Posts filed under “Think Tank”

Worst Month for Equities Set to Begin on a Sour Note

Dan Greenhaus is the Chief Economic Strategist at Miller Tabak + Co. where he covers global economies, markets and portfolio theory. He has contributed several chapters to Investing From the Top Down: A Macro Approach to Capital Markets (by Anthony Crescenzi).

This is his most recent commentary:


It is well known at this point that September is the worst month of the year since 1950 for equities. How bad? The S&P 500 is down 0.5% more than the only other down month, the Dow is down 0.9% more than its next closest down month and the Nasdaq is down 0.6% more than the next worst month. There is clearly something to the seasonal weakness (the S&P has been positive in just 43% of Septembers since 1950) and with a 50% rally in the books for equities, September is clearly worrying some.

Compounding this nervousness is the technical level of the S&P which, as we type this morning, stands below the famed 1015 level which represents the 38.2% retracement of the bear market. While a violation below this level does not, by itself, mean anything in terms of moving lower, it is a level traders are eyeing and if we move convincingly through it, we may see further selling.

Related to the weakness here at home (Europe is down as well), bond are bid with the 10 year now down below 3.40%. The strength of the bond market has come along with strength in the equity market, an interesting turn of events given the stories being told by each. On the one hand, you have equities that, by some accounts, are pricing in growth of 4%-5% next year. On the other, the bond market continues to grind higher showing no concern for the “V” shaped recovery many are calling for. As we progress through the year, its very clear that both these markets cannot be correct.

Canada’s Q2 performance leaves the country in recession
Chinese shares plunge amid fears of default
• Victors in Japan are set to abandon market reform
Oil drops nearly 4% on China economy fears

All around the world
China’s manufacturing activity continued to expand in August. The NBS PMI rose to a 16 month high reading of 54 as virtually every component pushed higher save for new export orders which were unchanged. New orders was up, output was up and imports was up. The private sector PMI, now called the HSBC PMI, also rose to a 16 month high thanks to a huge pick up in new orders.

In the case of both PMIs, it is clear that domestic demand continues to be the primary driver of growth as export orders, while higher, are not pushing upwards to the same degree. At the same time, there was a gain in the NBS input price index to the highest level since July 2008 while employment components gained as well. This will probably stoke inflation fears as the year progresses however Chinese officials are mindful of the effects of their top down policies and more than likely, will be taking steps over the second half of the year to address the concerns. Tightening does not appear to be on the horizon (until the middle of next year perhaps), however a moderation in new loan issuance (which generally occurs in the second half of the year should help.

Turning to the Eurozone for a moment, the unemployment rate ticked higher, as expected, to 9.5% from 9.4% in the prior month as the unemployment level rose by 167K. While German’s unemployment situation held steady, increases in Spanish (18.5%) and French (9.8%) unemployment pushed up the region’s rate.

In any event, it is clear that unemployment levels are worsening in both Europe and the U.S. however the pace of worsening is easing. This is to be expected towards the end of a recession as our attention should not be on further gains in the rate but rather where the increases will cease. Here in the U.S., the unemployment rate will probably continue moving higher stopping around 10.2% or so but unemployment in the Eurozone is expected to go much higher, perhaps bumping up against 11%.

Over in Germany, retail sales rose 0.7% as expected however sales are still down 1% on a year-over-year basis. Underscoring the weakness seen in the past year, this is only the third positive reading for sales in the last ten months. Today’s data follows the recent release that showed further gains in consumer confidence in Germany as well as new data that showed unemployment in the country held steady at 8.3%.

It is certainly encouraging to see the turnaround in retail sales figures however the reality is that Germany is heavily reliant on exports (40% of GDP or so) and any turnaround in regional indicators are going to be dependant on a turnaround in external demand.

The well known turn around in the manufacturing sector will get further corroboration today when the ISM index is released at 10. The index is expected to at least touch the 50 level for the first time since January 2008. The gain in the country wide index would reflect improvement in regional indicators and would confirm the sector’s recovery. There are two things worth noting though:

First, as important as the headline figure is, we must keep an eye on both employment and inventories as both are crucial to the turnaround story. As well, there was a big jump in prices paid in July. Further gains would be problematic for those looking for a low inflation environment in the second half of the year.

Secondly, and perhaps most importantly, in the previous recession, the ISM first broke above 50 in February 2002 and stayed above that level until October. We must be very careful to remind ourselves from time to time that improvement in the economy is not always related to improvement in the equity market. While the ISM was above 50, the S&P 500 declined by nearly 30%.

Pending home sales, construction spending and vehicle sales are all also out today.

Category: Economy, Think Tank

The Battle Between Politics and Economics Goes Global

Good Evening: U.S. stocks finished a strong August on a down note, causing investors to wonder what awaits them during the seasonally weak months of September and October. With some strong (though admittedly junior) economic data released this morning, today’s downdraft had little to do with the U.S. economy. Global market participants were instead more…Read More

Category: Markets, Think Tank

Shanghai cracks

Category: Think Tank

Sugar High or LSD?

Years ago Charles Goodhart minted an eponymous law that is applicable today in financial markets. Last week, Pimco’s Mohammed El-Erian coined the metaphor “sugar high.” He was talking about the converse of Goodhart’s Law. We think he wasn’t harsh enough; hence, we use the metaphor “LSD.” The 99th edition of Pears Cyclopaedia (1990-1, pp. G27,…Read More

Category: Think Tank

Words from the (investment) wise August 30, 2009

Words from the (investment) wise for the week that was (August 24 – 30, 2009)

Stock markets, in general, again logged gains last week as pundits perceived economic data to be better than expected. But the recovery path is not home and dry yet, as shown by declines in crude oil, a number of emerging stock market indices, small cap indices and high-yield corporate bonds. All said, risky assets displayed some fatigue despite positive economic reports.

Caution remained over the robustness of any economic upswing, as reflected by the solid performance of government bonds, with safe-haven currencies such as the US greenback and the Japanese yen also edging up.

As expected, Federal Reserve Chairman Ben Bernanke was appointed by President Barack Obama on Tuesday to serve a second term. “Mr Obama is said to credit Mr Bernanke with a leading role in helping to avert economic catastrophe. By reappointing Mr Bernanke – who worked in the Bush White House – Mr Obama can also emphasize his bipartisan credentials at a time when he is embroiled in a fiercely partisan battle over healthcare reform,” commented the Financial Times.



However, critics of Obama’s decision were plentiful and Morgan Stanley’s Stephen Roach, blaming Bernanke for his pre-crisis actions, said (via the Financial Times): “It is as if a doctor guilty of malpractice is being given credit for inventing a miracle cure. Maybe the patient needs a new doctor.” Bill King (The King Report) ascribed the stock market rising subsequent to Obama’s announcement to a “thank God it’s not Larry Summers” rally.

The past week’s performance of the major asset classes is summarized by the chart below – a set of numbers showing both the S&P 500 Index and government bonds rising, indicating an expectation of a subdued economic recovery and that the Fed’s monetary policy will stay easy for an extended period of time.



A summary of the movements of major global stock markets for the past week, as well as various other measurement periods, is given in the table below.

The MSCI World Index (+1.3%) and MSCI Emerging Markets Index (-0.2%) again followed separate paths last week as China, Hong Kong and Brazil underperformed. Mature stock markets have recorded gains for a straight seven weeks, whereas emerging markets have seen two back-to-back weeks of declines. The end result is that emerging markets have now underperformed developed markets for four weeks running. Could this be a sign of a retrenchment in risk appetite?

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Category: Think Tank

An Uncomfortable Choice

An Uncomfortable Choice

August 28, 2009
By John Mauldin

An Uncomfortable Choice

What Were We Thinking?

Frugality is the New Normal

And Then We Face the Real Problem

Argentina, Brazil, Uruguay, New Orleans, Detroit, and More

We have arrived at this particular economic moment in time by the choices we have  made, which now leave us with choices in our future that will be neither easy, convenient, nor comfortable. Sometimes there are just no good choices, only less-bad ones. In this week’s letter we look at what some of those choices might be, and ponder their possible consequences. Are we headed for a double-dip  recession? Read on.

An Uncomfortable Choice

As our family grew, we limited the choices our seven kids could make; but as they  grew into teenagers, they were given more leeway. Not all of their choices were good. How many times did Dad say, “What were you thinking?” and get a mute reply or a mumbled “I don’t know.”

Yet how else do you teach them that bad choices have bad consequences? You can  lecture, you can be a role model; but in the end you have to let them make their own choices. And a lot of them make a lot of bad choices. After having raised six, with one more teenage son at home, I have come to the conclusion that you just breathe a sigh of relief if they grow up and have avoided fatal, life-altering choices. I am lucky. So far. Knock on a lot of wood.

I have watched good kids from good families make bad choices, and kids with no seeming chance make good choices. But one thing I have observed. Very few teenagers make the hard choice without some outside encouragement or help in understanding the known consequences, from some source. They nearly always opt for the choice that involves the most fun and/or the least immediate pain, and then learn later that they now have to make yet another choice as a consequence of the original one. And thus they grow up. So quickly.

But it’s not just teenagers. I am completely capable of making very bad choices as I approach the end of my sixth decade of human experiences and observations. In fact, I have made some rather distressing choices over time. Even in areas where I think I have some expertise I can make appallingly bad choices. Or maybe particularly in those areas, because I have delusions of actually knowing something. In my experience, it takes an expert with a powerful computer to truly foul things up.

Of course, sometimes I get it right. Even I learn, with enough pain. And sometimes I just get lucky. (Although, as my less-than-sainted Dad repeatedly intoned, “The harder I work the luckier I get.”)

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Category: Think Tank

Income/spending/savings rate

July Income was flat vs expectations of a gain of .1% but June was revised higher by .2% to a decline of 1.1%. Spending rose .2%, in line with forecasts and June was revised up by .2%. Because the headline PCE was flat, REAL spending rose by .2% (vs .1% gain in June) and with…Read More

Category: MacroNotes

UoM Final Consumer Confidence

The Final August U of Michigan confidence figure was 65.7, above the preliminary reading of 63.2, higher than the consensus estimate of 64 but is a touch below the 66 seen in July. Both Current Conditions and the Future Outlook rose from the Aug preliminary number. However, from July, Current Conditions fell almost 4 points…Read More

Category: MacroNotes


July Income was flat vs expectations of a gain of .1% but June was revised higher by .2% to a decline of 1.1%. Spending rose .2%, in line with forecasts and June was revised up by .2%. Because the headline PCE was flat, REAL spending rose by .2% (vs .1% gain in June) and with…Read More

Category: MacroNotes

Bernanke’s Identity Theft a Shame on Many Levels

Good Evening: Like a self-sealing tire, U.S. stocks were punctured this morning but managed to reflate this afternoon. Some grim news about the health of non-TARP banks was behind the decline, while speculation in financial firms that DID receive bailouts helped launch the comeback. If you think it is bizarre to see taxpayers actively chase…Read More

Category: Markets, Think Tank