Manufacturing Points to Weakening Economy

The Chicago Purchasing Managers Index carried a clearly negative message Tuesday, with the Institute for Supply Management (ISM) saying, "key aspects of the report pointed towards a weakening economy." While the sector of the American economy remains secondary to services, it still offers insight into the domestic economy.

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.

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Manufacturing Economy Weakening

The Chicago PMI Business Barometer Index dropped to 60.2 this month, from 62.2 in December. It was yet another economic data point leaving economists looking lost. Economists surveyed by Bloomberg were expecting the index to rise to 63.0. More importantly, the decline leaves them to survey whether indeed the economy is slipping into just a slow slug growth rate like the Federal Reserve expects or into a legitimate recession.

The service sector continues to dominate the American economy, and so the manufacturing sector remains secondary today. It also has been buoyed by global demand, and so is an imperfect measure of domestic well-being. Still, however loose a tie manufacturing has to the domestic marketplace, it represents a great hope for many. President Obama, for one, is hopeful America might move forward to restore its industrial base, with a keen eye toward alternative energy. Mitt Romney, who appears set to win the Florida GOP debate, is willing to go a step further to ensure American companies have a better footing with perennially accused trade cheater China. Manufacturing is clearly an important cog for American economic progress. The leaner sector, which clearly benefited from the financial crisis and recession driven restructuring of organized labor contracts like those at General Motors (NYSE: GM) and Ford (NYSE: F), might just have a chance given some of these described actions and other plans for it.

Looking at the Chicago PMI Report, each component measure declined to a less expansionary point, with the seasonally adjusted New Orders Index falling to 63.6, from 67.1 in December. New Orders are of course a critical indicator of the road ahead. Because of the slower pace of ordering, Order Backlogs fell into territory marking economic contraction, with that component index at 48.3 now, from 57.3 in December. The shares of important industrials General Electric (NYSE: GE), Honeywell (NYSE: HON), Caterpillar (NYSE: CAT) and Deere (NYSE: DE) were all in the red Tuesday as a result.

Further inspection of the data shows the Production Index eased to 63.8 from 64.9 in December. The Inventories Index likewise fell to 51.6 from 52.0 in December. Perhaps of greater interest to most, the Employment Index declined to 54.7 from 59.2 in December, showing less propensity to hire among manufacturers. This certainly played a role in the slippage of employment services stocks Tuesday, with Monster Worldwide (NYSE: MWW), Korn Ferry (NYSE: KFY) and Manpower (NYSE: MAN) down approximately 2% to 3% each.

Supplier Deliveries improved, but this only says to me that there exists an environment of less demand. However, Production Material lead time lengthened significantly, which would counter that argument unless production material capacity has been left idle due to slowing demand. I expect there are some seasonal issues at play here, for instance, with regard to irregular maintenance of facilities and plants that may be occurring now.

Further observance of the manufacturing sector is advised now, as it may show the impacts of European strife and the global slowing described, warned of, and expected by the World Bank and IMF, not to mention by yours truly. Wednesday, we’ll receive the ISM Manufacturing Index, which will offer a better national view, where the Chicago PMI measures the Midwest. With regard to ISM’s report for January, economists are once again looking for improvement, with the index seen rising to 54.5, from 53.9 in December. I expect another let down is pending, and that manufacturing is indeed finding a slower growth point for now.

There are all sorts of pressures on the sector, especially within defense, where the U.S. and many other nations are reducing funding. Though shares of Raytheon (NYSE: RTN), Lockheed Martin (NYSE: LMT), Northrop Grumman (NYSE: NOC) and Alliant Techsystems (NYSE: ATK) traded mixed Tuesday. Still, with fewer orders coming to manufacturers from both private and public sectors, it seems the world may take a break from its fantastic global development of the last decade.

This article should interest investors in Boeing (NYSE: BA), Raytheon (NYSE: RTN), Digital Globe (NYSE: DGI), GenCorp (NYSE: GY), General Dynamics (NYSE: GD), Goodrich (NYSE: GR), Northrop Grumman (NYSE: NOC), Honeywell (NYSE: HON), Lockheed Martin (NYSE: LMT), Rockwell Collins (NYSE: COL), L-3 Communications (NYSE: LLL), EMBRAER (NYSE: ERJ), FLIR Systems (Nasdaq: FLIR), BE Aerospace (Nasdaq: BEAV), TransDigm (NYSE: TDG), Spirit Aerosystems (NYSE: SPR), CAE (NYSE: CAE), Alliant Techsystems (NYSE: ATK), Hexcel (NYSE: HXL), Triumph Group (NYSE: TGI), Esterline Technologies (NYSE: ESL), Moog (NYSE: MOG-A), Heico (NYSE: HEI), Teledyne (NYSE: TDY), Curtiss-Wright (NYSE: CW), Cavco (Nasdaq: CVCO), Skyline (NYSE: SKY), Nobility Homes (Nasdaq: NOBH), Palm Harbor Homes (Nasdaq: PHHM), Mohawk Industries (NYSE: MHK), Interface (Nasdaq: IFSIA), Albany International (NYSE: AIN), Unifi (NYSE: UFI), Illinois Tool Works (NYSE: ITW), Tyco International (NYSE: TYC), Cummins (NYSE: CMI), Kubota (NYSE: KUB), Ingersoll-Rand (NYSE: IR), Dover (NYSE: DOV), ITT Corp. (NYSE: ITT), Flowserve (NYSE: FLS), Pall (NYSE: PLL), Dresser-Rand (NYSE: DRC), SPX (NYSE: SPW), Gardner Denver (NYSE: GDI), IDEX (NYSE: IEX), Nordson (Nasdaq: NDSN), Graco (NYSE: GGG), Actuant (NYSE: ATU), Middleby (Nasdaq: MIDD), ABB (NYSE: ABB), Eaton (NYSE: ETN), Nidec (NYSE: NJ), Rockwell Automation (NYSE: ROK), Ametek (NYSE: AME), Regal Beloit (NYSE: RBC), Thomas & Betts (NYSE: TMB), Woodward Governor (Nasdaq: WGOV), Caterpillar (NYSE: CAT), Deere (NYSE: DE), CNH (NYSE: CNH), Joy Global (Nasdaq: JOYG), Bucyrus (Nasdaq: BUCY), Agco (Nasdaq: AGCO), Emerson Electric (NYSE: EMR), Parker Hannifin (NYSE: PH), Roper Industries (NYSE: ROP), Pentair (NYSE: PNR), Waste Management (NYSE: WM), Republic Services (NYSE: RSG), Fastenal (Nasdaq: FAST), Vulcan Materials (NYSE: VMC), MDU Resources (NYSE: MDU), Martin Marietta Materials (NYSE: MLM), Owens Corning (NYSE: OC), Valspar (NYSE: VAL), Precision Castparts (NYSE: PCP), United States Steel (NYSE: X), Reliance Steel (NYSE: RS), NVR (NYSE: NVR), DR Horton (NYSE: DHI), Pulte (NYSE: PHM), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), CRH (NYSE: CRH), CEMEX (NYSE: CX), Eagle Materials (NYSE: EXP), Fluor (NYSE: FLR), McDermott International (NYSE: MDR), Foster Wheeler (Nasdaq: FWLT), Empresas ICA (NYSE: ICA), Stanley Black & Decker (NYSE: SWK), Timken (NYSE: TKR), Kennametal (NYSE: KMT), Leucadia National (NYSE: LUK), Masco (NYSE: MAS), Weyerhaeuser (NYSE: WY), Quanta Services (NYSE: PWR), Chicago Bridge & Iron (NYSE: CBI), EMCOR (NYSE: EME), Snap-on (NYSE: SNA), Toro (NYSE: TTC), GM (NYSE: GM) and Ford (NYSE: F).

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.

Q4 GDP Growth Severely Flawed

Fourth quarter Gross Domestic Product (GDP) was reported higher, but the growth rate fell short of economists’ views. Stocks started lower on the news Friday and kept that way as a closer look at the data shows it has gaping holes in it. Thus, American economic activity may not be as supportive of stocks as valuations had accounted for up to today. Our analysis of the GDP report and our global economic outlook certainly advise for investor restraint.

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.

Q4 GDP Warning

The government reported Friday that fourth quarter GDP grew 2.8%, which was well above the third quarter growth rate of 1.8%. Yet, stocks fell at the start of trading, leaving casual observers wondering what gives. Just ahead of closing, the SPDR Dow Jones Industrial Average (NYSE: DIA) was still roughly 0.6% lower, while the SPDR S&P 500 Index (NYSE: SPY) was off by 0.2%. That can be partially explained by the shortfall of Q4 growth to economists’ expectations, which were set at a +3.1% consensus based on Bloomberg’s survey. Still, you would think the much better growth would outweigh a few tenths of a point here or there. Well, that would be a correct assessment, so the reaction of stocks must be defined by a more complex set of factors, and those can be found in the details of the data.

The two most significant issues detracting from the best quarterly GDP growth since Q2 2010 both tie into consumer spending. First, and most importantly, GDP was lifted 1.94 percentage points by a build in inventories. Some are saying that this is okay, since third quarter growth was penalized by 1.35 percentage points due to an inventory draw down, however, I see no relevance. Despite the promotional environment of the fourth quarter, the aggregate performance of retailers was poor. This was also apparent by the December Retail Sales data. In other words, discounters like Wal-Mart (NYSE: WMT) and Costco (Nasdaq: COST) may have continued to steal market share alongside bargain online salesmen like Amazon.com (Nasdaq: AMZN) and eBay (Nasdaq: EBAY), while general operators like J.C. Penney (NYSE: JCP) and poor performers like Sears (Nasdaq: SHLD) now employ reinvention strategies to save themselves. In electronics, the success of Apple (Nasdaq: AAPL) and Amazon seems to come at the cost of Research in Motion (Nasdaq: RIMM) and Hewlett-Packard (NYSE: HPQ). Thus, on the whole, a soft economy leaves a competitive environment that can no longer support all players.

The other point that I see as significant came from the growth of the services sector in Q4, which only managed 0.2%, according to the government. Our services dominant economy cannot sustain significant economic growth without robust activity in services. Also, as I’ve pointed out in the past, the sales galore and holiday imploring environment of Q4 is likely to cost consumption in Q1, if not further. Without demand for services, what then will drive our economy?

Regarding the sustainability of economic growth, we also find issue in another factor that helped to drive spending in Q4. Americans dipped into their savings in order to fund consumption. The government noted that the personal savings rate, which measures savings as a percentage of personal income, fell to 3.7% in Q4, from 3.9% in Q3. Clearly, there’s only so far Americans can dip into savings, and considering the private debt problem that our nation still faces, there’s only so far this factor can drive our economy.

Therefore, and in conclusion, the market is just in its determination to penalize stock valuations now. Also, given the pitfalls that litter our path forward, including European economic recession (20% of American exports sold there) and geopolitical deterioration (Iran et al), investors are correct to proceed with caution.

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.

Noise Still Drowns Out Housing Data

Over the last month or so the weekly mortgage activity data produced by the Mortgage Bankers Association has been choppy to say the least. That is because of the imperfect adjustment for holidays, including Christmas, New Year’s and in this week’s data, Martin Luther King Day. However, moving forward, except for President’s Day on February 20, there should be very little noise in the data, barring wild swings in weather. Therefore, we should be able to get a clearer sense of the trend in housing, and as the weather warms, an early idea about the spring surge some real estate pundits expect.

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.

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Noise Drowned Housing & Economic Data

This week’s Weekly Application Survey, covering the week ending January 20, included the Martin Luther King Jr. holiday. It was a bank holiday, and so comes to play in mortgage activity. For the week, the MBA’s Market Composite Index fell by 5% from the week before, handicapped by what we see as inadequate adjustment for the business drop-off that occurs on the Friday before and the Tuesday that follows every three day weekend. I’ve originated this viewpoint and continue to put it forth here.

Purchase Activity, which measures mortgage application activity tied to the purchase of homes, fell by 5.4% from the week just prior. I again attribute this decline to the holiday impact, despite the adjustment by the MBA. On an unadjusted basis, this index fell by 9.7%. However, we still cannot use this data in pure form in our forecasting or investment assumptions, for the reasons aforementioned.

The Refinance Index fell by 5.2%, again on the holiday noise. Mortgage rate direction varied across mortgage categories. For instance, the average contracted rate on 30-year fixed rate mortgages with conforming loan balances (417,500 or less) increased to 4.11% from 4.06% the week before. While the points decreased for 80% loan to value ratios, the effective mortgage rate still rose. As for jumbo loan balances (greater than conforming), the average contracted rate for same term fixed rate mortgages fell slightly to 4.39%, from 4.4%. While points rose here, the effective rate still decreased. FHA sponsored loans saw the average contracted rate on 30-year fixed rate loans rise to 3.97% from 3.91% the week before. Average contracted rates on 15-year fixed rate mortgages rose to 3.4% from 3.33%.

Even the four-week moving average of the Market Composite Index seems to me seasonally skewed as it moves out of the holiday inclusive period. For the latest period, this average was up 4.12%, and it should continue higher as it leaves the holiday season behind.

As we move forward, the weekly data faces little distraction, except for what may come from weather and also President’s Day in February. Thus, those of us studying this data point, and others, will get a clearer view to which to base more solid forecasts upon. That said, this benefit will not account for what may lie ahead of us, which I’ve begun talking about in recent columns. In fact, in my latest article, I based a sell call on paper profit rich homebuilders on this view. Today’s mortgage activity data, along with the Pending Home Sales Index decline and FHFA House Price Index’s monthly price increase have the relative shares of Bank of America (NYSE: BAC), Wells Fargo (NYSE: WFC), J.P. Morgan Chase (NYSE: JPM) and K.B. Home (NYSE: KBH) trading mixed at this hour. K.B. Home was up 2.9% near noontime, while J.P. Morgan and Wells Fargo were lower by about 1%.

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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.

The Greece Iran Oil Connection

As the west prepares a steep set of sanctions geared to stifle Iran, Greece raises an important query. The debt laden Hellenes would like to know what will happen to their vulnerable economy if the nation’s preferable Iranian oil supply contracts are replaced with more costly sources? Furthermore, if its GDP is impacted as a result of the untimely action, causing it to fall short of qualifying thresholds for its foreign funding, would that be overlooked by its critical debt holders?

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.

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The Greece Iran Oil Connection

It’s a fair question for Greece to ask with its economic growth already under drag by the austerity demanded by the International Monetary Fund (IMF) and its European brothers. Greece sourced a significant 14% of its imported oil from Iran in the first half of 2011, and has sourced up to 23% of its oil imports from its ancient counterpart at times. According to a Bloomberg article quoting an anonymous Greek diplomat, Greece wants to ensure that if that oil is replaced, it will receive identical terms, which exclude financial guarantees.

Under normal circumstances, such a condition would not even be considered, but while Greece is under the economic microscope of the IMF, it wants to avoid new obstacles to reaching already challenging goals set by its lenders of last resort. Thus, last week, Greece held up the EU’s sanctions which would stop the flow of Iranian oil to the region. Agitated European officials have indicated that assurances will be made to Greece, but that the details will be worked out after this week’s agreement on sanctions is in place. It’s unclear whether such hastily made promises will be adequate for Greek politicians who cannot afford to place a single new burden on the shoulders of Greece’s aggravated populace.

Given Greece’s poor credibility, it is unlikely to find better terms on the open market than it gets from its likewise desperate Iranian trading partner. So, the question posed to Europe is, will it subsidize the difference in cost to Greece? Otherwise, some leeway must be given Greece, with regard to the steep economic goals it’s been forced to set.

What we are seeing in this latest situation is similar to the chaos that ensued when the former Greek Prime Minister proposed a referendum for the Greek people to decide for themselves whether their future would be with or without the euro currency. It shows that Europe is no stronger than its weakest link, and that the Greeks have more bargaining leverage than most understand. Finally, Greek politicians seem to be realizing that Europe needs Greece to stay solvent as much as Greece needs its financial assistance. Clearly, the most obvious concern to Europe is how a disorderly disposition of Greece would reel Portuguese, Spanish and Italian debt markets.

The current situation also highlights the important position Iran holds in the stability of the already shaky global marketplace. As the U.S. and Europe gear to pressure the Iranians, the question raised by Greece presents Iran with interesting information. Every plan to cut off Iranian oil is civil and arranged to ease the process, but the situation is not civil, if it is not economic warfare. So I have a question: What if the Iranians were to realize the plan set for them and understand their current position. They might just do the unexpected and cut off their own oil flow abruptly, and so, disruptively to Greece, Europe and the civilized world. Perhaps Greece’s negotiations with the EU in this regard should have been kept in closed quarters.

Editor's Note: This article should interest investors in National Bank of Greece (NYSE: NBG), Hellenic Telecommunications (NYSE: OTE), Coca-Cola HBC (NYSE: CCH), Teekay Corp. (NYSE: TK), Navios Maritime Holdings (NYSE: NM), Navios Maritime Acquisition (NYSE: NNA), Navios Maritime Partners L.P. (NYSE: NMM), Tsakos Energy Navigation Ltd. (NYSE: TNP), Overseas Shipholding Group (NYSE: OSG), International Shipholding (NYSE: ISH), Excel Maritime Carriers (NYSE: EXM), Safe Bulkers (NYSE: SB), Claymore/Delta Global Shipping ETF (NYSE: SEA), Genco Shipping & Trading (NYSE: GNK), Diana Shipping (NYSE: DSX), Danaos (NYSE: DAC), Tsakos Energy Navigation (NYSE: TNP), Ship Finance Int'l (NYSE: SFL), Nordic American Tanker (NYSE: NAT), Seaspan (NYSE: SSW), General Maritime (NYSE: GMR), DHT Maritime (NYSE: DHT), Brunswick (NYSE: BC), Marine Products Corp. (NYSE: MPX), DryShips (Nasdaq: DRYS), Top Ships (Nasdaq: TOPS), Eagle Bulk Shipping (Nasdaq: EGLE), Sino-Global Shipping (Nasdaq: SINO), Paragon Shipping (Nasdaq: PRGN), K-SEA Transportation Partners (NYSE: KSP), Euroseas (Nasdaq: ESEA), Star Bulk Carriers (Nasdaq: SBLK), Omega Navigation (Nasdaq: ONAV), Knightsbridge Tankers Ltd. (Nasdaq: VLCCF), TBS Int'l (Nasdaq: TBSI), Golar LNG (Nasdaq: GLNG), Claymore/Delta Global Shipping (Nasdaq: XSEAX), American Commercial Lines (Nasdaq: ACLI), Deutsche Bank (NYSE: DB), ITA (Nasdaq: ITUB), Banco Santander (NYSE: STD), Westpac Banking (NYSE: WBK), UBS (NYSE: UBS), Lloyd’s Banking Group (NYSE: LYG), Barclay’s (NYSE: BCS), Credit Suisse (NYSE: CS), Allied Irish Banks (NYSE: AIB), Banco Latinamerican (NYSE: BLX), Bank of America (NYSE: BAC), Citigroup (NYSE: C), Goldman Sachs (NYSE: GS), JP Morgan (NYSE: JPM), Morgan Stanley (NYSE: MS), European Equity Fund (NYSE: EEA), Vanguard European Stock Index (Nasdaq: VEURX), Powershares FTSE RAFI Europe (NYSE: PEF), Europe 2001 (NYSE: EKH), S&P Emerging Europe (NYSE: GUR), Ultrashort MSCI Europe (NYSE: EPV), Vanguard Europe Pacific (NYSE: VEA), Wisdomtree Europe SmallCap (NYSE: DFE), Wisdom Tree Europe Total Div (NYSE: DEB), iShares S&P Europe 350 (NYSE: IEV), Morgan Stanley Eastern Europe (NYSE: RNE), DWS Europe Equity A (Nasdaq: SERAX), DWS Europe Equity B (Nasdaq: SERBX), Fidelity Europe (Nasdaq: FEUFX), Fidelity Europe (Nasdaq: FIEUX), ICON Europe A (Nasdaq: IERAX), Pioneer Europe Fund (Nasdaq: PBEUX), ProFunds Europe 30 (Nasdaq: UEPIX), Putnam Europe A (Nasdaq: PEUGX), Rydex Europe 1.25x (Nasdaq: RYAEX).

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WARNING - Europe is Already Costing the U.S. Economy

What is vague is often ignored, and what is possible is sometimes given no weighting by investors, instead overlooked for what is most tangible and certain today. In this regard, so has the threat of European impact to the U.S. economy proven impotent to U.S. stock direction through late 2011 and so far in 2012. However, there exists tangible impact to the U.S. economy that is directly attributable to the nascent trouble in Europe. I suggest investors take note as well, since the impacts should only grow more obvious with time, with their effects eventually burdening U.S. GDP, and finally given credit in the valuation of American stocks.

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.

EU Hurting U.S. Economy

The evidence I point to, which shows the impact of European weakness on the U.S. economy, has come in two forms of late. We’ve seen it in the latest trade data and also in the actions of European companies operating in the U.S. Those actions have included the consolidation of American operations or other reorganization, and the laying off of American workers. That contribution to an already laboring labor market should be felt and understood for its seriousness.

The direct impact, though, is more clearly seen in the latest international trade data, reported last week for the month of November. The U.S. international trade deficit widened by 10.4%, to $47.8 billion, which was far more than economists surveyed by Bloomberg foresaw (consensus -$45 billion). While November imports were $2.9 billion higher, reflective of high season demand perhaps, exports were lower by $1.5 billion. That drop in exports was mostly attributable to goods, as the change in service exports was virtually unchanged. The decrease also countered the year-over-year trend, which showed exports up 10.3% from November of 2010. Certainly, Europe has endured a good deal of pain over the course of those twelve months, and it may be starting to cost U.S. exporters today.

According to the Department of Commerce, the decrease in exports was mostly seen in lower industrial supplies and materials demand ($1.6 billion); and also in capital goods ($0.2 billion) and other areas. That drop in industrial goods demand was counter to the year-over-year trend as well. Somewhat surprisingly, and perhaps contradicting this report, an increase of $0.8 billion occurred in consumer goods exports. Though, this could have been due to seasonal driver.

The most telling of the data came when comparing the month’s trends between Europe and China. While the trade deficit with China narrowed to $26.9 billion, from $28.1 billion in October, the deficit with the European Union widened to $9.7 billion, from $8.0 billion in October. It was the most marked increase in deficit among America’s trading partners.

While what we’ve just discussed is direct and clear, what is developing anecdotally is concerning due to its concealed nature. It thus has the ability of sneaking up on economists and strategists who may not be paying the closest of attention to peripheral information. Therefore, it could bite analysts, brokers and finally retail investors in the behind. Take note that my followers will not be found within that grouping.

While authoring my report on the Ugly Truth About the Economy, I took note of the number of announced corporate layoffs coming from European based firms over a very short recent time span. It was difficult not to notice given my bead on the newswire. Since the turn of the year, we’ve seen American worker layoffs by European based firms: Novartis (NYSE: NVS), Vestas Wind Systems (OTC: VWSYF.PK), RBS (NYSE: RBS), Delhaize (NYSE: DEG) and others. When pressure mounts on a European company, it must look more closely at the ROIC of its projects. While you would expect European based projects to be hit most severely, early stage efforts in the States that are not going to return on investment soon, must also be curtailed in many cases. That means American jobs are lost, despite the government’s declaration of domestic economic gains. It contributes to unemployment, and it depletes tax revenues, curtails consumer spending and costs us in unemployment benefit payouts. It will affect our GDP.

Meanwhile, money center banks with global operations are pointing to Europe as the source of their earnings disappointments, as rumors of related layoffs swirl. The latest to blame the European crisis for its direct and indirect impacts on its operations was Citigroup (NYSE: C) Tuesday. Analysts expect a fourth quarter loss from Morgan Stanley (NYSE: MS) in its upcoming report this week, on market and regulatory pressures. Goldman Sachs (NYSE: GS) will also report later this week. Citi’s Chief Executive, Vikram Pandit, shed light Tuesday saying, ”Clearly, the macro environment has impacted the capital markets and we will continue to right-size our businesses to match the environment.” Citi is cutting 5,000 jobs away, which is more than the 4,500 it said it would in December; that might reflect a deteriorating trend more so than discovered inefficiencies. Despite the already significant job cuts across major international banks with U.S. operations, we very well could see more from the likes of those already mentioned, Credit Suisse (NYSE: CS), UBS (NYSE: UBS) and the rest.

In conclusion, the impacts of European weakness on the U.S. economy are currently visible and already measurable. Yet, the U.S. stock market has reflected enthusiasm tied to a synthetically driven consumer sector and a misleading employment situation, which we discussed here previously. Considering that the struggling region accounts for 20% of American exports, and given its trajectory, it is capable of diverting American recovery and deserves more attention in the weightings of valuation and scenario analysis. The signs of this effect had until now been somewhat vague to see, but they are growing clearer with time, and I expect they will eventually be impossible for the stock market to ignore.

Article is relevant to Deutsche Bank (NYSE: DB), Banco Santander (NYSE: STD), ITA (Nasdaq: ITUB), UBS (NYSE: UBS), Westpac Banking (NYSE: WBK), Lloyds Banking Group (NYSE: LYG), Barclays (NYSE: BCS), Credit Suisse (NYSE: CS), Allied Irish Bank (NYSE: AIB), Banco Latinamericano (NYSE: BLX), National Bank of Greece (NYSE: NBG), Royal Bank of Canada (NYSE: RY), BBVA Banco Frances (NYSE: BFR), The Bank of Ireland (NYSE: IRE), Bank of Montreal (NYSE: BMO), Canadian Imperial Bank of Commerce (NYSE: CM), ING Groep (NYSE: ING), Citigroup (NYSE: C).

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.