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A Bull/Bear Recap

Bullish

More signs that the consumer is recovering:

+ International Trade shows an increase in the deficit which translates to stronger consumer demand (this reading was not on the back of increases in oil imports) 

ISCS Goldman sales show a surprise increase in April as does Redbook.  A strong April would mean that March’s strength was not purely on the back of Easter and that genuine consumer strength is in play.   

 

+ Retail Sales, both headline and Core show an improvement in consumption.  This is the first key needed to translate to job gains as inventories need to be restocked. 
http://money.cnn.com/2010/04/14/news/economy/retail_sales_March/


More signs that Manufacturing is strengthening:

+ Ceridian-UCLA Index (a measure of diesel fuel consumption) shows a healthy increase in March.  Through backtesting, this has been a leading indicator for industrial production.  Shows that economy continues strengthening as inventory replenishment continues.  Also mentions that this latest reading suggests that the economy grew at a quicker pace than the Q1 consensus of 2.9%.
http://www.dcvelocity.com/articles/20100416diesel_use_index_points_to_recovery/

 

+ Industrial Production, while weak on the headline, is showing underlying strength in Business Eq. and Manufacturing and confirms positive ISM readings.
http://www.google.com/hostednews/afp/article/ALeqM5imSmQ0PFrdOt5r7p7xSq4yoA6FDQ

+ Empire State and Philly Fed Manufacturing surveys show strong expansion in the NY and Mid-Atlantic region area in terms of manufacturing activity.  Increases in this sector should lead to expansion in payrolls, which would lead to higher consumption.  Job indicators in both indexes show an increase in hiring and should lead to improving job numbers.  Inventory building is also being reported.
http://www.thestreet.com/story/10726755/1/empire-state-manufacturing-surges-in-april.html?cm_ven=GOOGLEN
http://www.businessweek.com/ap/financialnews/D9F3JEJ00.htm

+ Business Inventories show that the inventory build gaining traction.  This is good news as this will require continued hiring and will help the job market heal.  Sales also increased for the 3rd month in a row and shows that there is end demand thus far.  The I/S ratio is now at levels prevailing before the crisis, meaning that increases in demand will translate directly to increased production. 


Core CPI comes in very low as there is nary a danger of inflation.  Will this be the green light for the fed to keep rates low?  With improving corporate profits, increased consumption, subsequent job gains, coupled with low rates mean a Goldilocks scenario?
 

Thus far into earnings season, the majority of companies have outperformed expectations.  Will this translate to improved stock performance?  

Housing starts and permits both rise as builders begin to ramp up construction.  This should lead to more demand over the summer months leading to more jobs and a trickle down effect for improvement in other sectors of the economy.  



Bearish
 

International Trade report shows export growth stalling, while imports continue to rise.  This may lead to downside revisions for Q1 GDP.  Is the stronger dollar beginning to thwart the Obama plan for increased exports to lead the recovery?

Small Business Confidence hits 8 month low.  The giant disconnect between big and small business continues.  How will job growth be sustained if this sector (which accounts for more than 60%) doesn’t show improvement in sentiment?
http://www.bloomberg.com/apps/news?pid=20601087&sid=anLmjO4Dpguk&pos=4

More and more signs surface that China is not about to play ball with the US in regards to its Yuan policy.
http://247wallst.com/2010/04/13/china-may-not-accomodate-us-on-yuan-value/
http://www.marketwatch.com/story/china-fx-regulator-warns-on-yuan-rumors-report-2010-04-13

Jobless Claims continue to point to job losses, absent a miraculous increase in wages, consumption growth isn’t sustainable.  The savings rate doesn’t have much further to go until it reaches zero again.  Given that credit is tighter than the go go days of 2006, a negative savings rate seems out of the question. 

NAHB Housing index rises but remains at a low level.   Future expectations are grim.  While sales may increase as the credit comes due over the following months, there are no signs of sustainability.  If no extension passes, a drop off in sales is a high probability.  In other news, reports of increasing foreclosures signal that banks are beginning to proceed with foreclosure procedures after numerous gov’t attempts at modifications.  Higher supply, coupled with lower demand will lead to a double dip in prices if no gov’t stimulus is passed.  Higher premiums for FHA mortgages along with rising rates turned in a very negative print for mortgage applications.  There is a higher probability that months leading up to the expiration of the tax credit may disappoint.      

Sentiment is not confirming the improvement in the recovery.  Consumers remain wary and as long as the public doesn’t believe that things are improving, consumption will not substantially improve.  If consumption doesn’t improve, companies will keep their long term investments on hold = no strong job creation. 

Believe it or not, the Greek tragedy continues.  Approval to activate the aid may require parliamentary approval from EU gov'ts.  If one of them doesn't approve, Greece will default or drop out of the EU.  Are we about to see the next phase of the credit crisis commence?
http://www.bloomberg.com/apps/news?pid=20601087&sid=aeCHkL5xlXSk&pos=5

Emerging markets are putting the clamps down on inflation led by China, which just instituted it's strongest actions toward curbing the property market.  Gov'ts are now undertaking policies aimed at curbing growth.

Copper Inventories are rising in China.  There is no sign that all the raw metal imports are translating into use yet.  Only stockpiling. Copper inventories remain very high @ the London Metals Exchange
http://www.investmenttools.com/futures/metals/welcome_to_the_page_about_copper_futures.htm#ldncopper   

Thoughts

A Taste of Complacency:





http://www.nytimes.com/2010/04/13/business/13sorkin.html?ref=business

Mutual Fund Cash Levels at lowest since 2006 and consensus view is that we will have a Goldilocks recovery.  
http://newsroom.bankofamerica.com/index.php?s=43&item=8677 

AAII back at extreme bullish readings...
http://aaii.com/sentimentsurvey/sent_results.cfm 

Higher expectations 2H of 2010 and 2011

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The EU, China, and the US are net importers.  Who is exporting to the largest 3 economic blocs in the world?  US exports have been trending flat now for a couple of months.  Some fishy business going on here. 

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China continues to have its overheating problem.  Expect more policy aimed at curbing this.  The Shanghai Exchange was down the rest of the week after the property price surge in March release.  The market is expecting rate increases.  Will this be the pin that pricks a possible RE bubble?
http://www.businessweek.com/news/2010-04-15/china-raises-home-mortgage-rates-down-payments-update1-.html



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