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Antonio Pedra
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  • There Are Reasonable Reasons For Pessimism? (Fundamentals) 0 comments
    Nov 26, 2012 10:22 AM | about stocks: SPY, QQQ, EWJ, EWG, FXE, IWM, UUP

    In this post I will attempt a comprehensive look at various economic indicators around the world that have caught my attention recently because of the negative implications that these may have in the recent future.


    It is certainly the Asian giant that has cough most eyes in this last months. In the last PMI published, has been able to overcome the 50 level , providing some relief to

    this country bulls. However we must not forget that recently it has started its political transition, and in these cases, national institutions usually tend to publish results somewhat softened.

    (click to enlarge)But other indicators that come from the Asian giant are not as reassuring.

    GDP growth in clear decline. (And that these are the 'official' figures)

    (click to enlarge)

    Luckily we can see some evidence of this slowdown by other market data, e.g. cement prices.

    (click to enlarge)

    Or in the price of steel.
    (click to enlarge)


    The other Asian giant, has given us more bad news recently, and its growth is as anemic as it has been for a long time. The worst is that it seems to show more signs of deterioration.

    (click to enlarge)


    Regarding the Euro zone, I think with a single chart would be enough. Simply that we are already in recession.

    (click to enlarge)


    Reviewing the data from either European leader I was very confident for the future, and it seems that the crisis in southern countries is beginning to seriously affect exporting countries such as Germany.

    Its GDP growth was the worst levels since 2008.

    (click to enlarge)

    Thanks to Morgan Stanley chart, we see consumer confidence is in free fall.

    (click to enlarge)


    Regarding the US, at first glance and even with the prick of their market a couple of weeks, is relatively close to maximum. There are some reasons to believe that the U.S. stock market might be overvalued compared to some economic indicators? Let's see.

    Demand for durable goods is usually a good leading indicator of future growth of an economy; in this case, we have begun to point to dangerously towards a turnaround.

    (click to enlarge)

    Another interesting indicator is the level of emission of debt used to repurchase shares, we see this indicator peak in 2000, and with the peak in 2007, the case was much more visible. Although the global deleveraging process we are experiencing, it has reached a much higher level than you would expect.

    (click to enlarge)

    Another contrarian indicator I like to review, that and historically return good results is the number of new IPOs. In the graph we see that in 2000 and 2007 the maximum number of new listed peaked the same year as the stock market. We'll see if history repeats 2012 or in 2013 the number even higher.

    (click to enlarge)

    Just for closing the American market review, just take a look at St.Louis Fed financial stress indicator. For those who are not familiar with it, this is an indicator that tries to give information on the level of financial stress in the U.S economy. This is made from 20 different series of statistics such as different spreads between corporate and government bonds, interest rates for different levels of junk bonds, volatility ....
    As it can be seen from the chart, the lower the number the better. In depth, it can be seen that in the early stages of recoveries, index decreases rapidly, and historically gives good signals anticipatory of future crises when there is a discrepancy with the general market, this is, when the stock hits new highs, but in St.Louis index change can not lose more (as we saw in 2000, 2007 and we are seeing from almost 2010).

    (click to enlarge)

    And with that I will end this review of the economic status of different countries. Just mention that in this review I have not added any graphic on employment in U.S. despite being discussed very often, because it is an indicator that undergoes major revisions, and therefore I do not consider it a great help.
    Now we must continue working to see how they evolve in the coming months. In any case we must be attentive, because data show that could have serious problems soon if the economy continues to deteriorate. What do you think will happen in the future?

    After this post focused on fundamentals in the coming days publish another post related, more focused on the technical level. See you then.

    Stocks: SPY, QQQ, EWJ, EWG, FXE, IWM, UUP
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