Weekly Bull/Bear Recap: June 27-July 1, 2011

Submitted by Rational Capitalist Speculator

Weekly Bull/Bear Recap: June 27-July 1, 2011

Bull

+ Greece’s parliament approves the austerity plan and removes the largest threat to the global recovery.  Now countries can revert their focus back to economic growth, while in the US, businesses can begin to hire and consumers can move forward with confidence.

+ We’re beginning to see evidence that the current slowdown is transitory.  The ISM Manufacturing Index came in better than expected at 55.3%, increasing from 53.5% in May.  Chicago’s Manufacturing Index showed improvement, while the Richmond region showed stabilization in May.  Auto-related production rose 0.8% after falling 3.8% the previous month.  Japan is finally recovering and will lead to higher manufacturing readings in the months ahead in the US as supply issues are in the rear view mirror.   

+ The stock market is sniffing a recovery headed into the 2H of the year with a very bullish performance for the week.  Get on board as the recovery gains steam in the months ahead!  

+ China remains committed to investing in Europe signaling increased confidence that the recovery there remains on track.  Such a big player in the world economy announcing their confidence in the Eurozone will help soothe sovereign debt jitters.

+ China finally has the inflation tiger under control as per Premier Wen.  This means that tightening measures may be coming to an end as inflationary pressures subside and a goldilocks environment of falling inflation with easier monetary conditions keeps the economy growing at a brisk rate.     

+ Confidence is slowly making its way back as gas prices keep falling.  Bloomberg’s consumer confidence index just notched its highest level in 10 weeks.  Consumers have more disposable income and company’s  margins are improving.

Bear

- The ATA Truck Tonnage Index has declined for 3 months in a row and confirms that the economy is under serious turbulence.   The same can be said for the Railroad Traffic report from the Association of American Railroads.  It’s only a smidgin away from signaling contraction.  Both these indicators show that the recovery has stalled.    

- Consumer spending took a hit in May due to higher uncertainty and a still anemic job market.  Businesses don’t have customers and therefore will not invest in future growth.  Consumer spending is the engine of the US economy.  It is dangerously close to stalling.

- The housing market remains a zombie as mortgage applications have declined for 2 weeks in a row and paints a worsening picture for the housing market in the months ahead.  Still high levels of inventory and meager demand will ensure that prices revert back to their second leg down.   

- So the bulls point out how lower gas prices are going to lead to improved consumer confidence and more spending.  Well, gas prices declined throughout June, but the Conference Board’s Consumer Confidence reading fell for the month (the U of M sentiment index didn’t fare well either).  It’s not all about gas prices.  Crappy Job Market = No Confidence.     

- One of the most important discretionary indicators is signaling a red flag.  The National Restaurant Association’s Restaurant Index just indicated that the sector as a whole is now in contraction.  The last time this happened was mid last year, when the economy was about to enter another recession only to have Bernanke save the day at Jackson Hole.  He may not be able to do the same this time around. 

- It’s funny how bulls are quickly dismissing the obvious slowdown in China.  While we had persistent bearishness in the past couple of weeks, this recent rally has made “downright giddy” heading into the 4th of July weekend.  

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