Opinions will vary, but the sense of the market declining is out there - waiting. Part 2

March 2nd, 2012
in Gary's blogging

3:14  Sorting out the issues into pertinent and objective classes and coming up with a concept or hypothesis is easy I find, proving it is something else all together. Currently there are three major thoughts, theory's if you will, and none proven. First is that the market will rise to new highs, the second is that the market will continue to float along sideways and of course the third is doom and gloom or perhaps a version of it. O.K. somewhere between these 3 there is an answer and until the future unfolds itself and reveals just what is behind door number one, we will never know who was right.


There are many arguments that the Economy is doing well, but there are those that take a candid look at the Economy and tell it like it is, well their opinion anyway.

Here are 2 articles from Zerohedge that do just that.



Art Cashin On Why The "Economy Is Weaker Than It Has Been In 21 Months"


If This Is Such a Strong Economy, Why Does This Chart Look Recessionary?


@SA "European shares close mixed in quiet trade following today's summit of EU leaders. Stoxx 50 -0.1%, Germany -0.4%, France flat, Italy +0.5%, Spain +0.1%, U.K. -0.4%. The euro continues to slide, -0.9% to $1.3194, and off more than 2% from midweek - just about the time folks were getting bullish on the currency again. Go figure"

From Expertstocktiming we have this.

@expertstocktiming: "You all know that bonds have remained up because of Bernanke's mission to keep interest rates low.

But, the market has been challenging him and the best he could achieve during the past four months is "sideways trading range" on the 10 year yields.  That says that the market has been pushing back with the net result being a tie between Bernanke and the market.

That's not news to many, but where the 10 year yields are on a five year weekly chart is news right now.

Why?   Because as you will see on today's chart (see below), the 10 year yields are NOW facing the challenge of its 10 month resistance line while also testing its 20.38 support/resistance line.   The TYX briefly breached its 10 month resistance line yesterday 3-1-2012) and closed only 0.01 points away from the important 20.38 level.

If the 10 year yields breakout above the 10 month resistance line, then the yields could exhibit a surprise jump which would give Bernanke a headache and test his ability to continue his control over interest rates.




I do not have the time nor inclination to discuss all three even though there are compelling arguments proving each one. I will take the road that we are in for a correction of sorts. Could be very bad and it could be one of 2 or 3 percent, who knows?  We can make certain incites to historical references like double and triple tops, head and shoulder formations and "other" technical information. We can make references to notable speakers and authors whom have a reputable reputation for "reliable" information and thinking. Unless you have a crystal ball you guess or opinion is going to be as good as mine.

Here is a great article by Jeremy Robson. Be sure to read all of the comments.U.S. Economic Weakness Is Starting To Show by

Jeremy Robson

"I have been consistently saying that the U.S. is still in a slow growth economy of approximately 1.5-2% real GDP on an annual basis. Despite the perpetual bulls on CNBC and some on Seeking Alpha (the California Beach Pundit is the most bullish) quoting the employment numbers as the greatest reason to get bullish on the economy, we are starting to see some data points that are showing the slow growth economy. I wrote an article here that includes some of the more obscure data that is suggesting this low growth scenario. However now some of the headline data is starting to show weakness. In particular in the last 3 days we have had:

1. Durable goods orders down 4% headline 3.2% core. You can try and explain this away using the expiration of the 100% tax write off incentive, but it may not be so.

2. Case Shiller house prices index down 3.7% for December. Don't know how you talk this one away (although I did hear one commentator suggest that the data is too old to worry about).

3. ISM manufacturing down from 54.1 to 52.4 with almost all of the internals also deteriorating.

4. Despite great weather, personal spending only up 0.2% and personal income up 0.3%.

5. Construction spending down 0.1% (despite the weather). I am sure that the bulls will find a way to explain away this number (I am looking forward to the reasoning)."

"The S&P500 (1370) and the DOW (13,000) are both at significant resistance points. If they break these, we will likely see further gains. However it is debatable whether they will be lasting gains or a good shorting opportunity."




We read about the jobs getting better all the time, but there is a lot more to the story. Markos has done a good job explaining.

Job Market Gains Look Exhausted by Markos Kaminis

With almost any topic, one can take a positive or negative view, and that slant could be affected by the general opinion of the reviewer about that topic. Thursday's Jobless Claims data, like most economic data, offers that same potential. The rate of jobless claims is still not optimal, but on a relative basis, it is certainly better than the last few years' results. However, the pessimist, or maybe the realist who sees what's developing in the global economy today, might say the latest lull in this data point, with claims stuck around the same rate, could indicate the latest improvement trend seen in the labor market is stalling. If that is the case, with the economy potentially stalling or recessing this year on various important factors, then we may have found another inflection point for labor, with a deterioration trend to follow.

Weekly Initial Jobless Claims were reported at 351K in the week ending February 25, down only 2,000 from the prior week. .....

First of all, much of the gains in labor are suspect to begin with.


Then there are pesky problems in Europe that just don't seem to go away. Everyone should be fat and happy now that Greece is about to get the Europeans tax money-right? Well John Mason has a few thoughts on the subject.

Europe Still Doesn't Get It by John M. Mason

But, have you ever seen a politician take the blame for anything?

No standing government will ever take the responsibility for creating a fiscal crisis. But, that is what we have and until some of these governments are forced to accept the fact that the problems that they are now facing exist because they are insolvent we will get no resolution of the problems.

My best guess is that this stalemate will continue because there are no leaders that will step up and declare that “the Emperor is wearing no clothes.” European officials will continue to fight the fantasy of illiquidity. And, they will continue to fight this fantasy even as the recession they are facing worsens. That is what a dysfunctional system does.

To continue this fantasy, we learn that the International Swaps and Derivatives Association has declared that in the Greek situation there has not been a “credit event” and thus the credit default swaps associated with the Greed debt cannot be exercised. Where is Walt Disney when you need him?


The following article helps cement the feeling this market isn't going anywhere.

The Durables Data Predicts Doom

Excellent article despite the title. "The level of PE ratios matters up to a point. The cycle matter. Historically, PE ratios have compressed a lot below the average before bouncing back.

There is a striking correlation between money printing and the stock market. Check the beginning and starts of QEs, LTROs, etc...

Many 'improving' fundamentals are not so great if you look one level beneath the headline news. The unemployment numbers are still well below a 'normal' recovery.
Corporate margins will have a hard time remaining at an all time high, especially if you consider a large part of this has been due to wage and costs compression, not to mention a lot of massaging of the balance sheets.
The markets are addicted to bailouts and think that all this money printing can stimulate the economy without adverse consequences when the can is met again down the road. It has never happened historically that countries can simply 'grow' their way out of so much excess leverage."

Comment: "US auto sales are booming"

Also helped by a dose of stuffing dealers' inventories, at an all time high for some companies ... not to mention a new wave of sub-prime lending."


If you haven't guessed by now, I see a bear looming behind door #3. As I indicated earlier books have been written about this and I don't have the space - or time.

Lastly, when you see earnings start to slow, as it has been, it is because Corporations have cut everything to the bone and squeezed every drop of blood from their employees to make a profit.  They have exhausted their labor pool and have pushed everyone and everything to the wall. You know what usually happens then.

The markets have sailed up relentlessly and the coming storm is about to push them back.

Written by Gary

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