China Watch

Consumer Sluggishness Seems to Be Growth Drag, for Now A deceleration in consumer spending in recent months helped knock down estimates for U.S. growth in the first quarter, deferring hopes for a sustained pickup in the economy.

Consumer spending rose a seasonally adjusted 0.3% in February, the Commerce Department said Friday. But the prior month’s spending was revised to show a gain of just 0.2%, instead of the initial estimate of 0.4%, following a weak 0.1% gain in December.

The modest performance was among the reasons a number of economists downgraded their growth estimates for the quarter that ends Monday. Research firm Macroeconomic Advisers on Friday forecast U.S. gross domestic product will grow at a 1.3% pace in the first three months of the year, down from its earlier 1.5% estimate. J.P. Morgan Chase lowered its first-quarter estimate to 1.5% from 2%. Barclays Capital revised its GDP growth projections down to 2% from 2.4%. And consultancy MFR Inc. slashed its estimate to 1.2% from 1.8%. (…)

The picture isn’t entirely bleak as the U.S. emerges from its coldest winter in four years. Spending on physical goods rose 0.1% last month, the first gain since November. Spending on services rose 0.3%. Personal income was up a seasonally adjusted 0.3% on top of January’s 0.3% gain, in part thanks to expanded Medicaid benefits under the Affordable Care Act. (…)

Winter weather has remained harsh across the Northeast and Midwest, helping explain why inflation-adjusted spending on energy rose 0.3% in February after spiking 2.7% in January. (…)

Economists credited part of February’s increase in spending and income to the rollout of the ACA. Medical expenses accounted for more than half the rise in spending as people signed up for Medicaid or private insurance plans, according to Capital Economics economist Paul Dales.

Without a boost from the health-care law, consumer spending would still have grown last month, “but it would be pretty modest,” Mr. Feroli said.

Income Gets a Lift Thanks to Government Assistance 

Almost half of the increase in personal income in the past two months has come from bigger government transfer payments even though that category only accounts for about 16% of all personal income (adjusted for employer and employee payrolls taxes paid).

Much of the surge in transfers reflects higher Medicaid spending as more people are covered under the Affordable Care Act. That extra spending has more than offset the decline in unemployment checks once extended-jobless benefits ended. After the ACA enrollment period ends, the lift to income should dissipate.

Compensation of employees—mainly paychecks–has grown at a slower pace, reflecting weaker job growth and minimal pay raises. A more balanced consumer sector will depend on wages and salaries growing at a faster clip in coming months.

Revisions confirm what we all knew: previous data did not reflect reality as conveyed by weekly chain store sales and corporate testimonies.

Weather or not, the U.S. consumer is in weak shape:

• Nominal wages increased 0.4% over 3 months, 1.6% annualized.
• Inflation (PCE basis) also rose 0.4%. Real wages, last 3 months: totally frozen.
• Real disposable income rose 0.2% over 3 months, 0.8% annualized.
• Real expenditures also rose 0.2%.

BloombergBriefs’ Richard Yamarone:

Spending on the “Fab Five” indicators of discretionary spending is not entirely favorable. The ultimate discretionary purchase, dining out, was unchanged in February, and only 0.9 percent higher than 12 months ago. While casino gambling increased 1.5 percent, it was 6.5 percent lower than February 2013. Expenditures on cosmetics and perfumes inched up 0.4 percent, or 0.9 percent year over year, while women’s and girls’ clothing increased 1.55 percent in the month and 0.9 percent year over year. The strongest of the “Five” was spending on jewelry and watches, which climbed 3.5 percent in the month, and is 7.3 percent above year ago levels. This shouldn’t be surprising since they are popular Valentine’s Day purchases.

Essentially the economy is running on an empty tank of very low-octane fuel. Compensation growth is weak, and the reliance on government transfers is unlikely to spark any cylinders. Expectations for a solid recovery should remain reduced until there’s a definitive improvement in the quantity and quality of personal incomes.

Will this help?

Loans Are Finally Easier to Get Conditions for People Financing Homes and New Cars Are the Best in Five Years

(…) In general, however, lending “is loosening up again after being extremely tight,” says Michele Raneri, vice president for analytics at Experian Information Solutions, a major consumer credit-rating company. “For years, it was really difficult to get different kinds of loans, bank cards, as well as mortgages.”

Melanie Welsh, president of Envision Mortgage, a Wilmington, N.C., mortgage broker, says she’s seeing some loosening of credit standards for mortgages, with banks willing to underwrite loans on slightly lower credit scores than a year or so ago.

“Banks are becoming more open to [borrowers] who don’t have perfect credit scores,” she says. That even includes loans for second homes, an area where it had been particular hard to get credit. (…)

And importantly, there are simply more loans being granted. The volume of “near prime” loans rose 9.5% in the fourth quarter of 2013 from a year earlier. Loans to “prime” borrowers rose 7.7%. Subprime loans, meanwhile, have risen to 5.2% of mortgages from 3.9% a year earlier.

“That’s telling you that there is pent-up demand from consumers who want to borrow and they are now finding it easier to borrow,” says Experian’s Ms. Raneri.

While regulators are still keeping a tight lid on lending practices, “banks are relaxing their credit standards slowly and carefully,” says Mr. Spitler. (…)

Banks are also granting more home-equity loans and lines of credit, in part because rebounding home values leave more homeowners with equity they can tap. There were $111 billion in new home-equity lines of credit handed out in 2013, up from $86 billion in 2012, according to Experian. In addition, the limits on these Helocs have also been rising.

In contrast to home loans, auto credit rebounded quickly from the crisis. That was due to a combination of factors, including a tendency of people to keep making car payments even when they stop paying a mortgage, as well as the fact that it’s often easier for a bank to resell a car that has been repossessed than a foreclosed house.

As a result, even those with the worst credit are finding it easier to borrow to purchase a car these days. The dollar value of subprime car loans rose by 31% in 2013.

Potential credit-card users, meanwhile, may be noticing more pitches in their mailbox. But a closer look may show that the borrowing limits are lower than they used to be.

The reason: laws passed in 2009 that rewrote the rules on credit cards. Those new rules made it much harder for issuers to raise interest rates on borrowers who don’t make timely payments.

As a result, banks are less willing to offer high credit limits to untested customers, says Novantas’s Mr. Spitler. Otherwise, he says, when it comes to willingness to lend via credit cards, “banks have gone pretty much back to normal.”

CFOs Downgrade Profit, Hiring Outlook For 2014 Chief financial officers of large companies are bracing for slower profit growth and hiring over the next year, according to a new survey that offers a downbeat outlook for the North American economy.

Deloitte LLP’s first-quarter survey of CFOs found top corporate bean counters forecast their company’s earnings would grow 7.9% in the next year. That was the weakest reading in the category since the survey began in 2010. The firm plans to release the poll results Monday.

On the hiring front, the 109 North American CFOs said domestic hiring at their firms would rise just 1% in the next year. That’s slower than the 1.4% they forecast when surveyed in the fourth quarter, and below the 1.7% expansion in U.S. payrolls last year.

The forecasts mark a stark departure from Deloitte’s prior surveys, which found financial executives to be at their most optimistic at the start of the year. Economic forecasters generally expect U.S. growth to accelerate later in 2014.

“CFOs are typically most confident about their numbers this time of year,” said Sanford Cockrell, a Deloitte national managing partner and leader of the firm’s CFO program. “The fact that these numbers are down is surprising to us.”

Mr. Cockrell said the outlook reflects concerns about the stability of the economic recovery, price stagnation and weak employment gains restraining consumer demand. “From conversations I’ve had with clients, there is extreme caution around growing payrolls,” he said.

The survey’s overall sentiment figure – “net optimism” — remained in positive territory but fell from the fourth quarter for the first time in the survey’s four-year history. (…)

Deloitte surveyed the CFOs last month. Of those polled, almost 70% were based in the U.S., 21% in Canada and 9% in Mexico. About two-thirds work for publicly traded companies and more than 80% are at firms with more than $1 billion in annual revenue.

Other highlights of the report:

• In response to the Affordable Care Act, 60% of CFOs said they intend to pass cost increases on to employees, a jump from 40% in the prior quarter’s survey. The report found 16% expect to reduce the level of benefits provided. Just 7% said the law would reduce hiring.
• Executives in the retail and wholesale sector were most pessimistic about 2014, with nearly 40% reporting declining optimism versus 15% growing more positive. The health-care and energy industries were the most optimistic.
• Capital-investment expectations held nearly steady from the prior quarter at a 6.5% gain, but were below year-earlier levels. Sales expectations for the next 12 months did advance to 4.6% in the first-quarter survey, from 4.1% the prior quarter.
• CFOs are not likely to reduce their company’s debt loads in the coming year, with almost two-thirds saying deleveraging is unlikely.

That said, ISI’s company surveys are on track to bounce a significant +1.7 over the past 5 weeks, led by truckers, auto dealers, and homebuilders. This strongly suggests the economy is bouncing back from the bad weather, as do unemployment claims.

But just bouncing back from bad weather may not be sufficient…

EARNINGS WATCH

Q1 ends today. Some earnings previews. First from Factset:

Over the course of the first quarter, analysts have lowered earnings estimates for companies in the S&P 500 for the quarter. The Q1 bottom-up EPS estimate  dropped 4.5% (to $27.02 from $28.29) from December 31 through yesterday.

During the past year (4 quarters), the average decline in the EPS estimate during the quarter has been 3.2%. During the past five years (20 quarters), the average decline in the EPS estimate during the quarter has been 4.2%. During the past ten years, (40 quarters), the average decline in the EPS estimate during the quarter has been 4.4%.

The estimated earnings decline for the first quarter is -0.4% (YoY) this week, slightly below the estimated decline of -0.1% last week and below the estimate of 4.4% growth at the start of the quarter. If this is the final percentage for the quarter, it will mark the first year-over-year decrease in earnings since Q3 2012 (-1.0%).

At this stage of the quarter, 111 companies in the index have issued EPS guidance for the first quarter. Of these 111 companies, 93 have issued negative EPS guidance and 18 have issued positive EPS guidance. Thus, the percentage of companies issuing negative EPS guidance to date for the first quarter is 84% (93 out of 111). This percentage is well above the 5-year average of 65%.

Negative guidance is much higher than Q1’13’s (78.2%) but in line with Q4’13’s.

Now Zacks Research:

Expectations for the Q1 earnings season as whole remain low, with total earnings expected to be down -1.8% from the same period last year on +0.9% higher revenues and modestly lower margins. As has been the trend for more than a year now, estimates for Q1 came down sharply as the quarter unfolded. The current -1.8% decline in total earnings in Q1 is down from +2.1% growth expected at the start of the quarter in January.

The -2.4% decline to total S&P 500 earnings since the start of Q1 in January is greater than what we witnessed in the comparable period in 2013 Q4, but is broadly in-line with the magnitude of the 4-quarter average of negative revision.

With two-thirds of S&P 500 members typically beating earnings estimates in any reporting cycle, actual Q1 results will almost certainly be better than these pre-season expectations.

Guidance has been overwhelmingly weak for more than a year now, keeping the revisions trend firmly in the negative direction.

What we haven’t seen for a while instead is some evidence of strength on the revenue front and favorable comments from management teams about business outlook. Corporate guidance has been negative for almost two years now, causing estimates to keep coming down and the long hoped-for earnings growth turnaround getting pushed forward. Guidance is important in any earnings season, but it is particularly important this time around given the relatively elevated expectations for the second half of the year and beyond.

Consensus estimates for 2014 Q3 and Q4 have held up quite well, even as expectations for Q1 and Q2 came down over the last few months. Total earnings are expected to be up +9% in the second half of the year after the +1.9% growth pace in the first half of the year. We started last year with somewhat similar hopes, but had to sharply ‘revise’ those estimates as the year unfolded, with the starting point of the hope-for growth turnaround getting pushed to this year instead.

Corporate management has become masters at the “under-promise to over-deliver” game. Here’s why:

Thomson Reuters latest analysis by Greg Harrison examines the frequency in which companies in the S&P 1500 index exceed or fall short of analyst EPS and revenue estimates and quantifies the impact on stock prices (Click here for the full report). The results show that positive earnings surprises result in positive excess returns, while in-line results and negative surprises both result in underperformance on average. Revenue surprises result in directionally similar excess returns, and when combined with earnings, significant positive excess returns can be expected on average when both EPS and revenue beat analyst expectations.

Over the past five years,
• Companies that beat EPS estimates saw their stock outperform the index by 1.6% the following day on average, while those that missed underperformed by 3.4%. Companies that reported EPS in line with estimates underperformed the index by 1.1%.
• Companies that beat revenue estimates outperformed the index by 1.4% the following day on average. Negative revenue surprises resulted in underperformance of 2.0%.

• Earnings beats are considered to be of lower quality when they are not accompanied by revenue results that also beat expectations. Companies only significantly outperform when they exceed both EPS and revenue estimates.

• When companies miss their EPS estimate while beating their revenue estimate, they tend to underperform even more, lagging the index by 2.0% on average.

CHINA: SLOW AND SLOWER

China’s property woes Real estate sales appear to have slumped, adding to concerns that more developers may be heading for default

Data from 42 cities monitored by China Confidential, a research service at the Financial Times, showed that sales volumes during the first 23 days of March were down 34 per cent from the same period a year earlier.

The chart below shows that although on a month on month basis property sales jumped – due to the annual seasonal pick up after Chinese new year – this jump was weak compared to that seen in March 2013, resulting in a plunge in year-on-year sales volumes.

(…)  The weak sales volumes also corresponded with a 21 per cent rise in floor space available for sale in 14 monitored cities compared to March last year, increasing pressure on real estate developers to cut prices and shift apartments.(…)

Xinhua, the official news agency, said developers were loathe to talk openly about “price cuts” but were offering free interior renovations, free household appliances or waiving downpayment requirements in order to lure buyers.

Homelink, a domestic property agency, was quoted by local media as saying that residential housing transactions in Beijing plunged by 65 per cent in the first quarter year on year. Guangzhou and Shanghai also saw a sharp year on year decline in property sales.(…) (Source: China Confidential)

• Bad loan writedowns soar at China banks Financial strains mount as $9.5bn removed from balance sheets

China’s biggest banks more than doubled the level of bad loans they wrote off last year, in a sign that financial strains are mounting as growth in the world’s second-largest economy slows.

The five biggest Chinese banks, which account for more than half of all loans in the country, removed Rmb59bn ($9.5bn) from their books in debts that could not be collected, according to their 2013 results. That was up 127 per cent from 2012, and the highest since the banks were rescued from insolvency, recapitalised and publicly listed over the past decade. (…)

Liao Qiang, China banks analyst with rating agency Standard & Poor’s, said lenders appeared to have adequate provisions for a downturn. But he expressed concern that banks were using write-offs to keep their non-performing loan (NPL) ratios artificially low.

“Some banks fear that if the NPL ratio is undesirably high, there may be some negative publicity, and so they are more active in write-offs,” he said. (…)

China’s debts do not signal imminent implosion

By Peter Sands, chief executive of Standard Chartered bank (via FT)

(…) Those who are bearish on China seize on this ratio as evidence that the country is heading for a crash, a debt-driven hard landing. They highlight the industrial overcapacity and excess of built infrastructure as the inevitable consequences of such debt-fuelled growth. They remark on the rapid increase and opacity of shadow banking. And they point to stresses in the interbank market, the recent default of a bond issued by a solar company and the weakness in the renminbi as warning signals of an imminent implosion.

Yet to jump to the conclusion that such a crash is inevitable is wrong. Equating China’s debt problem with what occurred in the US and Europe before the crisis ignores some important differences. To start with, while China borrows a lot it also saves a lot. So it has largely been borrowing from itself. This is very different from being dependent on foreign creditors.

Moreover, the increase in borrowing has largely been driven by companies rather than the government or consumers. Yet at the same time, and rather paradoxically, China’s businesses have also been accumulating significant savings. With little pressure to pay dividends or improve returns, they are recycling their money through the banks and shadow banks to lend to other companies. It is not an efficient way to allocate resources but it is more an indicator of the deficiencies of the capital markets than of systemic over-indebtedness.

Furthermore, China has largely borrowed to fund investment. When you borrow to consume, as the US and Europe did before the crisis, you have little to show for it afterwards other than a slide in living standards when the party stops. When you borrow to invest, you may end up with some white elephants and overcapacity but you also gain some superb infrastructure, such as China’s high-speed rail network, and some world-class productive facilities.

Finally, China has recognised the problem. Not for Beijing the delusion of a “new economic paradigm” that blinded so many policy makers and bankers in the west before the crisis. The leadership knows it has a problem and it is determined to tackle it. At this month’s China Development Forum, a government-sponsored conference in Beijing attended by many of the country’s senior leaders, almost every session touched on the topics of over-leverage and overcapacity. (…)

Gradually deleveraging without overly damping growth will be tricky. Transforming the way China’s entire financial system works is a Herculean endeavour. There will be rough patches along the way, and plenty of scope for slips and stumbles – but so far Zhou Xiaochuan, governor of the People’s Bank of China, and his regulatory and government counterparts have proved remarkably sure-footed.

It helps that, while the composition of growth in China is changing, the underlying drivers remain strong. Urbanisation continues apace. Domestic consumption, particularly of services, is increasing fast; and, since there is no overcapacity in services, there is plenty of scope for generating growth and jobs. So, while there will be bumps and bruises along the way, China looks much more likely to navigate its way though these challenges than many western observers contend.

Japan Industrial Output Unexpectedly Drops as Tax Hike Looms Japan’s industrial production fell in February, undershooting all forecasts by economists surveyed by Bloomberg News, as the first sales-tax increase since 1997 risks stalling recovery in the world’s third-biggest economy.

(…) Output fell 2.3 percent from the previous month, the steepest drop in eight months, the trade ministry said in Tokyo today. The median estimate of 28 economists was for a 0.3 percent gain. A separate gauge of manufacturing fell in March for a second straight month.

While the weakness partly reflected disruptions from heavy snowfall, the data showed manufacturers are bracing for a slump in demand following tomorrow’s sales-tax increase. Inventories fell for a seventh straight month, lessening the likelihood of even sharper output cuts as the higher consumption levy pushes the economy into a one-quarter contraction in April-June. (…)

The 3 percentage-point increase in the sales tax is forecast to cause the economy to shrink at an annualized 3.5 percent in the second quarter, before a rebounding grow 2.1 percent in the following three months, according to a separate Bloomberg survey.

• Inflation Without Wage Growth Threatens Japan’s Recovery

Japan’s inflation edged higher in February. The CPI rose to 1.5 percent from a year earlier compared with a 1.4 percent yearly rise in January. Core inflation excluding food and energy costs came in at 0.8 percent, the highest level since 1998.

Real wages continue to fall even with unemployment at 3.6 percent in February, down from 3.7 percent a month before. The annual round of wage negotiations delivered limited gains. At Toyota, for example, union members received a 0.8 percent bump — far less than the increase in prices.

These tepid wage increases reveal companies’ uncertainty about the economic outlook, which makes them unwilling to pass on higher profits to workers in generous wage deals. Increased hiring in 2013 reflected a rise in the number of part-time and temporary workers, whereas the number of full-time employees
actually fell.

Limited gains in wages mean households have little scope to increase spending. Real household living expenditure fell 2.5 percent annually in February. That’s in spite of an increase in the consumption tax in April, which was expected to boost consumption in the months before.

The government indicated that it will front load budget spending to buoy growth. That should help offset the negative impact of the tax increase on demand. It does little to address the underlying problem of stagnant wage growth. (…) (BloombergBriefs)

  

Euro-Zone Inflation Rate at ’09 Low

The European Union’s statistics agency Monday said consumer prices rose by 0.5% from March 2013, the lowest annual rate of inflation since November 2009 and

well below the European Central Bank’s target of just under 2%.

Some of the weakness in the inflation measure during March was down to falling energy prices, which dropped 2.1% from March 2013. But prices for other goods and services that are driven by purely domestic demand rose at a slower pace, and the core measure of inflation—which excludes volatile items such as energy and food—slowed to 0.8% from 1.0% in February.

• ECB talks too much and acts too little. It’s showtime and quantitative easing is the only big policy tool left

• German Minimum Wage Gains Backing

Germany’s plan for a minimum wage, initially attacked as a job-killer, is winning begrudging support from business leaders.

When Chancellor Angela Merkel proposed a statutory pay floor of €8.50 ($11.70) an hour last fall, economists warned it could put hundreds of thousands of Germans out of work. But as managers and business lobbyists review the details of the draft legislation that her cabinet is preparing to adopt April 2, many are saying they can live with the law—and may even benefit from it. (…)

Germany is one of only seven countries in the 28-member European Union without a national minimum wage. For decades, it has let business groups and trade unions set pay and working times in collective agreements.

But a growing number of German companies are shunning these deals, contributing to a decade of largely stagnant wages. Meanwhile, many of the new jobs that have contributed to Germany’s low unemployment rate in recent years have been low-paid service-sector positions. Just as rising wealth inequality in the U.S. prompted President Barack Obama recently to call for a higher minimum wage, a widening income gap in Germany has boosted support for a pay floor.

When Ms. Merkel’s new coalition proposed the minimum wage following elections last fall, more than 80% of Germans welcomed it. At least five million German workers now earn less than €8.50 an hour. Minimum-wage proponents say lifting low pay could help rebalance Germany’s economy, which has long relied on exports for growth while domestic demand barely budged.

Several prominent economists have voiced doubt. (…) But many employers say they aren’t preparing pink slips. Arnulf Piepenbrock, a managing partner at facilities-management firm Piepenbrock Unternehmensgruppe GmbH, said he doesn’t plan to lay off any of its 3,581 cleaning staff in eastern Germany, even though they currently earn less than €8.50 an hour.

A large reason lies in the small print of the 56-page draft bill, which says companies governed by wage agreements would have two years to adapt. (…)

The phased-in approach would also mute the law’s overall impact. Today, €8.50 represents 58% of the German median hourly wage, which would rank second in Europe behind France’s minimum wage in terms of generosity, according to the Organization for Economic Cooperation and Development. But by 2017, Germany’s proposed minimum wage will have fallen to 50% of the median wage, putting Germany in the middle of the OECD’s ranking table.

(…)  Entry-level wages at most manufacturers are already well above €8.50 an hour. (…)

INFLATION WATCH

Grain Bulls Proved Right With Best Rally Since 2010

Now, Brazil’s worst drought in decades is threatening coffee, sugar and citrus crops as U.S. farmers contend with dry and freezing weather. The two represent about a sixth of global trade in farm goods. Futures markets are responding, exchanging cattle and hogs at record prices and adding 62 percent to the cost of coffee.

“Last year, people believed that things were back to normal, and that we were going to have huge inventories,” said Kelly Wiesbrock, a portfolio manager at Harvest Capital Strategies in San Francisco, which oversees about $1.8 billion. “Those assumptions usually catch people off guard. If there’s another supply disruption, then we could potentially be in a tight spot. It’s all dependent on weather.”

The S&P Agriculture Index of eight commodities climbed 6.4 percent since the start of March. (…)

Combined net-bullish positions across 11 agricultural products climbed more than fivefold in the first quarter, U.S. Commodity Futures Trading Commission data show. As of March 25, investors held 1.06 million contracts, the most since February 2011. Wheat holdings are the most bullish in 16 months, and coffee bets are the highest in six years.

Wheat traded in Chicago is poised for the biggest quarterly gain since September 2012. Cold, dry weather has reduced the outlook for winter crops in the U.S., the top exporter, just as a rail backlog delays supplies from Canada. Fields in Germany had 49 percent less rainfall than average in the past 180 days, according to World Ag Weather.

Escalating tension in Eastern Europe has threatened to disrupt grains shipments. Russia is set to be the fifth-largest wheat exporter this year, ahead of Ukraine, according to U.S. Department of Agriculture data. American corn sales booked for delivery before Sept. 1 are more than double the year-earlier pace, USDA data show.

Brazilian farmers, already enduring the worst drought in decades, may next face a deluge of rain on the world’s biggest coffee, sugar and citrus crops, according to Somar Meteorologia. (…)

SENTIMENT WATCH

The PE Index No One Wants To Look At

Investors have a tendency to pay too much when things are going well, and sell for too little when the market struggles, so it’s useful to have an idea of how much sentiment is currently built into stock prices. That’s why Citi has been using its Panic/Euphoria index since 2002 to measure sentiment using an array of sometimes contradictory factors. The current level of euphoria implies an 80% chance of a market downturn in the next year, small caps have the highest valuations relative to large caps in 35 years, and Federal Reserve Chair Janet Yellen’s comment that rates might increase six months sooner than expected sent barely a tremor through the markets.

The model uses premiums paid for puts and calls, short interest, retail money market funds,margin debt, the average bullishness of the American Association of Individual Investors (AAII) and Investors Intelligence, gas prices, trade volumes, commodity prices, and put call ratios to arrive at an estimate for sentiment. The factors are equal-weight, but they are also averaged and detrended in ways that make the model proprietary.

The model was also recently adjusted to exclude the effects of the dot com bubble, and Levkovich says that the updated version would have provided more useful euphoria signals ahead of previous market tops, showing the general robustness of the model.

APRIL FOOLS’ DAY?

I know I’m a bit early but I wanted to pass Zerohedge’s scoop on:

From [Bank of America’s chief technician MacNeil] Curry, whose latest track record in market calls has hardly been successful:

We believe NOW ITS TIME TO DO AN ABOUT FACE and turn bullish risk assets for the next several weeks. From both a price and seasonal perspective, evidence says that the consolidation in the S&P500 is nearing completion and the larger bull trend is about to resume. Treasury yields should also participate as the week long consolidation in 5yr yields is drawing to a close.

That said, even the BofA analysts is starting to hedge quite aggressively: “Bigger picture, we are growing concerned that this equity rally is VERY mature and that US Treasury Vol is setting up for a significant breakout. But, to be clear, those are bigger picture concerns and NOT FOR THE HERE AND NOW.”

Maybe. Maybe not. Either way, here is what the historical data says.

April is the strongest month of the year for the S&P500. Since 1950 it has averaged OVER 2.00% for the month with the 3rd highest monthly probability of an advance at 64%

(…) So while one should prepare to hear a litany of how April is historically the best month for stocks ahead of the just as infamous “Sell in May and go away” which has not been the case for the past 4 years, the reality is that this historic patterns such as this, or any others, have zero bearing on the current experiment in “confidence boosting” central planning. In other words, the only thing that continues to “matter” for risk, is what the Chairwoman may have had for dinner.

SUBSCRIBER DAILY EMAILS

Since I started publishing in early 2009, subscribers to my (free) daily emails received a short summary of the daily posts with a link to the complete blog post. Recently, a few readers asked me to show the full text in the feed which I have been doing in recent weeks. I did not anticipate that this might annoy so many other subscribers. I have thus elected to return to the summary feed which, in truth, makes more sense for most subscribers given the length of many posts. My apologies to others who might be inconvenienced.