Global Manufacturing Index Signals Rising Recession Risk

Globalpmi
Despite a modest uptick in October, the JPM Global Manufacturing PMI just recorded its fourth straight reading below 50. With its 12-month moving average teetering on that dividing line between expansion and contraction, it seems clear that the risk is to the downside as far as the global economy is concerned.

In fairness, the index has only been around for 12 years, which is not enough of a history to establish a definitive causal relationship. But given the value that PMI indicators for individual countries have had with respect to predicting economic upturns and downturns, and it doesn't seem a stretch to interpret the recent negative readings in a similar light.

Podcast: Nearing the Tipping Point of the Euro’s Demise

In this week's podcast -- a feature that will in future only be available to members of Panzner Insights -- I discuss why I believe the collapse of the euro as it exists now is imminent, as well as its broader implications.

The truth is, while there has been plenty of commentary about how individuals and institutions in, say, Greece might be affected if that country exits the eurozone and brings back the drachma, less has been said about how such a scenario will affect those based outside the region. I've tried to address that shortfall with today's broadcast.

[Note: click to play or right mouse-click and save to download].

Panzner Insights 093012

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Faltering Chinese Demand Affecting a Broad Range of Industries

While sporting goods manufacturer Nike late yesterday blamed its disappointing results on weak Chinese demand for its apparel and other products, it's clear that faltering growth in that Asian nation is affecting a range of companies and industries. Here are just a few examples:

Fuel Oil

"Asia Fuel Oil-Weak On Cooling China Demand, Eye on Arb" (Reuters)

Shrinking demand for fuel oil in China for fuel oil in China weighed heavily on the Asian fuel oil market on Friday, while heavy arbitrage supply flows into Asia were expected to further depress prices.

Buying interest from China has been badly hit by slowing industrial and manufacturing activity. A key use of fuel oil in China is as a feedstock for small and medium sized refiners, who process the residual fuel for its gas oil, which is then sold of to industries for power generation.

Diesel

"China Diesel Imports Dry Up as Economy Slows" (Reuters)

China is unlikely to import diesel for domestic use for the rest of the year due to a slowing economy, industry sources say, putting pressure on Asian diesel margins as well as potentially reversing high prices for the fuel in the West.

The drop in imports of diesel, Asia's most widely consumed fuel, is the latest example of slowing industrial activity in China feeding through to demand for resources. Consumption of iron ore, steel and copper have all fallen in recent months.

The main output of Chinese refineries is typically diesel, but China normally starts buying at this time of the year on the spot market to meet peak demand from agriculture and for power generation. This year China is still exporting.

Steel

"Iron Ore Hit by Weak Chinese Demand, Poor Steel Outlook" (Reuters)

Sellers of imported iron ore cargoes to top buyer China cut prices for a third day on Tuesday as weak demand pushed the benchmark rate to a one-week low, as the near-term outlook for the steel market remained weak despite recent gains.

...

Iron ore has recovered from a near three-year low of $86.70 reached earlier this month, on hopes that China's approval of more than $150 billion worth of infrastructure projects would boost steel demand.

But the rebound has since been curtailed by signs end-user demand for steel in China, the world's biggest consumer and

producer, remains weak despite a recent spike in steel prices.

"Inquiries are very limited. It looks like most mills are done with restocking ahead of the holidays," said an iron ore trader in Shanghai.

Ships

"China Steelmaker, Miners Cut Output as Slowdown Bites" (Money News)

SHANGHAI/DALIAN, China — A major Chinese steelmaker said on Thursday it has halted production at a loss-making plant and expressed doubt that government attempts to stimulate the slowing economy would revive demand in the world's biggest market for the metal.

With China's slowing growth sapping demand for new ships and construction, an industry official said more than a third of the country's iron ore mines were idle due to depressed prices, and the top steel producer also forecast lower output this year.

Coal

"Chinese Slowdown Idles U.S. Coal Mines" (Wall Street Journal)

Slowing growth in China is taking a brutal toll on Appalachian coal mines and coal towns.

Appalachia has one of the world's richest deposits of high-grade coal used to make steel. Thanks to Chinese demand, the price for premium metallurgical coal, whose low-ash and low-sulfur content makes it ideal for steelmaking, hit a record $330 a metric ton in early 2011.

Now, the Chinese economy is slowing and so is its steel industry. That has sent the price of coal used for steelmaking down nearly 50% to $170 a metric ton. Those coal producers who counted on Chinese sales are reeling.

"When someone had coal to move, China was your big box store," said Ernie Thrasher, chief executive of XCoal Energy & Resources, a major U.S. marketer of such coal to Asia. This year, "the switch went off."

Specialty Minerals

"Rare Earth Prices Slump Amid Slowdown" (ChinaDaily.com)

BEIJING -- Prices of China's rare earth products dropped sharply over the past month as market demand remained weak amid the economic slowdown.

Data from Baichuan Information, a raw material information provider, showed that prices of several rare metals, including lanthanum oxide and praseodymium oxide, almost reached the year's lowest level in August despite a rebound starting in June.

The price of praseodymium-neodymium oxide, primarily used to make ceramics and magnetic materials, fell to around 360,000 yuan ($56,800) per ton in August, compared to the year's lowest of 340,000 yuan per ton in March, according to Baichuan Information.

The figure was also significantly down from the highest price level of 1.4 million yuan per ton recorded last year.

"Weak downstream demand is the major reason for the price slump," said Du Shuaibin, an analyst with Baichuan Information.

Trucks

"Truckmakers Buffeted by Global Headwinds" (Financial Times)

Truck and other commercial vehicle manufacturers are facing growing headwinds from the global economy as demand in Europe, China and Brazil fades and the outlook for the previously buoyant US market grows more uncertain.

Europe’s sovereign debt crisis has caused industrial customers to postpone big-ticket purchases of heavy trucks, while public budget cuts have hurt demand for buses.

Truck sales have also slowed in China and India, two of the world’s biggest commercial vehicles markets, while tougher emissions standards and the weaker economy have caused a lull in Brazil.

Automobiles

"China Woes Put Brake on Luxury Car Sales" (Financial Times)

After months of enjoying rude health and record sales, the luxury car sector may finally be catching a cold, courtesy of falling demand in southern Europe and China.

Executives at the Paris Motor Show are clear that premium car sales are holding up a lot better than Europe’s embattled mass-market sector.

Still, the big double-digit growth rates in China they enjoyed in past months may be a thing of the past and premium vehicles are becoming a luxury that many southern Europeans can no longer afford.

Diamonds

"Luxury-Sales Slowdown in China Spreads to Diamonds" (Wall Street Journal)

Demand for diamonds is slowing in China, according to the distribution arm of mining company De Beers, the latest company in the luxury sector to suggest that the meteoric growth rates in the world's No. 2 economy are leveling off.

China jumped to become the world's second-largest diamond consumer last year, buying 10% of the world's production. The country ranks behind the U.S., which buys 38% of the world's diamonds.

"Last year, China grew over 20%. This year, it will be up around 10%," said Varda Shine, chief executive of the Diamond Trading Co., the De Beers subsidiary that distributes rough diamonds.

Household Fixtures

"China’s Inventories Pile Up as Demand Flat-Lines" (Globe and Mail)

You know it’s going to be a bad year for China’s exporters when all manner of goods – including the kitchen sinks – are gathering dust in storerooms.

“Of course [the slowdown] is affecting us,” Du Huayao, the manager at Foshan Nanhai Bigao Sanitary Ware Co. Ltd., which makes bathroom and kitchen fixtures, said in a telephone interview from his factory in Guangdong province.

“Sales this year from the foreign market have dropped from one-third to two-thirds.”

Compounding Mr. Du’s woes is China’s slowing property market, which has pulled down his domestic sales as well. The company has already laid off 20 of its original 50 workers and has slowed production.

Raw logs and milled lumber

"China’s Economic Slowdown Drives Down Demand For NW Logs" (Oregon Public Broadcasting)

China’s economic slowdown is cutting down the number of logs exported from Pacific Northwest forests.

A new report from the U.S. Forest Service says 25 percent fewer logs were exported from Oregon, Washington, Northern California and Alaska during the first half of this year. That’s compared with the same period of 2011.

Forest Service research economist Xiaoping Zhou says China’s decreasing appetite for raw logs and milled lumber is a big reason for the drop.

“China’s economic slowdown has reduced that country’s demand for log and lumber imports,” Zhou said. “This is largely responsible for the overall decrease in West Coast exports.”

Stock Prices vs. Durable Goods Orders: Disconnected

Over the past two decades, whenever the year-on-year trend of durable goods new orders has been falling and subsequently drops below -5%, stock prices have generally followed suit -- except recently.

Durablegoodsstockprices

One reason why things are different this time, of course, is the Fed's program of quantitative easing, which is helping to keep stock prices propped up despite a deteriorating fundamental outlook.

Looked at another way, the current Wall Street-Main Street disconnect could be seen as further proof that, for all the Fed's claims to the contrary, its policies are doing little or nothing for the real economy.

The insanity continues.

~~~~~

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Watch Out Below

For anybody who's been paying attention, it's no surprise to learn, according to an association of chief executive officers of leading U.S. companies with more than $7.3 trillion in annual revenues, that CEOs have sharply reduced expectations for the U.S. economy:

Policy Uncertainty Drives Weak Outlook on Sales, Hiring, Capital Spending and GDP

Washington – The results of Business Roundtable’s (BRT) third quarter CEO Economic Outlook Survey for 2012 show a further downturn in CEOs’ expectations for sales, capital spending and hiring for the next six months. The Business Roundtable CEO Economic Outlook Survey Index decreased to 66.0 in the third quarter of 2012 from 89.1 in the second quarter of 2012, the lowest reading since the third quarter of 2009 and the third largest single quarter drop in the survey’s history.

“CEOs foresee slower overall economic growth for 2012 and have lower expectations for sales, capital expenditures and hiring compared to last quarter,” said Jim McNerney, Chairman of Business Roundtable and Chairman, President and CEO of The Boeing Company. “The downshift in quarterly sentiment reflects continuing concern about the strength of the recovery, including uncertainty over the approaching fiscal cliff and accompanying debates about the tax code, sequestration and the debt ceiling.”

For those of you who are into technical analysis (I happen to be a fan), the BRT's Economic Outlook Index appears to have traced out a "head & shoulders" top -- a chart pattern that is often seen before a precipitous drop.

BusinessroudtableCEO

Of course, this time is different -- right?


Watch Out Below

For anybody who's been paying attention, it's no surprise to learn, according to an association of chief executive officers of leading U.S. companies with more than $7.3 trillion in annual revenues, that CEOs have sharply reduced expectations for the U.S. economy:

Policy Uncertainty Drives Weak Outlook on Sales, Hiring, Capital Spending and GDP

Washington – The results of Business Roundtable’s (BRT) third quarter CEO Economic Outlook Survey for 2012 show a further downturn in CEOs’ expectations for sales, capital spending and hiring for the next six months. The Business Roundtable CEO Economic Outlook Survey Index decreased to 66.0 in the third quarter of 2012 from 89.1 in the second quarter of 2012, the lowest reading since the third quarter of 2009 and the third largest single quarter drop in the survey’s history.

“CEOs foresee slower overall economic growth for 2012 and have lower expectations for sales, capital expenditures and hiring compared to last quarter,” said Jim McNerney, Chairman of Business Roundtable and Chairman, President and CEO of The Boeing Company. “The downshift in quarterly sentiment reflects continuing concern about the strength of the recovery, including uncertainty over the approaching fiscal cliff and accompanying debates about the tax code, sequestration and the debt ceiling.”

For those of you who are into technical analysis (I happen to be a fan), the BRT's Economic Outlook Index appears to have traced out a "head & shoulders" top -- a chart pattern that is often seen before a precipitous drop.

BusinessroudtableCEO

Of course, this time is different -- right?

(Still) Not Time to Be Betting on the Return of the Consumer

Theuseconomyandtheconsumer

Even with today's stronger-than-expected reading for September, the Conference Board's Consumer Confidence Index has not kept pace with increases in many traditional indicators of economic well-being, and it remains signicantly below where it was prior to the financial crisis.

Among the possible reasons for the differential:

  • broad-scale indicators are either overstating how good current conditions are do not adequately describe circumstances at the micro (e.g., household) level;
  • a large share of the macro-level improvements have accrued to a small number of Americans (e.g., the wealthy); or,
  • longer-term concerns, including worries over retirement and future job prospects [and levels of outstanding debts, which is leading some to turn to alternatives like Property development finance and same day payday loans], are overshadowing short-term improvements.

Regardless of which, if any, of these explanations is correct, the fact that consumer sentiment remains below where it should be, historically speaking, means that it's (still) not time to be betting on the return of the American consumer.

Psychopaths?

In "Podcast: The Fed's Days Are Numbered," I discussed the Fed's failure to achieve its stated objectives on both a long and short-term basis, and questioned why Bernanke & Co. continue to press forward with policies that have not worked and have failed in other settings (e.g., Japan).

Their behavior calls to mind Albert Einstein's (in)famous quip that the definition of insanity is doing the same thing over and over again and expecting different results.

And yet, even though it is apparent that quantitative easing is not working and that it is actually causing all sorts of collateral damage, you still have the so-called "experts" arguing that the Fed will need to continue heading down this path in the period ahead, as ValueWalk.com reports in "QEIII Won’t Work, QE4 Coming this Year: Morgan Stanley Bombshell":

Below are some highlights from Morgan Stanley (NYSE:MS):

QE3 will likely be insufficient to significantly boost equity markets and we wouldn’t be at all surprised to see the Fed dramatically augment this program (i.e., QE4) before year-end, particularly if economic and corporate news continue to deteriorate as they have over the past few weeks. While the Fed’s ultimate aim is stable pricing and full employment, key near-term feedback from equity markets could prove disappointing.

...

Deutsche Bank also has some comments on QE4 and QEF (forever) in a report issued this morning. They state:

We think yields are gravitating higher and have raised our year-end target for 10s to 2 percent. Fundamental drivers include a better global growth momentum picture for 2013 as well as our view that the worst of the fiscal cliff is already priced. QEF (‘F’ for forever) raises some interesting issues in terms of how to frame the outlook for yields if the Fed is
apparently willing to commit to unlimited purchases subject to (economic) conditions. The ability to influence yields comes down to the play off between depressing real yields directly versus the risk of elevating inflation expectations.

We have a revised nominal yield model for the post crisis period. If the Fed doesn’t deliver on QE4, yields could easily rise towards 2 ½.

Of course, this raises an interesting philosophical question: if the Fed is engaging in insane behavior, what do you call those who seek to enable this behavior?

Psychopaths?

Podcast: The Fed’s Days Are Numbered

In last Sunday's podcast -- a feature that will in future only be available to members of Panzner Insights -- I argued that geopolitical risk, a threat that is often ignored until it is too late, is on the rise and must be taken into consideration.

In this week's edition, I discuss the Federal Reserve's failure to achieve it's stated objectives on both a long and short-term basis, and why I believe the Fed's days are numbered (which could have serious consequences for investors and businesses alike in the years ahead).

[Note: click to play or right mouse-click and save to download].

 

Panzner Insights 092212

 

~~~~~

Coming soon: Panzner Insights,
an exclusive members-only website focused on
markets, economics, and geopolitics

If you are interested in learning more, please click here to open a form where you can fill in your name and email address (or alternatively, shoot me a quick email with the details), and I will be in touch...

(Note: your contact information will ONLY be used to let you know when my new site is up and running. I DO NOT sell, trade, exchange, or otherwise transfer any email addresses or other personal data that you provide to me. Privacy is precious. I respect yours.)


Podcast: The Fed’s Days Are Numbered

In last Sunday's podcast -- a feature that will in future only be available to members of Panzner Insights -- I argued that geopolitical risk, a threat that is often ignored until it is too late, is on the rise and must be taken into consideration.

In this week's edition, I discuss the Federal Reserve's failure to achieve its stated objectives on both a long and short-term basis, and why I believe the Fed's days are numbered (which could have serious consequences for investors and businesses alike in the years ahead).

[Note: click to play or right mouse-click and save to download].

 

Panzner Insights 092212

 

~~~~~

Coming soon: Panzner Insights,
an exclusive members-only website focused on
markets, economics, and geopolitics

If you are interested in learning more, please click here to open a form where you can fill in your name and email address (or alternatively, shoot me a quick email with the details), and I will be in touch...

(Note: your contact information will ONLY be used to let you know when my new site is up and running. I DO NOT sell, trade, exchange, or otherwise transfer any email addresses or other personal data that you provide to me. Privacy is precious. I respect yours.)

Behind the Curve

According to rating agency Standard & Poor's, "there’s a 20% to 25% chance that the U.S. economy will suffer a double-dip recession."

If the following reports are any guide, I reckon the odds are closer to 100% that we are already in one.

"Older Workers Still Struggling After Great Recession" (Huffington Post)

Three years after the Great Recession officially ended, >boomers are still having a hard time making ends meet and finding jobs, according to a new AARP report.

The report, "Boomers and the Great Recession: Struggling to Recover," paints a grim picture of post 50s' mindsets when it comes to their financial well-being. A sample of "current or recent workers" ages 50 to 64 were contacted in October 2010, with a smaller group contacted again in August 2011 to see if boomers felt any differently about their prospects.

"The recession’s effects on older Americans were particularly severe for salary earners in their 50s and early 60s who were counting on more than a few years of additional earnings before retirement and were unlucky enough to lose their jobs."

An overwhelming number of older workers -- who, the study pointed out, have less time than their younger counterparts to recover from job loss or tumbling stock markets and housing values -- felt less secure about their finances.

"Older Workers Find Livelihood in Temping" (Reuters)

CHICAGO - Growing numbers of older Americans who have struggled to find work in the wake of the Great Recession are doing something they once considered unthinkable: They are taking temporary jobs.

And this is one of the best job moves they can make, according to Kerry Hannon, author of the new book "AARP Great Jobs for Everyone 50+" (Wiley).

"But I call it independent contracting, not temping," Hannon says. "It sounds more professional."

While the 5.9 percent unemployment rate for people over age 55 is considerably lower than the 8.1 percent national average, those out of work have a hard time finding full-time jobs, mostly because they are more expensive to hire.

Unemployed people over 55 were jobless an average of 52.7 weeks in August, compared with just 36.1 weeks for younger workers, according to the U.S. Bureau of Labor Statistics,

Temporary work is providing a solution. Just in the past year, the independent workforce has grown to 16.9 million from 16 million, according to research by MBO Partners. Forty percent of those contractors are 50 and older, and 10 percent are over 65, the Herndon, Virginia-based temporary employment company found.

"Americans Continue to Struggle Post-Recession" (USNews.com)

This week, we reported on the Pew Research Center’s findings that the 2000s were a lost decade for the middle class, as a result of declining household income and shrinking net worth over that 10-year period. Now, Pew reports that in the two years since the end of the Great Recession, Americans continue to shed resources.

In fact, the decline of household median income in the last two years matched the drop that occurred during the recession itself, Pew reports. In 2009, when the recession ended, median household income was $52,195, and in 2011 (the most recent year available), it was $50,054, a decline of 4.1 percent. Back in 2007, before the recession, median household income was $54,489. That leads Pew to conclude that “recovery from the Great Recession is bypassing the nation’s households.”

"Great Recession Still Slamming the Middle Class" (NBC News)

The poor stayed poor and the rich got richer, but the middle slipped a few more rungs down the economic ladder.

More than five years after the Great Recession began, the lingering impact of the worst downturn in a half-century continues to deplete the standard of living of middle-class American households.

Median household income, after adjusting for inflation, fell 1.5 percent last year to $50,054, according to the Census Bureau's annual report on income and poverty issued released Wednesday. The poverty rate, at 15 percent, remained stuck at the highest level since 1993.

"More Americans Added to Food Stamps Than Find Jobs" (The Weekly Standard)

An alarming data point from the minority side of the Senate Budget Committee: More Americans are being added to food stamps than are finding jobs. The data is detailed in this chart, provided by the committee:

Weeklystandardimg

As the chart shows, between April-June 2012 (the most recent three month block for which government data is available), only 200,000 jobs have been created while 265,000 individuals have been added to the food stamp rolls. Additionally, in that time period, 246,000 workers were awarded disability.

"Jobless Rates Increased In More Than Half The Country In August" (Business Insider)

Friday's unemployment report won't change that hiring is the foremost topic on everyone's mind.

In August, unemployment rates increased in 26 states — including 11 swing states in this year's election — 12 states remained unchanged and 12 states had decreased rates, according to the BLS report.

The numbers showed Nevada has the highest unemployment rate in the country at 12.1 percent, and North Dakota has the lowest at 3.0 percent.

"FedEx Total Package Shipments Point to Sharp Decline in GDP" (Pragmatic Capitalism)

Interesting data point here via Bloomberg Economics Brief:

CHART OF THE DAY:  From today’s “Bloomberg Economics Brief,” Bloomberg economist Rich Yamarone releases a chart showing that FedEx’s total U.S. package shipments may indicate a bleak outlook for economic activity. Is a recession in the cards?

Federal Express Cuts 2013 Profit Forecast on Economy, Fuel

FedEx Corp., an economic bellwether as operator of the world’s largest cargo airline, reduced its profit outlook for the second time this year, citing a slower economy. The shipper said its “2012 U.S. GDP growth forecast is 2.2 percent and 1.9 percent for calendar year 2013, which is 0.5 points lower than our fourth-quarter earnings forecast.” “Exports around the world have contracted and the policy choices in Europe, the U.S. and China are having an effect on global trade,” Fred Smith, chief executive officer of the company, said. The company’s ground-delivery business in the U.S., which offers a less expensive alternative to air delivery, posted a sales increase of 7.9 percent to $2.46 billion.

Image002

"WTO Cuts Global Trade Growth Outlook" (WA Today)

The World Trade Organisation (WTO) has slashed its 2012 global trade outlook, citing the eurozone debt crisis and weak growth in the US and China as key factors behind the downgrade.

Global trade is now expected to grow 2.5 per cent in 2012 compared with a previous forecast of 3.7 per cent, the WTO said in a statement released in Singapore on Friday.

It also cut its global trade growth outlook for next year to 4.5 per cent from 5.6 per cent.

‘‘The global economy has encountered increasingly strong headwinds since the last WTO Secretariat forecast was issued,’’ the WTO said. ‘‘Output and employment data in the United States have continued to disappoint, while purchasing managers’ indices and industrial production figures in China point to slower growth in the world’s largest exporter.

And finally, we have this:

"Uncertainty Is Adding to U.S. Jobless Rate: Fed Paper" (Reuters)

Uncertainty over the economic outlook has added between one and two percentage points to the U.S. unemployment rate since 2008, according to an estimate from the San Francisco Federal Reserve Bank.

The finding, published on Monday in the regional Fed bank's latest Economic Letter, quantifies for the first time the drag that uncertainty has had on the economy since the Great Recession.

"Had there been no increase in uncertainty in the past four years, the unemployment rate would have been closer to 6 percent or 7 percent than to the 8 percent to 9 percent actually registered," wrote San Francisco Fed research advisors Sylvain Leduc and Zheng Liu.

The Fed sent short-term interest rates to zero in December 2008 to counter the deep recession, and bought trillions of dollars of bonds to further lower long-term interest rates.

Hmmm. Perhaps that last paragraph tells us all we need to know about where much of the uncertainty is coming from: the Fed itself.

In this weekend's podcast, I will explore the success -- or lack thereof -- of Bernanke & Co.'s pointless machinations and explain why I think "The Fed's Days Are Numbered."

Stay tuned.

~~~~~

Coming soon: Panzner Insights,
an exclusive members-only website focused on
markets, economics, and geopolitics

If you are interested in learning more, please click here to open a form where you can fill in your name and email address (or alternatively, shoot me a quick email with the details), and I will be in touch...

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Not the Beginning, But the End

The following is another example of the broader range of content you can expect to find at my soon-to-be-launched website, Panzner Insights (though it seemed to be a good fit for Financial Armageddon, too):

There has been a changing of the guard with respect to which style has performed best when investing in companies of a certain size since the overall market rally began on July 1st.

During the early stages of the move, small cap growth shares outperformed their value-category counterparts by a notable margin; since late-July, however, things have gone the other way. In contrast, large cap growth languished early on, but has outpaced its value category counterpart over the past six weeks.

Growthrelvaluebysize
While its hard to say for sure what accounts for the divergence, one theory is that:

  • hedge funds and other institutions that had been on the sidelines during the early stages of the run-up were forced to jump in and try to play catch-up by buying the more volatile (but more liquid) large cap names (i.e., growth);
  • small investors and others who tend to focus on small cap issues have become more defensive amid deteriorating economic and industry-specific conditions.

If true, this assumption would tend to support the notion that the recent strength in the market has been driven by towel-throwing and performance-chasing rather than a fundamentally-inspired change of heart.

In other words, it's the sort of activity you would expect to find near the end of a move, rather than at the beginning of another leg up.

~~~~~

Coming soon: Panzner Insights,
an exclusive members-only website focused on
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If you are interested in learning more, please click here to open a form where you can fill in your name and email address (or alternatively, shoot me a quick email with the details), and I will be in touch...

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On Housing, the Answer Remains the Same

Although home-builder stocks tested new highs once again on the heels of this morning's housing data, I can't help but question whether the unrelenting euphoria is justified.

As the chart shows, we saw a similar pattern of data being reported during the period from late-2009 to early 2010, when existing home sales rose sharply amid a more subdued uptick in new home starts and sales.

Ushousingmarketfalsestart

In the end, the jump in the former proved to be temporary and appeared linked to an increase in foreclosures, short sales, and purchases by investment-oriented cash buyers, rather than to a change of heart by traditional homebuyers.

Moreover, while today's ultra-low borrowing rates undoubtedly aid affordability, there is still plenty of evidence that suggests prospective homeowners are finding it difficult or even impossible to get a mortgage.

That begs the question, of course, of whether this time is different. As usual, I believe the answer to that question is "no."

~~~~~

Coming soon: Panzner Insights,
an exclusive members-only website focused on
markets, economics, and geopolitics

If you are interested in learning more, please click here to open a form where you can fill in your name and email address (or alternatively, shoot me a quick email with the details), and I will be in touch...

(Note: your contact information will ONLY be used to let you know when my new site is up and running. I DO NOT sell, trade, exchange, or otherwise transfer any email addresses or other personal data that you provide to me. Privacy is precious. I respect yours.)


No Fear…Anywhere

Two recent posts, "No Fear," and "Reversal Time?" noted the fact that investor sentiment looks dangerously complacent. But that seeming lack of fear is actually a global phenomenon. Not only is the widely watched CBOE Volatility Index (VIX) trading near its multi-year lows, indicating that options traders are less-than-concerned about the prospect of a major market disruption, so, too, are implied volatility indexes in Europe, China, and Japan.

The obvious question, of course, is whether such complacency is justified. History would say otherwise.

Nofearanywhere

~~~~~

Coming soon: Panzner Insights,
an exclusive members-only website focused on
markets, economics, and geopolitics

If you are interested in learning more, please click here to open a form where you can fill in your name and email address (or alternatively, shoot me a quick email with the details), and I will be in touch...

(Note: your contact information will ONLY be used to let you know when my new site is up and running. I DO NOT sell, trade, exchange, or otherwise transfer any email addresses or other personal data that you provide to me. Privacy is precious. I respect yours.)


No Fear…Anywhere

Two recent posts, "No Fear," and "Reversal Time?" noted the fact that investor sentiment looks dangerously complacent. But that seeming lack of fear is actually a global phenomenon. Not only is the widely watched CBOE Volatility Index (VIX) trading near its multi-year lows, indicating that options traders are less-than-concerned about the prospect of a major market disruption, so, too, are implied volatility indexes in Europe, China, and Japan.

The obvious question, of course, is whether such complacency is justified. History would say otherwise.

Nofearanywhere

~~~~~

Coming soon: Panzner Insights,
an exclusive members-only website focused on
markets, economics, and geopolitics

If you are interested in learning more, please click here to open a form where you can fill in your name and email address (or alternatively, shoot me a quick email with the details), and I will be in touch...

(Note: your contact information will ONLY be used to let you know when my new site is up and running. I DO NOT sell, trade, exchange, or otherwise transfer any email addresses or other personal data that you provide to me. Privacy is precious. I respect yours.)


No Fear

In "Reversal Time?" I pointed to several sentiment indicators that suggest investors are way too complacent about the risks ahead. A post at Walter Kurtz's Sober Look (a site worth visiting, I might add), "Risk Aversion the Lowest in Over Two Years," highlights other measures that indicate investors have set themselves up for a nasty surprise, including the Fisher-Gartman Risk-On Index, which is trading at its highest level since the index was launched.

ETRACS Fisher-Gartman Risk On index

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Coming soon: Panzner Insights,
an exclusive members-only website focused on
markets, economics, and geopolitics

If you are interested in learning more, please click here to open a form where you can fill in your name and email address (or alternatively, shoot me a quick email with the details), and I will be in touch...

(Note: your contact information will ONLY be used to let you know when my new site is up and running. I DO NOT sell, trade, exchange, or otherwise transfer any email addresses or other personal data that you provide to me. Privacy is precious. I respect yours.)


Podcast: Geopolitical Risk on the Rise

To mark the imminent launch of Panzner Insights, a member-only website focused on markets, economics, and geopolitics, I thought it only fitting to serve up a podcast on a theme that will be increasingly important for investors and businesses alike in the months ahead (click to play, right mouse-click and save to download).

 

Panzner Insights - 09/16/12

 

Those who question whether the world is set to become more unstable than it is now might want to consider this chart I recently created --

Grainpricesfaoindex

and this 2011 Technology Review article, The Cause Of Riots And The Price of Food":

If we don't reverse the current trend in food prices, we've got until August 2013 before social unrest sweeps the planet, say complexity theorists

Riots

What causes riots? That's not a question you would expect to have a simple answer.

But today, Marco Lagi and buddies at the New England Complex Systems Institute in Cambridge, say they've found a single factor that seems to trigger riots around the world.

This single factor is the price of food. Lagi and co say that when it rises above a certain threshold, social unrest sweeps the planet.

The evidence comes from two sources. The first is data gathered by the United Nations that plots the price of food against time, the so-called food price index of the Food and Agriculture Organisation of the UN. The second is the date of riots around the world, whatever their cause. Both these sources are plotted on the same graph above.

This clearly seems to show that when the food price index rises above a certain threshold, the result is trouble around the world.

 

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Equity vs. Credit Markets: The Divergence Grows Ever Larger

Usequityvscreditdivergence

Given that each market is essentially a barometer of the economic well-being of corporate America, the yawning gap in performance that has opened up between the stock market and the credit market suggests that one or the other is out of synch.

While there are not enough data points to make a definitive statement about which is right and which is wrong, I would note that the last time we had the kind of disparity we have now was in late-2007.

Of course, things are different this time...right?


Something Wrong With This Picture

Today, the Federal Open Market Committee did what most analysts were expecting and embarked on another round of easing.

"Fed Announces Additional Monetary Stimulus" (MoneyWatch)

The Federal Reserve's announcement today that is launching a third round of quantitative easing validated widely held expectations that the central bank would provide more monetary stimulus in an effort to speed the economic recovery.

The Fed said it will purchase $40 billion a month in mortgage-backed securities and extended its guidance on interest rates. Rates will stay low through mid 2015 instead of 2014, the bank said. The additional Fed easing, along with its intention to continue reinvesting the proceeds from principal payments from its holdings of financial assets, will increase its inventory of securities by approximately $85 billion each month through the end of the year. These actions, which are more aggressive than many analysts expected, "should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative," according to a Fed statement.

They also reported that they were adjusting their economic outlook:

"Fed Cuts 2012 Growth Forecast, Raises Next 2 Years" (Associated Press)

The Federal Reserve has lowered its growth forecast for this year but is more optimistic about the next two years. The brighter outlook likely reflects a series of bold stimulus measures that the Fed launched Thursday aimed at boosting the sluggish economy.

In its updated forecasts, the Fed said it now expects growth to be no stronger than 2 percent this year. That’s down from June’s forecast for as much as 2.4 percent growth. It’s also not much better than the weak 1.7 percent annual growth rate the government reported for the April-June quarter.

The Fed said it expects growth to accelerate next year to as much as 3 percent, up from its June forecast of as much as 2.8 percent. For 2014, growth will range between 3 percent and 3.8 percent, the Fed predicts.

So, let me get this straight.

On the one hand, the Fed is saying that further monetary accommodation will make a real  difference even though the latest Duke University/CFO magazine Global Business Outlook Survey makes it clear that easier money won't lead businesses to initiate or expand investment plans.

On the other hand, the Fed announced another round of quantitative easing because they believe the economy is not on the right trajectory, and yet they are raising their economic growth estimates for the next two years.

I can't be only one who thinks there is something wrong with this picture -- right?