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HomeMarch 6, 2010: Economic/Market Week in Review
Posted by Larry Doyle on March 6th, 2010 6:08 AM |
Markets continued to rebound this week. Why? Dramatic improvements in Greece? No. Solid economic news here at home? I don’t think so. A slew of positive earnings reports? Hardly. What are we to make of it?
Welcome to our Sense on Cents Week in Review where I provide a streamlined recap of the major economic data and news, along with month-to-date market returns.
ECONOMIC DATA
Recovery? I would not classify the data this week as defining a recovery. I will be gracious and define the data as mildly negative. Don’t take my word for it, let’s review the data together and you tell me what you see and what I may be missing. Let’s dive right in. Unless a hard number is indicated, the data represents the percentage change for the prior month along with the consensus expectation for the current month and then the actual change for the current month. (more…)
February 13, 2010: Market Week in Review
Posted by Larry Doyle on February 13th, 2010 8:12 AM |
Markets remain volatile and skittish. Why? Our global economy along with our domestic economy remain under the pressure of massive debts and deficits across the sovereign, corporate, and consumer spectrum.
Global governments can not prop economies and markets forever, try as they might. Can 2010 successfully transition from these total government supported and propped markets to a hoped for return to private enterprise with private capital? This week brought us more ups and downs in the markets as the economy overall searches for its footing. We remain a long way from being out of the woods. Pack lightly and lets navigate.
Welcome to our Sense on Cents Week in Review where I provide a streamlined recap of the major economic news and month-to-date market returns. (more…)
When Will Our Economy Return to Normal?
Posted by Larry Doyle on February 8th, 2010 8:18 AM |
The question most asked in economic circles is, “How and when will our economy return to normal?” My response is always, “What is normal?”
I find it most impactful to explain to people looking to gain a greater understanding of our economy and our markets that the normal economy of the late ’90s through 2007 was driven by the shadow banking system. This shadow banking system provided upwards of 40-45% of the total credit employed by our economy.
The shadow banking system incorporated the credit origination, securitization, and distribution businesses of Wall Street investment banks as opposed to the traditional lines of credit provided by commercial banking activities.
The crisis on Wall Street 2008 brought this shadow banking system to a virtual standstill. While it has begun to resuscitate itself, it remains a mere shadow (no pun intended) of its former self. What is the result? (more…)
January 23, 2010: Week in Review
Posted by Larry Doyle on January 23rd, 2010 7:15 AM |
From Massachusetts to Washington and from Wall Street to China, fireworks were flying this week across our global economic landscape. While the political focus in America is grabbing center stage, make no mistake, the issues driving the politics are largely economic.
Welcome to our Sense on Cents Week in Review where I provide a streamlined recap of the major economic news and the month-to-date market moves. Pack lightly as we have much ground to cover. That said, let’s enjoy the journey as the twists and turns along our landscape are truly fascinating and historic in nature. Let’s navigate.
ECONOMIC DATA:
1. Housing Starts: a disappointing report as starts fell 4% after an upward revision to a 10.7% increase in the prior month. I still take all the housing numbers with a pound of salt knowing that delinquencies and defaults continue to move higher. (more…)
Are We Having a Blowoff?
Posted by Larry Doyle on November 16th, 2009 11:24 AM |
“If you can keep your head when all about you are losing theirs…”
Retail sales rebounded strongly this month posing a 1.4% gain. Good news, right? In an attempt to provide a degree of sanity to what has become an extremely volatile report, let’s break this report down a little bit further.
Recall that our automotive sales have bounced around tremendously over the course of the last three months due to the Cash for Clunkers program. Auto sales soared in August given Uncle Sam’s handout. Once Uncle Sam shut that spigot off, auto sales dropped like a stone in September. In October, auto sales had a respectable bounce. All this said, there is no respected economist who doubts that the Cash for Clunkers program pulled demand forward. In the process, it has skewed the overall retail sales readings. What is the American consumer doing away from the auto sector? Let’s navigate. (more…)
November 14, 2009: Month to Date Market Review
Posted by Larry Doyle on November 14th, 2009 7:32 AM |
Do as I say, not as I do. Why? What do I mean?
The markets in general and equities in particular were once again supported by talk rather than actual economic actions. Who was talking? What were they saying? Very simply, communication from G-20 ministers last weekend indicated strong support for ongoing fiscal stimulus. That talk drove the equity markets 2% higher on Monday of this week. On the heels of that, during the midweek we experienced Fed-speak once again indicating a strong likelihood of keeping rates at very low levels for an extended period. Markets immediately reacted by once again ratcheting higher. 
I have never been fully inspired by talkers versus doers, but these are unique times . . . so let’s collectively navigate the economic landscape. If you have any questions, please do not hesitate to ask.
ECONOMIC DATA
Economic reports and developments are carrying less and less weight currently. Why? Fed policies are not going to change. That comfort level has solidified the case for those who have sold and continue to sell the U.S. dollar short and use the proceeds to buy risk-based assets, primarily equities. That said, I am compelled to report significant data as I view my mission in helping people navigate the economic landscape, not strictly trade the markets.
Of note this week, the Federal Housing Administration is likely in need of an imminent bailout from Uncle Sam as defaults on FHA-insured loans show no signs of diminishing. This potential bailout has been discounted by FHA officials ad nauseam. They have no credibility.
The University of Michigan Survey of Consumer Confidence plummeted to a level of 66% from 70. Consensus opinion had this survey bouncing back toward 72%. With no legitimate bounce or improvement in the housing or labor markets, I do not know why the survey would improve.
Let’s move along to market performance. The figures I provide are the weekly close and the month-to-date returns on a percentage basis: (more…)
Don’t Worry Be Happy
Posted by Larry Doyle on November 13th, 2009 11:40 AM |
Happy Friday!!
I have to admit, virtually every major story I review today would seem to indicate further challenges for the American economy. In the perverse world of the Uncle Sam economy circa 2009, those challenges seemingly do not present hurdles for our markets but rather greater comfort for those who would want to add to positions via the dollar carry trade. Is that bizarre? No, that’s the market. While many may not believe what the market is saying, please recall I always maintain the market is never right nor wrong, per se. It is merely the market.
What stories represent increasingly high hurdles on our domestic front?
1. The Federal Housing Administration, which now plays an ever larger role in our domestic housing market, is poised for a bailout by Uncle Sam. You didn’t actually believe the FHA leadership when it stated a mere few weeks ago that it would not need a bailout. Do not believe that man behind the curtain. Whether it is Freddie or Fannie, or now the FHA, the American taxpayer will most likely continue to pour multiple billions into the sinkholes of these three organizations. Let’s be honest. Our housing sector, to a very large extent, is nothing more than a social experiment.
Don’t worry, be happy!!
2. Our trade deficit unexpectedly widened. All other things being equal, that report would serve as a drag on our GDP, hit our greenback, likely push interest rates higher and equities lower. Discounting the actual economic reasons that impacted this increase in the trade deficit, the market is comforted by the fact that the dollar should remain under pressure based on this report. A lower dollar comforts the leveraged positions across wide swaths of our markets.
Don’t worry, be happy!!
3. The University of Michigan Consumer Confidence reading plummets to a devilish level of 66 from 70.6. The market was expecting a bounce in this report to as high as 72. Reason to worry? Holiday sales might be a problem?
Come on, it’s Friday, don’t be a downer.
Don’t worry, be happy!!
What a world.
LD
What Do CA, AZ, FL, IL, MI, NV, NJ, OR, RI, and WI Have in Common?
Posted by Larry Doyle on November 12th, 2009 2:25 PM |
No, these states are not holding a Powerball Lottery . . . although the states themselves could use the winnings.
These states, amongst others, are barreling toward economic disaster. Don’t take my word for it. None other than the Pew Center on the States produced a report entitled Beyond California: States in Fiscal Peril:
(High five to MC for bringing this to our attention)
California’s financial problems are in a league of their own. But the same pressures that drove the Golden State toward fiscal disaster are wreaking havoc in a number of states, with potentially damaging consequences for the entire country. (more…)
“Nobody Has Ever Seen This Market”
Posted by Larry Doyle on November 12th, 2009 8:22 AM |
“I’ve seen this market before” is a very commonly used phrase by Wall Street professionals to compare and contrast different periods.
For example, when the Treasury yield curve is steepening or flattening, many market pros will project what will happen in different segments of the market based on discounting cash flows under the steepening or flattening scenario. Similarly, when credit spreads are in a widening or tightening trend, market pros will project how higher or lower rated investments will typically behave.
These projections are all based upon prior experience. The pros are utilizing a combination of market fundamentals along with investor sentiment to make forecasts. They will overlay their current forecasts against similar trends during prior cycles. Not that markets are ever perfectly symmetrical, but ‘having seen a market before’ is often a strong indicator of current and future price action.
Against this backdrop and given the challenging nature of the current market price action, I would challenge any market analyst or pundit who would utilize a similar approach today.
The simple fact is, ‘nobody has ever seen this market before.’ Why? Because this market has never transpired previously. Certainly, we have seen bull markets. We have seen low interest rate markets. We have seen accomodative Fed policy. We have seen bubbles. All that said, we have never seen a market in which global cross currents combined with ongoing fiscal stimulus have impacted markets to this extent.
In fact, I think one could make the case that the market is doing better as large parts of our domestic economy and the global economy are actually doing worse. While traditional schools of thought would view that correlation as perverse, the economic strains are compelling global governments to keep stimulus programs in place.
What is the result? A rallying market with increasing potential that the market develops into a blowoff. The irrationally positive nature of a blowoff is akin to a wholesale dumping of securities in a selloff.
Keep your head and stick to disciplined investing. Respect the price action, but do not get overly enamored with those analysts telling you what will happen . . . because ‘nobody has ever seen this market.’
LD
Dollar Carry Trade ‘Still’ Drives Global Equity Markets
Posted by Larry Doyle on November 9th, 2009 3:10 PM |
Has anything truly changed in our economy or markets over the last two months? Market analysts would attempt to gain credibility by overanalyzing each and every piece of data that comes along, but the very simple fact is that little has truly changed since I wrote “Dollar Carry Trade Drives Global Equity Markets” on September 16, 2009.
With the equity markets making new highs for the year, I am not so foolish as to ‘fight the Fed’ or ‘fight the tape’ while fully appreciating that the foundation of our markets and economy remain extremely fragile. In that spirit, what is driving the market ever higher? I resubmit my post mentioned above:
All aboard!!
As the U.S. Dollar Index makes new lows, equities make new highs and the momentum continues. Where is the ‘juice’ coming from? Is this cash that had previously exited the market now reentering? Is this people who had gone short now being forced to cover? Is this ‘new’ money finding value? Is this a pickup in short term day trading? The answer to all of these questions is yes, albeit to varying degrees. However, the most widely held belief for the rally in the market is the dollar ‘carry trade.’
I highlighted this trade last week in my September 12: Month to Date Review of the Markets. On that day, I wrote about the U.S. dollar: (more…)
