STEEL IMPORTS DIVE 50%, NO RECOVERY IN SIGHT
The latest news on steel imports further confirms a belief we’ve maintained for quite a while – the real economy is substantially weaker than the liquidity driven equity markets would have you believe. The latest report on steel imports from the Census Bureau showed a massive 50% decline in year to date steel imports. Steel imports for September came in at $1B vs last year’s reading of $2.7B. Year to date, total tonnage is down 50%:
“The year to date final statistics through August 2009 showed steel imports of 9.6 million metric tons compared to 19.4 million metric tons through August 2008.”
The weakness in this data was confirmed by yesterday’s earnings reports out of U.S. Steel and AK Steel. Both companies represent the “better than expected” earnings season complimented by the very weak underlying real economy. The CEO’s at both companies had very negative comments regarding the global recovery.
“Recently, order rates in our flat-rolled and European segments have decreased,” U.S. Steel Chairman and Chief Executive John Surma told Wall Street analysts. “Demand trends remained uncertain as both the U.S. and global economies struggle to recover.”
“Technically speaking, we may be out of the recession, but it certainly doesn’t feel that way,” James Wainscott, AK Steel’s chairman, president and chief executive, told analysts. “Suffice to say we’ve bounced off the bottom, but we’ve got a long way to go from here.”
Of course, the decline in steel imports is best represented in terms of the actual recessionary period. As you can see, steel imports are actually showing no signs of economic recovery despite a 60% surge in equity prices. I’d like to think this is an anomaly, but this is a trend we’ve been seeing across the transports as well as Main Street. Don’t be fooled by the recovery on Wall Street. Yes, we’ve breathed life back into the banks (they were so deserving of it!), but the blue collar workers of America continue to struggle mightily.
steelp –
How long do you suppose before XOM, CVX and the market itself gives way, and Main Street has a giant WTF expression on its face, looking for someone to hang for this grand rally? I say by mid-Feb, when Q4 earnings come out and most are down Q/Q. Then the impeach Obama signs will start showing up, and Obama and Congress will start rolling out one after another Stimulus II, II, IV ideas out (in advance of mid term elections), all the while making the American people more and more terrified that we simply can’t have the government borrow & spend our way out of this “managed depression.”
Just wait and see what happens when we’re sitting in middle of Q2 and the unemployment rate is still at 10%. Then people are going be asking WTF?
To me the surest sign that the Fed’s reflation efforts will fail is the lack of inflation. With all the trillions they’re throwing into the economy, if that money was swirling around the system, we’d see higher prices across more than just commodities, which are so dependent on a weak dollar. The market is in a dangerous place, having priced in a successful Fed intervention that prevented us from going over the edge. With more data out questioning that logic, I don’t know how we rally past 1100.
I think you’re right though, there will be a buying opportunity soon as people play the “it’s just a correction” card. But get past the housing seasonality and stimulus efforts, and that correction will eventually turn into something worse. I still think we break sharply lower in late 2009 or Jan/Feb 2010 at the latest.
I am taking it one week at a time. This market remains a very near sighted one that has the potential to change on a dime.
My long-term perspective has changed little, however. What have we fixed in the last year? Practically nothing.
So how low can this market go? Anyone got any predictions?
Final low of S&P 350, but most likely a year or two out. If you say impossible, look at Japan or Nasdaq.
I’d like to think that you’re crazy, but it’s not.
My original guess in September 2008 was S&P at 550 by sometime in 2011. But I no longer think that is likely. Only if GS makes the call. They called 650 for March 2009. They called 1060 for YE 2009. (Who really controls the market?) Otherwise, I would think a correction to maybe 10%-15% below fair value. The market won’t stay there. It will rise back to fair value fairly quickly unless short interest is extremely low at the bottom. Unless earnings turn down or interest rates rise dramatically a value of 900 can pretty easily be justified. I would bet that the market bounces between 800 and 1250 for several years.
So, if we can confirm that the real economy is so weak why does it feel like the stock market is gonna push higher?
If you noticed the crap stocks (X, RIMM, ODP, banks) have been correcting. I mean…U.S. Steel has corrected almost 50% from its high, for example. The stocks that have good outlooks in the future and had solid earnings and profits that now make up the indices like AAPL, GOOG, XOM, WMT, AMZN. They have not corrected much which is why you aren’t seeing a total collapse. There has to be something that changes the market’s minds about these big boy stocks that will crash the market. Like if AAPL lowers guidance, etc. Until then, the crappy, fundamentally and technically weak stocks can still have some more correcting to do…
Even at this level equities probably still offer as good or better a long-term return as cash or bonds – unless the world (not just the US) falls into a Great Depression which everyone (except me) is now convinced will not happen.
My gut (which I no longer trust) tells me that the current correction is another attempt to draw in shorts for a final run over 1,100.
Quality was bid both yesterday and today. All my quality stocks are up to flat over the last two days. A few were up 4%-5% today. The sell off was strongest on junk. Some junky stocks have lost 15% to 25% over the past two days.
Why does the money need to go into one of the three? Has anyone ever considered the fact that maybe stocks, bonds AND real estate are all a bad value now? With zero real inflation cash is not as bad as some would have you believe.
Rob, you have to look behind the scenes…the markets may go down further and shorts will begin piling on. Then you will see one last HOORAH and desperate fund managers and retailers who missed this whole run up will pile on as well at the lower levels.
Not likely we’ll make a new low and although cash may outperform the broad indices on a buy-and-hold basis it’s not a great alternative. All the indicators of the cost of credit (yes, even the ones that aren’t manipulated by the Fed) don’t put a high value on cash (yet). When will this change? There are no wars, no major trade conflicts (yet), no fights in any national legislatures, no riots. Of course, there is the usual stuff (XXX bubble, CRE etc.), but I’m beginning to think the world will survive without the US consumer and a lot of the global losses will just get happily aborbed by all those arab sheiks (I think there’s something like $6-7T in unregulated Eurodollars, mostly from OPEC; I don’t see everyday Saudis rioting over losing money on subprime mortgages either.) and our grand kids.
BTW, maybe because of the increasing reliance on the Fed put of 1990-present, but I have never seen a market environment that is so devoid of “fundamentals” and so reliant on front-running the government and watching price action. Besides, TPC’s good timing in calling March and Nov, he also picked a good time to start a macro trading blog. All those guys that started buy-and-hold investment-club-analysis blogs must feel like idiots.
Tomorrow is judgment day:
Will the key technical support level of 1040 on the SPX hold?
Will the tech market leaders (Apple, Google, Intel, Amazon) that have reported revenue growth and good earnings start to roll over with the junky stocks?
Will money managers buy this dip?
Will the market sell-off even if GDP and unemployment meets or exceeds expectations?
I’ll have 2 windows open at the bell, one with a market sell order and one with a market buy order.