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As Conference Board Confidence Jumps, Gallup Confidence Dumps

A yuuge surge in stocks – amid collapsing earnings and GDP expectations – appears to have enabled a modest bounce off 2-year lows for consumer confidence. The Conference Board’s index of consumer confidence increased to 96.2 in March from 94 a month earlier – but still below January’s levels. The bounce was driven purely by “hope” as expectations for the future rose and current conditions dropped to 4-month lows. At the same time Gallup’s consumer confidence survey plumbes new depths to its lowest since 2015.

For now, Stocks helped to blind ‘consumers’ to the economic collapse…


“Consumer confidence increased in March, after declining in February,” said Lynn Franco, Director of Economic Indicators at The Conference Board.

Consumers’ assessment of current conditions posted a moderate decline, while expectations regarding the short-term turned more favorable as last month’s turmoil in the financial markets appears to have abated. On balance, consumers do not foresee the economy gaining any significant momentum in the near-term, nor do they see it worsening.


And while the below-the-surface data is not as bullish, Gallup’s most recent survey of Economic Confidence shows more weakness.

This is what the direct polling service found for March economic confidence:

Americans’ confidence in the economy dipped last week, with the U.S. Economic Confidence Index averaging -13 for the week ending March 27. This score is down from -9 the previous week.

Since July, Americans’ economic confidence has remained fairly steady, apart from a couple of exceptions in late August and mid-January. Before falling back to -13 last week, index scores in recent weeks began to show signs of improving confidence. The terrorist attacks in Brussels last week could have shaken Americans’ confidence in the long-term stability of the global or U.S. economy. Confidence remains below where it was in early 2015, when weekly index scores were positive or just slightly negative.

Gallup’s U.S. Economic Confidence Index is the average of two components: how Americans rate current economic conditions and whether they feel the economy is improving or getting worse. The index has a theoretical maximum of +100 if all Americans say the economy is doing well and improving, and a theoretical minimum of -100 if all Americans say the economy is doing poorly and getting worse.

For the week ending March 27, the current conditions score of -5 was on the lower end of the range for this component so far in 2016. This score was based on 24% of Americans rating the current economy as “excellent” or “good,” and 29% rating it as “poor.” The economic outlook score was -20, resulting from 38% of U.S. adults saying the economy is “getting better” and 58% saying it is “getting worse.” The -20 score represents a six-percentage-point drop from the prior week’s reading of -14 on this component.

Bottom Line

The attacks in Brussels cast a dark shadow over last week, which could perhaps have tainted Americans’ optimism in their views of more than just their physical safety — such as their country’s financial stability. The Dow Jones industrial average also suffered in the aftermath of the attacks but has since begun to recover.

Meanwhile, the low gas prices Americans have enjoyed for months have started to climb back up. Although Americans largely stashed the savings they received at the pump in recent months, that doesn’t make saying goodbye to low prices any easier. It’s quite possible that Americans had become so accustomed to cheap gas that any sign of a price increase could influence their assessment of the economy. However, it is unclear whether Americans expect seasonal changes in gas prices or if they attribute those increases to a problem with the economy.


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These Are The Four Reasons Why Investors Never Believed This Rally

It has been so long, we forgot what it’s like for the “smart money” (hedge funds, private clients and institutional clients) to put money to work into the market instead of rushing to unload their exposure to corporations buying back their stock (in ne…

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Commodities Longs Will “Liquidate In Unison,” Driving Bulls Off A Cliff, Barclays Warns

“Energy needs lower prices to maintain financial stress to finish the rebalancing process; otherwise, an oil price rally will prove self-defeating as it did last spring,” Goldman’s Jeffrey Currie recently wrote, on the outlook for crude going forward.

The rally off the lows has largely stemmed from the market’s hopes for an output freeze from Russia, the Saudis, and everyone else who isn’t Iran. Producers will meet in Doha next month to try and hammer out an agreement, but as we’ve documented exhaustively, the whole effort is farcical at best.

Moscow and Riyadh (among others) are already pumping at record levels, and it’s not at all clear why “freezing” output at all time highs is bullish. Indeed, as we noted last week, Russian crude exports are set to rise going forward. “The discussion is only about freezing production. And not exports,” Russian Energy Minister Alexander Novak told reporters earlier this month.

Throw in the fact that a recalcitrant Iran is in no mood to freeze anything now that international sanctions have finally been lifted and you have a decidedly bearish fundamental backdrop for crude, and that, in turn, should be expected to pressure the rest of the commodities complex which has for years struggled to deal with slumping Chinese demand and a global deflationary supply glut.

For their part, Barclays thinks the bullish sentiment around commodities could shift abruptly in the not so distant future, leading the “herd” straight off a cliff.

“Investors have been attracted to commodities as one of the best performing assets so far in 2016,” analyst Kevin Norrish begins. “However, in the absence of any concerted fundamental improvements, those returns are unlikely to be repeated in Q2, making commodities vulnerable to a wave of investor liquidation that we estimate could, in a worst case scenario, knock as much as 20- 25% from current price levels.” Here’s more:

Given that recent price appreciation does not seem to be very well founded in improving fundamentals and that upward trends may prove difficult to sustain, the risk is growing that any setback will result in a rush for the exits that could again lead commodity prices to overshoot to the downside.


Key commodities markets such as oil and copper already face overhangs of excess production capacity and inventories, but also now face another obstacle in the recovery process, that of positioning which is now approaching bullish extremes.


Net flows into commodity investor products totaled over $20bn in January-February (the strongest start to a year since 2011), futures positioning in key markets such as copper and oil has switched rapidly from bearish to bullish extremes in a few short weeks and there is evidence of a surge in investment flows into Chinese commodity markets as well.



The risk for commodities is that investors seek to liquidate long positions quickly and in unison, with potentially highly negative consequences for prices. There are several reasons to believe that a short-term turning point for investor flows might be close.


First, the kind of commodity investment that is taking place currently is not the long-term buy- and-hold strategy for portfolio diversification and inflation protection that underpinned the huge inflows of the previous decade. It is much more short term and opportunistic, as is clear from the relatively short holding period for ETP buyers in oil. Many have been liquidating on the recent move up in prices, having held their positions for only 5-6 weeks.


Second, commodities are among the few assets that have generated a positive return in Q1 and, as quarter-end approaches, that may make investors keener than they would usually be to close out long positions and lock in profits.


Third, the risk rally set in place by the previous week’s more dovish-than-expected FOMC statement is already starting to fade, as several Fed policymakers came out last week with more hawkish statements. Part of the problem with recent Fed-driven risk rallies is that they most often result from a run of poor economic data usually for the US, though recent Fed comments suggest it is becoming increasingly conscious of the growth path in emerging markets as well. Unfortunately, that means that any commodity price gains that result tend to be transitory because they are not supported by any underlying improvement in demand fundamentals; that seems to be the case again this time.

“How bad could it get?,” Barclays asks? “A very simple analysis of the relationship between investor positioning and recent price movements in oil suggests the potential for a 20-25% move down in prices if positioning were to return to the average levels of the past few months. The potential downside in copper is similar,” the bank says, answering its own question.

So that puts copper in “the low $4,000s” and as for crude, we’re looking at the low $30s. In short, still suppressed demand, quarter-end profit taking, and the possibility that the Fed will turn more hawkish thus curtailing risk appetite and sparking a USD rally could cause a violent reversal. And as we noted just this morning, things are already starting to unravel:

But don’t worry, as long as everyone gathered in Doha next month agrees to freeze production at the current record-setting pace which, if it keeps up, will soon result in every backyard swimming pool in the world being filled to the brim with black gold, everything should be fine. 

For those who need a visual of where Barclays thinks this is heading, consider that the note excerpted above is entitled “Buffalo Jump,” an allusion to Native Americans driving herds of bison off cliffs

Trade accordingly…

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Case-Shiller Home Prices Jump Driven By West Coast Chinese Buyers

US Home prices rose 5.75% YoY according to Case-Shiller (the fastest rate since July 2014) as it appears the Chinese buyers are migrating south from Canada with Portland, Seattle, and San Francisco reported the highest year-over-year gains among the 20 cities with another month of double digit annual price increases.  Home prices continue to climb at more than twice the rate of inflation amid a suply shortage as West Coast propertty markets become “Vancouvered.”


The S&P/Case-Shiller U.S. National Home Price Index, covering all nine U.S. census divisions, recorded a slightly higher year-over-year gain with a 5.4% annual increase in January 2016. The 10-City Composite is up slightly at 5.1% for the year. The 20-City Composite’s year-over-year gain is 5.7%. After seasonal adjustment, the National, 10-City Composite, and 20-City Composite rose 0.5%, 0.8%, and 0.7%, respectively, from the prior month.

Portland, Seattle, and San Francisco reported the highest year-over-year gains among the 20 cities with another month of double digit annual price increases.

Portland led the way with an 11.8% year-over-year price increase, followed by Seattle with 10.7%, and San Francisco with a 10.5% increase. Eleven cities reported greater price increases in the year ending January 2016 versus the year ending December 2015. Phoenix reported an annual gain of 6.1% in January 2016 versus 6.3% in December 2015, ending its streak of 12 consecutive months of increasing annual gains. The western part of the country saw the largest price gains in the past year; the northeast is the weakest region.

Portland, Seattle, and San Francisco home prices are now above 2006/2007 bubble highs…


“Home prices continue to climb at more than twice the rate of inflation,” says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices.

“The low inventory of homes for sale — currently about a five month supply – means that would-be sellers seeking to trade-up are having a hard time finding a new, larger home. The recovery of the sale and construction of new homes has lagged the gains seen in existing home sales. This may be starting to change: starts of single family homes in February were the highest since November 2007. The single-family-home share of total housing starts was 70% in February, up from a low of 57% in June 2015, and approaching the 75%-80% range seen before the housing crisis.


While low inventories and short supply are boosting prices, financing continues to be a concern for some potential purchasers, particularly young adults and first time home buyers. The issue is availability of credit for people with substantial student or credit card debt. While rising home prices are certainly a factor deterring home purchases, individual financial positions are more important than local housing market conditions. One hopeful sign is that the home ownership rate, at 63.7% in the 2015 fourth quarter, may be turning around. It is up slightly from 63.5% in the 2015 second quarter but far below the 2004 high of 69.1%.”



Coming to your West Coast real estate market soon.

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Capitol On Lockdown For Second Day As Police Investigate Suspicious Package

For the second day in a row the Capitol is on lockdown. On the heels of a Monday incident that saw a self-styled “prophet from God” pull a gun before before ultimately being subdued and taken into custody, police are now investigating two “unattended p…

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