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There wasn’t much major economic data this week out of the U.S. this week. However, data out of China continued to worry investors about a hard landing in the world’s second largest economy. Meanwhile, corn prices surged to new all-time highs.Markets inched higher with the S&P 500 once again topping 1,400.
Economists and strategists continued to wrestle with the conflicting information.
JIM O'NEILL: The White House Is More Worried About One Economic Indicator Than Anything Else Right Now
'I'm reminded by a couple of things I've picked up on in conferences and meetings I've been at in the States this year. The top U.S. policymakers, rightly or wrongly, feel that something going badly wrong with European bond spreads -- or, one that shall remain nameless said at an event of ours that Italian bond yields would be the biggest re-election threat to Obama.'
'A potential offset to the weaker-than-expected Iranian exports could be the return of crude oil supplies from South Sudan. A dispute between Sudan and South Sudan led to the shut-in of around 400 thousand b/d of supplies earlier this year. Last week, US Secretary of State Hillary Clinton met South Sudan's President Salva Kiir in Juba, urging both South Sudan and Sudan to settle the dispute. Just hours after this meeting, South Sudan and Sudan announced that they reached an agreement over oil transit fees.'
'The goal would be to drive margin rates to dramatic lower levels not seen in history. The strategy would be to make mortgage money so cheap that folks would virtually have to refinance. Others, seeing such low rates might be induced to buy other bargain basement priced housing and maybe rent it as income property.'
'Mightn't it do more harm than good for gold prices too? For instance, due to the still diminished risk appetite, QE (in the way it has been conducted up to now) simply adds to the tightness in the safe-haven bond markets. Some money market investors are already facing negative yields and are being made poorer as a result of QE. It is difficult to see how this could be good for gold prices.'
'In fact, Rosenberg points out that there is an 81 per cent correlation between annual growth in U.S. exports and ISM new orders, and that this level of new export orders coincided with the last two recessions.'
'Retail sales fell in April, May and June - and 27 out of 29 times sales fell for three consecutive months since data started in 1947, the economy was in or within three months of a recession. The weakness in consumer borrowing reflects the consumer retrenchment after their mini spending spree last year.'
'The growth trend line for both after-tax corporate profits in the National Income and Product Accounts and nominal GDP in the US has been about 7% since 1960. In recent years, profits have been growing above this line, while nominal GDP has fallen below it. In my opinion, this is a sustainable divergence, assuming that overseas profit opportunities continue to outpace domestic ones. The growth trend in S&P 500 forward earnings remains around 7%.'
'Despite the food supply shock from adverse weather conditions, we still believe the downward trend in CPI and PPI inflation remain intact, and the case for further interest rate cuts is strong. However, unless the recent rise in vegetable prices and soft commodity price surge in the international commodity market turn out to be short-lived or insignificant to China's CPI inflation, the PBOC may see less room for monetary easing before CPI inflation is clearly heading south again.'
'June and July's sub 50 US Mfg. ISM and continued commodity price and FX EPS headwinds, make it very likely that 3Q12 EPS will be down sequentially and vs. last year, which is rare outside of recessions. Given the continued weakness in global PMIs this week and still no certainty in decisive policy actions, we fear that investors are unlikely to calmly wait for 2H macro improvement. We think the S&P is likely to sell-off 5-10% in the near-term from today's price.'
'It is very popular to suggest that the US stock market has been a poor investment over the past decade-plus given that the S&P 500 and the Dow Jones Industrial Average are still trading below their prior highs,' Levkovich writes, 'yet, a fair amount of that narrative can miss some important perspectives.' The main points underpinning Levkovich's argument: The starting point for the measurement matters, small caps have done incredibly well against the broader market, and everyone is ignoring dividends.
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