Svaga LEI, svag börs?

Trist budskap från Wolfe Trahan i eftermiddag, men det är väldigt lätt att ropa på vargen efter några neddagar. Jag tror avsaknad av negativa nyheter räcker för att lyfta börsen inom kort:

The list of market-based indicators arguing that a new downward trend in economic prospects is getting longer and longer. Of course, at the top of this list is the loss of momentum in equity markets over the past two months but it’s much more than that. Indeed, the majority of so-called “leading indicator” trades have or are beginning to turn as well. For instance, we’ve seen a change in sector leadership, a turn in the domestically-focused vs. foreign-exposed trade, in the style and capitalization buckets, and in asset allocation land where Treasuries are trumping stocks and credit spreads have begun to widen. All of these are consistent with a world where investors ratchet their growth expectations lower.

As we see it, calling for softer leading indicators is no longer a forecast but now a reality. Indeed, the advance/decline index of the LEIs we track was negative in the month of May for the first time in a year. Moreover, we’ve seen three LEIs released so far for the month of June, two of which headed lower (Philly Fed and Richmond Fed indices are down, Empire Manufacturing is up). Our work on series that are anticipatory of leading indicator trends is not very optimistic about the road ahead. Indeed, most of these argue this nascent deceleration in LEIs is unfortunately here to stay.

The challenge with our (and the market’s?) message is that it’s not good news for most fund managers. Indeed, rising leading indicators are consistent with strong gains in equities and a lot of fun for investors while decelerating leading indicators is often a world where relative gains, or alpha, become far more important. Moreover, the list of things that do “relatively” well in this type of backdrop is a yawner at best. Let’s face it, there is nothing exciting about Treasuries, Utilities or Staples. The best advice we can give folks at this point is to think of all the investments they find to be a bore and consider them seriously in their portfolios. If we are right on leading indicators, the “boring stuff” might just be the best investment. As always, time will tell

Skeptiska WolfeTrahan

Här är hela ingressen till dagens WolfeTrahan. Analytiker och andra prognosmakare är för optimistiska inför 2011. Dagens börskurser tar inte hänsyn till hälften av denna optimism. Det är en av orsakerna till att jag tror på först stigande kurser, sedan ett rejält fall. Se förra inlägget för tankar om magnituder och tajming.

One of the great surprises we have encountered in recent weeks has been the latent optimism amongst investors. Truth be told, we don’t find folks to be extremely bullish but they are constructive and there are very few that think a bearish outcome is in the cards in the next year. One proxy of this attitude is illustrated in sell-side analysts’ price targets. In aggregate, if stock prices rose to the mean price target of all S&P 500 constituents then the index would reach 1,357 in the next 12 months, for a gain of about 24%. This is ambitious even for sell-siders and demonstrates the stickiness of optimism at this time.

As we see it, the constructive mood we encounter from investors stems from what they hear from their companies. Management teams have begun to see better data points and their enthusiasm for business opportunities is seeping down to the investment community. Of course, most companies are looking at coincident data points whereas stocks are anticipatory indicators of the economy. Either the recent pullback in equities is noise and a phenomenal buying opportunity OR the market is sending a message that the growth trajectory ahead is about to get bumpy. We would bank on the latter of course.

In many ways, this is classic. The investment business is almost designed to go through some sort of denial phase at major inflection points. In 2009, the investment community remained skeptical of the rally for almost six months because companies back then didn’t see an improvement ahead. We used the term “the denial phase” at the time and it applies just as well to today’s backdrop. The market is clearly telling investors that something is off with the economic outlook. It doesn’t seem to spell “recession” just yet, but it is clear the road ahead is not what many are looking for. As a reminder, consensus of Wall Street economists for 2011 GDP is still 3.2% (The Fed and CBO believe it’s closer to 4%). This seems demanding in a world where leading economic indicators have already peaked and traditional measures of stimulus have been bled dry.

WolfeTrahan och konsumenten

WTs senaste baissiga kommentar idag om den amerikanska konsumenten:

Can The U.S. Consumer Continue To Carry Economic Growth Higher In 2011 And Beyond?Economists Think So, Investors Think So, The Sell-Side Thinks So … We Are Not Convinced!

Next to the entire Chinese economy, the U.S. consumer is likely to be the largest incremental grower in world GDP in 2010. Thanks to government transfer payments (income), tax incentives (spending) and several government-sponsored forms of debt concession (balance sheet), personal consumption expenditures reached a record in the first quarter of 2010, in terms of both absolute size and percentage of the U.S. GDP. So, the U.S. is now more dependent on the consumer than ever. Moreover, many of the global imbalances that existed before this recession are now widening again – trade balances within Europe continue to widen and China is still raking in a trade surplus from the United States. Will the U.S. consumer keep consuming?

According to economists’ GDP forecasts for 2011 and 2012, growth will not only continue, but accelerate in the coming years. Given that consumers make up 71% of GDP, economists are making an implicit forecast for strong consumption in the years ahead. Investors are also bullish on the consumer. Year-to-date, the Consumer Discretionary sector is the top performer. Relative performance of this sector tends to lead consumption growth by a couple of quarters (bottom left figure). Lastly, the sell-side is also bullish - roughly 80% of Discretionary stocks carry a mean-analyst buy rating, the highest since 2000 (bottom right figure). Such exuberance towards the consumer does not corroborate with the fundamentals in our view. We see this as the biggest risk to an economic re-acceleration in 2011.


Attityden passar ganska bra idag, efter den svaga retailstatistiken (som dock justerat för byggmaterial faktiskt var helt ok), men jag tycker WT har helt fel fokus för att vara relevant för aktiehandel IDAG.

Jag sitter ganska nöjd och lång, vilket inte ska vara någon nyhet för läsarna

Baisse från Wolfe Trahan

Lite baisseinspiration från dagens Wolfe Trahan

In this case, we think China’s market is a great blueprint for what to expect in other countries when their leading indicators peak (in the U.S. economy very shortly?). If you wind the clock back a bit, sentiment for stocks was ebullient in China last fall when cyclical sectors of the market were leading the charge. Then something changed; leading indicators of the economy peaked and began to lose momentum. The Chinese equity market is down 12% since then, while cyclicals and financials have lagged badly.

China is the blueprint for the rest of the world in 2010. It just got to a peak in LEIs before all others.


Jag ligger kvar kort, för den som undrar.