Sunday, May 20, 2012

Wither Greece?

There is no question that Greece is a real mess, bordering on being a "failed state", but my hunch is that things will actually work out and they will stick with the euro and the "austerity" program. Yes, people voted to "say no" to austerity, but there is no real and viable alternative. And the rise of "leftists" who really only offer even scarier prospects for the middle class will probably cause a significant majority to "say no" to abandoning the one viable path to recovery that the EU is offering Greece on a silver platter. Sure, "austerity" is causing a lot of people a lot of pain, but recent reports strongly indicate that a lot of people do accept that the unacceptable is the wiser choice.
Ultimately, the EU may soften its terms and offer more aid, but only after Greece can prove that it will remain committed to sustainable fiscal reform. The great fear of the EU bankers is so-called "moral hazard", which means they are reluctant to give aid too quickly because easy aid will tend to persuade people that hard decisions can be evaded. This "make them sweat first" process is unfortunately the only way these tough fiscal problems can be solved in a sustainable manner.
Meanwhile, all manner of "experts" and commentators will focus on worst case scenarios while refraining from acknowledging much more likely and more positive scenarios.

Monday, May 14, 2012

Stock market outlook: more range trading

Of course everyone wants to know where the stock market is headed next, but the outlook for the coming weeks if not months is quite simple: more range trading. Traders and short-term speculators push the market up to the upper end of the trading range, then flip over and push it back down to the lower end of the trading range, rinse and repeat. Traders make money on the relatively small daily moves and the brokers make money from the commissions and other fees for all of this excess trading.
The current trading range for the Dow is roughly 12,600/12,700 to 13,300/13,400.
We are approaching the lower end of the range, so a bounce is quite possible any day now.
Sure, Europe is an ongoing drag, but that is one of the factors that keeps the market in a trading range. The daily news from Europe is simple one of the "tools" used by traders and short-term speculators to manipulate the market.
Meanwhile, true investors should focus on their dividend checks and the longer-term outlook and leave short-term market moves to those who actually like that kind of thing (and have a talent for it – which excludes me.)

-- Jack Krupansky

Sunday, May 13, 2012

ECRI is still forecasting an imminent recession, but their call is still sounding a bit hollow

I have a lot of respect for the folks at the Economic Cycle Research Institute (ECRI) whose analysis of leading economic indicators and historic trends continues to lead them to stand by their call from last September that the U.S. economy is tipping into recession. They are still expecting this recession to commence by the end of the first half of this year, but admit that it could take another six months before revisions to the data actually show that a recession is underway.
I follow their Weekly Leading Index (WLI) every week and listen to every interview they give, and there is certainly some wisdom to their call, but this time I have serious doubts. Part of there thesis revolves around how the economy behaved in past business cycles and using that behavior to model how the economy will behave this time. That approach has merit, but I am not convinced that it has the kind of absolute reliability that they are claiming.
They did back off on one claim. Back in September they suggested that the recession would be quite bad, but now they are saying it will be more modest, like the recessions in the 1980's and 1990's rather than like in the 1970's.
The simple fact is that every time is different and the conditions at this juncture are about as unique as one could expect relative to quite a few recent decades, or ever, for that matter.
In short, there is a fair chance that a recession will in fact occur, but I would not say that it is a slam dunk. I would rate it at a 20% to 40% probability. I would have to see weekly jobless claims rising and the monthly ISM reports showing contractions before I will concede that a recession is underway or even imminent.
For one thing, there is still way too much financial stimulus sloshing around to "drive" a recession.
Next year, with the Federal budget sequester and expiration of tax cuts will be a whole new ball game, but that's not where we are for the next seven months.

-- Jack Krupansky

Macroeconomic Advisers now forecasting Q1 GDP at +2.0 and Q2 at +2.4

As of Thursday, May 10, 2012, Macroeconomic Advisers (MA) is now forecasting that annualized real GDP growth for Q1 will come in at +2.0% and that Q2 will come in at +2.4%. Although the economy is somewhat sluggish and very uneven, there is still no sign of any imminent recession.
Q1 is coming in weaker than people had expected a month ago, but the fact that Q2 is projected to move modestly higher is a modestly positive sign.
The overall problem with the economy is that some sectors, such as local and state government are weak and even still declining even as other sectors are doing reasonably well.

-- Jack Krupansky

Tuesday, May 01, 2012

May Day for Bloomberg?

Interesting. Today is the big May 1 "May Day" General Strike day for the Occupy movement and I see that I can't access the web site. I just get "500" errors. I wonder if hackers, possibly even "Anonymous", which is associated with the Occupy movement, are to blame. Maybe not, but it is an interesting coincidence.
Actually, I can get to various portions of the Bloomberg web site directly, including news, but it is "Quick View" that gets the 500 error. Just click on any section in the menu bar other than "Quick" and things should be fine.