Home > Uncategorized > 2012/12/04: Cal-Perspective and US Age of Austerity finally here?

2012/12/04: Cal-Perspective and US Age of Austerity finally here?

© 2012 ROHR International, Inc. All International rights reserved.

The weekly Report & Event Calendar is available through the link in the right hand column. This week’s Summary Perspective is also now available. Yet there is also an interesting anomaly in the fundamental influences. And it is not just the strongish US economic data versus the trepidation over the potential plunge off the Fiscal Cliff… there is also the negative outlook into next year.

The misguided perception in some quarters that the US election would settle enough ‘uncertainty’ to encourage an economic revival on the back of clearer parameters has now been completely dispelled. As noted in our post early last week, nothing could have been further from the truth, as the public pronouncements by highly partisan US political class leave little hope that there is common ground for constructive compromise. And with Mr. Obama’s reelection, we suspect he feels within his rights to push his agenda at the same time Conservatives find it as distasteful and counterproductive as ever.

It’s good old Nanny State Taxulationism1 finally run amok, as the President and his cohorts distract the opposition with outrageous proposals to waylay them from unwinding what’s already the law of the land.

1Taxulationism © 2010 Alan Rohrbach & Jack Bouroudjian. All rights reserved unless explicitly waived

Def.: Combined impact of taxation, regulation and protectionism to an oppressive degree as official policy

And while framing this as a US Age of Austerity might seem a bit harsh, it is something we have warned of since back in 2010 (well, a ‘Frugality’ mania in the first instance.) To revisit those major themes from a previous post, regardless of whether the Fiscal Cliff is addressed, the degree to which 2013 is going to be a tough year has not escaped the watchful eye of the best of the observers…

 

 

 

…like the Financial Times. While there has been much more written and recorded than the two brief items which came to our attention today, they kind of sum up the quandary in which even big business finds itself. And we can all imagine the situation is that much more daunting for small businesses. While small business is the job incubator US in the world, it does rely in significant measure on the spending of large businesses which outsource product and process. And what are we seeing on that?

Major capital-intensive businesses are significantly reducing their planned capital investments for next year. We had a good sign of it from the August cancellation of Australian mega-miner BHP Billiton’s major copper and uranium mine project. And now major Brazilian miner Vale is going to significantly slash capital investment, as reported in today’s Financial Times. Its original 2013 plan to hike investment from $17.5 billion this year to $21.4 billion next has turned into a cut of over $1 billion to $16.3 billion. While some may think it’s only a $1.2 billion decrease year-on-year, that it is a $5 billion cut from the original plan speaks volumes about how little confidence big business has in the outlook for next year.

And while individual stories of even that magnitude are not much more than anecdotal in their way, there was also an excellent summary in the Financial Times’ The Short View column today from the estimable James Mackintosh. There was always a question of how we can square the circle of all of the economic and financial jargon and acronyms. As usual, he does an excellent job of assessing the net effect of the Fiscal Cliff-PMI-ISM-QE-US-UK-FOMC-ECB-DC-Sandy-Etc. all in eight column inches. His summary conclusion…

Unless politicians change the way they usually behave, investors should prepare for more dire data ahead.” That is the same conclusion that we have postulated for a while now. And we encourage you (as always) to visit the online FT article for excellent video on how well equities have done in the face of continued reduction in 2013 global corporate earnings estimates.

We find it just as baffling that equity markets and analysts manage to use whatever enduring rose tinted glasses they wear most of the time to avoid reflecting the likely impact. That includes both earnings as the end product of so much less corporate investment, and ultimately consumer discretionary spending. Yet, as always, the technicals need to be respected. A lesson many learned again in the past couple of weeks. Even when it became apparent that any joy from the November 16th Congress-Administration meeting was Phony Bonhomie, the equities have looked for excuses to rally back up from the December S&P 500 future test of 1,350-20 to hold on above 1,400 for now.

 General Market Observations

All of the technical trend aspects remain very similar to our observations last week, with special emphasis on the top of the rally December S&P 500 future decision to stall into the low 1,400s a key sign things may be rolling over again to the downside. That includes yesterday’s “outside day” DOWN Closing Price Reversal (CPR), even though the general pace of the selloff from the new high is less than a heart attack. Even so, based on the previous trading in that area, it reinforces the resistance between 1,415 and 1,418; the top end of which is the Tolerance of the short term DOWN signal.

And as always, short-term signals need reinforcement in order to confirm any reversal of a fairly strong trend; which the rally back up and test of 1,350-20 most certainly was during Thanksgiving week into last week. And also as is often the case, the obvious level is not the real key. In this case it would seem that the 1,400 area might be both technically and psychologically important. However, even any casual observation of trading going all the way back to March clearly indicates it is not.

The much more prominent level is the congestion around the 1,388 level, including the fact it was the pre-Thanksgiving holiday Close. It was also under threat on some minor slippage below it last Wednesday before the President and Speaker Boehner made some friendly noises once again. While there are some interim supports along the way, we still suggest that any violation could easily bring another retest of the 1,350-20 support. Of course, that sizable range actually amounts to several levels consolidated into a fairly tight area in light of the significant recent market volatility.

EXTENDED TREND IMPLICATIONS

And due to the “binary” nature of the near-term Fiscal Cliff decision, the impact on the other asset classes remains grudging and distorted. The classic responses are there, yet not quite taking any of the Agony and the Ecstasy (with apologies to Irving Stone) of the equities psychology quite is serious as usual. In particular, govvies, foreign exchange, gold and energy all appear to be reacting to real-world influences at least equally as much as the equities swings.

Although under some pressure at present, they are holding important previous support: December T-note future did not even hit 133-00 prior to pushing back into its 134-00 area resistance, December Gilt future held 119.30-.00 again on the slippage from its test of 120.00-.25, and the December Bund future is once again holding 142.62-.30 after last month stall out near its 143.50-.80 resistance. That is important because the typical early expiration is Thursday, and the March Bund future is most atypically trading at a premium up at 144.37 on today’s Close. If it ends up pushing above that (for instance on any further equities weakness) after midday in Europe on Thursday, it will be above a significant rebound high back in August. Even with some congestion around 145.20 in the contract, the next lead contract continuation resistance would not be until the upper-145.00 area.

Foreign exchange is also entering a much more critical phase on the US Dollar Index slippage below its .8000 psychological and technical support. While that is a DOWN Break of sorts, a much more significant trend support has moved up on the market since early September into the low-.7900 area: the overall major upward channel since the .7270 May 2011 low. That plays right into the hefty congestion and Fibonacci projections anywhere down into as low as the .7860 level. Of course, whether that holds likely also informs our view of the success of the euro in extending its rally or convincingly above EUR/USD 1.3000 this time around (versus September and October), British pound’s ability to sustain its rally above is GBP/USD 1.6000 area resistance, and whether the commodity currencies can get any more traction at this time in the form of AUD/USD finally pushing back above 1.0450-1.0500.   

The energy market is kind of distorted by geopolitical influences as well as the US return to energy production prominence. However, on a technical level it has been fairly obvious that lead contract Crude Oil future has been stark below its 90.00-89.50 failure, yet not willing to crack its prominent lower 85.00-84.50 support. Truly pending some sort of major trend resolution.

And last, but by no means least, the December Gold future has proven to be one of the more challenging markets over the past couple of months. Late summer central bank commitments to greater liquidity fomented the next surge above the top side of the ‘adjusted’ range at 1,625-30. And that allowed it to push above 1,675-82 congestion and prominent down channel resistance (from major SEP 2011 high) for an UP Break on global QE expectations. Even as it has spilled sharply from its tests of major 1,775-86 area back below 1,750 (i.e. also a recent failure level on the retest), it only tested that 1,675 UP Break on the early November implosion prior to that retest of 1,750. With both daily and weekly MACD just now both marginally DOWN again, the next 1,675 retest will be very critical.

Thanks for your interest.

 

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