Friday, April 8, 2011

Bull/Bear Weekly Recap: Apr 4-8

Bull

+ Retail Sales for the month of March surpass expectations (Actual: 2.2% vs. -0.5% expected) despite a shifted Easter effect, cold weather, rising gas prices, and falling consumer confidence.  The consumer is stronger than most think as the job market continues to heal

+ Mortgage Applications for purchase rose through March by approximately 16%.  This points towards a stabilization in home sales and prices) in the immediate months ahead.   This will aid in improving consumer confidence.

+ The ISM Services Report, a gauge of the US service sector which comprises roughly 75% of the economy, signals continued strong growth with a healthy 57.3% reading.  New Orders (both domestic and export related) as well as Backlogs continue to show strength in the months ahead.

+ The dreaded double-dip is a long-shot in the near to medium term as per the New York Federal Reserve’s Treasury Spread Report.  The economy is in healing mode. 

+ Ireland government bows to pressure and withdrawals its threat of administering haircuts for senior bond holders thereby avoiding the threat of contagion.  Meanwhile, shining economic numbers out of Germany will ensure that the the Eurozone Crisis will remain contained. 

Bear

- Gov’t spending at the state and local level is clearly falling as per the latest Gallup job creation report.  Also, have a look at the Cisco stock chart (3 yr view for max effect).  Cisco is considered by many to be a bellweather for gov’t spending.  It’s ugly.  State and Local Gov’t spending accounts for roughly 12% of the economy.  —(I don’t own any shares of Cisco)

- The Eurozone issues are still simmering.  When will Germans be sick of ponying up for the bailout fund (it’s slowly happening)?  When will taxpayers of peripheral nations finally be fed up with bailing out the wealthy, who made bad bets to begin with?  When will citizens be fed up of undergoing austerity due to bad decisions by investors? Common sense please!

- China continues to raise rates in order to cool inflation precisely as I had postulated a year ago.  To a certain extent, they have no choice.  They must combat inflation as riots would occur if officials don’t put a cap on the insidious phenomenon.  Meanwhile, more rumblings from the real estate sector surface.

- The Japan earthquake/tsunami/nuclear disaster is horrific and set to linger longer than most expect.   It will impede Japan’s economic recovery (the Nikkei Index is sniffing this).  The damage to global supply chain is still uncertain.  But we are seeing the effects in the US for sure. 

- Investors have piled into the “Bernanke Put” trade.  It’s a can’t lose market.  Bernanke better be able to turn on the spigot quickly when economic activity begins to stall, which it will if oil prices keep rising (now over $112).  Investors are all but guaranteeing that the Fed will be there.  Will politicians turn on the Fed if economic activity begins to stall, thus reinforcing that QE was nothing more than a sham?   

Tuesday, March 22, 2011 Tuesday, March 8, 2011 Saturday, March 5, 2011 Friday, March 4, 2011
As populism continues its rise, the horizon for the wealthy becomes more clouded.  Tax hikes may be in store for them.  You think this encourages them to spend their extra cash?  “Ricardian Equivalence” my friends

As populism continues its rise, the horizon for the wealthy becomes more clouded.  Tax hikes may be in store for them.  You think this encourages them to spend their extra cash?  “Ricardian Equivalence” my friends

Bull/Bear Weekly Recap: Feb 28 - Mar 4

Bull

+ Manufacturing continues to be the shining beacon of the US recovery.  The Chicago PMI came in at its highest level in 22 years!  More good news in manufacturing as February ISM readings point towards continued strength.

+ The much larger service sector also shows accelerated improvement and points to continued job gains in the immediate months ahead. 

+ Jobless claims continue to trend down and reinforces the bullish thesis that the job market is improving and will provide for more permanent and sustainable domestic demand.  We can also see an improving job market from the ADP employment survey, which reports a stronger than expected @ 217,000 for February and is a good harbinger for Friday’s BLS payroll report.  UPDATE: The BLS Job report shows an increase of 192K with back month revisions totaling 58K…so overall it was a jobs report of +250K.  The unemployment rate also declined to 8.9%, the lowest in a LONG time.  The job market is certainly turning the corner. 

+ This can be seen in retailers February sales reports as they came in better than expected as well as Auto sales for February.  They shot up to the best levels since August.  Demand is coming back and this is feeding into manufacturing. Continued growth in consumer demand will lead to firms increasing hiring …the virtuous cycle has begun.  

+ Bernanke states that supply/demand forces are at work when explaining the rise in commodity prices.  This argument defends the Fed’s QE program and opens the door to a QE3 if stock markets begin to decline or economic growth begins to disappoint.  The Fed’s there to help.  The Bernanke Put remains. 

+ German Retail Sales for January rise a stronger than expected 1.4%.  The engine that drives the Eurozone remains strong.  Fears of a double dip in the region are exaggerated.

Bear

- Oil prices continue to rise, now over $100/barrel.  Libya is in a civil war right now, though that country only accounts for about 2% of production.  Saudi Arabia?  That’s a whole different animal and things aren’t looking too good on that front.  The oil-rich nation’s stock market has plunged nearly 20% in a sign that investors don’t like the country’s prospects.  The date on traders’ radars?  March 11, 2011. Could oil spike in the coming weeks?  

- My worst fears may be becoming realized.  Both Chinese manufacturing PMIs come in showing weaker growth but increasing inflation.  Officials MUST combat inflation.  Red flags continue to wave and China may be entering a hard-landing scenario. Need more proof?  Non-manufacturing PMIs are showing signs of contraction!

- What else is new?  The housing market continues in the doldrums.  Construction spending for January falls.  While it could be weather related, high amounts of inventory will surely result in builders pairing back inventory.   Furthermore, mortgage applications for the prior week showed a decline, signaling near term weakness in the housing outlook. 

- Incomes jumped for the month of January, however, it was explained due to the tax-cuts taking effect.  Did consumers use the cash to spend?  No.  They saved it instead.  If this behavior continues, then consumption estimates may have to be reversed

- Gov’t spending cuts may be beginning to show through layoffs as the Challenger Job-Cut Report shows a sharp increase in layoffs in the sector.

- Certainly the Gallup Poll doesn’t agree with the job recovery story.  Note that this indicator may be more in tune with recent events in the middle east and oil spiking as a result.  This may be a harbinger of March economic reports. 


Thursday, March 3, 2011

Gut Feeling

I dunno why, but I feel like we are about to experience a big move in the markets (in 3 weeks max).  My hunch is that the dollar is in a retesting phase and that this will be another medium (perhaps major) bottom. 

There are way too many risks out there and complacency is just ridiculous. 

"$100 oil won’t be enough to derail the recovery" is the main sentiment of investors…

The VIX plunged 10% today despite Saudi Arabia’s stock market free-falling as the Day of Rage comes up.  Furthermore, just look at the VIX level now (considering a MAJOR oil producer is in danger of riots and oil delivery disruptions) versus the level it achieved when Greece was going down….this comparison bring the obvious conclusion that investors are not paying attention to the worsening situation in the Middle East.

Tuesday, March 1, 2011
The copper price chart doesn’t look pretty at this point.  This commodity does have a PhD in economics right? 
It has lead the stock market recently. 

The copper price chart doesn’t look pretty at this point.  This commodity does have a PhD in economics right? 

It has lead the stock market recently. 

Here’s an interesting pattern developing in the AUD/USD.  
How does it get resolved? 
Well, if it resolves higher, then it would probably be accompanied by increased risk appetite.  It would also mean that investors see a higher probability that the Aussie bank will raise rates.  That’s because economic conditions are improving.  Why would they be improving?  Well, I think Australia is a pretty good proxy for Chinese growth —-> global growth. 
If it resolves lower, then we would most likely see selling pressure  as it would signal that global economic growth is beginning to slow probably more than investors expect.
The answer seems to be coming soon.  We could simply see no solution and the price kinda just wanders around that level though.   

Here’s an interesting pattern developing in the AUD/USD.  

How does it get resolved? 

Well, if it resolves higher, then it would probably be accompanied by increased risk appetite.  It would also mean that investors see a higher probability that the Aussie bank will raise rates.  That’s because economic conditions are improving.  Why would they be improving?  Well, I think Australia is a pretty good proxy for Chinese growth —-> global growth. 

If it resolves lower, then we would most likely see selling pressure  as it would signal that global economic growth is beginning to slow probably more than investors expect.

The answer seems to be coming soon.  We could simply see no solution and the price kinda just wanders around that level though.   

It looks increasingly likely that $100 oil is the "short-circuit" point. 

It looks increasingly likely that $100 oil is the "short-circuit" point. 

Sunday, February 27, 2011 Friday, February 25, 2011

Bull/Bear Weekly Recap: Feb 22-25

Bull:

+ Consumer Confidence as per the Conference Board hits its highest level in 3 years and is proof that the recovery is permeating through the US economy.  Meanwhile, UMich consumer confidence confirms the same sentiment.   

+ Richmond Manufacturing Index confirms what the other regional manufacturing indexes have been showing for the past few months.  Manufacturing continues its strong recovery and signs point to an actual acceleration in growth. 

+ Jobless Claims plunged back under 400K and further buttresses the belief that the labor market is finally improving at an accelerating clip.  This may prove to be a harbinger for a better than expected jobs report early March. 

+ Chicago Fed National Activity Index points towards an economy that is close to trend growth.  The recovery continues despite what the bears would have you believe. 

+ Falling Rate will help the housing market.  Support from better buyer activity will solidify recently rising consumer confidence reports.


Bear:

- Libya is the next country due for a change in regime.  Unfortunately, they are an OPEC member and have the largest reserves of any African nation.  Turmoil here is causing oil prices to further spike, possibly undermining the global recovery…  

- …It’s certainly catching the attention of US consumers as the Gallup Poll of consumer confidence has declined markedly since oil prices spiked in the past week.

- The Case-Schiller Index posts negative readings on a MoM and YoY level and confirms that the housing double-dip has begun (as expected).  This is further reinforced by the Existing Home Sales report, which showed sharp price declines and the New Home Sales report which came in absolutely abysmal.  

-Durable Goods Orders ex Transports decline by -3.6%.  Core Durable Goods Orders are showing a visible flattening and may be pointing at hesitancy on the part of businesses to continue expansion, particularly when capacity utilization remains low by historical standards.

- GDP is revised lower…details here

Thursday, February 24, 2011