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Carlos X. Alexandre
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Carlos X. Alexandre is a Stock Trading Tactician (far more impressive than being a mere trader) and has managed investments privately — stocks, bonds, commodities and currencies — for over two decades. An investment industry outsider and politically independent, he developed proprietary trading... More
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  • Economic Confusion Galore

    While the dismantling of QE is on everyone's mind, Wal-Mart and Cisco provided the markets with conflicting news regarding economic growth. In addition, regional manufacturing cooled off while distorted jobless claims and housing added to the confusion. Meanwhile treasury rates climbed while the dollar declined! The big picture is less than clear and those in charge (Fed) do not have a clue as to what is going on, because they see strength and inflation one day, and weakness with deflation the next. The latter will prove to be the soup-du-jour. Here's a good summary:

    From Wal-Mart Stores Inc and Gap Inc to Macy's Inc and McDonald's Corp, chains that cater to middle- and lower-income Americans say they are feeling the pinch of an uneven economic recovery. A host of retailers have reported tepid sales lately, highlighting the stress that consumers are feeling because of higher payroll taxes, expensive gasoline and a slow job market four years after the U.S. economy started to rebound.

    But in the midst of our woes, the Fed wants to pull back on bond buying without disrupting the markets, or having the cake and eating it to. Dallas Fed chief Richard Fisher added his two cents, once again, although only partly true.

    "I think the market has come to realize there is no QE infinity and secondly...we're seeing better numbers in the economy."

    One interesting fact is the rise in auto loans as compared with mortgages, and something states that there's an unsustainable trend in place.

    There are now more auto loans than mortgages in the U.S., but most of them are going to older Americans, according to new data from the Federal Reserve Bank of New York. Americans were holding 84 million auto loans in the second quarter of 2013, compared with 80.6 million mortgages, the New York Fed's Household Debt and Credit Report showed. Borrowing for vehicles reached $814 billion in the second quarter, an increase of $20 billion from the previous quarter. The 2.5% jump was bigger than any other loan category in the quarter.

    The old China economic data reliability dilemma continues to surface, and let's not forget that China has always been a breeding ground for counterfeiting. Enough said!

    China may be exaggerating the size of its economy to the tune of $1 trillion by releasing "willfully fraudulent" inflation and GDP [gross domestic product] data, according to a study out this week. "There is strong evidence indicating that the rate of real Chinese GDP growth, and ultimately total real GDP, may be significantly over stated," said Christopher Balding, associate professor at Peking University's HSBC Business School, and the report's author.

    As a last note, the Egyptian situation is an important macro cycle event with broader implications, and without sounding like a conspiracy theorist, what is underway is a major conflict that will deliver winners and losers on the religious front.

    Market TrendsAll indices turned decidedly short-term negative with the Dow taking the lead, while barely hanging onto their long-term positive trends. The dollar turned short-term negative and is still long-term negative as well. The euro is short and long-term positive, defying all logic, while the yen weakened and turned short-term neutral while holding its positive long-term trend. WTI and Brent oil turned around are now both short and long-term positive. The spread is $2.96. Gold and silver are both short-term positive and turned long-term neutral from negative. Copper is positive all around. The 10-year Treasury rate rose to 2.83% from 2.58%. The 10-year note and the 30-year bond are short and long-term negative.

    Economic Highlights

    U.S.A.The Mortgage Bankers Association's mortgage application activity index decreased 4.7%. Refinancing decreased 5.0%, and home purchases decreased 5.0%. Freddie Mac's average 30-year mortgage was unchanged at 4.40%, and the 15-year rose to 3.44% from 3.43%. Jobless claims decreased 15,000 to 320,000, and the 4-week moving average decreased 4,000 to 332,000. The number for seasonally adjusted insured unemployment decreased 54,000 to 2,969,000.

    Retail sales increased a meager 0.2%, especially as automobile sales weakened. The core reading showed a 0.5% increase. Business inventories were unchanged in June, with sales declining 0.1%. PPI was unchanged in July, and the core reading increased 0.1%. On an annual basis, PPI is up 2.1% and the core is up a weaker 1.2%. CPI increased 0.2% in July, with the core up 0.2% as well. CPI is up 2.0% annually and the core is up 1.7%. An important fact is that inflation adjusted wages declined 0.2% and are down 0.1% over the last 12 months. Productivity rose 0.9% in Q2-2013 but is flat on an annual basis.

    The Empire State manufacturing survey declined to 8.2 from 9.5, and the Philly Fed manufacturing index dropped from 19.3 to 9.3. Industrial production was unchanged and capacity utilization declined to 77.6% from 77.7%. the National Association of Home Builders/Wells Fargo Housing Market Index is on a tear and increased to 59 in August from 56 in July. Construction of new homes increased 5.9% to an annual rate of 896,000 but it was driven by apartments while single-family homes declined 2.2%. Building permits rose 2.7% in July to an annual rate of 943,000. The University of Michigan/Thomson Reuters consumer sentiment dropped to 80.0 in August from 85.1 in July.

    GlobalEurozone GDP was up 0.3% in Q2-2013, but 0.7% lower than the same period in 2012. Germany's GDP was up 0.7% and France's GDP rose 0.5%. CPI was up 1.6% annually, while it was down 0.5% for the month. Trade registered a €17.3 billion surplus in June, with exports up 3.0% and imports up 2.5%.

    Japan's GDP registered annual growth of 2.6% in Q2-2013, the third quarter of expansion but down from 3.8% during Q1-2013.

    Aug 17 7:08 PM | Link | Comment!
  • Federal Reserve Redefines ‘Pathetic'

    It was an interesting week, to say the least, especially because Fed members will not simply shut up. First we had Bernanke telling us a few weeks back that QE was going to end, which was followed by damage control because markets reacted negatively and disrupted Bernanke's plan of inflating consumer confidence through stock prices, which will heal our economy. Not! But this week several Fed members were out telling us that it is time to pull back on bond buying, undoing the efforts of weeks past. Who are these people? Why do they enjoy litigating their differences in the media? And apart from speeches, what do these people really do to earn a paycheck, courtesy of the taxpayer? As an example, Richard Fisher, president of the Dallas Fed Bank, had this to say in a speech at state retirement administrators "meeting" in Portland, Oregon.

    With the unemployment rate having come down to 7.4%, I would say that the [Fed] is now closer to execution mode, pondering the right time to begin reducing its purchases, assuming there is no intervening reversal in economic momentum in coming months.

    But first, why is Fisher giving speeches in Oregon, during a work day? What is the purpose? Doesn't he have enough to keep him busy in Dallas? More importantly, to use the headline unemployment rate without mentioning the underlying weakness derived from part-time jobs and the participation rate, is not only irresponsible but a testament to incompetence. Evans and Pianalto also added their two cents, and the same questions apply.

    What we have is a constant pathetic quest for attention and relevancy by all Fed members because if it wasn't for their silly speeches, nobody would know them. Silly speeches because they deliver messages that aren't intended for their audiences, and love to engage in puzzling intellectual games with market participants. Now let's assume that a CEO would deliver a speech at a high school on career day and then elect to include a statement that widget production would be decreased by 10% and layoffs would be unavoidable. Students would not know what to make of it, much like the retirement administrators in Oregon. Despite Fed talk, the 10-year note rate declined 2 basis points this week to 2.58%, and one can easily infer that markets are not sharing views with Fed members, even considering QE's dubious accomplishments.

    The IMF delivered a suggestion that Japan should squeeze their citizens a bit more, while "the consumption tax would rise to 8 percent in April from the current 5 percent, and to 10 percent in October 2015."

    In its annual report on the Japanese economy, the IMF said that "the scheduled tax increases in April 2014 and October 2015 should proceed as planned as they are critical to maintain confidence in the ability of the government to address the fiscal problem."

    But let's not stop there. Let's go for 15% once we get past 2015. Yes, tax away to cover the splurging and nonsense of yesteryear.

    Lastly, Greece continues to plunge into a bottomless pit and while "stuck in recession for a sixth consecutive year, Greece reported a jobless rate of 27.6% in May, a new record high." Please let the country default and get it over with because the promised solutions driven by more debt are simply a violation of mathematics and common sense.

    Market TrendsAll indices shifted to short-term neutral and remain long-term positive. The dollar turned short-term negative while pushing on a string, and is still long-term negative as well. The euro turned short-term positive, defying logic and positions held by market participants, and is also long-term positive. The yen turned short and long-term positive this week. WTI and Brent oil turned short-term negative and retained their long-term positive trends, with the spread rising to $2.28 from $1.97 last week, and a far cry from the $10-$20 spreads of a few months ago. Gold and silver are both short-term neutral and long-term negative, awaiting a dollar move. Copper jumped 12 cents this week to $3.31, driven by China's data and plenty of short covering, and is now short-term positive and long-term neutral. The 10-year Treasury rate declined to 2.58% from 2.60%. The 10-year note and the 30-year bond turned short-term neutral and are still long-term negative.

    Economic Highlights

    U.S.A.The Mortgage Bankers Association's mortgage application activity index increased 0.2%. Refinancing was unchanged, and home purchases increased 1.0%. Freddie Mac's average 30-year mortgage rose to 4.40% from 4.39%, and the 15-year was unchanged at to 3.43%. Jobless claims increased 5,000 to 336,000, and the 4-week moving average decreased 6,250 to 335,500. The number for seasonally adjusted insured unemployment increased 37,000 to 3,018,000.

    The ISM Non-Manufacturing Index Increased to 56 in July From 52.2. The trade deficit dropped 22.4% in June to $34.2 billion. Imports declined 2.5% and exports increased 2.2%. The IBD/TIPP Economic Optimism Index declined to 45.1 in August from 47.1 in July, and negative. Consumer credit rose by $13.8 billion, with the usual auto and student loans leading the way. Revolving credit, or credit cards, declined $2.7 billion. Cars and light trucks registered an annual rate of 15.6 million units in July, down from 15.9 million in June. Wholesale inventories declined 0.2% in June, after a drop of 0.6% in May. Mortgage delinquencies declined to 5.88% during Q2-2013 from 7.31% one year ago, but still very elevated.

    GlobalEurozone services PMI rose to 49.8 in July from 48.3 in June, and still negative. Eurozone retail sales declined 0.5% in June as compared to May. On an annual basis, retail sales dropped 0.9%. Italian GDP for Q2-2013 declined 0.2% (2% decline on an annual basis) and is the 8th consecutive quarter of contraction.

    China's trade surplus declined to $17.8 billion from $27.13 billion, but exports rose 5.1% and imports jumped 10.9%. It does appear that the ship is turning around, if one believes the data at all - and I don't'. Consumer inflation in China held steady at 2.7%, while the PPI showed a decline of 2.3%, emphasizing the overcapacity problem.

    Aug 10 11:46 AM | Link | Comment!
  • Is Housing Sexy Again?

    With financial creativity once again finding its way into the investment world, "Blackstone, Deutsche Bank in Talks to Sell Bond Backed by Home Rentals." We're not talking apartments here, but rather single homes geographically dispersed and with a very different risk profile that typical investors don't understand. However, investment bankers are only satisfying the appetite for higher returns, and appealing to greed and stupidity is always a winning strategy. Despite the newly found housing market sexiness, especially by those that have an ill conceived notion of our current economic affairs, WSJ made a quick note for those that only read headlines.

    Housing stocks had an ugly week last week after two prominent builders - KB Home and DR Horton - reported disappointing quarterly results. Both companies unveiled lower-than-expected orders and deliveries, a trend that analysts say is sweeping across the housing industry amid a fear that rising mortgage rates could stall the housing recovery.

    Meanwhile the Fed had another meeting and "slightly downgraded" the economic outlook, while concerned about rising rates and low inflation. Then GDP and unemployment complicated the situation, with the fake 7.4% jobless rate getting closer to the stated trigger, while the economy is barely moving.

    As far as U.S. interest rates are concerned, China is a player and if devaluing the yuan becomes the tactic of choice to revive the economy (exports are not a part of Chinese economy, as some say; exports ARE the Chinese economy), demand for U.S. treasuries will decline. One observation is that if Japan and China simultaneously reduce their treasury purchases to aid their export machines, The Fed cannot "taper" and may have to absorb some bond inventory, which will have to disposed of in due time. Tricky stuff, especially when U.S. government debt is now close to $17 trillion. Rates on 10-year notes have risen 60 basis points to 2.6% over the last 60 days without any meaningful economic improvement, although Bernanke scared the cattle at one point.

    If one takes a step back and starts to look at the global macro condition through a few key stories, it is apparent that the word "recovery" is misused and abused as sovereign debt continues to rise. Europe and China are a mess, and here's what's going on in Japan:

    Japan's public debt, the highest ratio globally, may balloon to 245 percent of gross domestic product this year, according to the International Monetary Fund. Even as the nation struggles to turn its primary balance into a surplus, it enjoys the world's lowest borrowing costs as record bond buying by the Bank of Japan helps keeps yields anchored.

    Then Spain continues to find its way into the headlines, and here's another observation:

    Spanish banks risk their troubles being compounded by a jump in the cost of lifeblood funding from the European Central Bank. A one-notch downgrade by a single credit rating agency is all that stands between them and a financial blow that would pressure the ECB to act, but probably not with its OMT bond-buy plan. Lenders in Italy and Ireland face a similar threat.

    With Spain's economic pain a long way from hitting bottom, the IMF now states that in "a worst case scenario, in which the government is forced to adopt deeper austerity measures, could result in no growth until 2017 and unemployment staying above 27 percent." Although this not a laughing matter, let's keep in mind that the IMF is the eternal clueless optimist that only understands the joke after everyone is done laughing.

    Market TrendsAs stated last week, "all indices remain short and long-term positive, although they're a bit stretched and preparing for a pullback." The dollar is short-term neutral and long-term negative and still trying to understand what is the true meaning of GDP and jobs. The euro is short-term neutral and long-term negative, while the yen is short-term negative and long-term neutral. Without a doubt, currencies are not providing a clear picture of what the future holds or what perceptions abound. WTI and Brent oil are now short and long-term positive, with the spread declining further to $1.97. Gold and silver are short-term neutral, with gold also long-term neutral and silver still long-term negative since February. Copper is short-term neutral and remains long-term negative. The 10-year Treasury rate rose to 2.60% from 2.56%. The 10-year note and the 30-year bond have been short and long-term negative since May.

    InvestmentsYTD20122011
    CXA Markets Nimble
    Average Daily Risk Exposure: 36.8% of Capital
    26.60%43.84%77.75%
    S&P 500 ETF (SPY) 100% of Capital - including reinvested dividends21.16%16.01%1.04%

    Economic Highlights

    U.S.A.The Mortgage Bankers Association's mortgage application activity index decreased 3.7%. Refinancing decreased 4.0%, and home purchases decreased 3.0%. Freddie Mac's average 30-year mortgage rose to 4.39% from 4.31%, and the 15-year decreased to 3.43% from 3.39%. Jobless claims decreased 19,000 to 326,000, and the 4-week moving average decreased 4,500 to 341,250. The number for seasonally adjusted insured unemployment decreased 52,000 to 2,951,000.

    Pending home sales declined 0.4%, after rates started to rise. The S&P/Case-Shiller 20-city composite rose 2.4% in May, with the annual increase registering 12.2%. The Conference Board's index of sentiment declined to 80.3 from 82.1 the prior month. Q2-2013 GDP grew at a 1.7% annual rate, driven by consumer spending and business investment, with strength in home construction which is a concern because home builders are always behind the curve. Q1-3013 was revised down from 1.1% from 1.8%. The core PCE index increased 0.8%, the lowest level in three years. US Employment Cost Index rose 0.5% during Q2-2013.

    The Institute for Supply Management's PMI for July jumped to 55.4 from 50.9, and the Markit PMI rose to 53.7 from 51.9 in June. Factory orders increased 1.5% in June. Construction spending declined 0.6% in June. The unemployment rate dropped to 7.4% from 7.6% driven by a lower labor force participation rate. A total,of 162,000 new jobs were created in July, below estimates and still below economic needs. Wages declined 0.1%. Consumer spending increased 0.5% in June, while personal income rose 0.3%. The savings rate dropped to 4.4% from 4.6%, a result of consumption getting ahead of income.

    GlobalEurozone retail PMI improved to 49.5 in July from 49.1 in June. CPI flash was unchanged at 1.6%. Eurozone PMI increased to 50.3 I n July from 48.8 in June. Spain's PMI declined to 49.8 from 50.0 and Italian PMI rose to 50.4 from 49.1. UK PMI increased to 54.6 from 52.9. Eurozone unemployment was unchanged at 12.1% with 24,000 fewer Europeans out of work. German unemployment is still 6.8% and the total number of unemployed declined 7,000 to 2.93 million

    The official Chinese PMI rose to 50.3 in July from 50.1, with employment component below 50 for the 13th month. Please not that earlier this month "China announced that it was for now withholding industry specific data from the PMI report, on account that there isn't enough time to analyze the data." The HSBC Chinese PMI dropped to 47.7 in July from June's 48.2. Japan's PMI declined to 50.7 in July from 52.3.

    Aug 03 7:59 PM | Link | Comment!
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