Submitted by Rodrigo Serrano Of Rational Capitalist Speculator [16]
Weekly Bull/Bear Recap: New Year’s ‘12 Edition
+ U.S. ISM manufacturing logs its best result since June [17]; led by New Orders, Production, and Employment. Auto demand remains strong and exports revert back above the 50 mark.
+ Confidence is at its best level since June, according to Gallup Poll [18]. It’s at its best level since July, according to the Bloomberg Consumer Comfort Index [19]. Why?…
+ …The labor market is markedly improving as per both the ADP and BLS job reports, which turn in readings of +325K [20] and +200K [21] jobs created respectively; the unemployment rate falls to the lowest in almost 3 years at 8.5% [22]. Both results are better than expectations. Jobless claims plunge [23] 15K and the 4-week average falls to the lowest in over 3 years.
+ The Association of American Railroads reports that rail traffic picked up in December. From the looks of the graph [24], it looks like the recovery is actually gaining steam.
+ The European Service PMI report turns in a better than expected result [25] (indicating stabilization), while German Unemployment falls to a record low for unified Germany [26]. The bears state that a major recession will cause a flareup in the debt crisis. These data points, as well as loosening monetary policy in the quarters ahead due to falling inflation [27], suggest that both recession and the debt crisis will be contained and will surprise many.
+ Any synchronized global slowdown will be shallow [28], surprising investors to the upside. China’s service PMI shows continued growth [29] in its domestic economy, producing a reading of 52.5 and unchanged from November; while the country’s official manufacturing PMI rebounds [30] to 50.3 in December from 49.0. Whisper numbers for inflation are 4% in December = loosening monetary policy. Meanwhile, UK manufacturing PMI data increases [31] to 49.6 from 47.7 and is just a smidgen below the 50 mark, the demarcation between expansion vs. contraction; demand increased from Germany and China according to the report. UK services PMI reports its strongest result in 5 months [32], rising to 54.0 in December from 52.1.
Bear
- Greece is in a depression and a debt trap. Falling revenue, due to austerity measures, is complicating the slated EUR130 billion bailout. It will have to be larger [33], which aggravates an already delicate political situation. Spain’s government deficit may be larger than 8% [34]; to which the government responds, “the beatings will continue until moral improves [35].” Good luck slashing the size of the government in a social welfare state without serious unrest. Hungary is on the precipice [36] and has requested help from the IMF, again [37]. Italian and Spanish 10-yr yields are marching higher again [38], while French 10-year OATs fall in value for 8 consecutive days. Sovereign bond markets aren’t drinking the equity hopium.
- While the bulls focus on lagging indicators, such as the unemployment rate (btw, Eurozone’s unemployment rate stays stuck [39] at a record 10.3%), let’s focus on some leading indicators shall we? German factory orders plunge [40]4.8% MoM in November, while October’s result was revised down from +5.2% to +5.0%. Factory orders in Germany have plunged more than 8% in the past 5 months. This data point signals a sharp slowdown on tap in Q1. Here’s a coincident indicator, “Confidence in Euro Region at Two-Year Low as German Orders Slide [41].” Bullish news from the UK? Ok, here’s an offset: “UK car sales fall to lowest since 1994 [42].”
- The key risk to China’s slow-landing thesis continues to lurk. Chinese home prices fall for the 4th consecutive month [43] in December. Premier Wen Jiabao states the obvious, China’s in a stagflationary dilemma [44]. No substantial loosening is coming. Furthermore, falling housing prices are morphing into a political crisis for the communist country [45].
- The ECRI’s leading indicator growth rate has broken through support [46] of a narrow 7-week range, falling to -8.2 from -7.6. Recession is knock knock knocking on heav…the U.S.’s door.
- America’s debt to GDP ratio surpasses 100% [47]. Increased interest expense on this debt smothers investment in real economic growth, falling potential GDP, and a loss of confidence. Politicians will revert to money printing, which will lead to high long-term inflation and a lower standard of living for all.