sick or ever show up late? Will they be able to work full days without overtime or benefits? Will they need training? Will there be high turnover, as Wendy’s kiosks find better opportunities elsewhere? (Read the full article as previously published in the Montgomery Advertiser on March 6th, 2017)

Some Common Cents for March 3rd, 2017

I apologize for not sending out a newsletter last week, but it wasn’t for the lack of effort. The truth of the matter is, at about 3:30 last Friday afternoon, I read what I had been writing intermittently throughout the day, and thought to myself: “Really, Norris? God gave you a brain, an above average ability to express yourself, and some semblance of typing skills AND this is the best you can do?” Oh, it wasn’t the worst thing I have ever put out there, but it still wasn’t good. So, I simply save the half-finished file, and hit the bricks at the appropriate time.

This week, I have read any number of articles about a so-called bubble in ‘passive investments.’ This has both bemused and frustrated me at the same. The problem I have with the discussion is the use of the word ‘bubble.’ Since I have been around this industry for a long time, I can read between the lines a little. However, most people reading these articles are going to process the word bubble as ‘dot.com’ or ‘sub-prime housing.’ Those of us with gray hair might even harken back to ‘Japanese banking and real estate.’

As a result, what is really a discussion or analysis about the increasing popularity of a particular method of investing becomes a worst case scenario in the mind of the reader, a la 2000-2002 and 2008. I suppose you can say there are bubbles and then there are bubbles.

One of the better columns I read on the matter came from a John Stepek, a writer for MoneyWeek in the UK. Instead of reinventing the wheel, and paraphrasing and plagiarizing in the process, let me simply cut & paste some pertinent parts of his extremely well written article. I freely admit I changed the British spelling of certain words to American (‘Murica Baby): …Read More…

The opinions expressed within this report are those of John Norris as of the initial publication of this blog. They are subject to change without notice, and do not necessarily reflect the views of Oakworth Capital Bank, its directors, shareholders, and employees.

Column: Money is inherently risky

I wish I had a dime for every time someone has told me they want to beat the markets without taking much or any risk. Who wouldn’t want that? All the gain without any of the pain is a pretty neat trick, and there are people who promise they can deliver just that.

Please be extremely leery of them.

Don’t get me wrong, I am not implying fraud or worse. The underlying issue is the difference between relative and absolute. While an investment manager might boast of delivering above market returns with below market risk, is that really what the client wants? (Read the full article as previously published in the Montgomery Advertiser on February 27th, 2017)

Column: Anything can happen with Dow Jones

Recently, I was a speaker for what they used to call “career day” at my daughter’s high school. They now call it Kaleidoscope, or something along those lines. Regardless, I talked about my job, gave some rudimentary advice and, believe it or not, fielded a few questions. For my troubles, I got a hug, or three, and a loaf of really delicious banana nut bread.

Truthfully, they didn’t have to give me anything. I was more than happy to do it.

One young man asked me whether the Dow Jones Industrial Average (DJIA) at 20,000 would be an impediment to any future rallies this year. (Read the full article as previously published in the Montgomery Advertiser on February 20th, 2017)

Some Common Cents for February 17th, 2017

Perhaps it is a little fitting the movie with the most Oscar nominations this year, with 14, is one entitled “La La Land.” By virtually all accounts, it is more than a fine film, but I will undoubtedly wait for it to come out on Netflix or Amazon Video. While the movie industry had its second best year in history, in nominal terms, in 2016, I haven’t been inside a theater since 2014.

I say it is fitting because much of the country seems to be in la la land, particularly the stock market.

In the simplest terms, stocks rally result when more money flows into the market than comes out. Basically, there are more buyers than sellers at the time, for whatever reason. However, stock prices usually come back to a few things: corporate profits (and expectations for future profits), how much investors are willing to pay for them, and the availability of attractive investment alternatives. We all want to make it more complicated than that, and some of our jobs depend on doing so, but that is about it. …Read More…

The opinions expressed within this report are those of John Norris as of the initial publication of this blog. They are subject to change without notice, and do not necessarily reflect the views of Oakworth Capital Bank, its directors, shareholders, and employees.