Weekly Bull/Bear Recap: Apr. 1-5, 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. 

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Bull

+ A healthy trend in U.S. truck sales signals underlying strength in heavy equipment industries:

• Manufacturing remains a strong source of growth as per Markit’s PMI, which printed 54.6 for March.  New export orders surprised to the upside, signaling expansion in foreign orders, while order backlogs potend further strength ahead for the sector. The report mirrors strength in the February Factory Orders (ex-defense) indicator, which rose a strong 2.4%, reestablishing a strong uptrend.
• The housing recovery continues to show traction, evident by a strong construction spending report for February.  YoY, overall construction rebounded to 7.9% vs. 6.1% in January.

+  Global economic activity is stabilizing: 

• German factory orders over the past 3 months show a distinctive carving of a bottom and confirm improving data out of the Ifo survey.  Furthermore, Italian and Spanish 10-yr yields quietly plunged (higher bond prices) over the week (see 3-month view), a sign that market participants have clearly overreacted with the Cyprus bailout.  European credit markets are signaling that the coast is clear.  
• Chinese Official and HSBC Manufacturing PMIs rose in March, the former rising to an 11-month high.  Moreover, Non-manfacturing PMIs surge from 54.50 to 55.60 (official gauge) and from 52.1 to 54.3 (HSBC gauge).  These results signal a stronger expansion taking place. 

+ Stocks largely recover from triple-digit losses today despite a sub-par jobs report.  The Fed is “Full Steam Ahead” with QE.  The Fed will continue to aid the the recovery.  Furthermore, today’s job report actually has some bright spots.  Leading indicators of employment, such as temporary help employment and construction jobs, are indicating a strengthening job market and economy.  “‘Jobs day’ chatter is irresistible but almost without content. Monthly jobs numbers provide imperfect portraits of the recent past, and they are very poor predictors of the labor market’s future.”   

Bear

- Job creation slowed substantially in March (slowest in 9-months; Labor-force participation at 1979 levels), while corporate layoffs are 30% above year ago levels according to the Bureau of Labor Statistics and Challenger, Gray, & Christmas respectively.  Moreover, an additional spike in Jobless Claims, now at 385K, and a 3rd consecutive decline in the Rasmussen Employment Index further confirms that rose-shaded glasses worn by economists need to be put away quickly.  The U.S. economy is extremely vulnerable to further fiscal contraction and a weakening global economy.

- Markit’s rosy view of U.S. manufacturing isn’t confirmed by the Institute of Supply Management, which reported a significant weakening in growth in March.  The index fell from 54.3 to 51.3.    

- On the global front,

• The BOJ goes all in on money printing, promising to double the size of its monetary base by 2015, in order to defeat deflation.  The action has immediately drawn warnings from a number of prominent investors of a potential avalanche of Yen selling.  
• Canada prints its worst job number since February 2009.  
• Brazilian industrial production disappoints, forcing its central bank to keep rates on hold despite hot inflation.  The country has become an unfortunate victim of rampant central bank printing.  
• In Europe, unemployment hit another record high in February. Spain plans to revise its growth forecast lower (surprise surprise) and will ask for more time to reduce its budget deficit.  And, while many are pointing at no signs of a bank run in Cyprus, the numbers may be telling a different story.  
• The situation in North Korea continues to escalate and U.S. seems to be taking matters pretty seriously.  

Weekly Bull/Bear Recap: Mar. 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. 

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Bull

+ The U.S. economy clearly remains on the recovery track:

• On Wednesday, we had our first clue that job creation in February was robust, with ADP reporting that 198,000 private sector jobs were created; the advance was broad based across industries. On Thursday, investors received news that the 4-week average of jobless claims fell to its lowest level of the recovery. Finally on Friday, the Bureau of Labor Statistics announced in its payrolls report that 236,000 jobs were generated (see graph below), much better than the consensus estimate of 171,000; additionally, the unemployment rate fell 0.2% to 7.7% versus a consensus estimate of 7.8%.

• The Institute of Supply Management reported that the service sector, which accounts for close to 80% of the economy according to the Bureau of Economic Analysis, grew at a vigorous pace (Composite Index = 56.0). Even better, within the report, new orders spiked 3.8 points to 58.2 (50 demarcates expansion from contraction); meanwhile, the backlogs subindex surged 5.5 points to a solid 55.0, its highest level in 21 months. Orders are piling up (positive backlogs) and new orders are coming in at a quickening pace. These leading indicators exhibit that the bulk of the economy is slated to grow over the coming months. 
• While factory orders for January showed a contraction of 2.0%, the result was heavily skewed by the transportation sector. Beneath the headline number, we see renewed growth in business investment. Core capital-goods orders, which encompass those of non-defense and excluding aircraft, were revised upwards from 6.3% in last week’s Advance Durable Goods report to 7.2%.
• The recovery is set to continue as we have entered a period of “Nirvana for housing.”  Improved debt to income metrics, pointing to household deleveraging in its late innings; increased residential investment and housing starts, which are usually the best leading indicators for the economy; the end of the drag from state and local government layoffs; loosening household credit; and an accommodative Fed are strong tailwinds that will support economic growth in over the next few years.  You can add rising home prices to that list.   
• According to the Fed’s Flow of Funds Accounts report, households’ real net worth is about 8.5% below pre-recession highs; however, if net worth rises at the same rate it did last year we could see a complete recovery from losses sustained during the “Great Recession” by year-end.   

+ Further signs surface that the global economy is stabilizing.  In Europe, region-wide retail sales surprised to the upside in January, climbing 1.2% versus analysts’ forecasts of a 0.3% rise.  This result cancelled out a 0.8% decline in December. Furthermore in China, exports are beginning to increase signaling increased demand from its trading partners.  Meanwhile in Japan, the Nikkei equity index is up roughly 40% over the past 3.5 months.  A weaker Yen is proving the difference as exporters become more competitive in global markets.  

Bear

-  A clear divergence between Germany and the rest of the periphery countries in Europe (see chart below) highlights the risk of the euro chipping away at European unity (French unemployment just hit its highest level since 1999; youth unemployment is at a record high).  The downturn in the region has intensified.  An increasing number of investors believe a strong Euro, due to other central banks easing to high heaven, is an impetus (Eurozone exports plunged at the fastest rate in almost 4 years during Q4).    

Meanwhile, Fitch downgrades Italy’s credit rating due to a strong showing from Beppe Grillo’s 5-Star Movement, increasing political risk to the Eurozone. “The inconclusive results of the Italian parliamentary elections on February 24-25 make it unlikely that a stable new government can be formed in the next few weeks,” Fitch said.  While Germany may be showing strength, is it sustainable?: check out both January new factory orders and car sales.  Meanwhile, Brussel’s prescription for record unemployment in Spain?: raise taxes (brilliant!)

- China institues its harshest property measures yet, leading to a 9.2% plunge in the Shanghai Property Index.  Uncontrolled advances in real estate prices are a symptom of short-sighted rampant monetary easing by major central banks worldwide.  China’s getting irritated by Japan’s Shinzo’s Abenomics.  Currency wars and beggar-thy-neighbor policies greatly increase the prospect for armed conflict.

- Preliminary negative signs of the increase in payroll taxes are slowly sprouting behind the incessant news of new all-time highs for the DJIA. The International Council of Shopping Centers reported that in February US chain store sales rose 1.7%, below the organization’s guidance of 2 to 2.5%.  Meanwhile, the Beige Book released this week also noted slowing retail sales through late February. Deteriorating sales trends will lead to an excess of inventories (keep an eye on the inventories to sales ratio) and ultimately slowing production.  On the job front, the Challenger job-cut report indicates that layoff announcements for February rose to a level seen only twice over the past 16 months.  Moreover, Friday’s news of a falling unemployment rate is likely transitory; the sequester will result in increased unemployment.  Another warning shot comes from Gallup’s Consumer Confidence survey, which has notably deteriorated since the sequester began.

-  The president of the Dallas Fed states the obvious to those who see the forest for the trees. Monetary policy is clearly not a panacea for economic growth. Despite unprecedented amounts of monetary stimulus, lack of credit demand (an idiosyncrasy of a balance-sheet recession) makes transmission of monetary policy to the general economy very difficult. The only credit demand we’re seeing is that related to student loan debt.  

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%

Bull

+  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.  

Bear

- 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.  

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: Dec. 3-7, 2012

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 U.S. economy is showing resiliency and leading indicators are pointing to continued growth:

• The Institute of Supply Management’s Non-manufacturing survey indicates that the service sector, which accounts were roughly 80% of the U.S. economy, is starting to pick up steam. New orders, a leading indicator, rise from 54.8 to 58.1. (50 demarcates expansion/contraction).  Furthermore, order backlogs cross the 50 mark into positive territory.   
• The US consumer continues to defy bearish forecasts.  Car sales rise to a five-year high in November, despite fiscal cliff fears. A clear uptrend has been reestablished.

(Source: Motor Intelligence) 

• Corelogic announces that prices in October rose 6.3% year-over-year, the largest increase since 2006. Plunging inventory will lead to firming prices over the coming year.  
• The BLS Payrolls November report today shows a decrease in the unemployment rate to 7.7% (the lowest since December 2008) as well as a better than expected 146,000 jobs created.  Averting the fiscal cliff (lawmakers will come to an agreement; Republicans will relent) will result in a release of pent up business investment, resulting in accelerated growth this coming spring.  Stock markets are sniffing out this strengthening tailwind.   
• Finally, resilient economic growth in the U.S. is spilling into Mexico, evident by rising consumer confidence and improving business conditions.   

+ There are more signs of a bottom in China’s economic growth.  The National Bureau of Statistics releases its Non-manufacturing Purchasing Managers Index, which increased to a 3-month high of 55.6 and doing its best to emulate a 13-month high mark in HSBC’s manufacturing PMI as well as a 7-month high in the country’s official Manufacturing PMI.  Meanwhile, the property market has clearly stabilized; there is no housing bubble.  Bellwether companies, such as Dow Chemical, see signs of reacceleration.  Stabilization in China and resiliency in the U.S. is translating to a healing global economy.

+ In Europe, periphery sovereign paper has been quietly rallying.  The Italian 10-year yield is now in a clear downtrend (3-yr view); a major potential bearish catalyst is falling by the wayside.  Europe continues to muddle towards a resolution.  Furthermore, when looking at Germany’s DAX, it sure doesn’t look like the wheels are falling off the engine of European growth.     

+ Longer-term, rising wages in China, increased flexibility of U.S. labor unions, and rising transportation costs are various factors resulting in a wave of “onshoring.”  Meanwhile, the Department of Energy announces that oil production is now the highest in almost 15 years, while a highly anticipated report on natural gas exports sets the stage for a significant increase in investment.  These factors will act as steady secular tailwinds for economic growth in the years ahead.  

Bear

- Investors are ignoring a growing divide between Democrats and Republicans on how to resolve the Fiscal Cliff and growing uncertainty is resulting in a precipitous drop in business investment, eerily similar to 2008. 

— (Source: Briefing)

- Bullish investors’ hopes that the worse has passed in Europe is pure poppycock.  Eurozone retail sales sink 1.2% in October, while a slew of PMIs continue to show deep contraction; worse,  austerity   looks  to proceed.  Moreover Germany, the locomotive of European growth, presents a terrible batch of economic data this week: industrial production is now cliff diving, retail sales plunge 2.8%, and the Bundesbank chops its growth forecast for 2013 (but the weakness is temporary…..riiight <sarcasm>).  Contagion hits Finland, a country already skeptical of continued bailouts to the South, while in the UK, dreadful factory data raises fears of a triple-dip recession.  In Greece, more than 1 out of every 4 people are unemployed, while France’s unemployment rate hits its highest level in 13 years (youth unemployment hits a record high).  Finally, political uncertainty is remerging in Italy, with Monti’s government seeing ever-thinning support for continued austerity.  Continued weakness in Europe is infecting other major economies, such as Brazil and India.    

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.     

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

Bull

+ 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.     

Bear

- 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.”

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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.