Appraising the Real Estate Market

After a week’s worth of new data, the market is finally reassessing real estate. Up until now, and excluding my own steadfast voice uttering disagreement, the great majority of real estate market enthusiasts and housing longs have been declaring that this would be the year for recovery. The chart of the SPDR Series Trust SPDR Homebuilders (NYSE: XHB), which represents a pool of homebuilder stocks, concurs, rising 70% from its October 3, 2011 trough through the March 23, 2012 close (adjusted for splits and dividends).

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.

Relative tickers: Nasdaq: ITIC, NYSE: BAC, OTC: FMCC.OB, OTC: FNMA.OB, NYSE: GS, NYSE: MS, NYSE: WFC, NYSE: TD, NYSE: SRS, NYSE: URE, NYSE: IGR, NYSE: XIN, Nasdaq: RYHRX, Nasdaq: TRREX, NYSE: TOL, NYSE: HOV, NYSE: DHI, NYSE: BZH, NYSE: LEN, NYSE: KBH, NYSE: PHM, NYSE: NVR, NYSE: GFA, NYSE: MDC, NYSE: RYL, NYSE: MTH, NYSE: BHS, NYSE: SPF, NYSE: MHO, AMEX: OHB, NYSE: VNQ, NYSE: PNC, NYSE: JPM, Nasdaq: HOFT, NYSE: ETH, NYSE: PIR, NYSE: WSM, NYSE: HD, NYSE: LOW, AMEX: VAZ, AMEX: NKR, AMEX: MZA, AMEX: NXE, AMEX: NFZ, Nasdaq: XNFZX, Nasdaq: FSAZX, Nasdaq: AVTR, NYSE: AIV, NYSE: EQR, NYSE: AVB, NYSE: UDR, NYSE: ESS, NYSE: CPT, NYSE: SNH, NYSE: BRE, NYSE: HME, NYSE: MAA, NYSE: ELS, NYSE: ACC, NYSE: CLP, Nasdaq: AGNC, NYSE: SUI, NYSE: AEC, NYSE: PMT and AMEX: TWO, NYSE: SPG.

Real Estate

They said this spring selling season would be the one to spur a real estate recovery; they were wrong. On Friday, New Home Sales were reported running at a slower pace in February than they did in January. The U.S. Department of Housing and Urban Development (HUD) reported that the annual pace of new home sales slipped to a seasonally adjusted rate of 313K. That was short of economists’ expectations, which were set at 325K based on Bloomberg’s survey. It was also under January’s revised lower rate of 318K, cut from the 321K pace initially reported. Most importantly, it shows no sign of new life in new housing.

Just two days earlier, Existing Home Sales, or the sales of used homes, also hit the skids. The National Association of Realtors (NAR) reported that Existing Home Sales fell to an annual pace of 4.59 million in February, down from the revised January rate of 4.63 million. Sure, the decline was modest, and the reported month was within winter (not spring), but several other reports seem to show an unenthused real estate environment.

Housing Starts were reported for the month of February last week as well. I like to look at single-family starts, because the overall number includes multi-family projects, and I believe a renter nation is not a healthy nation. HUD reported that starts of new single-family homes fell to a rate of 457K in February; that’s 9.9% under the revised January figure of 507K. Maybe it’s just me, but such a significant decline doesn’t seem like good news to these weary eyes. Now, the eternal optimists who are long housing or work in the industry will again note the month in question and the fact that the pace of Building Permits for single-family projects improved 4.9%, to 472K in February.

If you are still unsure about where housing is trending, you might study the survey of the homebuilders themselves, which was also reported last week. The National Association of Home Builders (NAHB) reported that its Housing Market Index, which measures the mood of builders, was unchanged in March, leaving it in depressed territory. The NAHB/Wells Fargo Housing Market Index (HMI) stuck at a mark of 28, after February was revised down a point. The index also proved deflating to economists, who after buying into the idea of sector recovery, set their consensus view up at 30 for the month. I should also remind the reader, that 50 delineates between a positive and negative mood. At the current level, builders remain mostly deeply depressed.

If you still need convincing, take a gander at the latest FHFA House Price Index, which in an improving environment, should be expected to reflect price increases. Rather, the report for January showed no change month-to-month, and a 0.8% decrease in prices for the trailing twelve months against the prior year comparable. Adding insult to injury, the December level was adjusted lower, providing an easier bar to hurdle in January.

The stocks of home builders reflected the environment more accurately last week than they had through the capital flow driven run since October of last year. The XHB was down 1.3% on the week, but the shares of some builders saw more severe damage. K.B. Home (NYSE: KBH) was down 8.5% Friday alone and was off 19% on the week after reporting disappointing data. Even industry stalwart Toll Brothers (NYSE: TOL) shed 4.5% last week. It seems the market is finally paying attention to data and economic developments, and heeding my long ignored warnings.

Editor's Note: Article should interest investors in Investors Title (Nasdaq: ITIC), Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), UltraShort Real Estate ProShares (NYSE: SRS), Ultra Real Estate ProShares (NYSE: URE), ING Clarion Global Real Estate Income Fund (NYSE: IGR), Xinyuan Real Estate Co. (NYSE: XIN), Rydex Real Estate Fund H (Nasdaq: RYHRX), T. Rowe Price Real Estate Fund (Nasdaq: TRREX), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), D.R. Horton (NYSE: DHI), Beazer Homes (NYSE: BZH), Lennar (NYSE: LEN), K.B. Homes (NYSE: KBH), Pulte Homes (NYSE: PHM), NVR Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO), Orleans Homebuilders (AMEX: OHB), Vanguard REIT Index ETF (NYSE: VNQ), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), Hooker Furniture (Nasdaq: HOFT), Ethan Allen (NYSE: ETH), Pier 1 Imports (NYSE: PIR), Williams Sonoma (NYSE: WSM), Home Depot (NYSE: HD), Lowes (NYSE: LOW), Nasdaq: XNFZX, Nasdaq: FSAZX, Avatar Holdings (Nasdaq: AVTR), Apartment Investment & Management (NYSE: AIV), Equity Residential (NYSE: EQR), Avalonbay Communities (NYSE: AVB), UDR Inc. (NYSE: UDR), Essex Property Trust (NYSE: ESS), Camden Property Trust (NYSE: CPT), Senior Housing Properties (NYSE: SNH), BRE Properties (NYSE: BRE), Home Properties (NYSE: HME), Mid-America Apartment (NYSE: MAA), Equity Lifestyle Properties (NYSE: ELS), American Campus Communities (NYSE: ACC), Colonial Properties (NYSE: CLP), American Capital Agency (Nasdaq: AGNC), Sun Communities (NYSE: SUI), Associated Estates (NYSE: AEC), PennyMac Mortgage (NYSE: PMT), Two Harbors (AMEX: TWO), Simon Property Group (NYSE: SPG).

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.

Undermining Small Business Confidence

The National Federation of Independent Business (NFIB) produced its monthly Small Business Optimism Index Tuesday for the month of February. The measure of the small business mood gained for the sixth consecutive month, rising 0.4 points to a mark of 94.3. The NFIB warns that the reading is still low based on historical comparison, and that the rate of improvement is “glacial.” We would add that it comes just in time to be undermined by the fiscal and economic failings of Europe and the geopolitical fumbling of the world. In other words, before you get too excited about today’s slight victory, take a look at the tough schedule ahead this season.

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.

Relative tickers: NYSE: SLY, NYSE: VB, NYSE: VBK, NYSE: VBR, NYSE: VIOO, Nasdaq: SCLP, NYSE: PZI and NYSE: WMCR.

Small Business

The popular spin on confidence today will be centered around the positives, including the month’s height against its 2007 grounding. That fact will overshadow the truth about its sitting lower than last February, and potentially following the trend of last year, where early gains were undermined. Last year, we saw mostly fear driven decline, though followed by some setback in economic activity. Certainly those same two factors should come into play again this year, given Europe’s self-deprecation and the battle fleet sitting offshore of the tinderbox of Iran.

Any fluffing of the data will certainly not be the fault of the NFIB’s Chief Economist, Bill Dunkelberg, the guy who probably doesn’t remember giving me my undergraduate business degree at Temple University. His view has been wisely tempered throughout the recovery, properly reflecting the cautious mood of the group of typically optimistic entrepreneurs. This month, he noted the “wildcard” that gasoline prices play in the vulnerable small business marketplace. Of course, the last few months climb in petroleum distillates would be dwarfed by what would follow any engagement of Iran in battle. Considering that all the guys opposing President Obama, save Ron Paul, already have their hands on the trigger, concern is well-placed. Yet, it might be better suited today, as wars tend to start in surprising fashion, and big guns already sit with targets set upon one-another.

You might want to note that the details of the survey are anything but enthusing. Some 22% of small business owners, the same number as was reported in January, said their biggest problem was “poor sales” in February. Take note as well that more small businesses reported declining sales than reported rising sales in February. Considering the seminal importance of the core issue, you might want to restrain your natural inclination to tout the four-tenths gain and refrain from your long bets for the long-term. That said, generally speaking over the long-term and under normal business conditions, I would expect more small businesses to fail than to survive, and the survivors to provide more than enough economic value to compensate.

Capital expenditures were up again, but remain near historical lows. What’s worse is that few business operators view today as a good time to expand. Not enough of them have real plans to expand in a significant way either. There’s a good reason for that I suppose; the number of small business owners expecting better business conditions in six months sits in negative territory. While a significant portion of that figure is certainly determined by business expectations, it’s also affected by other factors. Those cited most by small businessmen were taxes and regulation. Surprisingly, credit access was not a central issue. Washington seems to finally be taking notice, with less emphasis on Federal Reserve actions and increasingly more attention upon fair trade and business incentives. Presidential elections tend to focus the attention of public servants well…

While job creation was up in February and over the last three months, plans to increase hiring in the future fell off among the nation’s smaller businesses. A greater net of employees were added, yes, but on a greater increase in employees at a smaller number of firms than cut at a greater number of firms. That was generally consistent with the latest improving trends in the government’s employment data. However, what’s more important, and we paraphrase Eddie Murphy, is what employers have done for us lately. In this case, I mean the near future.

The latest economic data out of Europe, save perhaps today’s investor confidence improvement in Germany where the stink of the PIIGS has yet to really bite, has been generally deteriorating. Can you believe it, austerity (read starvation and blood-letting) isn’t working? The problem for us, save compassionate hearts should they still exist, is that we sell roughly 20% of our exports into Europe and that Europe buys a bunch of stuff from all over the world. The entangled global marketplace is therefore at risk of noticing European strife, and that’s before a Lehman like event could drive swift striking crisis. So the latest tiny gains in small businesses are not impressive and stand at high risk of being undermined.

The market was off to a solid start despite the mediocre small business report Tuesday, instead taking its lead from February’s Retail Sales data, which while only showing in-line numbers, still rose 0.6% ex-gasoline and autos. The SPDR Dow Jones Industrial Average ETF (NYSE: DIA), SPDR S&P 500 (NYSE: SPY) and PowerShares QQQ Trust (Nasdaq: QQQ) were each up about a half point at the start of trading on that driver. Even the SPDR S&P 600 Small Cap ETF (NYSE: SLY), which you might expect to better reflect the small business view, was up a half point. That said, I think the omen seen in the expectations of small businessmen will be considered increasingly, and seen in data to come.

This article should interest investors in small cap stock securities like the SPDR S&P 600 Small Cap ETF (NYSE: SLY), Vanguard Small Cap ETF (NYSE: VB), Vanguard Small-Cap Growth ETF (NYSE: VBK), Vanguard Small-Cap Value ETF (NYSE: VBR), Vanguard S&P Small Cap 600 Index ETF (NYSE: VIOO), Russell Small Cap Low P/E ETF (Nasdaq: SCLP), PowerShares Zacks Micro Cap ETF (NYSE: PZI) and Wilshire Micro-Cap ETF (NYSE: WMCR).

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.

What Greece’s Bond Default Means

The International Swaps & Derivatives Association (ISDA) determined that Greece’s private debt restructuring effectively constituted a credit event, otherwise known as a default. This is not the kind of default that the world’s financiers had feared, though it is neither impotent with regard to repercussions for Greece.

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.

Greece's Bond Default

Greece said some 85.8% of private debt holders of Greek-law bonds and about 20 billion euros of foreign-law debt agreed to take a “hair cut” on their holdings, accepting a promise from Greece for a much smaller payback on their loans. While any number (like 85.8%) should be questioned when it comes from the notorious and now desperate Greek government, we’ll humor them for the sake of global order. Greece enacted a retroactively contracted collective action clause based on the greater than two-thirds count of private debt-holders reportedly agreeing to its proposal. The coerced and clearly unconventional hair-cut was judged by the ISDA to be an effective default on the debt, and it was. This was no surprise, with ratings agencies Moody’s (NYSE: MCO), Standard & Poor’s (NYSE: MHP) and Fitch all effectively cutting Greece’s sovereign debt ratings to default levels over recent weeks.

The decision will trigger $3 billion worth of credit default swaps, with payouts depending on the value of Greek bonds on the open market. Some estimate on the “gray market” that the value of the still questionable private debt to be issued by Greece is worth about $0.21 on the dollar invested, so the holders of the swaps should receive some $0.79 per dollar. In this case, the details are less important than the general action, which effectively validates credit default swaps and projects a new view on the sovereign debt market.

While the securities actions represent a sort of default, they actually support the backing of the troika through the reduction of Greece’s overall debt burden. That said, the new debt Greece has offered its private debt holders remains costly, with an expected yield upward of 20%. That’s because Greece’s already questionable credibility has incurred a seminal change for the worse.

The nation’s crippling austerity is understood by the capital markets to be detrimental to economic growth. I have already written much about my disagreement with Europe’s cure for Greece. It’s like Greece is cutting off its leg rather than setting its broken bone. The reason is so that it can progress today and tomorrow, but the result remains a severely crippled Greece, hampered by its self inflicted injury. That’s not the way I would go about it, and I will answer how I would go about it in the very short-term through a series of reports.

On Friday, the Global X FTSE Greece 20 ETF (NYSE: GREK) gave back some of the gains made since Greece again secured troika support. The iShares S&P Europe 350 Index (NYSE: IEV) did the same. The stock action correctly reflects the uncertainty that remains regarding resolution to this crisis. The shares of the National Bank of Greece (NYSE: NBG) and Deutsche Bank (NYSE: DB) likewise reflected this uncertainty.

So today many are confused as to just what has occurred in Greece. Has it defaulted or not? The answer is yes, it has defaulted technically speaking. However, no, it has not yet failed in its desperate effort to stay afloat. What has happened is that the nation has forced a small number of people to endure some significant pain, those being the private bond holders. Of course, in a complete default scenario, those few wouldn’t do any better. Many believe Greece still will inevitably default on the entirety of its debt or choose a different path post elections, despite the efforts of the troika to ensure payback. If or when Greece does fail due to its (and Europe’s) poorly prescribed blood-letting solution, then I believe the euro-zone should fall apart as well.

The reason for this is of course contagion and something more. The events of last week should not weigh on the sovereign credits of Portugal or any of the other PIIGS beyond any short-term bump. Yet, the euro zone scheme remains a poorly devised half-solution for the region, designed to help it compete in the changing global marketplace. However, only when its national components sacrifice sovereignty will the fiscal union hold for the whole. That scenario will not likely develop, though, due to human attachment to culture, history and tribe. Thus, I say the failure of the euro zone is probable.

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).

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.

On Europe, Can You Hear Me Now?

Over the last several months, I’ve been harping about what the impact of a recession in Europe would be for the U.S. economy and stocks. However, in todays "I’ll believe it when I see it" society, and with a stock market on the rise since early October, investors have been hard to sway. Still, I’m a tough cookie, willing to take the abuse of popular opinion to guide those willing to listen toward the protection of their capital and advanced, wise placement of new money ahead of the herd. So, with regard to Europe, can you hear me now?

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.

Can You Hear Me Now?

It was just a few days ago when I said the Greek problem was our problem and held steady on my bearish call on the rising European ETFs. Well, Tuesday the EURO STOXX 50 Index dropped 3.4%, and that Vanguard European ETF (NYSE: VGK) that was sticking stubbornly higher last week, dropped 4.1%. The iShares S&P Europe 350 Index (NYSE: IEV) fell 4.0%, and the words of your favorite Greek turned golden. It seems by the movements of the markets that most of you were surprised, but readers of my column sure weren’t. Though, fear not new friends, because there’s more where that came from.

The reason for the latest lashing was prophesied almost word for word in previous articles found along this string. Deteriorating European economic data is increasingly indicating recession is plaguing Europe, coloring in the areas we demarcated for our following friends over the last few months. Meanwhile, the recently reported as resolved Greek issue lingered, like we said it would here. But let’s not lull too long in the lotion of our latest lucid thoughts.

The European Union reported on Tuesday that economic output contracted 0.3% in the fourth quarter of 2011. The important economic region’s weakness was hurt by soft household spending, manufacturing activity and exports. Yet, no economist should be surprised, as the austerity being forced down the throats of Europe’s most indebted nations (better when slowly digested) was bound to choke economic activity during this post financial crisis new age. The secular bear seems set to roar some more now as a result.

Add to the economic woes of the Europeans the threat of Greece missing its deadline to restructure its privately held debt via swap, and you have the recipe for a stock market wake up call. Greece has secured the agreement of some 58% of its private debt-holders to-date to accept a severe change in the terms of their contracts, hinged on a halving of the money owed them. Greece had hoped, somehow, to secure 90% agreement, but of course misjudged as usual. All of the nation’s major banks and probably its pension funds are bowing to government pressure, and over 30 European banks and insurance firms have been successfully coerced to surrender as well. Greece will employ collective action clauses to force the rest into compliance, if it secures adequate approval to change the terms of the agreement. Everything seems to be up in the air still, with the deadline set at 10:00 PM Thursday Athens time.

Some of the institutions which have agreed to participate are Ageas (OTC: AGESY.PK), Allianz SE (OTC: AZSEY.PK), Alpha Bank SA (OTC: ALBKY.PK), Axa SA (OTC: AXAHF.PK), La Banque Postale, Banco Bilbao Vizcaya Argentaria SA (BBVA.MC),BNP Paribas (OTC: BNPQY.PK), CNP Assurances SA (Paris: CNP.PA), Commerzbank AG (OTC: CRZBY.PK), Credit Agricole SA (OTC: CRARY.PK), Credit Foncier, DekaBank Deutsche Girozentrale, Deutsche Bank AG (NYSE: DB), Dexia SA (DEXB.BR), Emporiki Bank of Greece SA, EFG Eurobank (OTC: EGFEY.PK), Generali (ASG.F), Greylock, Groupama SA, HSBC Holdings Plc (NYSE: HBC), ING Bank (NYSE: ING), Intesa Sanpaolo SpA (OTC: ISNPY.PK), KBC Groep NV, Marfin Popular Bank Plc (Athens: MARFB.PK), Metlife Inc. (NYSE: MET), National Bank of Greece (NYSE: NBG), Piraeus Bank SA (Athens: TPEIR.AT), Royal Bank of Scotland Group Plc (NYSE: RBS), Societe Generale SA (OTC: SCGLY.PK) and Unicredit SpA (UCG.MI).

The S&P 500 Index was up Wednesday, but dropped 1.5% Tuesday, with the SPDR S&P 500 ETF (NYSE: SPY) off the same amount. Why would you suppose that is if not for the tragically real economic risk posed by a European recession to the U.S. economy? That said, the latest American data refreshed the thirst of greedy traders seeking reason for rise, with the often off ADP Private Employment Report noting the estimated addition of 216K private sector jobs in February. As Europe starts to rub off on the rest of the world, including the American economy, which ships 20% of exports into the struggling domain, I expect global markets will move lower in more determined fashion. So, I continue to warn against taking satisfaction in the economic data of the day, while not considering what may change in the months ahead. And I haven’t even mentioned the Iran trigger, which weighs heavily over our collective heads.

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.

Job Market Gains Look Tired

With almost any topic, one can take a positive view or negative, and that slant could be affected by the general opinion of the reviewer about that topic. Thursday’s Jobless Claims data, like most economic data, offers that same potential. The rate of jobless claims is still not optimal, but on a relative basis, it is certainly better than the last few years’ results. However, the pessimist, or maybe the realist who sees what’s developing in the global economy today, might say the latest lull in this data point, with claims stuck around the same rate, could indicate the latest improvement trend seen in the labor market is stalling. If that is the case, with the economy potentially stalling or recessing this year on various important factors, then we may have found another inflection point for labor, with a deterioration trend to 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.

Relative Tickers: NYSE: RHI, NYSE: KFY, NYSE: MAN, NYSE: MWW, Nasdaq: KELYA, Nasdaq: JOBS, NYSE: JOB, Nasdaq: CECO, Nasdaq: PAYX, NYSE: ASF, Nasdaq: KFRC, NYSE: TBI, NYSE: DHX, NYSE: SFN, NYSE: CDI, Nasdaq: CCRN, Nasdaq: ASGN, NYSE: AHS, Nasdaq: BBSI, Nasdaq: HHGP, NYSE: SRT, Nasdaq: RCMT, Nasdaq: VSCP, OTC: ASRG.OB, OTC: MCTH.OB, OTC: IGEN.OB, OTC: STJO.OB, OTC: TNUS.OB, Nasdaq: TSTF, OTC: STTH.PK, OTC: PSRU.OB, OTC: CRRS.OB

Tiring Job Market

Weekly Initial Jobless Claims were reported at 351K in the week ending February 25, down only 2,000 from the prior week. Indeed, the four-week moving average reflects the stall in labor market gains, as it settled in close to the weekly count, at 354K. Several consecutive weeks of claims running at about this rate have had that effect, and the moving average improved 5,500 in the latest period. But is the latest activity indicative of a still improving labor market, or rather reflective of a stall in the rate of improvement? In the event of the latter, perhaps the claims data is telling us something about the economy, which seems to me likely to stall as well this year.

First of all, much of the gains in labor are suspect to begin with. In the past, we talked about the seasonal benefits. We have also discussed in detail the anomaly caused by the drop-off of the long-term unemployed who likely fall off the radar when their extended benefits expire. With the long-term unemployed representing a high percentage of total unemployment, this is likely playing an important role in the latest improvement trend in the unemployment rate, which was last measured at 8.3%. The number of Americans claiming benefits of some sort, including unemployment benefit extension payments, numbered approximately 7.5 million on February 11.

Still, the weekly initial jobless claims data do not include such noise. The data therefore offer an important and clear insight into today’s layoff activity, and some insight into the state of labor. With regard to this data point in particular, it’s clear now that there’s been some improvement in layoff activity. But, we cannot be so sure this is reflective of improved hiring patterns.

The Monster Employment Index (MEI) measures online job demand, and therefore offers some insight into hiring. The latest report covering January was partly tainted by a seasonal lull, but it offers useful insight anyway. While the MEI dropped to 133 in January, down from 140 in December and 147 in November, it was still 9% higher than last January’s 122 mark. Within the data, Monster Worldwide (NYSE: MWW) showed that the public sector continued to shed jobs, but it was the only area that showed contraction in January. Monster commented that transportation and warehousing, retail and wholesale have maintained strong growth trends. That said, the rate of improvement of job demand within manufacturing slowed, falling into the single digits for the first time since February 2011. One might argue that this could be on seasonal issues, as manufacturers shut down plants for maintenance at certain times during the year. But today’s ISM Manufacturing Index decline, and this week’s Durable Goods Orders drop-off seem to concur with what I interpreted from the Chicago Fed’s National Activity Index, which I believe foreshadows economic sluggishness if not recession. Finally, unless it’s a Renter Nation you’re interested in, then housing is not faring well either, despite the gains that I see shaky in homebuilders’ shares.

While relative employment stocks celebrated Thursday, the shares of employment services firms seem to confirm my view of the labor situation generally. The stocks are mostly higher since early October, but indicate a loss of confidence over recent weeks. For instance, looking at the charts of Robert Half International (NYSE: RHI), Korn Ferry (NYSE: KFY) and Kelly Services (Nasdaq: KELYA, Nasdaq: KELYB), we see that trend clearly. Kelly Services (Nasdaq: KELYA) is up 42% since October 3, 2011, but down roughly 14% from an intraday high of $18.05 in early February. Robert Half is also up about 42% since early October but down slightly from a recent high. Monster Worldwide (NYSE: MWW) breaks the industry trend (with a negative slant), but its shares seem to have diverted from the industry on alpha, or company specific driver.

A critical eye will be required as we receive the monthly labor reports next week. I would advise those inspecting the data to remember that labor is a lagging indicator. The latest developments in Europe, plus costly gasoline prices here at home due to an Iran issue that will not go away soon, weigh heavily on our vulnerable economy this year. As economic growth slows, so should labor activity, despite what the data may tell the optimist today.

Article should interest investors in Paychex (Nasdaq: PAYX), Manpower (NYSE: MAN), Robert Half International (NYSE: RHI), 51Job Inc. (Nasdaq: JOBS), Monster World Wide (NYSE: MWW), Korn/Ferry International (NYSE: KFY), Administaff (NYSE: ASF), Kforce (Nasdaq: KFRC), TrueBlue (NYSE: TBI), Dice Holdings (NYSE: DHX), Kelly Services (Nasdaq: KELYA), CDI Corp. (NYSE: CDI), Cross Country Healthcare (Nasdaq: CCRN), On Assignment (Nasdaq: ASGN), AMN Healthcare Services (NYSE: AHS), Barrett Business Services (Nasdaq: BBSI), Hudson Highland Group (Nasdaq: HHGP), StarTek (NYSE: SRT), RCM Technologies (Nasdaq: RCMT), VirtualScopics (Nasdaq: VSCP), American Surgical (OTC: ASRG.OB), Medical Connections (OTC: MCTH.OB), iGen Networks (OTC: IGEN.OB), St. Joseph (OTC: STJO.OB), General Employment Enterprises (NYSE: JOB), Total Neutraceutical (OTC: TNUS.OB), TeamStaff (Nasdaq: TSTF), Stratum (OTC: STTH.PK), Purespectrum (OTC: PSRU.OB), Corporate Resource Services (OTC: CRRS.OB).

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