Weekly Bull/Bear Recap: December 19-23, 2011

Tyler Durden's picture

Submitted by Rodrigo Serrano Of Rational Capitalist Speculator

Weekly Bull/Bear Recap: X-Mas ‘11 Edition


++ U.S. data continues to show an economy that’s weathering a turbulent global economy much better than the bears could have  anticipated:

  • The Dow Theory has flagged a buy signal.  Both the Dow and Trannie indices  notch new highs.  This price action corroborates underlying U.S. economic strength.  The equity bull market is set to continue. 
  • The Conference Board’s Leading Indicator surpasses the consensus estimate of 0.3%, rising 0.5%.  “The LEI is pointing to continued growth this winter, possibly even gaining a little momentum by spring,” Conference Board economist Ken Goldstein said.
  • The downward trend in Jobless claims has driven a stake right through the heart of the “U.S. recession” thesis.  Jobless claims fall to the lowest since April 2008.
  • Michigan Consumer Sentiment surprises to the upside with a final reading of 69.9 from 64.1 in November and represents a 6-month high.  Consumer psyche is healing as the economy improves.
  • The housing market continues on its steady recovery with the NAHB Housing Index producing its best reading since 2008.   Housing Starts surge well ahead of expectations.  Even better, rising permits point to more building in the months ahead (i.e. jobs will be created).  Typically the housing market has led recoveries in times past.  Homebuilder stocks are near 5-month highs.    
  • The Architectural Billings Index is back in positive territory.  Expectations are clearly displaying a bottoming construction sector (look at the divergence between current conditions and expectations).  It’s nowhere but up from here.  This important sector will finally contribute to economic growth.

++  European economic data points to stabilization. Even stabilizing data, along with renewed and unprecedented efforts to steady the banking system, will result in renewed confidence and rallying markets.    


-  European economic data foretells more social and political pressures on the horizon.  Spanish Industrial Orders disappoint with a meager gain of 0.9% for December versus consensus expectations of 4.0%.  Italian 4th quarter GDP signals the start of the country’s 5th recession in the past 10 years (consumer confidence plunges to 1996 levels).  France is likely in recession as well.  Greek bailout talks are about to collapse as Vega threatens to sue.      

- The S&P 500 is nearing its late October highs, yet there are clear red flags in regards to the rally’s health.  The complacency is palpable.  The VIX has plunged to 20, a far cry from “blood on the streets” that sustains any significant rally.  Meanwhile, 10-yr U.S. Treasury yields are nowhere near challenging their late October highs.  Ditto for copper.  These stark differences are bearish divergences.  Italian 10-yr yields are back above the 7% level (yields for Greece and Portugal are hugging their respective high marks as well).  Banks are using their “newfound wealth” to stash more cash with the ECB, not buy crap government debt as the bulls had hoped.  Nothing fundamentally has changed in the Eurozone or China.  

- Recent economic data exemplifies the pervasive weakness slowly infecting the global economy.  Unrest continues in China and is likely to grow amidst weakening export growth and a popping housing bubble.  November Japanese exports fall 4.5% YoY.  

— The Bulls are getting carried away with the decoupling theory:  
  • 3rd quarter U.S. GDP has now been revised lower by 25%, plunging from an initial reading of 2.46% to 1.81%.  This adjustment was largely due to a sharp downward revision in annualized consumer services consumption and cautious inventory management.  Real per-capita disposable income is imploding @ an -1.9% annualized rate and will seriously impede the longer-term prospects of any recovery…  
  • November PCE: Personal Spending in November rose just 0.1%, while the all-important wage component fell 0.1%.  The Savings Rate fell 0.1% to 3.5%, the lowest since the onset of recession in 2007.  Consumption growth will not be sustainable without a significant improvement in the employment situation.   
  • The Chicago Fed National Activity Index (CFNAI) disappoints with a reading of -0.37 from -0.11.  The decrease is led by a sharp decrease in production-related indicators (i.e. Industrial Production/Manufacturing).  
  • The Aruoba-Diebold-Scotti Business Conditions Index doesn’t show a decoupling U.S. economy; instead it shows one that is simply muddling through and vulnerable to an exogenous shock, such as an Eurozone implosion or a Chinese hard-landing.   

- Iran announces plans to conduct a 10-day naval exercise at the Straits of Hormuz, feasibly impeding oil freight traffic.  The game of cat-and-mouse has the potential to upend the global recovery if it spirals out of control.  Relations between Israel and Turkey take a turn for the worse after Israel cancels a large military contract.   

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prains's picture

Big oil wants war but needs hungry unemployed serfs who are well motivated by no future prospects, oil prices will continue to climb for no apparent reason

disabledvet's picture

When the first Gulf War actually broke out oil prices plunged. Also oil prices were at there lowest in post World War II history when Iran and Iraq found the longest war between two nations in post World War II history. If "this history" repeats itself, albeit on a far larger scale (since it would include the entirety of the Middle East this time) then one could argue upon the actual outbreak of..."real hostilities"...oil prices would plunge.

prains's picture

Correct but it's the outbreak of war that is sought after by price control,once it's started mission accomplished

ThrivingAdmistCollapse's picture

But war cannot really be allowed because a global conflict would necessarily cause a global economic collapse.

Sean7k's picture

Seems the Bulls use confidence indexes and the bears use actual production numbers. Which one is manipulated for mass consumption? 

The recent LTRO fiasco, central bank interference in gold and silver markets, England doing a handsoff with the EU? 

You can't make money from finance only. Real wealth is a factor of the production of goods and services people WANT. You can only drain or transfer wealth through finance. Once that wealth is gone or diminished? You have what we have now.

disabledvet's picture

That's a darn good way of puttin' it and a darn good bunch of questions as well. I would argue "anything can be manipulated" when we're talking "mass consumption in the media business"...and indeed when we're talking statistics they are manipulated to begin with since all statistics start with a point of view. England obviously isn't doing a "hands off" with the EU as that's where the bulk of their wealth is tied up. And for "the Big Kahuna" what do we indeed have now? You have inferred a great question: "what goods and services do we want?" That one i know i can answer: "let me give it to you and i guarantee you will want it." That is our nation's entire history of capitalism: production comes first. That's why there's such a focus by the Wall Street Pros on inventories: the USA doesn't do lean manufacturing cuz "the USA's got money and they'll buy the widget" and so we know growth is on the way because inventories are rising...and sales will follow. It's "Risky Business" of course. By the way we (used to) have very liberal bankruptcy laws in this country. In fact if you went back to Great Depression i'd bet you'd find consumption patterns were vastly superior to our current predicament. In effect "there was no Federal Government then" so if you had the money you buy whatever you wanted...or better yet "save because there was a lot of cool stuff that was going to be made and available to all." Now...the USA simply consumes...and is sadly "consumed by"...the media. The irony of our time is that Wall Street is for all intents and purposes completely bankrupt...and yet bankruptcy laws have never been tighter. I'd be loosening those laws up IMMEDIATELY...to "clear the decks" as it were of all the money that's "just sitting there doing nothing." I still don't think any of the major money center banks...save for perhaps HSBC...are going to survive this collapse. They certainly won't survive it in their current form. Moving forward "capitalists go where the money is being borrowed AND spent." THAT is the meaning of the term "confidence."

Schmuck Raker's picture

Excellent comment Sean.

As to "Which one is manipulated for mass consumption?" My assumption is both are manipulated, witness the restatement from NAR. If correct it lends even more credence to the Bear argument.

ucsbcanuck's picture

Any kind of manipulation is more likely to favour the bull rather than the bear argument. No one's going to manipulate in favour of the bear argument, unless they be a ZH guerilla LOL!

disabledvet's picture

Good recap. We're not in a Depression...but it has never felt like a recovery either. Where will the excitement come going forward? Insofar as production goes i really don't see much of anything. The internet was suppose to be "it"...the great profit machine which would generate sales and income booms accross all societal stratas. it's been a total bust...mainly because no one thought to include "the government" in its commercial roll out. So now who's running the thing? The Army amazingly enough! As a former Army guy I must say id didn't see that one coming. Anywho what SHOULD have happened...and indeed what NEEDS to happen is our hapless "Political Class" need to take a trip down to the Patent Office and start figuring out how to protect each American's..."mind share." It's sounds crazy but what this country needs...indeed every country in the world needs now more than ever...is a Patent Police...such that our thoughts can remain "right where they originate"...namely "inside our head" and not...as they are now..."strewn about the internet super highway waiting to picked up by the passing e-vulture and turned into a trillion dollar conglomerate." Just a thought of course. You should read my thoughts on what it means to have Special Operations command in charge of your mind!

Snakeeyes's picture

Look at the durable and non-durable employment since 1938. Then look at the excitement over last weeks initial job claims. Add the two together.

Jobless Claims and General Employment Trends – The Bigger Picture


chyros's picture

The bull points were so good I skipped the bear stuff, sold my gold, and having a bangup chrissy.