FMX | Connect – www.fmxconnect.com - (Reported 9/24/2010)
Excerpt from MARKET MUSINGS & DATA DECIPHERING
WHILE YOU WERE SLEEPING
When we say mixed we mean mixed when it comes to the equity market action overnight. Europe was down fractionally and in Asia we saw the Nikkei down 94 points to close at 9,471 (down for the third day in a row) but the Hang Seng, Sensex, Shanghai and Kospi were all higher today.
Bonds are generally well bid but in the European periphery, they are up, and in some cases, rather sharply, as fiscal concerns are still on the front burner. The U.S. dollar is softer — a solid Ifo report out of Germany is giving the euro a lift — and as such we see that gold (see more below) is now just pennies away from breaking above $1,300/oz and silver is trading at a three-decade high as well. Besides the Ifo, which jumped in September to over a three-year high of 106.8 from 106.7, France GDP was revised up as well, to +0.7% from +0.8% for Q2.
As we said yesterday, not a day goes by that I’m not asked when I’m going to turn more bullish. Well, if the truth be told, I’ve been bullish on gold now for a decade with very infrequent episodes when I thought a pullback could be coming. Last I saw, the yellow metal was up 18% for the year and up nearly 350% over the past decade. Bonds have also been a favorite of mine and as Chart 1 below suggests, being “bullish” on the bullion-bond barbell has not been a bad call at all. In fact, we have been long-standing fans of the commodity complex in general, not so much as a hedge against our deflation call, but rather as a play on the secular growth dynamics in emerging Asia. As we say that, we can see that the entire base metals complex is firming up in the wee hours of the morning, led by lead.
The secular bear market reality in the equity market is such that if you invested $10,000 in the S&P 500 on December 31, 1999 and waited it out, you would have little more than $9,400 to show for it right now. And that includes reinvested dividends, by the way. The case for active asset management has rarely been as strong as it is today, which is one reason I chose to cross over to the wealth management business.
There are plenty of reasons to be trading the stock market from the short side with appropriate hedges in place to limit the volatility and downside risk during the periodic whippy bear market rallies. Yesterday’s action was a case in point as the S&P 500, after exciting so many bulls by appearing to break out just a few days ago, settled below the key 1,130 mark, which has so often of late acted as a major resistance to the upside. Now after three sessions of losses, we could be in for a test of the 200-day moving average to the downside in this tightly-traded market we have been in all year long.
Did we read this right? Page A2 of the Investor’s Business Daily runs with “Buffett: ‘We’re Still in Recession’”. Didn’t the Oracle say a few weeks back that economic conditions were improving across all of his company’s business lines? So maybe what we have seen in the past year is just a gyration around a fundamental economic downtrend. The National Bureau of Economic Research (NBER) may have called for the technical end to the recession, but almost did so as if they themselves did not believe it — or believe that a recovery has actually begun.
With regard to the U.S. housing market, we see that a saviour is in the making — Canadians flocking en masse for cheap subprime real estate south of the border. See U.S. Housing Calls to Canadians on the front page of the USA Today.
Meanwhile, the cranes that dot the Toronto skyline remind me of the late 1980s (though interest rates are thankfully a fraction of those levels today) and there is plenty of anecdotal evidence that it is Americans (and Asian investors too) who are coming in and gobbling up these (overpriced for the most part) condo units. Was this part of the Free Trade Agreement — condo swapping?
TWO-YEAR NOTE AND S&P 500 CANNOT BOTH BE RIGHT
Folks — something has to give ... yields on the 2-year T-note (thin line, right hand side on chart below) has a 75% POSITIVE correlation with the S&P 500 and just hit a cycle low. Either it's a short or the equity market is ... take your pick.
HOUSING STILL IN A DEEP FUNK
After a 27% MoM plunge, what did you expect? So, existing home sales “bounced” 7.6% MoM in August in what can only be described as noise around a fundamental downtrend. The level of single-family sales, at 3.62 million annualized units, is currently the second lowest level in 15 years.
The gyrations in such a volatile indicator can drive a person around the bend, but here is the reality: the three-month trend in single-family sales is -72% at an annual rate; the six-month trend is -31%; and the 12-month trend is running at -19%. So, what is this telling you? That the trend is down and, actually, the pace is gaining momentum on the downside. Not good.
With all due respect, and we say so respectfully, the August recovery in both single-family and condo sales managed to reverse the grand total of 15% of the slide from April to July. Just to put what happened last month into perspective.
The number of active listings did dip in August but are still up 1.5% over the past year — so the months’ supply is at 11.6 (was 12.5 in July) but is up considerably from the 9.2 level this time last year. This is consistent with excess supply and deflationary pressure in the residential real estate market, as we have seen in the FHFA home price data now for the past two months. Median resale prices in this National Association of Realtors (NAR) survey showed a 1.9% average price decline in August — the steepest decline in seven months — on top of a 0.5% drop the month before.
David A. Rosenberg
Chief Economist & Strategist Economic Commentary
drosenberg@gluskinsheff.com
+ 1 416 681 8919
Source: Market Musings & Data Deciphering
http://www.fmxconnect.com/
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