Weekly Bull/Bear Recap: September 12-16, 2011

Tyler Durden's picture

Submitted by Rodrigo Serrano of Rational Capitalist Speculator

Wow!  What a week!  Volatility continues to grip financial markets and cause angst among both bulls and bears, a nasty meat-grinder of a market.  This week goes to the Bulls. 

Obviously most of the volatility this week, as has been the case for the past few, has dealt with what's going on in Europe.  News that the BRICS countries may step in along with the IMF to fund a buyout of Greek bonds has demonstrated extraordinary political-will from the most unlikely of places.  While a positive resolution with this plan may provide for further relief for financial markets (we rally further), a structural solution such as a fiscal union/Eurobonds remains obscure.  In order to confidently be "exiting the woods", we need to see a structural solution in my opinion.  Otherwise, periphery nations will remain subject to further austerity measures and sink into what is clearly a debt-trap (as I've feared for a while); deficit-reduction would result in further depressionary conditions and "less-than-expected" revenue for government coffers.
In my view, buying time only serves to worsen the situation.  As the crisis has progressed, opposition towards a fiscal union has only increased.  Had the proposition to form a fiscal union been put forward in 2010, when the crisis first presented itself, perhaps the odds of such a daring plan being adopted would have been better.  Instead a band-aid approach was taken and the situation festered.  A worsening economic backdrop and still no solution to the crisis is opening a "Pandora's-Box" of nationalism.  Delaying a solution further allows  more time for public sentiment to cross an "event-horizon" of sorts into to full nationalism, resulting in the ultimate rejection in the idea of a United States of Europe.  The signs of this occurring are palatable.                  

I remain puzzled as to why much hype was made on the news that European Commission President Jose Manuel Barroso would be presenting a Eurobond construct in the coming days.  Yes, the advent of Eurobonds would herald the much desired structural solution for the Eurozone, yet we just had the German Constitutional Court rule that Eurobonds were illegal.  Investors (or perhaps the robots) seem to have forgotten what took place only a week ago.  Furthermore, Merkel made clear this week, as she has the prior 4, that Germany is absolutely against Eurobonds.  Who cares if a plan is being presented, as long as Germany isn't on board, we're back to square one.  A drastic change of heart from Germany would need to take place in order for this plan to succeed.  I don't see it happening as of now.

Finally, I remain quite wary of a positive resolution in the Eurozone due to my experience here at home.  How can we expect 17 Eurozone governments to get on the same page and pass daring reforms if our own legislature failed to step up to the plate when it mattered most?  Granted, Congress passed the reform after markets crashed.  But my point is that if it was that difficult here, in the United States of America, it can only be more difficult in a region of 17 countries, not states.

On the bright side, talk of the EFSF being used as a Euro TARP, shows that officials are finally thinking ahead as they attempt to ring-fence a Greek default.  If they are successful and contagion is averted (Spanish and Italian bond yields don't spike), it would certainly be bullish.  China has continued to post impressive trade numbers and has navigated this latest round of turmoil remarkably well.  China's continued growth remains a mighty arrow in the bull's quiver.  If Eurozone contagion is averted, China may provide continued end-demand to keep the global recovery moving forward.

Curiously, while the Eurozone got all the attention this week, economic data at home was quite disappointing and went largely unnoticed.  It seems that investors (or robots?) can only focus on one issue at a time.  Forward indicators such as the ECRI and OECD point to a continued slowdown.  Manufacturing gauges signal further weakness and expectations of future economic activity fell to a 30+ year low in the latest Michigan Consumer Confidence survey.  The exogenous shock of plunging financial markets in August is permeating the economy.  Granted, industrial production was positive versus expectations of decline, but 1 positive economic number out of more than a dozen isn't very bullish in my opinion.  Will a resolution in the Eurozone come in time to turn the tide for the US economy?   

So, despite all the negative news, markets are hanging tough.  Why? I believe financial markets continue to have a "Moral Hazard" premium priced-in.  The idea that governments will step in to save the day remains entrenched in the minds' of investors.  There are signs, however, that this premium may soon be re-priced.  Indeed, this week's rally has left much to be desired.  Copper, nor the credit markets, have confirmed the move higher in equity markets.  Breadth has lagged as well.  These are signs that this latest rally isn't healthy.  Should government authorities fail to come through and Eurozone contagion takes hold, financial markets would begin to compress this premium.  A strong break of 1120 would signal that a re-pricing is ongoing.   Overall, the global economy is at a crossroads.  Until the Eurozone issues are structurally taken care of, I remain very cautious.  Capital preservation remains the name of the game.

Weekly Bull/Bear Recap


+ The Eurozone will survive this challenge.  Merkel and Sarkozy vow to keep Greece in the EU and not allow a ‘Lehman’-type event.  If there’s any default, it will be done in an orderly fashion.  Markets have already priced in one for Greece.  Once it happens, it will be bullish for risk-markets as a resolution to the matter would be reached.  Central Banks around the world have pledged to provide support for the European banking sector.     

+ BRICS nations are in talks with the “Institute for International Finance” to pool their resources and lend capital to Greece in order for them to buyback their own outstanding debt at rock bottom prices, thereby reducing their outstanding debt, and averting contagion.  This will help the Eurozone buy more time until the necessary structural reforms are put into place.  While the bond-buying won’t solve the structural issues (Europe needs to become a fiscal union), progress is being made on that front as well.  Taken together with Central Bank support, officals are beginning to think one-step ahead of the crisis.

+ China’s trade numbers prove that the country will continue to power the global recovery.  Surging imports signal that their economy remains resilient in the face of monetary tightening.  Even better, tightening is likely over as inflation measures peaked.  The economy is experiencing a soft-landing.

+ Asia’s Development Bank sees a soft-landing scenario in China and the region as private consumption has buoyed much of its growth.  This scenario, should it play out, would see the global economy avert a double-dip recession, resulting in an overall bullish outcome for equities.   

+ Consumer spending metrics have held in remarkably well and is a signal that consumption remains irrepressible despite all the gloom and doom.  Spending trends are different than consumer confidence.  As long as the consumer doesn’t fall out of bed, the U.S. economy will remain in expansion.  

+ Hard-data keeps pointing to a manufacturing sector that hasn’t fallen out of bed as proposed by the bears and some manufacturing surveys.  Industrial production for August rose 0.2%, the fourth monthly increase, contrary to contraction signals from Empire, and Philly Fed indexes for that same month.  Hard-data is what matters.     

+  The economy has managed to grow even while consumers continue the deleveraging process.  Consumers are slowly building a strong foundation by paying down their debts.  Once debt levels are sufficiently reduced, they will feel increased confidence in their financial situation and consume more as the job market improves.  


- Jobless Claims spike 11,000 to 428,000, the highest level in 2 months and bodes ill for the job market and the economy.  Manpower publishes a report that points to more of the same.  Strong growth figures won’t be coming as the economy remains at stall speed.  The economy’s condition is on display in the NFIB’s latest Small Business Optimism Index.  The job market remains extremely vulnerable to an exogenous shock.  

- Bank of America announces that up to 30,000 jobs are set to be eliminated over the next few years.  Wasn’t the market exaggerating about the poor health of Bank of America?  Why then did they accept Buffett’s money?  Why are they firing 30K workers?  Why are they openly discussing bankruptcy for Countrywide?  Where there’s smoke there’s likely to be fire.  Same goes for SocGen. (—I hold a short position in financials)

- Yes yes we all know housing sucks, but now there are reports that foreclosure activity is set to increase late 2011/early 2012.  An influx of properties in foreclosure will further place downward pressure on housing prices and inflict more damage to bank balance-sheets.

- The rich got hit where it hurts, investment markets.  Consumer confidence for this group deteriorated significantly last month according to the Gallup Poll.  Note that the wealthy are responsible for a significant portion of consumer spending growth, which underperformed in August relative to expectations.  In regards to the commoner, the situation is even grimmer.  Future expectations as per the University of Michigan consumer confidence survey fell to the lowest levels since….1980 (yes, that’s more than 30 years).     

- The global recovery continues to show signs of significant slowing.  Australian business confidence slumps to the lowest level since April 2009, while austerity plays havoc with Italy’s industrial output.  The OECD Composite Leading Indicators (CLIs) for July are pointing to a significant slowing in global growth.  China’s Shanghai Composite Index remains in a downtrend.  Finally, copper is hanging on key support levels by a thread and has not confirmed this latest equity market rally. — On the Eurozone front, pure pandemonium: the market wants Eurobonds yet Merkel is still not playing ball; Germany unexpectedly delays debate on the EFSF; Finland still demands collateral; Greece’s next tranche payment is unexpectedly delayed forcing them to tap an emergency fund.   The Eurozone turbulence is beginning to critically injure the global recovery.         

- The following months look to reflect more of the same for the manufacturing sector, a clear approach to stall speed.  The Ceridian-UCLA Pulse of Commerce, a leading indicator of manufacturing activity, declined for the 2 consecutive month.  Meanwhile, the Empire Manufacturing report, a survey of manufacturing conditions in the NY area, showed increased weakness.  Its employment sub-index fell into negative territory for the first time this year.  The Philly Fed Index has been in contraction for 3 consecutive months. 

- Inflation at the consumer level remains at uncomfortably high levels and will hinder the Fed’s ability to come to the aid of falling stock markets.  Core-CPI, the preferred measure for the Fed, rose to 2.0% YoY and discards deflation as a reason for continued monetary easing.  If QE gasoline, which caused increased risk appetite, is unable to be deployed, a key prop for the equity market will remain absent. 

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spiral_eyes's picture

"China’s trade numbers prove that the country will continue to power the global recovery.  Surging imports signal that their economy remains resilient in the face of monetary tightening.  Even better, tightening is likely over as inflation measures peaked.  The economy is experiencing a soft-landing."

China's trade numbers prove that the country is buying up the world (especially gold) for its own interests, more like.

TradingJoe's picture

Gotta love them cooked books, eh?

spiral_eyes's picture

What's getting cooked is the Western investors investing in bullshit enterprises like Sino-Forest. I won't get into an argument about the figures, cause that ain't the point.

The Second Cold War is over. The CPC won. The West's supply chain is controlled by a gang of authoritarian communist thugs and America can't do a thing about it 'til it accepts that Chinese labour costs are anti-competitive and they need to find a way to level the playing field.. Well played Richard Nixon. Well played Henry Kissinger. Well played George W. Bush. Well played Barack Obama. You all just lost the game (ahem).


anony's picture

Well said, but there are many more at fault and at the forefront you left out Goldman Sucks.

max2205's picture

PPT has done well again. Back to buying the dips. News flow will still be bad but looks like a trending up market after a nice 5% weekly gain last week. This shit ain't easy.

Georgesblog's picture

I'd rather have lasagna, because it always tastes better and it doesn't upset my stomach as much as worthless paper. 



TradingJoe's picture

Buckle up Folks, the ride ahead is well, how shell I put it, a vomit event! The Benster has nothing, Dumbama has nothing and so on and so forth! Which leaves U(s) where? Yes, Yes! IN THE DUMPSTER!

d00daa's picture

you still hanging short?

TradingJoe's picture

One clear and loud YES! But obviously with "hedged" puts only, better safe then sorry :)))!

Georgesblog's picture

The only action left in this poker game is to bend, fold, spindle and muyilate. That must be what all these wars are for.  Commerce is a war zone. I wrote about it in "War Under Heaven: The World At Commerce".



IQ 145's picture

Words fail me. But then t hey failed the author also. A strong break of 1120 would signify "something:---yess. I firmly believe any alert and oriented middle school student could tell you tthat after a five minute course in "price charts; what they mean". There's one tiny problem, how are you going to get back to 1120? The Author has opinions. Wow.

jdelano's picture

Does anybody honestly believe that you can build entire empty cities (ordos--look it up) in the desert to trick out your GDP forever? Our subprime is gonna look like a soap bubble next to china's housing zeppelin.

Slartebartfast's picture

Anyone ever consider that the Chinese built those cities because they ARE going to use them?  What happens when the west collapses and they're left with the majority of the gold, the silver, and the productive capacity in the world?  Be a lot of rich Chinese to buy apartments in those ghost cities.

Or how about the other route?  The west collapses and takes the Chinese down with it.  Nothing left.  Everyone is broke.  All the Chinese Govt. has to do is start selling off those ghost city condo's for one renmimbi a piece.  They have the best housing and infrastructure in the world to give them a headstart on building their internal economy.  The west can go take a flying jump straight into another 500 years of dark ages for all they care.  The clock is reset back 1,500 years and China is once again a prosperous giant while we live in mud huts and till the soil with sharpened sticks.

prains's picture

They have the best housing and infrastructure in the world

only if you don't need rebar in it, then you're right but generally to keep things standing for a couple of years it kinda helps. but don't let me stop you, please book a flight on air china

and see for yourself.

Bam_Man's picture

They have the best housing

Yes, and made with the best materials too - most notably their reknowned drywall and paint.

anony's picture

That doesn't make any economic sense.  Our R.E. debacle happened because of the levered, borrowed money, MORTGAGES the payments on which could not be met, and the MBS markets which galactically magnified the underlying. It was an illusion.

If all our housing was built with cash there is no R.E. bubble at all. 

In China it's way different. The homes just remain empty. The costs of building get the money circulating into the economy to do other things that those paid will do with it.

You need to rethink the China situation. It's not great to have empty cities but it's not an ongoing money drain and there are no mortgages to worry about being paid back.  If built well and sturdy enough, the homes may one day be occupied, the homes sold to live consumers. If not, the only cost is what has already been spent.  And that isn't causing anyone any headaches.



mynhair's picture

Load of crap.  Pig Market is up just to boost bonuses.  No solution is possible.

Sure would like to know what trade that black bozo lost 2 bil on.  RIM or NFLX?

slewie the pi-rat's picture

hey myn!

i don't know

that sed, prob fx, maybe short the eureo & long the swissie when the SNB devalued the CHF for an instant tactical nuke

that seemsed to me and still does to be the 1st movement after j. hole of the central banksters'Z concerto in F

a fanfare of FED finagling followed fancifully as maestro satanicus benzelbub seemed to soak up some liquidity, possibly euros from the SNB

then the CBz tip-toed in their tutus to the tymbrals of time and the pipes of pan europa in B as sweet rivers of Bailout swapped among the gaily lilting string-pulling as the eurobanksters traded shit for shinola, augmented, diminished, unresolved thematically, but maybe musically shit with a bit of shine and the americans drew their bows above the bridges on their digital intruments pluck and plucking, stacatto then smooth, lubed and engorged a grosso modo for a finale of frenzied fiat fuking

d00daa's picture

haha love this setup, big rally into resistance everywhere, most bears demoralized and covering like crazy, huge volume on dji as all fully invested participants are ready for the next leg down, moving into bullshit like ko, gis, cl, etc.  momo "leader" stocks that have held up so far are next, tell me amzn, lulu, utla etc recent price action is nothing more than tptb setting up short... look out below...

rocker's picture

Do you really want me to believe the market is manipulated.  Or that somebody is setting up a future move.

Who owns this market?   Who makes the market.  I am told for every seller their is a buyer.


d00daa's picture

i think it's probably easier than you think to manipulate equity markets via futures, options, levered etfs etc.  especially just long enough to spark short covering rallies which algos bid up which feeds on itself...

i'm speaking from a 90% technical perspective but i think bear sentiment is down in the dumps after this rally as well.  then there's the soxx, which is supposed to lead and has everyone giddy with it's recent price action.  short interest steadily building for like a year, days to cover in the 20s and 30s for months, drops to 10 8/15.  this huge pop on volume in the soxx is a year's worth of shorts covering into fomc wed.  that's it.

i went net short into the close today.  the bernank is holding ducks.  sell wednesday.

rocker's picture

@d00daa   I like the way you think, I almost wanted to buy a stock today.  Like you, I put a small short on after hours.

anony's picture

Goldman Sucks is responsible for 50% of the trades everyday, somtimes much more.  If that isn't---if not complete control---enormous power over the market I don't know what is.

No one cares what YOU believe, personally.  But what every trader knows is the market is most definitely manipulated, and most likely controlled through the use of ETFs, particularly the doubles and triples, short and long, for the benefit of those tipped off before hand which way the flywheel is hurling the market.

You would do well to withdraw your disbeliefs, and start looking at facts--- which trump 'beliefs' .

Cdad's picture

That bull case is mighty rickety.  

  • Greece is priced in = not possible
  • BRICS are in talks = more rumors and is illogical
  • China's trade numbers = centrally planned fiction [proven by the source cited]
  • Consumer numbers held up well = lol
  • Manufacturing data has not fallen out of bed = goal seeked data selection
  • Consumer building strong foundation, delveraging/basing = missing the key fact that unemployment is worsening and real income falling.

Not sure who would think this is a compelling case, but if this is a one stop case for bullish bankers currently out on the town doing the hookers and blow thing...ummmm...you might want to get in to work early on Monday.

mit75hst80's picture


Roche Keeps Drugs From Strapped Greek Hospitals



Swiss drug giant Roche Holding AG has stopped delivering its drugs for cancer and other diseases to some state-funded hospitals in Greece that haven't paid their bills, and may take similar steps elsewhere, a stark example of how the European debt crisis that has jolted global financial markets is having a direct effect on consumers.


Kali's picture

The idea that governments will step in to save the day remains entrenched in the minds' of investors.

Until they can't.  What a dumb idea.  And what makes people think the TPTB want to save your day?

rocker's picture

So does this mean TPTB control the market and HFTs and just wanted to burn shorts ?  

anony's picture

Do chickens have beaks?

Georgesblog's picture

They certainly give me plenty to write about. It takes a miner's lamp and a gas mask to get to the bottom of this mess.


Manthong's picture

Um, How's your canary doing?

Georgesblog's picture

(( To the tune of "Pomp and Circumstance" )

My canary flies sideways

My canary flies upside down.

My canary flies backwards,

my canary is dead.

Congratulations! We are ready to go out into The Brave New Fiat World and do battle with the evil Debt Monster.



rocker's picture

@Georgesblog  Thanks for the your feed.  Good Stuff.  Like your comment here. Going back to read more.  Thanks Again. 

Georgesblog's picture

Thank you for taking some time on my posts. I'm not really that smart. I just happen to be a photographic speed reader, and I know a lot of really smart people from my work in a talk radio station. I hope something rubbed off from G. Edward Griffin, Dr. Stan Montieth, Alan Stang, Michael Corbin, John Perkins, Jill Harrison, Dr. Katherine Albrecht, Liz McIntyre, Dr. Jerome Corsi, Randy Yarbrough, John Jennings, John Ainsworth, Harmon Taylor, L. B. Bork, George Gordon, and so many program hosts and guests that I just can't pull up, right now. I got a very good education. I think of them, while I'm writing.

Robslob's picture

There is no market

There is no spoon Neo

Robslob's picture

And by the way Tyler's prediction of it taking the market to be at S&P 1000 for "the Bernank" to deploy QE3 is looking pretty shitty right now.

Hope I don't get bitch slapped for stating this.

I bought another 10oz of AGE and 100oz ASE

Georgesblog's picture

Thanks for the compliments. If anybody gets slapped for starting this mess, their names should be J. P. Morgan, Paul Warburg, J. D. Rockefeller, Andrew Carnegie, and the rest of the Jekyll Island crowd.

Taffy Lewis's picture

I don't understand the pessimism - on the 6 pm ABC News on the radio today, it started out with: "As Europe moved towards debt resolution, the Dow was up today..."

I had unicorns crapping skittles dancing in my head.


Georgesblog's picture

If we were tal;king about real money in circulation, there might be cause for optimism. Since there has been no real money in circulation since 1968, when the U.S. Treasury redeemed the last Silver Certificate, we are left sitting at the Monopoly game, reminiscing about the good old, bad old days. I have the perfect blog for you.



Orange's picture

Since when is Chinese demand good for US or European markets? The Chinese don't buy goods, they sell them to us.