Airtime: Wed. Oct. 20 2010 | 2:00 AM ET
Inflation in emerging markets is a major issue for Western companies as input prices are set to rise because of it, Philippa Malmgren, president of Principalis Asset Management, told CNBC Wednesday.
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15
Jan
The World Is Deflating…
Deflation, What Is It? & Why Is It Important?
Deflation, Inflation & Disinflation- Defined
For the purposes of this article, the following definitions will be used:
- Deflation occurs when asset prices fall considerably
- Inflation occurs when asset prices increase
- Disinflation occurs when the rate of inflation slows.
The World Is Deflating:
As a general guideline, economists and central bankers around the developed world want to see a rate of inflation around 2%. That is ideal and considered healthy in most developed economies. As of this writing (Jan 2015), the world is deflating, not inflating and that is not a healthy sign for Wall Street & Main Street.
Why Is Deflation Bad; The Deflationary Spiral
FindLeadingStocks.com members frequently ask me why is deflation bad? I am asked:
Isn’t it better if I pay less for food and energy? Why is it bad to see prices fall? So on and so forth…
“Deflation Begets More Deflation” – Adam Sarhan
In the short term, deflation may appear “good” for your wallet but if it persists, the ramifications are ominous. The primary reason is that deflation begets more deflation and pretty soon it morphs into a negative deflationary spiral that could cripple the general economy. Broad scale deflation is bad for the economy because the primary reason why deflation occurs is due to waning demand, which occurs when people spending less money. That, in turn, reduces money supply and credit and hurts the economy, earnings, incomes, and general economic growth. To sell their products, companies are “forced” to lower prices and that tends to lower earnings. In time, salaries are reduced, and people have less money to spend. All this causes more deflation which sparks a negative deflationary spiral.
Right Now, Deflation Is A Bigger Threat Than Inflation
Over the 12 months we have seen deflation spike as a slew of widely used asset prices are imploding. Right now, Metals (Gold, Silver, Copper), Energy (Crude Oil, Gasoline, Nat Gas), and Agriculture commodities (Soybeans, Corn, Wheat) are all in private bear markets and the prices are accelerating to the downside. This is not healthy action and something investors across the globe are watching closely. In the last six months, a lot of attention has been paid to imploding energy prices. The concern going forward is that eventually stock prices will be dragged lower if “deflation” continues or gets worse. This is something that central banks across the globe are watching closely and we are doing the same thing. Stay tuned, it is never a dull moment on Wall Street.
28
Feb
27-Week Rally Continues!
Monday, February 28, 2011
Stock Market Commentary:
Stocks rallied on Monday after finding support near their respective 50 DMA lines last week. The current crisis in the Middle East remains in flux which is putting upward pressure on gold and oil. The benchmark S&P 500 is up 100% from its March 2009 low, and still about -14% off its all time high from October 2007. On average, market internals remain healthy as the major averages bounced after finding support near their respective 50 DMA lines in late February.
Consumer Spending, Personal Income Rise; Pending Home Sales Fall:
Consumer spending in the U.S. rose but fell short of estimates last month due to higher food and energy prices. The Commerce Department said purchases rose +0.2% which was the smallest gain since June and half the median forecast. The report also showed that personal income topped estimates which was largely due to a stronger economy and the recent tax-cut extension. Inflation remained at bay and below the Federal Reserve’s 2% target. Elsewhere, a separate report showed U.S. pending home sales fall -2.8% in January to 88.9. The pending home sales index fell -1.5% compared to the same level last year.
Market Action- Rally Under Pressure; Week 27 Begins
It was encouraging to see the bulls show up and defend the major averages’ respective 50 DMA lines in November, January, and late February. From our point of view, the market remains in rally-mode until those levels are breached. The tech-heavy Nasdaq composite and small-cap Russell 2000 indexes continue to lead evidenced by their shallow correction and strong recovery. However, it is important to note that stocks were a bit extended in recent months and this pullback (back to the 50 DMA lines) is very healthy as it shakes out the weaker hands and restores the the health of this bull market. If you are looking for specific high ranked ideas, please contact us for more information.
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17
Feb
Quiet Day On Wall Street
Thursday, February 17, 2011
Stock Market Commentary:
Stocks were quiet on Thursday after jobless claims rose more than expected last week and the consumer price index (CPI), which is used to measure inflation, continued to rise last month. The benchmark S&P 500 is up 100% from its March 2009 low, and still about -14% off its all time high from October 2007. On average, market internals remain healthy as the major averages continue marching higher. The fact that the major averages bounced back sharply after a very brief pullback in January illustrates how strong this 25-week rally actually is.
Jobless Claims, Inflation, Leading Indicators, & Philly Fed Survey Are Released:
Before Wednesday’s open, the Labor Department said initial jobless claims rose by 25,000 to 410,000 last week which topped the Street’s estimate for a gain of 17,000. The Labor Department also released the seasonally adjusted consumer price index which rose by +0.4% last month from December. On a year-over-year basis, prices swelled 1.6% before seasonal adjustments compared to the same period in 2010. However, core inflation, which removes food and energy prices and is considered the Fed’s preferred measure of inflation, increased by +0.2%. The report also showed that the annual underlying inflation rate stood at 1.0% in January which is still under the Fed’s target for 2.0%. At 10AM EST, leading economic indicators showed the economy continued to grow and the Philly Fed survey surged to 35.9, easily topping expectations.
Market Action- Confirmed Rally; Week 25
It was encouraging to see the bulls show up and defend the major averages’ respective 50 DMA lines in November as this market proves resilient and simply refuses to go down. From our point of view, the market remains in a confirmed rally until those levels are breached. The tech-heavy Nasdaq composite and small-cap Russell 2000 indexes continue to lead evidenced by their shallow correction and strong recovery. However, it is important to note that stocks are a bit extended here and a pullback of some sort (back to the 50 DMA lines) would do wonders to restore the health of this bull market. If you are looking for specific high ranked ideas, please contact us for more information.
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20
Nov
Stocks Negatively Reverse; Dow Ends Slightly Higher
Week In Review:
The major averages rallied during the first half of the week but the bears showed up in the latter half and erased the gains and sent stocks lower. The Nasdaq, NYSE composite, S&P 500 and small cap Russell 2000 index negatively reversed (open higher and close lower) for the week which is an ominous sign. A negative reversal is a subtle sign that a change in trend may be upon us.
Monday:
Stocks enjoyed healthy gains on Monday which helped send the benchmark S&P 500 index above near term resistance (1100) and to fresh 2009 highs! The US dollar fell after Asian government’s pledged to standby their economic stimulus packages. The 21-member Asia-Pacific Economic Cooperation group, which currently comprises over half of the global economy (approximately +54%), announced that they will maintain their massive economic stimulus packages well into 2010. The greenback fell to a fresh 15-month low which sent a host of dollar denominated assets higher: mainly stocks and commodities!
Turning to the economic front, the US government said retail sales grew +1.4% in October. Several of the country’s largest credit card issuers rallied after reporting charge backs (i.e. bad loans) fell for a six straight month. Elsewhere, Federal Reserve Chairman Ben Bernanke gave a speech to the Economic Club in New York and said economic “headwinds” remain in the economy. He also said that, “Significant economic challenges remain” He went on to say, “The flow of credit remains constrained, economic activity weak and unemployment much too high. Future setbacks are possible.” He also noted that we are in a much better place in Q4 2009 then where we in the same period last year.
Tuesday:
On Tuesday, stocks opened lower but closed higher even as the dollar rallied. Inflation concerns eased after the government released a weaker than expected producer price index (PPI). The headline reading increased +0.3% last month after sliding -0.6% in September. October’s reading was lower than the Street’s estimate of a +0.5% rebound. However, the “big” news in the report was that the core rate, which excludes food and energy, unexpectedly fell -0.6%, following a -0.1% decline in September.
A separate report showed that the country’s manufacturing sector continued to grow, albeit at a very slow rate. At 1:00pm EST, the National Association of Home Builders released their housing market index which was unchanged at 17 in November.
Wednesday:
The bears showed up on Wednesday and spent the rest of the week sending stocks lower. A slew of economic data was released which led many to question the health of this recovery. The Labor Department released a stronger-than-expected consumer price index (CPI) which ignited inflationary concerns. Headline CPI rose +0.3% which was higher than the Street’s forecast for a +0.2% gain. Core CPI, which excludes food and energy, was unchanged from last month’s reading of a +0.2% gain. However, core prices also topped the Street’s estimate for a +0.1% gain and is the component of the report that the Federal Reserve tends to focus on. The uptick in consumer prices sparked concern that companies will have little room to raise prices this holiday season (which curbs earnings) due to the fact that unemployment is at a 26-year high of +10.2% and wages fell -5.2% in September from the same period last year.
The Commerce Department released a separate report which showed that housing starts unexpectedly tanked last month. Housing starts (a.k.a registrations for new construction for residential housing units), slid -10.6% in October which was well below estimates. Permits for new construction slid -28.9% from the same period last year which led many to question the sustainability of the housing recovery.
Thursday:
On Thursday, stocks got smacked as the dollar continued to rally after the Labor Department said jobless claims (a.k.a the number of Americans filing claims for unemployment benefits) was unchanged at a 10-month low. Stocks also got hit after a report was released that showed mortgage delinquencies surged. So far, since the financial crisis began in 2007, writedowns (a.k.a losses) of mortgage-backed debt has surpassed $1.7 trillion at some of the world’s largest financial firms. The spike in mortgage delinquencies was due to a 26-year high in unemployment and a down tick in wages.
The Mortgage Bankers Association said that out of every six home loans insured by the Federal Housing Administration there is at least one late payment and +3.32% of those loans were in foreclosure last quarter. This was the highest reading for both measures in at least 30 years and bodes poorly for the troubled housing market. Elsewhere, the Organization for Economic Cooperation and Development (OECD) doubled its growth forecast for industrialized nations in 2010 to +1.9%. However, the group said that record debt levels may burden future growth. Separately, the Federal Reserve Bank of Philadelphia released its general economic index which topped estimates and suggests a slight improvement in that region.
Friday:
On Friday, European Central Bank (ECB) President, Jean-Claude Trichet signaled that the ECB will begin curbing its efforts to aid ailing banks. Those of you who have read this commentary over the past 5 years know that we like to analyze the news, yet we pay a lot more attention on how the market reacts to the news. That said, the market has reacted and continues to react rather well to the latest round of economic and earnings data. The vast majority of third quarter earnings are now behind us and the major averages remain perched just under fresh 2009 highs! Barring some unforeseen event, earnings were down for the average company in the S&P 500 for the ninth straight quarter but managed to exceed the average estimate, which is one reason why the markets have reacted so well to earnings. That coupled with the notion that the “worst is behind us” explains the market’s collective “take” on Q3 earnings. In addition, economic data, although not impressive, has improved markedly from this time last year which suggests the global government stimulus packages are working.
The benchmark S&P 500 has surged a whopping +64% from its 12-year low in March as global GDP has rebounded. The two primary concerns regarding this rally is the dearth of high quality leadership triggering technical buy signals and that volume has waned in recent weeks as the market rallied. Most liquid leaders are still holding up well which bodes well for this rally. The universe of high ranked stocks remains very thin which is exactly how this market has performed since the lows in March.
18
Nov
Stocks End Lower On Tepid Economic Data
Market Commentary (11.18.09):
The major averages closed lower after a series of mixed economic data was released. Volume, a critical component of institutional demand, was higher than Tuesday’s levels which marked a distribution day for the Nasdaq but the losses were too small to constitute a distribution day for the NYSE. However, the fact that the major averages were down for most of the session and closed near their intra day highs helps offset that concern. There were 40 high-ranked companies from the CANSLIM.net Leaders List making a new 52-week high and appearing on the CANSLIM.net BreakOuts Page, the same number of issues that appeared on the prior session. In terms of new leadership, it was encouraging to see new 52-week highs outnumber new 52-week lows on the NYSE and Nasdaq exchange.
Economic Data:
The big economic news of the day was released before the market opened, at 8:30 am (EST). In Washington D.C., the Labor Department released a stronger-than-expected consumer price index (CPI) which ignited inflationary concerns. Headline CPI rose +0.3% which was higher than the Street’s forecast for a +0.2% gain. Core CPI, which excludes food and energy, was unchanged from last month’s reading of a +0.2% gain. However, core prices also topped the Street’s estimate for a +0.1% gain and is the component of the report that the Federal Reserve tends to focus on. The uptick in consumer prices sparked concern that companies will have little room to raise prices this holiday season (which curbs earnings). The primary reason is that the consumer remains weak: unemployment is at a 26-year high of +10.2% and wages fell -5.2% in September from the same period last year. The Commerce Department released a separate report at 8:30am (EST) which showed that housing starts unexpectedly tanked last month. Housing starts (a.k.a registrations for new construction for residential housing units), slid -10.6% in October which was well below estimates. Permits for new construction slid -28.9% from the same period last year which led many to question the sustainability of the housing recovery.
Focus On Price & Volume, Not The Noise
Those of you who have read this commentary over the past 5 years know that we like to analyze the news but pay a lot more attention on how the market reacts to the news. That said, the market has reacted and continues to react rather well to the latest round of economic and earnings data. The vast majority of third quarter earnings are now behind us and the major averages remain perched just under fresh 2009 highs! Barring some unforeseen event, earnings were down for the average company in the S&P 500 for the ninth straight quarter but managed to exceed the average estimate which is one reason why the market’s have reacted rather well to earnings. That, coupled with the notion that the “worst is behind us” explains the market’s collective “take” on Q3 earnings. In addition, economic data, although not impressive, has improved markedly from this time last year which suggests the global government stimulus packages are working. The benchmark S&P 500 has surged a whopping +64% from its 12-year low in March as global GDP rebounded. The eight-month rally has pushed the index’s p/e ratio (i.e. valuation) to 22.3 which is the highest reading since 2002 according to Bloomberg.com. Our two primary concerns regarding this rally remains: the dearth of high quality leadership triggering technical buy signals & waning volume in recent weeks. Continue to focus on our two favorite sectors right now: large cap technology and gold as a good proxy for the market.