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Last Week in Brazil and Mexico: October 14-18, 2013

Succinct summation of macro events in the first and second largest economies of the LATAM region.


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Last Week in Brazil and Mexico: October 14-18, 2013

Succinct summation of macro events in the first and second largest economies of the LATAM region.

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Monday, May 14, 2012 Sunday, November 27, 2011 Friday, September 23, 2011

Weekly Bull/Bear Recap: September 19-23, 2011

Bull

+ The Conference Board reported that the economy will continue to grow for the rest of the year.  The company’s Leading Indicators Index posted a 0.3% gain in August vs. expectations for a 0.1% gain, while July was revised upward.  The American Association of Railroads reports that railroad shipments just hit their highest levels in 3 years.  Certainly these indicators aren’t pointing to recession.        

+ The BuildFax Residential Remodeling Index just hit a new high in July.  Increased permits point to increasing demand for home improvement.  While the housing market may be struggling, this index points to increasing activity under the hood.  Additionally, the AIA Architectural Billings Index unexpectedly rose above the 50 mark in August, and points to increasing design and construction activity for commercial real estate projects in the months ahead. 

+ In a sign of confidence in the future, United Technologies just executed the largest all-cash industrial deal ever with its purchase of aircraft-component maker Goodrich.  The rise of China will certainly unleash massive demand, which will fuel economies around the world.  The time to buy long-term companies who stand to benefit from this paradigm shift is now.  (I hold no position these companies)    

+ While China’s flash PMI came in somewhat weak, it’s important to point out that it hasn’t fallen out of bed by any means.  Their economy has withstood Eurozone woes and slowing U.S. economic growth.  Export dependency has declined.  Moreover, the Conference Board also published its Leading and Coincident Indicators for China.  The results did not disappoint and are collectively another nail in the coffin of the hard-landing thesis of the bears.  Couple that with the fact that inflation has peaked, marking an end to the tightening cycle, and you have a scenario where investors are likely to be surprised in the coming months.  China will continue to provide end-demand for the global economy.   

+ While the probability of Greece defaulting remains elevated, it would be an orderly default if it did happen.  The country will remain with the Euro.  ”Concerns over the risk of a break-up of the euro zone are greatly exaggerated.”  The ECB will continue to intervene to ensure liquidity and lower bond yields for countries such as Italy and Spain.  The organization is also proactively working to make life easier for the region’s banks by easing collateral requirements.  Additionally, progress is being made on passing the new EFSF measures, which would equip the fund with expanded powers (such as the use of leverage = increase its firepower).  The G-20 vows to stem the crisis through coordinated action.  There’s little chance of governments letting any important financial institution fail.  This is a fantastic buying opportunity for the long-term investor or baby boomer — S&P 500 yield is now higher than the 10- Yr Treasury yield. 

+ Existing-Home Sales jumped 7.7% and blew past forecasts for a 1.4% rise due to falling home prices and lower interest rates.  ”Favorable affordability conditions and rising rates are underlying motivations,” Lawrence Yun, chief NAR economist.  Increased home prices will support prices for the regular consumer’s largest asset.  Furthermore Permits showed an uptick and will help the construction sector in the months ahead.  

Bear

- The Fed initiates Operation Twist, but markets are unimpressed as the Dow plunges more than 6% to end the week following the announcement - its worst week since October 2008.  This week’s major reversal marks a major turning point in our financial and economic odyssey.  The emperor has been disrobed; he has no clothes.  Furthermore, it’s quietly shaping up to be April all over again in Congress.    

- “Housing remains in the doldrums”, sings the broken record.  Without housing, an economic recovery will remain elusive.  Investors are beginning to lose confidence in banks’ mark-to-fantasy price quotes; moral hazard is coming home to roost.   

- When housing acts as an anchor, consumption and confidence will sputter.  The all-important holiday shopping season isn’t looking so hot based on preliminary reports.  

- Arrrg!!!  In a sign of bailout fatigue, the Pirate Party (no joke) just made a bigger political statement than Merkel’s own ally, the Free Democrats (FD).  The FD accounted for less than 5% of the vote, which disqualifies them from picking up seats in the election.  Investor confidence declines to the lowest in 2 1/2 yrs.  Meanwhile, Greece continues to get squeezed.  At what point will the populace rise up and revolt? The breaking point may be near.  Continued austerity will not solve the problem.  Italy (and its banks) are downgraded by Standard & Poors, sending Italy’s 10-yr yield to dangerously high levels…again.  The ECB acknowledged that it loaned out $500 Million to an unidentified bank (not a sign of health, to put it mildly).  And for some gasoline on the fire, Eurozone PMIs fall under the 50 level for the first time since July 2009 (no Jackson Hole this time to save the day).    

- The IMF cuts its global growth estimate.  Rio Tinto and FedEx throw cold water on bullish hopium.  Protectionism is making a comeback: a chippy China lashes out at Europe; the US files an official complaint against China’s chicken tariffs; Brazil institutes 30% tariffs on cars. Meanwhile, England ponders printing more funny money as prospects have dimmed, while inflation is rising —stagflation anyone?  Japan’s exports under-perform expectations, signaling weakening global demand.

- The Philly Fed released its “State Coincident Indexes” for August, used to measure economic activity on a state by state basis.  This index shows a national economy entering stall speed.  It remains vulnerable to an exogenous shock…..such as the Eurozone

Sunday, May 15, 2011
Well here’s something you don’t see everyday.  (click on the pic for the deets)

Well here’s something you don’t see everyday.  (click on the pic for the deets)

Monday, April 11, 2011 Tuesday, October 26, 2010