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: Jul. 16-20, 2012 

+ Housing continues to show signs that the worst is finally over and that the recovery is slowly gaining strength.  Improvement on the margin is becoming clear.  The NAHB Housing index rises by the most since 2002 to its highest reading since 2007. Housing starts rise to their highest since October 2008 and are up 40% over the past 18 months (permits remain in an uptrend).  Higher starts than completions signal that job creation is coming soon as the latter catches up.  Meanwhile, refinancing through the HARP program is gaining momentum, leading to improved income streams for many consumers.

+  Manufacturing remains a sturdy sector for the U.S. recovery.  Despite a negative reading in the ISM’s latest survey, the hard data tells a different story.  Total output rises 0.4% in June, led by a 0.7% rebound in manufacturing, to a new post-recovery high and more than reversing a decline of 0.2% in the prior period.  Output has expanded for 29 consecutive months.  YoY rates for Industrial and Manufacturing Production are 4.7% and 5.6% respectably, still reasonably healthy.  Production of business equipment remains in solid growth territory.

+ Global economic activity is stabilizing and growth is set to resume in the coming months.  China has begun preparations for additional spending/stimulus and copper is starting to sniff this strengthening development (3-Mth chart view is best).  The country’s housing market is already heating up.  Meanwhile, Italian Industrial Orders are stabilizing, rising by 1.7% in May, offsetting a 1.8% drop in the prior month.  Moreover, Spanish Industrial New Orders also came in better than expected; the country’s OECD leading indicator shows stabilization in the coming months.      

+ The U.S. economy is dynamic and is transforming before our very eyes.  Exports, shale gas/oil investments, and oil discoveries are new fountains of growth.  Consumer deleveraging has come far and home prices are enticing for long-term investment.  Furthermore, China is finally embarking on the path towards becoming the next world’s consumer.  This is undoubtably bullish.   

+ Risk assets are holding up well, even as investors are concluding that QE3 may not be forthcoming.  Furthermore, short-interest is at levels preceding powerful bullish moves, such as in Q3 2011: “To the extent people have gone short U.S. domestic equities, I think they’re kind of wasting their time” — Michael Shaoul.  Continued bearishness means there’s a wall of worry to climb…   

+ …Furthermore, earnings reports from international  companies have surpass expectations.  Continued signs of stabilization in global economic conditions will lead to higher stock prices.  Tech has been buoyant even in the face of all the sour macro news.  The market’s reaction to the news is more telling than the news itself.         

Bear

-  In Spain, home prices are absolutely imploding, bad loans are mushrooming, and bank deposits are dwindling.  Valencia signals distress and taps assistance from the government.  The results?  A Spanish Treasury official says there’s “no money left to pay services” and sovereign bond prices collapse (so much for the summit); 100 billion euros will not be enough to shore up Spain’s banking system.  Meanwhile the ECB reverses its position and now advocates imposing losses on senior bondholders of slumping financial companies.  The threat of losses is the pin to pop the “Moral Hazard Bubble.”  Meantime, Germany says sovereigns will still be responsible for bailout money; the country’s economic sentiment report falls for the 3rd consecutive month; and Deutsche-marks are making a comeback.  Moreover, 13 Italian banks are downgraded by Moody’s.  The Eurozone has already split according to intra-bank capital flows.       

- The U.S. economy is entering a recession.  The consumer is faltering, evident by the third consecutive drop in headline and core retail sales, both falling for the third consecutive month, the first time that’s happened since the dark days of 2008 (weekly consumer metrics don’t point to a rebound in the immediate term).  Meanwhile, the job market looks to be headed south as per a plunging employment sub-index in the Philly Fed’s manufacturing report as well as the National Association’s for Business Economic report on hiring trends.  These trends are confirmed by both the Gallup Poll’s U.S. Economic Confidence Indicator and the Conference Board’s U.S. Leading Indicator.  Continued suffering in the middle to lower-class is slowly creeping to its breaking point.    

- Bernanke warns on the assumption that funny money will cure all ills (in fact, the “unintended consequences” of ZIRP are clearly making things worse).  The looming fiscal cliff as well as weakness in Europe are together critically damaging confidence.  Both must be resolved he says.  Unfortunately, “it’s out of our hands,” which means that the Fed would be powerless to stop the oncoming contagion from a Eurozone implosion or a crisis of confidence from continued political bickering —likely to lead right up to the final hours.  Meanwhile, how on earth can the bulls say there’s high bearishness out there when the VIX just recently leaked under 16?  This sticks of complacency — there’s continued misplaced hope that Europe will get things done and that China will stimulate the global economy back into recovery.       

- Continued uncertainty in Europe is negatively affecting global business sentiment.  The IMF slashes its global growth forecast, while foreign investment in China falls almost 7% YoY in June.  Premier Wen sure sounds more worried than bullish analysts banking on a second-half rebound.  Global bellwethers are sounding the alarm of a slowing business environment.   

- Geopolitics continues to cast its shadow over the faltering global economy.  Syria is now officially in a “non-international armed conflict,” or civil war; Russia reaffirms its support for al-Assad.  Meanwhile, the Middle East is fast turning into a proxy war among the mightiest.  Israel vows a response against “a global campaign of terror carried out by Iran and Hezbollah” after 5 Israelis are killed in a bus explosion in Bulgaria.  Finally, the thinly covered South China Sea dispute isn’t going away.     

- Housing prices have not bottomed, not when you have rising shadow inventory, stagnant purchase applications, and an unclogging foreclosure pipeline.  But keep on building those houses </sarcasm>.

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Tons of info.  Want to know how I see things?  Check out my macro and market outlooks.          

Will a sell off in the commodity complex due to China worries help the U.S. economy with lower gas prices?

Just a thought.  It did happen in the mid-to-latter part of 2011.  

Weekly Bull/Bear Recap: January 23-27, 2012

Bull

+ The ECB’s Long-Term Refinancing Operation (LTRO) has clearly quelled fears of an imminent liquidity crisis; Spanish and Italian 10-yr yields have plunged.  The operation will provide time for policymakers to forge ahead with structural reforms.  Germany is opening the door for pro-growth policies in the periphery.  Furthermore, Greece is an isolated case.  A Greek default is already priced in and a climax would actually lift the air of uncertainty.  Says billionaire investor George Soros, “I think we are on the verge of putting the acute phase of the crisis behind us,” adding that he believed Italian sovereign bonds represent a “very attractive” speculative investment.  Finally, business confidence in Germany increases for the 3rd month in a row, while record low unemployment boosts consumer confidence.  The bloc’s largest economy will avert recession and support investor confidence in the Eurozone region.

+ U.S. economic data continues to shine.  The Richmond Fed’s manufacturing survey increases from 3 to 12, lead by New Orders and expectations of improved business conditions (we have the same bullish result from the Kansas City Fed); note that all regional surveys have improved in January.  Moreover, the ATA Truck Tonnage Index spikes the most in over a decade in December.  Chief Economist Bob Costello hints that a wave of inventory restocking has begun.  Core Durable Goods Orders reestablish their bullish trend, which bodes well for Q1 manufacturing performance.  On the jobs front, state unemployment rates continue their trek lower.  Finally, consumer confidence improves to 75.0 and is the highest in almost a year. 

+ The global economy has clearly stabilized after a brief air pocket in the prior quarter.  According to the Markit PMI, economic activity in the Eurozone unexpectedly grew in January, led by Germany and France.  Meanwhile, monetary easing; such as India’s unexpected decision to cut their Reserve Ratio, Thailand’s interest rate cut, and Brazil’s upcoming rate cut, will further support economic growth.  Copper and comments from Caterpillar support the global re-acceleration thesis.  Even Japan had some good news on the consumer front.  

+ The Fed announces that interest rates will be held low throughout 2014 and state that they will step in with QE III should the global economy deteriorate further.  Risk assets spike as investors are reassured that the Fed will maintain vigilance for any economic slowdown.  Criticism of the program won’t be nearly as intense as QE II due to slowing economic growth in Emerging Markets.  

+ Obama clears the way for an economy that’s “built to last,” by explicitly stating in his State of the Union address that domestic companies will receive government assistance to create jobs.  Leaders understand the grand opportunities that lie ahead. The U.S.  manufacturing renaissance is in its infancy.     

Bear

- Global growth is slowing to a stall.  Japan’s central bank cuts its 2011 and 2012 economic growth forecasts, citing strains from balance-sheet repair in the U.S. and weaker growth due to the European debt crisis.  On a grander scale, the IMF slashes its global growth forecasts and expects the Eurozone to enter a recession.  Meanwhile, Australia and the UK are teetering on the brink of recession, while South Korea reports its slowest economic growth in 2 years.  In China, officials want to see a 30% decline in residential real estate to reach a “reasonable” level —(and in the process cause an uprising of the middle-class).  Meanwhile, protests in Tibet are spiraling out of control.  Finally, Obama ups the ante on protectionism with his State of the Union address.

-  The Eurozone crisis is worsening.  There is still no agreement on the Greek Private Sector Involvement (PSI) negotiations, raising the specter of a credit event and uncontrolled default (how many times have we heard that a deal is close?).  Making matters worse, EU leaders and banks are demanding further austerity on the depression-racked country due to missed targets.  How long before peripheral citizen’s say “The hell with this” or creditor governments say “This isn’t working”?   Meanwhile, Portugal is fast coming down the pipe with 10-yr bond yields hitting record highs, as Antonio Saraiva, the head of the country’s industry confederation, confesses that the nation will need a bailout.  In Spain, recession is knocking at the door, while unemployment is far worse than expectations.  In Italy, Monti’s government is set to face its first real test as truckers have blocked the flow of essential goods into Rome and other large cities.  In France, S&P downgrades 3 banks and the country’s president acknowledges that he’s likely to lose the presidency in 3 months, unleashing a wave of uncertainty in regards to Eurozone economic policy.  Finally, “Trade unions plan (a) pan-EU action against (the) fiscal compact.”     

- Despite all the hoopla in the past month, the U.S. remains vulnerable to an exogenous shock.  4th Quarter GDP disappoints, growing 2.8% vs. expectations of 3.0%; note that the economy hasn’t grown over 3% since the Q2 2010.  Final demand registers a paltry 0.8% and Personal Consumption underperform expectations.  Meanwhile, Fed President Dudley sees “significant impediments” to economic growth this year.  Finally, weekly consumer metrics continue to flag a significant slowdown in January versus an already weak December.

- The probability of an oil price spike, likely upending the global recovery, grows.  The EU imposes an embargo of Iranian oil (to begin July 1st), despite Iranian threats of a blockade of the Straits of Hormuz or just cutting off supply immediately.  Meanwhile, oil producers are now content with $100 oil, saying that it won’t affect global growth; we’ve heard this before, but the threshold price keeps rising.  Azerbaijan police foil another Iran plot to assassinate the country’s Israeli ambassador.  

- Japan reports a trade deficit for the first time since 1980.  While sporting a debt to GDP ratio of over 200%, any consistent trade outflow from the country would conjure anxiousness towards its real paying ability (not printed Yen, which implies a loss of real value of interest payments).    

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

Weekly Bull/Bear Recap: December 12-16, 2011

Bull

++ The U.S. economy has clearly surprised to the upside.  Gloomy analysts have underestimated its strength, even in the face of global economic troubles.  These external issues will eventually resolve themselves in benign fashion.  

• U.S. manufacturing data this week demonstrates continued improvement.  Led by New Orders and Expectations, both the Philly Fed and Empire State manufacturing surveys show improvement in business conditions.  Ditto for Rail traffic. 
• Economic Bellwether FedEx reported better than expected earnings due to strong holiday sales and continued economic growth.     
• The NFIB Small Business survey shows that hiring plans in November are the most since mid 2008, meanwhile, jobless claims plunge to 366K from 390K, the lowest in 3.5 years.  Both these indicators clearly signal a strengthening job market and economy.  
• The Payroll Tax Extension is sure to pass and will mitigate fiscal contraction taking place next year.
• Consumers are repairing their balance-sheets.  Household financial obligations as a share of disposable income have fallen to almost 20-year lows.  This alongside steadily growing demand.  Retail sales, while weak MoM, are actually at record highs (nominal) and the YoY growth rate remains above 6%.  Improved balance-sheets will help consumer confidence and boost spending over the longer-term.     

+ Markets have had plenty of time to digest the effects of a Greek default.  They have already priced in a default for the country; yet the system has held together.  Even better, an effective bond auction in Spain points to a stabilization of demand = improved confidence.  Also, a successful Italian confidence vote shows continued solidarity behind austerity plans.  Monti is taking care of the situation.     

+ The global restructuring is taking place as China reports stronger consumer demand (which will continue to boost our exports).  Furthermore, a high correlation between food prices and equity market performance points to outperformance of the asset class as lower inflation brings about easing in the months ahead.  Note that China now understands what needs to be done.  They are embarking on producing the solution, which will lead to secular and sustainable global economic growth.  The country also has plenty of resources to boost demand, counteracting slowing exports, thereby avoiding a hard landing.      

Bear

- Top government leaders are becoming confrontational.  Citizens are becoming resentful and terrorism against the entrenched plutocracy is a clear budding negative trend.  In addition to warning on Spanish banks, Moody’s now joins S&P, in its comments last week, with a warning on the lack of immediate resolution to the Eurozone’s woes.  And for the trifecta, Fitch slaps credit-watch negatives on multiple countries (let’s just call it “everyone”).  A mass S&P downgrade may occur this very weekend.  The latest EFSF fact sheet is released.  The fund still relies on Spain and Italy contributing roughly 31% of the fund’s capital commitments.  How’s this going to happen if they are on the chopping block?  The crisis will yield recurring flare-ups in early 2012 (starting with the bull’s favorite country, Greece).  And with dwindling political will, implementation risk will rise even further if Francois Hollande takes the French helm.  Europe’s banking system is close to suffering a heart attack; ECB again refuses to print.  Hungary/IMF talks collapse.

- The slowdown in Europe has spread throughout the globe.  Japan’s salient Tankan survey points to a deteriorating global economic outlook.  Indian industrial production fell for the first time in more than 2 years, falling 5.1% YoY in October.  Chinese exports are the lowest since the dark days of 2009, rising 13.8% in November, vs. 15.9% in October.  The country’s flash PMI indicates that a second month of contraction is in the cards.  The populace is becoming restless.  The property bubble (which exists in all its splendor) has popped.  Yet, officials aren’t loosening as expected by the bulls.  Last, but certainly not least, OECD leading indicators point to continued weakening in the months ahead.  The world is entering a synchronized global recession, and yet not only is the ECB not printing but neither is the Fed.  Stocks will need to fall further to induce action.

- Tech bellwethers Intel and Texas Instruments, cut Q4 sales forecasts.  Retail sales disappoint, as does Best Buy, despite all the hype in November.

- Geopolitics remains the bearish gorilla-sized joker in the whole bull/bear debate.  Tensions are at a boiling point after Iran proudly demonstrates the captured drone.  The U.S. has asked for its return.  So if the Iranians say no, then what?  Does the U.S. look like a weakling and mosey on?  Btw, another drone crashed this week.  Iran ‘practices‘ the closure of the Straits of Hormuz (oil would promptly rise over $120 and kill any global recovery).  Finally, we had some notable protectionist news this week from China.  How will Congress react when Yuan appreciation ceases as Chinese officials move to protect their export-reliant economy from a “very severe” trade situation in 2012?     

Weekly Bull/Bear Recap: Halloween Edition ‘11

Bull

+ China’s Purchasing Manufacturing Index (PMI), conducted by HSBC, points to a stabilizing economy, improving to 51.1 from 49.9.  Both new orders and export orders recuperate, moving above 52.  The former notches its best result since May, while the latter notches its best print since November of last year.  All this is happening while the Yuan appreciates to its strongest level since 2005, meaning that the economy is able handle the pressure.  The Chinese economy and the engine of global growth is undergoing a soft-landing.  The Shanghai Composite Index rises to the highest in 6 weeks as Premier Wen is on the ball and will ensure that a soft-landing takes place by “fine-tuning” monetary policy to focus more on growth over inflation.    

+ It’s not just in China where we are beginning to see stabilization.   South Korea’s latest PMI shows symptoms of a soft-landing in the communist country as well.  Meanwhile, Russia, Brazil, and India, all post PMI results indicative of stabilizing economies.  Russia’s PMI rises to 50.4 from 50, India’s rises to 52 from 50.4, and Brazil posts a 46.5 from 45.5.  With monetary policy now more focused on growth, lower interest rates will surely help.   The time to buy is when everyone is in panic mode.    

+ The National Restaurant Association’s Restaurant Performance Index rises above the break-even point and signals that the economy remains resilient and in growth mode.  Let’s not forget that this indicator was an accurate harbinger of tougher times for the U.S. economy in 2007 (see the chart in the link above).  Currently it’s not showing a contracting economy.  The consumer remains durable and poor confidence indicators more than likely reflect frustration with government policy instead of an actual decline in economic conditions.  Furthermore, Gas prices for October averaged $3.44, a drop of 8% from the prior month.  This is in effect a tax break for the consumer…  

+ … a key example of this stable demand can be found in the latest car sales data, which shows the highest level of annualized sales since February.  Based on the chart (thanks to CalculatedRiskBlog), one can clearly observe the slowing that took place during the soft-patch in June.  Given that we’re not seeing that right now, it confirms that the economy is not falling apart by any means.   

+ The job market shows also shows a stout economy despite incessant headwinds.  Gallup signals a drop in unemployment in October.  The ADP Employment report shows a gain of 110K jobs vs. expectations of 100K, led by small businesses.  Challenger Gray & Christmas reports that planned layoffs fall to 43K, the lowest since June.  Jobless Claims fall to the lowest level in a month.  Worker productivity rises in the 3rd quarter after falling the prior 2 quarters, while labor costs fall.  Both falling costs and higher productivity will help profit margins maintain their high levels.  The October BLS jobs report shows an unexpected decrease in the unemployment rate due to a strong gain in the household survey; 80,000 news jobs are created and prior months are revised up by a total of 102,000 jobs.  Overall, none of these indicators are pointing to a double-dip in the economy.            

+ In the U.S., the Fed meeting produces a bullish scenario for equities.  With no Hawks, but instead one Dove dissenting, the stage is set for QE3 in the immediate months ahead.  The economy is slowly improving and inflation has begun its decent.  Lower inflation allows the Fed more flexibility for accommodative policy.  In the Eurozone, Draghi delights the bulls with a surprise rate cut.  The new ECB chief is brazen and proves that he is more active than Trichet.  A general shift has occurred with the world’s central banks.  They are united in loosening policy to promote growth.  Don’t fight central banks.  Having done so in the past couple of years has been a losing strategy, hands down.  

+ The Texas Manufacturing Outlook and Chicago PMI surveys show that manufacturing, remains in growth mode.  While it has slowed somewhat, there is little sign of contraction on the horizon.  In the Chicago PMI, New Orders remain soundly above the 50 mark, at 61.3, while the Employment sub-index just hit its highest level in 6-months.  Factory Orders for September were better than expected on the back of strong business investment.         

Bear

- Reality bites for the Eurozone.  The first sale of EFSF bonds is cancelled due to “market conditions”—(a euphemism for no confidence?).  Italian yields spike over 6.3% and is also a vote of no confidence from markets (will margins get hiked soon?).  Berlusconi arrives at the G-20 meeting empty handed; Merkozy/EU mandated reforms are met with stiff resistance with Umberto Bossi stating that raising the retirement age from 65 to 67 would spark a revolution in the country.  As a result, Italy is disgraced at the G-20 with a “closer monitoring” of the country’s deficit-cutting plan by the IMF in addition to the EU —that didn’t sit well with Berlusconi.  The Italian government is close to collapsing.  In France, 10-yr OAT/Bund spreads hit a Euro-era high.  Draghi states that ECB support is “temporary and limited”; don’t count on the ECB stepping in and saving the day (here’s my crazy hunch on what would happen if the ECB were to print…and here’s a good reason why).  Democracy dies in its birthplace and is to be replaced with a technocracy (no referendum, austerity will continue until morale improves).  Papa I is likely out and could be replaced with Papa II (“yes” confidence vote pending).  If a “no” results, snap elections would take place (ie. the entire bailout will be in jeopardy again).  Meanwhile the German Constitutional Court is back, playing the “evil” enforcer of actual democratic principles. The next default is knocking on the door as Portugal’s 10-yr yield is flirting with 12%.  Spain throws some more ice cold water with its announcement that GDP stalled in the 3rd quarter, calling into question the viability of achieving their deficit targets.  There’s a good possibility that the country is already in recession and that the coming months will be worse.  The G-20 meeting fails to provide a breakthrough to propitiate investors; even worse, hardly any countries from the G-20 have said that they’ll participate in EFSF. 

- Eurozone Economic data was pitiful as well: German Retail Sales in September increase less than expected, coming in at 0.4% vs. expectations of 1.1% and follows a 2.7% plunge in August; meanwhile October Unemployment rises for the first time in 18 months; the country’s October Manufacturing PMI shows a contraction for the first time in 2 years; and finally, September Factory Orders implode 4.3%, falling for the 3rd consecutive month vs. expectations of a 0.1% increase.  Italian Unemployment spikes up to 8.3% vs. expectations of 7.9%; its October Manufacturing PMI comes in at 43.3, while Services PMI prints an ugly 43.9, a 28 month low; at the same time CPI rises more than expected 0.6% vs. 0.2%.  Eurozone Manufacturing PMI for October drops more than initial estimates to 47.1 from 48.5 in September and below the initial estimate of 47.3.  Eurozone unemployment rises to 10.2% vs. expectations of 10% (highest since mid-98), all the while CPI rises 3%.  Draghi cuts rates (the Bundesbank must be thrilled) and states the obvious: Europe is headed towards recession.  Mild may be putting it….mildly though.     

- Japan moves forward with QE.  The U.S. might do QE.  The U.K. is doing QE.  And now the ECB must print in order to stem contagion in the region (or Germany proposes a fiscal union — referendum time for Germany in that case).  Should the ECB act, expect oil at $100 in short order and a global stagflationary scenario to develop in the months ahead.  Savers and those on fixed income are getting royally screwed with “funny money” printing.    

- The global economy is screeching to a halt.  China’s Official Manufacturing PMI (yes there are two) falls to 50.4 in October from 51.2 and the lowest since February ‘09.  Taiwan’s PMI is mired in contraction.  South Korea’s exports to Europe plunge 20+% YoY.  The Reserve Bank of Australia cuts interest rates to 4.5%, citing signs of slower global trade along with lower commodity prices.  You can throw a popping housing bubble into the explanation as well.  The disquietude in Latin American markets increases as Brazilian Industrial Production disappoints.  Canada reports its worst jobs report since 2009.  OECD cuts its rosy outlooks for the U.S. and Europe released in May down by 42% and 85% respectively (D’oh!!).      

- The investment community is thunderstruck on reports of missing capital (lastest figure = $633 Million) from MF Global.  The firm made leveraged (there’s that word again) bets on risky European sovereign debt markets.  Commingling occurred in one of the largest commodity brokers as well as a big player in the futures market.  Investor confidence, during a very fragile period for financial markets, will erode further.  Bill Gross —”(investors are) more concerned about the return of their money than the return on their money”.     

- The U.S. economy continues to deteriorate.  A Leading indicator for the job market, the Conference Board’s Online Labor Demand Index, is flagging a slowdown in the coming months.  The Manufacturing recovery is stalling as per the Institute of Supply Management (ISM), as its manufacturing index falls more than expected to just above the 50 mark.  While new orders did indeed cross into positive territory, the even more important “backlogs” component remains in contraction.  Without growing backlogs, the sustainability of this tepid pop in new orders remains in question.  The American Staffing Association reports that labor demand is trailing the prior year.  Chain Store sales disappoint as the Savings Rate is at 2007 lows (1.8% YoY in avg hr earnings doesn’t keep up with 3.9% YoY CPI — where’s the spending power going to come from?).  And finally, we have the Bloomberg Consumer Comfort Survey falling last week to the lowest level since the the dark days of 2009.  From Econoday: “the index fell to minus 53.2 in the week ended October 30, the second-lowest reading in almost 26 years of data, from minus 51.1. The gauge has held below minus 50 for six of the past seven weeks, a period unmatched even during the 2008-2009 economic slump.”

- It’s time to start paying attention to developments here.     

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…and for a little humor to end this wild week, courtesy of CNN (via Zero Hedge)