(Note: I don't make a habit of editing guest contributions, but the photo of a giant bull turd right here was just a bit much! Sorry, BDI!)
Well, my fellow Slope-a-Dopes, looks like I finally found shelter from the storm, and may have gotten my mojo back. As per EP 47.0, it's mainly raining cds cats & dog bonds in Spain, with sustained 55 mph sovereign yield winds, accompanied by severe credit default gusts blowing through the roof. Meanwhile, the barometric pressure on the XRT (retail ETF) is indeed iDroping while I was out iShoping, as per EP 49.0.
Perhaps Batman & Robin, alias Flabby Moolah & his side kick Googley, will now cut me some slack moving forward, somehow I doubt it though. My fair weather friends Clint, COT & Ryans can apologize to me later, and Flybaby can suck on my you know what. Oh, and regarding that hostile banana peel throwing chimp, blow me you deranged baboon! By the way Tyler Durden, feel free to use any past EP's to prop up your waning traffic at ZH, and sorry the current edition is strictly off limits to you, exclusive to SOH for a 24 hour exhibition period. All in good fun dopes.
On a more serious, and most inspiring note, I am pleased to announce that my favorite market condition has finally materialized. It's not often that Macros, Fundamentals, & Technicals all line up impeccably, each pointing in precisely the same ominous direction. The dry bull dung is now perfectly arranged in neat stacks of cow patty piles, just in time for the ferocious shit storm bearing down on us. Heads up, get out of the way! The aging raging bull is about to take another massive dump.
Bull Crap #1……..Macro Picture:
The Europanic attack is back in full force. Spain & Greece are leading the charge, while France & Italy are heading up the cavalry, as Portugal & Ireland bring up the rear guard, and the U.K. artillery is stuck in the mud. This time, Spain is in deep trouble, and if you thought Greece was bad, you may want to shut your eyes right here. Spain's economy is the fourth-largest in Europe, and it's twice as large as Greece, Ireland, and Portugal put together. Spain's failure would likely spell the end of the eurozone, the 17 countries that use the euro currency, and would send shock waves through the global financial system.
As previously discussed, Spain is clearly circling the drain. The Iberian Peninsula, now has a debt to GDP ratio of nearly 80%, a 20 year high. National unemployment is just shy of 25%, and the out of work youth numbers are a mind blowing 50%. Spain released details of an extreme austerity budget last week, which includes $36 billion in tax increases and spending cuts, aimed at reducing the deficit from 8.5 percent of gross domestic product to 5.3 percent this year. However, investors in the know claim the austerity measures, harsh as they are, fail to meet the government's previous deficit targets. In addition, many analysts are skeptical that the local governments, which enjoy a degree of autonomy from the central government, will follow through on all the cuts. Can you say, Andalusia! Also most alarming, is the sate of the Spanish housing market, which has been often described as "the mother of all bubbles". The lasting effects of the housing market crash continue to weigh down banks, the construction industry, and the investment-services sector. This quote from the magazine The Week sums up the entire festering problem in Spain, and more generally in most of Europe: "More than 800,000 Spaniards took to the streets to protest the austerity measures, fearing that cuts would lead to layoffs. Many economists agree. That notion has become the central paradox of the European debt crisis: Brutal cost-cutting inevitably bumps up the jobless rate and slows down economic growth, and that virtually ensures the government won't be able to raise enough revenue by taxing businesses and workers." The Spanish stock market is "teetering on the edge of an outright meltdown," says Vincent Cignarella at The Wall Street Journal.
The Easter basket case that is Greece, has effectively defaulted, no matter how the EU tries to sugar coat it. It's only a matter of time before the Ionian chocolate eggs crack, and completely melt away. The EU/IMF/ECB/FED orchestrated bailout / default has only bought Athens a short stay, before its inevitable execution. Ninety percent of the funds so generously donated by the technocrats in Brussels, simply went to paying back existing creditors, mainly their friends, at the mega European Investment banks. The paltry remainder of the bailout funds will surely be divided amongst the most powerful union bosses, and the filthiest of the corrupt politicians. Thus, as you see, the ticking clock has not be set back much at all. If you don't think things will get much worse over there, the following recent anecdotal evidence should sway you. Greeks paid tribute Thursday to an elderly man who shot himself between the eyes, and took his own life in central Athens' Syntagma Square, in an apparent response to the hardship caused by the austerity crisis. Christoulas, a 77-year-old retired pharmacist, wrote in a suicide note that the government had made it impossible for him to survive, according to Greek State TV. As per the text of Christoulas' note published by local media, the man said the government had made it impossible for him to survive on the pension he had paid into for 35 years. "I find no other solution than a dignified end before I start searching through the trash for food," read the note. Today according to CBS News, Greek protesters marching in memory of the man who had killed himself in an act of tragic martyrdom, attacked a policeman in Athens on Saturday, leaving him battered & bloodied. And finally, the most demoralizing piece de resistance, the birth place of the Olympic games just announced on Wednesday, that the Greek track and field authority has suspended all athletic operations due to severe spending cuts.
France, this writers homeland, is in the midst of a presidential election, as you may know. It appears the incumbent energizer bunny Sarkozy, has a major problem, his copper top Duracell's may be running on empty. The resurgent Socialist look to be set to send the little rabbit scurrying back into his hole. With two weeks to go, most polls show Sarkozy has overtaken Hollande in voting intentions for the first round by 29.5 per cent to 27.5 per cent, according to the latest survey by Ifop. However, the socialist has so far held onto a firm lead of 54-46 per cent in a run-off between the pair. Sarkozy's fate may have just been sealed, as France’s surging hard-line leftists finally said out loud on Friday what Socialist Francois Hollande has quietly hoped to hear, that they would encourage their followers to back him in an expected May 6 presidential run-off against Nicolas Sarkozy. Mélenchon’s surge will clearly benefit Hollande by persuading left-wing (particularly working-class) voters to come out and cast their ballot, and then transfer their support to the socialist in the run-off. The Ifop poll showed 81 per cent of Mélenchon’s voters would switch to Hollande in round two. Moreover, optimists on the left point out that Mélenchon is taking working-class votes away from Marine Le Pen of the National Front, which reduces the potential vote transfer to Sarkozy. Bye bye short stuff, you might want to go apply for that mail room job that just opened up at BNP, and good luck as there are about 180 applicants vying for the one available slot, although I am sure you will have the inside track. Keep in mind that once France turns back to the left, all bets are off for the for the recently agreed to rigid EU fiscal budget compact. Francois Hollande, much like Atonis Samaras, the probable future leader of Greece, have both promised their supporters, that they will re-negotiate the newly signed Eurozone pact.
Furthermore, If Mr Hollande wins, he might water down his proposed 75% income-tax rate. But it would be difficult to back away from such a bold, public pledge. And doing business in France is hard enough without such uncertainty. The 35-hour work week makes it hard to get things done. Mr Hollande declared he will reverse the measure Mr Sarkozy introduced to dilute its impact by exempting overtime pay from income tax and social charges. The French Business and Banking sectors are running scared, according to an article in The Economist; "The 75% income-tax rate is dottier than a pointilliste painting. When other levies are added, the marginal rate would top 90%. In parts of nearby Switzerland, the top rate is around 20%. French firms are already struggling to hire foreign talent. More firms may leave. Armand Grumberg, an expert in corporate relocation at Skadden, Arps, Slate, Meagher & Flom, a law firm, says that several big companies and rich families are looking at ways to leave France. At a recent lunch for bosses of the largest listed firms, the main topic was how to get out. Investment banks and international law firms would probably be the first to go, as they are highly mobile. Already, the two main listed banks, BNP Paribas and Société Générale, are facing queries from investors about Mr Hollande’s plan to separate their retail arms from investment banking. He has also vowed to hike the corporate tax on banks from 33% to nearly 50%."
I will not get further bogged down in the weeds with the well known challenges facing Italy, Portugal & Ireland. Let's just say, that although their coasts face completely separate bodies of open water, they are all in the same leaking boat. The below chart and accompanied facts from Eurostat say it all:
Dire figures on unemployment and manufacturing activity in the euro zone's weakest members on Monday highlighted the scale of the currency bloc's economic problems, days after finance ministers boosted their bailout fund in a bid to fend off the debt crisis. The data suggest policy makers' hopes of a brief, shallow downturn may be wide off the mark, making it harder for governments to cut their debts as tax revenues fall and welfare payments increase.
By the way, those of you that still think the United Kingdom is in good shape. You ain't seen nothing yet. The U.K. economy barely grew in the first quarter of 2012, with the National Institute of Economic and Social Research (NIESR) reporting that the U.K.’s Gross Domestic Product (GDP) probably grew by only 0.1 percent. Meanwhile, the GDP estimate for the three months to February was revised downwards to stagnation from the 0.1 percent growth previously reported. The NIESR said; "that the U.K. economy narrowly avoided a technical recession as this follows two consecutive quarters of contraction, with shrinkages of 0.2 percent reported in both December and January." Additionally, Bloomberg just published that consumer spending in the U.K. has risen in March at the slowest pace in at least two years because of rising fuel prices. And U.K. Property agents see more empty shops reports The Telegraph. "The number of property agents reporting a fall in interest from retailers rose 11 percent, according to the newspaper. The RICS survey also found 17 percent more property surveyors reporting a rise in empty shops, and 28 percent more surveyors predicting a fall in rents in the next three months."
As far as the United States' economy goes, you are all probably more up to speed on that, then moi, so I will spare you my observations. Suffice it to say, that the results are very mixed, some well known analyst dismiss many of the official data points released by the Government as unreliable, and openly question whether they are being grossly manipulated in an election year. The last BLS figures released on Good Friday, were not too impressive, that's for certain. In fact, The Bernanke himself is not convinced that we are close to escape velocity. Direct form The NY Times; "no less of a market authority than Ben S. Bernanke, the chairman of the Federal Reserve, warns that the early signs of strength might not be sustained. “The recent news has been good,” he said in an interview with ABC News last month. “But I think we need to be cautious and make sure this is sustainable. And we haven’t quite yet got to the point where we can be completely confident that we’re on a track to full recovery.” The article is quite comprehensive, so please indulge me to quote another large piece of it; "Call them permabears. A solid six months of good and getting-better data — fewer Americans claiming unemployment benefits, rising industrial production and improving economic sentiment among them — have failed to convince them of the strength of the recovery. Some offer outright dire predictions. There is the Economic Cycle Research Institute, a New York-based forecasting firm, which foresees a new recession. There is A. Gary Shilling & Company, a consulting firm in Springfield, N.J., which argues that the economy will weaken through the rest of the year. There is also the asset manager John P. Hussman. Last month, he wrote in a research note that “while investors and the economic consensus has largely abandoned any concern about a fresh economic downturn, we remain uncomfortable,” given the deterioration of certain leading measures, like consumption growth. Others — call them the baby bears, perhaps — simply offer what they say are more realistic assessments of both the weakness of the economy and the tepid pace of the recovery, despite a few months in which a spate of reports surprised to the upside. “The recovery is anemic, subpar, below trend, below potential,” said Nouriel Roubini,"
Those of you counting on the large emerging economies to revive & drive future global growth going forward, well don't hold your breath, the BRICS continue to look suspect as well. Detailed projections on the pending slow down were extensively covered in EPs 29.0 & 43.0 earlier in the year: http://slopeofhope.com/2011/12/crash-landingevil-plan-290-not-done.html & http://slopeofhope.com/2012/03/not-yet.html. And since then, things have only gotten worse. Below are a few disappointing recent developments.
Evidence is piling up that China is suffering a major economic slowdown, as growth flags in the country's real estate, construction, steel, and other sectors. China's exports grew just 6.8 percent in January and February, compared with the first two months of 2011. That's down sharply from the 14.2 percent growth in the final quarter of 2011. This is important for two reasons. First, as the world's second-largest economy China has been a major driver of growth since the financial meltdown began in 2008. Second, it means that the planet's biggest manufacturer is running out of orders to fill. This according to CBS News; "China's economy is now in bad enough shape that Beijing can't hide it anymore. The cause is the air rushing out of its housing bubble and, just as in the U.S., taking everything down with it. "If you look at the Chinese data, you should stop debating about a hard landing," said Adrian Mowat, JPM chief Asian and Emerging market strategist. "China is in a hard landing. Car sales are down, cement production is down, steel production is down, construction stocks are down. It's not a debate anymore, it's a fact." What's especially scary is that if the official data is showing a downturn, then the reality is certainly much worse. Economic statistics from the People's Republic are notoriously unreliable. They are produced to serve political ends, a fact acknowledged by no less than Vice President Xi Jinping, who is expected to be the nation's next leader.
India is not doing much better. The Reserve bank of India (RBI) recently stated that the current account deficit of the balance of payments (BoP) rose to 4.3% of GDP at the end of the 3QFY12. This is compared to 2.3% of GDP seen in the previous fiscal. For the first time since 2008-09, capital inflows were unable to finance the current account deficit. This forced a drawdown of forex reserves by nearly US$ 13 bn. On the fiscal front, the woes continue. India's fiscal deficit projections have also been raised for FY12. The government has revised it upwards to 5.9% of GDP from 4.6% projected earlier. But, the actual deficit may be even worse. According to latest data, India's fiscal deficit in April-February was Rs 4.9 trillion, already around 95% of the revised full-year target of Rs 5.2 trillion.
The festive carnival in Brazil, also may be over. According to Bloomberg, Brazil's economy last year registered its second-worst performance since 2003 as higher borrowing costs and a currency that rallied to a 12-year high led it to under perform emerging-market peers China and India. Gross domestic product expanded 2.7 percent even after growth accelerated in the fourth quarter, the National Statistics Agency said today in Rio de Janeiro. The median estimate of 32 economists surveyed by Bloomberg was for the economy to grow 2.8 percent. Companies from steelmakers to textile firms struggled last year as the Real rallied to a 12-year high of 1.54 against the USD in July, reducing the cost of imports. Among the hardest hit was shoemaker Vulcabras Azaleia SA, which said in December it was closing six factories due to import competition. The following are two quotes from industry experts, in the Bloomberg article; “Brazil is losing its industry, the situation is the worst in years,” said Robson Andrade, head of the Brasilia-based National Industry Confederation. “We’re losing competitiveness because of the strong currency and the Brazil cost,” he said in a phone interview, referring to obstacles to productivity in Brazil such as aging infrastructure, a tax burden of about 36 percent of GDP and a shortage of skilled labor." And; "“Brazil is losing international competitiveness,” John Welch, chief strategist for CIBC World Markets, the investment- banking arm of Canada's fifth-largest bank, said by phone from New York. “They’re blaming all the problems on the exchange rate, but have ignored structural reforms.”
As for Russia, who the hell knows. Strong man, the Putinator is back in the saddle, that should be good for the oligarchs, not so much for free market enterprise. This from International Business Times; "Russia, the world's ninth largest economy, cut its 2012 GDP forecast to 3.4 percent from 3.7 percent as investment growth is expected to decline, its economy minister said Friday. Minister Elvira Nabiullina said that investment growth is projected to grow 6.6 percent this year, down from an original estimate of 7.8 percent. The country's GDP grew by 4.3 percent in 2011." Although If Oil prices remain elevated, the old Soviet Empire should hang tough.
Speaking of oil, looks like MENA is about to erupt again. Bahraini security forces fired tear gas and water cannons at thousands of protesters marching Friday in support of a jailed human rights activist whose nearly two-month hunger strike has become a powerful rallying point for the tiny nation's Shiite-led uprising against the Sunni monarchy. Things are also heating up in the timeless sands of the great pyramids. Egypt's presidential election is scheduled for May 23rd and already things are out of control. Not only did deputy head of the Muslim Brotherhood Khairat El Shater suddenly enter the race this week, reversing a pledge on the group's part that they wouldn't field a member, creating a fair amount of internal disagreement and showing his hand as the group's real boss. But old school Mubarak spy-master Omar Suleiman has also apparently just announced that he will join the race. Strong man Suleiman was appointed Mubarak's vice-president and heir apparent during the uprising. Suleiman as Egypt's next president would really be ten times worse than a slap in the face to the revolution. Of even more concern, there is an ominous report posted today on Haaretz.com, the world's leading English-language Website for real-time news and analysis of Israel and the Middle East, claiming that Israel threatens to strike militants, if Egypt fails to secure the Sinai. And I quote; "Israel delivered a threatening message to Egypt, according to which it would take action against militants in the Sinai if Cairo did not take responsibility and secure the countries' shared border, Egyptian officials indicated on Saturday. Hints of possible Israeli intervention in Sinai could intensify tension between the Bedouin and the Egyptian government, as well as put the fate of the Camp David agreements at risk." Moving on, Syria is in a well reported civil war, a la Lybia, with the West backing and some say actually instigating the rebel fighters. Iran is a most definitely understood story, that we all know could detonate at any moment. Resource wars any one, hello?
Bull Crap #2……..Fundamentals Outlook:
Analysts predict that the quarter just ended, will show the slowest rate of earnings growth since the third quarter of 2009. Standard & Poor’s is forecasting an anemic 0.93% growth rate in the first quarter on an annual comparison. In last year’s first quarter, earnings grew 19.7% from the same period in 2010. Thomson Reuters and FactSet data are also predicting a substantial slowdown. Not only is the anticipated earnings growth considerably lower than last year, it is well below estimates from earlier this year. At the start of the quarter, analysts were expecting a growth rate closer to 4.5%.
Fund managers focus in on earnings starting next week, to see how companies are faring amid mixed economic indicators and a resurgence of concerns over Europe. Strong results could extend the multi-month rally, while weak report cards could well provide the grease for further declines. From Bloomberg; "If management commentary indicates that business is holding up despite the apparent slowing of European economies, that would be very encouraging for stocks," said John Carey, portfolio manager at Pioneer Investment Management in Boston, who helps oversee about $260 billion. "On the other hand, if orders are dropping or consumer spending doesn't appear sustainable, that could lead to some downward pricing action and earnings revisions." The latest trends haven't been encouraging. Analysts have trimmed estimates, management teams have grown more cautious, and overall growth rates have fallen sharply. S&P 500 companies' earnings are seen rising 3.2 percent in the first quarter, according to Thomson Reuters data, compared with growth of 9.2 percent in the fourth quarter and a jump of almost 19 percent in the first quarter of 2011 over the year-ago period. And again from Bloomberg; "Analysts have been cutting estimates steadily in the last few months, but the ratio of cuts to increases leveled off in March, Bank of America-Merrill Lynch wrote in a recent note. That indicates "analysts are still cutting estimates, but at a decreasing rate." Bank of America-Merrill Lynch also pointed out that corporate management teams were becoming more cautious relative to expectations as well. Overall, data from StarMine, a unit of Thomson Reuters, shows most sectors with declining estimates, particularly materials and telecom stocks. "We feel it is too early to switch to a positive short-term signal, given worrisome trends in guidance and sales revisions," Bank of America-Merrill Lynch wrote to clients."
FYI, a couple of early bird indications are chirping sweet nothings in the market's ear:
SanDisk Corp warned on Tuesday that weak demand would hurt its revenue and margins, an outlook that ignited a steep dive in the flash-memory maker's stock and hit the chip makers hard. The $SOX Philli Semiconductor Index fell from 440 all the way to 418 this week, until it re covered a bit at the close on Thursday to finish at 423. It clearly sliced right through its 50 day MA.
Ruby Tuesday reported late Wednesday that its net income fell to $4.5 million, or 7 cents per share, down almost 72 percent from the same period a year ago when the company earned $16 million, or 25 cents per share. Shares of the casual dining restaurant fell more than 18 percent on Thursday after the company reported a sharp drop in third-quarter earnings.
HTC reported on Friday morning that its earnings & sales figures would be a major disappointment. The Taiwanese hand set maker's profit & sales crashed, and burned. For the first quarter of 2012, total HTC revenues reached NT$67,790 million (roughly $2.3 billion), a decrease of nearly 35 percent year-on-year.
This from the April 5th NY Times; "Corporate profits have been among the brightest lights of the economic recovery, helping to lift the stock market more than 25 percent since October. But analysts predict that when the first-quarter reporting season starts in earnest next week, American companies will show the slowest rate of growth in operating earnings in three years. One widely used gauge of profits, the Standard & Poor’s Capital IQ survey, forecasts that earnings will have grown 0.93 percent in the first quarter, compared with the first quarter of 2011, for the companies that make up the S.& P. 500-stock index. That would bring the value of one share of the index to $23.85. In the same period last year, operating earnings per index share were $23.63, a result of 19.68 percent growth from the first quarter in 2010. “It is the lowest quarter of growth we have seen since the third quarter of 2009,” said Christine Short, the senior manager for S.& P. Global Markets Intelligence. Other surveys, by Thomson Reuters and FactSet, show similar trends of weak first-quarter growth compared with the year before."
Reasons for the drop in earnings growth include the debt crisis in Europe and rising commodity prices. Also, many companies have now exhausted their resources for cost cutting. After the market bottom in 2008, companies began trimming expenses and reducing their work forces. At this point, companies are operating more efficiently and there isn’t much more fat to trim. The proof of this will be in the (little-improved) earnings.
Finally, it's important to note that our very own earnings authority Zstock, is looking for some pretty sour stuff this earnings season.
Alcoa Inc will mark the official start of the earnings season with results after the closing bell on Tuesday. Google Inc, JPMorgan Chase & Co and Wells Fargo & Co will report later this week. Brace yourselves!
Bull Crap #3……..Technical Indications:
Here, I clearly have no business telling you SOH chartists extraordinaire what to look for. For the best take on this, I humbly defer to the expertise of our gracious host Tim Knight, and his top disciples. The skilled technicians on the Slope, which include the stand outs; SHJ, SBB, San, Mac, BBF, jesterx, BBuck, REV, DH, Daiwa, Iggy, Ryans, Pana, S&P, BS, CRambler, CB, Astro, Pec, Sparky.………and all the many other high quality chart posters that are too numerous to mention here.
I will say this much though; most, if not all of you chart humping gurus have indicated to this Idiot Savant, that a serious break down of the broad indices MAs, and trend lines is definitively close at hand. And that we are most assuredly going lower, and perhaps significantly so……..In fact, even our old friend Pandamonium himself over at The Objective Trader, sees some Gloom & Doom ahead!
As for me, I am partial to this chart:
Hold on to your chapeaux, and duck for cover mes amis.
La merde is about to hit the fan..…..Evil Plan 51.0