Quote from Landis82:
You still continue to miss my point:
We have a market of STOCKS and not a stockmarket.
I don't see how your claim would even begin to apply to sectors that have been in such strong uptrends as the integrated oils or the refiners, let alone defense stocks, brokerage issues, or big pharma.
For example, BAC is breaking out because we are now just starting to see an inverted yield curve.
What does this have to do with the trend of the broader market?
LMT has rallied 15% since the end of June on the fact that DoD spending grew at a 20% rate in Q2.
XOM, CVX, and VLO have had similar percentage moves off of mid-June lows because of refining margins and the price of crude.
If a stock or sector is in a strong uptrend, then why would you be concerned about what the Dow or any other index is doing especially if you are not even trading the index?
Ok. I'm going to make this REALLY EASY for you bulls. The below is from a blog published by Nouriel Roubini, Nobel prize-winning economist and professor @ NYU. He runs a global economics consultancy at rgemonitor.com advising large banks, funds and big investor groups. Please read what he has to say and provide counter-analysis. You will fail. Why? If you go to his blog site and read the blogs, other reputable and very well-respected economists (world bank, imf, top 25 university professor caliber) respond to his blogs and discuss the points. Guess what? They all agree. Why? Roubini didn't win a Nobel prize for nothing. This is my gift to you, you don't have to thank me.
Like I said, please respond with counter analysis. It's not my job to figure out what's going on - 'd rather leave tha to the smartest economists in the world who eat sleep breathe the global economy. It's my job to CAPITALIZE on the market. The writing is on the wall and has been since 2005. Get in before the puts get expensive boys, I'm buying SPY puts at 100, might sell the 90's or 85's for a put-spread, but bottom line is THIS is the next big market event. Any rallies from this point on are great opportunities to leg into a huge size SPY put/put-spread position.
blog at http://www.rgemonitor.com/blog/roubini/138387 You should go to the site so you can read the piece in the right format (bulet points, etc) and also read the reactions of those providing commentary.
by the way, I learned more about international geopolitics and economics during my 2-week free trial to this site than I did in 4 years at Wharton and some time as an investment banker. Do yourself a favor and read the same research the smart money reads.
Enjoy
(OK, so I just realized that I am actually putting money in all of your pockets. I am going balls to the wall based on the below research and all of the related more granular research that I have read over the past 6 months. When the market crashes and the recession hits, make sure you get rich. Anyone who goes to the site, reads the analysis and briefly views all of the links embedded in the piece will undrestand what is about to take place during the next 2 years. Tell your loved ones/friends to get their 401k's and savings out of ALL SECURITIES. Good luck.)
The U.S. Q2 GDP growth figure was an awful and dismal 2.5%, well below the 5.6% of Q1. In June I predicted a Q2 growth rate of 2.5% when the delusional market expectation was still at 3.2% (I admit some luck in getting the point estimate right, even if my out-of-consensus argument was that the economy was doing much more poorly than Panglossian optimists wished and predicted). And even this morning - after all the bad news of the last few weeks - before the report came out - the market consensus (based on 74 economists polled by Bloomberg) was for a 3.0% Q2 growth rate.
And the details of the report are just simply even more awful than the headline number: they are suggesting a coming U.S. recession of the sort that I have been predicting:
Residential housing investment was falling in Q2 at an annualized rate of 6.3% (and I expect it will fall at an even faster rate in H2, close to 10% negative growth for the next few quarters).
Real private consumption (that is 70% of aggregate demand) was growing only 2.5% in Q2, with durable goods consumption actually falling 0.5% led by lower purchases of cars and of goods related to housing: as housing slumps consumers are buying less furniture, home appliances, etc.. Expect even worse consumption growth in H2, as a further slumping housing sector, higher oil prices and high interest rates are seriously shaking saving-less, debt-ridden consumers whose real wages are falling.
Even non-residential investment is melting down: the headline growth rate of 2.7% growth hides an actual fall in real investment of equipment and software of 1%. Firms may be full of profits and cash now but they do not see any good real investment opportunity as other components of demand are slowing sharply; thus, there is an unprecedented share buybacks bonanza, the largest in U.S. history, a signal of no god real investment options out there for corporate America.
Real government consumption growth was a dismal 0.6%.
Also, the fact that now net exports are not anymore a drag on growth is also bad news, not good news: as the economy sharply slows down imports of consumption and investment goods are slowing down. Thus, the news from net exports is also lousy as it signals the coming recession: net exports improve when an economy slows down and worsen when the economy grows fast.
The increase in inventories - that marginally boosted GDP growth - is another signal of weakness. Inventories are going up not because firms are boosting production in face in rising demand; they are going up because demand and sales are falling relative to output. Indeed, actual final sales of domestic product grew only 2.1% in Q2, even less than the GDP growth of 2.5%.
So, this Q2 GDP report is as bad as it could be. I thus stick with my prediction that, by Q4, the growth rate will be close to zero and by early 2007 the U.S. will be in a recession. Panglossian optimists have been proven wrong again. They'd better start adjusting their wishful-thinking forecasts of H2 growth (still close to a 3% consensus) to a reality of an economy rapidly slipping into an nasty recession.
Also, the report today, togther with the data on unit labor costs, confirm my view that we are in a serious stagflationary period where growth is sharply slowing towards a recession and inflation is rising. This is a nightmare for the Fed. Bernanke and the FOMC have been desperately trying to find a good reason to pause in August; and the Q2 growth numbers today give ammunitions to those in the FOMC who will push for a pause on August 8. But inflation is rising in every possible dimension and measure (headline, core, CPI, PCE, unit labor cost, wage costs, ECI, you name it). So, the Fed is in the worst dilemma: it wants to stop because of the slowdown; but it may need to keep on tigthening because of rising inflation. On net, after today's report - and assuming the July employment report will be bad while inflation still rising - the Fed is now much more likey to pause in August than do another 25bps. But the decision is not fully sealed yet. And, most likely, the Fed may then end up flip-flopping by pausing in August and then be forced to tigthen again in the fall if core inflation keeps on rising as it is likely to do. The one factor that may lead the Fed, not just to pause but to stop altogether and even ease, is an even faster pace to the recession than I am predicting now; if growth goes to zero by early Q4 rather year end or Q1 of 2007, the Fed may panick about growth - as it did in early 2001 - and reduce rates (assuming that the slowdown leads to a peak in core inflation and hoping that oil does not keep on rising further on the back of geopolitical shocks).
What does all this mean for the stock market? If the Fed pauses in August you will have a significant and temporary rally (as the instant knee jerk reaction of the stock markets to the GDP report today shows). But this will be a sucker relief rally as the short term benefits for stocks of a Fed pause will, in short time, lead to the realization that the pause signals that the Fed is panicking and realizing that an ugly recession is coming (as in 2000 but only worse). Thus, once the signals of this recession build up, the slowing demand, sales, profits, earnings will severely batter the stock market. Expect 10-15% losses on the major equity indexes between now and year end as the bearish reality of a recession sinks in delusional investors still hoping for a soft landing of the economy. There will be no soft landing; it will be as hard a landing as it gets. So, as Bette Davis said in All About Eve: Fasten your seat belts...it's gonna be a bumpy ride! A very bumpy one for the economy and for all risky assets. In 2006 cash is king and all risky assets (equities, EM bonds, currencies and equities, commodities, credit risks and premia) will be battered once the markets finally comes to the realization that a U.S. recession followed by a serious global slowdown is coming.
Finally the other delusion in the market is that, even if the U.S. were to slow down, the rest of the world (EU, Asia, China, Japan, Emerging Markets) will be able to "decouple" from the U.S. slowdown and keep on growing perkily. I have extensively written on why there are at least 12 good reasons why the rest of the world will not be able to decouple from a U.S. slowdown: quite simply, when the U.S. sneezes the rest of the world gets the cold. The decoupling fairy tale will be proven as wrong as the U.S. soft landing Panglossian fairy tale.
