Friday, July 13, 2012

Weekly Bull/Bear Recap: Jul. 9-13, 2012 

Bull

+ We can now confidently discard the notion that there’s a housing bubble in China; plenty of pent-up demand remains.  Furthermore, secondary yet important indicators point to a turnaround in the coming quarters.  Finally consider that more stimulus is coming.  All these factors point to a 2nd half rebound in economic activity and thus an increasing tailwind for the resilient global economy.  

+ Global trade remains resilient as per Germany’s May trade balance report, which shows a much greater than expected 3.9% MoM gain in exports, reversing a decline of 1.7%.  The E.U.U.K., and India all announce good news in their May manufacturing reports.  Meanwhile, Australian consumer confidence rises to a 5-month high.        

+ Monetary officials are on alert; South Korea unexpectedly cut rates as does Brazil, joining the U.K., China, and the ECB last week in globally synchronized policy to kick-start global growth. The Fed will loosen policy in due time.  Don’t fight the Fed…not to mention the slew of other easing central banks.

+ France is starting to soften its stance against ceding sovereignty to Brussels.  Furthermore, European politicians are learning from past mistakes, giving Spain and likely Portugal and Ireland more time in adjusting their economies to avoid acute political turmoil.  These are solid steps forward towards fiscal union.     

+ The effects of deleveraging are beginning to fade and consumers feel more comfortable using credit.  Revolving debt rose to the highest since November 2007.  Deleveraging has been done in a controlled manner; consumer demand remains in growth mode as per the ICSC-Goldman’s bullish report. Consumer balance sheets are healthier, with help from stabilized home prices and a reduction of negative equity-properties.   

Bear

- U.S. economic activity is stalling; in fact, the ECRI says we’re in recession now.  Meanwhile the Conference Board’s Employment Trends Index has flatlined since February and May’s JOLT survey could not make up for April’s plunge; the job market is stalling.  Small businesses, the engine of job creation, has downshifted in the past month, leading to a 7-month low in the University of Michigan’s latest consumer confidence survey.  Negative pre-announcements are near record levels (post-financial crisis) and equity prices of important economic bellwethers are dropping like flies.    

Infighting among Eurozone countries persists.  Austerity continues to be the medicine administered to fight the Eurozone crisis (to the chagrin of ISTAT).  The German Constitutional Court says deliberations over the ESM could take up to 3 months, while 160 of Germany’s most respected economists urge citizens to vote against further integration.  Moreover, time is ticking but the alarm will not ring in 6 months, way sooner.  

- Global economic activity will weaken further with China and Italy showing particularly worrying signs as per OECD leading indicators (China’s GDP is spurious…period).  Japan’s May Machinery Orders plunge 14.8%.  The EIA’s global demand outlook deteriorates as per their latest report.  Central banks are panicking.  

-  Geopolitical tensions are elevated and rising.   Japan is planning to buy the Senkaku/Daioyu islands, drawing the ire of China and risks increasing tensions over territorial disputes in the South and East China Seas (Sansha city is the flashpoint).  Meanwhile, protectionism is increasingly used as a weapon of aggression and is alarming. 

- MF Global part 2 has officially commenced.  Corruption is rampant in our broken financial system and is further eroding trust.