Stocks have just turned positive this morning after a slew of terrible economic data and in the face of mounting geopolitical concerns.
Reasons to be bearish this morning include:
1. Bloomberg reports that China has blocked rare earth element shipments to Japan. The rare earth elements are used in hybrid cars, other green tech, and most importantly weapons systems. Let the trade wars begin.
2. Ireland GDP turned negative (-1.5%) vs. expectation of +0.05%. Welcome to the double dip.
3. Eurozone PMI Composite came in at 53.8 vs. 55.7 consensus and previous of 56.2
4. Germany PMI Manufacturing came in at 55.3 vs. consensus of 57.6 and previous of 58.2
5. U.S. Jobless Claims @ 465,000 vs. 440K consensus, 453K prior (revised from 450K)
6. Continuing claims 4489K vs. 4450K consensus, 4537K prior (huge revision higher from 4485K).
Since the BLS continues to revise higher ever single claims report, should we assume that jobless claims were actually something closer to 475,000 last week? What a joke.
7. Existing home sales were 4.13M in August, 19% less than the 5.10M pace in August 2009. This is the second lowest reading on record, but comes in line with the 4.1M consensus expectation. This is not bullish.
8. Wen Jiabao, in a sign that China will not be revaluing the Yuan stated that a 20% gain in the Remnimbi would lead to social upheaval. "We cannot imagine how many Chinese factories will go bankrupt, how many Chinese workers will lose their jobs, and how many migrant workers will return to the countryside...China would suffer major social upheaval." Wen also pointed out that the issue was not China's weak currency, but rather the decisions over the last three decades by U.S. corporations to outsource all manufacturing jobs to China and other overseas locations. We will be net importers regardless of whether we source our goods from China or somewhere else. Brilliant job. Glad the rich were able to rake some extra profit on the margin for the destruction of the middle class, the American Dream, etc. Gotta also thank our political leaders for allowing a vast number of the U.S. population to become structurally unemployed. Articles abound on whether stock investors should even worry about unemployment as margins have never been higher. Great, no end market. No US consumer to drive their 2/3 portion of GDP. This situation cannot last forever.
Consumers continue to deleverage, with Z1 Flow of Funds reporting that the household sector has now deleveraged for 9 consecutive quarters, the most recent at the fastest pace yet. How much longer can the market rise on higher expected earnings while aggregate demand continues to fall at an accelerating pace???
9. Durable goods report tomorrow has a very slim chance of being positive.
10. New homes sales tomorrow are set to post a record low.
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