Home > Uncategorized > 2012/12/11: Cal-Perspective and overall weakness in spite of some good data

2012/12/11: Cal-Perspective and overall weakness in spite of some good data

© 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… as that dilemma looks closer to being solved timely enough (end of year or top of January) to avoid its worst effects.

There is also the negative outlook for Europe. Today’s German and Euro-zone (essentially the same) ZEW Sentiment (i.e. the forward view) was stronger than expected. Yet, that flies in the face of other indications out of Europe that are still incredibly weak… like the recent Italian and Spanish Industrial Production numbers that came in below already weak estimates. And anyone who thinks Germany is going to return to being a bastion of strength in Europe should take a look at Monday morning’s admittedly mixed Organization for Economic Cooperation and Development (OECD) Composite Leading Indicators (CLI).

The only real growth is in the US and (interestingly enough in light of recent official forecasts) the UK, with growth or even economic basing elsewhere problematic at best. Even more important is the degree to which Germany remains on a distinctly downward path into the early part of next year. The general tone of the OECD regarding the actual condition of CLI on individual countries is also typically charitable. How does France sliding further below 100 and remaining on a clear downward path indicate “weak growth”? And even though it is still marginally above 100, the same goes for Japan; especially in light of it just recently going back into recession.

And it appears that our continued concerns over US Taxulationism1 are finally beginning to bite. It is no longer just our theoretical assessment that these influences from a Nanny State run amok are a problem.

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

There is now real-world confirmation from actual surveys of the impact this is going to have into the early part of next year. And that comes from none other than one of our favorite US employment-related resources



…the US National Federation of Independent Businesses. Each month they release their Small Business Confidence Survey (officially Small Business Economic Trends), and this morning’s was a real eye popper to the downside. The headline number was bad enough at 87.5 versus an estimate of a mild slide to 92.5 (from last month’s 93.1.) That puts it back down to some of the worst levels since the bottom in 2009.

And even more important was the reasoning behind it, which you can also read on the hyper-linked page. As just a preview, NO it was not the impact of Hurricane Sandy, which they filtered out through various means. And YES, it was the election. Small business owners basically feel that the far higher costs, taxation and aggressive regulation are going to be a bad environment next year. Hmmm, sounds vaguely familiar… Taxulationism Lives!! At least in the minds of small business owners who are a key to the employment picture in the United States.

If you refer to the tables a bit lower down on the page, a whopping 64% of the negative opinion is aggregated under the combined influence of Taxes, Poor Sales and Government Regulation and Red Tape. No secrets there. And of course, be sure to click into the lower of the two videos near the top of the page to hear what NFIB Chief Economist William Dunkelberg has to say in his CNBC interview shortly after release of the survey. He always manages to add some important additional color to the statistics. And in any event it pays to keep in mind that anything below 100 is still basically negative.

This very negative indication of small business confidence was echoed a bit later this morning by the IDB/TIPP Economic Optimism Survey. This might have been even more pronounced in so far as a slight increase to 50.0 was expected after last month’s 48.6 reading. The actual number: 45.1. All of which reinforces the sentiment we have expressed for some time. The Fiscal Cliff just the tip of the negative economic impact iceberg that the good ship US Economy is going to smack into in the first half of next year.

We also have other insights on the way regarding whether the tax increases will actually garner any extra revenue. Frankly, we are doubtful. Look at how many corporations and individuals are massively accelerating payouts of bonuses and dividends as well as cashing in long-term capital gains. Does anyone seriously believe those same folks are going to come back next year and also sells sizable holdings or distribute significant bonuses and dividends? While we will have more for you on this soon, in essence it looks to us like USA 2013-2014 is stacking up an awful lot like Japan 1997-1998.


General Market Observations

The bottom line is that the December S&P 500 future pushing back above the 1,399-1,402 resistance on mutual constructive comments two weeks ago is now also above 1,415-18 resistance, including last Monday’s attempted DOWN Price Reversal. No surprise therefore that it has also pushed above the more prominent resistance in the 1,425-30 area, the low end of which is now support. Of note, that higher area was also the pre-election high and Close. Unless it is going to fail back below the 1,425 and 1,415 areas, any near term setbacks are selloffs to support. And in that case, higher resistances in the 1,450 and even 1,460-65 areas are likely to be tested. Which would be classically normal into and after an FOMC meeting.


And the usual intermarket influences are less than pronounced, as govvies hold up very well (as we had suspected would be the case.) It seems they are more so focused on real world indications like the very weak Euro-zone data today, and that even improved Chinese data that was accompanied by a much weaker than expected trade surplus. All of which further reinforces our instincts that the stronger (if still moderate) economy recovery in the US is the key.

Suffice to say for now that the govvies are still in sustained up trends, especially the March German Bund future that has pushed to a significant new high for the current rally. Out above the 145.20-.00 area resistance was also a weekly trendline UP Break last week; unless it is back below it soon, it will want to test the major June 1st 146.89 lead contract high. Maybe that is only proper as Italy slips back into a less stable political situation. Of note, weak sister March Gilt future is only down testing the low end of its 119.30-.00 support, with much more major support waiting in the 118.50-.25 area. The same goes for the also somewhat discounted (to December contract levels) March T-note future that is so far not even fully down to its significant 133-00/132-24 support.

The US Dollar Index was also only marginally below its .8000 support last week prior to recovery above it without even testing its low-.7900 support. It would still take a Close above its .8060 November 28th bounce high to Negate the DOWN Break for a move to higher ground. Yet, on balance, the strength of the greenback and govvies speaks of the degree to which the equities rally appears less than fully credible. It is also very interesting that US Dollar Index right back down to .8000 support is in conjunction with EUR/USD rallying modestly above 1.3000 and AUD/USD poking its nose marginally above 1.0450-1.0500. All fairly critical.   

And last but by no means least, the Japanese yen still appears to have quite a bit of long-term vulnerability. USD/JPY has been stuck testing the low end of the 82.85-83.30 resistance, which they lead to a correction back down into the mid-81.00 area. However, any violation of 83.30 on even a daily Close might be a sign it is ready to push on at least to the next incremental resistance in the 84.00-.50 area. However the next major resistance does not come in until the mid-upper 85.00 area.

Thanks for your interest.

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