故兵貴勝，不貴久。 What is essential in war is victory, not prolonged operations.

Europe

This is becoming one slow move into the summer period here in Europe. The politicians is even worker longer to secure some sort of movement on their national budgets. The joke being they are moving around 1-5% of the budget and none of it has to do with real structural reforms.

Europe will become a theme park shortly - The choice being one of Lego-Land or Disney?

The outlook is growing darker day-by-day as the ageing population and lack of productivity kills the ability to secure growth.

I had a long and super interesting lunch with one of the senior economist' involved in the early 1990s draft for the Euro-zone. The general take away:

We have to move towards economic union - the rules needs to be enforced and the survival of EU is 50/50.

Major macro theme

The major theme I am wrestling with right now is the fact that the leading model on growth I use is indicating Q3 GDP of MINUS 2% vs. a consensus call for 1.5% ish (Goldman)

Source: http://www.consumerindexes.com/
This index is leading by roughtly 90 days - which means the -2.0% reading is equivalent to Q3 this year.

Source: Goldman Research

Goldman, who is not super bullish on US growth(and which I rate the best on US economy) is looking for +1,5% growth - ergo: We got "gap" of 3.5% growth-points in the outlook for the US.

It should be added that GS and other have noted how the weak consumption in April seems to have continued in May - and now add the massive lay-offs announced by Citigroup & HP this week alone - and I am getting nervous!!!!!!

If the forecasting model is right - and I give it 60% odds - then we will be looking at major stimulus package into the Mid-term election in November and clearly Obama will be in even more political trouble as unemployment will be 10.0% plus and rising towards the 12%........

Also the "financial conditions are tight" according to GS:

The above issue is the main concern for me - and should be for you as well - as its totally undermines the whole: ".. Things are good and improving right now" -


I met with Treasurer of major European producer this week-end and EARNINGS/SALES are looking good for Q2 and partly for Q3 (although less so) - this particular producer has major exposure to EMG and their management wants to go FULL THROTTLE in hiring new labour.

I doubt they are right (but yes I am always sceptical) but for once I seem to have the statististic with me.

I should be noted that the slow-down is classic economic theory - as the stimulus has fast forwarded consumption and investment to 2009 and early 2010, there is now now major vacuum to fill as demand comes down, structural unemployment remains high, and the incoming austerity reduces volumes and increased tax, but hey....  logic has NO place in trading.

Strategy


Read interesting paper by David Rosenberg of Gluskin/Sheff:

This matches pretty well with out long-term target(eqilibrium  @ 850-00 ish)

Finally the most overrated investor


I have long argued that Warren Buffet strategy was "lucky" in the sense, he happened to be living at exactly the right time, as the world went on major debt binge financed by tax payers and easy monetary policy.

Now it's time for his value-investing to show it's strength and for now the results are pretty poor:

Berkshire sold of BEFORE the rest of the market

Most concerning being NET outflow in the stock

Do not get me wrong - Who am I to judge Buffet - but as a good analyst you need to able to seperate cause and effect.

Finally,

We remain in Doom-and-Gloom mode as that models outperforms, but recognize the risk for knee-jerk reactions up and serious manipulation.....but for now.. keep your powder dry.

Winston

Self-doubt and markets

I do not know what it is about Thursdays but I always get 'concerned' with my positions on Thursdays take this morning:

From the word go the market is taking RISK ON based on this simple analysis:

1. Swiss National Bank have intervened 'heavily' in EURCHF  (In all honestly I think it was more game of people re-playing the fight w. Bank of England in September 1992, namely: Fighting the SNB @ 1.4200. For now SNB won, but EURCHF will go lower still in the end.
2. S&P 'failied' at least in first attempt to take out the 200 MA - making it a buy-opportunity for the long-always crowd. Macro cycles are good as you will know!
3. Friday vote on Euro-zone package in Germany and the meeting of minds (Financeministers once again in Brussels to detail some of their 1 trillion package)

so......there is all reason for bring cautious but as I wrote last week, when in doubt go to your premises:

1. Macro theme: This is about solvency not liquidity 
2. Leading Indicators: The model we monitor is indicating contraction incoming - not expansion as seen by the Ivory Tower investment banks
3. Beta model: If in doubt stay with its modus.
4. Sentiment: Monitoring the ratio of MFI(Money Flow Index) to move in SPY

Macro Theme:


If this is about solvency I find it odd that BTP vs BUNDS keeps expanding away from insolvent toward solvent. This is key concern - and our main leading markets indicator for now:

Click for larger version

.....and why is LIBOR-OIS spread rising day-by-day?

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LEADING INDICATORS:

We track this model: http://www.consumerindexes.com/   - A high frequency data points analysis and it is indicating slow grind lower and not a V-shaped recovery as most Investment Banks loves to talk about!

Click on chart for larger version

Beta-model

This is the model we fall back on when in doubt as we have tracked it to slightly outperform S&P with much better sharp:

Click for larger version

SENTIMENT

Several measures but I prefer MFI vs price-action as it tells you NET buying and takes algo-trading intraday et al:

Click for larger version.

Conclusion:

When visiting all the premises and NOT listening to the market noise there is still no real sign of:

• Market/Central banks adressing solvency issue
• Leading Indicators: If anything - incoming data will disappoint relative to expected....
• Beta-model is neutral but getting ready to go short.
• Sentiment: Private investors still exiting positions.

Be safe

Winston