If the way to classify the September stock move as "a confounding ramp on disappointing economic news" gets you stumped, here is Rosenberg to provide some insight. Just call is "deflationary growth or something like that." And as for the NBER’s pronouncement of the recession being over, Rosie has a few words for that as well: "this recovery, with its sub 1% pace of real final sales, goes down as the weakest on record."
It’s a real commentary that the National Bureau of Economic Research (NBER) decision on the historical record mattered more than the actual economic data. The National Association of Home Builders’ (NAHB) housing market index is the latest data point in an array of September releases coming in below expected:
Philly Fed index: actual -0.7 versus 0.5 expected
Empire manufacturing index: actual 4.14 versus 8 expected
NAHB: actual 13 versus 14 expected
University of Michigan Consumer Sentiment: actual 66.6 versus 70 expected
It’s early days yet, and these are only surveys, but it would seem as though the economy remains very sluggish as we head towards the third-quarter finish line.
It is truly difficult to come up with an explanation for the breakout, which in turn makes it difficult to ascertain its veracity. If we are seeing a re-assessment or risk or a major asset allocation move, then why did Treasury yields rally 4bps (and led lower by the “real rate”, which is a bond market proxy for “real growth expectations”)?
If it was a pro-growth move, why did copper sell off and the CRB flatten? And where is the volume? Still lacking? So we have a breakout with little or no confirmation. All we can see is that many sentiment measures have swung violently to the upside in recent weeks and the VIX index is all the way back to 21x —- somewhat contrary negative signposts for the bulls.
But the price action is undeniable and the bulls are in fact winning the battle in September, a typically negative seasonal month, after a bloody August. The fact that bonds rallied yesterday is a tad bizarre and perhaps the explanation, if there is one, is that the equity market is enamoured with the cash leaving the corporate balance sheet in favour of dividend payouts and share buybacks and
On Tuesday, the 30-year fixed rate for mortgages plunged to an all-time low of 4.56 per cent. Rates are falling because investors are still moving into risk-free liquid assets, like Treasuries. It’s a sign of panic and the Fed’s lame policy response has done nothing to sooth the public’s fears. The flight-to-safety continues a full two years after Lehman Bros blew up.
Housing demand has fallen off a cliff in spite of the historic low rates. Purchases of new and existing homes are roughly 25 per cent of what they were at peak in 2006. Case/Schiller reported on Monday that June new homes sales were the "worst on record", but the media twisted the story to create the impression that sales were actually improving! Here are a few of Monday’s misleading headlines: "New Home Sales Bounce Back in June"--Los Angeles Times. "Builders Lifted by June New-home Sales", Marketwatch. "New Home Sales Rebound 24 per cent", CNN. "June Sales of New Homes Climb more than Forecast", Bloomberg.
The media’s lies are only adding to the sense of uncertainty. When uncertainty grows, long-term expectations change and investment nosedives. Lying has an adverse effect on consumer confidence and, thus, on demand. This is from Bloomberg:
The Conference Board’s confidence index dropped to a 5-month low of 50.4 from 54.3 in June. According to Bloomberg News:
"Sentiment may be slow to improve until companies start adding to payrolls at a faster rate, and the Federal Reserve projects unemployment will take time to decline. Today’s figures showed income expectations at their lowest point in more than a year, posing a risk for consumer spending that accounts for 70 per cent of the economy.
“Consumers’ faith in the economic recovery is failing,” said guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, whose forecast of 50.3 for the confidence index was the closest among economists surveyed by Bloomberg. “The job market is slow and volatile, and it’ll be 2013 before we see any semblance of normality in the labor market." (Bloomberg)
Confidence is falling because unemployment is soaring, because the media is lying, and because the Fed’s monetary policy has failed. Notice that Bloomberg does not mention consumer worries over "curbing the deficits". In truth, the public has only a passing interest in the large…
From the beginning of May until late June, stock markets worldwide declined sharply, with losses surpassing 10%. The first weeks of July brought only marginal relief. Ominous voices began to warn that the weakness of stocks was a direct response to the stalling of an economic recovery that has lasted barely a year. Anxiety over debt-laden European countries — most notably Greece — combined with stubbornly high unemployment in the U.S. to create a toxic but fertile mix that allowed concern to blossom into full-bloom fear.
The most common refrain was that stocks are weak because global economic activity is sagging. A July 12 report by investment bank Credit Suisse was titled Are the Markets Forecasting Recession? With no more stimulus spending on the horizon in the U.S., Europeans on austerity budgets and consumer sentiment best characterized as surly, the sell-off in stocks was explained as a simple response to an economy on the ropes.
It’s a good story and a logical one. But it distorts reality. Stocks are no longer mirrors of national economies; they are not — as is so commonly said — magical forecasting mechanisms. They are small slices of ownership in specific companies, and today, those companies have less connection to any one national economy than ever before.
As a result, stocks are not proxies for the U.S. economy, or that of the European Union or China, and markets are deeply unreliable gauges of anything but the underlying strength of the companies they represent and the schizophrenic mind-set of the traders who buy and sell the shares. There has always been a question about just how much of a forecasting mechanism markets are. Hence the saying that stocks have…
Double-dip risks in the U.S. have risen substantially in the past two months. While the “back end” of the economy is still performing well, as we saw in the May industrial production report, this lags the cycle. The “front end” leads the cycle and by that we mean the key guts of final sales — the consumer and housing.
We have already endured two soft retail sales reports in a row and now the weekly chain-store data for June are pointing to sub-par activity. The housing sector is going back into the tank – there is no question about it. Bank credit is back in freefall. The recovery in consumer sentiment leaves it at levels that in the past were consistent with outright recessions. Last year’s improvement in initial jobless claims not only stalled out completely, but at over 470k is consistent with stagnant to negative jobs growth. And exports, which had been a lynchpin in the past year, will feel the double-whammy from the strength in the U.S. dollar and the spreading problems overseas.
Spanish banks cannot get funding and another Chinese bank regulator has warned in the past 24 hours of the growing risks from the country’s credit excesses. A disorderly unwinding of China’s credit and property bubble may well be the principal global macro risk for the remainder of the year. Indeed, perhaps the equity market finally realized yesterday that allowing China more control to defuse an internal property and credit bubble may well be a classic case of “be careful of what you wish for.”
The Bond Cycle and Deflation
I was at an event recently where I was able to see two legends among others – Louise Yamada and Gary Shilling. Louise made the point that while secular phases in the stock market generally last between 12 and 16 years, interest rate cycles tend to be much longer – anywhere from 22 to 37 years; and she has a chart back to 1790 to prove the point! So while all we ever hear is that this secular bull market in bonds is getting long in the tooth, having started in late 1981, it may not yet be over. After all, the deleveraging part of this cycle
U.S. consumer sentiment dipped in early March, according to media reports on Friday of the Reuters/University of Michigan index.
Amid signs that the labor market is approaching a trough but remains frail, the consumer sentiment index declined to 72.5 in March from 73.6 in February. Economists surveyed by MarketWatch had been expecting the sentiment index to hit 74 in March.
Yet, Still Shopping
Retail sales showed strength in February. Per the AP:.
For February, sales rose 0.3 percent, the Commerce Department said Friday. That surpassed expectations that sales would decline 0.2 percent.
The overall gain was held back by a 2 percent decline in auto sales, reflecting in part the recall problems at Toyota. Excluding autos, sales rose 0.8 percent. That was far better than the 0.1 percent increase excluding autos that economists had forecast.
If you’re going to stay home (unemployed), perhaps that is cause for the new flat panel TV or laptop?
Calculated Risk does point out that while the trend is improved, the overall level is actual less than what was reported just one month ago:
January was revised down sharply. Jan was originally reported at $355.8 billion, an increase of 0.5% from December.
February was reported at $355.5 billion – a decline without the revision to January.
In other words, reports got ahead of themselves (no surprise), but the actual trend remains moving in an upward trajectory even though things quite frankly suck for the average consumer.
Nothing mind blowing to report this morning. In fact, more of the same – weak consumers, signs of deflation and “better than expected” earnings. Consumer sentiment came in essentially flat this morning at 65.7. This was a slight drop from the last reading, but nothing significant.
The more important news this morning is the personal income and outlays. Personal incomes were flat for the month and fell 2.4% year over year. Consumer spending was up 0.2% for the month and 1.1% year over year. It’s nice to see that people are making less and spending more. All joking aside, the boost in spending was due almost entirely to cash for clunkers which we all know is about the most fiscally irresponsible program this government has ever put together. As I mentioned a few weeks ago, this program has the potential to be highly destructive. Taking out a loan from China to finance a program that encourages consumers to take out a loan to purchase a depreciating asset they likely don’t need….The effect on retail sales should be large, but the government just wants to see the near-term boost in GDP.
The market is rising on good earnings news, however (at least it was when I started writing). Intel raised their guidance, Dell posted horrible (though “better than expected”) numbers and Tiffany’s and J. Crew both posted terrible, but “better than expected” quarters. The analysts are still playing catch-up here and that alone is enough to give the market a reason to jump.
By Gavekal Capital Blog. Originally published at ValueWalk.
An Analysis Of The Bifurcation Of Chinese Growth In Sales And Debt From A Bottoms Up Perspective by Bryce Coward, Gavekal Capital
To say that Chinese growth is slowing is a correct, yet overly simplistic description of the actual scenario that is playing out on the ground. Chinese growth is slowing, but the data tells us that the growth rates of certain sectors are becoming increasingly bifurcated. The consumer and technology sectors appear to be maintaining their previously seen growth rates while the industrial and energy sectors are experiencing a ...
Economists were shocked by the plunge in the Conference Board Consumer Confidence Index this morning, well below the any economist's guess in Bloomberg's Econoday Forecast. The consensus estimate was 99.6. The consensus range was 97.0 to 102.0. And the actual result ... 90.9.
Consumer confidence has weakened substantially this month, to 90.9 which is more than 6 points below Econoday's low estimate. Weakness is centered in the expectations component which is down nearly 13 points to 79.9 and reflects sudden pessimism in the jobs outlook where an unusually large percentage, at 20 percent even, see fewer jobs opening up six months from now.
A striking negative in the report is a drop in buying plans for autos which conf...
Big gains and a strong reversal in the Russell 2000 puts a potential bottom in play. The Russell 2000 started the day below the 200-day MA, but then rallied to claim a spike low and a close above this key moving average. Small Caps are a key driver in trend cycles. The 'bull trap' from June is still dominant. and a push above 1,280 looks a tall order. but reversing the breakdown of the rising trendline at 1,240 is a different proposition. If it fails at this, then a swift return below the 200-day MA, and then some, opens up. And the long awaited intermediate term decline begins.
The S&P gained over 1% with a second bounce off the 200-d...
The dollar advanced against the yen on Tuesday as worries about China’s stock selloff abated somewhat, but the buck fell against the pound after the latest reading on U.K. economic growth matched expectations.
Some stabilization by Asian stocks prompted nervous investors to loosen their grip on the perceived safety of the Japanese currency.
The dollar USDJPY, -0.01% was up at ¥123.73, compared with ¥123.24 late Monday in New York.
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 some actionable trading ideas, including a sector rotation strategy using ETFs and an enhanced version using top-ranked stocks from the top-ranked sectors.
Corporate earnings reports have been mixed at best, interspersed with the occasional spectacular report -- primarily from mega-caps like Google (GOOGL), Facebook (FB), or Amazon (AMZN). Some of the bul...
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Baxter Int. (BAX) is splitting off its BioSciences division into a new company called Baxalta. Shares of Baxalta will be given as a tax-free dividend, in the ratio of one to one, to BAX holders on record on June 17, 2015. That means, if you want to receive the Baxalta dividend, you need to buy the stock this week (on or before June 12).
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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
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