NEW$ & VIEW$ (13 MARCH 2013)

Long workweek points to stronger employment. Eurozone IP drops some more. Japanese corporate reflation. UK stagflation. Germany vs France. China fighting housing, inflation. Canadian indebtedness. OPEC Acknowledges U.S. Oil Threat. Sentiment watch: tired bears.

Sleepy smile  Workweek Tying Longest Since WWII Spurs Hiring at U.S. Factories

Production workers averaged 41.9 hours a week in February, Labor Department data showed last week. That tied December 1997 and January 1998 as the most since May 1944, when full wartime production was pulling more women into factories, as symbolized by the Rosie the Riveter character in posters, song and film. The record was 45.4 hours in January and February 1944. (…)

Supporting the notion, the Labor Department yesterday said employers in January fired the fewest workers since it started tracking the data 12 years ago, while job openings rebounded.

(…) wages as a percentage of GDP are near a record low, Labor Department data show. From the early 1950s until 1975, wages were at least 50 percent of GDP. They hit a record low of 43.6 percent in last year’s third quarter and ended the year at 43.9 percent.

Lightning  Euro-Area Industrial Output Falls More Than Forecast

Factory production in the 17-nation euro zone dropped 0.4 percent from December, when it rose a revised 0.9 percent, the European Union’s statistics office in Luxembourg said today. Production fell 1.3 percent in January from a year earlier.

Industrial output in Germany, Europe’s largest economy, slipped 0.4 percent in January after a 0.8 percent gain in December, today’s report showed. France reported a decline of 1.2 percent, while Spanish output rose 0.6 percent.

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Money  Toyota agrees biggest bonus in five years Japanese companies under pressure to pay workers more

(…) Other Japanese companies have also increased bonuses or wages in response to calls from the prime minister, Shinzo Abe, that companies push up wages alongside government measures aimed at banishing deflation in Japan. (…)

As wage negotiations have gathered pace ahead of the fiscal year-end, the Abe government has been increasing the pressure on companies to lift incomes, concerned the Japanese public could be left worse off if prices rise but wages do not.

The weaker yen, which has been declining as a result of growing confidence in a US economic recovery coupled with Mr Abe’s deflation-fighting policies, has lifted profits at exporters such as Toyota.

Pointing up  However, it has also pushed up import prices, making key commodities from flour to petrol more expensive for consumers. (…)

Retailers hope that rising wages will stimulate consumption, which accounts for about 60 per cent of Japan’s gross domestic product.(…)

Spectre of stagflation haunts UK
Sterling falls to lowest level against dollar since June 2010

Inflation expectations, as measured by the difference between nominal and inflation-linked bond yields, ticked up to near 3.3 per cent on Tuesday, levels not seen since September 2008.

Bundesbank warns Paris on deficit target
German criticism comes as Schäuble prepares balanced budget

(…) The French president said the budget deficit, which he had previously pledged to reduce to 3 per cent of gross domestic product in line with EU commitments, would “probably stand at 3.7 per cent in 2013 even though we will try to make it lower”. (…)

Mr Weidmann said: “One can always discuss the details – structural consolidation versus nominal targets – but at the end of the day, nominal targets are a lot more visible and if the impression were to be created that these rules were being treated very laxly the first time they are implemented, that would be a bad signal for the whole currency union.”

CHINA

 

Monetary measures to cool home prices to continue  Monetary policies to cool home prices in China will continue or even strengthen in the future, said the country’s central bank governor Zhou Xiaochuan at a press conference on Wednesday.

China should remain on high alert for inflation  China’s central bank governor Zhou Xiaochuan said Wednesday that China should remain on high alert for inflation and the bank will take measures to stabilize prices.

Surprised smile  CANADIAN INDEBTEDNESS

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OPEC Acknowledges U.S. Oil Threat

The Wall Street Journal’s Sarah Kent explains that, having initially played down the threat from U.S. production growth, OPEC now expects increases in supply from countries not in the cartel to grow by more than 1 million barrels a day.

Pointing up  This could be the start of a quantum shift in oil-market dynamics. A study from the International Energy Agency last year predicted that by 2020, U.S. oil production will outstrip that of OPEC’s de facto leader, Saudi Arabia.

SENTIMENT WATCH

Tired bears…

  • “Almost every one I talk to is now bullish,” observed long-term bear David Rosenberg, the chief economist at Gluskin Sheff + Associates Inc., in a note to clients earlier this year.
  • Richard Russell Says Buy Dow Industrials ETF

Richard Russell raised eyebrows Tuesday when a report surfaced the noted Dow Theorist is telling newsletter clients to buy SPDR Dow Jones Industrial Average ETF (NYSE Arca: DIA) in an apparent reversal of his bearish stance.

“Yes, I know that this market is uncorrected during its long rise from the 2009 low, and I know that there are risks in buying an uncorrected advance that is becoming uncomfortably long in the tooth, but my suggestion is that my subscribers should take a chance Confused smile… and take a position in the DIAs,” Russell said, according to a King World News report. (…)

“By taking a position in the market, you’ll be casting yourself on the side of the optimists, and you’ll also be casting your vote on the side of Ben Bernanke and the Feds,” Russell said. “Besides, it’s fun to be able, for once, to place yourself on the cheerleaders side of the US markets, and it makes sense to be on the side of America’s Federal Reserve.”

The buy recommendation drew attention because in a separate King World News report last week Russell said he didn’t trust the rally as the Dow reached all-time highs.[Dow Industrials, Transports ETFs Hit Records]

“My explanation of this unprecedented situation is that the advance to new highs was a direct result of never-before-seen manipulation by the Federal Reserve,” he said in the earlier report. “But I doubt if the Fed will be able to engineer a coming new era of prosperity in America. Thus, it will be an example of where the stock market will not be predicting the nation’s economic future.”

What a difference a week makes! One week you don’t trust the manipulative Fed, the next week, “it makes sense” to be sleeping with the Fed.

(…) There are certainly aspects of the most recent market cycle that our present methods would have handled differently. One variation (resulting from the ensemble methods we introduced) is to demand a broader set of positive divergences in what we define as “early improvement in market action” – which would move the associated constructive shift to early 2009 when the S&P 500 was down 50%, rather than October 2008 when it was down 40%. Confused smile  (…)

I am not encouraging investors to deviate at all from their own investment discipline, provided that it is well-defined, well-tested, and matches their risk tolerance over the complete market cycle. But investors who have no such discipline – who believe that it is possible to simply “hold stocks until they turn down” or “party until the Fed takes away the punch bowl” – these investors are likely to be confounded by the failure of these simplistic notions to provide the comfortable exit they unanimously envision.

Today is not 2003, and it is not 2009. The closer analogs (partially, but not solely on the basis of the recent overvalued, overbought, overbullish, rising-yield syndrome) are 2007, 2000, 1987, and 1972, not to mention 2011 – before a near-20% swoon – and 1929, at least on a valuation and technical basis.

For the record, the Rule of 20 was clearly in “extreme risk” territory in 1972, 1987, 2000, 2007, …even in 1929.

The current Dow rally has followed the post dot-com bust rally of the Nasdaq that began back in 2002 fairly closely and held to a general post-massive bear market rally pattern — rally during the first 300 trading days, trade in a relatively flat choppy manner up until around 600 trading days and then re-embark on the second leg of the rally. History may not repeat, but it rhymes.

Chart of the Day

In a new note, Morgan Stanley’s Vincent Reinhart talks about the coming inflection point for the US economy, and he also talks about the change coming in the second half of the year.

In the Morgan Stanley forecast for the US, the trajectory of economic activity marks an inflection point midway through 2013. The severe financial crisis of 2008-09 necessitated significant downward adjustments by the private sector to the levels of aggregate demand and efficient supply. As the event recedes further into history, however, the drag on growth from these ongoing level adjustments plays out.

In our forecast, the expansion of real GDP steps up to around 2-3/4 percent in the second half of this year and beyond. Indeed, the resilience of the private sector in our market economy probably would have been more evident by now had not Washington politics intruded.

 
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