Bull/Bear Weekly Recap

Submitted by Uformula of RCS Investments

Bullish

More signs that the consumer is recovering:

+
International Trade shows an increase in the deficit which translates
to stronger consumer demand (this reading was not on the back of
increases in oil imports) 

+ ISCS
Goldman sales show a surprise increase in April as does Redbook.  A
strong April would mean that March’s strength was not purely on the
back of Easter and that genuine consumer strength is in play.   

+
Retail Sales, both headline and Core show an improvement in
consumption.  This is the first key needed to translate to job gains as
inventories need to be restocked. 
http://money.cnn.com/2010/04/14/news/economy/retail_sales_March/

More signs that Manufacturing is strengthening:

+ Ceridian-UCLA Index (a measure of diesel fuel consumption) shows a
healthy increase in March.  Through backtesting, this has been a
leading indicator for industrial production.  Shows that economy
continues strengthening as inventory replenishment continues.  Also
mentions that this latest reading suggests that the economy grew at a
quicker pace than the Q1 consensus of 2.9%.
http://www.dcvelocity.com/articles/20100416diesel_use_index_points_to_recovery/

+
Industrial Production, while weak on the headline, is showing
underlying strength in Business Eq. and Manufacturing and confirms
positive ISM readings.
http://www.google.com/hostednews/afp/article/ALeqM5imSmQ0PFrdOt5r7p7xSq4yoA6FDQ

+
Empire State and Philly Fed Manufacturing surveys show strong expansion
in the NY and Mid-Atlantic region area in terms of manufacturing
activity.  Increases in this sector should lead to expansion in
payrolls, which would lead to higher consumption.  Job indicators in
both indexes show an increase in hiring and should lead to improving
job numbers.  Inventory building is also being reported.
http://www.thestreet.com/story/10726755/1/empire-state-manufacturing-surges-in-april.html?cm_ven=GOOGLEN
http://www.businessweek.com/ap/financialnews/D9F3JEJ00.htm

+ Business Inventories show that the inventory build gaining traction.
 This is good news as this will require continued hiring and will help
the job market heal.  Sales also increased for the 3rd month in a row
and shows that there is end demand thus far.  The I/S ratio is now at
levels prevailing before the crisis, meaning that increases in demand
will translate directly to increased production. 

Core CPI comes in very low as there is nary a danger of inflation. 
Will this be the green light for the fed to keep rates low?  With
improving corporate profits, increased consumption, subsequent job
gains, coupled with low rates mean a Goldilocks scenario? 

Thus
far into earnings season, the majority of companies have outperformed
expectations.  Will this translate to improved stock performance?  

Housing starts and permits both rise as builders begin to ramp up construction.  This
should lead to more demand over the summer months leading to more jobs
and a trickle down effect for improvement in other sectors of the
economy.  

Bearish 

International
Trade report shows export growth stalling, while imports continue to
rise.  This may lead to downside revisions for Q1 GDP.  Is the stronger
dollar beginning to thwart the Obama plan for increased exports to lead
the recovery?

Small Business Confidence hits 8
month low.  The giant disconnect between big and small business
continues.  How will job growth be sustained if this sector (which
accounts for more than 60%) doesn’t show improvement in sentiment?
http://www.bloomberg.com/apps/news?pid=20601087&sid=anLmjO4Dpguk&pos=4

More and more signs surface that China is not about to play ball with the US in regards to its Yuan policy.
http://247wallst.com/2010/04/13/china-may-not-accomodate-us-on-yuan-value/
http://www.marketwatch.com/story/china-fx-regulator-warns-on-yuan-rumors-report-2010-04-13

Jobless
Claims continue to point to job losses, absent a miraculous increase in
wages, consumption growth isn’t sustainable.  The savings rate doesn’t
have much further to go until it reaches zero again.  Given that credit
is tighter than the go go days of 2006, a negative savings rate seems
out of the question. 

NAHB Housing index rises but
remains at a low level.   Future expectations are grim.  While sales
may increase as the credit comes due over the following months, there
are no signs of sustainability.  If no extension passes, a drop off in
sales is a high probability.  In other news, reports of increasing
foreclosures signal that banks are beginning to proceed with
foreclosure procedures after numerous gov’t attempts at modifications. 
Higher supply, coupled with lower demand will lead to a double dip in
prices if no gov’t stimulus is passed.  Higher premiums for FHA
mortgages along with rising rates turned in a very negative print for
mortgage applications.  There is a higher probability that months
leading up to the expiration of the tax credit may disappoint.      

Sentiment is not confirming the improvement in the recovery.  Consumers
remain wary and as long as the public doesn’t believe that things are
improving, consumption will not substantially improve.  If consumption doesn’t improve, companies will keep their long term investments on hold = no strong job creation. 

Believe
it or not, the Greek tragedy continues.  Approval to activate the aid
may require parliamentary approval from EU gov'ts.  If one of them
doesn't approve, Greece will default or drop out of the EU.  Are we
about to see the next phase of the credit crisis commence?
http://www.bloomberg.com/apps/news?pid=20601087&sid=aeCHkL5xlXSk&pos=5

Emerging
markets are putting the clamps down on inflation led by China, which
just instituted it's strongest actions toward curbing the property
market.  Gov'ts are now undertaking policies aimed at curbing growth.

Copper Inventories are rising in China.  There is no sign that all the
raw metal imports are translating into use yet.  Only
stockpiling. Copper inventories remain very high @ the London Metals
Exchange
http://www.investmenttools.com/futures/metals/welcome_to_the_page_about_copper_futures.htm#ldncopper   

Thoughts

A Taste of Complacency:

http://www.nytimes.com/2010/04/13/business/13sorkin.html?ref=business

Mutual Fund Cash Levels at lowest since 2006 and consensus view is that we will have a Goldilocks recovery.  
http://newsroom.bankofamerica.com/index.php?s=43&item=8677 

AAII back at extreme bullish readings...
http://aaii.com/sentimentsurvey/sent_results.cfm 

Higher expectations 2H of 2010 and 2011

----------------------
The
EU, China, and the US are net importers.  Who is exporting to the
largest 3 economic blocs in the world?  US exports have been trending
flat now for a couple of months.  Some fishy business going on here. 

---------------------
China
continues to have its overheating problem.  Expect more policy aimed at
curbing this.  The Shanghai Exchange was down the rest of the week
after the property price surge in March release.  The market is
expecting rate increases.  Will this be the pin that pricks a possible
RE bubble?
http://www.businessweek.com/news/2010-04-15/china-raises-home-mortgage-rates-down-payments-update1-.html

Disclosure: No Positions Mentioned

Comments

[Selah]

http://www.fdic.gov/bank/individual/failed/banklist.html

[hedgeless_horseman]

http://www.bloomberg.com/apps/cbuilder?ticker1=BDIY%3AIND

BDI of 3001 could go either way.

[Nolsgrad]

That newsweek cover was a short-sellers dream, now if TIME follows along it's gonna get fun

[Kina]

How are the States traveling? Cut backs in spending, employment? Increase in fees charges and taxes?

Greece looks like a default. There is already hell to pay for their PM even speaking to the IMF. Focus is already turning to Portugal. Seems there is going to be a never ending series of 'the road ot bail out / default' for some time yet.

Doesn't the Baltic Dry gain say export activity?

What happened to the effect of hiring heaps of census workers in the last lot of numbers?

I'm not too clever with this stuff but some of it doesn't seem to reflect the real world.

[hedgeless_horseman]

BDI looks like a square root recovery, to me.  Mostly noise from lack of financing, then settles down to a lower level, consistent w/ lower consumption, but also maybe a bit of protectionism?  BDI is not a commodity orfinancial instrument index, or composed of a trade item, thus some say it is a cleaner look at what is going on in the global economy.  Anyone know where to find a similiar U.S. rail index?

FIIK!  I am better at reading people then tea leaves and charts.  Edwards and Magee know better than me!

[Mick C Pitlick]

"D" for deflationary depression. All the "good" news is a blip. Low inflation? Right. Deflation.

[Grand Supercycle]

Overtextended SP500 / DOW daily charts show bearish warnings and the next few days will tell us more.

DOW chart :

http://www.zerohedge.com/forum/latest-market-outlook-0