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)

Weekly Bull/Bear Recap: October 17-21, 2011

Bull

+ So far for the reporting season, 63.7% of S&P 500 companies have beaten consensus earnings per share estimates, which is stronger than the past 2 quarters.  Meanwhile, revenue per share has come in line with average beat rates.  This earnings season has been been positive for equity markets.  They have just broken through the top end of the roughly 3 month range.  

+ The Beige Book paints the picture of a stabilized economy after the summer slowdown.  The economy has leveled out even after all the exogenous shocks it took on: the Japanese earthquake, higher gas prices, a stock market crash, and Eurozone worries.  Once Europe gets its house in order, the economy will reaccelerate and confound the bears.  This thesis is clearly on display with the latest Conference Board Leading Indicators report, which published a positive reading of +0.2%.  Meanwhile, the 4-week average of jobless claims falls to the lowest level since April and the Gallup Poll reports that unemployment has plunged.   We’re not in recession, only a soft-patch. Here’s some more evidence…      

+ …Industrial production for September rises 0.2% and is line with projections.  Manufacturing isn’t falling out of bed, in fact, the soft-patch is ending as the Philly Fed Index surges from -17.5 to +8.7 in October (annihilating expectations of -9.4). Both New Orders and Backlogs swing into positive territory, while expectations improve from 21.4 to 27.2.  

+ It’s not only in manufacturing where we see increasing activity.  The housing market is generating more bustle as the Buildfax Residential Remodeling Index hits a new all-time high.  Housing starts rocket 15%, while the Home Builder Sentiment Index for October rises a much higher than expected 4 points.  While the break-even is 50, it shows that the housing market is healing.  It’s a step in the right direction and is good news for the sector primarily responsible for our economy’s large challenges.  Furthermore policymakers are doing their part to increase demand.  The sector is moving forward.    

+  More countries, such as the BRICS, are stating that they are willing to support the Eurozone via capital injections with the IMF.  Global leaders are realizing the gravity of the situation and are uniting to put forth the proper prescriptions to address the issues.  The path towards a solution just got easier as Fitch states that an expansion of the EFSF wouldn’t put France’s AAA rating in jeopardy.  Furthermore, Spain posted an unexpected rise in industrial production orders after an encouraging industrial production number 2 weeks ago.  The country will not enter recession, which will result in an improved fiscal situation.  Notice how Spain’s 10-yr yield has been inconspicuously absent from the latest run up in yields.  The Eurozone will achieve a solution, just when most in the investment community aren’t expecting such an outcome.  This will lead to a powerful rally as bearishness remains elevated.     

+ Consumer price inflation is beginning to subside and will give the Fed more wiggle room to renew QE in order to support the recovery in the near future.  The Fed will have the market and economy’s back soon.  The bears are frustrated that even without QE, the economy has been growing and the market has been supported.  

+ As the global economic restructuring continues, we are starting to see its benefits.  The Chinese are working to expand their consumer economy.  With sky-high savings rate and further development, we will have end-demand from that country for decades.  Their economy is on sound footing.  As wages begin to equalize between China and the U.S., more companies are “re-shoring” back to America.  This migration back to the U.S. will result in a wave of investment and job creation.  The best part is that this restructuring is taking place without a slowdown in global trade!  

+  In what will surely help oil supply issues with Libya, reports proclaim Gaddafi has been fatally injured.  Libya is finally liberated and will result in a speedy recovery of its people as well as oil production.  Oil prices will further decline sending Gas prices, which have dropped 13% since peaking in May, lower and help consumer spending.  

Bear

- Sure Bulls, the economy is getting better because surveys and metrics are increasing.  Sure….now open your eyes and see the bigger picture; see reality.  The Occupy Wall Street protests have metastasized throughout the world.  The more bailout packages are implemented, the more ardent and violent the remonstrances will become.  The end of the road for the infamous policy of bailouts is at hand.  Banksters nor the Fed are helping their case.  It has become politically (not to mention morally) unacceptable for investors and the wealthy to get bailed out at the expense of billions of taxpayers and the poor.  

- It’s funny how the bulls/vacuum tubes keep getting fooled by European officials.  Merkel says that “dreams” of this package solving all the Eurozone’s problems are misplaced, while a second summit is scheduled for Wednesday.  Meanwhile, the negative omens are becoming hard to ignore (but they still are!):  Greece is dangerously close to descending into anarchy.  Utility of the EFSF changes every couple of hours not to mention the amount of guarantees.  Words of warning for France, this time from both Moody’s and S&P.  A cut in the country’s 2012 growth forecast won’t help matters.  Moody’s wasn’t as nice to Spain, cutting their rating on Spanish “Bonos” citing falling growth and a budding banking crisis.  S&P was even meaner to Italian banks (24 got the ax).  Germany axes 2012 growth forecasts, while Greece is making it hard to justify throwing good money after bad.  Officials in the region ban CDS outright; here’s the beginning result of that great idea.  Next up, a banning of ratings of sovereign debt from rating agencies (Period)  Europe is on the precipice.  Will next week be “Black Week”?           

- Manufacturing data is still showing a faltering recovery.  The Empire Manufacturing index for October shows a larger than expected contraction in the NY area.  Looking ahead 6 months, expectations are dimming as well.

- On the global economy front (sans-Europe), the Chinese are ticked with the U.S. Senate after they passed currency legislation to further pressure them to allow the Yuan to appreciate.  Beijing and Washington are playing a dangerous game of chicken in what could be a plunge into protectionism, which would absolutely be disastrous for the global economy.  Brazil lowers its key interest rate less than 2 months after the last cut (so the global economy is recovering eh?).  The UK economy is slowing down, while prices continue to rise (stagflation).   

- China’s GDP growth falls to the lowest since the dark days of 2009 and underperforms expectations.  Bulls say that the performance is good and the market is overreacting.  The signs of a poor and deteriorating banking system, a property market slowdown, high inflation, and a weakening export sector (the reason why the Yuan doesn’t appreciate faster) have not deterred their view.  Meanwhile, copper sinks more than 5% for the week.  The Shanghai Index hits lows last seen since…(drum roll)…..March ‘09.  The bulls are frogs in 95 degree Celsius water and getting hotter.  Many still believe that their economy will withstand a Europe shock and result in a soft-landing.  Few expect China to wither.  This is exactly the environment that leads to market downdrafts. 

- Bullish hopium for a housing comeback is premature.  ”The seasonally adjusted Purchase Index decreased 8.8% from one week earlier and is at the lowest level in the survey since December 1996”.  Remember “Foreclosure-gate”?  Ready for a possible comeback?  Existing Home Sales keep scraping the bottom.  Positive seasonal effects on housing prices have come to an end.  On the commercial side, the Architecture Billings Index declined in September and is back in contraction.  ”It appears the conditions seen last month were more of an aberration.”     

- PPI runs hotter than expected, coming in with a headline reading of 6.9% YoY in September.  When paired with an increase in import prices of +13.4%, inflation at the the producer and importer level will buoy the CPI, or decimate company margins if consumer’s wages can’t keep up.  Many bulls viewed the tamer CPI readings as a signal for more wiggle room for QE3.  Sure, go ahead bulls, let’s break that 23-yr high in the Misery Index.  We are one QE away from stagflation.  

- 11 consecutive declines in the ECRI.  ’nough said.