Tuesday - June 06, 2006
Still Betting on the Consumer?
The Wall Street Journal reports:
Morgan Stanley expects U.S. growth to fall to 2.4% in the second quarter from 5.3% in the first. "The American consumer is now a prime candidate for the weakest link in the global growth chain," writes Mr. Roach. Weak labor income, a shaky housing market, high debt burdens and rising energy costs "are putting the squeeze on over-extended U.S. consumers when they can least afford it." Mr. Roach admits that he has been calling for the demise of the U.S. consumer for years, a call that many economists have made in vain. But he seems fairly certain the time has come for the consumer to stand down in the U.S., which will have ripple effects around the globe, as export-driven economies such as Japan and China feel the pain.
How about this reversal in Wal-Mart (WMT)? The stock gapped and moved above 49 for two days. This surge was greeted with a gap down and immediate drop below 47.5. It is not a good sign with the nation’s biggest retailer reverses on the dime.
By Arthur B. Hill - Tue 06-Jun-06 at 03:02PM in Economy
Email to friend
| Permalink
| Home
| Comments (0)
Monday - May 22, 2006
Capex Not Providing A Boost
The Wall Street Journal Reports:
“Capital spending by energy companies soared 65.9% in the first quarter, prompted by high energy prices and, perhaps, political pressure, according to the research firm Thomson Financial. For the entire S&P 500, capital spending rose 26.8% in the first quarter, well ahead of the year-ago pace of 12.9%, according to Thomson.”
The Consumer Discretionary and HealthCare sectors are not investing. However, I doubt if these figures includes R&D for the HealthCare. This is where HealthCare invests its money. The Information Technology and Consumer Staples sectors are investing. It is good to see investment in Information Technology picking up and I wonder where the investment in Consumer Staples comes from (goes to).
By Arthur B. Hill - Mon 22-May-06 at 10:39AM in Economy
Email to friend
| Permalink
| Home
| Comments (0)
Joe Rosenberg in Barron’s
Joe Rosenberg in Barron’s
Barron’s Interviewed Joe Rosenberg over the weekend and three paragraphs stood out.
“There's an estimated $120 billion to $140 billion invested in commodity funds by institutions, including $40 billion at hedge funds. This compares to $6 billion in 1999. One of the Street firms did a study that showed a record 35% price spread between commodities that had a listed futures contract and therefore were investable by hedge funds and commodities that didn't have a readily investable product. So in other words, much of the rise in the commodities that you see around the world today is a result of speculation on paper. “
“China will keep the cost of goods low, because they've got a great money machine going and they have a need to employ people. As long as they have to employ people, they are not going to worry about how they are losing money by owning U.S. government securities. China and Hong Kong together own almost a $1 trillion of U.S. government securities and people keep telling me, "Aren't the Chinese worried that they are going to lose money in their holdings of Treasuries?" My answer is that they are worried, but there is nothing they are going to do about it because they have a much more important problem, which is to keep people in China employed.”
“We now have a situation where some of the largest companies, that were overvalued six years ago but have continued to grow earnings at 10% to 15% a year, are completely unloved on Wall Street. These companies are all household names. I never in a million years thought that I would be recommending stocks like Microsoft, Pfizer, Johnson & Johnson [JNJ] or Wal-Mart. These are some of the best values anywhere in the world. “
By Arthur B. Hill - Mon 22-May-06 at 10:31AM in Economy
Email to friend
| Permalink
| Home
| Comments (0)
Thursday - May 04, 2006
Waiting for Non-Farm Payrolls
There are a few items worth noting on this chart. First, notice that employment growth was stronger from 1996 to 1999 than it has been over the last three years. This is not necessarily bearish because the economy is still creating jobs and it implies that companies are growing profits with fewer employees (lower expenses). Second, the 12-month Rate-of-Change has been trending higher since 2002 and there is little reason for concern as long as this indicator holds above 1%. Third, notice the week numbers in September and October (red oval). This may have contributed to the sharp decline in stocks from August to mid October. Non-Farm Payrolls jumped sharply in November and this put the bulls back on track.
I am not about to try and predict this number. Even economists with massive data sets and complicated models have a hard time predicting this number. As long as it stays above +150K (magenta line), I would view job growth as sufficiently strong and this would be generally bullish for stocks.
By Arthur B. Hill - Thu 04-May-06 at 10:44AM in Economy
Email to friend
| Permalink
| Home
| Comments (0)
Wednesday - May 03, 2006
ISM on Deck
Wednesday we have the ISM Non-Manufacturing Survey and Factory Orders at 10AM ET. Durable Goods Orders came in strong last week and the industrial sector has been very strong lately. This implies that Factory Orders will also be strong. The Non-Manufacturing Survey is considered bullish above 50 and bearish below 50. The above chart compares the survey to the S&P 500. Both declined from mid 2000 to late 2001 (red box). The Survey turned up sharply in late 2001, but the market took another 9-12 months to bottom. The Survey has been largely above 50 since 2002 and anything above 50 is considered bullish. Taking this a step further, I consider anything above 54 to be bullish for stocks and the economy (green box). The consensus forecast is for 59.7 with a range from 58 to 62. As long as it comes in above 59, the market should not be affected negatively.
By Arthur B. Hill - Wed 03-May-06 at 07:22AM in Economy
Email to friend
| Permalink
| Home
| Comments (0)
Friday - March 03, 2006
The Yield Curve Yet Again
SmartMoney has a good article on the yield curve as well as a nice Java graphic that shows the yield curve over time. The article explains the difference between a flat, normal, inverted and steep yield curve. SmartMoney.com (click here)
The current curve is flat and the last inversion was in 2000. The above example shows the inversion from November 2000. Needless to say, the stock market suffered over the next two years and the Nasdaq did not bottom until October 2002.
Even though the yield curve is not inverted just yet, there is so much talk about the yield curve that I must conclude that it is already priced into the market. What I find truly amazing is that the Russell 2000 hit an all time higher, the Dow is trading near a 4 1/2 year high, the Nasdaq has been rallying since October 2002 and the Finance sector has been unusually strong lately. The S&P 500 Equal Weight Index (RSP) hit a new high last week and remains well above support. The stock market does not appear to be too worried about an inverted yield curve. It should be called the worry curve as all this talk seems to create a wall of worry and bull markets just love to climb such walls.
By Arthur B. Hill - Fri 03-Mar-06 at 05:19AM in Economy
Email to friend
| Permalink
| Home
| Comments (1)
Thursday - February 02, 2006
Soros Sees Trouble in 2007
From Ameinfo.com: George Soros alarmed an audience in Singapore this week by claiming that 'the soft landing (for the US economy) will turn into a hard landing. That's why I expect the recession to occur in 2007 not 2006.' He went on to explain that the slowing US housing market would be the factor that finally tripped the economy into recession, albeit not until 2007.
Pulte Homes (PHM) has been going sideways for almost a year. However, this is not the first long consolidation and the big trend remains up. The stock traded flat from Nov-03 to Oct-04. As long as the October 2005 low holds, the big trend for PHM is up. This is a leader in the housing group and should be watched for signs of trouble.
By Arthur B. Hill - Thu 02-Feb-06 at 09:09AM in Economy
Email to friend
| Permalink
| Home
| Comments (0)
Wednesday - October 05, 2005
Fed Sees Inflation
Dallas Fed President Richard Fisher indicated that inflation stands at the upper end of acceptable levels and this prompted fears of further rates hikes. This charts shows the iShares Lehman TIPS Bond Fund (TIP) relative to the iShares ~20-year T-Bond Fund (TLT). TIP is indexed to inflation and TLT is not. Inflationary fears are growing when TIP outperforms.
By Arthur B. Hill - Wed 05-Oct-05 at 06:08AM in Economy
Email to friend
| Permalink
| Home
| Comments (0)
Wednesday - September 28, 2005
Consumer Confidence and TA
Consumer confidence suffered its largest decline in years and moved to its lowest level since Oct-03. The trend in Consumer Confidence has turned lower. There was a breakout in Nov-03 and this fueled a nice run in the Retail HOLDRS (RTH) and Consumer Discretionary SPDR (XLY) from Mar-03 to Jul-05. RTH and XLY have been relatively weakn the last two months and yesterday’s consumer confidence report explains it all. Is this just a temporary hurricane related blip or will this drop in confidence last? Unless RTH and XLY forge significant breakouts, I would look for consumer confidence to continue faltering. Just to keep everyone guessing, the University of Michigan Consumer Sentiment survey will be released on Friday morning at 9:45AM. By the way, I added the trendlines, support and resistance to this chart.
By Arthur B. Hill - Wed 28-Sep-05 at 10:32AM in Economy
Email to friend
| Permalink
| Home
| Comments (0)
Friday - April 29, 2005
The Fed Two-Step
This chart shows the Fed Funds rate and the 10-year T-Note Yield (TNX). The black line shows the reversals in TNX and the red line shows the Fed Funds reversals. Notice that the 10-year T-Note Yield reverses before the Fed Funds rate. In other words, the Fed usually follows the bond market. There are periods of uncertainty, but the bigger trends usually play out. Most recently, the trend for TNX has turned flat, but the Fed Funds rate continues to rise. I don’t think that TNX has established a downtrend yet and this would take a move below 3.95% (~40 on the chart). Such a move would provide a clear indication that that recent rate hikes are coming to an end – soon.
By Arthur B. Hill - Fri 29-Apr-05 at 12:31PM in Economy
Email to friend
| Permalink
| Home
| Comments (0)
Thursday - April 28, 2005
Inflation? My......
There sure is a lot of talk about inflation these days. However, gold and bonds can’t be bothered. If inflation were around the corner, I would expect bonds to fall (rates to rise) and gold to rise. However, the opposite appears to be happening: gold is falling and bonds are rising (rates falling). Could it be that the economy is weaker than previously thought? Recent economic data seems to suggest this. Durable goods orders were weak, GDP was less than expected, consumer confidence is waning and the leading indicators are slipping. The message from the bond market is that the Fed will soon END its tightening phase. Remember, the Fed follows the bond market, not the other way around.
By Arthur B. Hill - Thu 28-Apr-05 at 04:12PM in Economy
Email to friend
| Permalink
| Home
| Comments (0)
Consumer Sentiment Wanes
The Conference Board (click here) reports negative data on three fronts. First, the help wanted index declined two points. Second, U.S. consumer confidence dropped over 5 points. Third, the U.S. Leading Index declined in March.
Consumer spending drives 2/3 of GDP and a drop in spending is right behind a drop in confidence. It appears that high energy prices are starting to have an effect. Oil has been above $40 since mid July and above $50 for over 2 months. Even though U.S. spend less on energy than 30 years ago, a sustained period of high prices is certainly not positive.
By Arthur B. Hill - Thu 28-Apr-05 at 04:01PM in Economy
Email to friend
| Permalink
| Home
| Comments (0)
Thursday - April 21, 2005
Inflation is Real
There should come as little surprise that there are inflationary pressures present in the market. First, the CRB Index broke a 20-year downtrend with a breakout at the end of 2003. The index has now advanced almost 80% since November 2002 and is trading at levels not seen since 1980!
If memory serves me correctly, a gentleman by the name of Paul Volcker headed up the Fed and the inflation was public enemy number one at the time. The 10-year T-Note Yield was over 15% in September 1981 and stocks were not happy campers.
The outlook for stocks changed with the August 1982 low (101) and the bull run until 2000. This bull run was coincided with falling interest rates and falling commodity prices. The 10-year T-Note Yield has yet to break out of its long-term (20-year) downtrend, but a move towards 5% looks increasingly likely and this could take the wind out of stocks, which have been rising since October 2002 (769). The real killer would be a combination of rising inflation and slow growth (stagflation).
By Arthur B. Hill - Thu 21-Apr-05 at 10:28AM in Economy
Email to friend
| Permalink
| Home
| Comments (0)