Weekly Bull/Bear Recap: July 25-29, 2011

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Submitted by Rational Capitalist Speculator

Weekly Bull/Bear Recap: July 25-29, 2011

Bull

+ Jobless Claims fall more than expected as companies can’t lay off any further.  They are lean and posed to hire in the second half of the year as the global economy rebounds. 

+ Emerging market economies will act as an ongoing support to the bull market as earnings growth is increasingly focused on the development of the new global consumer.  Plenty of companies have pointed to growth in Asia as the impetus for their out-performance.

+ Another sign emerges pointing to the transitory nature of the current soft-patch as the Dallas Fed Manufacturing Index notches a reading of -2 vs. -17.5 the month prior.  New Orders vroomed back to +16 from +6.4.  Need another?  Check out the latest “Truck Tonnage Report” from the American Trucking Association.  This all important barometer of the US recovery shows that manufacturing remains moving forward.  

+ Credit is loosening.  The Federal Reserve Bank of St. Louis just reported a spike in commercial bank credit issuance for the week ending 7/13.   

+ The Case-Schiller Index shows a stabilization in home prices.  This will help consumer sentiment.  Furthermore, here’s an interesting economic indicator, which portrays increased home-buyer interest.  From the looks of Pending Home Sales, buyer activity is increasing.   

+ The US economy may be slowing, but it’s not headed into another recession.  The ECRI leading indicator has stabilized at a growth rate of 2.0% for the week ending 7/22/11, from a reading of 1.6% the prior week.

Bear

- The Chicago Fed National Activity Index (CFNAI) points to continued economic weakness as its 3 month average moved from -0.31 to -0.6 in June.  It is now only a smigen away from the important -0.7 reading.  “When the CFNAI-MA3 value moves below –0.70 following a period of economic expansion, there is an increasing likelihood that a recession has begun.”

- The CFNAI reading is also supported by the Q2 GDP report which showed a US economy perilously close to contraction, coming in at 1.3% (below estimates of 1.6%).  Q1 was revised down to a gain of only 0.4% from 1.3%.  The economy is extremely vulnerable right now.  Any exogenous shock (US default anyone?  or maybe the Eurozone again?) could tip it into recession.  ”Leading Economists”, making $100K x ?, are wrong again.  Why can’t they simply look at consumer confidence indicators, which have been falling most of the year?  It’s Main Street who really drives economic growth, not Wall Street.  

-  Santander gives investors the jitters as it reports much larger than expected protection insurance to be paid, denting profits.  Should Spanish financial conditions continue to worsen, the bailout package may not be enough to calm investor’s nerves.  Take a look at Spain’s 10-yr yield; it’s barely budged since the Eurozone bailout package was announced.  Same goes for Italy.  

- Durable Goods Orders disappoint with an “unexpected” decline of more than 2% in June.  What was the beacon of the US recovery looks to be stalling.  With consumer spending still weak, a fall in factory activity would further weaken an already very vulnerable economy.  The bulls should be praying for no exogenous shock as it would most certainly tip the apple cart.  

- The housing recovery talk is completely uncalled for.  Mortgage applications fall 3.8% and marks the 3rd consecutive fall for this leading indicator.  High joblessness will keep demand muted for the foreseeable future.  Meanwhile, you have New Home Sales posting an “unexpected” miss.