Bull/Bear Weekly Recap: May 9 - May 13, 2011

By Rational Capitalist Speculator

Bull/Bear Weekly Recap: May 9 - May 13, 2011


+ Remember the ECRI leading indicator? It was widely used by the bears last year as slam-dunk evidence to support their double-dip recession forecasts. Why don’t we take a quick look at what it’s showing? At 6.7%, the week ending April 29; it sure doesn’t seem like a double dip recession is coming anytime soon.  Need more proof?  Check out the OECD Leading indicators, which show the US recovery speeding up, while China undergoes a soft-landing.  Equity indexes agree as well.  S&P 500 Breadth is right back at new highs.  The Bull Market keeps on climbing that wall of worry.  

+ The plunge in commodities could not have come at a better moment for the consumer.  A 14% dive in oil in since the beginning of May will translate to lower gas prices just in time for Memorial Day.  Lower gas prices will ensure that consumption growth continues. Consumer spending is poised to surprise to the upside for the rest of the second quarter.

+ Osama bin Laden’s death has led to a spike in US consumer confidence. This, along with lower gas prices, will aid in an unexpected acceleration of consumption growth for the rest of Q2.

+ The bears can growl all they want, but they refuse to see the facts for what they are.  German exports surge 7.3% vs. 1.1% expected.  GDP also came in stronger than expected at 1.5% and officially is above pre-crisis levels.  France also surprised to the upside with its strongest rate of growth since 2006.  Meanwhile, despite all the talk about a Greece restructuring and its contagion effects, it seems that the market is already prepared for such an outcome.  If the market has priced it in, what the bears think could be fireworks in the region, may end up being a complete dud. 

+ The Job Openings & Labor Turnover summary showed an increase in the number of job openings in March, up to 3.1 million from 3 million in February. From the BLS: “This marks the first time since November 2008 that job openings have been at or above 3 million for two consecutive months.”

+ Initial jobless claims plunge by 44,000 down to 434,000 and points to noisy seasonal adjustment factors as the main cause of the recent spike. If you look at the raw, unadjusted data, you can see that no such increase has taken place in reality. Jobless claims will continue to fall in the weeks ahead as this seasonal noisiness passes.

+ The housing market is stabilizing as per the Mortgage Purchase Application index, which hit its highest level since the week ending March 18, 2011.  Meanwhile, 30-yr mortgage rates have declined for 4 straight weeks making housing the most affordable in years.  Properties are being snapped up from Phoenix to Las Vegas to Miami.  Go Heat! 

+ US Exports are powering higher, reaching an all-time record in March and was the largest monthly increase since early 1994.  As per James Paulsen, “The shift has helped set the stage for a potential ‘manufacturing renaissance’.” (have you been reading my stuff Paulsen?).  The Boston Consulting Group may have as well! 


- So the bulls want to mention leading indicators?  Ok.  First up is the Conference Board Employment Trends Index which just posted its largest monthly drop since the dark days of 2009.  Claims that job growth will save the day are a bunch of poppycock.  Second up, the UCLA Pulse of Commerce Index, falls 0.5% in April and signals that manufacturing alone won’t be able to pull the economy out of the current rut on its own. 

- …tying in with the UCLA Pulse of Commerce Index, we see that April Railroad Traffic saw a monthly decline for the first time in more than a year.  Only 9 of 20 commodity categories saw carload gains on a year-over-year basis.

- … and tying in with the Employment Trends Index, the NFIB Small Business Index posts a drop in April and dashes hope for a jobs recovery coming from the small business sector.  The engine of job creation is still stuck in the mud.

- How much can the consumer take?  Import prices are rising, while food and gas prices are making up a bigger portion of the consumer spending pie.  Will gas prices really plunge when you have massive flooding near important refineries and gasoline inventories that are below average for this time of the year?  They haven’t yet.  More signs point to prices rising for many consumables later this year.  

- Between the plunge in oil, the floods in Mississippi and Louisiana, and Eurozone events, not much has been mentioned regarding this latest earnings season, which thus far has seen its weakest beat rate of any quarter during the current bull market.  Margin Squeezes will be a term you hear plenty of in next couple of quarters. 

- Recent China data continues to point to a stagflation scenario in the coming months.  Growth in consumer prices edged higher to 5.3% from a year earlier and was higher than the consensus estimate (which will lead to more tightening measures and Yuan appreciation). Meanwhile, industrial production growth fell more than expected while a spike in China’s trade surplus was due to significant slowing in import growth.  The Chinese consumer is wilting.  A hard-landing in China would unwind the global recovery.   

- The best kept secret in what would be a complete unwind of the global recovery continues to lurk in the background.  Greece is once again front and center, this time with the possibility of restructuring looming. Austerity has not only NOT worked, it has subjected Greek citizens, most who had no part in the financial crisis to begin with, to a continued nightmare of riots and recession.  Slowly but surely, the people of Europe are voicing their displeasure at the polls. Continued bailouts have only worked to tear the region apart. It’s only a matter of time before a seemingly routine passage of more bailout funds is struck down and the whole house of cards comes tumbling down.

- Gov’t spending continues to fall.  We can clearly see this dynamic by the stock performance of Cisco, considered by many to be a bell-weather for gov’t spending.  It’s fast approaching the 2009 lows.  (Note: I don’t own nor am I shorting any shares of this company).


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