Weekly Bull/Bear Recap: New Year’s ‘12 Edition


+ U.S. economic data continues to shine.  Let us count the ways:

  • U.S. ISM manufacturing logs its best result since June; led by New Orders, Production, and Employment.  Auto demand remains strong and exports revert back above the 50 mark.  
  • Confidence is at its best level since June, according to Gallup Poll.  It’s at its best level since July, according to the Bloomberg Consumer Comfort Index.  Why?…  
  • …The labour market is markedly improving as per both the ADP and BLS job reports, which turn in readings of +325K and +200K jobs created respectively; the unemployment rate falls to the lowest in almost 3 years at 8.5%.  Both results are better than expectations.  Jobless claims plunge 15K and the 4-week average falls to the lowest in over 3 years.
  • The Association of American Railroads reports that rail traffic picked up in December.  From the looks of the graph, it looks like the recovery is actually gaining steam.         

+ The European Service PMI report turns in a better than expected result (indicating stabilisation), while German Unemployment falls to a record low for unified Germany.  The bears state that a major recession will cause a flareup in the debt crisis.  These data points, as well as loosening monetary policy in the quarters ahead due to falling inflation, suggest that both recession and the debt crisis will be contained and will surprise many. 

+ Any synchronised global slowdown will be shallow, surprising investors to the upside.  China’s service PMI shows continued growth in its domestic economy, producing a reading of 52.5 and unchanged from November; while the country’s official manufacturing PMI rebounds to 50.3 in December from 49.0.  Whisper numbers for inflation are 4% in December = loosening monetary policy.  Meanwhile, UK manufacturing PMI data increases to 49.6 from 47.7 and is just a smidgen below the 50 mark, the demarcation between expansion vs. contraction; demand increased from Germany and China according to the report.  UK services PMI reports its strongest result in 5 months, rising to 54.0 in December from 52.1.       


– Greece is in a depression and a debt trap.  Falling revenue, due to austerity measures, is complicating the slated EUR130 billion bailout.  It will have to be larger, which aggravates an already delicate political situation.   Spain’s government deficit may be larger than 8%; to which the government responds, “the beatings will continue until moral improves.”  Good luck slashing the size of the government in a social welfare state without serious unrest.  Hungary is on the precipice and has requested help from the IMF, again.  Italian and Spanish 10-yr yields are marching higher again, while French 10-year OATs fall in value for 8 consecutive days.  Sovereign bond markets aren’t drinking the equity hopium.    

– While the bulls focus on lagging indicators, such as the unemployment rate (btw, Eurozone’s unemployment rate stays stuck at a record 10.3%), let’s focus on some leading indicators shall we?  German factory orders plunge 4.8% mum in November, while October’s result was revised down from +5.2% to +5.0%.  Factory orders in Germany have plunged more than 8% in the past 5 months.  This data point signals a sharp slowdown on tap in Q1.  Here’s a coincident indicator, “Confidence in Euro Region at Two-Year Low as German Orders Slide.”    Bullish news from the UK?  Ok, here’s an offset: “UK car sales fall to lowest since 1994.” 

– The key risk to China’s slow-landing thesis continues to lurk.  Chinese home prices fall for the 4th consecutive month in December.  Premier Wen Jiabao states the obvious, China’s in a stagflationary dilemma.  No substantial loosening is coming.  Furthermore, falling housing prices are morphing into a political crisis for the communist country.    

– The ECRI’s leading indicator growth rate has broken through support of a narrow 7-week range, falling to -8.2 from -7.6.  Recession is knock knock knocking on heav…the U.S.’s door.

– America’s debt to GDP ratio surpasses 100%.  Increased interest expense on this debt smothers investment in real economic growth, falling potential GDP, and a loss of confidence.  Politicians will revert to money printing, which will lead to high long-term inflation and a lower standard of living for all.

Iran and the U.S. are a rogue’s attack away from war.