Enis’s Macro Wrap – Making Excuses

by Enis October 26, 2012 7:51 am • Commentary

Part of the difficult part of being bearish on markets is that you get rewarded in very brief intervals, while the majority of time, markets grind higher.  Even in bear markets, the falls are drastic and short, and the rallies are gradual and last longer.

We have been fundamentally bearish on the site for a while.  The environment we’ve endured over the last 6 months reminds me of 2007.  People forget, but back then, the housing market had been in decline for more than a year.  Financial institutions had started to take losses, and that was feeding into weakness across the economy.  But pundits were making excuses left and right to justify the high asset prices.

“Housing is a small portion of the global economy.”

“Central banks will step in to prevent any contagion.”

“Emerging markets are growing gangbusters, who cares about U.S. housing.”

This time around, global manufacturing is the weak spot.  Here’s a chart for which bulls are again making excuses:


The chart is courtesy of Tim Duy’s Fed Watch blog.  It shows the year-over-year change in Manufacturers’ Orders in the U.S. over the last 20 years.  And his take:

Bottom Line:  The core manufacturing data stands out as an aberration.  While arguably a recessionary indicator, it also comes at a time of an improving housing market.  It would be unusual, to say the least, to experience a recession when housing is trending up.  Moreover, I remain skeptical that trade channels are sufficient to trip the economy into recession.

Tim’s a smart guy, and I enjoy reading his blog.  I don’t quote him here to single him out.  But I feel like I’ve heard this all before.  More excuses.

It’s easy to put the blinders on when asset prices are rising.  But stocks going up or down is not an argument.  Markets are most vulnerable when that’s the only argument left.

Markets overnight:

  • Futures initially sold off on AAPL earnings, then rallied as AAPL rallied to unchanged (where it now sits pre-market).  But futures sold back off in Asian hours, as most Asian markets were down 1-2%.
  • Europe opened red, and has traded in a tight range ever since.  The SPX futures have found support at 1395, which corresponds to 1400 in SPX cash (down about 0.9% from last night’s close).
  • Treasury bonds are significantly stronger (+1%).  The dollar is a bit stronger, and commodities a big lower.
  • AAPl and AMZN are both trading around unchanged.
  • GDP data is released at 8:30 am, and UMich Confidence at 9:55 am EDT