Recession warnings

[Mercury]

While waiting for what will probably a significant US opening today, in terms of the direction of both stocks and precious metals and maybe also oil, here is something interesting from a Real Vision interview aired this morning with Michael Kantrowitz, CFA, chief investment strategist at Cornerstone Macro.  Bear in mind that these guys have a strategy that is essentially buy the dips, just in a longer term cyclical context, so they are not permabears.  Their analytical system has thrown up the attached checklist of events that occur in every cycle since the 1950s.

Judge for yourselves but my takeaway is that IF the ISM data deteriorates further AND jobs and GDP data begins to follow then that's the ball game.  This is a specific statement made by Michael in the interview as a scenario that would change their view from buy the dips to more bullish.  In any case they are overweight defensives as in their view this is the right play whether this is a correction or a recession. 

[Mercury]

Hedgeye, among others, are expecting/projecting a bad earnings quarter based on the trajectory of earnings and macro data.  What would happen I wonder if poor earnings was followed up with a further deterioration in both manufacturing and non manufacturing ISM data at the end of October/beginning of November?  What would happen on the non manufacturing ISM slipped below 50 ("Hey man, services is fine!  Don't worry, buy the dips...").  The killer blow will come when jobs data finally crumbles, not because that drives the economies into recession, there will already be there, but from a psychological perspective lack of job opportunities and security is what most people see as a recession, including financial markets.

And if you are feeling bad about you trading system not working out too well just look at Neil Woodford!  If this kind of event, plus the US online brokers dropping commission to zero isn't enough to suggest that the wheels may be coming off then check out the ASOS results.  Wait a minute?  I thought the consumer was still strong and retail was merely suffering from a switch to online?  Hmm...

https://www.bbc.co.uk/news/uk-england-50066615

[Mercury]

Oh oh!  US retail sales growth negative for the month of Sept, vs consensus of +0.3% and last month print of +0.6%.  According to economist consensus the manufacturing recession (admitted) will be just like the 2015/16 case where Services and the Consumer saved the day.  But Services ISM data is trending down since Oct 2018 (hmm, what happens in Oct 2018 again?), and so has US NFP as it happens, but that's ok, apparently the US economy is still strong...

 

[Mercury]

So apparently this time it is different and the perma bulls are out in force with the Nasdaq and S&P500 hitting new ATHs.  Next stop the moon!  Luna... something...

This is certainly going to be an interesting week I think and probably next week too.  The Fed is up first, everyone expects more dovish policy to "calm" the market [Powell quote].  For calm I would read "goose".  However the US earnings season is not at all encouraging for long term sustainable returns, in fact the trajectory is down, despite a lot of "meeting analysts expectations" but that is a figment and gaming, also designed to goose the share prices.

Even more important perhaps is the forthcoming ISM data and the US NFP data.  The former concludes next week with the non manufacturing data.  The perma bulls have been pinning their moon shot on earnings and jobs, which is equated to the consumer.  What happens if the Fed accommodates and then ISM and NFP data is poor I wonder?

One scenario I have been tracking for some time is a final so-called "melt up" exhaustion spike rally that drops back to earth quickly.  The scenario regarding the data releases would be a perfect catalyst for such an event.

In the UK it looks like there is more bad news for jobs.  Interesting that this didn't make the home page headlines; let the conspiracy theories begin...

https://www.bbc.co.uk/news/business-50204701

 

 

 

[dmedin]

11 minutes ago, Mercury said:

For calm I would read "goose".

 

[phillo]

https://www.youtube.com/watch?v=tw9hG5Rwkto

[dmedin]

If there is another 'big crash' there will be socialist and far-right nationalist uprisings all over the western world.  People are sick of the international financial elites and their artificial crises.

[Guest golith]

On 12/08/2019 at 22:50, dmedin said:

Can you explain a little further on who might have a vested interest in an economic downturn? 

ME, I am a bear trader who has been trading for 15 years and love to take a ride down the elevator .. beats walking up the stairs!

[phillo]

https://www.youtube.com/watch?v=KV96HujJ4NU

[phillo]

always an interesting read , some good points about a recession in this https://www.mauldineconomics.com/frontlinethoughts/slowing-but-not-stopping-yet

[Mercury]

Interesting reading @elle, thanks for that.  Has anyone else noticed the crazy Sales activity in the UK?  Is there similar happening elsewhere?  Every week Debenhams has a new sale, Mothercare send me a "closing down, everything must go" email, didn't actually see in the news that they were closing down...  The Gap has had sales up to 50% off several times in quick succession over the past month or so.  More retail units are being vacated in predominant high st locations and shopping centres.  Retail just looks like it is in a recessionary decline.  It has been bad for several Christmases but, dare I say it, this time it seems different...

UK economic data today was bad and the FTSE didn't like it.  Hmm, could bad news be bad again?  Finally?  Maybe the narrative the Perma Bulls are selling is wearing a bit thin...  Perhaps this time is different and the central banks will be powerless in the face of main street reality.  Doubtless they wont give up without a fight but what can lower interest rates do for a consumer except kill off any savings the may have?

Let's look at the markets though, the FTSE100.  As I have mentioned in my "Are we there yet" thread, the FTSE (along with every other market other than the US large caps) topped out a while ago, in May 2018 in fact fully 4 months before the US large caps had their large bearish drop in Oct 2018.  In July 2019 the FTSE put in a lower high, when the US large caps put in a higher high (new ATH) and then dropped again.  In the past days the US large caps are at new ATHs and the FTSE dropped with another lower high (in fact the 3rd one).  The current price action looks decidedly bearish.  Could the FTSE100 actually be performing a leading signal indicator role..?

There are still several route maps and none of them seems to be straight down yet but all my scenarios are bearish on the FTSE100 and the current price action does not seem to support the "breakout to the moon" narrative of the perma bears to me.  Still there is a while to go yet and I still like a drop and Santa rally scenario as my favourite.

 

[Mercury]

Love this bit from the article you posted @elle

"Anybody who thinks they know what some hypothetical trade deal will produce is simply bloviating."

It seems from the piece that stacked against all the negatively trending world economic data is the hope/belief that Trump will do a deal with China that will save the world...  I'm not holding my breath nor risking my hard won capital on such a flimsy fundamentals case when the truth is blindingly obvious in the data. 

[dmedin]

1 hour ago, Mercury said:

Maybe the narrative the Perma Bulls are selling is wearing a bit thin.

 

I thought the bullish stories were aimed at America, not the UK.  We already know that the UK is in decline, and not just economically.  Scotland will be an independent EU nation shortly.

[Mercury]

9 minutes ago, dmedin said:

Scotland will be an independent EU nation shortly.

We can only hope, although good luck getting into the EU and doing any better than Greece...

[dmedin]

1 minute ago, Mercury said:

We can only hope, although good luck getting into the EU and doing any better than Greece...

 

Clearly, EU membership has been very beneficial to Greece.

[Mercury]

Just now, dmedin said:

Clearly, EU membership has been very beneficial to Greece

Failing economy.  Riots in the streets.  Inability to form any kind of stable government.  A total reliance of their big benefactor and yet a total antipathy to them despite the largess.  A majority of the workforce working in government jobs with pensions that kick in at aged 50, being paid for my by the private sector so much as the EU.  A truly dreadful balance of payments and national debt level.  Yeah I'm sure you are right...

Hmm,sounds a bit like Scotland actually...

[dmedin]

Yes, because life in London is a real paradise - the envy of all right-minded human beings.

More financial sector scumbags doing what they do best - committing fraud and ripping people off: https://uk.reuters.com/article/us-ubs-hongkong/ubs-fined-51-million-by-hong-kong-regulator-for-overcharging-clients-idUKKBN1XL114

[Mercury]

Not sure what London has to do with anything..?  And UBS is a Swiss bank and this article relates to deeds perpetrated in Hong Kong...

Edited November 11, 2019 by Mercury
to add a point

[Mercury]

35 minutes ago, dmedin said:

I thought the bullish stories were aimed at America, not the UK.

But going back to the original point, it was you who talked up index correlation as it pertains to the Dow Theory.  Now you seem to be suggesting that the US will continue to boom away but everyone else will fall back?  Or just the UK?  Note that the FTSE100 is predominately populated by international companies that derive most of their sales and profits from outside the UK, a lot of it in the US as it happens.  Add to that a large proportion of mining and energy stocks (i.e. global industrial output) and it is hard to argue that the FTSE is a reflection of the UK economy, more realistically it is tied to the world economy, hence a divergence between these indices is relevant and non US large cap indices may very well be reflecting an early indicator of the end of the so-called Millennial boom

[dmedin]

5 minutes ago, Mercury said:

But going back to the original point, it was you who talked up index correlation as it pertains to the Dow Theory.  Now you seem to be suggesting that the US will continue to boom away but everyone else will fall back?  Or just the UK? 

The Dax and the Dow seem to be correlated.

Yes, America is exceptional.

[dmedin]

6 minutes ago, Mercury said:

Add to that a large proportion of mining and energy stocks (i.e. global industrial output) and it is hard to argue that the FTSE is a reflection of the UK economy

It's always been that way, I believe.  London is where people come to rustle up money to go and extract resources from other countries.

[Mercury]

Some more bad data from the UK, this time it is a slide in average earnings and an increase in claimants.  Oh oh!  Is Jobs data about to join the party?

FTSE has broken a channel and this morning put in a potential failed retest of that channel.  A drop from here is on the card and a lower low confirms a turn.  Other indices remain decidedly less that buoyant, despite some better US data and new ATHs on all 3 large cap markets.

[dmedin]

5 minutes ago, Mercury said:

A drop from here is on the card and a lower low confirms a turn.

IG's Chris Beauchamp advised us all to go long on FTSE 100 the other day.  😺

[Mercury]

3 minutes ago, dmedin said:

IG's Chris Beauchamp advised us all to go long on FTSE 100 the other day.

Do that then.  We wouldn't have an operable market if there weren't people on both sides...

[dmedin]

2 minutes ago, Mercury said:

Do that then

Do be so defensive.

 

[Mercury]

Assume you mean't don't.  What makes you think I'm being defensive?  I have no emotional attachment to the way anyone else trades or sees the market, why would I?

[nit2wynit]

On 07/10/2019 at 08:52, dmedin said:

The next 'crash' is being calmly organized and put in place, piece by piece.  Hell, they even pay agitators to raise up the crowds of protesters and striking union members.  The question is, who is going to profit from all the carefully orchestrated suffering this time?

Agreed.  Digital Currency, RFID, Gold Standard.

It's all in play.

[Mercury]

Another glorious set of UK data, NOT!  US data later on today will be interesting, given the slightly improved US data of late we might have thought the US stock market would be putting in a stronger performance but apparently the Bulls are a bit skittish...  German GDP tomorrow will be very interesting I expect.

The FTSE continues to respond negatively to bad news, which is a blessed relief to those of us fed up with a market tuned to central banks and political comments about nonsense.  The chart shows a lower high again and a breakout of the current channel (adjusted since the fakeout from the other day).  A lower low vs that fakeout will be bearish.  Currently the set up from my previous posts on this thread remain in play.  Only a reversal to a higher high would cause me to adjust, although a break back into the channel would give pause for thought...

[Mercury]

So Germany avoids recession (well under the short hand 2 successive quarters of GDP decline measure, which is antiquated) but they put in a massive 0.1% positive GDP last quarter, not exactly the stuff of mega bull markets, unless they are fueled by widespread financial engineering (AKA a ponzi scheme).

The UK put in some not so hot retail numbers, has anyone notices any of the bad news around retail... 🎅

Amazingly the analyst consensus on retail sales growth was 3.7% after 3.1 previously.  I am surprised it even came in at 3.1% this time but where the hell did the 3.7% come from?  They just aren't paying attention but then they don't have the inside track into retail organisations...

Upshot is the FTSE is making another leg lower, it really isn't looking strong.  So long as price stays below the lower channel lines this is a bearish set up for me.

[dmedin]

1 minute ago, Mercury said:

widespread financial engineering

Yes indeed.  Isn't that what Thatcher wanted?