The Bull/Bear Recap (9/10/2010)


+ MBA Purchase Applications rose a stronger +6.3% and points to solid stabilization and perhaps even a turn in housing demand. We are beginning to see increasing demand in this all-important sector and bodes well in the stabilization of home prices and increasing consumer confidence.

+ The American Association of Railroads reports that carloads continue to hit 2010/recovery highs. We are now at 305,000. Manufacturing activity continues to chug along and provide support for the recovery.

+ American Staffing Association shows that demand for labor accelerated in August, and with productivity beginning to come down places the labor market in prime position to produce impressive gains in the months ahead. Demand for labor is almost at levels seen before this recession according to this metric! Furthermore, jobless claims for the week continue their downtrend with a much larger than expected drop in claims to 451K from revised 478K.

+ Obama announces a slew of tax breaks and infrastructure stimulus and will underpin US growth. Businesses will take advantage of tax credits/write-offs on capital spending and R&D costs. This will spark increased investment and maintain manufacturing activity. Meanwhile, investment in infrastructure will help ignite the job market and will cause a ripple effect throughout various heavy industries.

+ Japanese Machinery Orders for July, a leading indicator for the Japanese economy and representative of China demand, has risen now 4 out of the last 5 months (up 10% since February), with the latest reading more than analysts expected. The global recovery, led by the Asia-Pacific region is simply taking a slight breather and may in fact be pointing to a re-acceleration through Q4/Q1 ’11.

+ The Eurozone situation continues to improve with Portuguese Bond auctions resulting in plenty of buyers surfacing, the Irish situation continuing to improve in that there is more clarity with recent plans to wind down a large troubled bank, and Greek yields continuing to come down. (Link Courtesy of The Big Picture)


– The Conference Board’s Employment Trends Index, a leading indicator of employment activity, has decreased for the 2nd time in 4 months. This drop was widespread in breadth with 7/8 components negatively contributing. Meanwhile, Manpower’s Employment growth is set to slow even further in the months ahead and given that it has already been meager, would it be foolish to think that the job market may stall altogether by Q4?

– Beige Book confirms the beginnings of what will be a double-dip recession. With “widespread signs of a deceleration” being reported with such a small margin of growth in GDP and leading indicators continuing to forecast weakness, it won’t take much to tip the economy back down. (Courtesy of Zero Hedge)

– Small Business Confidence, as measured by the Discover Small Business Watch, soured substantially in August and was the largest drop since November 2009. The recovery continues to not be confirmed by the small business sector.

– Consumer Credit decreased yet again and shows that consumers continue to shun debt and de-leverage. The Fed can control the supply side of credit by bringing down interest rates to zero, but it cannot control demand, which continues to decrease. In this credit based economy, credit = oxygen.

– Eurozone sovereign debt problems are rising like zombies as Ireland (a representation of following the rules by establishing austerity to balance the budget), Greece, and Portugal sovereign debt spreads are moving up quickly. We may be in a situation where countries are in debt traps, which the only solution is to eradicate the debt/default.

– ICSC Goldman Store Sales and Redbook, two weekly consumption metrics, continue to show stagnant to contracting growth rates. ICSC YoY growth rate is now the lowest since May, at +1.8 YoY. Redbook’s YoY growth rate has stagnated at 3.0% growth.


> Here’s a fantastic example of my published article at the end of last year. I’m not focusing here on a questioning of Democracy at this point, but we are indeed starting to see deadlock causing damage to our economy’s prospects. Let’s hope lawmakers come together and pass effective legislation to pull the economy out of this nightmare before things begin to get worse.

> Look for Protectionist talk to continue to gain speed here as the mid-terms are bearing down and China hasn’t really done anything regarding its promise on letting the Yuan strengthen. Why haven’t they you ask? See here. Sept 15-16 will be interesting. Tying in with my China’s Dilemma article, here’s a story on inflation really starting to cause headaches for China.

> On the Bush-tax cuts note, here was an interesting article in that it shows the main points of contention that I believe will eventually conclude in an extension of the tax cuts for all making under $250,000, while the rich get socked. Even though it’s not explicit, the debate will turn into a field for class-warfare. The whole debate is whether 2% of the population should get a tax break when they are already pretty well off vs. the other 98% of the nation. Think of all the bad press with the bankers, the politicians, and business leaders sending jobs overseas. What’s the one general thing they have in common? They are all rich! Common sense is what I’m sticking with when making this forecast.

> The Bull/Bear war continues from a technical perspective. We seem to be forming a large symmetrical triangle as the market hasn’t decided which way to go, while the 200 day MA was an insurmountable wall for the bulls this week. On the one hand, we have an increasingly clouded Macro backdrop, while on the other, we have continued global growth, a US economy which hasn’t fallen out of bed, and very enticing valuations. The rest of the year should indeed be interesting as mid-terms come closer and the Bush-tax drama may come to a culmination. (Courtesy of

> The Eurozone woes continue to lurk with spreads relative to Bunds near the highs achieved since the big scare in the spring. With the US economy very vulnerable to an external shock, if this area blows up, it would be the nail in the coffin for the already fading US recovery. (Courtesy of CalculatedRisk Blog).


—> Please visit RCS Investments for my expanded and detailed Outlooks (thesis), and my “Market Radar”, what I believe are the main factors affecting the economy and the financial markets.

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