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James Byrne has been in the investment arena for 28 years. He cut his teeth on the trading desks of Wall Street in the Fixed Income Institutional Arbitrage area working on some of the largest global financial institutional sales and trading desks. Opportunity allowed a move to Kansas City Missouri some 16 years ago. He branched out and established his own company Grand Street Advisors,LLC. 10 years ago. His goal, to bring professional investment management, using the same skills learned and utilized for his institutional clientele to individual investors in a very personal and customized manner. Account Minimum Size $100,000.00 Annual Fees Equities 1% Up to the First $1 millon Fixed Income .50% Up to the first $1 million

Friday, August 9, 2013

The Market And Economy Acting Powerball-ic As The Federal Reserve Readies For the Great Taper

Elizabeth Browning penned two centuries ago, “how do I love thee let me count the ways”. Had she been referring to the now four year old rally in the equity markets we just may be able to hear more noise listening to the croppy mating calls. I mean sure the little swimmers are tasty but they just don’t say a heck of a lot. Same goes for the equity market rally. It has been one of the most unloved and mistrusted that I’ve ever experienced. As the saying goes I guess, if you don’t have something nice to say, don’t say anything at all. If investors abided by that little tidbit, the silence would be deafening Where we are: JOBS. Let’s start with the big Kahuna. Non-Farm Payrolls came in weaker than the street was looking for at 162,000. The trailing twelve month average now stands at 189,000. Good, not Great. Keep in mind the monthly non-farm payroll figures are a backward looking compilation kind of like looking in the rear view mirror to what happened in the past month, but still a meaningful gauge. The real time data, weekly unemployment claims came out this morning at 333,000 up slightly from last week 328,000. Longer term the trailing four week average ticked down also to 335,500. This is excellent and continues the trend lower in claims. Institute for Supply Management Manufacturing (ISM Manufacturing). The ISM Manufacturing Index jumped by 4.5% to 55.4% in July the highest this year. Imbedded in the release was even more good news. The New Orders component increased by 6.4% to 58.3% and the Employment Index leapt 5.7% to 54.4%. Both would suggest a positive bias for the future production and new hires. Institute for Supply Management Non-Manufacturing or Services Index (ISM Services). The ISM Services Index improved 3.8% to 56%. The Activity Index moved up to 60.4% and increase of 8.7% which is the 48 consecutive month of expansion. Again the New Orders Index show significant improvement moving up 6.9% to 57.7% while the employment index dropped 1.5% to 53.2%. With all the figures presented keep in mind any reading above 50% indicates expansion or growth. Industrial Production (IP). IP improved by .3% after being flat for June. Year over year IP has moved ahead by 2%. Again another case for a good not great rate of growth. Embedded in the report we find some more positive nuggets with Automobile manufacturing increased 1.4% and home electronics up 2.2%. Business equipment as a whole showed an increased in the second quarter of 2.2% roughly half the rate of expansion from the prior quarter so we clearly see the lull in business spending reflected here. Industrial Capacity Utilization (CAP-U). Cap-U inched up .1% to 77.8. We should see continued progress in the utilization figures as auto manufacturing continues adding new lines to keep up with rising demand for newer model cars. The average age for existing cars on the road is now up over 11 years so the replacement cycle here should also portend well for future growth. At current levels there remains ample cushion to absorb any inflationary pressures building up. Housing. New home sales for June jumped to a five year high hitting an annual run rate of 497,000. Year over year this represented a 38% rise the most since January 1992. The Case Shiller Home Price Index continued showing progress rising 12.2% in the latest release. June’s existing home sales slipped some with pricing continuing higher with realtors sighting tight supplies creating bidding wars. We can see as mortgage rates begin to tick higher buyers who may have been sitting on the fence being forced in releasing the years in building pent up demand. We could continue looking at various indicators that would reflect one overriding theme, similar to hitting 5 of 6 Powerball numbers, GOOD just not GREAT. This leaves the Federal Reserve front and center yet again. Federal Reserve Chairman Bernanke, like many free marketers would prefer to begin exiting their QE program. This “good not great” environment should allow for a gradual transition from a market driven by Fed stimuli to one that allows the market to price risk and fundamentals drive performance. This transition will not be smooth. As the Fed exits their monthly $85 billion asset purchases, private investors will need to replace that capital to some degree. This can and should happen as confidence in the economy and markets entice dollars out of savings accounts and money market funds along with the acceleration of the so called Great Rotation. This so called rotation will be from investors that invested heavily in bonds and bond funds for their relative safety only to now see losses mounting in the monthly statements as interest rates rise moving money more and more aggressively into equities. Black Vultures- I have decided not to subscribe to the commonly used term Black Swan. A swan is pretty and graceful, which is nothing like the effects a so called Black Swan event would have on the markets. A Vulture is hulking and lurking and when alls said and done feasts on the remains of carcasses left behind. Now the Vulture seems a lot more appropriate when we’re discussing Wall Street, mishaps and investing. 1. The looming Black Vultures begin yet again with our fearless leadership in Washing. The mid-term elections have our polarized electorate more focused on winning seats and less on debt reduction and budget negotiations. Another virtual stalemate could derail the growing enthusiasm for equities and put the credit rating of the US in danger of another downgrade. 2. Black Vulture two could be a major Chinese bank defaulting under the weight of bad loans and a slowing Chinese economy as a whole. This would send shock waves across the credit markets and force the Peoples Bank of China (China’s Central Bank) to decide whether they institute a Too Big Too Fail policy or let it fail. Going Forward. The global economy is now in recovery mode. The EU and China recently broke back above expansion levels reflected in their respective PMI’s. China at 50.3, the Euro-zone at 50.5 and Indonesia joined the party clocking in at 50.7. One not talked about enough is our trading partner right on our border Mexico. President Nieto is taking on a monumental task of reforming their economy. President Nieto is putting renewed emphasis in education, raising taxes and opening up markets to competition in media, communication and the energy sector. Mexico is now competing and in some cases winning the war with China to become the low cost provider for labor and encouraging private investment. This has the potential to be huge in the coming decades. An able, educated workforce with a stable politico and growing middle class would create well situated consumers for US goods providing security and jobs on both sides of the border. Now, it appears the global economy is about to join the “5 out of 6 Powerball” phase of growth as the US economy begins to accelerate into third gear. Central Bankers will look to begin to remove or taper Quantitative Easing programs later on this year. Many an investor will hold their breath and we may be able to hear many a pin drop in the process. This should be replaced by the roar of the thundering herd chasing this uber-bull market to ever higher record levels as confidence grows that this economy CAN stand on its own based upon fundamentals without further Fed stimuli. We maintain our aggressive exposure to the market and will monitor both economic and market releases closely for any signals to adjust our posture. We thank you for your confidence and patience in this very challenging environment. Yours in pursuit of the KWAN.

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