Weekly Bull/Bear Recap

Courtesy of RCS Investments


+ The Conference Board’s Leading Indicator increases 0.3% after a small 0.1% decline in April.  “The index’s 6-month growth rate remains in expansionary territory and well above its growth rate at the end of 2011, pointing to a relatively low risk of a downturn in the second half of 2012.” — Conference Board Economist  

+ Housing is clearly turning the corner.  The NAHB/Wells Fargo Housing Market Index rises to a 5-year high, while lumber prices just hit levels last seen in 2006.  Meanwhile Housing Permits, a leading indicator of housing construction, rise to their highest reading since 2008, while Starts show a YoY reading of close to +30%.  Continued momentum will create jobs.

+ Pro-bailout parties are able to form a government in Greece, adding legitimacy to imposed austerity.  Moreover, policymakers are slowly moving towards using the EFSF to purchase sovereign bonds, relieving periphery countries of their high funding costs.  Germany has left the door open to this course of action.  Spanish and Italian bond markets have begun to sniff out use of the EFSF.  

+ The crisis is uniting world leaders, leading to a more coordinated response to global events.  The G20 backs growth measures alongside more prudent budget management and decries protectionism.  Meanwhile emerging markets show solidarity with Europe, almost doubling the IMF’s firepower.  Finally, central banks stand ready to act to relieve market stress.  


- The global recovery is being upended in front of our eyes.  China’s PMI (HSBC) slumps to a 7-month low, matching the length of contraction seen during the 2008 crisis.  Meanwhile, both the Ifo and ZEW confidence surveys in Germany show a deep recession for the Eurozone is in the offing.  June Eurozone PMIs confirm this as well.  

- The market doesn’t believe the Greek elections have solved the underlying problem of lack of political will amongst the people of Europe to share their debt burdens.  Downside risk for equities will remain high as long as Spanish 10-yr bond yields remain elevated.  The end game for the Eurozone is at our door and few believe this to be the case.  And no bulls, Germany is not using the EFSF nor the ESM to bailout the periphery until budgetary sovereignty is handed to the European Commission.  

- The U.S. economy is coming perilously close to stalling.  Labor market conditions have deteriorated as job openings fall to the lowest in more than a year, while the downtrend in jobless claims has vanished.  Meanwhile growth in the manufacturing sector, the beacon of the U.S. recovery, is fizzling out.  

- While it may seem that the G20 is united against the Eurozone crisis, behind the scenes   is a different story