Author: Michael Panzner

(This post appeared on Financial Armageddon.)

Based on data going back 90 years, whenever the 12-month rate of change (ROC) in the Dow Jones Industrials Average has exceeded 40 percent, it has generally signaled trouble ahead.

In three cases, a 12-month ROC above that level has only marked a short-term pause, after which the market traded higher.

But on 11 other occasions, similarly rapid advances have been followed by notable corrections, including the collapses that followed the 1929 and dot-com era peaks, as well as the 1987 crash.

Given those odds, increasingly exuberant bulls might want to have a rethink.

Join the conversation about this story »

See Also:

• Bloomberg’s Terrifying Warning About A Shanghai "Death Cross"
• Barton Biggs: Greedy Investors Will Lift This Market Another 10%

(This post appeared at Financial Armageddon.)

Over the past 48 hours, the Census Bureau and the National Association of Realtors have announced new and existing home sales, respectively, for February. As expected (at Financial Armageddon, at least) neither set of data points offered any real encouragement for those who keep harping on about a recovery in the sector.

In fact, a comparison of annualized sales and median price trends for both data series reveals an interesting divergence — one that suggests new home prices will need to fall by 15 percent from where they are now to entice buyers if the historical relationship between the two markets is anything to go by.

How did I arrive at this figure? I took the median differential (going back to 1999) between the monthly median prices for new and existing sales, or $23,000, and subtracted that from the latest reported differential, or $55,400. I divided the net result by February’s median price for a new single-family home, or $220,500, and got just under 15 percent.

Of course, my approach might be way off base or overly simplistic, and I might not be taking proper account of structural differences between the two markets, including the possibility that the fallout from burgeoning foreclosures is having a more pronounced effect on the market for older, rather than newer homes.

Nonetheless, the fact that the new home construction industry remains fairly pessimistic about the outlook, as the National Association of Home Builder’s confirmed when it announced a worse-than-expected reading for its Market Index earlier this month, lends some weight to the notion that new homes have not yet reached price levels that many in the current pool of prospective buyers find appealing.

Join the conversation about this story »

Note: This article originally appeared on the author’s blog.

The market value of the high yield FINRA-BLP Active U.S. Corporate Bond Index relative to its investment grade counterpart has now exceeded the level seen in May 2007, at the peak of the credit bubble.

If you ask me, it looks like risk-taking is back with a vengeance.

Join the conversation about this story »

See Also:

• Michael Panzner: Commercial Real Estate Is A "Tsunami Unfolding"
• Now Everyone’s Freaking Out About A Huge Junk-Bond Refinancing "Cliff" In 2012
• Deutsche Bank Survey: Investors Dying To Take Risk This Year

(This guest post originally appeared at the author’s blog)

If a picture is worth a 1,000 words, then three images detailing the trouble still brewing in the commercial real estate market must be worth, er, three times as much. Right? (Unless, of course, you’re a permabull who can’t — or refuses to — see just how things are adding up.)

1. From Realpoint Research’s most recent “Monthly Delinquency Report” (also featured in my latest “Market Observation” for Financial Sense Online):

2. From Markit, the AA-rated tranche of a synthetic index referencing 25 commercial mortgage-backed securities (hat tip to EconBlog Review):

3. From Reis, Grubb & Ellis (via Central Valley Commercial Real Estate Blog):

Read more market commentary at Financial Armaggedon >

Join the conversation about this story »

See Also:

• FINALLY! Here’s Your Latest Snapshot Of The Housing Market
• Hong Kong Pricks Its Property Bubble
• Tiger Cub Brian Kelly: Chinese Real Estate Is Not A Bubble

(This post originally appeared at the author’s blog)

Repeating a familiar pattern, U.S. nonfarm productivity surged in the fourth quarter as unit labor costs fell, indicating that businesses are making the most of a weak jobs market and squeezing more profit out of each worker.

Not surprisingly, many economists viewed the report as a positive sign. If companies keep earning more money, the logic goes, then the economy’s return to growth won’t be far behind.

But is that the most likely outcome? Isn’t it also possible that if hiring remains soft, a critical mass of those who are still employed — especially those with a union standing behind them — will say “that’s enough!” and demand more money and benefits from their employers?

If so, that could set the stage for a period when wages and prices rise despite weakness in the overall economy.

Interestingly enough, if you look back at the history of the relationship between productivity and labor costs, the last time we saw a gap between the two as wide as it is now was — you guessed it — in the 1970s, before the Great Stagflation.

Although it is too soon to say whether this aspect of our economic history is about to repeat itself, today’s allegedly good news from the Labor Department may not be all that it seems.

Read more market commentary at Financial Armageddon >

Join the conversation about this story »

See Also:

• Morgan Stanley: Americans Aren’t Working Because They Can’t Move Anywhere
• JP Morgan: Here’s Why China Has A Huge Labor Problem
• Pending Home Sales Come In WAY Below Expectations

(This guest post originally appeared at the author’s blog)

It’s become something of a mantra among U.S. investors: diversify overseas to boost returns and protect assets.

In recent years, investing in foreign markets has been widely seen as a way to counter the risks associated with investing at home. These risks include the fallout from America’s ongoing fiscal woes, the restructuring of an overly consumer-dependent economy, and a relentless long-term decline in the value of the dollar.

Proponents also argue that it is the only way to capitalize on “the leveling of the global economic playing field,” as lesser-developed countries around the world, including high-flyers like China, India, and Brazil, play catch-up with the likes of America and Western Europe.

The truth is, however, that U.S. and overseas markets have become tightly-linked, at least from the point of view of dollar-based investors. While there was a time when share prices here and elsewhere moved to their own tunes, that no longer seems to be the case.

In fact, based on an analysis of data going back several decades, the correlation between monthly returns for the S&P 500 index and a broad global benchmark, the MSCI World Ex-US index, has never been greater. More surprising to some, perhaps, is the fact that emerging market returns have also become increasingly correlated to those of the U.S.

Why has this happened? The most likely reasons include the effects of increasing globalization, rising cross-border capital flows, the growing influence of large-scale multinational corporations, greater use of offshoring and outsourcing, and the information-spreading power of global media firms and the internet.

Will things remain that way? In the long-run, most likely not. As those who have read my books and blogs know, I believe America’s role in the world will eventually change for the worse. However, for the time being, at least, those who think they are protecting themselves by investing in foreign stocks may not realize the benefits they were hoping for.

Read more market commentary at Financial Armaggedon >

Join the conversation about this story »

See Also:

• Research Shows How Chinese Stocks Kill Unsuspecting Investors
• Markets Have Never Been Normal, So Stop Blaming The Fed/China/Goldman For Your Mistakes
• Rocketing Korean Exports Show What’s Really Going On In China

There’s been plenty of speculation about what will happen to mortgage rates if and when the Federal Reserve wraps up the last of its planned purchases under the $1.25 trillion Mortgage-Backed Security (MBS) purchase program, first announced in November 2008.

Join the conversation about this story »

See Also:

• Why The New Home Sales Number Shows The Market Is Still Very Far From Normal
• Another Big Miss: Existing Home Sales Down 7.2% In January
• New Home Sales Plunge 11% In January

(This guest post originally appeared at the author’s blog)

Bloomberg News is out with its latest monthly survey of economists’ forecasts and, according to those polled, the U.S. economy “will grow 3 percent this year and next, more than anticipated a month ago.”

Good news, right?

Well, maybe not. If you go back and look at how the experts have fared when forecasting the pace of growth for any given quarter, let alone for the year ahead, their tea leaf reading skills have left a lot to be desired.

Based on an analysis of Bloomberg monthly surveys published just prior to or at the beginning of each quarter over the course of the past decade, the professional prognosticators as a group have rarely been close to the mark.

Except for the last quarter of 2007, when the economists’ prediction (published in September) came within 5 percent of the reported result, the differences in percentage points between their estimates and the actual readings have been in the double digits — at a minimum.

In fact, on three occasions — the first quarter of 2000, the fourth quarter of 2002, and the third quarter of 2006 — the economists overestimated the pace of quarterly GDP by 1,133 percent, 2,400 percent, and 2,900 percent, respectively.

Aside from the fact that many of the so-called experts still haven’t quite figured out that what the economy has been going through is anything but a garden-variety downturn, their history of poor calls on the near-term outlook suggest their longer-term forecasts should be taken with a grain of salt.

Read more market commentary at Michael Panzner’s blog >

Join the conversation about this story »

See Also:

• Weakest Links Drag Eurozone GDP Back Towards Recession
• Just Waking Up? You’ve Already Missed A Lot
• Now It’s Their Turn: Indian Industrial Growth Accelerates To Twenty Year High

This post originally appeared on the author’s blog, Financial Armageddon

For months now, there’s been considerable debate about whether the U.S. economy is on the road to recovery.

Bulls point to the massive monetary and fiscal stimulus that’s been pumped into the economy, the sharp rebound in share prices, and the relative improvement in certain indicators as a reason for optimism.

Bears — like me — note the persistent negative sentiment on Main Street and in many corporate boardrooms, the steady increase in foreclosures, personal bankruptcies, and the ranks of the long-term unemployed, and the numerous imbalances — including still-very-high levels of public and private debt — that remain unresolved.

So who’s right?

Chances are that we won’t know the right answer for some time. Historically, sustained economic recoveries have not been fully recognized until well after the fact.

But one way to get a sense of where things stand is to look at how things are playing out relative to the past. On that basis, the notion that the economy is back on track leaves a lot to be desired.

See how history tells us we should be bearish –>

Join the conversation about this story »

See Also:

• Michael Panzner: Commercial Real Estate Is A "Tsunami Unfolding"
• The Good Jobs Data Was All Temporary Workers And The Public Sector
• Now See The Real State Of Collapsing State Tax Revenues

(This post originally appeared on the author’s blog.)

Economists and stock bulls cheered this morning’s better-than-expected November employment report. But was the data as good as it seemed? Consider the following:

Temporary jobs

Could the nine-month rally in share prices and the positive spin pouring out of Wall Street and Washington have encouraged some owners and managers, who are seeing little direct evidence of rebound in the economy, to acquire what might be described as a labor call option — that is, temporary staff (a key factor in the overall increase)?

Otherwise, temporary employees accounted for 52,400 of the hefty 86,000 jump in the professional and business services category. Might this reflect the fact that firms are temporarily taking on accountants, lawyers, and others who can help them further reduce costs (e.g., labor), restructure operations, and maybe even prepare for bankruptcy?

Long-term unemployed

Today’s employment report revealed that the labor force participation rate dropped to 65%, it’s lowest level in more than two decades; the number of Americans who are unemployed over 26 weeks fell to a record 3.8% of the civilian workforce; and, the “underemployment” ratio improved only marginally, to 17.2%.

Could this set of statistics be interpreted as a sign that employers don’t see enough good opportunities to justify taking risks as far as hiring is concerned? In other words, are they are sticking with the safe option — the job market’s “known quantities” (e.g., those who are currently employed or who haven’t been out of work too long)?

Category trends

While much of the focus was on the overall number, the breakdown by category was less reassuring. Those areas of the economy that would naturally be associated with a sustainable rebound in activity, including manufacturing, trade, transportation and utilities, and construction, are still hemorrhaging jobs.

Moreover, recent developments suggest that two categories which did see respectable gains, education and health care, face major headwinds in the period ahead. With municipal budgets under growing strain, school budgets — and education-related hiring — have nowhere to go but down. And with all eyes now focused on the rising cost of health care, the pressure to reign in spending will only increase.

Join the conversation about this story »

See Also:

• Foreclosure "Tsunami" Means The Florida Market Won’t Bottom Until 2011
• TrimTabs: The Real Job Loss Number Was 255,000
• We’ve Still Got A LONG Way To Go On Jobs