Raymond James strategist Jeff Saut, whose generally been cautious for several months now, has some bad news for the bears: Not all the economic news is bad, or pointing to a double dip.
Here’s his call for the week:
The call for this week: I am leaving for the Raymond James National Conference in Boca Raton, so these will likely be the only strategy comments for the week. That said, in a past life I wrote fundamental research on container board companies. Currently, those companies are raising prices, which only happens when demand warrants. Then too, rail traffic is increasing and diesel fuel consumption is rising, another metric that is inconsistent with a double-dip recession. Moreover, the number of Manhattan apartment rentals doubled in 2Q10 on a YoY basis, while office vacancies in U.S. metro areas fell in 2Q10 vs. 1Q10 for its first drop since 2007. Ladies and gentlemen, these are NOT the metrics of a double-dip recession! Meanwhile, since 2008 there has been almost NO difference between the forward PE of the S&P 500 Growth and Value composite indices. Obviously, this favours growth versus value, which is why I have been emphasising Technology in these missives. This morning, however, the pre-opening futures are lower on rumours that Deutsche Postbank had failed the stress test. Nevertheless, I think the selling will be contained and in the short term be resolved with higher prices. The real upside challenge should come at the S&P 500’s (SPX/1077.96) 50-day moving average (DMA), which currently stands at 1100.30, and the 200-DMA at 1111.60. Longer term, I remain cautious.
Interestingly, container board pricing is one of the things that James Altucher has been citing in his bull-case for the economy.
So there are signs of capacity being stretched at various points, even if the widely-followed Baltic Dry Index (BDI) is not one of them.