Wednesday, July 01, 2009
The market giveth, the market taketh away. That's the story in periods of indecision, when punters have little in the way of conviction and are swayed by each new datapoint. The, ahem, creative ways of interpreting the data just add to the "fun."
Take yesterday's figures in the US for example. Equities received an early fillip from the release of Case-Shiller house price data that was a) slightly better than expected, and b) hsowed an uptick in the y/y pace of decline. Somehow, this was spun as representing an uptick in house prices. Actually, when we look at the underlying index, pictured below, we see yet another monthly decline...albeit at a slightly reduced pace.
Regardless of what month-to-month changes in data do for the rest of the year, we should all gird ourselves for quite a bit of volatility in the y/y figures. As the aftermath of various 2008 crises (Bear/Fannie/Lehman), fall out fo the equation, yearly rise in activity (and, it should be added, inflation) will rise sharply.
In any event, the happy times proved short lived after the fall in consumer confidence. Macro Man has mused before on the inanity of the stock market reacting to a measure whose primary driver is prior stock market action, and yesterday demonstrated that it works both ways. What consumer confidence giveth, it also taketh away.
In any event, there was enough in the overnight data for the China believers to keep believin'. Korean exports staged another impressive recovery in June, while remaining well short of last year's peak. Unfortunately, half an hour of digging for the monthly breakdown by country, updated for June, yielded unsatisfactory results. While Bloomberg has some data, it is pretty obviously wrong.
So at this juncture for Macro Man to confirm or deny that Chinese demand is riding to the rescue. Reading some of the ancillary analysis, it looks like quite a bit of the export bounce was down to ships; readers are invited to judge for themselves whether that is either sustainable or particularly healthy.
In any event, Macro Man is savvy enough to get out of the way when the market has its mind made up. And hey, the Chinese PMI was a decent enough number, as indeed have been the European equivalents so far this morning. And didja catch a load of Aussie retail sales? Up a full percent, baby! (Let's not talk about building approvals, though. Please.)
Part of succeeding in this game is knowing when to bet large and when to dial it down. If, as seems likely to Macro Man, the Chinese "miracle" seems too good to be true and the global PMI rebound simply represents a re-stocking phase that will not be met by final demand, the market will give back the opportunities that it has withdrawn over the past few months.
And in answer to mpm's query in the comments section of yesterday's post, Macro Man will countenance becoming more bullish when the good news come from sources other than those known to be, shall we say, economical with the true. Ultimately, Macro Man foresees another consumer downleg thanks to the large mortgage resets looming next year; until he sees some evidence that this hurdle can be successfully surmounted, his heart will belong to the bears, even if he occasionally rents a long risk position if that's the opportnity that the market gives.