NEW$ & VIEW$ (29 JANUARY 2013)

Durable goods orders. Pending home sales. Chain store sales. Currency wars. Earnings watch. Investor sentiment.

U.S. Durable Goods Orders Jump at Yearend; Shipments Reach Record High

A doubling of defense bookings raised total durable goods orders by 4.6% (0.2% y/y) during December, a 0.7% rise had been expected. Outside of the defense sector, orders rose 1.2% (-4.5% y/y) last month but the 4.1% full-year gain was slower than a 12.3% advance during all of 2011.

Orders for nondefense capital goods jumped 3.8% (-12.3% y/y) in December; excluding commercial aircraft, nondefense orders ticked up just 0.2% (-4.3% y/y) and for the full year fell 0.5%.


Pointing up The important line is in the red rectangle. Non-def capex ex-aircraft +6.2% in the last 3 months!

Sad smile  U.S. Pending Home Sales Fall Sharply
Pending sales of single-family homes slumped 4.3% (+6.9% y/y) last month..

Pending sales of single-family homes slumped 4.3% (+6.9% y/y) last month after a little-revised 1.6% November rise, according to the National Association of Realtors (NAR). For all of 2012, sales rose 11.2% y/y. The rebound in the aftermath of the removal in 2010 of the home buyers tax credit has raised sales by one-third from the low.

The slump in sales last month was led by an 8.2% decline (-5.3% y/y) in sales in the West. Sales in the Northeast also were soft and fell 5.4% (+8.4% y/y), reversing the November gain. Finally, sales in the South were off 4.5% (+10.1% y/y) to the lowest level in three months.


Weekly sales (s.a.) have been falling every week since Christmas. I question the seasonal adjustment so I prefer to use the Y/Y change. The 4-wk m.a. has held up at +3.0% but only because of very poor comps last year.



Some are blaming the weather, as usual, but I suspect the increase in the payroll taxes plays an important role here.

A survey by RBC Capital Markets showed that 57% plan to reduce spending due to higher payroll taxes, and 25% don’t plan to adjust spending. Another 13% weren’t sure what they will do, and 5% expect to spend more.



Mohamed El-Erian: The ECB will come under pressure in the currency wars

(…) Having solved its urgent problem, the eurozone needs to deal with a new dilemma: that of an appreciating currency. There is a growing number of countries seeking to weaken their own currencies. Indeed, in the last six months, the euro has appreciated by 11 per cent against the US dollar and by 8 per cent in nominal trade weighted terms. It has appreciated by a lot more against the Japanese yen.

With growth already sluggish, the eurozone can ill afford a stronger currency. Sharp appreciation undermines economic activity – not only for export powerhouses such as Germany but also for countries such as Spain where, for the past eight quarters, the contribution of net exports has been positive. (…)

European politicians need to significantly accelerate policy reforms if they wish to maintain competitiveness in a safe and orderly fashion. This involves quickly moving from the design to the implementation of key measures. (…)

But, having averted an existential financial problem, politicians seem more interested to bask in their success than deal with remaining challenges. This understandable desire to savour the moment – and with it, the illusion of stability – is inevitably strong in the run-up to several key elections this year.

With politicians failing to manage the dilemma directly, it is only a matter of time until they again look to the ECB for help.

Expect the ECB to be pressed hard to join other central banks in actively seeking to depreciate the currency – by cutting the policy rate (currently 0.75 per cent) and quantitative easing of the type pursued by the Bank of England, the Bank of Japan and the US Federal Reserve.

This is not a road that the ECB will embark on easily. And if it does, it would seek to address a regional dilemma by adding to a global one.

Being a relative price, all countries cannot simultaneously weaken their exchange rates (except against gold, real estate and other “real” assets). And should the ECB feel forced to join collective attempts to do the impossible, the risks of a global currency war and related beggar-thy-neighbor outcomes would increase meaningfully.

Polish 2012 GDP Slowed to 2% on Consumer Demand, Exports

Poland’s economy grew at the slowest pace in three years in 2012 as the euro-area slump damped consumer spending, increasing pressure on the central bank to keep cutting interest rates.

Gross domestic product advanced 2 percent from a year earlier, when it climbed 4.3 percent, the Central Statistical Office said in a preliminary report in Warsaw today. That matched the median estimate of 36 economists surveyed by Bloomberg. The annual pace was the slowest since 2009, when GDP rose 1.6 percent. (…)

Pointing up Today’s data “masks a slump in domestic demand toward the end of last year that has seen household spending drop to its slowest rate since the early 1990s,” Neil Shearing, chief emerging-markets economist at Capital Economics Ltd. in London, said in an e-mailed note. (…)

In December, employment fell for a second month, industrial output had its biggest slump in more than three years and retail sales fell the most since 2005. The jobless rate rose to 13.4 percent, the highest in almost a year. (…)

The zloty touched a four-year low against the euro last week after the central bank cut its benchmark to 4 percent on Jan. 9. (…)

Colombia Cuts Rate to 4% And Steps Up Daily Dollar Purchases

Colombia cut interest rates to the lowest level in Latin America to boost below-potential economic growth, while increasing daily dollar purchases to curb the peso’s appreciation.

India Central Bank Cuts Lending Rate

India’s central bank cut its key lending rate by a quarter of a percentage point to 7.75%, and also lowered banks’ minimum cash deposit requirement to a near 40-year low.


Saudi Arabia to Keep Crude Exports Stable Through 2030, Prince Says

The kingdom will be able to keep exports at the present level until at least 2030 without adding capacity, Prince Abdulaziz bin Salman said yesterday by phone from Riyadh. The nation’s crude production capacity is 12.5 million barrels a day, he said.

“We will maintain our current oil exports levels for the next twenty years and beyond despite the rise in demand,” the minister said. “Those who are forecasting the kingdom to turn into an oil importer are ignorant bordering idiocy.” (…)

The kingdom produced 9.57 million barrels of crude a day in December, down from 9.7 million in November, according to Bloomberg estimates. The kingdom exported 7.15 million barrels a day of crude in November, according to data from the Joint Organizations Data Initiative, which publishes figures for oil-producing and consuming nations.

Global crude markets will remain well supplied in 2013, Abdalla El-Badri, secretary-general of the Organization of Petroleum Exporting Countries, said yesterday in London. OPEC, which produces about 40 percent of the world’s oil, cut output by 465,000 barrels a day last month to 30.4 million, led by a reduction in Saudi Arabia, the group said in a Jan. 16 report. (…)

Demand for electricity is rising at 8 percent a year, according to government figures. Saudi Arabia uses natural gas in half of its installed power turbines, and crude and fuel oil for the rest, according to the electricity generation authority. The country sells crude to the local electricity company at $4.50 a barrel, and heavy fuel oil at $3.50, Prince Abdulaziz said.

Citigroup Inc. said in a Sept. 4 research report that Saudi Arabia risks becoming a net oil importer by about 2030 if it continues to use oil and its derivatives for 50 percent of its power generation and if electricity consumption keeps rising at 8 percent a year. Greater use of renewable or nuclear energy would reduce that risk, the bank said.


Earnings and Revenue Beat Rates for Q4 2012

This week we’ll reach the mid-point of the fourth quarter reporting period, and so far, the results have been pretty good.  As shown below, 63.9% of the companies that have already reported earnings have beaten earnings estimates.  If this level sticks, it will be the highest beat rate seen since the fourth quarter of 2010.

Even better than the earnings beat rate is the revenue beat rate.  As shown in the second chart below, 60.8% of companies have beaten revenue estimates so far this season.  While 60.8% is about inline with the average reading seen over the last ten years, it’s a very big jump from the sub-50% readings seen in the prior two quarters.


According to just-released data, equity mutual funds recorded net inflows for the third consecutive week trough Jan 23 (+1.4 billion in U.S. equities). The performance of the ETF sector was not as good,
however, with net outflows of $3.1 billion from U.S. stocks-related products during the week. As a result, total net investment in U.S. domestic equities was down $1.7 billion on the week. Note that bond mutual funds have yet to lose in popularity with more than $3.5 billion of net inflows.

The ETF and mutual fund data suggest a divergence of attitude between
institutional investors (ETF data) and retail investors (mutual funds). The latest AAII investor sentiment survey revealed that individual investors were the most bullish in two years last week. As today’s Hot Chart shows, the percentage of investors reporting to be optimistic for the next six months stands at 52.3%, more than one standard deviation above the historical average of 39%. From a contrarian standpoint, this development argues for a period of consolidation given that the S&P 500 is already up more than 5.3% this month and closed above 1500 last week for the first time since the onset of the recession.



From Bank of America Merrill Lynch:


He’s back: Conrad Black to host new weekly television show

Will the show be called Candid Camera? Winking smile


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