Economy

Ten Trends the Washington Compromise Will Not Change at All

4. The Housing Recovery Remains More Muted

Another trend is that the housing market’s breather from the major snapback is not likely to disappear overnight. Housing is still far better than it was, but the mortgage application market is still not where a sizzling-hot housing market would indicate. Did you notice that Bank of America Corp. (NYSE: BAC), Wells Fargo & Co. (NYSE: WFC), and J.P. Morgan Chase & Co. (NYSE: JPM) have laid off thousands of mortgage banking jobs since the middle of summer? Those are real layoffs that have taken place and are still taking place now. If the big banks are paring down on mortgage people to do new mortgage applications and refinance waves, what does that tell you? Housing may warm back up next Spring, assuming interest rates do not rise too much. A recent homebuilder confidence drop cited lower housing affordability as a driving force. Just don’t try to say that we called housing dead because that is not the point.

5. The Bull Market for Stocks Keeps Charging

Did you notice how even during the peak of the government shutdown and debt ceiling debates that stocks never got hit that hard? Sure, volatility rose and we did get a peak selloff of 6% in the DJIA, but that low was still up 12% for 2013. Stocks just never felt on the verge of another crash. If a stock, or market, has a chance to see a serious correction but the correction is tiny, then that generally implies that the market wants to go much higher. The snapback rallies were also so large that smart money was buying in to sell to the latecomers after the fact. The S&P is within 10 points of its all-time high while the DJIA is about 400 points of its all-time high. The only worry we have here is that we recently saw a blurb that about 90% of financial professionals expect stocks to rise in the next couple of years, and you know what a contrarian would tell you about that. Can the S&P 500 still rally close to 50%?

6. IPOs Remain a Focus

Another trend that will not likely change is that the hot IPO bandwagon will continue. Twitter is still on track for a November IPO and other great filings have been seen as well. We recently covered the hottest of the hot IPOs for 2013. It is hard to assume that IPOs will still rise 50% or 100% right out of the gates on day-one, but the IPO market strength will remain. Veeva Systems Inc. (NYSE: VEEV) did just open up 80% higher than its IPO price. Investment banking departments go dark after about the second week in December each year and we expect a rush up until that time. This new IPO ETF launch by Renaissance may be late to the party but there are many great companies in the IPO pipeline.

7. Oil and Gas Coexist with Green Energy

The energy debate is going to continue between green energy and fossil fuel. The White House will keep up support for alternative energy, and the release of new funding will keep money headed that way. Big Oil is still pushing to allow for the United States to begin exporting crude oil and industry insiders believe more and more that this will become allowed rather than not. The good news is that this may drive down the price of oil globally, driving down prices at the pump, and hopefully driving down inflation fears. The PowerShares WilderHill Clean Energy (NYSEMKT: PBW) ETF is somehow within 1% of a 52-week high.

8. Dividends Keep Growing, Yes They Do!

Dividend growth from solid major companies will continue. You can bank on this coming down the pipe. We recently featured the safest high-yield dividends to hold in the S&P 500. We also recently featured six major dividend hikes that you can expect between now and year-end. Congress was not going to change this trend with or without a compromise, and they won’t stop the dividend hikes from coming now either. Companies are managing income per share growth even if their sales are currently not very impressive. Shareholders are winning from this.

9. Gold’s Crystal Ball Stays in the Shop

If paper currency is under pressure, gold moves from being a store of value and becomes the temporary international reserve currency. Gold demand could have surged as a flight to safety if a default was really coming. So if a deal is real, was it at least a bit surprising to see gold rally on the news of a deal? Since the start of October there has only been an $80 or so trading range after having its worst year in many. Gold simply feels like it is losing its predictability. It may rise when you expect it to fall, or it may fall when you expect it to rise. Just keep in mind that gold is handily under the 50-day and 200-day moving averages, so that tells you that the longer-term trends are challenged at best. Many traders are no longer tracking moves in gold (silver too).

10. BlackBerry Is Still Doomed

The last consideration that Congress will not change is that BlackBerry Ltd. (NASDAQ: BBRY) is still screwed if it is left to govern itself. The company’s send-out of messages that they are here for the long haul fell on deaf ears. We still do not think a buyer will pay much over $9 per share, but we admit that anything is possible when it comes to billionaires and a vanity effort. Our take is that Fairfax Financial is going to deliver a buyout price that is somewhat lower than the original deal. If Cerberus does decide to bid or if the co-founders somehow manage to find money for a bid, BlackBerry’s future under them may be no better than on its own. Shares trading at $8.15 do not indicate any high hope of a super-premium buyout much above $9 per share.

*****

Again, these are trends which we do not expect will change at all under a compromise. If that compromise dies, get ready for more pressure.

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