Retail sales trend say no US recession in the near term

The 0.7% annual rate increase in 4th quarter GDP was quite disappointing.  It was dragged down by negative numbers for investment and net exports.  But personal consumption remained strong at +2.2%.  The chart below from Fear & Greed Trader at Seeking Alpha indicates that the recession won't come until the Fat Lady (i.e. the consumer) stops singing.

4th quarter US GDP bodes ill for the future

GDP grew at 0.7% (annual rate) in the 4th quarter.  This is a weak result, albeit positive, and the balance of the sources of growth are unhealthy:

Personal consumption expenditures: +1.46%.
Gross private domestic investment:   -0.41%
Net exports of goods and services:    -0.47%
Government:                                      +0.12%
                                                           +0.70%

The biggest negative was net exports, and this is despite the positive effects of low oil prices in the balance.  The strong dollar is hollowing up US manufacturing; it is like the great sucking sound of famously heard  by Ross Perot.  The decline in investment also bodes ill for the future.

Consumption and government spending increasing are not sustainable sources of growth in the absence of the others.

2016 Outlook? Here is an cautionary anecdote about forecasting

From Prof. Schneider on Quora:

"Theodore Streleski spent 19 years working on his PhD at Stanford, and then beat his advisor to death with a ball-peen hammer, feeling that he had hurt his reputation and denied him scholarly support. . . 

"The irony is that the murder was in 1978, and Streleski was released in 1985, meaning he spent less time in prison for the murder than he originally spent in his PhD program. Upon his release he said 'I have no intention of killing again. On the other hand, I cannot predict the future.'"

I think that Streleski's humility is a healthy example for investors like us.

Canadian cash and all-in oil prod. costs are the highest.

The Canadian costs mean that their 2.5 million bpd of oil sands production will shut down as soon as the hedges run out unless WTI is at $40/barrel or better (WCS sells at a $15 discount.) Longer term, they need $70+.

Now I know what happened to my portfolio in 2015

Here is an interesting factoid from Eric Delamarter's Half Moon Capital 4th quarter report:

"We found it noteworthy how narrow the breadth of the S&P 500’s 1.4% performance was in 2015. Remarkably, five mega-capitalization technology companies drove the whole market—accounting for over 300% of the indexes return. In other words, if it were not for that handful of stocks, the market would have been down approximately 3%. Further, stocks within the S&P 500 with market capitalizations less than $10B were down an average 12.6%."

This divergence of price movement among large categories is remarkable.

(You might take a look at friend Eric's fund: http://halfmooncapital.com/ His performance is solid and he is a meticulous value investor.)

Dire Situation in Venezuela: Widespread food shortages. Debt default seems inevitable.

Russ Dallen of Latinvest in Caracas just emailed me an article about the dire situation in Venezuela. The Central Bank is selling the country's gold reserves to meet near term debt payments. Food shortages are widespread.

The low oil prices has brought to a climax a situation that was already spiraling downward.

The article is in Spanish and can be accessed at by clicking on the picture.

Here is an excerpt, courtesy of Google translate:

Venezuelans are beginning to suffer situations of anguish and despair at the lack of food. Over the weekend, more than 10,000 people closed an important avenue of Caracas to protest food shortages, while scuffles among people queuing have become everyday despite the surveillance of armed officers of the National Guard.

On Monday, a resident of the town known as "The Cambur" Carabobo state, sent the following message to a radio station through social networks: "No food, no nothing. There are children and the elderly. Please help".

But today much of the country's ports are vacant, by the shortage of hard currency, and forecasts for the remainder of the first quarter of the year look very encouraging.

"I think we are between four and six weeks in a really extreme situation," he said from Caracas economist Orlando Ochoa, speaking on current levels and projected shortages worsen in the near future.

Ochoa added that the country needs additional funds to overcome the situation, but above all requires a general reorganization of the economy to correct the major imbalances in the economy accumulated along the Bolivarian Revolution.

And the economic collapse of Venezuela really is not being caused by falling oil prices, he said.

The crisis was caused by a series of measures implemented in the country since 2005, including the loss of independence of the Central Bank and the use of international reserves to finance public spending, the nationalization of the telecommunications, steel, cement industry and food, the financing of public sector deficits with inorganic money, the implementation of exchange controls and the system of price controls, he said.

"Then, in 2013 and 2014, Maduro does not take steps that could have been taken to correct, and problems caused by inaction are now accentuated by the fall in oil prices," noted Ochoa.

"Maduro insists on treating the macroeconomic problem as a problem of Marxist sociology. There is no doubt that political bias, ideological bias, the burden of the legacy of Chavez, it is choking and choking him simultaneously to the country, "he said.

http://www.elnuevoherald.com/noticias/mundo/america-latina/venezuela-es/article56657168.html#storylink=cpy

Tautology of the day

from the FT article on hedge funds today (p. 13,"Ackman falls . . ."):

"The returns for hedge funds in 2015 overall were unsatisfactory because they lost money for investors," said Rick Sopher,LCH chairman, "However, once again the top managers outperformed the average hedge fund manager."

This sighting is, in fact, that of a particularly rare sub-species, the double tautology. But I repeat myself.