JP MORGAN: 6 NEAR-TERM RISKS TO THE RALLY
A good piece of research here out of JP Morgan citing the 6 risks to the markets in the near-term. Point 6 has the potential to become particularly worrisome as we move into earnings season over the next few months. The current earnings are likely to be relatively strong once again, but the outlooks going forward are almost certain to be tempered given the recent uncertainty abroad. Plus, I’d say the odds of a profits recession in 2013 are increasingly high. Here’s JP Morgan:
“1. Global macro momentum continues to weaken. Composite PMIs are now down for 3 months in a
row. Cyclicals have further downside from here.2. Eurozone remains a big concern. This is the one area where most are bearish already, but we would not
underestimate the ability of Euro policymakers and of Euro activity to underwhelm even the low
expectations. We expect further downside to Euro dataflow. M1 suggests Euro PMIs could be as low as 40
by September.3. We encounter complacency on the US. Most still believe ’12 will not be a repeat of ’11, but US EASI is
negative and making new lows. Historically, the market did poorly in the aftermath of this. S&P500 fell
16% in the summer of ’10, 19% in summer of ‘11 vs “only” 10% so far.4. There is no rebound in the Chinese activity. Actually the opposite is the case, but the consensus still
expects a sequential improvement in 2H. Policy response is minimal so far. House prices are falling. Most
are buyers of Chinese consumer plays and these are trading at record highs. Will the house price deflation
not hurt consumers? Brazil GDP continues to be downgraded. Its current 2% growth pace is a far cry
from an economy which grew 7.5% in ’10. Indian GDP growth is at the lowest pace in 9 years.5. Is there a marginal buyer of stocks? Corporate buybacks have rolled over, retail outflows continue. HF
beta at a 3-year peak has produced a good sell signal in the 2H of March. Technicals are not in “buy”
territory yet. Investors are bearish, but the hope for a policy response is widespread. We hope that it comes
soon.6. Q2 reporting season has a high hurdle rate, especially in contrast to Q1.”
Source: JP Morgan
Cullen Roche
Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.
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8 Comments
“We hope that it comes soon.”
I bet you do LOL.
“the hope for a policy response is widespread. We hope that it comes
soon.”. China was the first central bank to play the easing card. Others will likely follow during this summer. Question is, did the CB’s wait too long to act? Has the global economy gone into a slide and it is too late for the CB’s to turn it around?
CB’s can’t do shit about the economy unless they start to openly intervene in the secondary market or give a public ‘free card’ for financing larger deficits (then again, that would only work if it was used off course). They are just useless market manipulators. What else can they do? Negative rates? That surely would reflate asset prices.
Problem for the economy is that is stuck between two walls: deflation and inflation risks. The world economy is structurally and financially (balance sheet composition between households, corporations and banks) broken and fixing that can’t be made by printing paper (this only can fix the ‘accounting’ part, not the structural inflationary problems) and giving it to banks.
Bernanke is keeping his powder dry until closer to the election. Bernanke can buy trillions worth of mortgage securities, and he can drive long term rates to zero. He can help the government refinance all mortgage debtors at 0%. The calendar is clear. He only has to get Obama through the election season, and himself through 2013 so he can be reappointed and confirmed. After that, he can take his recession and allow the big structural changes to happen.
Thanks JP Morgan. When you guys figure out that Elvis is dead, I’m sure you will let us know in due time.
Check out these former leaders…
TPX, TITN, PLL, NAV, LULU.
Dear B Ferro,
Are you planning to open your onlypricematter blog to Pragcap readers ?
Thank you
Hey Dimitry…
Quickly realized I can’t give that stuff away for free.
I want to help others, but not that bad. Ultimately, my job is to make my LPs money, not others.
I help a few other Prag Cap readers on the side, VII among them, if interested.
My email is bferro04 at gmail.com