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Weekly Bull/Bear Recap: Nov. 11-15, 2013

Happy Veteran’s Day!!! This objective report concisely summarizes important macro events over the past week. It is not geared to push an agenda. Impartiality is necessary to avoid costly psychological traps, which all investors are prone to, such as anchoring as well as confirmation, conservatism, and endowment biases. Bull OECD leading indicators signal a global rebound in the offing. Chinese and European economies, including France and Italy, are set to firm over the coming months, underpinning the global recovery into 2014.

i

In US news:

!

The Chicago Fed National Activity Index (CFNAI), a timely aggregate measure of economic activity, indicates a firming of business conditions. The indicator’s 3-month average implies near trend growth (at 0 on chart). There is no slowdown, despite what the bears declare.

ii

!

This is affirmed by a better than expected growth reading in the manufacturing sub-index within this week’s industrial production report.

iii

!

Meanwhile, national gas prices continue their descent, down roughly 7.5% from last year. This occurring just before the holiday season is music to the bulls’ ears

iv

. Consumer spending is set to surprise to the upside.

!

Finally, two papers released by the Fed imply that monetary stimulus is set to continue

v

. In fact, the increasing possibility of adjusting the policy target for unemployment from 6.5% to 6.0% would allow the Fed

to maintain dovish policy for a prolonged period. The epigram, “Don’t fight the Fed,” stands… or better yet,

o

…Don’t fight central banks worldwide.

vi

In European news:

!

The Greek government survives a no-confidence vote, validating that political determination remains credible and will see the country through the crisis. Antonis

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6

Samaras, current Prime Minister and leader of the New Democracy party, proclaims that there would be “no more horizontal measures” and that “The sacrifices of the Greek people are beginning to pay off.”

vii

!

Ireland announces that it will exit its financial bailout program without requiring a precautionary credit facility. Successfully exiting the program is an endorsement that global financial conditions have improved (investor confidence is on the rise) and that the program and its stipulations were the right medicine.

viii

!

Meantime, economic conditions are set to improve further in Spain. The Conference Board’s leading indicator increases for the 6

th

consecutive month.

ix

In Asia:

!

While bears were quick to pounce on yesterday’s initial disappointing result of China’s highly anticipated plenum, a leaked document today reveals more detail into how the markets will play a “decisive role.” Equity markets surge on heavy volume in response. Also disseminated is an official change to the one-child policy as well as the eradication of “education through labor” camps.

x

China’s leaders are committed to restructuring the economy.

xi

!

Simultaneously, the Chinese consumer is showing resilience. “Single’s Day” blows by last year’s revenue metrics. “The applause roared as revenues topped 10 billion yuan at 6 a.m., when more than 100 million consumers had placed orders via the online portal. On the same day last year, it took 13 hours for the company's sales to top the 10-billion RMB benchmark.”

xii

Meanwhile car sales in October shine, besting estimates by more than 7%. The pace is the fastest in 9 months.

xiii

Talks between the US and EU on the Transatlantic Trade and Investment Partnership (TTIP) take place throughout the week. They are focused on diminishing non-tariff barriers in industries such as: investment, energy, services, and raw materials. Creating a massive free trade area will result in job creation on both sides of the Atlantic

xiv

.

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7

Bear In the US:

!

Hiring plans for small businesses tank. From the NFIB: “It is very hard to identify any current developments that would make owners more optimistic. The new budget deadline of January 15, 2014 is approaching quickly and Congress continues to wrangle over the healthcare law and little else.”

xv

!

Concurrently, another headwind is set to hit the already fragile consumer. More than 2 million are at risk of losing unemployment benefits by the end of Q1 2014

xvi

, in addition to 47 million who have already lost food aid. In Europe:

!

Non-economic news features budding bearish catalysts.

o

Rifts are emerging within the ECB, which may hamper its efforts should market pressures recur

xvii

.

o

Meanwhile, the political environment is becoming dicier as Brussels targets Germany’s current account surplus. Good luck dealing with that Mr. Barroso

xviii

.

o

Meanwhile, coalition talks between the CDU/CSU and SPD are turning into a roadblock towards European integration. Rejection of “any common fiscal backdrop for euro zone banks for the foreseeable future…means each member state will be liable for cleaning up its own banks.” Financial aid would also be subject to strict conditionality (ie more austerity) and would add to the applicant country’s national debt.

xix

o

Absent from media coverage is the possibility that a disastrous “nay” ruling from Germany’s Constitutional Court on OMT may be around the corner.

xx

!

Meanwhile, Eurozone Q3 GDP growth rejects the bulls’ thesis that momentum is building, falling from +0.3% in Q2 to +0.1% on QoQ basis. A lost-decade is upon the world’s largest economic bloc.

xxi

o

Italy’s economic growth disappoints, shrinking by 1.9% from the same quarter the prior year. This marks 8 consecutive quarters of contraction, 9 on a quarter-by-quarter basis.