Weekly Bull/Bear Recap: October 17-21, 2011

Tyler Durden's picture

Submitted by Rodrigo Serrano of Rational Capitalist Speculator

Weekly Bull/Bear Recap: October 17-21, 2011


+ So far for the reporting season, 63.7% of S&P 500 companies have beaten consensus earnings per share estimates, which is stronger than the past 2 quarters.  Meanwhile, revenue per share has come in line with average beat rates.  This earnings season has been been positive for equity markets.  They have just broken through the top end of the roughly 3 month range.  

+ The Beige Book paints the picture of a stabilized economy after the summer slowdown.  The economy has leveled out even after all the exogenous shocks it took on: the Japanese earthquake, higher gas prices, a stock market crash, and Eurozone worries.  Once Europe gets its house in order, the economy will reaccelerate and confound the bears.  This thesis is clearly on display with the latest Conference Board Leading Indicators report, which published a positive reading of +0.2%.  Meanwhile, the 4-week average of jobless claims falls to the lowest level since April and the Gallup Poll reports that unemployment has plunged.   We’re not in recession, only a soft-patch. Here’s some more evidence…      

+ …Industrial production for September rises 0.2% and is line with projections.  Manufacturing isn’t falling out of bed, in fact, the soft-patch is ending as the Philly Fed Index surges from -17.5 to +8.7 in October (annihilating expectations of -9.4). Both New Orders and Backlogs swing into positive territory, while expectations improve from 21.4 to 27.2.  

+ It’s not only in manufacturing where we see increasing activity.  The housing market is generating more bustle as the Buildfax Residential Remodeling Index hits a new all-time high.  Housing starts rocket 15%, while the Home Builder Sentiment Index for October rises a much higher than expected 4 points.  While the break-even is 50, it shows that the housing market is healing.  It’s a step in the right direction and is good news for the sector primarily responsible for our economy’s large challenges.  Furthermore policymakers are doing their part to increase demand.  The sector is moving forward.    

+  More countries, such as the BRICS, are stating that they are willing to support the Eurozone via capital injections with the IMF.  Global leaders are realizing the gravity of the situation and are uniting to put forth the proper prescriptions to address the issues.  The path towards a solution just got easier as Fitch states that an expansion of the EFSF wouldn’t put France’s AAA rating in jeopardy.  Furthermore, Spain posted an unexpected rise in industrial production orders after an encouraging industrial production number 2 weeks ago.  The country will not enter recession, which will result in an improved fiscal situation.  Notice how Spain’s 10-yr yield has been inconspicuously absent from the latest run up in yields.  The Eurozone will achieve a solution, just when most in the investment community aren’t expecting such an outcome.  This will lead to a powerful rally as bearishness remains elevated.     

+ Consumer price inflation is beginning to subside and will give the Fed more wiggle room to renew QE in order to support the recovery in the near future.  The Fed will have the market and economy’s back soon.  The bears are frustrated that even without QE, the economy has been growing and the market has been supported.  

+ As the global economic restructuring continues, we are starting to see its benefits.  The Chinese are working to expand their consumer economy.  With sky-high savings rate and further development, we will have end-demand from that country for decades.  Their economy is on sound footing.  As wages begin to equalize between China and the U.S., more companies are “re-shoring” back to America.  This migration back to the U.S. will result in a wave of investment and job creation.  The best part is that this restructuring is taking place without a slowdown in global trade!  

+  In what will surely help oil supply issues with Libya, reports proclaim Gaddafi has been fatally injured.  Libya is finally liberated and will result in a speedy recovery of its people as well as oil production.  Oil prices will further decline sending Gas prices, which have dropped 13% since peaking in May, lower and help consumer spending.  


- Sure Bulls, the economy is getting better because surveys and metrics are increasing.  Sure….now open your eyes and see the bigger picture; see reality.  The Occupy Wall Street protests have metastasized throughout the world.  The more bailout packages are implemented, the more ardent and violent the remonstrances will become.  The end of the road for the infamous policy of bailouts is at hand.  Banksters nor the Fed are helping their case.  It has become politically (not to mention morally) unacceptable for investors and the wealthy to get bailed out at the expense of billions of taxpayers and the poor.  

- It’s funny how the bulls/vacuum tubes keep getting fooled by European officials.  Merkel says that “dreams” of this package solving all the Eurozone’s problems are misplaced, while a second summit is scheduled for Wednesday.  Meanwhile, the negative omens are becoming hard to ignore (but they still are!):  Greece is dangerously close to descending into anarchy.  Utility of the EFSF changes every couple of hours not to mention the amount of guarantees.  Words of warning for France, this time from both Moody’s and S&P.  A cut in the country’s 2012 growth forecast won’t help matters.  Moody’s wasn’t as nice to Spain, cutting their rating on Spanish “Bonos” citing falling growth and a budding banking crisis.  S&P was even meaner to Italian banks (24 got the ax).  Germany axes 2012 growth forecasts, while Greece is making it hard to justify throwing good money after bad.  Officials in the region ban CDS outright; here’s the beginning result of that great idea.  Next up, a banning of ratings of sovereign debt from rating agencies (Period)  Europe is on the precipice.  Will next week be “Black Week”?           

- Manufacturing data is still showing a faltering recovery.  The Empire Manufacturing index for October shows a larger than expected contraction in the NY area.  Looking ahead 6 months, expectations are dimming as well.

- On the global economy front (sans-Europe), the Chinese are ticked with the U.S. Senate after they passed currency legislation to further pressure them to allow the Yuan to appreciate.  Beijing and Washington are playing a dangerous game of chicken in what could be a plunge into protectionism, which would absolutely be disastrous for the global economy.  Brazil lowers its key interest rate less than 2 months after the last cut (so the global economy is recovering eh?).  The UK economy is slowing down, while prices continue to rise (stagflation).   

- China’s GDP growth falls to the lowest since the dark days of 2009 and underperforms expectations.  Bulls say that the performance is good and the market is overreacting.  The signs of a poor and deteriorating banking system, a property market slowdown, high inflation, and a weakening export sector (the reason why the Yuan doesn’t appreciate faster) have not deterred their view.  Meanwhile, copper sinks more than 5% for the week.  The Shanghai Index hits lows last seen since…(drum roll)…..March ‘09.  The bulls are frogs in 95 degree Celsius water and getting hotter.  Many still believe that their economy will withstand a Europe shock and result in a soft-landing.  Few expect China to wither.  This is exactly the environment that leads to market downdrafts. 

- Bullish hopium for a housing comeback is premature.  ”The seasonally adjusted Purchase Index decreased 8.8% from one week earlier and is at the lowest level in the survey since December 1996”.  Remember “Foreclosure-gate”?  Ready for a possible comeback?  Existing Home Sales keep scraping the bottom.  Positive seasonal effects on housing prices have come to an end.  On the commercial side, the Architecture Billings Index declined in September and is back in contraction.  ”It appears the conditions seen last month were more of an aberration.”     

- PPI runs hotter than expected, coming in with a headline reading of 6.9% YoY in September.  When paired with an increase in import prices of +13.4%, inflation at the the producer and importer level will buoy the CPI, or decimate company margins if consumer’s wages can’t keep up.  Many bulls viewed the tamer CPI readings as a signal for more wiggle room for QE3.  Sure, go ahead bulls, let’s break that 23-yr high in the Misery Index.  We are one QE away from stagflation.  

- 11 consecutive declines in the ECRI.  ’nough said.


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slewie the pi-rat's picture

+  More countries, such as the BRICS, are stating that they are willing to support the Eurozone via capital injections with the IMF.  Global leaders are realizing the gravity of the situation and are uniting to put forth the proper prescriptions to address the issues.

this is a plus!  hahahaha!  how great is that? 

bbq on whitehouse lawn's picture

Great, if you dont mind loseing your sovernty (that you never had) in the process.


DeadFred's picture

This is a bullish translation for "Global leaders were too retarded to see the problem until the first bank failed, but now they are milling around planning for a plan" Yes, very bullish.

DeadFred's picture

We all know who win the bull/bear contest medium term, but what is the TIMING!!

FinHits's picture

"+  More countries, such as the BRICS, are stating that they are willing to support the Eurozone via capital injections with the IMF."

I live in an Eurozone country, and I would very much like my country would support Eurozone *only* via capital injections with the IMF!

Hey, let's go all in through an IMF-sponsored open-ended mutual fund, with 100% guaranteed recovery track record and extortation level interest. Can I put €1000 in, please! Is the entry and exit fee only 1%?

What would the marketing name be? Irresistable Mutual Fun(d)?

melanie's picture

You might be interesting in this article: http://www.economonitor.com/blog/2011/09/emerging-markets-to-the-rescue/

"Emerging Markets to the Rescue?"

FinHits's picture

Thanks. Nobody can rescue anybody else, everybody needs to focus on rescuing themselves.

melanie's picture

Hello, I'm new here and got a question regarding the ESFS rescue fund.

Soon Belgium Belgium will most likely be downgraded due to the Dexia debacle. In the current ESFS rescue fund of 450 B Euro, Belgium covers 24.5 B Euro. Now imagine this ESFS rescue fund becomes 2 T euro (= multiplied by 4), this means that Belgium should cover 4 x 24,5 B euro. However Belgium cannot cover that, so this will most likely lead to another downgrade of Belgium.

In that case is it correct to say that a 4xESFS fund can only be done if the bigger EZ countries take a >4x share in it?

FinHits's picture

No, the only ones off the hook of EFSF are now Greece, Ireland and Portugal, as they receive money from EFSF (or in the case of Greece from Bailout 1 of €110 billion).

One can only escape the liabilities from joint and several 165% cross-enhaced guarantees (effective €726 billion, reducing the recipient share from €780 billion) by becoming a recipient of money, but all the commitments given by EFSF until that point remain in the country's back. Belgium's downgrade won't let it off the hook. However, the rating agencies don't care about it too much even now, since it is below the AAA country pack which really give EFSF bonds their AAA rating (currently totalling about €450 billion, but that includes France...)

The 4x leverage may not hit Belgium either fully, because it would probably be done by giving 25% first lost guarantee to €2 billion of new issue PIIGS bonds. Now, of course the risk of the EFSF fund would just increase greatly, so it would be very likely the guarantee capital would be actually called. In "25% bond insurance model", when those bonds were to be haircutted by 25% in insolvenvy of e.g. Italy, those insured bondholders, if they feel evil, could decide to ask Belgium for up to €24.5 billion of loss recovery for their face value (plus unlimited interest). More likely they would ask it first from some a bit more liquid AAA country (Netherlands? Finland? Germany?)

It all sucks. Belgium is anyway on a hook for more than €24.5 billion, since you also guarantee all outstanding interest coupons, so probably you have given €30 billion guarantee out even with current EFSF 2.0. The fact you are below AAA countries helps, but you are still jointly and severally in this devilmachine.

FinHits's picture

Afterthought: Belgium might want to flip to recipient side from the donor side. Could work better that way: cheap money aplenty, no guaranteeing others.

Downside: IMF is on your case.

J 457's picture

Only solution = massive defaults by all PIIGS.  Banks nationalized, common shareholders wiped out, govt/ECB backstops depositors, bondholders take hit of 30-50% up front and agree to roll into longer maturities. Anything else will not work.  Cannot fix this debt problem with more leveridge and more debt.  Next stop USA, need to break apart BAC, WFC, JPM, C.  Glass-Steagall reinstated.  GS, MS are not commercial banks, change them back to investment banks and stop the nearly free FED (taxpayer) loans to this group.  CFTC limit future contracts to drop price of commodities so FED can one last time juice the economy in Nov/Dec with QE3 as election campaigns heat up in Jan 2012.   

slewie the pi-rat's picture

welcome, melan_e!

i would say:  maybe

but, "they" haven't decided what this is gonna be.  the ESFS is now morphing into its future self as the banksters bich-slap their puppets into in getting behind this bullshit, "before it threatens the global economy"  

again; this is a howl!

one guy, here, seems to be ready for mark-to-market (M2M): 

October 21  - Reuters:  “Ever larger euro zone rescue packages risk causing more damage than the crisis they are trying to extinguish, European Central Bank policymaker Juergen Stark said on Friday ahead of a weekend summit aimed at tackling the bloc's debt crisis.  ‘The financing that is provided is just to buy time, but to buy time to what end? (With) ever larger packages, there is a risk that water damage is much larger than damage done by the fire,’ he told a conference…” (from d.noland@PrudentBear)

the "global economy"?  this bull-bear report talks abt the brics; it strikes me that brics want the same thing as the G20, as they were meeting in europe last weekend and cheerleading that the "EU leadership will fix everything!  yay!"

here is some scuttlebiutt on the possibly general situ of the "G20-type nations": 

October 21 – Bloomberg (Michael Patterson and Selcuk Gokoluk):  “Companies in emerging markets have record amounts of international debt coming due just as financing costs rise to a 16-month high and their currencies sink the most since 2008.  Businesses in the 10 biggest developing economies have at least $54 billion of foreign-currency bonds maturing in the next 12 months, the most since Bloomberg began compiling the data in 1999. The market for new international debt issues dried up after emerging-nation currencies tumbled 11 percent from this year’s high…”  (same source;  emphases mine in both)

Thomas.2012's picture

Why bother ?

Either 24.5 billion euros or 100.0 billion euros are actually a piece of cake.

Belgium, like many others, is broken like a chicken after the transition into a famous McD Chicken Nugget.


"For starters, Dexia had 566 billion euros in debt and 19 billion euros in equity as of the end of 2010. Right off the bat, that’s a leverage ratio of 29 to 1. Lehman Brothers was leveraged at 30 to 1 when it collapsed.


Now consider that Belgium’s entire GDP is just 348 billion euros. Dexia has 566 billion euros in assets. Of this 352 billion are loans. Put another way, Dexia’s loan portfolio alone is larger than its home country’s entire economy."

Jeronimo's picture

Classic 'extend and pretend' with only greater losses to come as a consequence.  At what point do we come to realize that the only way forward is to backup and except the consequences of extend and pretend NOW?

disabledvet's picture

There's a "new housing market" being created in the form of apartment REITS. One bubble begets another as per government dictat. Also if I'm a believer in zero coupon bonds how does that jibe with your market thesis? I say it doesn't at all. In other words you aren't "drilling down" on the particulars of the Internet revolution and its kissin' cousin the natural gas space. These are raging bull markets that sport enormous p/e's and outrageous growth prospects--and simply torpedo any of those who keep claiming (the President comes to mind) that we are in a Depression. This is not to argue massive social unrest isn't possible. Torpedo America's Basic Law at your peril.

RobotTrader's picture


I'm going to re-summarize my earlier recap.

All eyes will be on the Euro next week, the lead sled dog of the "Risk On" trade.

Notice that during last week's brief pullback, the NY Composite pulled right back to the 21-day EMA twice and held.

And, we closed at new highs for the move on Friday.


QQQ is still outperforming SPY:


If the short interest is as high as Tyler says it is, then if the EUR gets another huge squeeze, that is going to send all Risk Assets of every type, race, color, sex, and ethnic origin up on another big ramp.

Afterwards, the "Pattern Recognition" Algos will recognize this as one huge, giant, shakeout and everyone will have to switch from short to long.

Who knows how high we could go after that.

And it is no accident that something like this could happen immediately after:

1) Dire forecasts on the Eurozone week in, week out.

2) Maniacal panic selling every day for 38 days, evidenced by huge negative TICK readings


3) 2-year high 21-day Put/Call ratio


4) Every Riverboat Gambler trying to make a fortune buying VXX, TZA, FAZ, etc.

5) European and Asian stocks driven down so far, the dividend yield on EFA is now 4.3%!

6) The entire financial sector left for dead on fears of 2008 all over again.

7) Shipping, Solar, and Precious Metals sectors sitting at multi-year lows, also left for dead, with the GDX/GLD ratio sitting at 2011 lows.

8) Shanghai won't go down forever, and the Chinese Plutocrats are likely to surprise the world with some unexpected measure.  Why did copper completely reverse most of its losses the other day?  After holding the low twice?


Anyone who has any doubt about how fast the market can come back, just pull up a recent chart of TRV and CB, and see what has happened to the insurance company stocks.


Oh, by the way, to all the "Robotroll" bashers, I will clarify my trading position:

I sold out all my stocks on the day the CRB index broke down on August 4th.

I bottom picked a basket of stocks the day after that 600 point down day, and I got shanked out of all of them at a loss when the SPY broke to new lows in October, thinking that we could retest the 2009 lows.

But after the v-bottom reversal on the Dexia news, I bought a bunch of stuff back and I'm still holding them, looking to add on further market strength if the market continues its gains.

Like 90% of the intermediate term traders, I was pretty much shanked out of many long term holds I had from 2009, and it happened at the exact worst possible time when I needed to raise cash anyway to pay my taxes on October 15.

But I'm quick on my feet and I re-entered a lot of positions shortly thereafter, and I'm ready for anything, up or down.

Oh, by the way, I rarely trade the mo-mo stocks on the IBD Top 50, unless they are S & P 500 stocks.  I only comment on them to gauge overall market conditions.

Good luck trading for everyone, next week will tell a lot.

DeadFred's picture

But will the S&P 200dma hold? I don't see anything except the landing of one of those many nasty black swans will keep the algos from taking this to the 200 fairly quickly, but that will be heavy resistance, neh?

disabledvet's picture

You're fighting a regime he'll bent on bubble reinflation...fight at your peril. The "trade of the century" happened in the treasury market. Those who will were long going into what seems to be the most literally declared "inflation program" in history have made a fortune...and a statement to boot: just cuz the Ministers of Doom demand it doesn't mean they get it. Slit the throats of the Chicago Way and it's off to the races. "pay to play" when you never had a dime to begin with just says you're gonna leave with even less.

Kayman's picture


Yesterday's fresh pile of shit is today's old pile of shit.  It is still shit.

All the big banks are insolvent with balance sheets supported by smoke and mirrors.  Liquidity is provided by the Fed and other CB's.

Good luck trading on Hopium.  The world economy relies entirely on printing money.

Consumption without working, and printing as a substitute for saving may be slow acting poisons, but they are poisons.

One glass of water might slake your thirst, but if I poured a barrel of water down your throat, there could be other consequences.

disabledvet's picture

That's 11 billion dollars of "shit" called Groupon. Call it Poop-on if you wish but it's still a ton of money no matter the smell. LET IT GO!

SixFeetFromTheHedge's picture

Thanks for your tips, I will do exactly the opposite of what you're doing :)

stockoptimistic's picture

Ok two pluses dont make sense to me:

+ Consumer price inflation is beginning to subside and will give the Fed more wiggle room to renew QE in order to support the recovery in the near future.  The Fed will have the market and economy’s back soon.  The bears are frustrated that even without QE, the economy has been growing and the market has been supported.  

How is that a plus? More QE = bad economy, isnt?

+ As the global economic restructuring continues, we are starting to see its benefits.  The Chinese are working to expand their consumer economy.  With sky-high savings rate and further development, we will have end-demand from that country for decades.  Their economy is on sound footing.  As wages begin to equalize between China and the U.S., more companies are “re-shoring” back to America.  This migration back to the U.S. will result in a wave of investment and job creation.  The best part is that this restructuring is taking place without a slowdown in global trade!

This one is funny. It will take years for the reshoring to happen - wages begining to equalize is even funnier.

RobotTrader's picture

3 stocks worth looking at next week:


Big volume, signs institutional accumulation.


Don't even bother looking at SCSS, totally missed that one.  Never figured that mattresses would be the next bubble....


Caviar Emptor's picture

I love the cartoon-simplified view of financial markets that helps MSM and TPTB stay in denial: 

-"The score today: Bulls 1, Bears 0...." This view assumes that people make an irrevocable, life-long decision at some point in their lives: I'm a bull, I'm a bear. And never pay any attention to buying/selling, supply/demand, or any other form of reality that contradicts their world view. makes you wonder why anyone would ever sell anything at all except to pay for their own funeral expenses. 

Perhaps they got it half right: up until OWS nothing could really contradict the world view that the emperor's new clothes were rich no matter how bad things were going. 


PulauHantu29's picture

"Always a good time to buy a house" is what I read here. No mention of the massive deflationary death spiral, cultural chaos gloibally, and the fact when China sneezes, Australia will cough big time.

GL! to these "Better then expected" veiwpoints.

J 457's picture

Low rates are favorable to buy a home, but least not forget there are still 6mm homes in distress, same as in 2009.  Problem is not getting better, at best it is stagnating.  Price depreciation is enemy #1 in housing and until USA gets JOBS and unemployment under control the foreclosures will continue.  Refi's wont matter in all this because the only people who would want to refi are underwater in negative equity and can't money-up enough to drop loan to value to quality for a loan.

Schmuck Raker's picture

Gallup f*ing polls?

Now we're using Gallup polls for economic data points?

You must be f*ing joking!

UP Forester's picture

I like the way they state Gaddafi/Khadafy/Qaddafi was "fatally injured."  I guess that's more bullish than shot in the guts and the head, and died of lead poisoning.

Grand Supercycle's picture

SP500 weekly chart shows megaphone wedge and looks bullish.

Market consensus became clearer on Friday so back to the original bullish analysis and SP500 weekly chart reverts to bullish/neutral.

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