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Kudlow & Cramer tonite
I just got tagged for a last minute fill in on Kudlow & Cramer tonite -- CNBC at 8pm and 11pm.
I'm on with the very Bullish Jason Trennert of ISI -- guess that makes me the Bear . . .
Friday, October 31, 2003 | 02:49 PM | Permalink
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GDP Follow up
"Almost any tax cut or spending increase would succeed in boosting a sluggish economy if the Federal Reserve Board follows an accommodative monetary policy. . . . The key question is, therefore, not whether the proposals provide any short-term stimulus, but whether they are the most effective way to provide stimulus." -William Gale, Brookings Institution
Yesterday's GDP number makes it clear that massive stimulus will generate consumer spending, durable goods sales, and even some capex spending. This activity is good for the overall economy.
The issue which I find so fascinating is whether that temporary blip can become a permanent and sustainable growth path. In my opinion, the jury remains out:
A small number of forecasters remain concerned that the economy will slip into a torpor again next year. They say that household spending on long-lasting expensive items, known as durable goods, will weaken as interest rates rise and that companies, still suffering from their binge in the late 90's, will not continue to invest in new factories and equipment at a healthy pace.
20 years GDP, by President, quarterly
Source: NYT
The big economic issues going forward:
1) Jobs: Still the largest problem afflicting the economy: "After falling by 2.8 million jobs since early 2001, employment rose during September for the first time in eight months, but the increase was not large enough to keep pace with the growth of the population." The NYT notes:
"In part, the economies of the United States and other important countries have simply grown too slowly and unevenly for employers to commit themselves to hiring new workers. But companies have also used new technologies and business strategies to become more efficient, able to make more goods with fewer hands."
2) Consumer Spending: refinancings, tax cuts (including $400 one-time rebate checks to millions of families with children) and hourly wage increases rose faster than inflation. Household purchases of durable goods, like cars, which continue to be heavily discounted, rose at an annual rate of 26.9 percent in the quarter. (The negative was that hours worked fell, while health care costs continue to soar.
3) Business Capex Spending: improved suggesting execs are becoming more confident about economic imoprovement. They are replacing older computers and other machines. Corporate spending on equipment and software increased 15.4 percent this Q, the biggest jump since 2000.
Source:
Economy Records Speediest Growth Since the Mid-80's
By DAVID LEONHARDT, N.Y. Times, October 31, 2003
http://www.nytimes.com/2003/10/31/business/31ECON.html
Friday, October 31, 2003 | 11:30 AM | Permalink
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Mutual Fund Year End
This is the last day of the year for Mutuals Funds, so a little tape painting wouldn't be a surprise. Todd Harrison of minyanville.com notes:
Since 1996, when the Nazz futures started trading, the NASDAQ has opened higher and closed higher each year on the last day of October. The largest intrady decline was -.81%, the average gain was 3.5%. Obviously, past performance is no guarantee of future results but this data is starting to get louder in trading circles (courtesy: www.tradeplotter.com)
Friday, October 31, 2003 | 10:06 AM | Permalink
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When Does This Market Peak?
October! What other month has given market watchers more drama, more excitement, more tumult? Since October began, its given us an Advance/Decline Breadth Thrust, suggesting the Market will be at least 10% higher 6 months hence; Two weeks later, it gave us a VIX “complacency” signal, which suggested an imminent short term correction.
These two signals – one short term, one intermediate term – were followed by today’s stupendous 7.2% GDP number. That 20 year high reading is obviously not a sustainable rate of growth. Much of the gains have come from military spending in Iraq (defense sector), tax rebates (retail), home building (housing sector), and technology.
Historically, the Presidential election cycle has provided good guidance as to the lows and highs of market rallies. The period leading up to the mid-term election often marks a market low; Similarly, market peaks often happen in years when there is a Presidential election (see chart nearby).
If today's action continues to disappoint – despite the upside surprise in GDP – expect to hear ALOT of technical chatter about the inability of the indices to push through resistance despite the better than expected GDP number. That resistance is starting to look more and more like the market’s nemesis for the rest of this year: On the SPX, sellers appear every time we approach the 1050-54; The NDX top shows similar resistance at the 1960-67 level; Dow Industrials resistance is at 9850 level.
One often hears technical analysis denigrated as a self-fulfilling prophecy. In the present case, that critique could very well be right. Everyone is looking at the same line in the sand, and it is more likely than not to be attacked and defended with great vigor. The resistance numbers mentioned above are potentially the 2003 highs; Even if those levels are breached, unless it is on a very strong volume thrust, we suspect new highs may be short lived.
After this morning’s initial bout of panicky short covering, it appears to us as if the profit takers are starting to take over. If the indices cannot make hay while that GDP sun is shining, than most of the economic recovery has likely been priced already into the markets.
With the Nasdaq now up nearly 45% for the year, we are looking for a bit of digestion at least a few weeks – possibly until Q1 2004. If you are long, it is advisable to tighten your stops. The trend remains upwards, but let the market take you out of positions, rather than “guessing” the top. If you missed this rally, we expect there will be better entry points ahead. Be patient, and pick your spots.
Thursday, October 30, 2003 | 11:57 AM | Permalink
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Chart of the Week: Stock Market During Presidential Election Years
Historically, the Presidential election cycle has provided good guidance as to the lows and highs of market rallies.
Stock Market During Presidential Election Years
Source: Pinnacle Data, Chart of the Day
As we mentioned in September 2002, the period leading up to the mid-term election is often the low market point in a President’s term; Similarly, market peaks often happen in years when there is a Presidential election.
Random Items:
AOL's Happy Secret
What You Don't Know About Dell
Bad News Not Cause of Bear Market
Mergers and the supersizing of business
Inflation Hits China Amid Surging Demand
Europe Is Shooting Itself in the Foot
Quote: "October. This is one of the peculiarly dangerous months to speculate in stocks in. The others are July, January, September, April, November, May, March, June, December, August, and February.”
-Mark Twain
Thursday, October 30, 2003 | 11:55 AM | Permalink
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Economists Weigh In On Sizzling GDP Report
WSJ has a nice round up of quotes re: this mornings GDP number -- general expectations were for GDP break 6% in the Q3, but the 7.2% rate reported Thursday was out of the ballpark:
"There is no way to make this [GDP] number bad, even if you want to."
-- Steven Poser, president of Poser Global Market Strategies
"This is a gangbuster number. Everything came together for the economy in the third quarter. … The key challenge now is jobs."
-- Mark Zandi, chief economist at Economy.com
"To date, strong growth has not added many new jobs. We may be on the verge of change. Businesses are adding new equipment, indicating expectations for production gains in the US. … So far, productivity gains have managed to fill the gap on weak employment trends, but 6%-7% productivity gains are not viable longer-term."
-- Stephen Gallagher, U.S. chief economist at Société Générale Group
"I'm floored. This really tells us that all the pieces are now falling into place." The GDP report made "the equity market a little nervous -- nervous that the 'considerable period' [the Fed said rates would remain low] is going to be shorter than expected."
-- Anthony Chan, chief economist at Banc One Investment Advisors
"This report provides further confirmation that the real recovery has begun. The economy was firing on all cylinders from the demand side in the third quarter. Importantly, business-equipment spending continues to strengthen while the strength of nominal GDP growth and productivity gains points to even stronger gains in corporate profits. We see growth remaining significantly above trend in the fourth quarter and we continue to believe that the Fed can raise rates at the March 2004 FOMC meeting."
-- John Ryding, chief market economist at Bear Stearns
"The key takeaway from the GDP report is that a sustainable demand-led expansion is taking hold. Another key point is that there was an enormous increase in productivity last quarter, that drove a strong rise in corporate profits."
-- Dana Johnson, head of research at Banc One Capital Markets
"Consumer and capital spending growth were basically as expected in the quarter. The biggest upside surprise was a larger-than-expected narrowing of the net export deficit, which was the product of a 9.3% rate of gain in exports and a scant 0.1% increase in imports. … Looking ahead, it is probable that consumer-spending growth is going to cool off as the benefits of tax refunds and mortgage refinancings fade. … However, capital spending growth is likely to remain firm on the back of much improved corporate profits and stronger domestic output. Most important from the short-term standpoint, however, will be a need to boost inventories in order to replenish depleted stocks and to satisfy final demand."
-- Joshua Shapiro, chief U.S. economist, MFR Inc
Thursday, October 30, 2003 | 11:48 AM | Permalink
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Nasdaq 40% rise tend to lead to 4 month consolidations
Interesting chart study done by Gary B. Smith on RealMoney.com yesterday; This is consistent with my own expectations of the market starting to get a bit toppy:
10 Year Nasdaq Chart (Weekly)
Source: RealMoney.com
Of course, the caveat is that the prior 3 examples from the '90s were in the middle of an 18 year Bull market; The most recent move may be via a cyclical Bull run in the middle of a cyclical bear market.
I'm going to try and get a study I've been working on -- looking at the long Bull/Bear cycles over the past 100 years (should be up tomorrow).
Wednesday, October 29, 2003 | 11:28 AM | Permalink
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"Neil Cavuto's Your World" Appearence
Apologies for forgetting to post this prior: A quick programming note: I appeared on "Neil Cavuto's Your World," on the Fox cable network, 10/28 at between 4:20 and 5:00 pm today. The subject matter was the Fed Meeting, last week's pull back, the outlook going forward, and the "Curse of Dow 10,000."
Fox is an interesting channel, and has been generating tremendous ratings. They were surprisingly tolerant of a less-than-totally-Bullish perspective.
I did manage to squeak out a notice to the Big Picture email list; If you want to be added to the list (for either 2 market commentaries a week, or for special notifications only), just email me at britholtz-at-maximgrp-dot-com (put in the subject line:
"subscribe market commentary,"
or
"subscribe special notifications only."
Of course, E-mail addresses will never be shared with anyone else.
Follow up:
Your World w/Neil Cavuto, October 28, 2003
Tuesday, October 28, 2003 | 06:33 PM | Permalink
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Healthcare costs hurting workers
Here's the flip side of yesterday's wage chart:
Workers' share of health care costs are rising much faster than their wage increases; In 1998 Employees' spent a little over $1,000 on health care: 9.6% of their salary on "out of pocket" expenses, while health care payroll deductions were 15.7% of their salary. Projected for 2004, those percentages are up sgnificantly - 12.8% and 19.5% respectively. That's a 160% increase to $2,600 from net salary:
Chart courtesy N.Y. Times
Thus, any potential widespread economic gains from hourly wage improvements are more than offset by these expenses. Here's a brief excerpt:
"As health care costs head into a fourth consecutive year of double-digit increases, employers are shifting a growing share of the burden onto people who make the heaviest use of medical services.The trend — evident as companies begin informing workers of their benefit choices for the coming year — takes the form of fast-rising co-payments and deductibles, higher payroll deductions to cover spouses and children and new kinds of health plans that give workers a fixed sum to spend.
On average, the annual out-of-pocket costs for employees of large companies have more than doubled since 1998, to $2,126 this year, according to Hewitt Associates, a benefits consulting firm. Hewitt is expecting a 22 percent jump next year, to $2,595.
Costs are up sharply, too, for workers who pay a monthly insurance premium but rarely see a doctor. However, employers have sought to temper those increases, so healthy workers are not tempted to drop their coverage, experts say.
Employers still pay the bulk of their workers' health care bills, but their contribution has slipped over the last five years, to 70 percent of total health care costs from 75 percent, according to Hewitt's latest survey of 300 employers with 5,000 or more workers, released last week.
Source:
Workers Feel Pinch of Rising Health Costs
By MILT FREUDENHEIM, October 22, 2003
http://www.nytimes.com/2003/10/22/business/22CARE.html
Tuesday, October 28, 2003 | 07:00 AM | Permalink
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Gains in Wages Expected to Give Economy a Lift
The New York Times front page article today -- "Gains in Wages Expected to Give Economy a Lift" -- details the surprising rise in national wages. The caveat -- and doesn't every statistic lately seem to have a caveat? -- is the decrease in hours worked:
Source: NY Times
Excerpt:
"If employment does not begin growing at a healthy pace soon, the wage increases will probably not last, many economists say. Changes in pay often lag other parts of the economy.The recent wage increases appear to grow out of both the sharp recent increases in the nation's productivity and the relative strength of the labor market, compared with its condition in the aftermath of other recessions.
With the jobless rate at 6.1 percent last month, compared with a peak of almost 11 percent during the 80's, companies also have less bargaining power than they had during other periods of slow economic growth. A survey of employers by Watson Wyatt, a consulting firm, found that they plan to pay average salary increases of 3.4 percent next year, up from 3.2 percent this year."
Source:
Gains in Wages Expected to Give Economy a Lift
By DAVID LEONHARDT and EDMUND L. ANDREWS: October 27, 2003
http://www.nytimes.com/2003/10/27/business/27WAGE.html
Monday, October 27, 2003 | 04:30 PM | Permalink
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