Weekly Recap & Outlook – 04.16.10

Tower Private Advisors

Below

  • Selloff today because of [insert reason here]
  • Troubling economics this week
  • Housing on tap for next

Prior posts

Capital Markets Recap

Stock monitors are a sea of red today.  The bobble-head dolls on financial television will chalk it up to the woes at Goldman Sachs (check out the link to GoldmanSachs666.com at right under “Websites . . . “) and earnings disappointments–or surprises–the cloud of volcanic ash over Europe.  Whatever.  The fact is that after rallying for 40 days–or howevermany it’s been–the markets needed an opportunity to vent some speculative gases.

Market Chart of the Week

Under construction . . . technical difficulties

Top Stories

  • GE earnings exceed expectations, as do Google‘s.  Both stocks get pounded.
  • China’s economy continues afire, rising by 11.9% in Q1, if their statistics are to be believed, some don’t.  What if they’re off by 1%?  Oh, my, just 10.9%.
  • UPS exceeded earnings expectations.  They’re doing it by shipping more stuff.  Can’t be a negative for the economy.
  • Intel (technology bellwheter) and JPMorgan Chase exceeded earnings expectations.
  • Apple is holding off on selling iPads overseas as it apparently misjudged U.S. demand.  iPads are fetching $2,250 in India in response.
  • Greece is not out of the woods.  Haven’t we learned that debt problems are not solved by more debt?
  • Apparently, Goldman Sachs didn’t get the velvet hammer message from earlier in the week when the White House advised Goldie and JPMorgan to back off on their lobbying efforts against the financial reform bill.  The SEC brought suit for Goldman apparently packaging some choice (read, terrible) residential mortgage backed securities into a pool (‘think I’ve got that right; this is the internet, after all) of securities upon which John Paulson, hedge-fund superstar, in turn bought a Credit Default Swap, betting on the mortgages imploding (i.e. defaulting).  Seems that Goldie didn’t advise the sellers of the default protection that it had packaged the lousiest mortgages at the request of JOHN PAULSON.

This Week

Some ominous trendline developments, along with strength in housing.

Economic indicators were about evenly missed between positive and negative.  The week started off with a negative, however, in the form of NFIB Small Business Optimism.  As the chart at right shows, the 3-month moving average has crossed below the rising 12-month moving average.  That, along, with a price below the 12-month moving average will put pressure on the budding upturn seen over the last 12 months.  Trend break #1.

For the first time I can recall, our highly-sophisticated Initial Jobless Claims forecast hit the number on the nose, which you can verify from looking at last week’s WR&O.  Unfortunately, our forecast was spot on at 484,000.  It’s unfortunate because that marks a 24,000 increase from last week and, more importantly, blasts through a downsloping trendline that has been in place for a while now, as shown to the right.  As the inset shows, as troubling, the 3-month moving average is threatening to pierce through, and above the 12-month moving average, which, itself, had begun to flatten.  So while the 5-year moving average (i.e. trend) in red is still headed down, the intermediate-term trend (blue) is flattening, and the short-term trend (green) is threatening to bias the medium-term average higher.  This will be a very important development to watch.  Trend break #2

The third troubling trend was in the University of Michigan Consumer Confidence figures.  It’s all the more troubling when the trend break occurs on an unexpected directional reversals.  The chart is at below and to the right.

Regional indexes gave mixed signals this week.  The Empire State Manufacturing index jumped by almost 50%, rising from 22.86 to 31.86, whereas economists expected a modest increase to 24.00.  On the other hand, and in another Federal Reserve district, the Philly Fed rose from 18.9 to just 20.2 (economists expected 20.0).

Housing Starts enjoyed a sharp relative pop this week, rising from 575,000 to 626,000, while Building Permits rose from 612,000 to 685,000, well above the consensus guess of 625,000.  The builders apparently felt some of the love, as the National Association of Homebuilders’ Housing Market Index jumped from 15 to 19, well above economists’ consensus guess of 16.  Twenty is a level to watch, as it’s the high of the last couple of years.  Too, it’ll form a head and shoulders technical pattern, a measured move from which would target 30 . . . sounds far fetched, both as a concept and what it would suggest for housing.

Quickies

  • Capacity Utilization ticked up a bit higher and last month’s was revised higher, as well.
  • Consumer Price Index figures were very subdued.  No inflation in sight.
  • Mortgage Applications fell by (-)9.6%.

Next Week

A fair amount of housing data is on deck for next week, but the release to watch is Initial Jobless Claims.

Monday – the fun starts with the release of Leading Economic Indicators.  Economists expect a jump to 1.0%, which will be the first reading of 1% or higher since the end of 2009.  It will be important to look at the component indexes to determine the strength of the now-presumed advance.  In addition, we’ll look at things

Thursday –  Producer Price Index data for the month of March is released.  The Core rate is expected to have risen at just a 0.9%, but when those pesky food and energy prices are included, the increase is expected to exceed 6%.  Initial Jobless Claims are also due out, and if our forecasting model is right, you’d better plan on hiding under the desk, buying canned goods, and the like, as it pegs next week’s release at 508,000.  However, anytime there’s a holiday or sleet or a volcano in Iceland, economists are quick to point out that jobless claims are noisy at such times, which is to say, hard to forecast, their stellar ability to forecast anything when there’s a hush of silence notwithstanding.  The intrepid dismal scientists grudgingly move up next week’s forecast to 450,000, from this week’s guess of 440,000.

Not counting the earlier-in-the-week Mortgage Applications report, for which economists do not submit estimates (‘probably best), we get the first of three looks at housing with the release of the House Price Index, the broadest measure of housing prices.  Economists expect that housing prices were flat in February.  Meanwhile, they expect that Existing Home Sales rose from an annualized rate of 5.02 million to 5.30 million, a cool 5.6% increase from February.

FridayDurable Goods Orders are announced, and they come in several flavors, the most popular of which is excluding-Transportation orders, which version is expected to have shown an increase of 0.5%, while the headline version is expected to have grown by just 0.1%, both of which will be slower than February’s pace.  The week is wrapped up with the release of New Home Sales.  They’re expected to have grown by 4.6% in March.

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