In this morning’s Breakfast With Dave newsletter, analyst David Rosenberg talks last week’s retail sales report.
Don’t believe everything that you read, says Rosie. According to "raw data," retail sales actually FELL1.6% month-over-month in February, and you can’t just blame seasonality for this.
Breakfast With Dave: “It’s always best to look at what consumers do rather than what they think or say. They’re spending — that’s the main thing”. That goes down as the glib remark of the weekend — front page of the Investors Business Daily (Shoppers Perk Up, Lifting Retail Sales, By A Surprise 0.3%). Another pundit said pretty well the same thing in Barron’s and following the data on Friday there was an economist on CNBC who said that you never win by betting against the U.S. consumer.
What a load of you-know-what.
Let’s more closely examine that retail sales report.
First, the raw data actually showed that sales fell 1.6% MoM in February. Now it would be meaningful if February was usually a weak month for sales compared to January so that it would make perfect sense for the seasonal adjustment factor to give the raw data an upward skew. But in fact, retail sales rise over half the time in February. And while, on average, the not seasonally adjusted retail sales data are down 0.4% in each February over the past decade, the reality is that this past February was four times as bad as the norm — not to mention tied for the third worst February since 1998. Really good result, eh?
Second, here we have the greatest stimulus experience in seven decades and retail sales are still down 5% from the pre-recession peak and on a per capital basis are down 8%. Sales are actually lower today than they were in January 2006 — four years ago — even though the population has risen 4.3% over this time. And on a per capita basis, retail sales are no…
Morgan Stanley just released a research report that painstakingly details the current state of our global economy.
Inside the 88-page report is a section called "Charts You Can’t Miss." It’s broken down in the following order of countries: Global economy, Europe, Asia (excluding Japan), and Japan. These charts focus on the underlying issues that truly affect our economy.
Credit spreads are at their highest levels ever post-Lehman and Germany’s industrial production is falling. Clearly there’s cause for concern.
If you’ve ever wanted a quick, comprehensive breakdown of the global marketplace, here’s your chance.
Prescient Raymond James strategist Jeff Saut says the "selling stampede" which is began calling for in early January is clearly over, but we’re not out of the woods yet:
For example, we entered 2010 in a pretty cautious mode, worried that the first few weeks of the new
year have historically been tricky. Subsequently, we determined the equity markets had fallen into a “selling stampede.” Knowingthat such stampedes tend to last 17 to 25 sessions we remained cautious, but continue to add stocks to our “watch list.” Following the climatic downside deluge of February 4th and 5th, we opined the stampede was abating and recommended tranching into (read:buying partial positions) some of the stocks on our various lists. We still feel that way.That positive view was reinforced last week when the 10-day exponential moving average (EMA) crossed above the 30-day EMA.
Additionally, the 50-DMA is turning up and on February 5th the number of S&P 500 stocks above their respective 50-DMAs had shrunk from 92% to ~19%. While that oversold reading has been somewhat corrected by the ensuing rally, roughly 50% of the S&P 500 stocks still remain below their 50-DMAs.
Then there was this insight from Minyanville professor Tony Dwyer:
“One indicator that has proven to be an excellent short and intermediate-term buy signal for the S&P 500 is when the percentage of NYSE issues trading above their 10-DMA drops below 10%. The most recent signal was (on) 2/18/10, which represents only the 8th unique instance (rapid multiple signals following the first signal were ignored) in the past 30 years. The average one month gain following the first signal was 5.4%, with amaximum gain of 11.2% and the worst case (and only) loss of 1.31% in 1991.”
Hence, we continue to believe the “selling stampede” is over. To us the question then becomes, will we extend the current rally off February’s “hammer lows,” or will the pattern resemble that of the 1978 and 1979 “October Ouches” whereby the DJIA lost between 10 – 12% in a few short weeks and then based for a month, or two, before giving investors a decent rally. Worth noting is that the DJIA never went decidedly below those “hammer lows,” as can be seen in
Gluskin-Sheff’s David Rosenberg reads the tea leaves on the recent market runup and concludes the correction may not be over, drawing particular attention to volume:
IS THE CORRECTION OVER?
There is room to have an open mind in both directions, though we believe that there is still more downside than upside risk. The problem for the bulls is that the market gains have occurred on lower volume, which was down 6% on the
NYSE yesterday, and the major indices are still stuck below their 50-day moving averages (the only exception is the S&P 600).
But the bulls will note that the market now does have some technical strength (as outlined in today’s Investors Business Daily). The major averages have closed in the upper half of their daily ranges for six sessions in a row and often at or close to the highs of the day. The list of stocks hitting a new high has hit 200 versus 12 those hitting a new low. Sentiment has turned extremely negative considering that this correction was barely over an 8% down-move but indeed, before it occurred, the Investors Intelligence poll was at 52.2% bulls (18.9% bears) and at the recent lows it was at 35.6% bulls (and 27.8% for the bears). That is a contrarian positive, at least on a near-term basis. Moreover, there is a high correlation between the Euro and the S&P 500 and the short positions in the currency is at an all-time high, and as these shorts have to be covered, the dollar has softened a tad off its recent highs and this has corresponded with the rebound in the equity market. Finally, we have 73% of companies beating their earnings estimate — this has dominated the press, and the fact that tech bellwethers like Hewlett-Packard managed to beat their estimates and raise guidance (as did Deere and Whole Foods) has also helped add some recent enthusiasm in the bullish camp. This is an exercise to see both points of view, keep an open mind; however, we have not waffling and maintain a cautious view over risk assets for 2010. This is still a technically-driven market — for confirmation of the sustainability of the rebound (recall that there were four other 5%+ declines during this bear market rally phase) we need to see:
1. Follow throughs (gains of at least 2% consecutively and on…
So, as we see in the latest Commitment of Traders report, the massive swing in the U.S. dollar from a huge net short position to a record net long position in the futures and options pits has seen its best days. The net speculative long position that took the greenback up 8% from the lows has surged to an all-time high of 40,972 contracts; even cutting this excess exuberance over the U.S. dollar by half would require more of what we saw yesterday, which is a giveback in the currency. (As confirmation on the excess optimism that now prevails over the greenback, investor optimism on the U.S. dollar (a net 57%) in the just-released Merrill Lynch Global Fund Manager survey hit a 10-year high). So long as the U.S. dollar is softening as sentiment recedes from these lofty levels, risk appetite is bound to come back for a little while, as we saw yesterday with that impressive triple-digit up-move in the Dow.
The flip-side, of course, is the Euro, which has an unprecedented amount of net speculative short positions against it. Again, this net short position is now in the process of reversing course and in this process we are likely to see risk assets enjoy a counter-trend bounce. (We should add here that another “defensive” currency that has commanded a lot of attention from the noncommercial accounts is the Japanese Yen, which also has the most pronounced net speculative long position in nine weeks). These are rallies worth renting but not owning.
Raymond James strategist Jeff Saut has been on top of his market-timing game, calling both the runup and the recent dip.
So you might want to pay attention to the fact that he’s licking his chops again, at least per his latest weekly call:
We revisit The Great Blizzard of 1888 this morning because of the weather that has crippled the Northeast corridor over the past few weeks. Fortunately, communities are more capable of dealing with such storms today than they were more than a century ago. Still, the loss of productivity is likely going to be impactful in some of the upcoming economic reports.
That said, over the long weekend we studied the D-J Industrial Average (DJIA) chart from 1888 and found that March 11 – March 14 marked a bottom for the stock market. Also of interest is that today is session 18 in the envisioned “selling stampede” so often discussed in these missives.
For new readers, “selling stampedes” tend to last 17 to 25 sessions, with only one- to three-day counter trend rally attempts before they exhaust themselves on the downside. While it is true that some stampedes have extended for 25 to 30 sessions, it is rare to have one last for more than 30 days. Accordingly, we are getting increasingly interested in stocks again, and have been adding
names to our “watch list.” As for Dow Theory, which we have often been asked…
This morning’s JPMorgan (JPM) earnings report helped to reinforce the conventional wisdom that the worst is over and that the banking system is wobbly but on the mend.
But what if that’s not so.
A recent report from Deutsche Bank’s Bill Prophet, entitled "Alternative Universe," foretells a story of approaching disaster and even goes so far as to say "the health of the US commercial banking system will inevitably get worse before it gets better. And this has undeniable consequences for the rates market, if not Fed policy."
The reason? Bank balance sheets have hardly shrunk at all. This applies to both commercial and residential real estate.
Says Prophet on RMBS:
Nevertheless, we find it inconceivable that these assets are being marked anywhere close to their recoverable value, and the reality is that commercial bank exposure to them is as large now as it was 12 months ago. And in fact when we look at the entire $2tr portfolio of residential real estate assets on bank balance sheets (which would of course include the home-equity loans shown above), we reach a similar conclusion. Namely, as of the end of Q3-’09, the value of “home mortgage” assets has declined by just 1.6% from the end of ‘08 (see Chart 7). Similar to CRE, these assets could be worth hundreds of billions of dollars less than where they are currently being marked.
Raymond James strategist Jeff Saut is doing the wise thing and taking another week fo relax with family — we advise it — but in a brief note he warns of the breakdown in bonds.
Indeed, we have been unabashedly bullish on most asset classes since March 2, 2009, although we have turned cautious a few times over the past eight months. To be sure, said asset classes were at least three standard deviations undervalued back in March. Since then, most have normalized to median valuation levels. Accordingly, as we enter the New Year, we are once again turning cautious because the Treasury bond market is breaking down (read: higher interest rates) and the U.S. dollar is rallying. After being dollar-negative since 4Q01, we turned neutral to constructive on the “buck” in 4Q07 and recommended shutting down all negative U.S. dollar positions. More recently, we suggested the “greenback” might be in for a pretty decent rally. If so, the ubiquitous “dollar carry trade” is in jeopardy of unwinding with downside consequences for most asset classes. Therefore, we think it prudent to “bank” some trading profits and hedge some investment positions as we approach the New Year.
That said, we still believe the nascent economic recovery will gain traction in 2010, and that earnings comparisons will look good in 1H10. The question then becomes just how much of that has already been discounted by the 68% rally off of the March lows? Also worth consideration is if this is a rally in an ongoing trading range stock market, or the beginning of a new secular bull market. Currently, we don’t have a clue, but are happy that we have enjoyed the eight-month rise. We think the trick from here, at least in the short/intermediate-term, is to protect the profits that have been made.
We’re not sure how much stock to put into correlations such as this one — especially since LOTS of charts have this dual-hump pattern over the last several years — but this is still some interesting commentary from Gluskin-Sheff’s David Rosenberg on the connection between monetary velocity and the stock market.
Chart 1 maps out the S&P 500 with money velocity (GDP/M1 ratio). There is a
90% correlation between the two. It is one thing to have the Fed pump liquidity
into the system but it is quite another for the liquidity to be re-leveraged into credit
and recycled into the economy.
The Fed’s easing program is over two years old and the rampant Fed balance
sheet expansion 15 months old, and still to this day, what the commercial banks
have done (to Obama’s wrath) with all that liquidity is to keep it as cash on their
balance sheet to the tune of $1.2 trillion. We’re not sure why Obama is as rankled
as he is because the banks are in fact lending out a good chunk of that Fed-
induced liquidity — right back to Uncle Sam (the banks now own a record $1.3
trillion of government securities).
Back to the chart — there is obviously a close connection between money turnover
and the stock market. But we can get periodic divergences as we did in the first
leg of the rally in 2003. But the carry-through from 2004 to 2007 hinged critically
on that multi-year acceleration in money velocity. If we don’t see the banks begin
to extend credit in 2010, it is hard to see the 2009 bounce from oversold lows as
being sustained in the coming year.
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.
Squeezed between steering wheel, handbrake, door and dashboard, Katerina reads in her history book, takes notes for school. Next to her, on the driver’s seat, cat Eddy stares right in the camera lens. It may look like a cute snapshot on a sunny day, if it wasn’t for a sad detail: a withering spring stuck in a roll of toilet paper. A distinctive memory of a former normal life that turned into a grim reality for a family of four.
At night the seat where Katerina sits during the day turns into...
Up until a few years ago, conventional wisdom was that China would grow at nearly double digits as long as the eye could see. Then, however, something happened, and China's 9% growth became 8%, then 7% and even lower, as suddenly the Politburo made it quite clear China would not chase growth at any cost, especially when the cost is trillions in bad debt and other NPLs, as we have explained time and again. The collapse in Chinese growth expectations is shown best on the following formerly hockeysticking chart of IMF's revised Chinese growth projections which has completely collapsed in the past few years.
Note from dshort: I received a recent email on historical total returns that prompted an update to my Roller Coaster Return series. I've updated the charts below based on monthly data through the September close.
Here's an interesting set of charts that will especially resonate with those of us who follow economic and market cycles.
Imagine that five years ago you invested $10,000 in the S&P 500. How much would it be worth today, with dividends reinvested but adjusted for inflation?
The purchasing power of your investment has increased to $19,967 for an annualized real return of 13.91%.
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What do falling energy prices mean for the US consumer? Sober Look writes a brief yet thorough overview of the consequences of the correction in the price of crude oil. There are good aspects, particularly for the consumer, bad aspects, and out-right ugly possibilities. For more on this subject, read James Hamilton's How will Saudi Arabia respond to lower oil prices? In previous eras, Saudi Arabia would tighten the supply to help increase prices, but in this "game of chicken," the rules m...
Volatility continues to increase in the stock market and many of the leaders are breaking down. In particular, semiconductors took a rather big hit when one of the bellwethers warned of weakening global demand. Nevertheless, despite the significant headwinds, I do not think this spells the end of the bull market. But the technical damage to the charts is severe, particularly to the small caps, which are in full-blown correction mode. The large caps must show leadership and rally immediately -- or it will put at risk the critical and widely-anticipated year-end rally.
In this weekly update, I give my view of the current market environment, offer a technical analysis of the S&P 500 chart, review our weekly fundamentals-based SectorCast rankings of the ten U.S. business sectors, and then offer up ...
Shares in Apple (Ticker: AAPL) are near their highs of the session in the final hour of trading on Wednesday, adding to the muted gains seen earlier in the day, following the release of the September FOMC meeting minutes and after activist investor and Apple shareholder Carl Icahn tweeted, “Tmrw we’ll be sending an open letter to @tim_cook. Believe it will be interesting.” Icahn’s tweet hit the ether at 2:33 pm ET and was met with a spike in volume in Apple shares. The stock is currently up 2.0% on the day at $100.75 as of 3:15 pm ET.
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Well PSW Subscribers....I am still here, barely. From my last post a few months ago to now, nothing has changed much, but there are a few bargins out there that as investors, should be put on the watch list (again) and if so desired....buy a small amount.
First, the media is on a tear against biotechs/pharma, ripping companies for their drug prices. Gilead's HepC drug, Sovaldi, is priced at $84K for the 12-week treatment. Pundits were screaming bloody murder that it was a total rip off, but when one investigates the other drugs out there, and the consequences of not taking Sovaldi vs. another drug combinations, then things become clearer. For instance, Olysio (JNJ) is about $66,000 for a 12-week treatment, but is approved for fewer types of patients AND...
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