Weekly Bull/Bear Recap: Feb. 11-15, 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. 

Weekly Market Performance

->) S&P 500: -0.1%

->) Dow Industrial Average: -0.2%

->) Nasdaq: -0.1%

Markets on Watch

->) FTSE MIB (Italy):  -0.8%;  ->) 10-yr BTP Yield: -3.8%

->) IBEX 35 (Spain): -0.3%;  ->) 10-yr Obligaciones Yield: -3.5%

Bull

+  Obama’s State of the Union Speech (SOTU) will inspire confidence throughout the middle class.  Improvements in infrastructure and education, as well as retraining the labor force to compete in today’s dynamic global economy, are sound economic policies that will reignite the American competitive spirit and consequently the economy.  Meanwhile, the U.S. energy boom quietly proceeds.  

+ The U.S. job market continues to heal as per high-frequency indicators such as Weekly Jobless Claims.  The 4-week average for New Jobless Claims is near its lowest level of the recovery.  Firms are confident in the outlook and are not cutting staff.  

+ U.S. housing data continues to look up, according to individual city figures.  Additionally, commercial real estate price trends show improvement.   

+ Consumer confidence in the U.S., which had been a growing thorn for the bulls, is finally starting to turn.  University of Michigan’s Consumer Sentiment survey rises to its highest reading in 3 months with a preliminary February reading of 76.3 vs. a final January reading of 73.8.  Bloomberg’s Consumer Comfort Index is carving out a bottom, printing its highest reading in a month.  Improving confidence is percolating to weekly sales metrics.  Redbook reports that consumption in February has started off on a strong note.  Growing confidence is also finding its way into financial markets.  

+  While January U.S. Industrial Production came in negative, the result came after two very strong months and shouldn’t heighten concern of a reversal of fortune for the sector.  Moreover, other indicators point to stabilization and possibly the beginnings of a new inventory-build.  The New York Empire Manufacturing survey, prints its first positive number in more than half a year in February.  Within the report, confidence in improving future conditions remains constructive.

+  Internationally, G-7 officials affirm their commitment to “market-determined” exchange rates.  Major governments understand that weakening their respective currencies will disadvantage their trading partners.  Cooler heads will prevail.  Meanwhile, financial conditions in the Eurozone have clearly improved.  Along with an overall pace of slower contraction in the EMU, the worse has likely passed.  Stabilization is developing.  

Bear

- Yes Obama’s speech had great ideas on boosting economic growth, if you believe that more government intrusion into the private sector (by picking winners and losers) and higher taxes are sound policies.  Overall, political paralysis looks set to continue; nothing will get done.   

- From a valuation and earnings perspective, U.S. risk markets are significantly overbought.  Additionally, buybacks (usually financed by debt) have in the past represented turning points in equity returns.  Furthermore, BofA’s proprietary sentiment indicator is screaming “sell.”  All this is taking place, while the sequester budget cuts are close to becoming reality.

- Redbook’s report of strong February U.S. consumption growth isn’t confirmed by Walmart’s “sales disaster” in February.  Higher payroll taxes and rising gas prices will be too much for the consumer to bear in the coming months.  Furthermore, oil looks set to continue its rise (pressuring gas prices higher), when looking at recent   developments in the Middle East.

- Small Business, the engine of job creation in America, remains in a multi-year slump, notching a feeble 88.9 in January vs. 88.0.  The average during recovery/expansion is roughly 97.  Without this important cohort of the American economy, job creation will remain tepid.

- Fed officials lack confidence in implementing policy.  Large disparity of opinions among Fed Presidents is detrimental to investor confidence and implies a lack of Fed control of current economic and financial conditions.  San Fran Fed’s Janet Yellen (Bernanke’s right hand dove) and St. Louis Fed’s James Bullard further convince investors that easy monetary policy is here to stay.  Meanwhile, Esther George of the Kansas City Fed, Richmond Fed’s Jeffrey Lacker, and Philly Fed’s Charles Plosser all caution of market disruptions once the Fed is obligated to tighten monetary policy, thereby limiting the Fed’s ability to unwind monetary largesse and risking longer-term inflation.  Sandra Pianalto of the Cleveland Fed believes the FOMC should elect to reduce their scheduled purchases through year-end. 

- The ugly European data continues: French, German, and Italian (remember that they have elections coming up) Q4 GDPs all print below expectations; meanwhile, Spanish Industrial New Orders for January print worse than expected at -3.1%.  Worse, Europe is supposed to be restructuring its economy, with Germany becoming more of an importer; the latest German Trade data is disappointing in this respect.  In the U.K. a disappointing January Retail Sales report (4th consecutive decline) fans fears of a triple-dip recession.  

Weekly Bull/Bear Recap: Jan. 21-25, 2013

Bull

+ Existing home sales may have underperformed the consensus forecast, but for good reason.  A lack of homes for sale (supply), particularly at the low-value end, was the culprit.  This development will help maintain upward momentum in home prices throughout 2013.  Moreover, New Home Sales may have printed a negative MoM growth-rate, but this was due to a huge upward revision in November and doesn’t deter the bigger picture of continued growth for the sector in 2013.  Overall, inventory levels remain very lean.  Higher home prices will result in a positive wealth effect for consumers and help support consumption.  Furthermore, low inventory levels will act as an incentive for homebuilders to hire, buttressing economic activity.

+ The U.S. job market is clearly on the mend from the looks of the jobless-claims data.  At roughly 352K, the 4-week average is now at its lowest level in almost 5 years.  This development is a harbinger for a solid January payrolls report, due in a week from today.  

+ The bears’ strongest point, a stalling manufacturing sector, isn’t confirmed at all by Markit’s latest preliminary PMI reading.  For January, the overall index rose from 54 to 56.1, a 10-month high.  Furthermore leading indicators in the report, such as New Orders, point to further expansion in the months ahead.  

+ The world’s largest economic bloc, the European Union, is clearly stabilizing.  Germany’s manufacturing PMI rises to the highest in almost a year, while consumer confidence in the European region expands for the second month in a row.  Both reports are for January.  Meanwhile, the ZEW Center for European Economic Research reports that investor confidence in Germany skyrocketed 24.6 pts, hitting a level not seen in more than 2.5 years (same story for Euro-area confidence).  Finally on the financial front, investors are giving the thumbs up at recent reforms in Spain and Portugal; both countries issue bonds to strong demand —- meanwhile, many banks that participated in the LTRO at the zenith of the crisis, are now repaying their loans quicker than expected, a sign of confidence that the worse is over.  

+ China continues to surprise to the upside.  The country’s manufacturing PMI, released by HSBC, hits a 2-year high in January.  Furthermore, Copper is about to break out of its multi-year triangle to the upside (see 3-yr view).  

+ The Conference Board’s U.S. leading indicator points to strengthening economic growth in the months ahead, rising 0.5% in December. “Housing, which has long been a drag, has turned into a positive for growth and will help improve consumer balance sheets and strengthen consumption,” says Conference Board economist Kenneth Goldstein.  

Bear

- Manufacturing has stalled and is looking to contract soon, as the Federal Reserve Bank of Richmond reports that its manufacturing index slumped to a 6-month low in January.  This report follows news of weakness in the sector from the New York and Philly Federal Reserve Banks.  Housing, which now only accounts for only 3% of U.S. GDP economy will not be able to pick up the slack (manufacturing accounts for 12% according to the National Association of Manufacturers)…  

- …furthermore consumption, which accounts for roughly 70% of the economy is set to shift down a gear as consumers hunker down as they face an expiring 2-year payroll tax holiday.  Bloomberg’s Consumer Comfort, which confirms recent falls in the University of Michigan and Conference Board consumer confidence surveys, falls to a 3-month low.   

- Complacency reigns in Euroland as Draghi states that the darkest times have passed.  Are we really out of the woods?  Investors are ignoring worrisome developments.  Spanish unemployment hits a record high while stories of corruption within the country’s government swirl about, creating political uncertainty at the flashpoint of the debt crisis.  Meanwhile in France, Europe’s second largest economy, recession is knocking on the door and could result in another flashpoint.

- From a technical perspective, stocks are very overbought at these levels.  Now is not the time to make risk-on bets as the S&P 500 also approaches multi-year resistance and many macro risks remain lurking in the background.

—(Source Bespoke Investment Group)

- Common sense says that constant intervention and warping of financial markets by central banks will inevitably come back to haunt investors and the global economy.  Warnings grow of a credit bubble as rampant central bank intervention has masked the true cost of money.  The subsequent adjustment will undoubtably be painful. 

Weekly Bull/Bear Recap: Dec. 3-7, 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

+ The U.S. economy is showing resiliency and leading indicators are pointing to continued growth:

• The Institute of Supply Management’s Non-manufacturing survey indicates that the service sector, which accounts were roughly 80% of the U.S. economy, is starting to pick up steam. New orders, a leading indicator, rise from 54.8 to 58.1. (50 demarcates expansion/contraction).  Furthermore, order backlogs cross the 50 mark into positive territory.   
• The US consumer continues to defy bearish forecasts.  Car sales rise to a five-year high in November, despite fiscal cliff fears. A clear uptrend has been reestablished.

(Source: Motor Intelligence) 

• Corelogic announces that prices in October rose 6.3% year-over-year, the largest increase since 2006. Plunging inventory will lead to firming prices over the coming year.  
• The BLS Payrolls November report today shows a decrease in the unemployment rate to 7.7% (the lowest since December 2008) as well as a better than expected 146,000 jobs created.  Averting the fiscal cliff (lawmakers will come to an agreement; Republicans will relent) will result in a release of pent up business investment, resulting in accelerated growth this coming spring.  Stock markets are sniffing out this strengthening tailwind.   
• Finally, resilient economic growth in the U.S. is spilling into Mexico, evident by rising consumer confidence and improving business conditions.   

+ There are more signs of a bottom in China’s economic growth.  The National Bureau of Statistics releases its Non-manufacturing Purchasing Managers Index, which increased to a 3-month high of 55.6 and doing its best to emulate a 13-month high mark in HSBC’s manufacturing PMI as well as a 7-month high in the country’s official Manufacturing PMI.  Meanwhile, the property market has clearly stabilized; there is no housing bubble.  Bellwether companies, such as Dow Chemical, see signs of reacceleration.  Stabilization in China and resiliency in the U.S. is translating to a healing global economy.

+ In Europe, periphery sovereign paper has been quietly rallying.  The Italian 10-year yield is now in a clear downtrend (3-yr view); a major potential bearish catalyst is falling by the wayside.  Europe continues to muddle towards a resolution.  Furthermore, when looking at Germany’s DAX, it sure doesn’t look like the wheels are falling off the engine of European growth.     

+ Longer-term, rising wages in China, increased flexibility of U.S. labor unions, and rising transportation costs are various factors resulting in a wave of “onshoring.”  Meanwhile, the Department of Energy announces that oil production is now the highest in almost 15 years, while a highly anticipated report on natural gas exports sets the stage for a significant increase in investment.  These factors will act as steady secular tailwinds for economic growth in the years ahead.  

Bear

- Investors are ignoring a growing divide between Democrats and Republicans on how to resolve the Fiscal Cliff and growing uncertainty is resulting in a precipitous drop in business investment, eerily similar to 2008. 

— (Source: Briefing)

- Bullish investors’ hopes that the worse has passed in Europe is pure poppycock.  Eurozone retail sales sink 1.2% in October, while a slew of PMIs continue to show deep contraction; worse,  austerity   looks  to proceed.  Moreover Germany, the locomotive of European growth, presents a terrible batch of economic data this week: industrial production is now cliff diving, retail sales plunge 2.8%, and the Bundesbank chops its growth forecast for 2013 (but the weakness is temporary…..riiight <sarcasm>).  Contagion hits Finland, a country already skeptical of continued bailouts to the South, while in the UK, dreadful factory data raises fears of a triple-dip recession.  In Greece, more than 1 out of every 4 people are unemployed, while France’s unemployment rate hits its highest level in 13 years (youth unemployment hits a record high).  Finally, political uncertainty is remerging in Italy, with Monti’s government seeing ever-thinning support for continued austerity.  Continued weakness in Europe is infecting other major economies, such as Brazil and India.    

Weekly Bull/Bear Recap: Nov. 26-30, 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

+  China continues to show signs of stabilization and will surprise investors with resilient growth next year.  Improving growth propects are already percolating throughout the region.     

+  The bears point at weakening consumer confidence has a harbinger of weak holiday sales.  Not so says weekly sales metrics from Redbook and the International Council of Shopping Centers, which show a successful start to the holiday shopping season.  The National Retail Federation says that this year’s Black Friday weekend was the busiest ever.  Meanwhile, Cyber Monday sales rise 30% from a year ago.    

+ Resilient consumers are buoyed by the positive wealth effect of rising home prices.  They have bottomed and falling inventory levels (due to increased buying activity) will ensure that positive trends in prices will continue.  Housing is now a major driver of the recovery.

+ The U.S. understands that it cannot rock the boat with regards to China’s economic restructuring.  Patience will be practiced and the U.S.’s strategy will focus on continued diplomatic pressure, instead of myopically labeling China a currency manipulator thereby raising the risk of protectionism.  As the global economy restructures, companies will increasingly find the U.S. as a great place to establish manufacturing operations.  

Bear

- Words mean little in Washington.  After weeks of announcing their embrace of cooperation in the face of the fiscal cliff, both Democrats and Republicans are starting to play a game of chicken as it approaches.  Business investment has drastically slowed, manifesting itself in stalling economic growth along with falling revenue growth.  The 3-month average reading for the Chicago Fed’s National Activity Index has fallen to the lowest since 2009 and is negatively affecting the job market.  Increasing downside risks are clearly being ignored; complacency is the order of the day.  

- The Shanghai Composite in China closes under 2,000 for the first time since the dark days of 2009, clearly not a bullish signal for those forecasting a pick up in growth.  Check out the country’s most popular “nail house” .  

- Economic activity in Europe remains in the doldrums and is a clear threat to global growth.  Italian consumer confidence sinks from 86.2 to 84.8 in November.  Continued weakness in the country’s economy will be a consistent tailwind for anti-austerity/anti-Europe Beppe Grillo’s 5-Star movement, creating political uncertainty in a country currently off of investors’ radars.  In Spain, an overhaul of the country’s financial system will lead to even more job loss.  In France, political meddling in the economy will lead to inefficiencies.  Greece is turning into a “slummy country” before our eyes.  And finally, rumblings from Britain may indicate a desire to exit the EU.      

- Geopolitics will be a consistent wildcard in the coming months, resulting in continued uncertainty and reduced investment/growth.  Ehud Barak’s retirement could open the door to a more aggressive defense minister, which is particularly concerning given Israel’s current predicament with Iran.  Meanwhile, Turkey has requested NATO involvement, which could create a flashpoint between UN Security Council members. Meanwhile, tensions are simmering in Egypt.  And finally in North Korea, rumors of another missile test are disseminating.   

- The U.S. housing market is not poised for a rebound.  At best, it will be a very slow recovery, contributing a feeble tailwind for the economy.  New Home Sales for October fell and last month’s result was revised sharply lower.  Meanwhile, mortgage applications are signaling further tepid growth at best.   

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.

Weekly Bull/Bear Recap: Nov. 12-16, 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

+ Weak economic data and fiscal cliff concerns have produced a buying opportunity for risk assets.  Firstly, weakness in this week’s economic data is due to Hurricane Sandy.  Data will revert to trend growth soon and surprise investors to the upside.  Finally, we are beginning to see the contours of a resolution as per recent remarks from Obama and Boehner.  Democrats will pile the pressure on Republicans to relent.  Lawmakers understand the consequences of non-action and will naturally act in time to avoid the bearish scenario.  

+ Long-term U.S. economic bullish tailwinds are forming before our eyes.  Shale oil and “fracking” look to make the U.S. an energy powerhouse, spawning a wave of manufacturing investment and job creation.  The U.S. is forecast to be an oil exporter by 2030.  Furthermore, the housing market is on the mend with housing  bellwethers reporting improved earnings trends, economic data showing falling inventory levels, evidence of an improving trend in delinquencies, and leading indicators such as the S&P Homebuilders index and lumber prices signaling increased vigor ahead.  Finally, China continues to show stabilization; a rebound will ensue in 2013.  Longer-term, new leadership will ensure that the country’s important 5-year plan is properly executed.  These bullish tailwinds will grow stronger in the coming months and will cause a further uptrend in Citi’s Surprise Index (a measure of investor sentiment)…      

+ …In fact, sentiment on Main Street continues to improve and U.S. economic growth quietly surprises to the upside in the 3rd quarter.

+ Athens will likely be given additional time to digest austerity cuts.  European leaders understand that they must give Greece time to adjust.  This is a positive step and shows that political will for a unified Europe remains resilient.  Furthermore, GDP data for France, Germany, and Italy print better than expected.

Bear

- U.S. companies fear the fiscal cliff and government gridlock is set to continue, all the while bailouts persist.  Falling core capital goods orders (affecting manufacturing), souring small business sentiment, and weakening consumer spending are ingredients for a self-fulfilling prophecy of recession.  Promises of further monetary easing are met with risk markets shrugging.  Monetary policy has become powerless to stop continued economic weakness.     

- Germany will be entering recession soon.  The important ZEW survey implodes in November, falling 4.2 points to -15.7.  A negative balance indicates that more experts expect the economy to contract over the next 6 months.  A political crisis in the Eurozone is increasing in probability.  How can Germany bailout other countries when it now needs stimulus of its own?  That will be a major question on November 20th when the Bundestag votes on the next tranche of aid to Greece.  

- Meanwhile, things are taking a turn for the worse in most if not all of Europe.  For September, Spanish industrial orders collapse almost 6%, while Eurozone industrial production falls the most in 3 years.  In France, recession is knocking on the door and Germany is pondering critiquing the country’s economy (good luck with that).  Meanwhile, most periphery nations are plagued with increasingly violent strikes and protests; the Greek government is beginning to lose control as a GDP print of -7.2% in the 3rd quarter has prompted the Prime Minster to announce that a “Great Depression” has descended on the country.  The IMF and EU continue to spar over the details of a new aid package —wavering IMF support is further fuel for uncertainty.    

- Weakness in Europe is spilling into Asia, with Japan on the cusp of another recession and Taiwan experiencing some intense market declines.  Meanwhile, geopolitics is further clouding the outlook.  Israeli airstrikes   kill the leader of Hamas’s militant wing.  This is occurring within the backdrop of already high  tensions in the region; a report from an U.N. agency fuels further fear of military conflict between Israel and Iran.  

Weekly Bull/Bear Recap: Jul. 30 - Aug. 3, 2012 

Good Morning, 

First the bullish perspective:

The biggest news for the bulls this past week was the Bureau Labor of Statistics’ payrolls report, which was much better than expectations. This bullish report was also confirmed by ADP’s report, as well as further improvement over the past month in the 4-week average of initial jobless claims. Furthermore, Challenger and Gray reported that mass firings remain very low. The job market has shown stabilization. Meanwhile, on the housing front, the Case-Shiller index posted its 4th straight gain and its largest in nearly 3 years. Year over year growth rates for sub-indexes are near 0% after a steady climb from negative territory. Falling inventory will spur construction spending, making housing an increasing tailwind for domestic growth in the months to come. Anyone telling you that the economy is in a recession with these data points is high on something.

In the euro zone, monetary and political officials are beginning to outline the parameters of a team-up in an effort to stabilize financial markets. Promises by the ECB to buy near-term sovereign debt of periphery nations have resulted in falling yield curves of these securities. In addition, swap spreads, which measure systematic risk, are far from their highs from last year. Improving financial metrics signal that investors are increasingly receptive to the forthcoming solution in the euro zone. Alleviating confidence in the region is helping stabilize global growth.

China, the up and coming economic powerhouse, is showing signs of stabilization. Despite endless bearish chatter of the length of the country’s manufacturing contraction, it pays to note that PMIs are still very close to the 50 mark demarcating expansion from contraction. China’s slowdown is nothing more than that. As officials begin implementing stimulus measures, economic growth is sure to reaccelerate.   The situation there is under control.

At home, income dynamics are improving.  Income growth is strengthening as per the latest Personal Consumption and Expenditures report, which showed wages and salaries rising 0.5% in June. Moreover, the Mortgage Bankers Association reports that re-financings rose to the highest in three years. Continued income growth is resulting in a resilient consumer. Chain store sales surprised to the upside, while vehicle sales rebounded. The Restaurant Performance Index showed that business in this consumer-sensitive sector remains in growth mode. A durable consumer will lead to improved sentiment of investors.

Citi’s economic surprise indicator has bottomed, marking a likely reacceleration of economic activity. This can be corroborated by an improving ECRI growth index, having increased from a low of near -4% two -1.3% today.

And now the bearish perspective:

Continued bluffs by Mario Draghi are harming the reputation of the ECB. Markets plunged midweek on no action from the central bank.  It’s becoming increasingly clear that the Bundesbank will not allow the ECB to proceed, without severe repercussions (Germany drops out?). Efforts to buy time using these bluffs serve to weaken political will.  In Germany, a survey was published in which a majority of the German citizenry now believes the Euro does more harm than good. Furthermore, the tomfoolery creates additional uncertainty, resulting in reduced consumer and business confidence (to the lowest since Sept. 2009).  Geopolitics isn’t helping much either; Russia has sent 3 warships to Syria with army personnel.  Iran/Israel keeps bubbling.

Vaporizing confidence is further strengthening what is an already scary negative feedback loop within the world’s largest economic bloc.  PMIs throughout the region were very negative, Germany in particular. Weak PMIs in France, Spain, the UK (largest fall in three years), and Greece weren’t worth peeking at if you’re a bull banking on stabilization. Unemployment in the region rose to a record 11.2% in June, while retail sales sunk for the 9th consecutive month. Continued weakness in the territory is likely to exacerbate an already faltering global recovery.

In Asia, Japan’s manufacturing PMI and industrial production fell, the latter falling for the 3rd consecutive month. In Taiwan, GDP surprised to the downside. South Korean had some awful data also.  June industrial production fell, while manufacturing confidence fell to a three-year low.  Furthermore, exports plunged almost 9% in July. JP Morgan’s global manufacturing PMI showed a greater pace of deterioration.

The U.S., with its economy also on the verge of recession, isn’t doing much to help as auto imports have plunged since the beginning of the year according to the latest vehicle sales report.  Frailty in the manufacturing sector has become persistent with a slew of reports noting continued weakness. The ISM manufacturing index has contracted for two months in a row, with important leading indicators such as backlogs and new orders signaling more to come. Meanwhile, factory orders declined and core durable goods were revised lower. The Dallas Fed manufacturing report was lackluster as well, with general business activity plunging due to continued uncertainty in Washington. Weekly consumer spending metrics show continued weakness due to a increasing savings rate as a crisis of confidence engulfs the global economy. While the bulls may point to the jobs report as a sign that the economy is stabilizing, it’s unusual that the bulk of the gains came from the service sector in the same period that the ISM’s non-manufacturing report showed an employment sub-index in contraction territory. Furthermore, chatter from CEOs of consumer-based companies does not confirm these bullish numbers. In addition, is improved job growth sustainable when various leading indicators such as the conference Board’s employment trends, and the Monster Employment index both point to limited gains at best?

Weekly Bull/Bear Recap: Jul. 23-27, 2012 

Starting the Week: Jul. 23-27, 2012 

  from  

Weekly Bull/Bear Recap: Jul. 16-20, 2012 

+ Housing continues to show signs that the worst is finally over and that the recovery is slowly gaining strength.  Improvement on the margin is becoming clear.  The NAHB Housing index rises by the most since 2002 to its highest reading since 2007. Housing starts rise to their highest since October 2008 and are up 40% over the past 18 months (permits remain in an uptrend).  Higher starts than completions signal that job creation is coming soon as the latter catches up.  Meanwhile, refinancing through the HARP program is gaining momentum, leading to improved income streams for many consumers.

+  Manufacturing remains a sturdy sector for the U.S. recovery.  Despite a negative reading in the ISM’s latest survey, the hard data tells a different story.  Total output rises 0.4% in June, led by a 0.7% rebound in manufacturing, to a new post-recovery high and more than reversing a decline of 0.2% in the prior period.  Output has expanded for 29 consecutive months.  YoY rates for Industrial and Manufacturing Production are 4.7% and 5.6% respectably, still reasonably healthy.  Production of business equipment remains in solid growth territory.

+ Global economic activity is stabilizing and growth is set to resume in the coming months.  China has begun preparations for additional spending/stimulus and copper is starting to sniff this strengthening development (3-Mth chart view is best).  The country’s housing market is already heating up.  Meanwhile, Italian Industrial Orders are stabilizing, rising by 1.7% in May, offsetting a 1.8% drop in the prior month.  Moreover, Spanish Industrial New Orders also came in better than expected; the country’s OECD leading indicator shows stabilization in the coming months.      

+ The U.S. economy is dynamic and is transforming before our very eyes.  Exports, shale gas/oil investments, and oil discoveries are new fountains of growth.  Consumer deleveraging has come far and home prices are enticing for long-term investment.  Furthermore, China is finally embarking on the path towards becoming the next world’s consumer.  This is undoubtably bullish.   

+ Risk assets are holding up well, even as investors are concluding that QE3 may not be forthcoming.  Furthermore, short-interest is at levels preceding powerful bullish moves, such as in Q3 2011: “To the extent people have gone short U.S. domestic equities, I think they’re kind of wasting their time” — Michael Shaoul.  Continued bearishness means there’s a wall of worry to climb…   

+ …Furthermore, earnings reports from international  companies have surpass expectations.  Continued signs of stabilization in global economic conditions will lead to higher stock prices.  Tech has been buoyant even in the face of all the sour macro news.  The market’s reaction to the news is more telling than the news itself.         

Bear

-  In Spain, home prices are absolutely imploding, bad loans are mushrooming, and bank deposits are dwindling.  Valencia signals distress and taps assistance from the government.  The results?  A Spanish Treasury official says there’s “no money left to pay services” and sovereign bond prices collapse (so much for the summit); 100 billion euros will not be enough to shore up Spain’s banking system.  Meanwhile the ECB reverses its position and now advocates imposing losses on senior bondholders of slumping financial companies.  The threat of losses is the pin to pop the “Moral Hazard Bubble.”  Meantime, Germany says sovereigns will still be responsible for bailout money; the country’s economic sentiment report falls for the 3rd consecutive month; and Deutsche-marks are making a comeback.  Moreover, 13 Italian banks are downgraded by Moody’s.  The Eurozone has already split according to intra-bank capital flows.       

- The U.S. economy is entering a recession.  The consumer is faltering, evident by the third consecutive drop in headline and core retail sales, both falling for the third consecutive month, the first time that’s happened since the dark days of 2008 (weekly consumer metrics don’t point to a rebound in the immediate term).  Meanwhile, the job market looks to be headed south as per a plunging employment sub-index in the Philly Fed’s manufacturing report as well as the National Association’s for Business Economic report on hiring trends.  These trends are confirmed by both the Gallup Poll’s U.S. Economic Confidence Indicator and the Conference Board’s U.S. Leading Indicator.  Continued suffering in the middle to lower-class is slowly creeping to its breaking point.    

- Bernanke warns on the assumption that funny money will cure all ills (in fact, the “unintended consequences” of ZIRP are clearly making things worse).  The looming fiscal cliff as well as weakness in Europe are together critically damaging confidence.  Both must be resolved he says.  Unfortunately, “it’s out of our hands,” which means that the Fed would be powerless to stop the oncoming contagion from a Eurozone implosion or a crisis of confidence from continued political bickering —likely to lead right up to the final hours.  Meanwhile, how on earth can the bulls say there’s high bearishness out there when the VIX just recently leaked under 16?  This sticks of complacency — there’s continued misplaced hope that Europe will get things done and that China will stimulate the global economy back into recovery.       

- Continued uncertainty in Europe is negatively affecting global business sentiment.  The IMF slashes its global growth forecast, while foreign investment in China falls almost 7% YoY in June.  Premier Wen sure sounds more worried than bullish analysts banking on a second-half rebound.  Global bellwethers are sounding the alarm of a slowing business environment.   

- Geopolitics continues to cast its shadow over the faltering global economy.  Syria is now officially in a “non-international armed conflict,” or civil war; Russia reaffirms its support for al-Assad.  Meanwhile, the Middle East is fast turning into a proxy war among the mightiest.  Israel vows a response against “a global campaign of terror carried out by Iran and Hezbollah” after 5 Israelis are killed in a bus explosion in Bulgaria.  Finally, the thinly covered South China Sea dispute isn’t going away.     

- Housing prices have not bottomed, not when you have rising shadow inventory, stagnant purchase applications, and an unclogging foreclosure pipeline.  But keep on building those houses </sarcasm>.

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Tons of info.  Want to know how I see things?  Check out my macro and market outlooks.          

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.     

Weekly Bull/Bear Recap: Jul. 2-6, 2012 

Bull

+ The U.S. economy continues to grow; recent data is only a pause that refreshens.  

• The consumer is resilient in the face of slowing economic conditions abroad.  The National Restaurant Association reports that performance and expectations for May are near 2006 levels. Meanwhile, auto sales rebound, surprising most analysts. 
• U.S. Rail Traffic continues to show an expanding economy and two key sectors of the economy, autos and housing, are poised to lead a re-acceleration of growth.  
• Construction spending for May surges the most in 5 months, signaling that activity has finally bottomed and will be a job creator in the quarters to come.  
• Speaking of job creation, ADP reports a stronger pace.  Meanwhile, jobless claims fall under 380K for the first time since mid-May, planned job cuts plunge to a 13-month low, and the Monster Employment shows growing labor demand.  While the BLS job report is below expectations, wage growth firms up and the average workweek ticks higher.  

+ Gas prices have plunged over the past 3 months, while ISM Prices-Paid subcomponents are in deep contraction territory.  Conditions are ripe for the Fed to initiate another QE and confirm that central banks are coordinating policy, causing a turn in sentiment and a powerful rally.  

+ Meanwhile, China has plenty of ammunition for additional stimulus.  However, the economy is stabilizing on its own as per China’s non-manufacturing index, which rises to a 3-month high of 56.7.  There will be no hardlanding in China.  Monetary officials are loosening monetary policy, setting the stage for a strengthening recovery over the 2nd half of the year.  

+ German factory orders come in better than expected and is good news for the exporting powerhouse.  Global growth has weakened but will stabilize soon.     

Bear

- Investors are giving the thumbs down towards solutions presented at the latest European summit .  Spanish yields are back within striking distance of 7%, while Italian bonds are above 6%.  Core-countries are reneging on providing unconditional help to the periphery.  A crisis of confidence is set to fragment the Eurozone.  We are at most weeks away from a negative worldwide financial shock, leading to a global recession.  

- Merkel is under increasing pressure from officials in her native Germany.  The CSU, the Constitutional Court, and now the President of the Bundesbank are making it clear that political will in Germany has been exhausted.  A referendum must take place.  Meanwhile, the Greek government is set to collapse again soon.  The ECB cut interest rates, but it isn’t enough for the QE-addicted market.  Finland says the “unthinkable.”

- U.S. economic data continues to point to increasing sluggishness and ultimately a recession.  The ISM June’s manufacturing index turns in its first contraction print in 35 months; important leading indicators — New Orders and Backlogs — are in solid negative territory.  While ADP shows an improved labor market, the BLS has a different account of its health.  Weekly consumer metrics are showing significant weakness and outlooks in the retail sector are getting slashed.  

- Global economic data continues to disappoint.  Euro-area unemployment climbs to a record 11.1% in May.   The bulls were wrong, Germany did not decouple from the rest of Europe, as May’s PMI fell to a 3-year low and weighted on a gloomy Eurozone PMI.  Slumping New-Orders for most PMIs signal global recession has arrived.  Globally coordinated interest-rate cuts smell of panic.  

- “But trust is shattered at the very top of the financial system.”

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Be sure to check out my newly minted macro and market outlooks.  Happy Independence day to all of America.  I love my country and look forward to better times ahead.