REAR VIEW LOOKS FINE, BUT THE MACRO FORWARD OUTLOOK IS DETERIORATING

More bad economic news for those investors who prefer to rely on forward looking indicators as opposed to last quarter’s earnings results (and the obvious incapability of analysts to get estimates even remotely right).  Mortgage applications continue to foreshadow a rapidly deteriorating housing market while retail sales show that the consumer is coincidentally weakening. Mortgage applications hit a 14 year low as demand for housing has clearly fallen off a cliff following the end of the home buyers tax credit.  Econoday details the results:

“In yet another negative indication for the post-stimulus housing market, the Mortgage Bankers Association’s purchase index fell 3.1 percent in the July 9 week signaling yet another decline for mortgage applications. The index is at a 14 year low. Applications for refinancing, which have been very high due to low interest rates, slipped back 2.9 percent. Refinancing made up 79 percent of all applications in the week. Thirty-year mortgages edged higher to 4.69 percent, still near a record low.”

On the retail side sales disappointed to the downside as well.  The number is being brushed off by many economists, but the second straight month of negative results and a clearly reversing trend is not a good sign for the US consumer going forward.  Via Econoday:

“The headline retail sales number was disappointing but there were a number of cross currents in the detail. Overall retail sales in June shrank 0.5 percent, following a 1.1 percent decline in May. The June figure posted lower than the market forecast for a 0.2 percent decline. Auto sales were a big part of the June decrease as sales ex autos only edged down 0.1 percent, following a 1.2 percent drop in May. Analysts had projected no change in sales excluding autos. Weak gasoline prices came into play also. Sales excluding autos and gasoline rebounded 0.1 percent, following a 1.0 contraction in May.

Source: Econoday

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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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Comments

  1. Today could well mark the resumption of the decline, though with earnings season anything is possible.

    The housing and retail sales figures certainly do seem to have put a dampener on the bullish sentiment very rapidly. Perhaps people aren’t dozing quite as much as last time this occurred (aug/sep 07)?

    The picture of the real economy is definitely nasty anyway its looked at.

    I have for quite a few years now refused to see the share market as relating to the real economy in any fashion but purely reactionary. Whoever dreamt up the fable that the share market is the perfect discounting and prediction tool was obviously smoking something pretty impressive.

  2. “Parsing the data for the trend however shows that much of the weakness was due to energy as the core is up 4.5% ex-energy on a year-on-year basis. So while we are still a ways off peak sales, retail sales are up more than 7% from the nadir early in 2009. All of which is to say that the economy has recovered since 2009. We don’t feel it because a technical recovery isn’t a real recovery without employment growth.

    On the other hand, earnings season has been pretty good so far. And stocks have rallied as a result. I think much of this owes to technical factors, of which liquidity may be one (see David Rosenberg’s comments via FT Alphaville). Now I mentioned on Monday the day before the rally began that technicals were bullish. But I tend to weight heavily to the fundamental side and the retail sales numbers demonstrate that the economic fundamentals are soft. I agree with John Hussman that this is a market to rent more than one to own.”

    http://www.creditwritedowns.com/

  3. I noticed last month that the sales at the stores started getting attractive again. I barely bought anything all last year because retailers liquidated all invetory and then restocking was very cautios and they didn’t cut the price. There was little invetory and no deals all last year. Now we are getting back to pletny of invetory and good deals, which means retailers ovierestimated recovery and are forced to cut prices to move the inveotry. This is the time I shop. But it also tells me that retailers are seeing real weakness in consumer demand.

  4. After decades of bills, delinquent mortgage payments … and paying off kids’ college tuitions … few people have enough for retirement and but the market is moving up. Are Mutual Funds full of cash ?

  5. All of these weekly/monthly indicators are of no real use. Most economists comment on them because they are short term talking points. Recessions occur after a period of time after the Federal Reserve has changed interest rate policy and started to raise short term rates. Knowing where the economy is in the cycle is important after the Fed starts to raise rates, because only then can one predict with any accuracy when the next recession will start.
    Since the probability that the Fed will increase rates anytime soon is practically zero, the chance of a double-dip recession is also zero. The short term statistics are not lying, they are just irrevelant.

  6. JRB,

    You don’t get it, but we are already in a double dip recession. Look at the 15 week negative trend of the ECRI’s LEI. Yes the Fed and the banks can gun the stock market, but they have not been able to move the economy into an upward trend. Wait for the Q2 GDP to be announced, then plot the last three quarters GDPs and tell me which way that the GDP is trending. The GDP direction is not something that will be turned around fast or easily. We are in for some tough sledding for a while , and the market will eventually wake up and notice what has happened and adjust on its own.

  7. The business sector is not providing stimulus, the government is negatively impacting growth from a reduction of stimulus, no substantive growth in exports, no capital investment = zero job growth = negatively sloped GDP curve.

    By the time all the cheerleaders catch on to what is actually happening on the field of play the game will be called.

    I swear most of today’s business leaders and market analysts spent their teens living through the 60’s and are still suffering from the residual LSD in their systems.

  8. The Republicans can’t allow Obama to take credit for a recovery. A very dramatic market plunge must occur in order to scare the dumbness out of voters later this year. There is no way the Democrats are going to ride this market up and win elections. The Republic is going to teach everyone a lesson.