Tuesday, March 4, 2014 Thursday, January 23, 2014 Friday, September 13, 2013
Hello there,  I’ve just completed my latest Weekly Bull/Bear Recap.  You can access it below:
http://rcsinvestments.wordpress.com/2013/09/14/weekly-bullbear-recap-sept-9-13-2013/
Thanks for your continued support,
Rodrigo

Hello there,  I’ve just completed my latest Weekly Bull/Bear Recap.  You can access it below:

http://rcsinvestments.wordpress.com/2013/09/14/weekly-bullbear-recap-sept-9-13-2013/

Thanks for your continued support,

Rodrigo

Friday, February 8, 2013

Weekly Bull/Bear Recap: Feb. 4-8, 2013

This objective report concisely summarizes important macro events over the past week.  It is not geared to push an agenda.  Impartiality is necessary to avoid costly psychological traps, which all investors are prone to, such as confirmation, conservatism, and endowment biases.  

Bull:

+ The service sector, which accounts for almost 80% of the U.S. economy, remains in growth mode.  The Institute of Supply Management’s Non-Manufacturing survey reports a healthy 55.2 composite reading and an extremely bullish Employment subindicator of 57.5, its strongest reading since February 2006.  Furthermore, Export New Orders crossed into expansion territory and imply improving global trade conditions.  Indeed, today’s U.S. International Trade report “suggests exports — a key engine of the U.S. recovery — are finding their footing after stalling last year…

+ The global expansion thesis is further boosted by Singaporean manufacturing ending its spell of contraction, German Factory Orders showing signs of bottoming (mirroring improvement in recent Ifo surveys), and Japanese Machinery Orders increasing for the 3rd consecutive month

+ The bears have severely erred on their assumption that China wouldn’t be able to execute a soft landing.  In addition to improving manufacturing surveys, HSBC’s Services PMI survey is now solidly in expansion territory, notching a reading of 54 from 51.7 in December.  China is in position to lead the global recovery again.

+ The U.S. consumer remains quite resilient.  Chain Store sales surge the most since September 2011 and are much better than expected, while Gallup’s Consumer Spending report shows a 4-week average YoY gain of almost 30%.

+ Fed officials are optimistic that a positive wealth effect has taken hold and Q4 GDP numbers reflect only a transitory blip (due to weather-related events) towards continued recovery (Q4 GDP will be positive when the second revision is published).  Rising home values as well as gains in U.S. stock markets have improved consumer psychology.  Furthermore, investors can take solace that the FOMC won’t be backtracking on its promise to continue providing monetary stimulus even in the face of improving economic conditions.

+  The U.K. has seen a string of improving economic numbers this week: the Services Purchasing Manager’s Index swings into expansion in January; Same Store Sales improve 1.9% as well; and Industrial Production for December prints better than expected.  In addition, investors are nodding at recent economic improvement in Europe.      

Bear:

The European political and economic storm looks to pick up strength in the months ahead: 

Inter-market trends are deteriorating.  A look at the XLF/XLU ratio indicates that deflation fears may resurface soon and would be a negative for equity markets and bullish for Treasury bonds.  In fact, 10-yr Treasury yields are showing a negative divergence vs. equity markets and is a red flag.  Furthermore, equity markets are at long-term resistance, all the while investor sentiment is very bullish.  The stage is set for a correction over the coming weeks. 

- U.S. Weekly sales metrics (Goldman ICSC and Redbook) show continued weakening consumption trends.  Tepid growth readings over the course of January, in addition to a third consecutive weak reading from Discover’s U.S. Spending Monitor, are a shot across the bow for a subpar January Retail Sales report, due on Feb. 13.  Perhaps this is because job creation has stalled according to Gallup’s Job Creation indicator, which just slumped to an 11-month low.  Or perhaps it’s because the nation’s average gas price has risen 17 cents from a week ago.  

- Q4’s Productivity and Unit Labor Cost report portends deteriorating earnings trends for corporations.  Productivity (output per worker) declined  2.0% and was more than expected; meanwhile, unit labor costs surged 4.5% vs. market expectations of a 3.1% increase.  Real wages, vs. nominal, continue to shrink.  ”Hourly pay for American workers fell for the second straight year after factoring out inflation, marking the worst two-year stretch in the U.S. since World War Two."  

- Does Canada have a popping housing bubble?  Canadian building permits in December plunged 11.2%, after a 17.9% drubbing the month before.  Meanwhile housing starts crater 18.5%.   

Friday, November 23, 2012

Weekly Bull/Bear Recap: Turkey Week Edition, 2012

This objective report concisely summarizes important macro events over the past week.  It is not geared to push an agenda.  Impartiality is necessary to avoid costly psychological traps, which all investors are prone to, such as confirmation, conservatism, and endowment biases.  

Bull

 + Uncertainty is decreasing.  In last week’s recap, the bull’s strongest case was the “the contours of a resolution” taking shape regarding the fiscal debate in Washington.  This week, more investors bought into this bullish point, leading to the S&P 500’s best weekly performance since June.   In geopolitical news, a cease fire has been declared in Gaza.  Decreasing conflict in the region means cooler heads are prevailing.    

+ Risk markets are ripe for a tradable bullish move given that the S&P 500 is extremely cheap when looking at current P/E ratios.  In fact, it would need to rally 26% just to reach the average P/E of bull markets dating back since the 60s.  Meanwhile, trends in insider trading are hinting at a sustained rally to come.  Mainstream investors are entirely too pessimistic on longer-term earnings growth, yet sources of future growth are around us….

+ …global growth will be the recipient of a welcomed surprise in China, where a rebound is gaining strength as per HSBC’s latest PMI reading, increasing to 50.4 from 49.5 and marking the metric’s first expansionary reading in more than a year. Meanwhile, "The German economy is holding up well in face of the euro crisis" and ECB officials signal that the central bank is willing to forgo $9 billion in future profits on its Greek holdings, a sign of understanding that some relief will need to be given to periphery countries.  

+ …meanwhile, U.S. economic growth will be increasingly supported by a rebounding housing market.  The National Assocation of Homebuilder’s Housing Index rises to a 6 and a half year high.  Existing home sales for October surprise to the upside and upward pressure in home prices may be the reason for improving consumer confidence (Source: Econoday).  Rising Housing Starts indicate that the housing industry is becoming more confident in the recovery.  Meanwhile in manufacturing, Markit’s U.S. PMI report certainly doesn’t agree with the bearish claim that the sector’s is about to enter contraction.  Finally, U.S. officials understand that today’s globalized economy is about competition and are considering establishing laws to encourage the brightest minds in the world to consider the U.S. as their home.       

 

Bear

-Investors are like frogs in an increasingly hot investment environment.  Europe continues to show signs of disunity and infighting as EU finance ministers are unable to agree on a revised version of Greece’s fiscal consolidation plan or approve to extend the country’s public debt target.  Meanwhile France’s AAA rating is history as per Moody’s.  Increasing investor skepticism doesn’t bode well for lawmakers as eventually financial markets will force the issue.  Finally, economic and financial data is just awful.

- Confidence in the global recovery is evaporating.  U.S. Tech companies are feeling the effects of a slowing global economy.  Meanwhile, China reports that foreign investment in the country has fallen for 11 of the last 12 months.  If bulls are certain that China is poised to rebound, why has the Shanghai Index dropped to a new low?  Meanwhile, Japan reports a 6.5% plunge in October exports (exports to the EU cratered 20% YoY)

As if critical damage due to a slowing global economy wasn’t enough, the U.S. economy is also contending with a crisis of confidence due to Fiscal cliff concerns.  Investment is falling off a cliff as companies pull back on business spending.  The consumer better step through this holiday season (early signs   aren’t promising).  Despite a higher trend in Michigan’s Consumer Sentiment index, weakening momentum is causing alarm.    

- Cooler heads may seem to be prevailing in the Middle East, but the longer trend is of more hostility.  Meanwhile tensions in Asia remain elevated and territorial claims dealing with the South China Sea are likely to exacerbate fissures in the region.

Friday, June 1, 2012 Friday, March 9, 2012

Some Overnight Econ Data

Wednesday, March 7, 2012

Headline Global Economic Data

Overall a poor showing.  Will Germany be able to escape the claws of austerity in the Eurozone?  The latest data says no:

Tuesday, March 6, 2012
Not much on the U.S. economic front today, other than disappointing consumer metrics (pic above from Bloomberg.com).  
Overnight news (Courtesy of Business Insider):
- Canada Ivey PMI index rises in February
- Second estimates for the fourth quarter of 2011 Euro area and EU27 GDP down by 0.3%
- U.K. House Prices Fall as Recovery Concerns Weigh: Economy
- Goldman’s Asia Unit stumbles in first loss since mid-2008.  

Not much on the U.S. economic front today, other than disappointing consumer metrics (pic above from Bloomberg.com).  

Overnight news (Courtesy of Business Insider):

Canada Ivey PMI index rises in February

Second estimates for the fourth quarter of 2011 Euro area and EU27 GDP down by 0.3%

U.K. House Prices Fall as Recovery Concerns Weigh: Economy

- Goldman’s Asia Unit stumbles in first loss since mid-2008.  

Friday, February 3, 2012

Weekly Bull/Bear Recap: Jan. 30 - Feb. 3, 2012

Bull

+ The U.S. economy is now in a sustainable expansion:

+ The global economic outlook is improving:  

+ In Eurozone political and financial news, European nations take one step closer to integration with 25 out of 27 nations signing the new fiscal compact treaty.  Moreover, leaders signal strong resolve to save the region, as talk of initiating a €1.5 Tn bailout fund is making the rounds.  Meanwhile, the Spanish 10-yr yield breaks under 5%, the Italian 10-yr yield breaks under 6%, the Belgian 10-yr yield breaks under 3.7%, and the French 10-yr yield breaks under 3%.  Markets signal that a strong firewall is in place for a Greek and/or Portuguese default. As a hefty insurance policy, the second LTRO on February 29th will likely be more than double the size of the first one (@ ≈ €1Tn), thus reinforcing the firewall for the banking system from a Greek or Portuguese default.  Besides, the Greek default has been on investors’ radars for so long, even martians on Pluto know that Greece is defaulting.  A climax would result in a rally as uncertainty is lifted.  

Bear

- The end game is coming into view for the Eurozone:  

  • Germany has demanded that Greece cede its budgetary sovereignty to the EU, a request Greece has declined.  Furthermore, stiff resistance from Greek political leaders to implement further austerity makes for another “Papandreaou referendum-like” showdown with the troika.  And for the trifecta, the Hellenic republic has warned that it may need even more bailout cash.  
  • Portuguese bond yields are repeatedly hitting record highs; hard default #2 is rapidly approaching.  
  • In Ireland, a solid majority demand a referendum (guaranteeing a defeat for the army of unelected technocrats in Brussels).  As Hollande eloquently stated, “Where democracy retreats and politics pulls back, the markets advance.”  
  • Hollande is creating daylight between himself and Sarkozy in the French presidential election (here’s a primer on what he wants to do).   

- On the region’s economic front, austerity is biting, hard.  Italian business confidence slumps to the lowest in 2 years.  While Germany is benefiting from a weaker Euro, it’s coming at the expense of the rest of the Eurozone; the region’s unemployment rate remains near the highest since 1998.  French consumer spending dives 0.7% vs. expectations of a gain of +0.2%.  Even worse, German December retail sales tank 1.4% vs. expectations of a 0.5% gain (the 4th decline in last 5 prints); so much for a low unemployment rate.  Meanwhile, on the financial front, banks are using some of the LTRO money to buy sovereign bonds; but that’s about it.  They continue to de-leverage, cutting off credit to the Eurozone and undermining any recovery in the region.  Furthermore, post-crisis highs in FX swaps between the ECB and the Fed point to tight liquidity conditions, despite unprecedented worldwide coordinated monetary loosening.        

- The throes of stagflation are in plain view; China “unexpectedly" holds off on reducing reserve requirements for banks, opting instead for reverse-repurchase contracts.  Simultaneously, here’s what a popping housing bubble looks like.  Protests are progressively more intense.  

- On the U.S. economic front, the S&P Case-Schiller index flags a deepening double-dip for the 99%’s largest asset.  Lower home prices will anchor consumer confidence over the medium-term.  Over the short-term, rising gas prices are starting to damage confidence; the Conference Board’s survey disappoints, printing 61.1 vs. expectations of 68.0 (led by a decline in the present situation). 

- Israel/Iran continues to bubble underneath the facade of bullish sentiment.  No groundbreaking announcements were made after the UN inspection.  Instead, it’s looking increasingly clear that the U.S. is no longer in control of the situation; an Israeli unilateral attack could come in as soon as 3 months.     

Tuesday, December 6, 2011
(via Argentina launches naval campaign to isolate Falkland Islands - Telegraph)
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The Duke of cambridge is to be deployed to the Falklands next February as part of a routine training duties

(via Argentina launches naval campaign to isolate Falkland Islands - Telegraph)

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The Duke of cambridge is to be deployed to the Falklands next February as part of a routine training duties

Wednesday, November 30, 2011
The strike will be the biggest test so far of Prime Minister David Cameron’s Conservative-Liberal coalition government, which sparked the unions’ fury by making public sector workers pay more into their pensions and work longer. Two million strike in Britain over pension
Monday, November 14, 2011
We should look skeptically at grand plans and utopian visions; we’ve a right to ask what the European Union should and shouldn’t do,” Cameron said. Europe should be “outward- looking, with its eyes to the world, not gazing inwards” and should have “the flexibility of a network, not the rigidity of a bloc. Cameron Rebuffs Merkel Push for Closer Union - Bloomberg
Wednesday, April 27, 2011

Topics covered: Kicking the can down the road, too much austerity leads to a debt trap, and austerity-lite in the US? (look at Ireland and the UK).  I’ve covered many of these topics on this blog. 

Source: http://finance.yahoo.com/blogs/daily-ticker/europe-debt-crisis-worsens-austerity-cracked-152011559.html

Thursday, November 18, 2010
Funny Quote of the week. — An explanation as to why the UK has given Ireland billions of dollars. (click on pic for full article)

Funny Quote of the week. — An explanation as to why the UK has given Ireland billions of dollars. (click on pic for full article)

(Source: bloomberg.com)