Thursday, April 26, 2012

Stocks Freaking Out!

Wall St Loves Bernanke

Market reaction after yesterday's Bernanke press conference
 Here is where all the Bernanke Fed money is going:
Today's stock market action!

All that Fed money is going into corporate accounts!

But they are NOT creating jobs with all that cash!

Wednesday, April 25, 2012

Hussman Says, "Run, Don't Walk"!

"Run, Don't Walk"

Wall Street continues to focus on the idea that stocks are "cheap"...

As I noted in our September 8, 2008 comment Deja Vu (Again), which happened to be a week before Lehman failed and the market collapsed, "Currently, the S&P 500 is trading at about 15 times prior peak earnings, but that multiple is somewhat misleading because those prior peak earnings reflected extremely elevated profit margins on a historical basis. On normalized profit margins, the market's current valuation remains well above the level established at any prior bear market low, including 2002 (in fact, it is closer to levels established at most historical bull market peaks). Based on our standard methodology, the S&P 500 Index is priced to achieve expected total returns over the coming decade in the range of 4-6% annually." Present valuations are of course more elevated today than they were before that plunge.

On the economic front, the recent uptick in new unemployment claims is consistent with the leading economic measures and "unobserved components" estimates that we obtain from the broad economic data here...

As I noted a few months ago, "examining the past 10 U.S. recessions, it turns out that payroll employment growth was positive in 8 of those 10 recessions in the very month that the recession began. These were not small numbers... while robust job creation is no evidence at all that a recession is not directly ahead, a significant negative print on jobs is a fairly useful confirmation of the turning point, provided that leading recession indicators are already in place."

The upshot is that while I expect a weak April jobs report, we should hesitate to take leading information from what remains largely a short-lagging indicator. We're already seeing deterioration in economic data, but it remains largely dismissed as noise. An acceleration of economic deterioration as we move toward midyear would be more difficult to ignore. My impression is that investors and analysts don't recognize that we've never seen the ensemble of broad economic drivers and aggregate output (real personal income, real personal consumption, real final sales, global output, real GDP, and even employment growth) jointly as weak as they are now on a year-over-year basis, except in association with recession. All of these measures have negative standardized values here. My guess is that we'll eventually mark a new recession as beginning in April or May 2012...

What I am adamantly against is the idea that speculators can successfully "game" overvalued, overbought, overbullish markets - particularly in the face of numerous hostile syndromes, near-panic insider selling, speculation in new issues, and broad divergences in market internals, all of which we are now observing.

Read Hussman's entire economic commentary here.

Stocks Explode on Bad News

Europe news is awful.
Even U.S. economic news is bad.

Tuesday, April 24, 2012

...But Stocks Rally

G-10 Data Turns Sharply Negative

Not a pretty picture, from Zero Hedge:

We have discussed the exuberance and dysphoria that is exhibited by economists in the context of extrapolating trends many times and nowhere is that more clearly pictured than in Citigroup's Economic Surprise Index which tracks the rise and fall of both misses and beats as well as better or worse data. For the first time in over six months, macro data for the G-10 has turned negative (with Europe having been there for a while and the US getting very close) indicating significant weakness. When this data turned from positive to negative in July 2010 it pre-empted the 'rescue' of the global economy via QE2 and each time it has dropped below its 200DMA (which it also just did) we have seen notable deterioration in equity prices soon after. What is more worrisome perhaps is the rate of deterioration over the last two months or so. Four of the last five times we dropped this rapidly we saw significant drops in stock prices soon after (Dec 2008, August 2010, and June 2011). Europe and the US are now trending lower in macro data 'surprises' as decoupling disappears but the US remains a little less bad for those looking for silver-linings - for now.
G-10 macro data has turned negative (upper pane) dropped below its 200DMA and is at its lowest in over six months. The pace of deterioration has been rapid (lower pane) and 4 of the previous 5 times this pace of drop has occurred, equity prices have dropped considerably soon after...

US and Europe are now back in sync as decoupling becomes a dim and distant memory though on the bright side we are not missing as badly as Europe...

and in case you were wondering how well this syncs with stock performance, her is the US-only Citi ECO surprise index relative to 3 month changes in the S&P 500...

Charts: Bloomberg