Rosenberg Daily - Global Slowdown Showing Through

For now, [there is a] belief that the euro area has bought some more time (though this cuts both ways - it just means ongoing volatility until there is a concrete resolution at hand.) For the here and now. we have some shortcovering and end-of-quarter window dressing underpinning the price action in the marketplace...

At the same time. we have to fess up to the reality of a global economic downturn that is both continuing and spreading out. We have seen estimates show that 80% of the world economy is now In a visible deceleration. Global corporate earnings are now in contraction mode and the results over the past 24 hours have done little to reverse that trend. Ford's announcement that it expects to lose about $750 million from its overseas operations in Q2 due to the spreading European recession is certainly cause for pause. General Motors issued a similar statement that “it is tough in Europe right now". Indeed. Companies are pullmg back on spending and hiring plans too as the economic future is increasingly clouded — see Blame Fear, Not Greed, as Firms Hoard Cash on page B4 of the WSJ.

The U.S. labour market has hit a major speed bump. In the aftermath of the latest Challenger data showing a steep falloff in hiring intentions and a substantial increase in layoff plans. coupled with the poor employment readings in the latest Conference Board confidence poll, we have this ongoing upward drift in jobless claims. Not good.

Oh yes - the headlines read that initial claims “fell” 6k in the week of June 23rd but off an upwardly revised 392k level. This has been a pattern of late - upward revisions to the claims data, and the one thing we know about revisions is that. in a given direction for as long as claims have been (sic), they feed on themselves and are pro-cyclical. Incredibly and incredulously, initial jobless claims have been revised up every single time since the week of July 7, 2011...

The real economy may still be growing above the zeroline - though not by much. But nominal profits are now contracting and this is what equity investors inevitably pay for - earnings. not GDP. And earnings are no longer merely slowing but now are shrinking. This means more emphasis on tradmg up In quality, minimizing risks. and focusing on defensives over cyclicals with reliance on sectors and companies with track records of generatmg stahle cash flows in troubled times.
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