A Recap - The Week in Review

We saw this week that the US factory sector took a breather in April, from the explosive pace of Feb and March, meaning new orders and shipments grew more slowly. We’re not sure how to explain this yet, or if it is trend.

We saw this week that US housing remains in the tank, and to no one’s surprise.

We saw this week through the Claims release some further improvement in the US employment market.

We saw this week that price pressures are building in the EU and UK and that both central banks are now more likely brake. The EU can handle it (German, French vigor) but the prospect represents a nightmare for the UK.

We saw that the EU continues to experience problems with the periphery, an old story. Today there is speculation of Greece defaulting on their debt. We recall when Russia defaulted on their debt. That was a game changer for markets in the US.  This is not.

Finally, we saw today that the Bk of Japan is pleased with the pace of resuscitation and so plans no special support plan. Japan’s Q1 GDP was off 0.9% vs Q4, to no one’s surprise (it captured two weeks of tsunami impact). Days after the crisis we predicted a positive Q3. The Bk of Japan, and now most world observers agree.


Robert Craven

Surprise Before The Weekend?

What might move the market crowd before the weekend?

There is a key US Manufacturing release today, a survey conducted by the Philly Fed which over the years, our experience, has correlated well with not just regional but country-wide manufacturing activity ahead; naturally then thus release packs muscle. It will either show a continued booming, or a slight easing in the pace of expansion. This is priced in. Only a very weak number will worry equities and push bond yields lower.

We also have Jobless Claims today. Not just US but world focus is on US job creation - we are the world’s engine (sorry China, you don’t even come close) and everyone wants to know on how may cylinders we’re burning. This release carries plenty of horsepower to either worry or cheer the market crowd. Those dependant on discretionary spending - our nursery pals, our friends who own a picture frame business, our plastic surgeon buddy - none of them are being overrun by clients. Sorry, but it’s simple - good ‘ol trickle down holds the key.

We also have Existing (Used, Pre-Owned) Home Sales today for April. The media makes quite a bit about this and related housing releases. Forget it. They don’t mean a thing in this environment. Housing is sunk and no single release will change that view. That is why (as we predicted) although Housing Starts tanked on Tuesday, the markets not only did not shudder, they did not even blink.


Robert Craven

Housing Disappoints

Today’s April Housing Starts - far below expectations. This will not greatly bother US markets, equity or otherwise. Housing is in such sad shape that even if the release were far above expectations, in the scheme of things, it would mean very little.

This represents tension in this sector.

Robert Craven

A Layman’s Guide - The Week Ahead

(Bear with us folks, we’re a tad wordy with this installment, joining the rest of the media. My son tells me - keep it brief Dad. OK, OK, just this once!)

Background: The financial media delivers mostly filler and fluff; it’s good business for them apparently but serves no other purpose, leaving a void. This provides opportunity for a service like ours.

Most of us are not wired to screens all day long; most of us have other jobs but still don’t enjoy being ambushed by economic events. This includes small business owners who wonder just when to hire or fire, just when, if ever, that parking lot will fill; it includes active investors, those with a job but who manage their own funds. Our exercise at this firm is providing to these individuals by distilling the impact of economic events just ahead. Past years, through other vehicles, we’ve done a good job at that.


The Week Ahead

Every week we face a stream of US economic releases; they’re all featured in the media but they’re not all important. Some carry market-moving horsepower, some do not. That role changes with time, some shedding power, others acquiring it. It’s better to have a leg up, better to anticipate reaction, than react.

This week’s releases are focused on Manufacturing and Housing. We know manufacturing led the recovery; and we know with a weaker dollar and booming exports this sector continues to show vigor. Of the three releases dedicated to manufacturing we do not anticipate a surprise; they will cooperate. The two dedicated to housing will show some improvement, but this sector is in such sad shape, the markets will not be impressed.

With the world as tightly wound as it is, we also must monitor key offshore releases when we feel they will have an impact on our markets. The EU April CPI to be released May/16 is key. A print much through consensus will spark the view for an ECB lift, and sooner rather than later as especially Germany and France are booming. This will worry the US equity markets. The UK April CPI is to be released Tuesday, May/17. The UK will have a real problem with a print through expectations as the Bk of England will be more likely to lift, but this in the face of a struggling real sector (not the case with Germany or France). Won’t be pretty. With both these banks inclined to lift official rates, the Fed will be cornered, blamed even further with reckless policy at home.

Finally - the US debt ceiling. Most, including the Fed and Treasury are in hysterics and predict an end of the world if we don’t raise the ceiling. This is nonsense. Geithner prediction of a "double-dip recession" is simply dishonest. He knows better. Some clear thinkers, including the famed money manager Stanley Druckenmiller, hope for the benefit of all that we leave the ceiling well enough alone. From the WSJ report on an interview with Druckenmiller, "...he's willing to accept a temporary delay in the interest payments he's owed on his U.S. Treasury bonds—if the result is a Washington deal to restrain runaway entitlement costs." And this is the way institutional markets will view such an event, past the first 10 minutes of panic.

Robert Craven