I don't want a Fed rate increase. Our economy is showing some pretty defined fault lines that are obvious to anyone on any of the myriad conference calls that have gone on this earnings season.
There's little inflation to speak of. There's not as much job creation as before. There's a definite manufacturing turndown, and the driver of so many jobs, oil and gas, is now in serious retrenchment mode, as anyone looking at Royal Dutch Shell's (RDS.A, RDS.B) numbers this morning can tell.
However, housing's still strong and its biggest problem is a lack of supply. Autos are just plain old strong. Retail is weak to weak.
If rates were at 3% and we had these data, we would be concerned enough that we might think the Fed would be proactive and cut a quarter point.
But we aren't at 3%. We are at zero. And therein lies the problem.
Now, I had been worried about a faltering Europe, a declining China, and an off-the-grid Brazil in addition to concerns about a government shutdown, all on top of the less-than-robust U.S. growth.
Europe is still weak but it is getting better. Unfortunately, recent statements by the central bank there made it pretty clear that a weaker euro's the way to bolster growth. That's just plain bad, and the dollar's been back to its old freakin' strong ways.
Forget Brazil.
But China's better. The consumer is better. The numbers are bottoming for all but the bulk materials. No, I don't want to invest in China, but if you look at what we got just this week with Alibaba (BABA) and Action Alerts PLUS portfolio holding Apple (AAPL), it is difficult to continue to make a case that Consumer China's as bad as it was when the stock market was plummeting daily.
In other words, we have less systemic risk from a federal shutdown or a China collapse, and I think we can weather whatever Europe throws at us or what Brazil deals us.
So, while I am concerned about the U.S., mostly its manufacturing side, which is hurt by the dollar, I am not as concerned about the financial side or the retail side.
Meaning? We can handle a rate hike, as the world is currently configured.
The thing you need to realize though is that if we get a hike we are going to see a new round of estimate cuts to the international companies that aren't in the stocks that are reporting. So there will be a huge rotation out of those stocks into the banks and the fastest growing technology stocks and some of the domestics.
Why not all of the domestics? Simple: if employment falters, they will get hurt badly.
Which brings things to full circle. Our country is weaker than it was three to six months ago. The rest of the world, though, is better.
We just don't want to be so weak that the Fed turns a manufacturing decline into an overall economic decline. That's the tightrope we are walking, one that will get cut off if the Fed hikes while employment falters. If you still want a hike after that, I think you are simply suggesting that we hike so we can cut again when things are bad.
To me, that's plain silly. But we are in a very silly season.
