Weekly Bull/Bear Recap: August 22-26, 2011

Tyler Durden's picture

Submitted by Rodrigo Serrano of Rational Capitalist Speculator

Weekly Bull/Bear Recap: August 22-26, 2011


+ Despite plunging stock markets and all the bearishness and all the talk of a global double-dip being right around the corner, copper, the metal with a Ph.D in economics, hasn’t fallen out of bed.  The bears can deny the strength of the recovery all they want, but this price action proves that it remains on track.  The global economy is only undergoing a soft-patch.  

+ China’s Flash PMI for August supports the case for a soft-landing.  The preliminary reading rose to 49.8 from 49.3 in July.  Their economy is withstanding tightening from government officials.  Given that inflation has likely peaked, the worst of the policy tightening is over.      

+ The Chicago Fed National Activity Index (CFNAI) doesn’t show an economy that’s fallen off a cliff as the bears suggest.  The index turned in a better than expected reading of -0.06 for the month of July vs. -0.38 in June led by ”Production-related indicators”.  Sentiment indicators such as the Empire/Philly Manufacturing Indexes have been deceiving as of late.  Financial markets have been fooled and will correct to the upside shortly.    

+ Durable goods orders surprise to upside, doubling economists’ projections and signaling an economy that remains in growth mode.  Many manufacturing hard-data metrics are not confirming recent sentiment surveys.  Hard-data is what matters

+ Bernanke doesn’t announce that monetary stimulus is forthcoming, but to the disbelief of the bears, the markets rallied.  This proves that risk-markets are able to fend for themselves.  The economy is stronger than many believe. This is clearly obvious when looking at the latest corporate profits report.  Bernanke has done a fine job of nursing the economy back to health.  It’s Washington’s turn to take over with some fiscal stimulus.    

+ Libya rebel forces have taken control of Tripoli and are headed to Qaddafi’s hometown of Sirte.  The beginning of the end is finally at hand for the 6+ month conflict.  One large uncertainty in the oil outlook has been removed and thus we may see lower prices in the weeks ahead, a perfect prescription for consumer spending.  

+ Warren Buffett invests $5 Billion in Bank of America and is a huge vote of confidence in our repaired financial sector.  Furthermore, as per numerous  analysts, including Meredith Whitney, the bank has more than enough liquidity to deal with current headwinds.  The financial sector is much better prepared to deal with whatever negative surprise may result.  This is not 2008.  


- Despite not dominating the front-page, developments from the Eurozone aren’t encouraging.  A Finnish fly has made its way into the bailout soup.  EU Industrial Orders for June, excluding the volatile transport sector, erased its prior monthly gain, falling 3.0% after a rise of 2.9% in May.  This indicator has regressed since March.  German investor confidence fell to the lowest since the dark days of 2008, while the EU Manufacturing PMI just indicated contraction.  In light of the “austerity-fever” gripping all of Europe, expect more of the same bad news in the coming months.  Ongoing austerity at this point is a major policy mistake.   

- Stock market volatility is affecting consumption patterns as the all-important back-to-school season is off to an uninspiring start.  Falling consumption (end-demand) will lead to decreased orders for manufacturers.  The negative feedback loops are taking effect.

- Bernanke and the Fed have their hands tied.  No announcement for QE3 was forthcoming.  The Fed has tacitly signaled that it’s powerless to stop the structural impediments affecting the economy.  Don’t fight the Fed they say.  Not anymore.  

- Will our economy be able to withstand yet another exogenous shock in the form of a major hurricane hitting many of our major eastern seaboard cities?     

- Jobless claims move higher vs. expectations of a fall (like bond yields, higher is bad).  They rose 5,000 to 417,000 from an upwardly revised 412,000 (was 408,000).  Claims are now firmly over 400,000 again and signals a labor market that remains substantially weak.  If the bulls feel tempted to take out Verizon workers as proposed in the article, no problem, let’s take out the transportation component of their beloved Durable Goods Orders bullish tid-bit….capital spending came in negative in that case.    

- Housing continues to produce bad news.  New Home Sales underperform.  Purchase applications (a leading indicator of housing demand) have now fallen 3 weeks in a row to a 15-year low, despite a historic plunge in Treasury yields during that time (lower interest rates).  That’s how bad the housing market is.  Furthermore, delinquency rates are rising again and are sure to add further pressure to investor confidence on the true value of Mortgage backed Securities. 

- Japan’s credit rating is cut by Moody’s Investor Service.  While investors remain focused on what’s going on in Europe, we have a budding problem here.  Remember, negative surprises are just that, surprises.  Could the next crisis actually come from here?  In a twist of irony, a rising Yen is in effect slowly asphyxiating their economy. 

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Panafrican Funktron Robot's picture

In summary:  Stuff happened in order to provide "newsworthy rationale" for the (insert) market to go (up/down).  Thank you for the Kool-Aid, though I'm feeling strangely unrefreshed.  Perhaps it's my unwillingness to drink it that is causing this.  

GenX Investor's picture

Have you tried the Roarin' Raspberry Cranberry flavor?  It makes you see things that are not there, mmmmm de-lish!

IMA5U's picture

drink it. the market is schitzophrenic during the bear market rallies



Amish Hacker's picture

Here's what Reuters had to say about the small rise in gold today: "Gold up 2% as Bernanke keeps stimulus hope alive."

The same news from Bloomberg: "Gold advances as Bernanke fails to offer plan for stimulating US economy."

I guess that explains it.


foxman's picture


Buy GOLD and SILVER on the dips.

Take time to visit with friends and family.

Go out and have a nice dinner and a good bottle of wine.

Prepare as best you can.

Do you good job at work and save as much as you can forgoing consumption for savings/investment.

Everything else is noise.

Rinse, Repeat.

Bartanist's picture

I would not claim that the human meat sacks we inhabit have very little opportunity for natural selection. Quarterback marry supermodels or cheerleaders. Rich people interbreed almost exclusively. Royalty WTF is that? Smart people seem to only respect each other. However, there is this issue with what eugenicists might call the dross, those wasted chromosomes that comsume resources without contributing anything of substance (contribute to what? and is that the point of it?). Is there real natural selection or are we waiting for gods to reduce the weight of man on the world? It is their job after all, is it not?

Who are we doing it all for? Why? What are the implications?

legal eagle's picture

If Bernake falls in the woods and no one helps him, is that bullish for trophy stores?

rocker's picture

   I like to look at what the talking heads are thinking and selling. Oppenheimer's Carter Worth told us a few weeks ago that the S&P would not fall below 1270 because it is a long term support line. He pulled out his pocket square as they called it. Now he says we have seen the highs and lows of the year. Is he wrong again. I don't know. I do know this. The volatility has been so high I have no interest in buying stocks. McConnel and FED official Fisher both seem to want the market to go down. Fisher said the FED has no business in propping up stocks. McConnel will do anything that takes Bambi out, including crashing the markets and USA, USA, USA. Whoops. Nobody is cheering for USA anymore. We constantly hear the drum beat of how SS in bankrupt, there is no future for the USA and nobody will support any kind of jobs bill. The reality is America IS rolling over. We are entering the second leg of the Great Recession. Stock markets do not go up when economies contract. Anybody look at India and Germany lately. These were suppose to be improving stars. LOL on that. Doug Kass told us to buy Japan a few months ago, it rolled over since then. Now Doug Kass told us to buy financials a few days back for the pop because the lows are in. Wrong again Doug. Just like you were when you called a top in Gold at $1600. Doug is always wrong, must be the company he keeps. Can you say Cramer, who has also been wrong pumping blow up stocks every week for a month. The banks are lying about their balance sheets: think BAC. The reality is the market is looking more and more like a PONZI SCAM that would make Bernie proud. Maybe that's where he got the idea to be a fraud.

Last thought, has anybody read about all the money leaving the markets from Mutual Funds and Hedge Funds. So this ask the basic question: inflation is too many dollars chasing few goods. More dollars than goods. Price goes up, hence inflation.  What happens when we have too many stocks chasing few dollars, hence deflation. Price should go down.   Right !?!    Just something that makes me go HMMMM 

IMA5U's picture

the market went up this week and the rally has more legs


it is also month end.  funds will mark up their positions