Thursday, October 23, 2014

US Economy Is on the Road Again (excerpt)

The strength of the US economy is reflected in the S&P 500 Transportation index. It edged down yesterday along with the broad market, but remains above its 50-day moving average and only 1.8% below its record high on September 18.

The fundamentals are just as strong. Railcar loadings of intermodal containers rose to a record high in early October. The ATA Trucking Index did the same during September. The railroad and trucking industries are running on cheaper fuels. Both forward revenues and earnings are rising rapidly to new highs.

Today's Morning Briefing: Earnings World. (1) Is the strong dollar depressing Q4 earnings estimates? (2) Not much impact so far on S&P 500/400/600. (3) US forward earnings remains on uptrends in record territory. (4) Sector search shows Energy weighing most on S&P 500 earnings. (5) Cyclical sectors showing earnings resilience despite strong dollar. (6) Overseas, the earnings picture is less bright. (7) S&P 500 Transportation index is on the fast track. (8) Railcar loadings and trucking freight index at record highs. (More for subscribers.)

Wednesday, October 22, 2014

Accentuating the Positives (excerpt)

Over the past few weeks, as stock prices plunged, investors all focused on the reasons behind the rout. It wasn’t too hard to come up with a worry list. Now that stock prices have been rebounding over the past few days, the worry list seems a bit less worrisome, as I noted on Monday.

After falling as much as 2.3% below its 200-day moving average last Wednesday, the S&P 500 rebounded to 1.8% above it yesterday. On a closing basis, the S&P 500 dropped 7.4% from its record high on September 18 to its recent low last Wednesday. That’s more of a dip than a correction. Even on an intra-day basis, the drop was 9.8%, just shy of the 10% definition of a certifiable correction.

The S&P 500 Transportation index actually held its 200-dma last week, and rebounded dramatically since then above its 50-dma and yesterday to within a whisker of its September 18 record high. It had sold off, led by airline stocks, on fears that Ebola would depress passenger traffic. Now that Ebola fears are subsiding, investors are focusing on the positive impact of lower fuel prices on transportation companies.

So far, buying on dips remains in fashion. That’s because the news about the most worrisome issues of the past few weeks has become less worrisome, while stocks have gotten cheaper. The panic over Ebola seems to be subsiding as it becomes more apparent that the virus isn’t easily transmittable. The US economy continues to perform very well. Members of the Federal Open Mouth Committee are chattering about possibly delaying raising the federal funds rate next year. The ECB has started buying Eurozone bonds sooner than expected. The region’s auto sales continue to recover. China’s economy is experiencing a soft rather than a hard landing.

Today's Morning Briefing: Accentuating the Positives. (1) V-shaped stock rebound toys with moving averages. (2) Transportation stocks flying high again. (3) Buying on dips still in fashion. (4) Oil provides a nice windfall for consumers. (5) US federal income tax revenues up big. (6) S&P 500 forward revenues in record-high territory. (7) Forward earnings still moving forward. (8) The current earnings season is mostly upbeat. (9) What about Q4? (10) ECB is back in the game. (11) China continues to emerge. (More for subscribers.)

Tuesday, October 21, 2014

Oil Demand Shows Slowing Global Economy (excerpt)

Let’s review the latest data on crude oil demand and supply through September, which continue to show that the global economy is slowing:

(1) Supply soaring to record high. Global oil supply jumped to a record 92.7mbd during September, a jump of 3.0mbd in just the last four months. Leading the way are the US and Canada, which are now producing 12.6mbd, well exceeding Saudi output of 9.6mbd.

(2) Demand stalling at record high. Global oil demand has been flat around a record 92.6mbd over the past five months, using the 12-month average to smooth the volatile data. The growth rate, on a y/y basis, has fallen from a recent high of 1.8% during September 2013 to only 0.6% this September.

(3) Demand falling in OECD, slowing in non-OECD. Among the 34 advanced economies in the OECD, demand fell 0.6% y/y after rising a bit briefly early this year. Demand has been falling at a faster pace among the big four economies of Europe and Japan too.

Demand among the non-OECD economies, which are mostly emerging ones, rose 1.8%, the lowest since August 2009. In China usage rose to a record high of 10.2mbd during September, which was up 1.0% y/y, near August’s 0.7%, which was the lowest since November 2007. This confirms that China’s economy isn’t tanking, but it is slowing significantly. The same can be said for India, where oil demand was up just 1.2% y/y last month, the slowest since March 2006.

Today's Morning Briefing: Yin & Yang. (1) Yin is deflation. Yang is easy money. (2) Why can’t central banks boost inflation? (3) Easy credit has boosted supply more than demand. (4) Aging demography also weighing on Japan and Eurozone. (5) Secular stagnation is a serious problem in Japan and Eurozone. (6) Postmortem: Commodity super-cycle was latest bubble to burst. (7) Oil’s super-cycle is also over. (8) Global oil demand has stopped growing. (9) What is the breakeven price for shale oil producers? (10) Focus on underweight-rated S&P 500 Energy. (More for subscribers.)

Monday, October 20, 2014

Fannie, Freddie, and Feddie Doing It Again (excerpt)

The big dive in the 10-year Treasury bond yield last week pushed the 30-year mortgage rate below 4.00% for the first time since May 28, 2013. That drop could revive mortgage refinancing activity, providing another windfall for consumers. In addition, housing starts, which have stalled around 1.0 million units for the past year, might move higher.

Even more stimulative for housing activity may be the government’s push to allow Fannie Mae and Freddie Mac to lower lending standards and restrictions on borrowers with weak credit. Lenders would also be protected from claims of making bad loans, according to a 10/17 WSJ article. Déjà vu all over again: The government encouraged sub-prime lending during the previous decade, and it ended very badly. In any event, here we go again: The two biggest assemblers of mortgage-backed securities--that will now be explicitly guaranteed by the government rather than implicitly, as before--“are considering programs that would make it easier for lenders to offer mortgages with down payments of as little as 3% for some borrowers.”

God help us! More likely, when the next batch of subprime mortgages hits the fan, Fed Chair Janet Yellen will help us. She’ll do it with QE-10. Thank goodness for Fannie, Freddie, and Feddie.

Today's Morning Briefing: The Bottom? (1) Manic market. (2) From “the top” to “the bottom” in one month. (3) October selloffs have been buying opportunities. (4) Too many bottom pickers? (5) Less worrisome worry list. (6) Investors love central bankers shooting bullets, even if they are blanks. (7) Bully for Bullard! (8) Fannie, Freddie, and Feddie to the rescue. (9) More jobs and cheaper gasoline boosting US confidence. (10) A bit of good news from Europe. (11) Putin playing a weak hand. (12) Ebola, VIX, and high-yield bonds. (More for subscribers.)

Thursday, October 16, 2014

The Downside & Upside of Cheaper Oil (excerpt)

The plunge in the price of crude oil should be a positive for the S&P 500 Transportation index. However, in addition to using diesel fuel to power their locomotives, the railroad industry has enjoyed a booming business in transporting crude oil produced by shale drillers. Drillers might have to stop their operations if they turn unprofitable at lower oil prices.

On the other hand, the plunge in gasoline prices is a big positive for consumers. The nearby futures price of gasoline is down 30% since this year’s peak during the summer. Retail sales of gasoline totaled $535 billion during September at a seasonally adjusted annual rate. So a 30% drop in the price would provide a $161 billion windfall to consumers.

Today's Morning Briefing: Early Halloween. (1) Trick or treat? (2) From nothing to fear to plenty of fear. (3) Bears are hiding in the correction camp. (4) Sentiment takes a dive. (5) Cheap oil is good for consumers, but not so good for railroads. (6) Airline stocks have been contaminated. (7) Meet Obama’s Ebola “czarina.” (8) The commodity super-cycle was the bubble this time. (9) Lots of blank bullets. (10) Retail sales don’t add up. (More for subscribers.)