The Big Picture - Macro Perspective on the Capital Markets, Economy, Technology, and Digital Media

Through November 2011, the S&P/Case-Shiller1 Home Price Indices declined 1.3`% for both the 10- and 20-City Composites in November over October. For a second consecutive month, 19 of the 20 cities covered by the indices also saw home prices decrease.

For year over year data, the 10- and 20-City Composites posted losses of -3.6% and -3.7% versus November 2010. These are worse than the -3.2% and -3.4% respective rates reported for October.

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More charts after the jump

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I was sitting on Friday’s hilarious Dilbert, expecting to post it Saturday, but so many friends and colleagues mailed it in to me, I was compelled to post it today:

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In this week’s Barrons, Mike Santoli takes a closer look at the 30 individual Dow Industrial stocks.

A few observations worth noting: The winners were stable, defensive companies, while the losers were financials and the more cyclically sensitive names.  The 2011 winners marked their second consecutive successful year: McDonald’s (MCD), Home Depot (HD) and Kraft Foods (KFT) all did well. The laggards — Bank of America (BAC), Cisco Systems (CSCO), Hewlett-Packard (HPQ) and Alcoa (AA) — were also the laggards in 2010.

The most interesting data point to me was the performance bell curve. Will the fat middle was mostly flat (plus or minus a few %), there were 8 DJIA names out of the Dow 30 either rose or fell 20% or more last year. That is 26.67% whose performance is far away from the market average.

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click for larger table; don’t click for bigger table — what, you think I care?

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Source:
Daredevils of the Dow
MICHAEL SANTOLI
Barron’s January 14, 2012  
http://online.barrons.com/article/SB50001424052748703409004577154732178350826.html

Where the Buys Are

Emerging markets are cheaper than their developed counterparts with far more growth. Earnings for the MSCI Emerging Markets index are expected to grow at 15% over the long term, versus 12% for MSCI World index.

China, Brazil and South Korea, it bears noting, are among the biggest and most liquid markets in the developing world.

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Source:
It’s Time to Buy
CHRISTOPHER C. WILLIAMS
Barron’s AUGUST 20, 2011
http://online.barrons.com/article/SB50001424052702303858904576514653430949260.html

The Dow Transportation Index was down almost 4 percent Tuesday and if there is any silver lining  in the current market turmoil is that Trannies usually lead crude down, which will drop gas prices.  The chart below shows the 12.2 percent swan dive in the Dow Transports since July 7th with crude oil barely moving.  We’re expecting a catch-up trade to the downside for crude oil in the next few days.

If oil falls,  the price of gas falls, which acts as a tax cut for the consumer — the good kind of stimulus!   See here for our gas price sensitivity matrix on consumer budgets.   A person who  drives 70 miles per day, for example, saves around $1,500 on an annual basis for every $1.00 decline in the price of gasoline.    All bets off if the Fed cranks up QE3.

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Nasdaq OMX is rebalancing the Nasdaq-100 index (QQQs), which currently has one company — Apple (AAPL) as more than 20% of the index.

The WSJ notes “Apple’s market capitalization is roughly $300 billion, twice that of Google. But its weighting in the index was five times that of Google. After the rebalancing, Google’s share of the index will be 5.8% compared to Apple’s 12.3%. Apple will remain the largest component of the index.”

No one should be surprised at this — it is long overdue. If I were running this, I would place a cap on the size any single stock can be in the index at 10%. Rebalance quarterly when it exceeds that level; monthly if it is exceeds it by 3%.

Beyond that, it is simply imprudent for any index to be a proxy for a single stock. The point of indexes is a broad based representation of a given sector or industry.

Apple has risen 4-fold over the past 2 years. Quite bluntly, it is surprising the OMX has waited this long . . .

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courtesy of WSJ

I normally NEVER care about PR releases — they are rarely on topic, and mostly worthless — but this run of Dow Jones data was surprisingly relevant to the end of Q1:

Dow Jones Industrial Average

Long term data
· Highest intraday level (12419.71 at 12:08:49 on 4.1.11) since June 6, 2008.
· Down 1787.81 points, or 12.62%, from its record close of 14164.53 on October 9, 2007.
· Up 13.27% from 52 weeks ago.
· Up 89.04% from its 12-year closing low of 6547.05 on March 9, 2009.
· Up 6.57% from its lowest close this year of 11613.30 on March 16.
· Year-to-date: up 6.90%.

Weekly data
· Up 156.13 points this week, or 1.28%, to 12376.72
· Up for the second consecutive week.
· Up 518.20 points, or 4.37%, in two weeks.
· Largest two-week point and percent gain since the two-week ended June 18, 2010.
· Highest close since February 18, 2011.
· Up nine of the last 12 trading days.

As of late, I have been intrigued by Japan. It is a part of the world that investors seem to detest ignore, despite signs of technical improvement.

I’ve talked about this in the office, and with some of our clients who either own specific Japanese names — or live there. The thought process is Japan is a potential surprise in 2011.

I first spotted this on FusionIQ; The reason was due to it flipping back and forth between a Neutral and a Buy in October. EWJ is a VERY interesting chart — much more so than the Nikkei Dow; EWJ is in a nice uptrend that slipped over its the December 2009 highs earlier this month; It just got over its April 10 highs this week.

Here are 10 Reasons I want to own some Japan for 2011:

10 Reasons to Think About Japan

1. Everyone seems to hates — or just ignore — Japan as an investment; its widely disliked for its bad demographics, aging population, ongoing MULTI-DECADE recession.

2. The chart! Nice uptrend, new highs.

3. Institutionally and on Main Street, Japan is VERY under-owned.

4. The island nation is still the 2nd biggest economy in the world in real (not nominal GDP) dollars; they are a huge exporter, and an industrial powerhouse.

5. Proximity to China: As it grows, Japan has easy access to even cheaper low end manufacturing. The high value engineering and design work stays in Japan, but the toxic smokestack industry moves to the mainland.

6. Improving global economy could help Japan’s export business.

7. If China rescues Europe, Japan benefits.

8. The country has shown long term resilience to misfortune — the only nation to be nuked (2X!)

9. Modern infrastructure, highly educated, excellent work force; forward thinking gadget-head consumers.

10. Consumer prices are anticipated being flat next year — the 1st time after 3 years deflation.

And did I mention I like the chart ? Note how many times EWJ got turned back at $11. What would get me really excited was a high volume breakout over $10.90-11.

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EWJ iShares Japan (10 Year Weekly)

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EWJ iShares Japan (12 Month (Daily)

All charts courtesy of FusionIQ

My pal David Rosenberg points out that the Value Line Arithmetic Composite Index is at an ALL TIME HIGH. (This is an equal weighted price index of the 1650 stocks surveyed by Value Line, averaged daily).

Dave writes: “The average stock, by the way, according to the Arithmetic Value line index, just hit a new all-time high. And not just a new high for the year, but a new high that breaks the old peak set in the fall of 2007.”

That statement is incorrect — No, the average stock is not at all time highs.

Dave errs in using the Value Line Arithmetic index — its 1650 stocks, disproportionately impacted by small, and microcap stocks. (Value Line Arithmetic membership list available from the Kansas City Board of Trade).

What this chart below reveals is that lots of smaller names have had great runs:

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Value Line Arithmetic Index

click for larger charts

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Meanwhile, the Value Line Geometric index — where tiny companies matter less and big companies matter more — tells a very different story. Not only is this index below the 2007 peak, its still below its 2000 highs!

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Value Line Geometric Index

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Last, let’s consider the full market –the Wilshire 5000, which is also market cap weighted. Same story here: Below both the 2007 and 2000 highs:

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Wilshire 5000 Total Market Index

Today’s chart porn is a quick look at major world indices since January 2000, via the always excellent D-Short.

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click for ginormous chart

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Hat tip Grant Williams