Guest Post: Bull/Bear Weekly Recap: Mar 14 - Mar 18

Submitted by Rational Capitalist Speculator

Bull/Bear Weekly Recap: Mar 14 - Mar 18

Bull

+ The Conference Board released its US leading indicator and it points to improvement in the economy in the months ahead.  8 of the 10 factors that make up the final reading showed improvement.  The recovery is poised to continue despite what the bears keep saying. 

+ The labor market is improving as jobless claims fall by 16,000 to 385,000 while the 4 week average falls by 7,000 to 386,250, the lowest level since July 2008.  The last piece of the bullish thesis is finally falling into place.  Increased job creation will create sustainable consumer demand and fuel the US economy’s recovery.

+ The Philly Fed index for March moves to the highest reading since 1984 and points to a pick up in momentum for the manufacturing sector.  New Orders soared, while unfilled orders and delivery times showed increased activity.  Employment remains in positive territory as well.  This is yet another signal that the recovery has legs. 

+ A deflationary scenario for the US economy is out the window as headline CPI for February comes in at a hotter than expected +0.5% MoM (+2.1% YoY — and within the Fed’s implied inflation target), while the core measure rises by +0.2% MoM (1.1% YoY — and the highest since March 2010).  The US is not Japan.

+ OECD composite leading indicators show that the global recovery remains intact. Leading indicators in the US and Euro area show robust expansion in the months ahead.  While China’s leading indicator showed a possible moderate downturn there, the Conference Board released its China-centric leading indicator which showed a rebound in January.  This will certainly help ease concerns that that country is headed for a sudden slowdown.   

+ Weekly retail metrics for the second week in March show that positive YoY trends remain intact.  The recent spike in oil prices has not deterred the American consumer.  Consumption trends remain healthy, which is conducive to continued job growth.

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Bear

- Japan’s earthquake paralyzes the country as major auto companies are forced to suspend operations costing billions of dollars in lost production.  Potential damage to global recovery may be significant, especially if there is a catastrophic nuclear disaster. 

- While news in the Middle East has taken a back seat recently (why wouldn’t it after what happened in Japan?), tensions continue to simmer.  Saudi Arabia is sending troops to Bahrain to quell unrest in the tiny kingdom.  This course of action has certainly raised eyebrows and tensions between the US and Saudi Arabia are on the rise as well. Furthermore the US has changed its tune with regards to Libya.  We may see military conflict here.  Oil prices are likely to remain elevated.  

- Oil closes above $102 and will be a persist thorn on the side of the bullish thesis.  The bulls keep pointing to leading indicators signaling that the economy will rebound.  If the rebound continues to gain strength, it will be met with ever increasing oil prices until there is demand destruction and the economic recovery short-circuits.   

- Housing remains in the doldrums as both Housing Starts and Permits declined more than expected.  Permits slumped to a record low and the report points to continued moribund activity in the housing market is exactly  what  I  expected in my bi-annual outlook.  Let’s not forget, housing has been an absolutely integral factor to US economic recoveries in the past. 

- Inflation is clearly evident at the producer level with PPI in February far exceeding the consensus coming in at +1.6% vs. +0.7% expected (+5.6% YoY).  Food prices at the finished level are increasing at the fastest pace since 1974.  This report may prompt calls for the Fed to end their QE policy, which would be a negative for financial markets as investors have grown accustomed to the Bernanke Put.

- China continues to battle inflation.  The Chinese central bank has signaled that it will use interest rate increases as the primary tool to battle the monetary phenomenon.  Using this method may pop a real estate bubble and derail the global recovery.

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