Friday, July 13, 2012

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.     

Monday, December 5, 2011 Friday, September 16, 2011 Wednesday, August 31, 2011

—Chicago Fed President Charles Evans on Monetary Policy

Thursday, June 23, 2011 Wednesday, June 8, 2011
Is QE3 coming soon? 
Above is a word cloud from Bernanke’s latest speech.  Commodity inflation sure fills his mind these days. 
h/t Zero Hedge

Is QE3 coming soon? 

Above is a word cloud from Bernanke’s latest speech.  Commodity inflation sure fills his mind these days. 

h/t Zero Hedge

Friday, June 3, 2011 Thursday, May 5, 2011

Serendipitous Decline in Oil?

While today’s plunge in oil may be taken as demand destruction from an oncoming recession in the bearish view, it may actually be a blessing in disguise.  Lower oil prices could be just what the economy needs in order to repair recent deterioration in consumer confidence and therefore continued growth in spending, while easing some of the pressure off corporate margins. 

I’m just trying to be objective here.  I’m still pretty bearish in the short-medium term given all the threats of exogenous shocks (China hard-landing, Eurozone Woes, Middle East unrest) around the globe. 

But it always helps to look at the other side of the story. 

Friday, April 22, 2011

Bull/Bear Weekly Recap: Apr 18-22, 2011

Bull

+ The Conference Board’s Index of Leading Indicators showed a larger than expected increase of +0.4%.  Last month’s reading was also revised higher from 0.8% to 1.0%.  The results point to strengthening economic activity and a sustained growth trajectory throughout the year. 

+The Job market continues its recovery as the JOLT Survey shows increased job openings.  Meanwhile, the Gallup Poll is signaling a decreasing unemployment rate. Its “Job Creation” survey notched its highest reading of the recovery this past week.  Job gains will add cash to the economy and keep consumption growth sustainable. 

+ Weekly consumption metrics show that US consumers have taken another leg up with regards to their spending habits.  Higher oil prices haven’t affected the great American consumer to this point.  

+ Improving confidence shows that US consumers are more comfortable in dealing with higher oil prices.  Falling home values won’t have much of an effect anymore given that the bulk of the shock has already been taken.  Consumer’s have come to expect that home values will remain low for sometime to come. 

+ Eurozone economic numbers show that the region is recovering despite recent headwinds such as the Japanese earthquakes and higher oil prices.  Continued steady growth will offset recent austerity measures on the periphery.  

+ Intel results shine (a triple play!) and confirm continued growth in the global economy as businesses expand and require new equipment.  Intel is a global bell weather so a positive report from the company is a harbinger of continued business spending.  Guess who else tripled?  IBM.  (I don’t own any Intel or IBM nor am I shorting them). 

+ If you look objectively, you can see signs that the manufacturing recovery is for real.  A manufacturing renaissance is occurring in America fed by large emerging market demand.  Jobs will be created and the virtuous cycle of jobs feeding consumption will help the recovery gain strength in the months ahead. (I don’t own nor am I shorting United Tech, or Eaton)

Bear

- So the job market is getting better eh?  Not from the looks of Jobless Claims reports.  We have our second consecutive reading above 400,000.  This hasn’t happened in over 2, close to 3 months.  Job growth has effectively stalled and a major thesis point for the bulls is under increased scrutiny.  Last week’s report was revised…(guess: up or down?).

-US “AAA” outlook is downgraded from stable to negative as per S&PPoliticians still haven’t put together a credible debt-reduction plan.  It’s only a matter of time before investors seriously question the payment ability of the US.  While the US is the monopoly issuer of its currency and will definitely pay back its obligations, rising commodity and precious metals prices signal that investors question whether they’ll be paid back with worthy dollars or just pieces of paper that can be burned for heat Weimar style. 

- You’d figure the large plunge in the April reading of the Philly Fed Manufacturing Index was due to the disruptions in Japan, yet 80% of respondents said that recent developments in Japan had no affect on them or their customers, 10% said that there were “Possible Future Effects”, and 10% said there were “Some Current Effects”.   

- The higher the markets go, the “stronger the recovery gets”, the tighter the noose of higher oil prices becomes.  Eventually, the headwind will be too much for the US consumer to bear.  Consumer Confidence according to the Gallup Poll continues its downward trend, not confirming the Bloomberg survey.  It’s only a matter of when, not if.

- Things are apparently getting icky in China with increasing protests regarding inflation.  Chinese officials are in a very tight spot and the situation closely resembles what I though would eventually happen when I wrote this article a little over a year ago.  Worse even is that inflation will probably remain sticky in the months ahead.  Will protests begin to have an effect on economic productivity?  Very likely.  It’s already causing some serious margin squeezes.   

- The Finnish elections along with further rumblings of a Greek restructuring have sparked another scare for the Eurozone (saw that one coming as soon as the election results were being disseminated).  While the news regarding Greece was bad, it was even worse for Spain as yield spreads are under upward pressure again after a substandard debt issue

- While some housing reports may have come in better than expected recently, looking at the forest instead of the trees shows us that the housing market still flat out stinks.  We officially have an “L-shaped recovery" in this sector.  Sales remain depressed and there are no "move-up buyers", only cash-deals by investors.  Home Prices (the commoner’s largest asset) keeps on falling.  

Thursday, April 21, 2011

Obama, don’t blame the speculators, the villain is right in your own backyard!

Continued QE lowers the dollar’s value, therefore dollar denominated assets such as commodities MUST go up as they are REAL, dollars are pieces of paper and Bernanke is destroying their value via QE.  It’s that simple. 

This is why I don’t believe that QE is a viable strategy to get out of this mess.  Eventually more people will figure it out once economic activity begins to slow down.  In the end, the main structural issues remain and the risks are becoming more elevated every week. 

  1. Oil Prices (movin on up!)
  2. Eurozone issues (they are getting worse) — a rising Euro (because of QE) sure isn’t helping that region.
  3. China tightening (can we really believe that a bunch of communists know more about managing an economy than capitalists?—I certainly don’t.)
  4. Banks are still unhealthy —(debt is still there folks!). 

The more signs of economic expansion we see, the higher oil prices will go until the patient gets a heart attack. 

I would be accumulating dollars as the bearish sentiment for the Greenback is hitting intense levels and the risks to global growth are higher than they seem. 

Friday, April 15, 2011

Weekly Bull/Bear Recap: Apr 11-15

Bull

+ The Meridian-UCLA Pulse of Commerce shows a rebound for the month of March and confirms that the manufacturing recovery will continue in the months ahead.  There is little danger of a sudden fall in manufacturing activity.  This belief is further reinforced by March Industrial Production and Empire Manufacturing reports. 

+ OECD leading indicators point to an acceleration in growth for the US and Europe.  China’s leading indicator is showing that a “soft-landing” is in store for them.  The stable outlook for the big three global economic powerhouses will insure that we will not have a global double-dip. 

+Weekly Sales Metrics point to a resilient consumer as results for the first week in April come in positive, despite the recent spike in oil prices. The consumer continues to defy skeptics.

+ Consumer confidence as per the Bloomberg Consumer Comfort Index rises for the 3rd week in a row, confirmed by the University of Michigan Consumer Sentiment report.  While oil prices have risen recently, the consumer is getting used to higher prices.  Consumer confidence is stabilizing. 

+In the face of the Japanese earthquake and rising oil prices, China’s economy is rumbling along with larger than expected growth in exports for the month of March.  This reading gives the government room to let the Yuan appreciate in order to curb inflation.  The economy is strong enough to endure rate increases as well as Yuan appreciation.  The global re-balancing is occurring. 

+ Despite what the bears keep saying, Eurozone conditions continue to improve and the region may be undervalued. Irish 10-yr yield spreads have come down markedly now that all the dirty laundry is exposed and sentiment is improving.  China announces that it’s investing in Spain (signaling confidence that the country will get its finances under control — the market is beginning to think so!). 

Bear

- Alcoa’s quarterly report stokes investor concern that its quarterly results may be a harbinger of reports to come as the earnings season continues.  If so, then the market may undergo selling pressure.  (I don’t own nor am I shorting Alcoa).   The dynamic of higher energy prices and raw materials can also be seen in this week’s PPI report, which shows that crude and intermediate inflation are nestled in the pipeline. If companies lack pricing power (I believe many lack it — especially discretionary companies), margins will get squeezed throughout the summer.  

- A key ingredient in the bullish thesis, improvement in the job market, has been extremely lackluster and in fact went into reverse this week.  Jobless claims popped over 400K for the first time in 2 months while last week’s reading was revised higher (surprise surprise).

- NFIB shows a recessionary reading.   “It looks like everyone became more pessimistic in March,” said NFIB chief economist Bill Dunkelberg. “Or, perhaps, this is a ‘new normal’ and we are unlikely to see the surges usually experienced at the start of a recovery.”  Bill, that “new normal” you speak about is called a “depression”.

- Economists are revising their Q1 GDP estimates downward as weaker than expected end-demand and shoddy trade data force them to acknowledge what the bears have been saying for months, economic growth is almost non-existent.  When will the bulls open their eyes to what’s really going on?

- Has China’s property bubble popped?  A MoM decline of +26% made me do a double-take (transaction volumes have plunged as well).  Furthermore, Xia Bin, a monetary policy adviser to the PBOC, states that more interest rate increases are coming in order to tame inflation.  A stagflationary scenario seems to be at hand.

- Japan’s nuclear disaster is upgraded to the highest accident-severity rating, on par with the Chernobyl nuclear meltdown in 1986.  Quickness of economic recovery is coming under more doubt

Tuesday, March 22, 2011

Libya

lifeliberty:

Obama in 2007 - “The President does not have power under the Constitution to unilaterally authorize a military attack in a situation that does not involve stopping an actual or imminent threat to the nation.”


Regardless of whether you support U.S. military action in Libya, the fact that the President authorized this action without the approval of Congress should scare you…

The whole situation is scary. What’s scarier is the fact that if things in the Middle East spiral out of control, oil would rocket higher to the point of breaking the back of the current recovery.  Then you’ll have the same shit that happened in 2008.  Massive amounts of money will be lost.  Retirees will be more in the hole.  Unemployment would rise again.  We’d be at risk of a Depression.  This is why this attack on Libya was authorized.  What is happening in the Middle East is an actual and imminent threat….to our economy and therefore the nation.  It’s a shame that the US is so addicted to oil that we have no control of our economic destiny anymore.  We are trying to control it, that’s why we are over there.  But we really aren’t in control anymore.  

We need not look at Libya, Saudi Arabia, Yemen, or Barhain though.  The true perpetrator of this chaos works at the Federal Reserve and is engaging in the ludicrous policy of Quantitative Easing, thereby making all commodities rise in value.  Commodity prices these days do not reflect fundamental factors such as supply and demand.  They reflect speculations on the part of investors with freshly printed dollars.  QE needs to stop.  Plain and simple. 

Tuesday, March 1, 2011
The copper price chart doesn’t look pretty at this point.  This commodity does have a PhD in economics right? 
It has lead the stock market recently. 

The copper price chart doesn’t look pretty at this point.  This commodity does have a PhD in economics right? 

It has lead the stock market recently. 

It looks increasingly likely that $100 oil is the "short-circuit" point. 

It looks increasingly likely that $100 oil is the "short-circuit" point.