Well, I may say there were no surprises, but in fact the Greek economy contracted more than many observers expected in the fourth quarter, while downward revisions to the rest of 2009 converted the present recession into the country’s worst since 1987. Evidently the latest numbers offer the first warning that all may not be as simple as it looks on paper for the Greek government’s plan to set their finances straight. As far as I am concerned the latest numbers simply confirm what should already have been abundantly evident – correcting the fiscal deficit without straightening out the rest of the economic distortions is going to make economic growth something which is very hard to come by.
According to the Greek National Statistics Office gross domestic product contracted by 0.8 percent in the fourth quarter, significantly more than the 0.5 percent drop forecast in a Reuters survey of economists. The data clearly reveal that Greece’s downturn actually picked up speed from a revised 0.5 percent in the third quarter, casting doubt over government estimates of a return to growth in the second part of this year, and raising yet more issues about the evolution of the debt to GDP ratio. [Click on charts to enlarge.]
On a year-on-year basis, the economy shrank 2.6 percent in the fourth quarter following a revised fall of 2.5 percent in the third. The sweeping data revision showed Greek GDP contracted by 2 percent in 2009 as a whole, considerably more than the government’s earlier 1.2 percent estimate, making for the worst annual performance in nearly 30 years.
The latest batch of data changes only serve to further undermine the government’s already badly dented statistical credibility, even if the Greeks are far from being alone in carrying out this type of revision. But it is the scale of the revisions which is so striking in the Greek case – GDP shrank, for example, by a quarter-on-quarter 1 percent in the first quarter of last year: twice the earlier estimate, and the sharpest quarterly contraction since 2005. In the second quarter, GDP fell 0.3 percent, compared with an earlier estimate of a 0.1 percent, while third-quarter GDP shrank 0.5 percent revised from the earlier estimate of 0.4 percent. Rather than leaving the impression that…
You may have your opinions about web video, but two numbers matter to me…5 (age of YouTube) and 17 (age of chatroulette founder). If you think we are anywhere but inning two, you just can’t handle the truth.
This industry is so young and moving so fast that my own Wallstrip seems like 50 years ago. In fact, our very first show was only 3.5 years ago (makes sense that $AAPL was our first show in a show about stocks and trends):
With an industry this hot and this early, it seems surprising that there have been so few hits and so little on innovation (pre-rolls for christ sakes still).
I think the big question for most market participants is whether or not the market is putting in a medium-term bottom. The evidence is truly mixed, and I can make a case for either side of the argument; however, we have sell signals on both the daily and weekly charts, so, for now I think I will focus on the evidence supporting a further decline.
On the chart below you can see that last week there was a sharp two-day decline that found support on the 200-EMA, and formed an inverted flag pole. This week, prices trended upward in a narrow range, forming a flag at the end of the flag pole. A flag formation pointing upward is bullish. Pointing downward (inverted), it is bearish. In this case the implications are only short-term, with a possible downside to the area of 1020.
The On-Balance Volume (OBV) suite of charts below gives both side of the argument, but first let’s concentrate on the CVI (Climatic Volume Oscillator). It has become fairly overbought, and it topped on Friday. Combined with the inverted flag, it presents a negative short-term picture.
The VTO (Volume Trend Oscillator) is a medium-term indicator, and it has formed a double bottom in oversold territory. This is fairly strong evidence that a medium-term bottom is near, and quite a few of our other medium-term indicators are in agreement.
As I said, the evidence is mixed, and it is one of those times that we need to rely on the Thrust/Trend Model (T/TM) to keep a level head. Currently in a neutral posture, to generate a buy signal it will need for the PMO (Price Momentum Oscillator) and the PBI (Percent Buy Index) to cross up through their EMAs.
Bottom Line: Prices are in a down trend, the T/TM is in neutral, and an inverted flag combined with overbought short-term indicators suggest more downside yet to come. If the S&P 500 suddenly breaks UP from the inverted flag, I would change my short-term outlook from bearish to neutral, and await a new buy signal from the T/TM.
Commodities, particularly crude, were trending down last week after China’s Central Bank raised bank reserve requirements boosting the US dollar against other major currencies. That marks the second time China has raised its bank reserve requirement in a month.
Ongoing worries about the economy stemming from European debt problems, specifically the lack of a firm Greek bailout plan from European leaders also prompted investors moving out of risky assets. Crude oil fell for the first day in five to below $75 a barrel also partly due to government data showing U.S. inventories rose more than forecast.
Meanwhile U.S. natural gas registered the largest one-day gain last Friday to $5.48 per mmbtu since the beginning of the month on a drop in jobless claims, signaling industrial demand is likely improving, and cold temperatures across the US are boosting residential demand. Industrial Demand accounts for 29% of U.S. consumption.
Oil Services Sector Bottoming Out
While the markets are in a finicky mood from the China and Greek factors, the return of relative stability in oil and natural gas prices has spurred producers to increase their capital budget and restart projects they slowed down or completely deferred a year ago. (Fig. 1)
Absorbing the impact of lower rig counts, weak global demand for fossil fuel and volatile energy prices, the majority of the oil services companies are reporting sharply lower earnings in Q1. However, the rising rig count and producers’ capital budget suggest that oil service markets are probably in the process of bottoming this year, which suggests a good entry point for long-term investors. (Fig. 2)
Oil Majors Go Deepwater & Subsea
Roughly from 2004 to 2008, the onshore, North America in particular, had outshined the offshore in terms of activity growth. But the Great Recession has shifted the tide towards offshore and international. Offshore is one of the few remaining places where the state as well as western oil majors can increase production, while emerging Asian demand is expected to outpace the U.S. and the OECD in coming years.
FBR estimates an increase in deepwater spending of almost triple expected growth in onshore spending will drive offshore spending overall at…
People are way too psyched about China, says Hugh Hendry.
In a piece he wrote for the Telegraph, the hedge fund manager admits that China has been growing like crazy.
China’s conomic growth has averaged 9% a year over the past 10 years, compared with 1.9% for the British economy.
Last year, despite the credit crunch, China posted a remarkable growth rate of 10.7% compared with a British contraction of 3.2%
But here’s why China is not that great, according to Hendry:
China, now the world’s biggest creditor, is also running persistent trade surpluses. That’s only happened twice before: with the US economy in the 1920s and with the Japanese economy in the 1980s.
Unlike in most countries, China’s share of consumption within its economy has fallen relentlessly, reaching 35% of GDP in 2008.
Foreign demand for its exports dropped. Now China relies on a massive surge in domestic bank lending to fuel its growth rate.
China’s state planners have favored investment over consumption. China’s investment spending has tripled since 2001. Domestic consumption never grows fast enough to absorb the supply, and Chinese profitability is already low.
In 2001, just after Greece was admitted to Europe’s monetary union, Goldman helped the government quietly borrow billions, people familiar with the transaction said. That deal, hidden from public view because it was treated as a currency trade rather than a loan, helped Athens to meet Europe’s deficit rules while continuing to spend beyond its means…
Instruments developed by Goldman Sachs, JPMorgan Chase and a wide range of other banks enabled politicians to mask additional borrowing in Greece, Italy and possibly elsewhere.
In dozens of deals across the Continent, banks provided cash upfront in return for government payments in the future, with those liabilities then left off the books. Greece, for example, traded away the rights to airport fees and lottery proceeds in years to come.
[Greece paid Goldman] about $300 million in fees for arranging the 2001 transaction, according to several bankers familiar with the deal.
In other words, Greece was just like many American homeowners, who hit their home-equity ATMs every year to remodel their kitchens and buy SUVs they couldn’t afford. And Goldman, et al, were just like WaMu and Countrywide.
Gregory Mankiw did a piece in the Sunday Times Biz section. He tried to make a case for a VAT. Along the way I thought he fluffed himself up (as usual) and played fast with some numbers. He also reinforced his Keynesian belief that growing debt is good for our economy.
On the subject of growing debt:
“…in the long run, a balanced budget is too strict a standard. Because of technological progress, population growth and inflation, the nation’s income and tax base grows over time. If the government’s debts grow at or below that pace, servicing the debt will not become a major problem. That means the government can run budget deficits in perpetuity, as long as they are not too large.”
There is a flaw to Mr. Mankiw’s thinking. Where are all the investors going to come from to absorb the perpetual debts? This same kind of thinking lead Spain and Ireland into a debt binge. We watch this play out every day. The debt service to GDP ratio Mankiw relies on is a flawed model. The total principal amount of debt has now been brought into question. That model is screaming, “There is too much paper out here!” Mr. Mankiw may look at his slide rule and say, “Gee wiz, this looks manageable“. But, increasingly, global bond investors are saying, “Gee wiz, this is a mess, let’s vote with our feet“. Unfortunately, the bond market is much more influential than Mankiw.
In defense of ever increasing deficits Mr. Mankiw points to a recent period of our history. It just so happens that this period is the same period where Mr. Mankiw was steering economic policy. He was the Chairman of the Council of Economic Advisors from 2003 -2005. He helped frame the debt policy for the Bush administration. That thinking prevailed until 2007 when things started cracking up.
Again from the Times, in support of growing deficits: (And the great results his policies produced)
“Recent history illustrates this principle. From 2005 to 2007, before the recession and financial crisis, the federal government ran budget deficits, but they averaged less than 2 percent of gross domestic product. Because this borrowing was moderate in magnitude and the economy was growing at about its normal rate, the federal debt held by
A week ago we asked whether Harrisburg is a “doomed city.” Today, the city itself answered the question, after passing a 2010 budget which excludes debt payments. In essence, the city anticipates defaulting. The catalyst will be a $2 million missed interest payment on an incinerator due March 1. As Reuters points out laconically, this is “a rarity for a municipal bond issuer.” The outcome: official muni default. “Asked whether the city may file Chapter 9 bankruptcy as a way to get its debts under control, [City controller] Miller said that was a “possibility.”Will this be the catalyst that sets the muni bond market ablaze? Remember that March is when Quantitative Easing officially ends. And everyone knows what is happening in Europe. Will the next 20 days set the preamble for the next major leg down in the ongoing Great Recession?
Harrisburg, Pennsylvania, moved a step closer to defaulting on a bond payment when its city council passed a 2010 budget that does not include $68 million in debt repayments on an incinerator.
Without the debt provision in the $65 million budget, the state capital may miss a March 1 payment of $2.072 million, a rarity for a municipal bond issuer.
Joyce Davis, a spokeswoman for Mayor Linda Thompson, confirmed the council’s decision — taken at a special session on Saturday — and said the mayor is not commenting for now on the implications of exclusion of the debt payments from the budget.
The $2.072 million payment is the latest installment on a $300 million bond owed on the construction of the incinerator. An additional $637,000 is due on April 1.
City Controller Dan Miller said last year’s payments on the incinerator were made from a debt service reserve fund that is now depleted.
Miller said on Feb. 9 he would “not be surprised” if Harrisburg fails to meet the March 1 payment.
The tax-exempt municipal bond market, which states, cities and municipalities use to raise the funds to build roads, schools and hospitals, is viewed as very safe with a far lower default rate than the corporate bond market.
The CFTC’s Commitment Of Traders report indicated that a record number of short positions was established in the EUR, confirm the decidedly dour investor mood for Europe. At -57,152 net EUR short positions hit a record, after “increasing” by -13,411 and it appears that the GBP will soon follow in the record negative sentiment category. The cable saw 19,314 net new short positions added, bringing the total to -57,549. The GDP record is at -65,346 reached last October. Furthermore, all other pairs saw a net contract decline, including the AUD, CAD, CHF, MXN and NZD. In the “preferred” camp, only the JPY saw net positive contracts of 22,396, an increase of over 15k from the prior week. As a result aggregate USD positioning in nominal terms increased by $4.14 billion to $8.37 billion. The EUR-hate regime is now decidedly here. On the other hand, the EUR is substantially oversold and a technical bounce is to be expected, absent some horrendous news out of the EMU in the next 24 hours.
I was asked to write a once-a-month Market Observation for Financial Sense. Here’s the first one (posted today, Feb 10):
From time to time, I think it’s a good idea to stop squinting at the short-term market wiggles and pull our heads back for a wide-angle view. Now would be a good time, so that’s what we’re going to do. For the record, I also happen to believe that close-up market analysis loses some of its potency during times of immense official intervention. As with any subsidy program, prices become distorted and often fail to tell the real story, which is absolutely true with respect to interest rates and, by extension, the risk premium for stocks.
Back to the story. Where the current crisis has been described using millions of words in thousands of articles packed with arcane acronyms (such as TALF, CDO, and CMBS), perplexing regulatory lapses and with a degree of complexity that dwarfs the Apollo moon mission, I can explain why the whole thing happened using just three words.
Too. Much. Debt.
Total credit market debt in the US doubled between 2000 and 2008, while incomes stagnated and jobs were not created.
When your debts are skyrocketing, but your means of servicing those debts are not, you are on a path to a credit crisis. And that’s exactly what we got.
That’s all there is to it, and we’d have a better shot of crafting an enduring recovery if we better understood the difference between causes and symptoms. Too much debt was the cause; virtually everything else was either a symptom or a contributory factor. The main contributory factor was Alan Greenspan’s monkeying around with interest rates between 2002 and 2004 to create ultra-cheap money to fight the effects of his prior monetary and regulatory mistakes.
Which entirely explains why I am so dismissive of world efforts to stoke an economic recovery by deploying even cheaper money and even more debt. As earnest as these efforts are, they spring from the very same flawed thinking and practices that got us into the mess in the first place. Plus, they’ve never worked before.
I’ve analyzed this situation nearly to death, and I arrive at this one very simple conclusion: The US is insolvent (and so are many other governments around the world).
It's the details, not the overall number that is worrying. Medical care and rents have been rising rapidly.
The Fed likes to ignore food and energy costs. They have their chance to prove it.
From Bloomberg ... Pull forward that rate hike is what some of the hawks are thinking after reading today's consumer price report where a benign looking headline, up only 0.1 percent in April, masks rising pressure through many components.
Excluding food and energy, core prices rose 0.3 percent which doe...
Friday's release of the publicly available data from the Economic Cycle Research Institute (ECRI) puts its Weekly Leading Index (WLI) at 133.9, down slightly from 134.6 the previous week. The WLI annualized growth indicator (WLIg) is at 1.5, up from the previous week's 1.2, and off its interim low of -4.7 in mid-January.
"Fed Rate Hike May Be Postponed Due to Inclement Data"
Here is the excerpt from ECRI's May 21st report to subscribers currently posted on the company's website.
While the Fed remains anxious to hike rates, weak growth may cause further delays in liftoff. Indeed, Q1 GDP growth came in barely positive, and it is now expected to be revised negative. Furthermore, Q1 only saw positive grow...
Reminder: Pharmboy is available to chat with Members, comments are found below each post.
Understanding the new normal of a business model is key to the success of any company. The managment of companies need to adapt to the changing demand, but first they must recognize what changes are taking place. Big Pharma's business model is changing rapidly, and much like the airline industry, there will be but a handful of pharma companies left at the end of this path.
Most Big Pharma companies have traditionally done everything from research and development (R&D) through to commercialisation themselves. Research was proprietary, and diseases were cherry picked on the back of academic research that was done using NIH grants. This was in the heyday of research, where multiple companies had drugs for the same target (Mevocor, Zocor, Crestor, Lipitor), and could reap the rewards on multiple scales. However, in the c...
Stocks closed last week on a strong note, with the S&P 500 notching a new high, despite lackluster economic data and growth. I have been suggesting in previous articles that stocks appeared to be coiling for a significant move but that the ingredients were not yet in place for either a major breakout or a corrective selloff. However, bulls appear to be losing patience awaiting their next definitive catalyst, and the higher-likelihood upside move may now be underway. Yet despite the bullish technical picture, this week’s fundamentals-based Outlook rankings look even more defensive.
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Bitcoin, the virtual digital currency, has been called the future of banking, a dangerous fad, and almost everything in between, but we're finally about to get some solid data to help settle the debate.
On Monday, the Nasdaq (NDAQ) stock exchange said it would ...
Chris Kimble likes the idea of shorting the US dollar if it bounces higher. Phil's likes the dollar better long here. These views are not inconsistent, actually, the dollar could bounce and drop again. We'll be watching.
Phil writes: If the Fed begins to tighten OR if Greece defaults OR if China begins to fall apart OR if Japan begins to unwind, then the Dollar could move 10% higher. Without any of those things happening – you still have the Fed pursuing a relatively stronger currency policy than the rest of the G8. So, if anything, I think the pressure should be up, not down.
UNLESS that 95 line does ultimately fail (as opposed to this being bullish consolidation at the prior breakout point), then I'd prefer to sell the UUP Jan $25 puts for $0.85 and buy the Sept $24 call...
Back in December, I wrote a post on my blog where I compared the performances of various ETFs related to the oil industry. I was looking for the best possible proxy to match the moves of oil prices if you didn't want to play with futures. At the time, I concluded that for medium term trades, USO and the leveraged ETFs UCO and SCO were the most promising. Longer term, broader ETFs like OIH and XLE might make better investment if oil prices do recover to more profitable prices since ETF linked to futures like USO, UCO and SCO do suffer from decay. It also seemed that DIG and DUG could be promising if OIH could recover as it should with the price of oil, but that they don't make a good proxy for the price of oil itself.
Kim Parlee interviews Phil on Money Talk. Be sure to watch the replays if you missed the show live on Wednesday night (it was recorded on Monday). As usual, Phil provides an excellent program packed with macro analysis, important lessons and trading ideas. ~ Ilene
The replay is now available on BNN's website. For the three part series, click on the links below.
Part 1 is here (discussing the macro outlook for the markets)
Part 2 is here. (discussing our main trading strategies)
Part 3 is here. (reviewing our pick of th...
This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible. Feel free to contact me directly at firstname.lastname@example.org with any questions.
Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
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