Fiscal Cliff Fools Should Mind the Q3 GDP Report & Q4 Forecast

An upward revision in the third estimate of Q3 GDP should serve as a guide to U.S. legislators, not a comfort. This morning’s data showing real economic expansion of 3.3% represented a significant increase over the second reporting of 2.7% growth for the same quarter. It was also importantly higher than the 1.3% growth seen in Q2, and it exceeded the consensus economists’ view for plus 2.8%. The report offers Congress an important message and at just the right time for it, so hopefully legislators are paying attention. Because the fiscal cliff conflict, with global economic deterioration, has expectations for Q4 2012 significantly short of the result for Q3. It would seem in the interest of all that economic growth gain traction rather than being undermined just as it does.

The market, as measured by relative indexes, has seen a muted reaction to the positive news because of concerns about the future. We can see through the table below that stocks of all sorts reflect contained enthusiasm today on what would have otherwise driven shares much higher. Furthermore, our esteemed representatives in Washington D.C. should be interested in seeing investment capital flows that favor economic growth and so fuel it. Thus, the non-reaction of stocks to this news today is quite concerning to me, as it should be to you.

Index Tracking Security	Thursday Change Through 11:30 AM ET
SPDR S&P 500 (NYSE: SPY)	-0.05%
SPDR Dow Jones Industrials (NYSE: DIA)	-0.14%
PowerShares QQQ (Nasdaq: QQQ)	-0.42%
iShares Russell 2000 (NYSE: IWM)	+0.12%
Wilshire 5000 ETF (NYSE: WFVK)	Price Not Updated

The final reporting of Q3 GDP is based on more complete data, and so is more reliable than earlier versions of the estimate. The Bureau of Economic Analysis (BEA), which is responsible for reporting GDP, indicated that the general picture of the economy had not changed much since the prior reporting of Q3. However, two important aspects had been altered some.

The Real Personal Consumption Expenditures (PCE) data-point was hiked to show an improved growth rate of 1.6% in Q3, versus 1.5% in Q2. Considering the “real” aspect of this data, and that the price index was unchanged, we can enjoy the gain without concern about noise. American demand for goods drove the increase, though those were continued at discounters like Wal-Mart (NYSE: WMT) and Amazon.com (Nasdaq: AMZN). At the same time, real imports of goods and services declined 0.6% in Q3, contrasting with the 2.8% increase in Q2.

If U.S. legislators want to best support the economic expansion seen in the Q3 data, it would be wise to keep in place supports to consumer and business spending. That means income tax rates are best left as is, in my view, with perhaps some flexibility at the very top of the earner ladder. Still, with increased healthcare costs for many who fall in between the various measures of “the rich”, those at the lower end of the wealth perspective ($250K earners) are facing the prospect of a burdensome tax hike. We need to keep the load off them, and raise that tax increase threshold significantly higher. We can support revenue enhancement in a less than smothering manner.

The latest housing data, including today’s reported Existing Home Sales annual pace increase to 5.04 million, a 5.9% improvement over October’s pace, argues for continued support of real estate market incentives. So, taking those off the negotiating table completely would be wise in my view, since housing activity is still at relatively low levels. Homebuilder sentiment, just reported this week, is finally climbing to less than pathetic levels, but can be undermined easily because it is mostly built on hope and less on real buyer traffic. We need to keep incentives in place for the historically critical real estate market.

This article is not intended to discuss the entire fiscal cliff or budgetary issues, or to find places to cut costs or to raise revenues, but to reinforce the still relative need for fiscal policy programs geared to provide incentive and fuel for economic growth. Economists see fourth quarter GDP growth slipping to 1.4%, according to a Bloomberg survey conducted in December. As we know, several economists’ groups have warned that a complete failure to at least control the rate of descent from the fiscal cliff could drive the U.S. economy into recession. Further, I’ve warned that the delay in addressing the cliff has effectively stymied business investment and hampered the economy in Q4, and that is reflected in the consensus view for economic growth in Q4.

Legislators would do well to compare today’s reported GDP data with economists’ expectations in order to preserve this still vulnerable economy and to fuel capital investment in it. Congressmen should be noting today’s non-move in stocks, and gaining some understanding of what that says about business and investor confidence in their ability to correctly steer fiscal policy. Action is in order and overdue.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Layoffs Up 20% in November

Money minders and economy watchers got bad news Thursday when Challenger Gray & Christmas reported Job Cuts climbed by 20% in November. It’s a bad sign for an economy on the brink of a fiscal cliff freefall. Furthermore, the situation seems to be deteriorating in December, with a high profile mass purge plan just admitted by Citigroup (NYSE: C).

Layoffs

Regarding November, immediate blame wants to find Hurricane Sandy, but the responsibility falls upon the bankruptcy of Hostess Brands and its mass impact to the labor count, with 18,500 jobs lost on the bankruptcy alone. If not for the Hostess failure, announced layoffs would have fallen in November from October’s tally of 47,724. Instead, we saw the layoff count rise to 57,081.

Still, big layoffs are commonplace, however unpredictable. After all, the month marked the third consecutive increase. That reflects poorly on the fourth quarter, so that the year-to-year improvement marked thus far in 2012 might narrow before year’s end. Through November, year-to-date, total layoffs have measured 13% less than in 2011, at 490,806. The pressure is not easing either with Citigroup’s (C) just announced reduction of 11,000 jobs; those will impact December’s data.

Big impact layoffs have dictated doom in 2012, with Hewlett-Packard’s (NYSE: HPQ) high profile headcount cut of 27,000 workers in May. In October, Ford (NYSE: F) workforce reductions made up almost a quarter of the total layoffs for the month. Citigroup’s cuts may be followed by more massacres on Wall Street in December. According to Challenger's data, New York is already third in job cuts this year, behind California and Texas. A New York Post article published in late September which referred to the comments of a banking analyst at Nomura, indicated that banks would need to cut workforce to safe-keep return to shareholders.

Some say the workforces of Wall Street will be 10% to 15% slimmer in 2013. European banks have been more active for obvious reasons, with Deutsche Bank (NYSE: DB) announcing a cut of 1900 people in July. UBS (NYSE: UBS), Credit Suisse (NYSE: CS) and Goldman Sachs (NYSE: GS) announced cuts around the turn of last year. Bank of America (NYSE: BAC) has continuously chipped away at the 30,000 jobs it said it would shed last year in September. Morgan Stanley (NYSE: MS) is likewise working on previously declared firings. J.P. Morgan Chase (NYSE: JPM) has actually added jobs over the last three years. Still, with margins tight due to record low interest rates, and with global economies at issue and markets complicated as a result, the banks have increasingly turned to expense reduction to save return to shareholders. Still, layoffs can go too deep and significantly impair revenue generation, so a fine dividing line must be carefully approached on Wall Street. Financials led layoffs in years past, but this year’s biggest job cutters by industry have come from computers (on HP), transportation (Ford), food (Hostess), Healthcare/Products & Retail.

The end of the year can be hotter for the hook, as companies look to meet their new (and likely slimmer) budgets. Likewise, a tight and limited bonus pool can influence thinking about inefficient producers. A quick cut can mean a fatter bonus for survivors, ignoring the costs of litigation etc. Some companies also benefit from a write-off around the close of the year, to help fog the red reality they might otherwise have to show shareholders. Finally, I believe the fiscal cliff issue has frozen the hands of small businessmen, and that the cliff and also the re-election of the health conscious President has large and small firms contemplating rising healthcare costs and workforce counts. Whatever the case, I think we can all agree the current period is not one inspiring of new hiring. As I continue to cover economic reports and the economy, readers may want to follow the column.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

A Harsh Economic Reality

On Monday morning, as I watched the popular media pumping up the market on the prospect of a Greek debt buyback and economic data from China, I thought, gee that sounds fantastic. I almost bought into it, though it was before I had my first coffee of the day, a time when I’m relatively useless to the world. A few minutes later, with a sip of Joe and a glance at the latest ISM Manufacturing Index, and then while recalling the more recent stream of unemployment reports and the durable goods orders data of last week, I think I said out loud, “What are they smoking!?” Even putting fiscal cliff concern aside, the economic reality of today does not reflect something supportive of any sort of celebration.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Economic Reality

Back in mid-November, I warned readers of my column that the fiscal cliff posed more than just a threat post January 1st. I said that with each and every passing day, small businesses were withholding capital investment and were not hiring new employees. I suggested that businesses large and small were also more likely to consider labor force reductions given the new healthcare costs they were about to commit to with the President’s reelection. Whether right or wrong, and while I assure you I am in favor of health care for all, the cost issue is a new economic reality we’re going to need to adjust to. So I did my best to raise alarm about the current economic costs of fiscal cliff fear, versus the tendency of most to focus on the result of certain end of year actions or inactions. With a vulnerable economy continuing to lack support from international demand (mostly Europe), and with unemployment still elevated, I said recession was again threatening. I think any reasonable investor with a sense of the realities of Main Street today can concur with that view.

A few voices yesterday did direct attention to the importance of the ISM Manufacturing Survey result, but the information was mostly drowned out by noise at television media. Though, you should take note, because the stock market took notice yesterday. After a gap open higher on the hype of the day, the SPDR S&P 500 (NYSE: SPY) reflected economic reality as trading progressed, ending the day down a half of a percentage point. The Powershares QQQ (Nasdaq: QQQ) was down by a lesser fraction, but the SPDR Dow Jones Industrial Average (NYSE: DIA) was off 0.4% (after benefiting from a closing spike) due to its sensitivity to the industrial sector measured by ISM. In that regard, a closer inspection of stocks shows the Industrial Select Sector SPDR (NYSE: XLI) fell by a more significant 1.1%, and the iShares Dow Jones Basic Materials (NYSE: IYM) showed the sensitivity of basic material names to the data with its 1.6% decline on the day.

Chart by Yahoo Finance

Last week’s Durable Goods Goose-Egg concerned me, because of the details of the data, which we discussed in the linked to article here. So, ISM’s Manufacturing Survey for November, showing an index under 50.0 at 49.5 and therefore reflecting contraction, compounded on concerns. November marked a sharp drop from October’s read of 51.7, and it was off the economists’ consensus for a similar reading (51.7). November marked the fourth month in the last six showing contraction, though it followed two months of growth. Furthermore, the reading marked the lowest level in the index since July 2009, which you’ll recall was a really tough economic time. Add to this information the fact that the last several weeks of Initial Jobless Claims have measured near or above 400K (though certainly affected by Hurricane Sandy), and you have more than enough cause for concern.

Thus, I remind investors that the economic reality of today remains less than perfectly represented by media commentary and even by the rise of stocks in 2012. The earnings season just passed served as a wake-up call to that economic reality, but investors remain hopeful that a fiscal cliff compromise will serve as adequate support for stocks. Unfortunately for profit seekers in equities, hopeful valuations are regularly checked by economic realities in times like these. A meaningful fiscal cliff compromise might offer the market a holiday gift (I doubt it), but these realities will nonetheless persist and continue to weigh in 2013. Economic report coverage remains a key topic area for my column here, so econo-watchers may want to follow along.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Durable Goods Orders Lays a Goose-Egg

Durable Goods Orders were reported unchanged in October. So is it a bad economic signal or just a monthly anomaly? You’ll find the answer in the paragraphs that follow.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Durable Goods Orders

Durable Goods Orders were unchanged in October, and September’s rapid rise was revised lower to +9.2%, from the initially reported +9.9%. No change month-to-month after such a huge increase the month before shouldn’t be something we complain about. It should in fact be expected, but there were several things that bothered me about the report and should also concern the rest of the investment community.

We always look beyond the headline figure in our study of the durable goods data, because of the high ticket costs of transportation goods. These high ticket prices skew the data. That is evident in the latest data, with durable goods orders less transportation up 1.5% month-to-month (versus the much bigger change in the headline figure), after marking a 1.7% (revised) increase in September. Considering the information less transportation, the report would seem much less concerning. It’s also notable that each discussed data point exceeded economists’ expectations, with the ex-transportation forecast average set at negative 0.4%.

However, all is not well. I say this because of the year-to-year change in durable goods orders less transportation. This data line was down 1.8% (revised) in September and lower by 2.3% in October. With the trend continuing through the two month period, we see that there is an issue year-to-year, and it likely marks important economic decline. I think it’s safe to say Europe has weighed against American multi-nationals more this year than last year, with Germany and France both contaminated now. It has also been evidenced by the reported numbers and warnings by industrial players including the likes of Caterpillar (NYSE: CAT). Caterpillar’s outlook and EPS estimates have come down substantially, and other stalwart industrials like General Electric (NYSE: GE) have seen analysts adjust EPS estimates downward as well.

Looking more closely at the data, we see that when excluding the defense industry, new orders only rose by 0.1%. Knowing that the fiscal cliff issue and sequestration pressures defense spending, this data proves meaningful as a predictor. It’s because defense spending is likely to decrease further, barring new and major war, and so some of the supports of durable goods orders and American industry could be removed. The earnings outlooks of Honeywell (NYSE: HON), General Dynamics (NYSE: GD) and others have seen appropriate adjustment as a result. More of the American manufacturing workforce may be displaced as a these companies act to protect the investment interests of their shareholder owners. It is concerning without a replacement channel for workers, and alternative energy is not filling production lines in the U.S. just yet, though domestic energy production is offering some support.

Nondefense new orders for capital goods, an area seen as an integral economic indicator and a measure of business capital investment, rose by 0.8% in October. Also, nondefense capital goods orders excluding for civilian aircraft from the likes of Boeing (NYSE: BA), which has done relatively well over the last few years, rose by a solid 1.7%.

Looking at industry specifics, orders for computers and electronic products increased by 0.9%, as Apple’s (Nasdaq: AAPL) reinvention of computing has driven demand for tablets and new types of computing products, supporting economic activity, but is creating more jobs overseas than at home in my view. Still, the quality of life at home has improved in some respect, and other ancillary job opportunities have resulted beyond the manufacturing of these goods; for instance, in the design and marketing of applications of these products. New order activity in this segment appears to be seasonal, given the prior two months of decline and on recent new product introductions from Apple and competitors ahead of the holiday shopping season. New orders for appliances and electronic equipment were up 4.1% after a similar decline the month before, certainly supported by reviving real estate and on demand for the appliances that fill homes. Demand for flat screen televisions is also robust, as homeowners replace old technology as product prices come down.

The auto industry saw a lull in October, with new orders down 1.6% after a 1.9% decline the month before. Still, Ford (NYSE: F) and General Motors (NYSE: GM) will continue to benefit from burgeoning demand for autos in Asia, especially as Japanese tensions are exacerbated with China over territorial issues.

In totality, I’m concerned about the latest durable goods orders data, especially when considering what the effects of likely higher taxes for some in the United States will have on demand. Europe’s ongoing decline and its lightening demand for American exports remain troubling as well. And so the answer to my rhetorical question is, yes, there is a negative signal in the latest Durable Goods Orders Report. Due to our regular coverage of economic issues, readers may follow this column if interested in similar research and analysis.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Seeing a Busy Black Friday

The latest weekly chain store sales data, reported Tuesday, were unimpressive in my estimation. However, I expect that bodes well for Black Friday shopping activity, and for certain retailers in particular.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Black Friday

Heading into Black Friday, the state of shopping activity has been weak if not meek even. Year-to-year rates of activity have been barely edging out inflation. The latest data out of the International Council of Shopping Centers (ICSC) had the year-to-year pace up 2.5% for the week ending November 17, but some of those gains were due to Hurricane Sandy and its aftermath, with blockbuster business occurring in Northeast located Home Depot (HD) and Lowe’s (LOW) stores. We recommended those names, especially Lowe’s (LOW), just after the storm’s passing. After a Nor’easter struck just a week later, storm shocked residents of the highly populated region have certainly continued to stock up on emergency goods from Wal-Mart (WMT) and other big box stores so as to better prepare for the next big one.

Redbook also reports on year-over-year sales rates weekly, and had the same period pegged at an inflation trailing pace of 1.8%. Indeed, when looking back past the storm skewed data, this is the result we find. American consumers have slowed their spending, and where they haven’t slowed it, they’ve shifted it to better value, or discount stores like Wal-Mart (WMT) and Costco (COST), deep discount stores like Dollar Tree (DLTR), and bargain pushing web retailers like Amazon.com (AMZN) and eBay (EBAY).

Some might interpret the dragging rates of recent sales as a bad omen for the holiday shopping season. However, the promotional period, and especially its high profile Black Friday, should draw enormous numbers of shoppers this year because of it. In fact, I believe the soft rates of sales leading into the season are a positive indicator of what will happen on Black Friday. Bargain seekers will be out in force to get the best deals on the gifts they are compelled to buy for relatives and friends sometime before December 25th; so it might as well be Black Friday. The drop-off of activity leading into the sales season may simply be indicative of shoppers waiting for their big bargain opportunity.

Discounters like Dollar Tree (DLTR) have outperformed most department stores and specialty retailers over the last several years, which has led some stalwarts like Macy’s (M) and J.C. Penney (JCP) to strike out on strategic initiatives to save share. The results have been mixed, without a doubt. The issues of retail have been the result of the condition of the economy, with such long lasting excessive unemployment rates and underemployment realities. I’ve suggested that recent increases in consumer confidence indices have been superficial and questionable, and I believe those will fade if the fiscal cliff solution is not satisfactory for most Americans. I expect the fiscal cliff issue has damaged the economy already, and continues to do so with each passing day without an effective resolution.

In conclusion, I suggest investors take the latest slow rates of chain store sales as indicative of a positive result for Black Friday retailers, as long as those retailers effectively promote attractive sales and deals. The failsafe sellers will be those iconic brands shoppers have come to know as the deal-makers, including your Wal-Marts, Costco’s, eBays and Amazons of the space.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Ticking Fiscal Cliff Clock Costing Economy Today

The likelihood of the American economy slipping into economic recession increases with each passing day. We are not okay up until the day tax rates increase and other stimulus disappear. No, rather, because of the stifling situation brought about by Congressional gridlock, businesses have frozen discretionary capital spending plans that are supportive to the economy. In the absence of such spending, economic growth is hampered today and every day heading into January 1st.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Fiscal Cliff

This article is not measuring the impact of falling off the fiscal cliff, which many experts say could drive the economy into recession and most agree will significantly hamper economic growth. Rather, I want to point out that the stifling impact on business plans is affecting the economy today and every single day in which this situation is not mitigated.

Now, let’s not ignore the philosophical differences of opinion with regard to taxes and economic drivers. Republicans and Democrats are not simply protecting constituents, at least not for the most part. They are also seeking to employ economic tactics which they believe will spur economic growth and help balance the budget at the same time. Opinions vary, and the philosophical divide is vast. Where should the threshold dividing the rich and the poor be marked, and at what point or income level does taxation stifle economic growth? What is fair and consistent with the ethos of American capitalism? These are important questions at the root of the argument and so the debate and discussion is at least somewhat just. Still, compromise is the key for our leaders to keep philosophical divide from damaging us all in their efforts to save America.

It is clear by the actions of the stock market that this fiscal cliff issue is important for tomorrow but also for today. The SPDR S&P 500 (NYSE: SPY) is down 7.4% since its September peak, and I expect it will continue downward without resolution to the fiscal cliff issue. The industrials are lower as well, with the SPDR Dow Jones Industrial Average (NYSE: DIA) down 7.1% since its fall peak, and the PowerShares QQQ (Nasdaq: QQQ) is lower 11% from its top mark. The message has been multi-fold, beginning with the realization that corporate earnings season would not support the valuations achieved by stocks on central bank fluffing. The second hit came with the reelection of President Obama, which was clearly a let down to the investment community. And now it is the lock-on focus of investors and businessmen on the critical economic change in store for the close of the year.

Small businessmen were reported to be more optimistic lately, but that was based on a survey taken before the election and likely on the expectation of a different result. Consumers, less sophisticated and sensitive to economic warnings, will react to higher taxes and deteriorated economic conditions should they dawn in 2013. The Consumer Discretionary Select Sector SPDR (NYSE: XLY) is only off its high for the year (trailing 52 weeks) by 5.6%, but retailers are bearing the cost of long-lasting soft economic conditions and tighter competition for fewer dollars. The SPDR S&P Retail (NYSE: XRT) is off by 7.1%, and there is a clear shift in spending accelerating toward discounters like Wal-Mart (NYSE: WMT) and Amazon.com (Nasdaq: AMZN) away from the traditional stores and marketplaces.

In times past, we could look overseas for support to American exports for companies like Caterpillar (NYSE: CAT) and bellwethers like General Electric (NYSE: GE), but Europe is actually deteriorating, not improving. China’s growth is volatile due to its ties to the west, and its data is questionable due to corruption and inadequate reporting. The last thing we need today is a severe disruption to domestic business activity, and so some sort of compromise must be accomplished. In addition, I believe that any support to the budget garnered from revenue generation (taxes) should be cautiously undertaken, limited in reach and focused to avoid damage. It’s not yet time to put broad belts across the waist of the economy, but rather to cure inefficiencies in capital distribution toward economic growth initiatives. I’ll continue to independently cover this critical issue and aspects of the economy for the sake of all Americans, so stay tuned.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Small Business Optimism Fading Into Fiscal Cliff

When small businessmen responded to the survey of the National Federation of Independent Business (NFIB) President Obama had not yet been reelected. Judging by the reaction of the stock market, I expect it’s safe to say that a good deal of businessmen were surprised by the result. So, in a few weeks, when they are asked again about how they feel, I likewise expect the slightly improved optimism that small businessmen expressed in October’s Small Business Optimism Index will disappear.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Reported Tuesday, the NFIB’s Small Business Optimism Index gained by 0.3 points, rising to a mark of 93.1. Despite the improved headline figure, concern was clearly evident in the record high percentage (23%) of business owners expressing uncertainty about business conditions six months forward. NFIB Chief Economist William Dunkelberg noted that the stalemate in Congress and the same government balance (read loggerhead) that existed before November 5th will probably paralyze business activity through the close of the year. As the fiscal cliff approaches, the same stubborn stances that led Standard & Poor’s (of McGraw-Hill (NYSE: MHP)) to downgrade the United States last year seem likely to pervade again. As a result, Dunkelberg says not to expect small businessmen to invest capital or to hire employees.

It’s my view that heading into the election, small businessmen and Americans generally did not consider fully what they might find on the other side. Now that nothing has changed with regard to the stalemate in Washington D.C., fear is the main driver of capital preservation. That means money is coming out of risky investments and being kept from new investment in assets and people.

The report that is the focus of this article seems to reflect that view. It shows October increases in inventory, and expected improvement in sales and plans to make capital outlays six months out. But the gains were minute, and given the decreased probability of satisfactory result now, businessmen are likely to lose hope.

In an earlier article, we noted that stocks should now be moved here and fro by developments in Washington D.C. The SPDR Dow Jones Industrial Average (NYSE: DIA), SPDR S&P 500 (NYSE: SPY) and the PowerShares QQQ (Nasdaq: QQQ) are relatively unchanged heading into the close of trading Tuesday. The SPDR S&P 600 Small Cap Index ETF (NYSE: SLY) is lower by 0.4%. Efforts to resolve the issue have only just begun, with Congress convening today for the first time since before the election. President Obama met with labor union bosses today to discuss the issue with them.

In my opinion, this should be the top priority of every government representative every single day, and resolution should be targeted for sooner rather than later. Each day that businessmen lack clarity on the tax and economic outlook is another day of economic damage done to the economy, ironically in the name of that same economy. The seriousness of this issue cannot be overstated, and so I suggest every reader who cares about his country call his Congressman and demand a compromise be worked out immediately. Let us take this opportunity to discuss and debate specific ideas for compromise.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Hurricane Sandy Could Catalyze Recession

Widespread destruction and disruption is expected across the most widely populated part of the nation, the Northeastern United States, starting this weekend. Hurricane Sandy will meet a deep arctic low cold front at the Jet Stream to perhaps generate the storm of the century for the Northeast Region of the United States. Imagine “The Perfect Storm” but over land instead of the Atlantic Ocean. Power outages are likely, tree falls should be commonplace, flooding widespread and high winds will strike areas unaccustomed to it, perhaps resulting in severe structural damage. A four to eight foot storm surge is expected as a full moon lifts tides as well. A foot of rain may fall in some areas, as high winds batter the East Coast.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Hurricane Sandy Recession

Northeastern U.S. residents will not likely leave home for a day or two or more depending on how well power holds up, and so discretionary spending at Macy’s (NYSE: M), Darden Restaurants (NYSE: DRI) and the like will be impacted. Though fast food providers like McDonald’s (NYSE: MCD) and Yum! Brands (NYSE: YUM) and supply stores like Wal-Mart (NYSE: WMT), Costco (Nasdaq: COST) and Sears (Nasdaq: SHLD) perhaps benefit ahead of the battle. Overall, while there will be a surge of spending for emergency items and groceries, such non-discretionary spending should be followed by a lull in shopping for similar items in the weeks that follow, leveling out the impact to the quarter.

Public sector spending will fill the pockets of emergency workers putting in overtime hours and fill up the tanks of fuel and equipment suppliers. Construction materials suppliers should benefit as well, including the likes of retailers Home Depot (NYSE: HD) and Lowes (NYSE: LOW), and other construction materials companies like USG (NYSE: USG) and Builders FirstSource (Nasdaq: BLDR).

Still, business will come to a halt generally for a day to a week or more across a vast and important region of the U.S. That means fewer hours billed by lawyers, less frozen yogurts sold at the local shop, land bound fishermen with empty nets, unfilled barbershop chairs, and increased absenteeism across all business sectors. Thus, the net result should be a significant negative impact to fourth quarter GDP, and perhaps a catalyst for recession, given the vulnerable state of the economy. The broader markets have not had an opportunity to price in this quickly developing event, and so the SPDR S&P 500 ETF (NYSE: SPY) could take a hit next week as well, which strikes at the pockets of all Americans. Yes, Hurricane Sandy, potentially the storm of the century for the Northeast, could be a catalyst for recession.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Manufacturing Bouncing Like a Dead Cat

The manufacturing segment of the economy has been especially dynamic of late and so demands review. We know that over the past few years, manufacturing, assisted by international demand and a mild recovery here at home, has helped support the economy. We also know that nascent demand decline caused by European recession (depression in some areas) and slowing in the China Asia Pacific region have caused a recent contraction in the American manufacturing segment. However, more recent data have shown a mild bounce. What we must determine from here is whether the sector will bounce robustly or more like a dead cat.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Manufacturing Review

This week ushered in new global manufacturing data, offering information about the U.S., Europe and China. The data produced by Markit Economics showed the manufacturing sector in the U.S. expanded at a faster pace, China contracted at a slower pace and Europe contracted at a faster pace in October. On net, the news was improved, especially for America. The news very likely helped to lift the Dow Jones Industrial Average in early trading Wednesday, but by the close the SPDR Dow Jones Industrial Average ETF (NYSE: DIA) had succumbed to new pressure. The same was true for the Industrial Select Sector SPDR (NYSE: XLI). The catalyst for the turn downward was likely the Monetary Policy Statement of the Federal Open Market Committee (FOMC), through which it continued to intimate concern.

Region	PMI	Change
U.S.	51.3	+0.2
Europe	45.3	-0.8
China	49.1	+1.2

We knew Europe was getting worse when earlier this week the German Finance Ministry warned about an especially difficult fourth quarter for Germany. We noted that the German Chancellor was asking her countrymen to stand behind an economic stimulus plan that stood in complete perfect contrast to what the German led EU is asking of Greece. Markit Economics reported this week the Flash Germany Composite Output Index contracted a full point to 48.1, and the Flash Germany Manufacturing Output Index fell much further, dropping to 45.9. Each measure under 50.0 marks economic contraction, and so Germany is increasingly looking vulnerable to the contagion that is decimating its Southern brothers.

The improvement in China still marks contraction, and in a little less than two weeks, Mitt Romney might be a lot closer to labeling it a “currency manipulator.” While Romney is certain China’s dependence on the American end market will prevent a trade war, the market is probably not completely on board yet. Whether that happens or not won’t have any impact on soft European demand for Chinese made goods.

The American PMI data published by Markit Economics showed the New Orders Index declined to 51.6, from 52.3 in September. Now, that’s not a change that is necessarily worth getting up in arms about, but it may prove to be an early sign of a dead cat bounce in manufacturing. The last report published by the Institute of Supply Management showed a growing PMI, up 1.9 to 51.5, but that was for September. We’ll get October’s data on November 1st. ISM’s New Orders Index increased by 5.2 points on its way to 52.3 in September. Still, if this early data from Markit Economics holds true, the gains of September may not be long lived. At least one economist was skeptical of the ISM report the day it was published.

Anecdotal evidence or information from companies in the goods producing sector of the economy has mostly been contentious. Caterpillar (NYSE: CAT) revealed its concerns about the global economy in late September, sending its shares tumbling. The shares have fallen some more since reporting results at the start of this week and reducing its near-term forecast. General Electric (GE) finally made us look wise on our warning about it in June when it recently declined after reporting its third quarter. While GE met analysts on its third quarter EPS result, a trend of quarterly earnings outperformance ended. Also, analysts’ earnings estimates have been coming down almost without exception. The same is true for other industrials like Caterpillar, Cummins (NYSE: CMI), 3M (NYSE: MMM) and others. Though, there are segments of the sector where it is harder to find signs of trouble in earnings estimates, like in aerospace with Boeing (NYSE: BA) and in autos with Ford (NYSE: F).

In conclusion, it’s still too soon to say if this bounce will resemble that of a robust rubber ball or of a dead cat. However, as readers of this column know, I’m looking for the furry feline sort of fall. Today’s GDP data for Q3 showed better than expected growth of 2.0%, exceeding the economists’ consensus for 1.9% and Q2 growth of 1.3%. However, the GDP Price Index increased by a higher than expected 2.8% over the immediately preceding quarter. Though, the increase was mostly attributable to food and energy prices; but as you know, we think those prices matter to Americans as well. With an Iran event near certainly looming, Europe deteriorating, and tensions with China heightening, I see heavy weights against the sector. Finally, while I’m expecting the next employment report to appear positive on the headline unemployment rate, I continue to view the data misleading and incorrect. Thus, watch out for feline road kill on this segment highway.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Merkel Hypocrite!

Germany’s Finance Ministry warned in a monthly report Monday that Europe’s largest economy would mark a significant slowdown in the fourth quarter. In an attempt to mitigate the economic issue, German Chancellor Angela Merkel last week suggested opposing German political party members stop blocking her proposed tax cuts. Merkel indicated that the German economy needed economic stimulus, and that tax cuts should help domestic economic growth by giving her countrymen more money to spend. Likewise, she is promoting pension contribution cuts to help German prosperity, and advising companies to give more lucrative pay increases to their employees. Sounds sensible no?

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Now imagine the perspective of a Southern European onlooker. The hypocritical divergence of the two directives being issued to the various groups must fill Greeks with disgust. European leaders, at the nudging of Germany, have pushed the complete opposite strategy for Greek and Spanish prosperity than those being promoted in Germany today. So which is the true path to prosperity, the one being promoted by the Germans for the Germans or the one being promoted by the Germans for the Greeks?

Obviously, the issue is more complex than that, given the debt and management problems of the Greeks versus the smooth operating German economic machine. The Greeks must adhere to the prescription of their emergency creditors in order to receive desperately needed funds. Still, why does the economic prescription contrast so sharply to the pill being recommended by Merkel for the Germans? It is after all for the same ultimate purpose, the betterment of the economy, and in Greece’s situation, the ensuring of debt repayment.

Perhaps the Europeans have it all wrong with regard to Greece, and instead of ensuring the repayment of their loans, are instead burying their money into a deep depression with the ruins of Ancient Athens. That’s what the esteemed student of the Great Depression now running the American Federal Reserve might suggest, given Ben Bernanke’s comments to U.S. legislators over the years. He would tell you that it was precisely the mistimed budget mindedness of American leaders that led our economy into the Great Depression. It turned an average recession into a once in a generation economic struggle.

A few voices, including from yours truly, have from the beginning warned that growth spurring initiatives for Southern Europe should precede and outweigh a graduated austerity program, and that Greece’s repayment program should have extended terms. We have been happy to see Europe more recently acknowledging the burdensome drag of its initial repayment demands.

Still, while Greece’s public entities reduce workforce, draw back pension benefits and raise taxes, they are constraining the Greek economy. This is something that the Germans can no longer dispute, given their own domestic policy push, though to be fair, Merkel’s opponents are calling her demands irresponsible. The repercussions of the actions in Greece are pushing away private industry, illustrated recently by the move of Coca-Cola Hellenic (NYSE: CCH), which is relocating its headquarters to Switzerland and relisting its shares in London. Merkel does not want to trigger that same sort of flight in Germany, but is asking for companies that face no foreign competition to pay an alternative energy surcharge from which they have long been exempted.

What drives German stocks, like those found in the DAX and the iShares MSCI Germany Index (NYSE: EWG), likewise drives Greek stocks, like those found in the Global X FTSE Greece 20 ETF (NYSE: GREK). For that matter, it’s what drives the iShares S&P Europe 350 (NYSE: IEV) and the SPDR S&P 500 (NYSE: SPY)! The rules of economic prosperity are indifferent to the language spoken or culture found within a given country; they are universal. Thus, the economic policy prescribed to Greece and Spain should be the same as that being recommended for Germany, or at least should stress growth over austerity.

It is ignorant closed-mindedness and ethnocentricity which has kept the groups of people within the euro-zone from fairly and effectively resolving their crisis together. The problem is most clear when the leaders of Europe go home to seek approval of international plans. We understand the cost of this issue through the observance of the most effective action taken to-date, which in my opinion was the brave plan of the Mario Draghi led European Central Bank (ECB) to support sovereign debt in a sterilized manner. When Europe can accept its unity on the streets of Brussels, Paris, Berlin, Athens and Madrid, then it will have the resources and the will to fulfill its brave dream. On that day, it can likewise stop lying to the Greeks and the Spaniards about what’s best today for their economies.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Record Low Mortgage Rates Bear Fruit

The latest mortgage activity report published by the Mortgage Bankers Association (MBA) this morning shows record low mortgage rates are making an impact. The MBA’s data indicates average contracted rates dropped across varying types of mortgage loans last week, driving a surge in refinance activity. Such a change, while occurring simultaneously with housing price rise, offers to lower the cost of housing on net for a great many people. The benefits of lowering the cost of living for Americans should theoretically include increased consumption and GDP growth. So hold the presses, this is really good news.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

The MBA reported that its Market Composite Index increased 16.6% on a seasonally adjusted basis in the week ending September 28. Despite being adjusted, we must note that such adjustment could be imperfect and may matter for the religious holiday filled month of September. That said, my feeling is that it did not likely make a significant impact. The unadjusted rate of increase was marked at 17% against the prior week.

Mortgage rates dropped by significant degree across the spectrum of mortgage loan types. This spurred the MBA’s Refinance Index higher by 20% to its highest level since April of 2009. It also drove the percentage of refinance activity up as a portion of total mortgage loan applications. Refinances made up 83% of all applications in the period, up from 81% the week before.

Loan Type	Average Rate	Change
30-Year Fixed Conforming	3.53%	-0.1%
30-Year Fixed Jumbo	3.82%	-0.05%
30-Year Fixed FHA Sponsored	3.37%	-0.07%
15-Year Fixed	2.9%	-0.08%
5/1 ARMS	2.59%	-0.02%

This is one of few times I believe this report should be supporting stocks broadly, but because of duration of the downturn, it is likely being mostly overlooked. Besides, as I’ve recently discussed, there is much weighing against stocks more broadly today. The SPDR S&P 500 (NYSE: SPY) was up by a half point at midday, but looks to be getting lift since the 10:00 AM reporting of the better than expected ISM Nonmanufacturing Index more so than this data. Still, the shares of major mortgage lenders including Bank of America (NYSE: BAC), Citigroup (NYSE: C), J.P. Morgan Chase (NYSE: JPM) and PHH Corp. (NYSE: PHH) were posting outsized gains of 0.8% to 2.5% through midday, so it appears the news was noticed by smart money.

Mortgage applications filed for home purchases also increased in the reported period. Both the MBA’s seasonally adjusted and the unadjusted Purchase Index increased 4% against the prior week. The index was also higher by 11% over the prior year period. Short-term changes in rates will have a less important impact on purchase activity, due to the relative illiquidity of the housing market and the time involved for the entire process, including decision making. That said, housing supply shortages are being reported in some regions now, and the surge of the publicly traded homebuilders has been well-noted. Lower rates can only help.

In the recent past, decreases in mortgage rates have had a subdued impact on housing and the cost of living, because a great many Americans purchased homes at the height of the housing boom from 2005 through 2007, and remain underwater today. However, if home prices continue to rise, an increasing number of homeowners will get their heads above water. This group of homeowners would benefit substantially from today’s record low rates, because the change incurred in their cost of homeownership and living could be substantial. Such change should also benefit the economy, since it would free up capital for consumption, investment and savings. Thus, it appears the Federal Reserve’s actions might finally bear significant fruit.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.