IS CHANGE COMING?

Yesterday I spent considerable time driving, passing the hours flipping between CNBC and Bloomberg. Perhaps 99.8% of all “reports” were focused upon oil and the economy, universally declaring oil will stay low forever and the economy will be stuck where it has been for the last six years.
In other words, the status quo forever. The myopic reporting reminded me of the endless reports of 15 years ago declaring the “New Paradigm” and the business cycle was dead.
Tomorrow there is potential for significant change in today’s prevailing narrative.
Commenting first about oil, Iran stated it would support a production cut. However such a reduction may not be supported by Saudi Arabia thus making the direct inference the only country that matters is Saudi Arabia.
As widely discussed there is a proxy war between Saudi Arabia (Sunni) and Iran (Shite), a hatred that has existed for over 1,200 years. Some view the return of Iran to the national arena is as significant as the collapse of Russia and the fall of the Berlin Wall.
Is OPEC on the verge of collapse? Will Iran attempt to upstage Saudi Arabia, its historical foe that has perhaps lost the absolute backing of its greatest protector via a radical change in American foreign policy? In my view Iran is in a more powerful position given its close relationship with Russia.
No change is expected at tomorrow’s meeting but some believe the OPEC meeting can be of one of great significance.
And then there is the jobs report. November’s private sector ADP Employment survey indicated October’s strong BLS report was not an anomaly. ADP indicated private sector jobs increased 217,000 in November, a slight acceleration from the 196,000 registered in October. Moreover, unit labor costs rose more than expected, rising by over 3.0% during the past 12 months
Will tomorrow’s BLS report convince the Committee to increase rates in 10 days, the first since 2006? Yesterday’s speech by Fed Chair Yellen suggested that such will occur, albeit any subsequent increases are likely to be very gradual with all decisions based upon prevailing and expected economic conditions.
I think because of a stronger than expected rise in inflation—led by labor and commodity costs and stronger global growth as well as the waning deflationary impact of a rising dollar—may force the Fed to act more aggressively in the next 12 months with the fed funds target rising above 1.5% by year end 2016.
Wow! This view is far from mainstream, similar to the view I held in 2000 in the SEC symposium paper I wrote titled “The Transmogrification of Basic Financial Analysis.”
Commenting upon yesterday’s market action, equities fell on Yellen’s and the Iranian oil minister’s remarks. I do think it is noteworthy crude initially advanced on the minister’s comments.
Last night the foreign markets were mixed. London was down 0.04%, Paris up 0.51%, and Frankfurt up 0.18%. China was up 1.35%, Japan up 0.01% and Hang Seng down 0.28%.
The Dow should open nominally higher following an expected ECB interest rate cut, albeit a reduction lower than most anticipated. Oil is marginally higher as pressure from many OPEC nations is mounting on Saudi Arabia to cut production. The 10-year is off 4/32 to yield 2.20%.