+ Fed Throws Banks a Curve Ball: At what point do low rates actually cause consumers to save more as their retirement targets wouldn’t be met due to low interest income?
+ Tossing a Lifeline to Housing Market: Will Obama present a mass-refi program to compliment these record low rates?
+ Storm Strikes Central Japan: As if the earthquake wasn’t enough.
+ Putin Condemns Tycoons’ Fight as ‘Hooliganism’: Putin knows Judo…that’s pretty cool. Who would win in a fight? Jaime Diamond or Brian Moynihan?
+ Volcker Rule May Lose Its Bite: Another example of our corrupt political system. I have a better idea, reintroduce Glass-Steagall. Banking should be a plain vanilla industry—it’s too important to the economy to let run hog wild.
+ Moody’s Offers Upbeat View on Corporate Defaults: If there’s a difference between today and 2008, it’s that companies are better prepared for a period of winter. Cash levels are very high.
Weekly Bull/Bear Recap: September 12-16, 2011
+ The Eurozone will survive this challenge. Merkel and Sarkozy vow to keep Greece in the EU and not allow a ‘Lehman’-type event. If there’s any default, it will be done in an orderly fashion. Markets have already priced in one for Greece. Once it happens, it will be bullish for risk-markets as a resolution to the matter would be reached. Central Banks around the world have pledged to provide support for the European banking sector.
+ BRICS nations are in talks with the “Institute for International Finance” to pool their resources and lend capital to Greece in order for them to buyback their own outstanding debt at rock bottom prices, thereby reducing their outstanding debt, and averting contagion. This will help the Eurozone buy more time until the necessary structural reforms are put into place. While the bond-buying won’t solve the structural issues (Europe needs to become a fiscal union), progress is being made on that front as well. Taken together with Central Bank support, officals are beginning to think one-step ahead of the crisis.
+ China’s trade numbers prove that the country will continue to power the global recovery. Surging imports signal that their economy remains resilient in the face of monetary tightening. Even better, tightening is likely over as inflation measures peaked. The economy is experiencing a soft-landing.
+ Asia’s Development Bank sees a soft-landing scenario in China and the region as private consumption has buoyed much of its growth. This scenario, should it play out, would see the global economy avert a double-dip recession, resulting in an overall bullish outcome for equities.
+ Consumer spending metrics have held in remarkably well and is a signal that consumption remains irrepressible despite all the gloom and doom. Spending trends are different than consumer confidence. As long as the consumer doesn’t fall out of bed, the U.S. economy will remain in expansion.
+ Hard-data keeps pointing to a manufacturing sector that hasn’t fallen out of bed as proposed by the bears and some manufacturing surveys. Industrial production for August rose 0.2%, the fourth monthly increase, contrary to contraction signals from Empire, and Philly Fed indexes for that same month. Hard-data is what matters.
+ The economy has managed to grow even while consumers continue the deleveraging process. Consumers are slowly building a strong foundation by paying down their debts. Once debt levels are sufficiently reduced, they will feel increased confidence in their financial situation and consume more as the job market improves.
- Jobless Claims spike 11,000 to 428,000, the highest level in 2 months and bodes ill for the job market and the economy. Manpower publishes a report that points to more of the same. Strong growth figures won’t be coming as the economy remains at stall speed. The economy’s condition is on display in the NFIB’s latest Small Business Optimism Index. The job market remains extremely vulnerable to an exogenous shock.
- Bank of America announces that up to 30,000 jobs are set to be eliminated over the next few years. Wasn’t the market exaggerating about the poor health of Bank of America? Why then did they accept Buffett’s money? Why are they firing 30K workers? Why are they openly discussing bankruptcy for Countrywide? Where there’s smoke there’s likely to be fire. Same goes for SocGen. (—I hold a short position in financials)
- Yes yes we all know housing sucks, but now there are reports that foreclosure activity is set to increase late 2011/early 2012. An influx of properties in foreclosure will further place downward pressure on housing prices and inflict more damage to bank balance-sheets.
- The rich got hit where it hurts, investment markets. Consumer confidence for this group deteriorated significantly last month according to the Gallup Poll. Note that the wealthy are responsible for a significant portion of consumer spending growth, which underperformed in August relative to expectations. In regards to the commoner, the situation is even grimmer. Future expectations as per the University of Michigan consumer confidence survey fell to the lowest levels since….1980 (yes, that’s more than 30 years).
- The global recovery continues to show signs of significant slowing. Australian business confidence slumps to the lowest level since April 2009, while austerity plays havoc with Italy’s industrial output. The OECD Composite Leading Indicators (CLIs) for July are pointing to a significant slowing in global growth. China’s Shanghai Composite Index remains in a downtrend. Finally, copper is hanging on key support levels by a thread and has not confirmed this latest equity market rally. — On the Eurozone front, pure pandemonium: the market wants Eurobonds yet Merkel is still not playing ball; Germany unexpectedly delays debate on the EFSF; Finland still demands collateral; Greece’s next tranche payment is unexpectedly delayed forcing them to tap an emergency fund. The Eurozone turbulence is beginning to critically injure the global recovery.
- The following months look to reflect more of the same for the manufacturing sector, a clear approach to stall speed. The Ceridian-UCLA Pulse of Commerce, a leading indicator of manufacturing activity, declined for the 2 consecutive month. Meanwhile, the Empire Manufacturing report, a survey of manufacturing conditions in the NY area, showed increased weakness. Its employment sub-index fell into negative territory for the first time this year. The Philly Fed Index has been in contraction for 3 consecutive months.
- Inflation at the consumer level remains at uncomfortably high levels and will hinder the Fed’s ability to come to the aid of falling stock markets. Core-CPI, the preferred measure for the Fed, rose to 2.0% YoY and discards deflation as a reason for continued monetary easing. If QE gasoline, which caused increased risk appetite, is unable to be deployed, a key prop for the equity market will remain absent.