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: 

• On the political front, Spain’s “Gürtel Scandal” is dampening confidence in the government’s ability to continue its EU-mandated austerity policies.  As a result, Spanish 10-yr yields are back on the rise, advancing 2.3% for the week.  Meanwhile, in addition to a festering bank scandal, February 24-25 will market an important day for Italy and global markets as Silvio Berlusconi’s shocking surge in the polls have already begun to unnerve investors.  Since Jan. 28, Italy’s FTSE MIB has declined more than 7%.  
• On the economic front, Spain posts some depressing Industrial Production numbers for January, while European Retail Sales plunged in December by the most since February 2009 on a YoY basis.  France looks to downgrade its 2013 growth forecast placing Mr. Hollande in a pickle, indeed he’s now asking for a lower Euro.  Pressure on the ECB to join central bankers worldwide in weakening their respective currencies marks an end to the cease fire in the “Global Currency War.”  

- 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%.   

Weekly Bull/Bear Recap: Jan. 28-Feb. 1, 2013

Bull

U.S. Economic Activity is beginning to reaccelerate:

• Manufacturing reports this week show an improving picture.  The ISM Index increases from 50.7 to 53.1 in January.  New Orders and Employment subindicies are in solid positive territory.  Meanwhile Markit’s PMI Index rises from 54 to 55.8.  Both notch their best readings in 9 months.  Regionally, the Chicago and Dallas Feds report that activity is picking up steam.  Furthermore, Durable Goods Orders are pointing to a stabilization in demand with business investment increasing for the third consecutive month.   Manufacturers are becoming more confident in future demand.
• Upward revisions in November, from 161K to 247K, and December, from 155K to 196K, together totaling +127K, accompany a positive BLS jobs report for January (+157K).  Meanwhile ADP reports that companies hired at the fastest pace in almost a year.  Challenger, Gray, & Christmas announces that job cuts for January are the third lowest since 1993.  Firms do not see deteriorating conditions in the months ahead and are maintaining their headcount.  The job market continues to heal.   
• Light Motor Vehicle Sales start off strong in 2013.  Consumption growth continues and will support the economy.  
• Overall, Consumer confidence is stabilizing.  While we’ve seen some indicators point to souring prospects, other surveys, such as Gallup’s Poll of Consumer Confidence and University of Michigan’s Survey of Consumer Sentiment point to reduced concern over upcoming negotiations in Congress.  
• Rising home prices remain a positive for consumer psychology.  Prices are set to climb throughout 2013, partly counterbalancing worries over higher taxes.  Meanwhile Detroit is seeing a revival —(told you so!).  

+  The global economy is set to reaccelerate in the coming months according to JP Morgan’s Global Manufacturing PMI, led by a reacceleration in China (due to domestic demand) and firming U.S. activity.  Improvement in these countries is spilling over into Europe…

+  …Germany’s Markit Manufacturing PMI is now just a smidgen below 50, which delineates between contraction and expansion, at 49.8 (an 11-month high).  Furthermore, Consumer climate, reported by the Gesellschaft für Konsumforschung (Gfk) group, reveals an improving state of confidence.  Perhaps this is due to a recovering job market.  Meanwhile, while still contracting, the majority of country-specific PMIs (Spain, Italy, Hungary, and Czech Republic) indicate the worse is over of the region’s recession.  The improvement in the global economy can also be seen in Brazil, where the unemployment rate has fallen to a record low.

(Source: Markit Economics) 

Bear

- Investors have piled into bullish bets (but earnings have flatlined since Q2 2011), economists all agree that the economy is poised to expand, the VIX is at 2007 levels before the crisis struck, and the bears are capitulating.  All are signs of extreme complacency in the face of festering bearish macro trends……  

(Weekly Readings —— Solid Line = 32-week average)

- …..and why are investors giddy?  Because stocks keep on rising.  But smart investors know to use REAL, not Nominal gains to correctly value wealth.  “Zimbabwe’s stock market was the best performer this decade — but your entire portfolio now buys you 3 eggs.” — Kyle Bass

- The U.S. Economy is extremely vulnerable and is on the cusp of recession: 

• Bull are doused with a bucket of cold water as 4th quarter U.S. GDP prints negative for the first time since Q2 2009.  The negative print is a crystal clear indication of how weak and vulnerable this recovery is.  Curtailing government expenditures, higher taxes, and rising gas prices as the summer approaches will be too much for the economy to bear.
• U.S. Consumer confidence, as per the Conference Board Consumer Confidence survey, plunges again in January, erasing all of 2012’s gains.  Furthermore, the Bloomberg Consumer Comfort Index falls for the fourth straight week.  Weekly sales metrics, such as Goldman ICSC and Redbook, reveal weakening consumption trends.  This ongoing trend casts a cloud over the direction of consumer spending as worries over reduced incomes due to the expiring 2-yr payroll tax holiday ferment.
• The Household Survey, embedded beneath the widely touted headline jobs number this morning, has not confirmed the improving job market for the third successive month.  
• The FOMC meeting reveals that Fed officials are worried about a stalling economy (confirmed by Q4 numbers) as well as creeping disinflation.  Monetary policy is powerless to arrest continued sluggish in the economy; worse, as investors appreciate the negative impact of reduced consumer incomes, there will be a crisis of confidence.  ”Don’t Fight the Fed” will be a maxim of the past.  

- Europe’s troubles lurk in the background, receiving very little press.  The budget scandal in Spain is quietly picking steam and Retail Sales in the country fell for the 30th consecutive month in December.  Spanish 10-yr borrowing costs advance roughly 5% this week.  Looking at a 3-month view, we now see a higher high.  Meanwhile, car sales throughout the periphery remain in a distinguishable downtrend and retail sales throughout the region signal consumer retrenchment.  Moreover, Italian Consumer Confidence slumps to a 17-yr low and Business Confidence unexpectedly falls.

- If China has really bottomed and is on the brink of a sustainable recovery, try telling that to the Australians.  Straya’s mining-based economy is signaling a red flag for global recovery enthusiasts. 

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: Veteran’s Day Edition, 2011

Bull

+ The Greek saga ends with the inauguration of a new coalition government; positioned to swiftly ratify the EU bailout package.  Italy’s Senate approves economic reforms needed to bring back confidence into markets.  Berlusconi will be out and Monti in.  The bears never thought it could happen.  Officials came through in the clutch.  They will not let the Euro fail.  Italian yields collapse to 6.4-6.5% and well away from the danger zone of 7%.  Slowly but surely the largest headwind for the global economy is weakening on the back of strong and decisive policy actions.  With the Eurozone contagion contained, “we’ll have a slowdown in the world economy, but a manageable one.”   

+ Chinese inflation is in a lucid downtrend and sets the stage for additional easing from officials.   The Year over Year (YoY) change in CPI for October prints inline with expectations at +5.5% vs. +6.1% in September and +6.2% in August.  The good news is reinforced by the PPI reading, sinking to +5.0% YoY vs. +5.7% expected.  The soft-landing is materializing before our eyes.  There are absolutely no signs of a hard-landing.  While domestic investment growth may slow, consumption is charging to take its place.  The bears are in for a shock and the bull market will reignite, running shorts over.  Chanos will have egg on his face.  

+ October shows clear improvement in manufacturing as per the American Association of Railroads.  UPS CEO Kurt Kuehn states that he believes the holiday shopping season “will be solid”.  University of Michigan reports that consumer sentiment has recovered to highs last seen in June with a reading of 64.2 in November, vs. 60.9 in October and 61.5 expected.  Momentum in consumer spending has led to increased demand to restock inventories.  Jobless Claims fall under 400K and to the lowest in 7 months.  Finally, exports hit an all-time high in September.  Obama’s pledge to double exports by 2015 is proving prophetic.  The U.S. economy is resistent to recession in Europe.

+ The time to buy for the longer-term is now, due to fundamental, valuation, technical, and sentiment factors. Problems around the world are obviously recognized and have been priced in.  Furthermore, leaders will do everything to avoid an outcome that would put the global recovery at risk.  Besides, events in Europe really don’t affect earnings or cash flow growth of domestic companies.  The market is trading on sentiment/psychology, not fundamentals.  The U.S. economy has proven that it’s resistent to a Eurozone slowdown.  A Santa Claus rally is coming as Europe headwinds weaken.

+ ”On a four quarter trailing basis, earnings for the S&P 500 are set to total $94.77 (Operating Earnings), which would eclipse the old record of $91.47 set in Q2 2007.”  Folks, the S&P 500 is now trading at only 11.6 times next years earnings of $108.01 and at 13.7 times trailing twelve month earnings.  Should normalcy in PE ratios return (15), the S&P 500 would rally roughly 14 and 30% respectively from 1,250.  For the bears, does the graphic below look like a V-shape recovery to you?  With a Eurozone resolution slowly but surely coming and a China soft landing, 2012 will be another record year for U.S. corporate profits.  The time to buy is now as this realization begins to hit in early 2012.   

Bear

- Political risk continues to grow.  Eurozone governments are becoming sclerotic and ineffable sell-offs in financial markets are boarding on panic.  This time German citizens are asking for a referendum.  Merkozy lays the first hints of a restructured Eurozone (ie the Euro in its current form would be finished) —only to fervidly deny it less than 48 hrs later (what is this high school?).  Slovakia openly ponders a Eurozone split as well.  Italy’s 10-yr yield surpasses the 7% level, while the entire Italian bond yield curve inverts.  100% of the time a country’s 10-yr yield has surpassed this level, they’ve requested a bailout.  But Italy is too big to save.  The ECB would need to print with reckless abandon.  However, Germany has said no to the idea (can you blame them after Weimar?).  Besides, inflation is already running hot in the country.  The first EFSF bond-issue receives tepid demand and officials now warn that the EFSF will probably be reduced in size (no longer €1 Trillion in firepower).  An odd sequence of events culminates with S&P maintaining France’s AAA rating with a stable outlook; the market gainsays that distinction with OAT/Bund spreads hitting Euro-era highs.  Let’s not forget the Bonos/Bunds spread; it just hit an Euro-era high as well.

- European economic data disappoints and signals that the region is plunging into recession.  German industrial production falls 2.7%, while Eurozone retail sales fall 0.7%.  Both indicators post their 2nd consecutive decline.  France is entering recession, yet officials are implementing austerity.  Good luck with that.  Italian industrial production falls in September; a “national unity” government, which has the bulls all giddy, is about to make it worse.  Spain’s feeble recovery stalls.  Bulls are hoping (there’s that word again) for a mild recession in the region.  Really?.        

-  U.S economic data refutes bullish hopium…again.  Corelogic reports a second consecutive decline in home prices and they expect the trend to continue.  Delinquencies and foreclosures are back on the rise.  Fannie Mae requests aaaaaaaanother bailout, this time $7.8 billion (a few days after Freddy Mac requested its pound of taxpayer flesh).  1/3 of all mortgaged homes are underwater.  The NFIB Small Business Optimism index remains in recessionary territory, coming in at 90.2 for the month of October vs. 88.9 the prior month.  To put this reading in perspective, the average recessionary reading is 92, while the average expansion reading is 100.  The ECRI sticks to its guns.  Recession is a “fait accompli” according to them.

- Chinese data confirms a “synchronized global slowdown” taking place with exports plunging 7.1% MoM.  The YoY growth rate falls to 15.9% YoY in October vs. 17.1% YoY in September, the lowest in almost 2 years.  Weakness will continue.  Lets not forget that exports account for roughly 30% of their economic structure.  Auto sales for October implode 7+% and shows that the consumer is weakening.  Consumption makes up roughly 35% of China’s economy.  Furthermore, a property bubble is in the process of popping and will precipitate a collapse in fixed-investment, which accounts for roughly 50% (source IMF) of Chinese economic growth.  If the U.S. and Europe go into recession (Europe’s already in one), China will undergo a hard-landing, plain and simple.      

- The QE printing train continues in earnest with Swiss National Bank’s chief Phillip Hildenbrand reaffirming his commitment to defend the 1.20 level.  Remember how the UK did its own QE?  Well, it’s not working.  The bulls are in for a rude awaking when Bernanke unleashes QE3 only to have the U.S. economy go into recession anyways.

- The Wall of Worry has crumbled and has given away to a Slope of Hope.  Investors are enthusiastically awaiting the famed Santa rally.  The margin of error for Eurozone officials is very thin.  There better not be any “unexpected” bad news in the coming weeks. 

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Weekly Bull/Bear Recap: August 1-5, 2011

Want to know my Macro and Market Forecasts?  Check out my Mid-Year Outlooks (a/o June 16, 2011): here and here.  They are updated twice a year.

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Bull

+  Gov’t officials are ready to accommodate markets.  QE3 or some form of monetary easing could be here sooner than most think.  The Fed still stands behind the markets and will help re-initiate the wealth effect, aimed at improving consumer and business confidence.  Meanwhile in Europe, officials are committed to slaying the Eurozone predators.  The ECB announced that it would be a lender of last resort for Italian and Spanish debt (ie “QEurope”) .  A big step towards fiscal union has taken place.  Italian officials are implementing the necessary reforms to conform with ECB requests. 

+ The job market hasn’t fallen out of bed, plain and simple.  The grand-daddy of all economic reports, the July BLS Payrolls, showed a gain of 117K total jobs (Private Sector: 154K) with upward revisions for the prior 2 months of +56K. The ADP jobs report shows an increase of 114K jobs created in July.  Finally, jobless claims have actually been declining in the past few weeks.  Now that the political stalemate over raising the debt ceiling is over with, businesses will begin to expand once again = increased hiring.

+ Bearishness is pervasive.  ”Recession”, “Fall 2008” are words/phrases uttered in every other sentence by the financial media.  When there’s ”blood on the streets”, you want to be buying.      

+ Retail Sales figures show that the consumer hasn’t fallen out of bed by any means.  Take a look at the Gallup Poll on Consumer Spending; there’s a clear YoY improvement.  These measures are sure to improve as oil (gas) prices have plunged recently, which will directly affect consumer spending and confidence (you can see gas prices are already rolling over).  Car sales also fared well despite all the industry has had to deal with lately (inventory shortages due to Japanese tsunami/nuclear disaster).  Consumer credit for June expanded much more than expected and bodes well for consumption.     

+ Congress passes and Obama signs the bill to raise the debt ceiling.  The US will not default and business confidence is set to make a come back now that this key uncertainty in the global outlook is lifted.  There won’t be a crisis.  

+ China’s Official Purchasing Manager’s Index (PMI) shows that the manufacturing sector is cooling, but not in contraction.  Inflation metrics have also come down and raises the probability that the nation will undergo a soft landing as tightening policy is relaxed.  Another bullish tid-bit is the Non-Manufacturing Index, which actually strengthened.  A soft-landing will ensure that their economy continues growing and earnings growth for American companies remains buoyant.

Bear

- Europe is straight-up on the ropes and no one knows what to do.  You can sense the despair from Eurozone leaders: “Stay calm, breathe deeply”; talk of desperation.  Furthermore, Eurozone PMIs disappoint and show that not only are Spain and Greece mired in contraction, but core-nations such as Germany and France are coming alarmingly close to that negative distinction as well.  Italy isn’t all that hot either.  The worse part is that the policy being pursued/prescribed involves implementing austerity measures, which will further depress growth.  It’s all a vicious circle; bailout conditions assume that growth will continue, yet austerity measures will smother it.    

- Personal Consumption and Expenditures disappoint and has triggered widespread double-dip jitters.  Incomes barely rose (Salaries & Wages actually fell) and spending fell for the first time in two years.  The savings rate also rose to its highest reading in 2011.  Political stalemate in Washington didn’t help.  70% of the Economy contracted in June.   

- The stock market is finally paying attention to what “Mr. Bond” has been saying since the spring when yields were diverging from stock prices.  Drastic sell offs in cyclically sensitive metals point to a “more-than-a-hiccup” type of slowing in the global economy.  Given how fragile consumer confidence is, these sell-offs may be the final shock that finally blows the whole straw house over.  The reverse wealth-effect is taking place.  

- US Manufacturing has stalled with its PMI coming in at 50.9.  Factory Orders disappointed as well.  Is the consumer ready to take over the recovery?  Are enough jobs being created to instill confidence?  Are exports ready to take over the recovery?  A sector needs to step up now, or recession is knocking at the door.  Same goes for the global economy.  Manufacturing is around the world is showing serious weakness.   

- China’s manufacturing sector is officially in contraction as per the HSBC PMI for the first time in more than a year.  The reading of 49.3 was the lowest reading since March 2009, when the S&P 500 was in 600-700 territory.  Given how much US companies depend on growth in the communist nation, this bearish data should strike fear into investors.  

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,

Rodrigo 

Weekly Bull/Bear Recap: Apr 25-29, 2011

Bull

+ Earnings and revenues for various   bell-weathers portray improvement in corporate performance.  Revenue-beat rates are the highest since the bull market began (there’s your top line growth bears).  A steady trend of share buybacks and increased dividends will keep the bull market trend in place since March 2009 intact as companies return profits to investors. 

+ The Bull Market rolls on as the Dow Theory is confirmed with both DJ Transportation & Industrials averages breaking through their prior bull market highs.  The S&P 500 and Nasdaq have finally confirmed as well by breaking their previous bull market highs set in Feb.  Even better, there’s a good bit of skepticism out there in regards to this latest breakout, the wall of worry remains.

+The Chicago Fed National Activity Index points to above-trend economic growth and refutes claims that economic activity has fallen.  Manufacturing continues to lead the way and the report points to strong contributions from the Job market.  Small businesses are slowing recovering and hiring is increasing in breadth.  

+ Durable Good Orders rise a healthy 2.5%, while core-capital goods rise a strong 3.7%.  Orders have now risen for 3 straight months.  Shipments climb for the 5th straight month as well.  Meanwhile, Chicago’s Midwest Manufacturing Output index increases 1.9% led by strong auto-related production.  Finally, ATA truck tonnage levels and recent railroad data point to continued expansion in the manufacturing sector.

+ Consumers continue to spend as evidenced by recently released weekly sales metrics and the Restaurant Index.  Easter demand has been solid thus far.  Consumers have become accustomed to higher gas prices and continued improvement in the job market will ensure that spending growth continues.

+ The Conference Board reports that consumer confidence for April continued to stabilize as the “current conditions” component rose for a 7th straight month.  The recovery continues.  Plans to buy a house, an auto, or an appliance rose in renewed confidence that incomes will improve in the months ahead.  This confirms recent improvement from the University of Michigan sentiment survey.  

+ Despite all the bearish chatter, manufacturing orders continue to pile up for the Eurozone and confirms that the recovery continues in that region.  Strong demand from Asia confirms that the global restructuring is taking place. 

Bear

- Jobless claims disappoint again surging to 429K, marking the highest level since January while last weeks’ claims were revised….guess.  Job growth has effectively stalled as more companies find it better to seek cheap labor outside of the US and heightens the risk for protectionist sentiment coming from Washington in the months ahead if things don’t improve. 

- The housing double-dip is knocking at the door as Case-Schiller Home-Price Index reports the 7th straight month of lower prices.  What led us into the Great Recession has just recommenced its second dip.  The banks are sweating as well.  They have clearly failed to participate in the latest run up in equity prices (XLF, BKX).  Bank balance sheets are not prepared for a double-dip in home prices.

- Manufacturing around the nation is showing signs of a considerable slowdown in growth as Dallas, Richmond, and Kansas manufacturing surveys come in way below expectations. Manufacturers in Richmond signal that Inflationary pressures will be hitting the consumer very soon and bodes ill for an already fragile consumer confidence…

- …and speaking of consumer confidence, we got more bad news on that front as well as the Gallup Poll reports yet more deterioration.  The Bloomberg Consumer Comfort survey has followed suit as well.  Meanwhile, UK consumer confidence is probing the 2009 depths of despair (austerity is a sharp double-edged sword).

-  The Eurozone continues to simmer.  Portugal, for the second time now, revises its deficit upwards from 8.6% to 9.1%.  Same deal with Greece (restructuring seems inevitable here).  Next victim for the bond vigilantes?  Spain would be a too big to bail out economy if it came under stress and it has been lately.

- Signs continue to come from China that things are getting pretty hairy over there.  While the S&P 500 broke through to bull market highs, the Shanghai Composite just broke below its 50-day moving average.  Inflation is getting worse in China as officials haven’t done enough to quell sticky wage-fueled inflation.  Growth is slowing as well.  All these signs point to a stagflationary scenario in the upcoming quarters.

- Q1 GDP comes in a mediocre 1.75% (less than expectations), with the all important Real Final Sales metric (=end-demand) registering a pitiful 0.8%, the lowest since Q3 ‘09 and much lower than the 6.7% rate in Q4.  Cuts at the state and local gov’t level are being felt as well.  While Consumption did rise higher than expectations, let’s not forget that oil prices averaged under $100 a barrel.  

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(I don’t own nor am I shorting any companies mentioned here)

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&P.  Politicians 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.