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The Month that was: October ‘2013
Good Morning,
This report concisely summarizes the important macro events that occurred in…View Post

The Month that was: October ‘2013

Good Morning,

This report concisely summarizes the important macro events that occurred in…

View Post

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, April 5, 2013

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. 



+ 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: 

+ 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.”   



- 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,

Friday, March 8, 2013

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. 



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


+ 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.  


-  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.  

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, February 1, 2013

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


U.S. Economic Activity is beginning to reaccelerate:

+  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



- 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. 

Friday, December 7, 2012

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. 


+ 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

+ 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.  


- 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.    

- Tensions are close to boiling in the Middle East.  In Syria, rumors of an imminent wielding of chemical weapons by Assad on rebel forces marks a perilous escalation of violence.  NATO approves Turkey’s request for missile installations, to the chagrin of Russia and China.  Morsi plans to slay democracy in Egypt by calling for a referendum and a new Islamist-backed constitution; protestors are marching toward the presidential palace as this article is posted.  Finally, while out of the spotlight, the Iran/Israel standoff continues to regress.

- While the bulls may celebrate today’s better than expected jobs report, behind the scenes, the job market is actually weakening.  The unemployment rate fell because less people are in the work force (a decline in the participation rate).  In addition, a net revision downwards of 49,000 over the prior two months points to a much weaker job market than many believe.  Meanwhile, buried in the ISM’s Non-Manufacturing Index, the employment sub-index is on the precipice of contraction, at 50.3, while in the Manufacturing Index, the sub-index is now contracting for the first time in 3 years.  What’s more, Gallup reports that its measure of unemployment has risen significantly, and job creation has stalled.  Challenger Gray & Christmas, an important consulting firm, reports that job cuts are coming down the pipe over the coming months.
Saturday, November 24, 2012 Thursday, September 27, 2012