NEW$ & VIEW$ (23 Feb. 2012)


Smile  The Chicago Fed National Activity Index decreased to +0.22 in January from +0.54 in December, but remained positive for the second straight month for the first time in a year. Three of the four broad categories of indicators that make up the index improved from December, and only the consumption and housing category’s contribution was negative in January.

The index’s three-month moving average, CFNAI-MA3, increased from +0.06 in December to +0.14 in January, reaching its highest level since March 2011. January’s CFNAI-MA3 suggests that growth in national economic activity was slightly above its historical trend.


Fifty of the 85 individual indicators made positive contributions to the index in January, while 35 made negative contributions. Forty-eight
indicators improved from December to January, while 36 indicators
deteriorated and one was unchanged. Of the indicators that improved,
15 made negative contributions. The December monthly index was revised to +0.54 from an initial estimate of +0.17.

Smile  Existing-Home Sales Rise Again in January, Inventory Down

Total existing-home sales increased 4.3% to a seasonally adjusted annual rate of 4.57 million in January from a downwardly revised 4.38 million-unit pace in December and are 0.7% above a spike to 4.54 million in January 2011. But the gain came only because the NAR sharply lowered December sales to 4.38 million. If December sales had stayed at their original 4.61 million, January sales would have been down slightly.

Total housing inventory at the end of January fell 0.4% to 2.31 million existing homes available for sale, Pointing up   the lowest number since March 2005. Total unsold listed inventory has trended down from a record 4.04 million in July 2007, and is 20.6 percent below a year ago.

The national median existing-home price for all housing types was $154,700 in January, down 2.0% from January 2011. Distressed homes – foreclosures and short sales which sell at deep discounts – accounted for 35% of January sales (22% were foreclosures and 13% were short sales), up from 32% in December; they were 37% in January 2011.

First-time buyers rose to 33% of transactions in January from 31% in December; they were 29% in January 2011.


Lightning   EU Expects 2012 Recession

The euro area will slip back into recession in 2012 after the economic recovery unexpectedly stalled last year, the European Commission said.

On an annual basis, the 17-country euro-zone group is forecast to contract by 0.3% and remain unchanged in the larger European Union. Last November, the EU forecast euro-area gross domestic product up 0.5% this year and EU GDP up 0.6%.

2012 GDP Forecasts

Country New forecast Old forecast*
France 0.4% 0.6%
Germany 0.6 0.8
Greece -4.4 -2.8
Italy -1.3 0.1
U.K. 0.6 0.6
Euro zone -0.3 0.5
EU 0.0 0.6

Change from previous year. *Autumn 2011 forecast. 
Source: European Commission


Mug   German Business Is Confident

German business confidence increased substantially in February, Germany’s Ifo Institute said, beating forecasts and confirming expectations that Germany’s economic slump will likely be short-lived.

The sub-index assessing current conditions rose to 117.5 from 116.3, while the sub-index for business expectations rose significantly to 102.3 from 100.9 in January.

Storm cloud   Euro denominated oil hits record
Brent reaches €93.63 prompting talk of ‘regional oil shock’

The new euro record comes just a day after Brent hit a record in sterling terms.

In dollar terms, oil prices also surged more than 1 per cent higher, touching a fresh nine-month peak of $124.48 a barrel, though they remain well below their 2008 record of $147 a barrel.

Pointing up   But here’s the catch on seemingly lower U.S. prices: adjusted prices are at record levels.

Retail prices usually decline this time of year with reduced seasonal demand. To account for this pattern, Haver Analytics calculates seasonal factors. As a result, the adjusted gasoline price was $3.84 last week.

Annoyed   Germany fights eurozone firewall moves

“The German government’s position has not changed,” he said. “That means no, it is not necessary.”

Ms Merkel and her finance minister, Wolfgang Schäuble, are looking isolated in the face of strong pressure from Christine Lagarde, managing director of the IMF, and the other 16 members of the European monetary union.

The Dutch government, which like Germany has taken a hard line on committing resources to the Greek crisis, however indicated it had switched positions.


Wen Seen Setting China Growth Target Below 8% in 2012: Economy

Wen will target an expansion of less than 8 percent in his report to the National People’s Congress in Beijing on March 5, the equivalent of the U.S. President’s State of the Union address.

A cut may indicate policy makers are prepared to tolerate a slower expansion as they move the economy’s drivers to consumption from exports and investment, a shift that may address global imbalances blamed for the last financial crisis. The survey results tally with state economist Fan Jianping’s prediction last week that a reduced goal will be set to send a message to local officials bent on chasing growth.



Final Earnings Season Stats

Earnings season came to an end yesterday with Wal-Mart’s (WMT) release of its quarterly numbers.  Wal-Mart’s report must have been bittersweet for market bulls since the S&P 500 rallied more than 6.5% this past earnings season. 

As shown below, the percentage of companies that beat earnings estimates for the reporting period finished at 60.4%.  This is slightly lower than the reading from the prior earnings season and 1.6 percentage points below the historical average of 62%.



Winking smile   Last week, I published THE BULLS ARE BACK, RIGHT ON CUE, highlighting the fact that a number of bears, even perma-bears, were turning bullish right when earnings, the lifeblood of equities, were showing signs of peaking. Bruce Krasting yesterday noted:

It has been my observation over (sadly) a long period of time that when all of the “stars” line up and point in one direction, it’s often time to go in another direction. The commentary on the TV shows and newspapers is usually the last place one would go to for investment advice. The media is, however, a good place to consider if one was looking for signs that sentiment has gotten away from reality. I wonder if the market enthusiasm in this ABC News clip isn’t a signal that we have reached a tipping point.

All of these “stars” are now on the same page. Is it possible that they could all be right? If so, that would be a first.


Ghost   TOPPISH MARKET: As some would say, market “internals” are not strong.



Alan Brochstein wrote a good piece highlighting the lack of participation of retail investors in equity markets:

2012 is off to a fabulous start, with the rare event of no one being able to buy at last year’s prices so far. As you can see, the year is actually tracking our fast start in 2011:

Alan is also bullish noting:

Let me tell you what really encourages me most: Early signs that the number one challenge the market has faced is ending. The headwinds of retail redemptions from stocks have been blowing furiously for five years now. Take a look:

According to the Investment Company Institute data, almost $500 billion has come out of domestic equity mutual funds. Now, I know retail chases performance, so the outflows from the second half of 2007 through early 2009 weren’t surprising, but the divergence between market direction and retail participation since then has been stunning. In late 2009, they redeemed as the market recovery began. As soon as the market stalled in 2010 and in 2011, the redemptions kicked in again. It’s no wonder that valuations are so puny these days!

Now, on the flip-side, look at where the money has been going:

While it’s way too early to call it a trend, recent data has shown an uptick in equity inflows. In the most recent week reported (2/8), flows were $1.8 billion, which was the best week in quite some time.

For the week ended Feb. 15, equity funds had net inflows of $1.04 billion.

High five   Prieur du Plessis has some charts for bond holders showing the impact that the Fed’s Operation Twist is having on interest rates. Caveat emptor.


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