Weekly Bull/Bear Recap: Thanksgiving Edition, 2011

Tyler Durden's picture

Submitted by Rational Capitalist Speculator

Weekly Bull/Bear Recap: Thanksgiving Edition, 2011

Risk markets are losing their patience.  The Eurozone situation is approaching a major climax.  This is by far the most important story to follow in the coming days and weeks.  U.S. Economic data has been quite encouraging and the economy remains muddling along.  If Europe took care of business quickly, global stock markets would rally sharply.  The S&P 500 could possibly make a run at the bull market highs. Unfortunately, there is a major ongoing political crisis in the region.  There are 3 options. 

The first option, which would entail a fiscal union and Eurobonds, seems to be out the window at this point.  Merkel again rejected calls for Eurobonds and insisted on treaty changes as a first step.  The probability that 17 parliaments could pass German requested amendments is quite low.   As I have stated all along (section 2), I remain dubious on the hope that sovereign nations such as Greece, Spain, France, and Italy are willing and politically able to cede their sovereignty to what would clearly be a German-mandated supranational organization. It would be like WWII all over again, only this time perversely legal.  There is little political appetite at this point.  The second option entails the ECB monetizing the debt. My issue with the ECB printing, is that it would open a Pandora's box over the long-term. In my eyes, if the central bank were to print, it would represent a stealth and dangerous commitment to fiscal union without the consent of the governed.  Liabilities would be shared. German-mandated austerity programs would continue and the recession would grow deeper.  This environment would begin to create significant animosity amongst these nations, possibly ending in armed-conflict.  This post drives my point home.  No doubt that if they printed we'd see a powerful rally in risk markets and the bears would get run over.  I would significantly pair back bearish winners and initiate a few more bullish positions in commodities. But, the solution would prove only to be ephemeral in my view.   

The other increasingly significant problem is China.  Recent manufacturing PMI data showed that the sector is contracting at its broadest pace in more than 30 months. Signs of falling housing prices are more widespread and public protests have intensified.  To make matters worse, the political leadership in China doesn't seem to be loosening monetary policy as quickly as the bulls would like.  They remain committed to tempering land prices.  The chorus of "bank-crisis warnings" grows louder and export orders sank markedly in October.  I'm paying keen attention to the charts at this point.  Copper and the Shanghai Index have rolled over and are within striking distance of the their lows (the Shanghai Property Index is at its lows already).  As I said here, if those markets break down, I think we'll follow.  Remember that the global recovery hinges on China, thereby I see the country's stock market and copper as leading indicators. 

Finally, it's important to keep an eye on geopolitical risks.  Tempers have flared as of late and the situation is very tenuous in the Middle East.  I believe that oil markets have been pricing in a risk premium from these developments.  I remain surprised at how little it has been covered in the mainstream media though.   

Like I said before, the bullish case is appealing. Valuations are very tempting for stocks. If analysts earnings estimates were correct, the market would already be discounting a mild recession. Furthermore, you have a U.S. economy that continues to chug along despite weakness in the global economy. I will admit, I'm quite surprised at its continued resiliency. The clear dichotomy between consumer confidence surveys and actual retail numbers remains intact. Consumer sentiment surveys are in recessionary territory, yet consumers keep spending. They are learning to live with these conditions it seems.  Transportation metrics such as the American Trucking Association's Truck Tonnage Index and the American Association of Railroad's Weekly Rail Traffic Report show a manufacturing sector that remains in growth mode. Looking at the GDP data, we may be setting up for a renewed wave of inventory building. Companies are lean as jobless claims are near 390,000 (correlations between equity markets and jobless claims is very strong).  The data keeps telling us that the recovery continues and in fact may be accelerating according to the Conference Board's U.S. Leading Indicator.  China's Leading Indicator is flagging a soft-landing in China.

Overall, the bullish case exists and it's real. However, international macro headwinds are increasing in strength and are already proving to be too much for the recovery to bear.  The S&P 500 just had its worst Thanksgiving week performance since the Great Depression.  While the Bulls insist that exports to Europe comprise a relatively small portion of economic activity, I believe that increasing financial volatility, disruptions, and a major financial shock would effect the entire economy, not just the manufacturing sector.  Banks would restrict lending and their balance sheet health would be questioned again (it's already happening).  A Eurozone blowup would undoubtably sink the U.S. recovery.  The ball's in Europe's court and they need to take action.  If they act now, it may still be on time to avert a Chinese hard-landing.  The bulls would end up as winners and risk assets would make a comeback.  It has really all come down to this binary variable in the short-term.  Government officials wanted Globalization, well they've got it.

Weekly Bull/Bear Recap


+ U.S. economic data remains a major thorn in the bear thesis.  It proves that the economy is resistant to a European recession:  

+ The World Bank says that China will head for a soft-landing.  Aside from falling inflation (see page 2) and loosening monetary policy, Asian countries also have strong balance sheets and will be able to resort to fiscal stimulus to vaccinate their economies making them resistant to a potential West slowdown.  According to the Conference Board, they might not even have to resort to such measures.

+ Profits continue to surprise to the upside.  Only in the 1970s and 1980s did we see PE ratios this low when using NIPA (National Income and Product Accounts) profits as the “E” in P/E.  Those periods turned out to be fantastic opportunities to buy stocks for the long-term investor.   

+ Lakshman Achuthan looks like he’s about to get egg on his face.  The rate of growth of the ECRI’s U.S. Leading Indicator has improved for the 3rd straight week.  The index’s growth rate improved to -7.3% from an upwardly revised -7.8%.  The index is beginning to signal a re-acceleration in U.S. economic growth.  


- In Eurozone news, Banco de Valencia is nationalized and signals the first of many more to come in Europe.  Belgium, which has not had a government for 18 months now, demands a renegotiation of the Dexia bailout.  They demand that more of the weight be put on the French government.  Their debt-rating is cut by S&P.  A downgrade of France’s credit rating and a scrapping of the current form of the EFSF is practically   inevitable.  Ireland demands relief in the form of a reward for their sacrifice in bailing out investors in 2008.  Greece scraps the orignal bailout with the EU and is now demanding larger haircuts.  The core of Europe has officially been infected as Germany experiences a failed Bund auction.  The Bundesbank had to step in and buy 65% of the planned sale due to little demand (is this monetization?).  Belgian/German spreads hit new highs; Italy 10-yr yields are soundly above the 7% mark; Austria is finding itself on the edge of a banking crisis (which it will obviously bailout, thus resulting in one less AAA country); and Hungary turns hungry.  European credit markets are paralyzed.  The bulls plead for the ECB to print, however, If they did, then countries would need to become apostates of their sovereignties, that’s unlikely to happen.  Preliminary Eurozone PMIs for manufacturing and services sectors continue to report contraction.  Germany remains opposed to Eurobonds and ECB printing.    

- The deficit committee finally announces the obvious and sets the stage for a feisty but futile attempt to expand the payroll tax and unemployment benefits.  The fiscal contraction that would result would be the cherry on top for the recession in 2012.  Furthermore another stress-test is in the cards for the banking sector.  The scenarios they are using are downright ugly.  This is another warning to the sound investor who “reads between the lines”.   

- On the U.S. economic front, Q3 GDP is revised downward by 20% to 2.0% from 2.5%.  An important leading indicator is pointing to further slowing in the coming months.    Business Investment (Core Capital Goods: excluding transportation & defense) takes a sizable hit in the October Durable Good Orders report.  It declined 1.8%, while last month’s reading of +2.4% is revised down to a gain of just 0.9%.  From an earnings standpoint, guidance for the 4th quarter and 2012 disappoints.  

- On the global economy front, China’s HSBC preliminary manufacturing gauge sinks to the lowest in 32 to months on the back of a renewed contraction in new orders.  Copper is rolling over as well and is poised to take out its lows next week.  These “leading-indicators” of the global recovery are flashing red.  Meanwhile, Geopolitical tensions are heating up with a possible showdown in Syrian waters between the U.S. and Russia.  Meanwhile, Iran/Israel’s furtive crisis keeps bubbling

- Treasury yields are raising red flags as well.  Yields are back near early October lows and dictate that equity markets have more to fall as they catch up with the asset class that has been right-on in diagnosing the Eurozone crisis.  Capital floods U.S. Treasury auctions for the week, indicating a raised sense of fear.  Taken together with copper prices and other poorly performing in Asian indices, it’s becoming clear that the global economy has stalled.    

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Ahmeexnal's picture

Who cares, run to your nearest globalmarket so you can grab a couple of $2 waffle makers!


mrgneiss's picture

Hey, anyone heard of this ex Goldman Suchs director, Nomi Prins, and how's she's taking on the financial industry?


Careless Whisper's picture

The Careless Whisper Ahead Of The Curve Update And Threadjacking


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Outside The Box; Hollywood Producers Harvey & Bob Weinstein Want Katy Perry To Play Marilyn Monroe In Their New Film's Broadway Version; They Release MASHUP MUSIC VIDEO Of Perry And Movie Scenes To Woo Her


MASHUP MUSIC VID OF THE DAY: "My Week With Marilyn" With Katy Perry's "The One That Got Away"



Tyler Durden's picture

She is a frequent guest posted on zero hedge

slewie the pi-rat's picture

did you pay Robo_T to write this as a parody?

max2205's picture

Why is this post on ZH ?

Gidas19's picture

god please help these people, they dont even need those waffle makers...

Roland99's picture

But I love my Dexia-branded Belgian Waffle maker!!


Iconoclast's picture

Haha, thanks for the link, keep calm and carry on eh?

Jonas Parker's picture

Happy Thanksgiving, folks! The turkeys have taken over the financial markets!

unionbroker's picture

err...... muddling along with a 1.5 trillion dollar annual defecit are you freaking kidding?

LawsofPhysics's picture

Exactly, let this fraudulent debt burn in hell already.

LawsofPhysics's picture

Has nothing to do with exports to Europe and more to do with all the "financial (bullshit) products" and "profits" that get booked in Euros and turned into dollars.  Fuck the paper pushing fucknuts, let them all burn, plenty of companies around to deliver real goods and services once the government and paper-pusher are dead.

Caviar Emptor's picture

Disagree that the US economy is anything close to sound. Right beneath the surface is the face of growing discouragement and discontent. The notion is this: staying the course might be the worst thing that could possibly happen

LawsofPhysics's picture

Yes, with the drumbeat of war growing louder in the ME, this will play right into the fear that will be used to do "something" like more QE because if we don't, well, it will be just "horrible".  Fuck the Fed, the "horrible" part is that they won't keep collecting all the excessive and fraudulent usury.

jcaz's picture

Agreed;   No mention of the inevitable mortgage mess in the US coming to a head,  and the "improved earnings outlook" will be slashed in a nanosecond if the Euro implodes-

Can talk all day long about the psychology of the US consumer being much worse than the economic numbers should suggest, but sometimes, there is a good reason why people feel pissy.........

disabledvet's picture

There's nothing in the data that says the US must follow Europe

sony1's picture

"Bullish case appealing?" Looks like a permabull might have hacked the site.

sabra1's picture

" The ball's in Europe's court and they need to take action. If they act now, it may still be on time to avert a Chinese hard-landing. The bulls would end up as winners and risk assets would make a comeback."

this poster has no friggin' idea of what's going on! i want my two minutes back of wasted time  reading this stuff! 

InternetInfidel's picture

" U.S. economic data remains a major thorn in the bear thesis."


Yeah if the data was real....

foxenburg's picture

Forgive me if I missed it - it's been a long day - but what was the third option?

Iconoclast's picture

This article is based on the false premise and misconception that everything is cool in the land of the free and brave..it isn't, it's a mess..

LowProfile's picture

You must mean this part

Like I said before, the bullish case is appealing. Valuations are very tempting for stocks. If analysts earnings estimates were correct, the market would already be discounting a mild recession.



vast-dom's picture


slewie the pi-rat's picture

i think this might be part of an application to be put in charge of belgium

Fish Gone Bad's picture

The ball's in Europe's court and they need to take action.

This phrase is used/paraphrased a lot.  Anyone given a thought as to what it means?  People talk about it like it like there is some kind of simple answer.  Aren't the answers already known????

The choices are: Default, or Extend and Pretend.

They are following the extend and pretend path and will do so until something unforeseen happens.


adr's picture

The bullshit case exists and it is real, there fixed that whopper of a statement. The bullish case doesn't exist. Every bullish data point is based on made up statistics and government intervention. Very surprised by the disconnect bewtween american consumption and consumer sentiment. I'm not. Welfare is a powerful thing. The government is financing the increase in consumer spending wth generous welfare payments, how many new people are on disability for depressionor vertigo now? The lower class citizens of America have figured out living off the government is a sweet ride, free food, subsidzed rent, free health care. Even if you make minimum wage make sure to get that healthy EIC. Meanwhile I can assure every NY stock trader the real middle class workers are barely getting by and getting quite pissed off to see welfare queens loading up shopping carts full of things a middle class joe can only dream about. With ever passing day a bloody uprising where the upper and lower classes get slaughtered so the middle class lives again. But please just keep thing the bull market high really existed on sound fundamentals.

jcaz's picture

Yep-  had to smile when Cramer suggested that the US consumer was feeling "spendy" because he was no longer forced to make his mortgage payment, thereby freeing up extra money every month to buy more Nikes..........

GiantVampireSquid vs OWS UFC 2012's picture

The subprime mortgage crisis was felt all over the world, that was only 3trillion, and was contained quickly and descisively.  The EMU crisis is 30trillion of govt bonds, zero risk rated, teir 1 capital etc.  This is going global don't doubt it.  Stocks will tank regardless of any new plans.  Markets don't move in a straight line, but there is no escaping this crash.

Great Depression Trader's picture

Went long several ES contracts at the end of the session after the dump. After so many down days I'm betting we can see a sustained pop to 1175 possible 1200 based on short covering, rumors of rumors and simply technicals.

Father Lucifer's picture

Don't count on it, downward momo is increasing. Wouldn't be surprised to see another gap down on Monday>

MFL8240's picture

1.  U.S. Economic data has been quite encouraging and the economy remains muddling along.- REALLY? LIKE WHAT?

2.  The S&P 500 could possibly make a run at the bull market highs. yEP AND IT COULD POSSIBLY GO DOWN ANOTHER 50%.

3.  The other increasingly significant problem is China.  Recent manufacturing PMI data showed that the sector is contracting at its broadest pace in more than 30 months. SO, LETS SEE IF i GET IT.  CHINA EXPORTS PRIMARILY TO THE US WHOSE ECONOMY IS ENCOURAGING SO WHY IS CHINAS MANUFACTURING CONTRACTING??

4.  Like I said before, the bullish case is appealing. Valuations are very tempting for stocks. If analysts earnings estimates were correct, the market would already be discounting a mild recession. - ANALYSTS HAVENT BEEN RIGHT YET AND MOST BANK EARNINGS WERE ON BOND GAMES AND ACCOUNTING GIMMICKS.



gmrpeabody's picture

I am sure you just didn't realize it, but did you know your CAPS lock was stuck in the ON position?

ISEEIT's picture

Government politicians were HIRED to deliver globalization. They are now expected to CONTINUE delivering.

They almost certainly will, after all they have no doubt had it made clear what sort of fate is manifest to those who dare to buck 'the system'.

Globalization it is bitchez.

I actually do suspect that the bull(shit) scenerio is most likely in the immediate future. They do hold all the cards.

Deal is though on the otherside that they don't respect or follow rules. They might have a bit of fun 'waterboarding' us just for shits and giggles. Let the system hit bottom, or even implode? Why not? Emergency situations are best for snatch and grab ops against the silly sheeple.

They are VERY hungry right now, and key elections are coming up quick. In the minds of these sick fucks and more importantly, the real powers who pull their strings, the time to act is NOW.

I favor the market still because I don't think we have lost yet. I still look for spikes to short and suspect that it is still to soon for them to make their final move. Shorting the spikes ought to do well untill about Feb/March 012.

After that an 'amazing' solution will be found (Massive Q.E from the fed and ECB). They have the team in place and really don't want to risk further delay.

Reality of course is that they will flood fake liquidity into the system, timed to inflate the bubble enough to protect the axemen who will shortly thereafter issue our death warrants.

They know as well as we do that the game is so very nearly over.

After all, they planned it that way.

Less than 100 years and the plan has so nearly achieved the original goal!


gangland's picture

Russian Dollar Holdings from sept 2010 173.3 to sept 2011 94.6


Russia 94.6 97.1 100.7 110.7 115.2 125.4 127.8 130.5 139.3 151.0 167.3 176.3 173.3
Hulk's picture

Those fools, 173 bucks won't even get you out of the grocery store these days...

gerryscat's picture

Europe take care of business quickly? I assume you are just visiting planet earth. And Europe IS blowing up.

Great Depression Trader's picture

Not surprised that the ZH community dislike the article but I'm glad the Tylers have these upside risk discussions. As a trader you can't be neither a permabull or bear, but both when necessary. As we have seen time and again throughout the past 3 years equities can easily pull a rip your fucking face of rally out of nowhere. Therefore you must be positioned to take advantage of said blowoffs.

Rip van Wrinkle's picture

'As a trader...'

What the fuck has the US economy or any other economy got to do witn trading? All you're doing is looking, at best, 24 hours out and either taking a loss or taking a profit. What the fuck has that got to do with anything other than rumour and HFT? Trading's a game of fucking roulette. Period.

Great Depression Trader's picture

Uh, you don't have to be a HFT to have gone short the blow out rally of October. Patient swing traders can still make money in this market. The article simply referenced the bullish and bearish points of the week.

azzhatter's picture

my first reaction was the oversimplification of Europe and China situation is astounding

no life's picture

I think it would be brest if they just gave up on the whole Eurozone experiement..

slewie the pi-rat's picture

hopefully, no boobs will be injured as the super-saturated "solution" of fiat ignites the colloidal suspension of sovereign bonds, and the laboratory explodes

TradingJoe's picture

Bullish short term= printing
Bearish short/middle/long term not printing or printing " a little " :)))

Buy now sell in January then sell in January and buy in May (election support)!!!

After that hunker down, with lots of supplies!!!