Being Thankful for Bullish Economic Data 27 comments
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As we complete a holiday-shortened, data-intensive week, investors have a lot to be thankful for. Over the prior three days, data has been bullish as key economic indicators have either met or surpassed expectations.
Existing home sales bettered their forecast and increased 10.1% month over month. Some will argue that the spike was artificially inflated by tax incentives, but with existing home sales having surpassed 6 million for the first time since March 2007, the trend is clearly higher. As new home sales echoed this strength, we may finally be seeing stability in the housing market that will point to sustained economic growth.
On the negative side, Case Shiller home prices, durable goods orders, and GDP all showed declines, but these drops were in line with forecasts so they provided little solace to the bears.
As for the consumer, confidence continues improving, and the employment picture is looking better with initial jobless claims dropping much more than forecast to 466,000. This claims number is the lowest in over a year and offers the first break in the psychologically painful 500,000 level.
Combine all the various data points and the economy appears to be changing course, with the two main culprits of the bust - housing and employment - showing signs of life.
Knowing markets can act in unpredictable manners, it is encouraging to see stocks rally on such strength. When good news delivers rallies, it indicates the markets are acting rationally, and in such an environment our job of allocating capital becomes easier.
Assessing this surprising economic strength, resilient market, excessive liquidity, and general investor pessimism, we have in place the components of a massive rally. Last week I established a price target on the Dow Jones Industrial Average (Dow) of 11,300 and remain confident in that prediction. The stock market continues climbing a wall of worry as investors doubt the sustainability of a liquidity-fueled rally in overpriced stocks. However, as prices continue higher, pressure to chase prices up the ladder increases on those who are underinvested. Critiquing the merits of this rally may make for interesting discussions over the coming holiday season, but those who embrace the move and position appropriately will have the most to be thankful for.
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dow 11,300 - hard to see with financials behaving the way they are and oil seeming to act up..or down I mean. I thinks we are in for a leg down.
just eat the turkey...do not think about this...
...The government's statement was released after close of business in Dubai, and on the eve of a public holiday. Markets will not reopen until next week.
It came after bond prices had risen on expectations of full repayment. Earlier in the day, Dubai's government announced it had raised a $5bn bond for its Financial Support Fund from government-owned banks in neighbouring Abu Dhabi.
Dubai was among the most dramatic victims of the credit crunch, with property prices halving from their highs in September 2008, leaving a huge overhang of debt.
Much of it was in the hands of government-owned companies, with Nakheel, which has been forced to slow work on show-piece developments like its artificial island chain The World, among the most prominent....
www.telegraph.co.uk/fi...
The revision from 3.5% to 2.8% GDP growth isn't encouraging. Normally, growth is at mid-single digits in a recovery. If we are in fact growing, this is proving to be a lackluster recovery.
The US budget gap will be a drag. Currently, 32% of US spending is borrowed money. That's huge. www.planbeconomics.com.../
Let's say you're right and we're seeing "stability". (Personally, I think there's another 10% or so to go on the downside, but let's set that aside for a moment.) "Stability" means that prices stop going down, but it could be YEARS before they can substantially move up, and meanwhile, 25% of the country (I think that's the latest stat) will still be underwater in its homes (as I assume these are relatively new mortgages and thus these folks won't be paying down much principal for a while). So, why will we necessarily see "growth" rather than just "crawling along on the bottom stagnation"? And without "growth", do you really think the S&P 500 can maintain an 18x run-rate PE multiple? I don't.
>>the employment picture is looking better with initial jobless claims dropping much more than forecast to 466,000.<<
The commentator above me (cayman) is spot-on: This is STILL a massive loss of jobs, and at SOME point, sure, the losses will stop, but that doesn't necessarily mean that net hiring will begin. Even in a "years crawling along on the bottom" scenario, there will be a point at which net job loss finally hits zero... and stays there long enough to cause pretty severe multiple compression in stocks.
On Nov 26 05:30 AM VK9141 wrote:
> $70 turkeys - same price in Whole Foods Market in London which was
> doing decent trade and seemed to be full of Americans yesterday.
> It had better taste good.
Take this line from Bloomberg:
"...as the economic recovery encourages companies to fire fewer workers."
Well, have an expert in linguistics do that statement over a few times... After they are finished laughing themselves off the floor...
Let's look at the "reality" on employment in the USA -- Some models that put the time frame, with "strong job creation," to put all those unemployed and coming into the labor market back to work by 2030. This is with "strong" job growth, starting right this minute! Today! Now! Is this going to happen?
A kick in the shin would surpass expectations of a kick in the head. That doesn't make it bullish.
-Theodore Roosevelt, 1901
As others have pointed out, 466,000 jobs lost in October is not, as you put it, "signs of life", particularly as we're moving into the holiday buying season and retailers have a lot of stock to move. I think we're going to see greater than average retail hiring, so a brief downtrend in new unemployment, followed by a very high uptick in January.
On Nov 26 07:21 AM Plan B Economics wrote:
> Top line growth is what is needed to really drive markets. You start
On Nov 26 06:38 AM cayman wrote:
> only 466,000 jobs lost = bullish. Man were we really beaten up. Ive
> been saying all along we can't keep firing people at this rate. someone
> has to be left behind to drive busses trains and take care of peoples
> health.
>
> dow 11,300 - hard to see with financials behaving the way they are
> and oil seeming to act up..or down I mean. I thinks we are in for
> a leg down.
But this is a once in a generation (maybe multiple generations) asset price contraction (aka deflationary recession). Deflations are much harder to fix than inflations. Demand disappears during an asset deflation and it is hard to rekindle that flame. A normal capital recession still has a pilot light burning. In an asset deflation, the pilot light goes out and must be re-lit. That is the role of the Fed and they are getting it done.
Eventually the economy starts running again on its own. This process takes 2-5 years rather than 12 months. We are 2 years in and may get ignition at any time. Even in the Great Depression the economy was reignited in 1935, five years in. But the Fed relenquished to political pressure in 1937 and tightened too soon. That crashed the market for a second time. Hopefully, this Fed won't repeat that error.
On Nov 26 02:58 PM enigmaman wrote:
> The problem with all recovery theories is they are not looking at
> all the available data in total, if you take it piece by piece yes
> you will find both green shoots and weeds side by side But when you
> look at the whole picture what do we see, will green shoots out number
> and over power the weeds or visa versa. Every month data points dispute
> previous findings, mostly to the down side. GDP was 3.5% from the
> Fed, GS says 2.8% and low and behold 2.8% why does GS get it right
> and not the Fed, if we are coming out of a recession its at GDP rates
> that usually indicate we are heading into recession, normal GDP 6-8%
> in initial stages of recovery, I dont know anybody that sees that
> at all, it seems they are looking at 2%, does that spell recovery
> or relapse, everybody is making predictions with out putting all
> the pieces together to see how they all fit, until they do the rest
> is all BS
Cite your sources if you want to be taken seriously. You sound like all the other bears talking up your short positions. You are the "deer in the headlights" running scared that your short portfolio is about to blow up
On Nov 26 09:54 AM bottoms-up wrote:
> Sean, Gotta admit, you have the "deer in the headlights" look about
> you in your SA photo. But, "bull" is spot on, when you refer to the
> economy.
>
> Take this line from Bloomberg:
>
> "...as the economic recovery encourages companies to fire fewer workers."
>
>
> Well, have an expert in linguistics do that statement over a few
> times... After they are finished laughing themselves off the floor...
>
>
> Let's look at the "reality" on employment in the USA -- Some models
> that put the time frame, with "strong job creation," to put all those
> unemployed and coming into the labor market back to work by 2030.
> This is with "strong" job growth, starting right this minute! Today!
> Now! Is this going to happen?
Real Estate: They tell us that sales increased 10.1% but these are contracts that HAVE NOT closed!!! Meanwhile, nothing is selling over the $200,000 mark and with an $8,000 credit per house - those of us paying taxes will have to come up the billions in short fall that Uncle Sam isn't collecting!!!!
GDP declining!!! Imagine that, 26 million or more people out of work and the GDP is declining. No one is spending money! Xmas and the holiday season may crush the retailers.
Initial Jobless Claims decreasing!! Do they ever tell you in these articles that this number is decreasing because there are COUNTLESS people that have either lost their benefits or quit looking for jobs because there are no jobs to be found. How can we recover when people cannot go back to work????
Now if you add in the possibility of new taxes on businesses and forced health insurance on business we will see ZERO job growth because Uncle Sam will take more money away from businesses.
Additionally many U.S. investment dollars are going into overseas investments because the dollar is weak and other countries and currencies offer better returns.
I know the trend is your friend, but my friend is standing on a giant land mine and I am next to him. I'm gonna move far away from him!