2/11/12:
Jobless Claims: 358k, implies .83% payroll growth (~90k/mo)
Payrolls: 1.50% Yoy Implies 2.94% growth.
Retail Sales:
Monthly: 6.5% YoY (65th percentile) | 3.4% inf-adj YoY
ICSC Weekly: 3.5% (47th percentile)
Redbook Weekly: 2.5% (34th percentile)
Mortgage Purchase: -7.947% YoY, giving back some the recent gains, but still trending closer to home on a rate of change basis.
ECRI: -4.3% up 1% from last week
ECRI Inflation: 101.2 rising from 98.6 in December
Confidence Indices:
Michigan: 72.5 (-2.5)
Consumer Conf: 61.1 (-3.7)
Manufacturing Surveys:
ISM: 54.1, implies 3.52% growth
Philly: 7.3, implies 2.69% growth
Chicago: 60.2, implies 3.85% growth
Dallas: 15.3, implies 2.28% growth
Richmond: 12, implies 3.78% growth
Empire: 13.48, implies 1.89% growth
Milwaukee: 58.4, implies 2.42% growth
Weighted avg: 2.95% growth implication
Home prices:
Case Shiller: -3.67% in November
Zillow: -4.7% YoY in December
List prices down 2.4% YoY in December. Negative trend remains.
Total Homes Sold: Down 4.0% YoY
Value per sq. ft down 4.2% YoY
Foreclosure sales: 19.1% up 2.9% YoY
Percent with increasing values: 30% up 5.8%
Economic Surprises:
US: 97th percentile of positive surprise index data points.
Europe: 47th percentile of positive surprise index.
Money Supply:
Real M2: Growing at 6.4% annual rate / 4.55% ROC for 6mo.
Real M1: Growing at 15% annual rate / 6.82% ROC for 6mo..
Excess reserves: $1.53 trillion
M2 Velocity: 0.4th percentile
Mortgage Delinquencies:
BBMDPDLQ: Bloomberg all inclusive Prime (30+ through REO): 23.27% (14% growth)
ALT-A: 34.68% (flat trajectory)
Subprime: 21.25% (shrinking by 48% annually, odd data set)
Prime Mortgages (non-agency):
ARM1: 102.654
ARM2: 91.967
FRM1: 105.614
FRM2: 96.762
On the Run CDX Investment Grade: 98.5 (23% wider YoY)
Leading Indicators (non-financial)
Average weekly hours, manufacturing: 41.5 (strong)
Initial claims for unemployment insurance 358k (improving)
New orders, consumer goods 120.89 (pop, slowing YoY)
Index of supplier deliveries 49.9 (flat,slowing)
Nondefense capital goods 48.884 (18%, strong pop)
Building permits, new private housing 679 (8%, down from 20%)
Index of consumer expectations 63.6 (recent pop but low)
Brief thoughts: The numbers remain consistent with a muddle through or even slightly better than muddle through scenario in the near term. Implied growth from the surveys of 2.95% is downright rosy compared to expectations in the economic community. I’ve added a monetarist component to the analysis which suggests industrial production will continue to trend higher until at least mid-year. The biggest risks I can see at the moment come from abroad. Both Europe and the emerging markets have slowed considerably and prevent potential hurdles globally. A European recession or hard landing in China could certainly change risk appetite in the US.
-What can we expect in industrial production: Currently it looks like industrial production should peak mid-year at measurably higher levels than we currently sit.
-What is sentiment: Sentiment is extremely bullish, in the 89th percentile for AAII Bulls vs. Bears metrics. It will be harder to make progress with expectations as high as they are and economic surprises having been so consistently positive recently (95th percentile).
-What are valuations like: Valuations in equities are all over the place. Many remain quite cheap (high quality), but others appear stretched. An overall market P/E around 14 is below the post-war average of appx 16, but cyclical adjusted P/Es are still high.Shiller’s P/E stands at 22.2, which implies annual returns of just 2.9%.
Bias: Bias is to be long opportunistically here. Sentiment is concerning given the risk that it is derailed by something happening overseas. A major deterioration in US prices seems unlikely in the near future unless we see further international deterioration.
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