What Happened to the "Escape Velocity"?

"A standstill in the nations' retail sector in July showed the US economy struggling to lift off as improvements in the labor market fails to deliver stronger wage and spending growth...... Federal Reserve Chairwoman Janet Yellen has said that take home pay should begin to rise faster than prices as the labor market heals and slack continues to diminish. Without acceleration in wage growth, Ms. Yellen warned in June, I would worry about downside risk to consumer spending" - wsj 8/14/14 (FYI wage growth was not only weak - but fell by 0.2% in the 12 months ended June 30th. )

DID YOU SEE THE LATEST RETAIL SALES REPORT? July retail sales were flat - which was the worst performance for 6 months indicating that the economy appears to be off to a slow start in the 3rd Quarter.

So not only are wages not growing as fast as they should be, but Americans are dealing with higher tax rates, higher health care rates, higher gas prices, higher food prices, more part time jobs that pay less money/hour - essentially - it's a mess.....and that 'escape velocity' that we need to achieve? Well that ain't happening either.

Escape velocity in physics is the minimum speed needed to escape the gravitational pull in order to go into orbit.....in economics it is defined as the minimum growth rate needed to 'escape' a recession and return to a more normal rate of long term growth...... Recall that 2 yrs ago - we began to hear about escape velocity and how monetary policy had helped to achieve it...well - think again.....not so much. .

Apparently - the launch has been aborted due to 'main engine failure"......you see - yesterday's report missed the mark - so now it's the 'good weather, the sun, the beach, the sand' that is distracting the consumer! Go figure - makes sense no? In January/February it was the cold weather - conveniently - and so now - it's the hot weather .... It's just too nice to go to the mall and shop.....so no one did.

And who better to highlight the failure than Macy's - the flagship American retail store - plunging 5% yesterday after missing 2Q earnings expectations and reducing future guidance for fiscal 2014 noting that they are unable to make up for the lost sales in the 1Q when it was snowing out.

In addition - the global macro news beginning in Asia and then moving to Europe did little to support resetting the countdown clock.....

And stocks did what? Rally of course! Stocks exploded out of the gate and remained strong all day as so many now expect that the Federal Reserve’s (and likely most other central banks) future monetary policy is alive and well - meaning - rates.....not going up so fast! Add in the 'easing' (and I say that cautiously) of the 5 global conflicts and traders decided to take advantage of the sale taking place on Wall St. We are back to the 'bad news is good news for stocks" as the Snow White and the 7 Dwarfs will have to acknowledge reality. As a good friend (@CraigScott31) tweeted yesterday -

"When everyone stops patting themselves on the back b/c the stock mkt is higher, they can realize that real people are AT BEST no better off".

But - there is also the technical side of the move....you see - last week we saw the mkt trade down to the 1915 range and then bounce back to settle in at 1925 ish suggesting a 'short term oversold' condition....so yesterday's move helped by the weak data and the easing tensions provided the perfect opportunity to go bargain hunting.

Remember - August is historically a poor month - especially in a mid-term election year and it usually averages about a 4% decline.....BINGO - did you happen to note that from the late July high of 1995 to last week's low of 1910 - the mkt gave back - YUP 4%. As I said yesterday - we remain locked in the 1925/1955 trading range - and yesterday we saw the mkt trade up to 1952 (middle Bollinger band - resistance) to back off to 1946. Real resistance will be at the 50 DMA of 1956....so the question is - Will there be enough 'escape velocity' to break out of this gravitational pull lower?

Look - go slow - do not read too much into the action during the last couple of weeks of summer. Lots of people on vacation - large asset managers have lined the books at levels where they would be happy to buy stocks as well as sell stocks - all of the other noise are traders trading with traders - volumes remain substantially below healthy levels - so the moves - up or down- will tend to be more exaggerated - but that then allows for the longer term manager to use that to his/her advantage.

This morning US futures are +2 pts as the mkt awaits today's eco data.....with earnings from JC Penny, Kohl's and WMT on the docket today - we will get another view of whether or not the consumer is alive and well. WMT just reports $1.21/sh - in line with expectations. Stock trading down 1% in pre-mkt trading.

With most of the earnings behind us - investors will need to re-focus on the broader macro data - and while there does not seem to be a reason to challenge the highs we are not seeing a reason to move much lower. Remember - a 4% adjustment is well within the band of normalcy.....that elusive 10% - 15% move lower that many are calling for - remains just that - elusive.

Geo-politics?

Israeli and Palestinian representatives agreed on Wednesday to extend a truce for 5 more days to allow them to seek a lasting agreement to end the fighting in Gaza, according to Egyptian mediators and the head of the Palestinian delegation. Israel declined to comment on any extension to the ceasefire as rockets continued to be fired from the Gaza Strip into Israel, breaching the prior 3 day ceasefire. Israel responded with military strikes, saying it was targeting “terror sites” in Gaza.

In Ukraine - Kiev sent its own convoy of humanitarian relief to Ukraine’s war-torn eastern regions after blocking entry to a fleet of Russian trucks carrying aid. The Russian's stopped in Voronezh, in southern Russia, on Wednesday and remain there because Moscow has been unable to negotiate passage across the border with Ukraine.
A plane with Brazilian presidential candidate Campos - did in fact crash and burn taking out one of the front runners in this election.

BoE Carney - cuts its wage growth estimate for 2014 - allowing for UK interest rates to remain - mkts betting that there will NOT be any rate rise until sometime in 2015 . 2Q GDP in Europe - NOT GOOD , France and EU Flat, Germany falls by 0.2% and European mkts all higher.....go figure.

Onion, Mushroom, Pancetta and Black Truffle Oil Pizza

Delicious....

So as summer winds down - you have to try your hand at making pizza on the grill....using a pizza stone.
For this pizza you need:

Pizza sauce* see below, Chopped pancetta, sliced onions, sliced mushrooms, s&p, olive oil, shredded Mozzarella and black truffle oil.

**Pizza sauce - easy to make - you need:
1 can chopped tomatoes or kitchen ready crushed tomatoes....Not puree., 3 garlic cloves chopped, maybe 3/4 tsp dried oregano, fresh chopped basil - like 3/4 cup, s&p and olive oil.

In a large pan or bowl - mix the pizza sauce ingredients together - and set aside. This should sit for about an hour or so - just to give it time to blend the flavors...do not cook.
Next - in a frying pan - add a swirl of oil and then the pancetta - cook until crispy, now add the sliced mushrooms - cook until browned and the water has disappeared. Season with s&p and set aside.

Now light the grill and place the stone on the grill and let it heat up slowly......

Now make the pizza - spread the dough out on a floured wooden pizza board. Add the sauce and spread around - leaving a nice edge. Now spread cheese all over the pizza and add the pancetta, onions and mushrooms. Place on the pizza stone and cook for about 8 mins....check bottom to make sure it is not burning. When cooked...remove and drizzle the black truffle oil on top and serve.


Buon Appetito.