Thursday, March 6, 2014 Thursday, February 27, 2014 Tuesday, February 18, 2014 Friday, January 31, 2014 Monday, January 27, 2014 Monday, January 13, 2014 Saturday, December 14, 2013 Saturday, November 23, 2013 Wednesday, October 2, 2013 Saturday, September 14, 2013

Important for Next week:

  • Will the Fed officially announce tapering in the FOMC statement?
  • Will data on housing starts, homebuilder confidence, and existing home sales begin to reflect persistent weakness in mortgage applications?
  • Industrial production for the U.S. should show a sector humming along, given strong readings in the ISM’s manufacturing index.
  • Was last week’s very bullish jobless claims reading a fluke or genuine improvement in the labor market?
  • The UN releases a report on the chemical attacks in Syria, likely providing clues as to who used them.  
  • Are reports from Gen. Salim Idriss (head of the opposition Free Syrian Army) claiming Syria is moving its chemical weapons cache out of the country to Iraq and Lebanon true?
Friday, March 29, 2013

Weekly Bull/Bear Recap: Mar. 25-29, 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. 



+ Cyprus is committed to the Eurozone.  Its sacrifice is a signal of resilient and solid political will.  The Bears continue to dwell on crisis after crisis, but they fail to recognize that these are clear buying opportunities.  Europe is too invested in the project to turn back now; they will create solution after solution, leading to further integration.  Smart investors sniff this trend of “no turning back” (a trend confirmed by 2-yr swap spreads)… 

+ …Risk markets continue to appreciate despite Eurozone worries — the S&P 500 and Dow Industrials have hit record highs.  Stale global growth will begin to rebound due to continued resolution in Europe as well as positive spillover effects from a clearly strengthening U.S. economy:

  • The Chicago Fed National Activity Index, a comprehensive indicator of US economic growth, indicates improved economic activity in February. The index’s 3-month moving average marked its fourth straight reading over zero, a level that implies an above-trend pace of growth.
  • Moreover, the ECRI’s Leading Indicator is in solid growth territory, evidence of continuing growth over the short to medium-term.  Lakshaman Achuthan is hiding under a rock at this point.   
  • Meanwhile, the consumer continues to chug along, defying bearish forecasts of weakness resulting from an increase in payroll taxes, gnawing sequestration, and historically high gas prices. Personal consumption and expenditures increased in February by the most in five months, while January’s reading of 0.2% was revised higher to 0.4%. Even better, because income growth was strong as well, the national savings rate actually increased from 2.6% from 2.2%.  Job creation, along with increasing home values (at the fastest rate since mid-2006 as per the Case-Shiller Index), are offsetting the bearish aforementioned effects. “The economy is in a very good place right now ahead of fiscal restraint. This recovery is sustainable. Consumers are in the drivers seat,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd.  This is especially true when looking at forecasts for March auto sales.   
  • An important leading indicator of the housing market, lumber prices, points to residential investment taking a central role in economic growth over the coming years.  


+ Corporate profits remain at record levels, but this is little reason to believe that they will mean revert.  Through a domestic lens, profits are indeed high vs. the historial average, but from a global perspective, profits are only a little above average and have room to grow.  Because globalization has resulted in many US corporations obtaining revenue streams from abroad, earnings will grow on an improving global economy.  "Conventional thinking sees unsustainably high corporate profits and expects a reversion to the mean. Global thinking sees no a priori reason to worry at all.” 


- Conditions in Europe are approaching a boiling point.    

The Cyprus bailout is a Pyrrhic Victory, setting two ominous precedents:  

  • First, Capital controls have now created two euros, a Cyprus euro, now worth less than a true euro due to its decreased fungibility.  Furthermore, controls are likely to precipitate a liquidity and economic crisis in the country, leading to a “larger than expected” economic contraction and an eventual need for an additional bailout.  Massive job losses are coming as the country’s banking sector, a pivotal source of economic growth is decimated.  Its “solid political will” to stay in the EMU will be tested shortly with the advent of a depression.  
  • Second, depositors’ skin is now in the game, which may lead to capital flight from other periphery countries.  —— Where can I find uninsured deposits as a percent of total deposits in the Spainish and Italian banking systems?

Moreover, Dutch Eurogroup head Jeroen Dijsselbloem does his best to further rock the boat by announcing that the Cyprus deal would be a template; a statement quickly refuted by the EU   (when it becomes serious you have to lie right?).  Furthermore, how can Bulls say that political will remains solid when you have comparisons of Merkel to Hitler on “El Pais” (Spain’s largest newspaper) and Luxembourg’s PM saying “Germany and Merkel are striving for hegemony…”?  It’s not only European countries who are ticked off at the Cypriot bailout package.  So….who’s next in line for the Eurozone’s 6th bailout package and a guaranteed depression?  Heeeere’s Slovenia!   

Deterioration seen this week wasn’t limited to Cyprus.  Italian yields rose on lack of a solution to the lingering political deadlock in the country.  Levels to watch on Italian 10-yr yield = 4.87 to 4.89.  A strong break over these levels will signal further trouble for equity markets worldwide.  Economic wise, the data still look bearish for the country: Industrial Orders in January fell another 1.4%, while Retail sales fell 0.5% in February.

-  Red flags are waving in terms of global growth.  The level of complacency throughout the investment community is at deafening levels.  All of a sudden the Phd in economics, copper, is disregarded as a bellwether indicator of global growth.  Perhaps because its clearly not confirming the bullish narrative - (the red metal broke through its multi-year symmetrical triangle pattern to the downside).  What’s more, South Korean GDP disappointed, as did industrial production.  Was this due to Abenomics? - (keep an eye on a possible rising wedge for the Kospi).    

- Is manufacturing in the US really picking up? Most of the rebound in Durable Goods Orders was due to the volatile transportation sector. Core durable goods, a gauge of business spending, actually fell at the steepest rate since July last year (-2.7%), surpassing economists’ forecasts of a 1.2% drop. Meanwhile, the Chicago purchasing managers index came at a disappointing 52.4 versus analyst expectations of 56.1. New Orders plunged 9 pts and Backlogs are now negative.

Is the housing recovery real?  Not when mortgage purchase applications, a measure of true sustainable demand and not investor buying, is not confirming.  Furthermore, for all the talk of large YoY gains, it’s important to see the forest for the trees; home prices are still down 30% from their peak 7 years ago.   


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, January 25, 2013

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


+ 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.  


- 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. 

Saturday, January 19, 2013
Housing prices are clearly showing signs of relative strength compared to prior years.  Bill McBride from Calculated Risk believes nominal home prices have bottomed, but real home prices will likely move sideways over the coming years.

Housing prices are clearly showing signs of relative strength compared to prior years.  Bill McBride from Calculated Risk believes nominal home prices have bottomed, but real home prices will likely move sideways over the coming years.