Monday, June 30, 2014 Saturday, November 23, 2013 Sunday, February 24, 2013

Weekly Bull/Bear Recap: Feb. 18-22, 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.  


+ The U.S. economy is set to continue its recovery.  The Conference Board’s leading indicator increased 0.2% in January.  ”The indicators point to an underlying economy that remains relatively sound but sluggish,” said Ataman Ozyildririm, economist at The Conference Board.  Meanwhile the ECRI’s leading indicator growth-rate remains in solid positive territory at 7.6% for the week ending February 15th — Lakshman Achuthan has egg all over his face due to his premature recession call.  

+ U.S. Manufacturing is undergoing the beginnings of another inventory build.  The American Trucking Association reports that its tonnage indicator rose for the 3rd consecutive month in January, notching its highest ever reading.  Meanwhile, Markit reports that its PMI registered further expansion for the sector. Chris Williamson, Chief Economist at Markit said: “U.S. manufacturers reported the largest monthly rise in production for almost two years in February, suggesting that the economy is set to rebound from the weak patch seen late last year and allying fears of a double-dip recession.”

+  While the Conference Board has reported declining confidence from the U.S. consumer, on the whole, it has stabilized.  Gallup reports that its measure of consumer confidence remains near a 5-year high.  Bloomberg’s Consumer Comfort Survey is carving out a bottom, as is the University of Michigan’s Consumer Sentiment survey, which last week signaled a 3rd consecutive increase.  

+ Home prices continue to increase (due to falling inventory levels) and will support consumer and investment psychology.  Zillow reports that their pricing index’s 15th consecutive increase was also at the largest annual rate since early 2006.  Meanwhile “the number of American households behind on mortgage payments fell to the lowest level in four years at the end of 2012,” according to the Mortgage Bankers Association.  In the commercial real-estate sector, the AIA announces a strong surge in its Architecture Billings Index.   

+ Global trade flows have bottomed and look to pick up throughout 2013.  Japanese exports for January grew for the first time in 8 months, rising 6.4% on a year over year basis.  Exports to China increased for the first time in 8 months, while exports to the U.S. jumped more than 10%.  Meanwhile, Markit reports that increased demand from Asia is percolating to other major economies, such as Germany.


- Things are taking a turn for the worse in Europe.  Markit reports a deepening downturn in Februarytempering expectations for an end to the region’s economic malaise any time soon.  Moreover, Italian leading indicators point to further weakness ahead (elections are coming up this weekend!) and Euro-wide car sales slump to levels last seen in 1990.  Unfortunately, bullish German business conditions (due to the country’s reluctance to rebalance its economy, which is sorely needed for a long-lasting Eurozone solution) only serve to create complacency in the country.  Perhaps such good economic conditions will make German citizens feel like their economy will not suffer if it left the Eurozone.  A Taylor-Rule analysis of Germany vs. France clearly demonstrates why a one-size-fits-all monetary policy is tearing the region apart.  Meanwhile, financial institutions in Europe remain very vulnerable and Friday’s news that only half of the LTRO money will be repaid speaks volumes of the distrust still present in the banking system.  Liquidity schemes such as the LTRO only mask the underlying fundamental  problems plaguing the Eurozone.  They do nothing to solve them.  

- Market action this week accentuates the extent to which Fed officials have warped financial markets.  After a surprising hawkish set of FOMC minutes, the S&P 500 tumbled over 2 percent.  The weakest multi-year economic recovery on record has only occurred because of unprecedented monetary stimulus.  Any hint of ceasing, or even reducing the dosage of Bernanke’s monetary drug will induce sharp sell offs in risk markets.  The foundations of the global economy remain unhinged and pose grave long-term risks to the investment outlook.  Indeed many are becoming worried with the degree to which the Fed has likely affected long-term economic growth.      

- Quietly, gas prices have increased for 32 consecutive days and endanger PE-multiple expansion.  Along with the expiration of the payroll tax cut and the significant possibility of sequestration, investors will be surprised by deteriorating consumer trends.  

- China’s Shanghai Composite falls roughly 5% as officials signal more tightening measures for the property market.  Despite a rallying U.S. equity market, China’s equity measures remain mired in a long-term downward trend, which is a red flag.  Want another red flag?  Copper plunges more than 5% for the week.  A look at the 3-yr price chart shows us that a bearish solution to a symmetric triangle is looking increasingly probable.    

- An awkward moment for U.S./Chinese relations occurs with Mandiant announcing that the Chinese military accounts for a large number of cyber-attacks on America, an accusation immediately disputed by Chinese officials who point out that the U.S. also accounts for a large number of cyber-attacks on their country as well.  

Friday, February 15, 2013

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%



+  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.  



- 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.  

Friday, July 6, 2012

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


+ 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.     


- 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.


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.       

Thursday, June 14, 2012 Monday, April 23, 2012
Here’s a bullish tidbit for the consumer.  Gas prices look like they may be rolling over.  Falling prices at the pump are sure to help confidence.  

Selloffs in U.S. financial markets may only be a pause that refreshens economic growth.  

Always pays to look at the other side. :-)

Here’s a bullish tidbit for the consumer. Gas prices look like they may be rolling over. Falling prices at the pump are sure to help confidence. Selloffs in U.S. financial markets may only be a pause that refreshens economic growth. Always pays to look at the other side. :-)

Thursday, March 22, 2012 Monday, March 19, 2012
Dudley. who is also vice chairman of the Federal Open Market Committee, and always a voting member, attributed some of the recent strength in the economy to mild weather and a buildup in inventories.

Fed’s Dudley says economy not out of woods yet - The Fed - MarketWatch

- - - - - - - - - - - - - - -

Dudley is certainly right to remain cautious with the economic outlook.  Unfortunately, their cure for this uncertainty, continued loose monetary policy (along with continuing war games between Iran and the U.S./Israel), will only breed more uncertainty as oil prices continue their treck higher.  


Tuesday, March 13, 2012 Friday, February 3, 2012

Weekly Bull/Bear Recap: Jan. 30 - Feb. 3, 2012


+ The U.S. economy is now in a sustainable expansion:

+ The global economic outlook is improving:  

+ In Eurozone political and financial news, European nations take one step closer to integration with 25 out of 27 nations signing the new fiscal compact treaty.  Moreover, leaders signal strong resolve to save the region, as talk of initiating a €1.5 Tn bailout fund is making the rounds.  Meanwhile, the Spanish 10-yr yield breaks under 5%, the Italian 10-yr yield breaks under 6%, the Belgian 10-yr yield breaks under 3.7%, and the French 10-yr yield breaks under 3%.  Markets signal that a strong firewall is in place for a Greek and/or Portuguese default. As a hefty insurance policy, the second LTRO on February 29th will likely be more than double the size of the first one (@ ≈ €1Tn), thus reinforcing the firewall for the banking system from a Greek or Portuguese default.  Besides, the Greek default has been on investors’ radars for so long, even martians on Pluto know that Greece is defaulting.  A climax would result in a rally as uncertainty is lifted.  


- The end game is coming into view for the Eurozone:  

  • Germany has demanded that Greece cede its budgetary sovereignty to the EU, a request Greece has declined.  Furthermore, stiff resistance from Greek political leaders to implement further austerity makes for another “Papandreaou referendum-like” showdown with the troika.  And for the trifecta, the Hellenic republic has warned that it may need even more bailout cash.  
  • Portuguese bond yields are repeatedly hitting record highs; hard default #2 is rapidly approaching.  
  • In Ireland, a solid majority demand a referendum (guaranteeing a defeat for the army of unelected technocrats in Brussels).  As Hollande eloquently stated, “Where democracy retreats and politics pulls back, the markets advance.”  
  • Hollande is creating daylight between himself and Sarkozy in the French presidential election (here’s a primer on what he wants to do).   

- On the region’s economic front, austerity is biting, hard.  Italian business confidence slumps to the lowest in 2 years.  While Germany is benefiting from a weaker Euro, it’s coming at the expense of the rest of the Eurozone; the region’s unemployment rate remains near the highest since 1998.  French consumer spending dives 0.7% vs. expectations of a gain of +0.2%.  Even worse, German December retail sales tank 1.4% vs. expectations of a 0.5% gain (the 4th decline in last 5 prints); so much for a low unemployment rate.  Meanwhile, on the financial front, banks are using some of the LTRO money to buy sovereign bonds; but that’s about it.  They continue to de-leverage, cutting off credit to the Eurozone and undermining any recovery in the region.  Furthermore, post-crisis highs in FX swaps between the ECB and the Fed point to tight liquidity conditions, despite unprecedented worldwide coordinated monetary loosening.        

- The throes of stagflation are in plain view; China “unexpectedly" holds off on reducing reserve requirements for banks, opting instead for reverse-repurchase contracts.  Simultaneously, here’s what a popping housing bubble looks like.  Protests are progressively more intense.  

- On the U.S. economic front, the S&P Case-Schiller index flags a deepening double-dip for the 99%’s largest asset.  Lower home prices will anchor consumer confidence over the medium-term.  Over the short-term, rising gas prices are starting to damage confidence; the Conference Board’s survey disappoints, printing 61.1 vs. expectations of 68.0 (led by a decline in the present situation). 

- Israel/Iran continues to bubble underneath the facade of bullish sentiment.  No groundbreaking announcements were made after the UN inspection.  Instead, it’s looking increasingly clear that the U.S. is no longer in control of the situation; an Israeli unilateral attack could come in as soon as 3 months.     

Friday, January 20, 2012

Weekly Bull/Bear Recap: January 16-20, 2012


+ Jobless claims plunge 50K to their lowest level in almost 3 years and clearly demonstrate a strengthening labor market.  Increased confidence means increased credit use = strengthening recovery.  Banks and homebuilders have been leading the ongoing S&P 500 rally. 

+ Manufacturing shows more signs of stabilization, not an imminent recession.  The Empire Manufacturing Survey rises more than 5 points, while the 6-month outlook surges 10 points.  Last week’s ghastly rail traffic report (intermodal) was nothing more than an aberration.  This week’s report shows a sharp rebound, outperforming last year by 7.4%.  Industrial Production rebounds 0.4%, lead by manufacturing’s best performance since December 2010 (+0.9% vs. -0.4% in November).     

+ Inflation is cooling and will give the Fed leeway to initiate further monetary policy (it’s becoming a worldwide phenomenon: Goldilocks environment coming up?).  If economic conditions slow, the bears won’t be able to seize control of the market as the Fed will act as a bullish albatross over their machinations.

+ Risk markets power higher for the week, while copper breaks out of its consolidating triangle to the upside, a sign that the global economy is poised to reaccelerate.  Chinese data strengthens the “further stimulus" and "soft-landing" thesis.  Furthermore, markets are sensing continued progress in the Eurozone crisis.  Confidence is making a comeback, as the German ZEW investor survey hints at a turning point for the Eurozone’s largest economy.  

+ The housing market continues its recovery.  Mortgage applications for purchase rise 10.3% after an 8.1% increase in the prior week; the result is higher home sales.  Furthermore, record low mortgage rates are spurring refinancing applications, surging 26.4% this past week to their best levels since August.  More refinancings = more disposable income for the consumer due to lower monthly mortgage payments.  Finally, the NAHB housing market index rises 4 points to its best reading in 4.5 years.    


- Sentiment is nearing euphoric levels.  Retail investors and even financial advisors are expecting stock prices to move higher.  The wall of worry that characterizes bull markets has crumbled.  Remember rule number 5 by Bob Farrell, “The public buys the most at the top and the least at the bottom.”

- Meanwhile, this earnings season has seen the lowest percentage of companies beating analysts estimates since the 3rd quarter in 2008; I don’t need to tell you what happened thereafter.  Furthermore,…

- … the EFSF is hit with a downgrade.  Authorities brush it off.  More downgrades are coming.  The political tide is turning against the Euro .  Marine La Pen of the anti-euro National Front party is making serious gains in the polls.  François Hollande is closer to winning the French presidency and will demand a renegotiation of the euro fiscal compact. On the Greek front, “Even members of the committee concede the process (Greek private sector involvement negotiations) is unlikely to succeed in time for the crunch date: a 14.5bn bond repayment falling due on March 20."  Finally, if things were all hunky dory, why is the IMF asking for $500 billion?  —-The news trend keeps getting worse.     

- ISCS and Redbook weekly consumer metrics are showing a serious slowdown, even after last month’s disappointing Retail Sales report.  Furthermore, national gas prices have risen roughly 3.6% and the consumer is already feeling it.  Bloomberg’s Consumer Comfort Index falls to -47.4.

- While China’s GDP numbers beat analyst expectations, they portray significant weakening in the country’s export and real estate sectors.  Furthermore, persistently high inflation will limit the amount of stimulus authorities can administer.   


Be sure to check out my latest macro outlook and market forecasts.  Thanks for your support.