Will Return After This Previously Unscheduled Life

After a solid start, ChasingBulls.com will be taking a few weeks off. Due to an unforeseen relocation to the windy city in 2 weeks. I will post when a get a chance (between trips to Mississippi, Kentucky, and Chicago) and will return with a vengeance the first of February.

The Beginning of the End?

07lede190
The New York Times is second only to the USA Today as my contrary indicator. Yesterday, the NY Times had some good commentary of the economy and markets for 2007 and looking back on 2006.
The title article was “Will These Bulls Ever Retire?” The article had lots of interest techinqical clips about four and five year bull runs. It also had some comments on the third year of a presidential cycle, etc. This is all great information to occupy some brain cells, but what does it really mean?
I would say a lot. It is a good indicator of crowd thinking. Think of it as the media standing in front of an aggressive bull and daring it not to trample all of us.
The way the market reacted to Friday’s employment data and today’s low start. I would say there is some uncertainty. Are the markets preparing for 4th quarter earnings cycle? Just blowing back some stream? Or is this the start of an overdue correction?
Illustratrion by Tim Robinson/NY Times

Unemployment & Jobs

The Wall Street Journal had this introduction to this morning’s jobs report.

U.S. EMPLOYERS ADDED
167,000 jobs to nonfarm payrolls in December, a sign the economy is weathering the housing slump and manufacturing-sector weakness. Worker wages rose 0.5%, and the jobless rate held steady at 4.5%.

Is this really a sign that the economy is weathering the housing slump and manufacturing-sector weakness? The service sector carried the jobs growth. Housing and Manufacturing both had loses. I would not be so quick to associate this report to the economy weathering the housing slump and manufacturing weakness.

The most interesting thing coming out of today’s reporting is the hourly earnings growth. This will be worth watching over the next few months. Think wage pressure.

From Bloomberg:

Workers’ average hourly earnings rose 8 cents, or 0.5 percent, the most since April, after rising 0.3 percent the previous month. Economists expected a 0.3 percent increase in hourly wages. Earnings were up 4.2 percent from December 2005, a gain last exceeded in November 2000.

 

Would You Put Your Money Here?

Nick Maonis from Amaranth Advisors is reportedly starting a new fund. Now, I am happy for him, but would you invest your money with him? Amaranth lost 6.4 billion dollars in DAYS last year. The SEC is investigating Amaranth for possible misconduct. I think you would have to be pretty brave to put your money here.

Source:
KPLC-TV – Amaranth founder may start new business: report.

Wage Pressure in 2007

Yesterday in the look at the 2007 economic outlook consensus, I noted the likelihood of increasing wage pressure on the economy and corporate profits. Bloomberg has an article on-line today raising some of the same issues.

Political shifts in the U.S., Europe and Asia increase the chances that 2007 will bring labor higher pay and stronger job protection after five years in which its share of economic gains
fell. The pendulum of economic power might well begin to shift from capital back to labor,” says Stephen S. Roach, chief global economist with Morgan Stanley in New York.

Added wage pressure on organizations would add another blow to corporate profits, which are already set to decline slightly from 2006. I highly doubt the wage pressure would be on scale with the late 1990’s, but they may be enough to hammer another nail in the coffin. We get our first, although unreliable, read on the unemployment rate on Friday. I think this is a key area to watch through the first few months of the year.

The Economy In 2007?

What better way to start off the New Year than with a little forecasting? Opinions on this matter seem to be a wash and every economist and investment bank has it’s own judgment call.

So here is the run down. The Economist has the following as their consensus:


Next up we have the BusinessWeek survey of economic growth:

THE BUSINESSWEEK ECONOMIC FORECAST SURVEY FOR 2007
Name/Firm REAL GDP Quarterly % Chg. Annual Rate 2007 YEARLY % Chg. 2006 Q4 to 2007 Q4 2007 Q4 Levels (Percent) HOME PRICES (% Chg. 2006 Q4 to 2007 Q4)
I II III IV REAL GDP OPERATING PROFITS CPI INFLATION FEDERAL FUNDS RATE 10-Yr. Treasury Yields JOBLESS RATE
KATHLEEN CAMILLI Camilli Economics 3.5 3.2 3.4 4.0 3.7 7.0 3.4 5.25 5.50 4.5 5.0
ROBERT DiCLEMENTE Citigroup 3.0 3.7 3.2 3.5 3.3 6.0 2.4 5.00 4.80 4.6 –2.5
KURT KARL Swiss Re 3.9 3.1 3.2 3.1 3.3 8.7 2.4 4.50 5.00 4.5 7.0
JAMES PAULSEN Wells Capital Management 3.5 4.0 3.0 2.5 3.2 6.0 2.2 6.00 6.00 4.4 0.0
BILL CHENEY John Hancock Financial Services 2.9 3.0 3.2 3.2 3.1 6.0 2.5 5.25 5.00 5.1 –5.0
MICHAEL ENGLUND Action Economics 2.6 3.0 3.3 3.5 3.1 5.3 2.7 5.75 5.20 4.2 4.8
JOEL PRAKKEN / CHRIS VARVARES Macroeconomic Advisers 2.9 3.3 3.1 3.2 3.1 5.9 2.8 5.25 5.05 5.1 1.2
DAVID TEOLIS General Motors 2.6 3.2 3.2 3.1 3.1 6.2 2.5 4.75 5.40 5.1 3.5
RICHARD YAMARONE Argus Research 3.1 3.3 2.6 3.5 3.1 15.0 3.3 5.50 5.00 4.8 –10.0
DAVID LEREAH National Association of Realtors 3.3 3.1 2.8 2.8 3.0 8.0 2.0 4.75 5.00 4.8 2.5
ROBERT MELLMAN JPMorgan Chase 2.5 3.0 3.5 3.0 3.0 6.0 2.4 5.65 4.85 4.4 0.0
DONALD STRASZHEIM Roth Capital Partners 1.8 3.5 4.0 4.0 3.0 11.0 2.5 6.00 5.00 4.5 –12.0
DIANE SWONK Mesirow Financial 2.4 3.1 3.2 3.3 3.0 6.2 2.1 5.33 4.90 4.9 3.0
MARK ZANDI Moody’s Economy.com 2.5 2.9 3.0 3.3 3.0 5.3 2.3 4.75 5.10 4.8 –1.5
DAVID BERSON Fannie Mae 2.8 3.0 3.0 3.1 2.9 6.0 2.7 4.58 4.65 5.0 –2.8
RICHARD DEKASER National City 3.3 2.7 2.5 3.1 2.9 1.9 2.4 5.00 5.50 5.1 –1.6
GENE HUANG FedEx 3.0 2.9 2.9 2.6 2.9 7.7 3.5 5.30 5.50 5.0 –3.0
WILLIAM HUMMER Wayne Hummer Investments 2.5 2.8 2.9 3.0 2.9 NA 2.4 5.00 5.00 5.0 –3.8
DEAN MAKI Barclays Capital 3.0 3.5 3.0 2.0 2.9 NA 3.4 5.90 5.05 4.3 NA
MICHAEL MORAN Daiwa Securities America 2.4 3.2 3.2 3.0 2.9 1.5 2.6 5.75 5.05 4.4 0.0
JOHN RYDING Bear Stearns 2.8 3.1 3.0 3.0 2.9 4.7 2.9 5.80 5.30 4.5 2.0
RICHARD BERNER / DAVID GREENLAW Morgan Stanley 2.3 2.7 3.1 3.2 2.8 1.4 1.8 5.25 4.78 5.1 1.0
WILLIAM DUNKELBERG Nat. Fed. of Ind. Business 2.9 3.0 2.7 2.7 2.8 5.0 2.3 5.00 4.80 4.8 –10.0
STEPHEN GALLAGHER Société Générale 2.2 2.3 3.0 3.4 2.8 11.5 2.4 4.75 4.75 4.5 0.0
DANA JOHNSON Comerica Bank 2.5 2.7 3.0 3.0 2.8 6.0 2.1 5.25 5.40 4.8 NA
JIM MEIL / BILL ULLRICH Eaton 1.8 3.2 3.5 3.1 2.8 7.5 2.3 4.80 5.11 4.3 –1.5
DAVID RESLER Nomura Securities International 2.7 2.9 2.9 2.7 2.8 3.0 2.2 4.92 4.57 4.8 –3.5
DAVID SEIDERS National Association of Home Builders 2.7 2.8 2.9 3.0 2.8 5.7 2.4 5.00 4.90 5.0 –0.5
JOHN SILVIA Wachovia 1.4 2.8 3.4 3.5 2.8 8.0 1.6 5.00 5.20 5.0 0.7
ETHAN HARRIS Lehman Brothers 2.5 2.8 2.8 2.8 2.7 7.0 3.5 5.25 4.80 4.7 0.5
DAVID KELLY Putnam Investments 2.0 2.5 3.0 3.5 2.7 11.3 2.1 5.25 5.25 4.7 –2.0
SUNG WON SOHN Hanmi Bank 2.5 2.6 2.5 2.8 2.7 5.9 2.6 5.25 5.00 4.5 2.0
MICHAEL CAREY Calyon Corporate & Investment Bank 2.0 2.4 3.2 2.9 2.6 6.3 2.7 4.75 4.78 4.7 –0.3
GAIL FOSLER The Conference Board 3.0 2.5 2.4 2.5 2.6 3.0 3.5 6.00 5.00 4.8 NA
MICKEY LEVY Bank of America 1.7 2.4 3.1 3.4 2.6 3.1 2.5 4.75 4.80 4.9 –2.5
GREGORY MILLER SunTrust Bank 1.4 2.4 3.1 3.5 2.6 16.0 2.9 4.50 4.90 5.4 2.0
JOHN POPE Investment Economics 2.5 2.4 2.6 2.8 2.6 14.3 3.5 4.75 4.80 4.9 –5.5
ROBERT SHROUDS DuPont 1.5 2.5 3.0 3.5 2.6 3.0 2.6 4.65 5.00 4.9 0.0
NARIMAN BEHRAVESH Global Insight 2.8 2.2 2.6 2.4 2.5 7.4 2.6 4.50 4.55 4.9 –1.4
KEITH HEMBRE FAF Advisors 2.2 2.6 2.5 2.8 2.5 3.0 2.0 4.50 4.50 4.8 –5.0
STUART HOFFMAN      PNC Financial Services Group 2.2 2.0 2.8 3.0 2.5 3.5 2.4 4.40 4.40 4.9 –2.0
KEN MAYLAND      ClearView Economics 1.4 1.5 3.2 4.0 2.5 1.2 2.4 4.50 4.17 4.6 –2.5
ALLEN SINAI Decision Economics 2.7 2.5 2.3 2.9 2.5 7.9 3.1 5.26 4.72 4.9 –5.0
CONSTANTINE SORAS      GunnAllen Financial 1.6 2.6 2.9 3.0 2.5 5.9 2.3 4.75 4.59 4.6 –1.3
ROBERT MCGEE US Trust 1.3 2.2 3.0 3.1 2.4 –2.5 2.3 4.20 4.35 5.2 –5.0
JOEL NAROFF Naroff Economic Advisors 2.3 2.1 2.8 2.4 2.4 –3.0 2.3 4.25 5.00 4.5 –2.3
NICHOLAS PERNA Perna Associates 1.9 2.4 2.4 3.1 2.4 4.7 2.7 4.94 5.44 5.0 –3.0
JOSHUA SHAPIRO MFR 2.6 2.4 2.5 2.2 2.4 2.5 2.6 5.00 4.40 4.8 –5.0
DAVID WYSS Standard & Poor’s 2.9 2.1 2.1 1.9 2.3 5.7 2.6 4.70 5.00 5.0 –3.0
MAURY HARRIS      UBS 1.8 1.9 2.3 2.7 2.2 5.0 2.8 4.25 4.40 5.1 NA
JAN HATZIUS Goldman Sachs 2.0 2.0 2.0 2.5 2.1 2.3 2.8 4.13 4.68 5.1 –3.0
TOM HIGGINS Payden & Rygel 1.5 2.0 2.2 2.5 2.0 10.0 2.5 4.50 4.50 5.2 3.0
KEVIN LOGAN Dresdner Kleinwort 1.6 2.0 2.1 2.2 2.0 4.9 2.4 4.24 4.36 5.1 –2.5
PETER HOOPER Deutsche Bank Securities 1.5 1.9 2.1 2.4 1.9 9.0 2.1 5.00 5.00 5.2 0.0
LYNN MICHAELIS Weyerhaeuser 2.1 2.6 1.6 1.0 1.8 NA 3.8 4.80 5.30 5.4 –8.0
WAYNE ANGELL Angell Economics 1.2 1.0 1.2 1.8 1.3 9.0 1.0 4.20 4.10 4.5 –15.0
IAN SHEPHERDSON      High Frequency Economics 0.0 0.0 2.0 2.5 1.0 –8.0 2.5 3.60 3.70 5.6 –2.0
JAMES SMITH Parsec Financial Management 2.2 –1.4 –2.6 4.6 0.7 –6.1 0.8 2.50 4.14 5.0 4.7
CONSENSUS 2.3% 2.6% 2.7% 3.0% 2.6% 5.5% 2.5% 4.90% 4.88% 4.8% –1.7%

So, general consensus seems to have US GDP growth from 2.2% to 2.6%. I think this is a little optimistic. With the housing market likely to weigh on growth more and declining corporate profits, I would look for  growth in the 1.9% to 2.2% range. Corporations will have increasing wage pressure and declining revenue growth because current levels are not sustainable. I suspect these issues combined with housing and engery pressure will rein in GDP growth in 2007. This morning we will get a sense of what the FED thinks, with the release of the FOMC minutes. Only time will tell!

Sources:

Economist: http://www.economist.com/markets/indicators/displaystory.cfm?story_id=E1_RQVPRTG

Business Week.com: http://www.businessweek.com/magazine/content/06_52/b4015038.htm

 

Poised for Rebound?

Here is some added information on the same topic in the earlier post. The Wall Street Journal has an interesting article on the economic outlook for 2007. I am not sure we want a rebound from 2006, so poised for a rebound may not be a good thing. Nonetheless, here is a comment I thought was interesting.

Ian Shepherdson, chief U.S. economist at consulting firm High Frequency Economics and one of the survey’s most pessimistic forecasters, places the odds of a recession at one in two. He believes that home construction still has a long way to fall before it levels off with demand, and that the Fed’s rate increases, which helped push corporate borrowing costs upward by about a full percentage point between fall 2005 and spring 2006, have yet to take their full toll on business activity. Mr. Shepherdson expects real GDP to grow at an annual rate of 0.5% in the first half of 2007 and 2.25% in the second half.

“It’s going to be worse than the consensus expects,” he says. “My guess is that we’ll probably avoid a recession, but by the skin of our teeth.”

[Tough Calls Get Tougher]

 

 

 

 

 

 

 

 

 

 

Economic forecast unreliable????  No!!!!! They did add the caveot, as they get closer to a recession.

The Big Picture has some interesting comments on this article and housing. Worth checking out!