NEW$ & VIEW$ (11 FEBRUARY 2013)

Short term indicators steady. Insiders selling. OECD LEIs. Bubbly yields. U.S. exports slowing. German employment. Canada slowing. U.S. productivity squeezing margins? Chinese credit risks. China IP rising. Emerging markets valuations. Currency fluctuations.

Fingers crossed SO FAR, SO GOOD

The uncertain effects of the ongoing fiscal drag combined with rising gasoline prices require close monitoring of the U.S. economy. Real disposable income surged 6.8% Q/Q annualized in Q4’12, mainly due to dividends having been shifted (i.e. prepaid) into Q4 to escape potentially higher taxes in 2013. In addition, $160B in higher taxes will hit consumers in Q1’13. Disposable income could drop more than 8% in Q1’13! Can higher house and stock prices and lower mortgage rates create enough wealth effect to offset the hit?

ISI’s weekly surveys remain solid up to Feb. 8. Industrial and housing survey data are strong but “some of the consumer surveys with smaller ticket size” have decelerated recently. Retailers surveys are weakish but auto dealers surveys remain good.


The Discover U.S. Spending Monitor held steady in January dropping only one-third of a point from 91.1 to 90.8. Economic confidence among consumers remained relatively flat month-to-month, while more consumers are planning to increase their spending on household expenses like gas and groceries and home improvement purchases.

Pointing up Sucker Alert? Insider Selling Surges After Dow 14,000

(…) “In almost perfect coordination with an equity market that was rushing toward new all-time highs, insider sentiment has weakened sharply — falling to its lowest level since late March 2012,” wrote David Coleman of the Vickers Weekly Insider report, one of the longest researchers of executive buying and selling on Wall Street. “Insiders are waving the cautionary flag in an increasingly aggressive manner.”

There have been more than nine insider sales for every one buy over the past week among NYSE stocks, according to Vickers. The last time executives sold their company’s stock this aggressively was in early 2012, just before the S&P 500 went on to correct by 10 percent to its low for the year. (…)

Looking at a longer time frame paints a bearish picture as well. The eight week sell-buy ratio from Vickers stands at 5-to-1, also the most bearish since early 2012. What’s more, the last time this ratio was at these levels was June 2011, just before another correction in the stock market took place.

Insider selling is not as significant as insider buying. But in my search for signs of a weakening economy, the January selling by people on the front line raises a yellow flag, especially coming after the year-end. If anybody needed to sell stock over the short term, the looming fiscal cliff provided ample reasons to sell in December.


Composite leading indicators (CLIs) show diverging growth patterns in the economic outlook of major economies. In the United States and the United Kingdom, the CLIs continue to point to economic growth firming but in the United Kingdom the signs are slightly weaker compared to last month’s assessment. In Japan and Brazil, signs of growth picking up are emerging.

In the Euro Area as a whole, and in particular in Italy and Germany, the CLIs point to a stabilisation in growth prospects; however in France growth is expected to remain weak.

In China and India, the CLIs point to growth below trend compared with more positive signals in last month’s assessment. In Canada and Russia the CLIs continue to point to growth below trend.



High five  SEARCH FOR YIELD GETTING BUBBLY (charts from Moody’s):

See the diverging trends?



Storm cloud  U.S. Trade Deficit Shrinks to Lowest Since January 2010 (Haver Analytics)

The U.S. foreign trade deficit during December improved to $38.5 from little-revised $48.6B in November. The improvement was due to a 2.1% increase (4.9% y/y) in exports and a 2.7% decline (-2.0% y/y) in imports. Real exports jumped 2.6% (2.7% y/y) while real imports plunged 3.1% (-1.1% y/y).

Petroleum Exports Soar To New High In Economic BoostThat looks like good news as many media reported it (e.g. the WSJ’s Data Suggest Economic Growth). Yet, details reveal that U.S. exports are continuing to slow down when excluding petroleum products from the trade stats. (Chart fro IBD)

In December, the increase in real exports was led by a 9.5% jump (4.7% y/y) in industrial supplies, mostly petroleum products, and a 1.1% increase (-6.8% y/y) in foods, feeds & beverage exports. The constant dollar value of motor vehicle exports fell 2.4% (+1.4% y/y); real exports of nonauto consumer goods exports declined 1.4% (+1.1% y/y) and real capital goods exports were off 0.9% (+2.7% y/y). (…)

Same with imports.

Leading the decline in imports was an 11.0% drop (-20.9% y/y) in the value of petroleum imports. The quantity of petroleum product imports was off 7.2% m/m and it was down 17.5% y/y. The price of crude oil fell to $95.16 from $97.45. Real imports less petroleum fell 1.6% in December (+2.4% y/y), led by a 3.9% decline (+3.5% y/y) in autos. (…)

Imports of nonpetroleum goods have actually been flat (+0.3%) in Q4. This means that U.S. domestic demand is waning. It also means that the U.S. economy is no longer a strong market for other economies.

The FT’s headline was another teaser, this one global: Trade surge hints at renewed growth Data from China, Germany and the US boost global hopes

Yet, China’s January data are significantly distorted by the New Year holidays and should therefore be heavily discounted. Why the FT included Germany in its headline is a mystery.

In Germany, both exports and imports fell in December compared with their levels a year earlier, reflecting weakness in Europe’s largest economy in the fourth quarter, which is expected to improve this year.

Speaking of Germany:

Lightning  ThyssenKrupp to cut 2,000 steel jobs
Lower demand forces €500m cost-cutting plan

(…) ThyssenKrupp said in a statement on Friday that “far-reaching structural adjustments and operational improvements are urgently needed to permit the continued running of the core units in the hot end operations and the hot rolling lines”.

ThyssenKrupp will consider “the closure, relocation or sale” of several business units, including plants in Germany and Spain, it said.

More than 2,000 jobs out of a total of 27,600 jobs at Steel Europe will be cut and a further 1,800 jobs could go via disposals. (…)

And, from Canada, the U.S. largest trading partner:

Storm cloud  Jobs downturn mirrors slump in housing and trade

Friday marked a plunge in home construction starts, to the lowest since August, 2009, and a tumble in exports to the United States, Canada’s largest trading partner. It also marked the first decline in employment levels in half a year, along with cooling growth in wages.

(…) exports to the United States tumbled in December, led by a decline in car and energy shipments.


Same-store sales in the U.S. were up 0.9%. (…) The Asia/Pacific, Middle East and Africa region posted a 9.5% drop in same-store sales. McDonald’s pointed to weakness in Japan and in China, where the company said a controversy over chicken supplies has damped consumer appetite. (…)

In Europe, same-store sales declined 2.1%, as positive results in the U.K. and Russia were offset by weak performance in Germany, France and other areas, the company said. (WSJ)

Are Wages About to Start Rising?

(…) Wages rose 3.4% from 2011 to 2012 for full-time workers in computer and mathematical occupations, 5.1% for accountants and auditors, 7.5% for electrical engineers, and 4.4% for mechanical engineers.

Storm cloud  U.S. Worker Productivity Declines and Drives Up Costs

Nonfarm business sector productivity for Q4’12 declined 2.0% (SAAR, +0.6% y/y) and reversed virtually all of the 3.2% increase during Q3, revised from 2.9%. That left the 1.0% gain for all of last year down sharply from the roughly 3.0% annual increases during the two years immediately following the last recession. Lower productivity growth last quarter was accompanied by a quickened 2.4% rise (2.6% y/y) in compensation per hour. Nevertheless, for all of last year compensation growth slowed to 1.7%, its weakest since 2009.

This combination of lower productivity and high compensation caused unit labor costs to jump at a 4.5% annual rate (1.9% y/y). Declines during the prior two quarters, however, left the full year increase at a modest 0.7%. (…)

large image large image

Hmmm…That means margin compression.

Surprised smile  Surge in Chinese credit raises fears

Data stoke concerns over overheating in China’s economy

(…) Total new financing in January reached Rmb2.5tn ($400bn) – up more than 50 per cent from December and more than double the figure a year ago – eclipsing even the start of 2009 when China unleashed stimulus spending to battle the global financial crisis. (…)

The explosion in financing was only partly driven by banks, which made Rmb1.07tn in loans. The rest of the new credit – 60 per cent of the total – came from corporate bonds, loans by investment companies, direct lending from companies to other companies and bankers’ acceptances, a popular form of short-term financing in China.


HSBC’s PMI index China’s manufacturing has improved considerably since bottoming at the 47.6 of August 2012. In fact, China’s PMI index rose in each of the five subsequent months having reached 52.3 in January 2013. Accordingly, the yearly increase of China’s industrial output should climb above December’s 10.3% advance. If China continues to improve, the recent financial market rallies may prove correct in their anticipation of faster growth for sales and profits. (Moody’s)



Two charts from usfunds’ Frank Holmes (via Business Insiders):





Investors dive into euro-yen policy gap
Spectre of currency wars as markets turn bullish on single currency

(…) Buying the euro and selling the yen has become one of the most popular trades in the foreign exchange market, with currency traders including hedge funds more bullish on the euro than at any time since July 2011. (…)

The rapid pace of the currency moves has alarmed policy makers in Europe and led to caution from government officials in Japan. The euro has risen nearly 9 per cent against the yen this year, outstripping its gains against the dollar of just over 1 per cent. (…)

Meanwhile, some analysts are urging caution on the euro after what many see as verbal intervention by Mario Draghi, ECB president, who said on Thursday that the euro’s strength could hamper the economic recovery of the eurozone. The comments sparked speculation the ECB could cut interest rates if the euro continued to gain in value.

G-7 Said to Discuss Statement to Calm Currency War Concern

The current wording, which still may be changed, contains a commitment to market-set exchange rates and an agreement that governments don’t use fiscal or monetary policy to drive currencies, the official said.

Franc Is Still Overvalued, SNB’s Zurbruegg Tells Aargauer

“The Swiss franc is overvalued even at today’s exchange rate against the euro,” Zurbruegg was cited as saying in an interview with Aargauer Zeitung published today. “The minimum exchange rate remains the appropriate instrument for the foreseeable future to ensure price stability.” The Zurich-based SNB confirmed the remarks.

 Lightning  Venezuela Slashes Currency Value

Venezuela moved to devalue its currency exchange rate with the dollar, a move aimed to address shortages of basic goods as importers struggle to get a hold of hard currency.

The bolívar—whose official name is the Strong Bolívar—was slashed by nearly a third of its value to 6.3 per dollar from a previous rate of 4.3 per dollar, Finance Minister Jorge Giordani told a news conference.

The move will help narrow the Venezuelan government’s budget shortfall, but will also spur inflation that is already among the world’s highest—highlighting the increasingly difficult trade-offs faced by Mr. Chávez after a more than a decade of populist economic policies. (…)

The move should ease the fiscal gap by giving the government more in local currency terms for every dollar it earns in oil exports through state oil giant Petroleos de Venezuela, one of the world’s biggest oil companies. The fiscal gap will close to 5.3% of gross domestic product compared with 8.5% last year, said Francisco Rodriguez, an economist at Bank of America Merrill Lynch. (…)

The move will raise the cost of imports, and Venezuela’s economy—hit by widespread nationalizations during the Chávez years—is increasingly dependent on imports. Alberto Ramos at Goldman Sachs estimated Venezuela’s inflation will rise to 30% this year as a result.

As Egypt Runs Out Of Dollars, Is It Next On The Devaluation Bandwagon?


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