We head into the new week with a number of bullish developments playing out.
AAPL, a market bellwether, has broken out to new highs. CSCO, another tech bellwether, has surprised to the upside. The major indices (Dow, S&P, Russell) fought off their precarious narrow range positioning with multi-day bullish thrust. Transports resolved higher. Homebuilders (via XHB) surged to multi-year highs.
Data points last week were also constructive. Retail was a positive. On the retail side, strong action in apparel names like DSW and BKE, coming off below-market earnings multiples, shows the potential for GARP investors (growth at a reasonable price) to accumulate more shares at valuations they can be optimistic about.
And all of the above, of course, has been confirmed by declining treasuries (TLT), which suggests the migration into risk assets is real despite low volume concerns. A rotation out of “safe haven” areas of the market, like utilities and consumer staples, confirms the same.
A dangerously low VIX is a concern, as is the potential for more sturm und drang out of Europe. But historically we know that, in bull runs, the VIX can stay low for extended periods of time, and Europe is a black box as far as macro dangers are concerned. Professional money managers, who worry about career risk first and foremost, will not be stopped in their mission to add exposure by fears of another eurozone shock.
Last but not least, there is the optimistic analogue of the Presidential cycle – a form of voodoo, many would say, but also a comparison with self-fulfilling tendencies via so many investors paying attention to it (and using its positive message as excuse to buy).
If the general pattern of the Presidential election cycle holds, equities could grind higher into September – at which point it’s a new ballgame.
We could also see accelerated upside between here and there, if money managers caught underweight equities wind up ‘beta chasing’ via determination to deploy cash in a hurry.
All in all it remains an environment of, “When the cat’s away, the mice will play,” with the cat in this place being top down macro shocks and global economic headwinds.
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- Caterpillar warns on global uncertainty – FT.com
Doug Oberhelman, CEO of CAT, sees more uncertainty now than “at the start of the crisis in 2008.” He predicts a five year period before Europe’s economy begins to grow again, and sees the global economy’s path over the next year as harder to predict than “at any time in his 37-year career at Caterpillar.”
Oberhelman also made the following curious statement: “As we look at all of the economic stimulus around the world, virtually all the governments were not as aggressive as they should have been and that’s why we’re feeling a soft spot now.”
The view that more stimulus was needed is depressing and myopic, especially coming from the CEO of a major corporation. The purpose of post-crisis stimulus was to keep the global financial system from suffering a massive heart attack, not to jolt the patient all the way back to artificial health. What’s more, the larger the stimulus boost early on, the greater the potential hangover that follows.
- Grexit debate stirs in Germany ahead of Greek PM visit | Reuters
- Germany may be the country that brings the euro crashing down – Telegraph
Anger, resentment and bailout dissent may be stronger in Germany than much of the outside media is reporting. The question remains how the euro zone can possibly hold together, let alone pull off a rescue, when both sides are frustrated and furious: The rescuers feel the bill is too high, and assurances too vague; the countries in line for being rescued, however, feel they are choking on force-fed austerity programs.
- Italian dies after setting himself on fire outside parliament | Reuters
The ‘Arab Spring’ was ignited by a youth setting himself on fire in Tunisia. Could the same “revolution” pattern unfold in, say, Italy or Greece?
- China Said to Order Action by Banks as Developer Loans Sour
- Shrinking Credit for China’s Banks – WSJ.com
China continues to look like a disaster in waiting. Some (like CAT CEO Oberhelman) argue that China has bottomed, but that seems an early and optimistic point of view. China has its own version of a massive real estate bubble and embedded subprime crisis. Iin America, too, there was a point at which subprime was verbally written off as “contained.”
- New Wave of Deft Robots Is Changing Global Industry
As firms everywhere embrace automation to cut costs, the plight of the mid-level Western worker gets worse. Low to medium skill jobs are continously being outsourced – not always to foreign shores, but to machines. A robotic arm never gets sick or takes vacation days.
- Bullish trends confirmed across the major indices
- Emerging Markets (EEM) gen bullish stance as well (excepting China)
- Grains (via DBA) setting up for potential breakdown
- GLD, SLV coiling for potential breakouts
- Money centre Banks (C, JPM) bull flag formations
- Aussie dollar (AUDUSD) rounding top?
- Grains (via DBA) in sideways stall, ready for breakdown?
JS ([email protected])
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