From CNBC (hey look, they have some good content… it’s not all mindless, after all).
Jim O’Neill on the Swiss Franc, the Euro and the US economy…
February 20, 2015
The latest news from the American Institute of Architects (AIA) has some economists alarmed, because it shows a potential shrinkage in housing related activity. The AIA publishes data based on surveys of member firms, known as Architecture Billings Indices, and their two main index products are the Billings Index and the Inquiries Index. Billings represents actual work that gets billed to the customer, while Inquiries is a softer data set reflecting customers potentially generating new work.
The US stock market made another all time high last week amid more mediocre – at best – US economic data. Much of the gain was credited to positive developments in the geopolitical arena as a ceasefire was announced in Ukraine and negotiations continued on Greek debt relief with some positive signs that an agreement might be reached. Whether either of those things are important for the value of US stocks is questionable at best but the bulls managed to convince themselves that they are and that is all that really matters. From a technical and fundamental perspective I’m a bit skeptical of this move even if it does make a new high. The rally was on fairly light volume, stocks have been struggling for months and this doesn’t change much in that regard. The S&P is up less than 2% on the year and less than 4% since September. Not exactly ripping even if it does go into the record books.
If we are going to use the CCI-Gold ratio as an important indicator to global economic contraction, we might view its recent bounce as making sense with respect to a broad global asset market bounce (incl. commodities) and in the US, a break upward from the recent nerve wracking ‘swing phase’ of volatile ups and downs in the stock market.
NFTRH managed the bullish stock market break in real time and I personally positioned accordingly. But I am not going to go all ‘Dow 30,000′ on you in Armstongian fashion. I am simply going to note that the indicator above has made a cyclical trigger (most recent red arrow) and its companion, the Palladium-Gold ratio is looking none too good either (though the MA’s have not triggered).
If these act as they historically have, they are a ticking clock. This clock ticks painfully slowly, but it is ticking for the economy none the less.
Guest Post by Michael Ashton
Sometimes being a value investor, amid overvalued (and ever more so) markets, feels a bit like being a Stark in Westeros. The analogy will be lost on you if you do not follow Game of Thrones, but the Starks hold the largest of the sub-kingdoms in Westeros. This kingdom also happens to be the coldest, and the sober Starks are always reminding people that “Winter is coming.”
I should observe that winter in Westeros is a much more serious affair than it is around here; it comes at odd intervals but can last for years. So being prepared for winter is really important. However, getting people to prepare for winter during the long “summer” is very difficult.
Sound familiar? The thing to keep in mind is that the Starks are always right, eventually, and they’re the ones who come through the winter in the best shape. Such is the case with value investors. (Some people might prefer calling value investors who are bearish on stocks right now “Chicken Littles” but I prefer being compared to Ned Stark, thanks. Although both of them have been known to lose their heads on occasion.)
Fortunately, it does not appear that winter is coming to the U.S. very soon. Friday’s Employment report was strong, despite the beginnings of downsizing in the oil and gas extraction businesses. The chart below shows the Baker Hughes oil and gas rig count, which is falling at a rate every bit as fast as it did in the credit crisis.
Guest Post by Elliott Wave International
Some 30 million people are either out of work or severely underemployed
Editor’s note: You’ll find the text version of the story below the video.
The financial media has recently featured stories with an upbeat outlook for the U.S. economy.
For example: The economy is on track for “the fastest growth in a decade” (Associated Press), and “Experts expect jobs aplenty in ’15” (USA Today).
This upbeat tone is related to December’s U.S. jobless rate of 5.6%, its lowest since June 2008.
This segment is excerpted from this week’s Notes From the Rabbit Hole, NFTRH 329, and was originally titled…
The ISM PMI reports for December and January showed deceleration in line with our view that a persistently strong US dollar would begin to eat away at US manufacturing, exporters and other companies that depend on significant foreign business. But in an age where investors will bid up Twitter* (with its forward P/E of 141 and 30B market cap to 1.2B revenue) by 16% in a day, are we returning to the old days of ‘PE’s don’t matter’ with the hook or tout being ‘it’s all about ad revenue’?
One analyst quoted in the WSJ: “Given FB’s (Facebook) history… we think that investors do not want to miss out on another social stock run”
Is this type of mentality not reminiscent of the late 1990’s? Twitter, like Facebook, is implementing strategies to monetize all those short attention spanned eyeballs, but 30B?
As you will see by the charts in this week’s report, despite elevated general forward valuations (graph below) and ridiculous individual valuations like Twitter and so many other fad stocks, the bull market’s technical situation remains unbroken and generally bullish, although the volatile ‘swing’ market theme remains intact for now.
* Personally, I deleted my Facebook account because after all, who really needs to see yet another picture of someone’s super bowl chili or winter vacation in the tropics? I use Twitter as a button at the websites. Make post, press button… done. Another tweet the world really doesn’t need. But it is a handy little tool.
Back on topic, here is the current forward P/E level of the US stock market (graph source is factset.com, by way of the free ‘Daily Shot’ email service from soberlook.com). They each cover relevant global macro data and are recommended.
P/E is as stretched as it gets for US corporations. But in a world where deflation is the key theme, capital flows have well, flowed into US asset markets. On a risk vs. reward basis, the view continues to be that certain global areas are more favorable than the US for new investment. As an example, we have been noting that Germany, as an exporter operating behind a weak currency and QE-inclined Central Bank, could be a destination for favorable investment vs. the US in 2015. Deutschland factory orders are improving.
How to promo… how to promo? NFTRH 329 took a hard look at the realities of what happened last week and despite an end of week reversal (below SPX key resistance of 2165) it found that at week’s end the bulls and the risk ‘ON’ contingent regained their footing.
Going the other way, the rise in short-term yields vs. long-term yields was gold bearish and not friendly to Team Risk ‘OFF’.
A really good market report doing the work it has to do every step of the way. Of course we are in the volatile ‘swing baby, swing’ market so we’ll be ready to adjust as always over the coming week. The key is to be in proper position for when the ‘swing’ phase consolidation ends.