Take a Trip Through Rational Capitalist Speculator’s Mind.
I’ve just posted my updated Macro thesis as well as my financial market outlook. I update these outlooks twice a year. I put many hours into their preparation and regard them representative of my core beliefs and forecasts on the macro backdrop and financial markets.
The updated macro thesis is a pretty long piece so grab a cup of coffee and get comfortable before you break into it. I split this outlook into main “sections” in an effort to leave few “macro-stones” unturned.
My financial outlook is published separately in case you just want to know my current opinions on the markets.
I hope you enjoy them as much as I enjoyed creating them.
Thanks for your support,
Weekly Bull/Bear Recap: May 16-20, 2011
+ For all the talk about how narrowing profit margins will put a crip on hiring, Gallup Poll’s Job Creation sub-index keeps showing strengthening hiring trends. It has been near the top end of its range since mid-May. Meanwhile, as expected, jobless claims plunge again from from 424,000 to 409,000. The recent spike was nothing more than a seasonal quirk. Job growth (in addition to falling gas prices) will serve to buttress consumer spending.
+ Fears of oil refineries being shut down due to the massive flooding along the Mississippi River are dissipating and gasoline futures have plunged roughly 15% since the early May peak. This is setting the stage for falling gas prices which in turn will lead to an acceleration in consumer spending in the months ahead.
+ The bond market is doing its part in helping housing with mortgage rates dropping for the 5th straight week to their lowest level this year. This is happening right in the middle of spring buying, which should help stabilize the housing market and improve consumer confidence. Meanwhile these lower rates have also set off a wave of refinancing, which will free up more disposable income for households.
+ The Wall of Worry remains high. Given how individual investors are always the last to the party, it’s bullish when they bailout at the slightest drop in the S&P 500. There’s buying power on the sidelines and once the consumer seeings falling gas prices, consumption growth will take a leg up and investors will buy once again.
+ Home Depot raised its outlook for the year as same-store sales returned to positive territory after falling in prior months due to bad weather. Having a market-leader in home improvement announce a raised outlook is a harbinger of improving investment growth in housing. (Don’t own nor am I shorting Home Depot)
+ The Linkedin IPO is a great success with the stock surging more than 110% after its debut on Thursday. Investor appetite for risk remains strong and signals improving confidence in the recovery. Market conditions, such as falling rates, oil prices, increased lending, and rising stock prices will make it easier for the recovery to progress. (Don’t own nor am I shorting Linkedin)
+ Bank lending is the life blood of the economy. So when you see reports of increased lending to businesses, it signals that confidence is increasing on the part of banks and small businesses as they believe business conditions have improved enough to take risks. The animal spirits are coming back and is a welcomed development for the recovery.
- Here are some more leading indicators for the Bulls. The Conference Board Leading Indicator fell in April for the first time in almost a year. Worse, 2 of the 4 sub-indicators that came in positive were the “interest-rate spread” (which is obviously manipulated by Bernanke’s ZIRP policy) and “stock prices” (POMO anyone?). Meanwhile, the ECRI just delivered the bear clarion call: “Global-Slowdown is coming”.
- The housing market continues to defy the optimists. Numbers for April showed no sign of increasing construction activity anytime soon as Housing Starts and Permits (which is a leading indicator) both showed declines of 10.6% and 4.0% respectably. Meanwhile, in a sign of how non-existent demand is for housing, despite the lowest mortgage rates of the year, existing home-sales still managed to drop in April (when they should be rising due to home buying season). If I was a home builder, I’d be depressed as well.
- The Japanese earthquake and subsequent nuclear disaster (which just because the news isn’t on bubblevision anymore doesn’t mean it’s gotten any better), is beginning to show up in US economic data. Industrial production for April came in flat surprising economists expectations for a slight gain. February and March data were also revised lower.
- In news not having to do with the earthquake, the Empire Manufacturing Report was quite disappointing for the bulls, coming in miles below the consensus estimate of 19.6, at 11.9 and down from 21.7 in April. Prices paid rose 12 pts to the highest since July 2008. Meanwhile, the Philly Fed manufacturing index for May showed that factories in the mid-west grew at the slowest pace in 8 months. Contrary to economist’s expectation for the gauge to rise to 20.1, it came in at 3.9. Yep I’d say that was a miss.
- As if the Eurozone needed another dumb decision by a politician. In one of the weirdest financial stories of the year, IMF chief Dominique Strauss-Kahn was just sick of dealing with the Eurozone issues and let out his frustrations on a poor 32-year-old maid (nodding head).
- Don’t you think it’s odd when you have analysts, money managers, and bubble vision all chanting about how we are in the midst of a recovery and that conditions are setting up for a major rally to end the year while you have insiders dumping their stock to the tune of 350x sellers to buyers? Putting my common sense cap on, something just doesn’t make sense here!
- The Middle East is still a hotbed of Cold Wars, rising tensions, and sectarian violence. Obama just upped the ante on the Syrian president, while laying down a controversial plan for Israel to return to pre-1967 (ex. Gaza and West Bank) borders in its peace process with the Palestinian state. Israel has bluntly rejected the proposal.
- The Eurozone made headlines late this week with S&P downgrading Greece sovereign debt due to a possible “soft-restructuring”, tensions are erupting between Eurozone officials (the wind speed on the house of cards is increasing). Meanwhile, it’s not only the Finnish or Greek populace getting sick of the austerity (in order to bailout investors), Spain is now in the spotlight as Zapatero’s “Socialist” party is set to suffer major losses in the days ahead. Spanish 10-yr yields are at the top of their multi-month range. Things may be taking a turn for the worse.