Reply #1: Today's Market WrapUp

[ozymandius]

Several Gauges for Recession
BY FRANK BARBERA, CMT

This year has started off in bizarre fashion as we have seen a sharp slow down in Housing roil the Sub-Prime Mortgage market, a nasty worldwide stock and commodity market sell off, followed by a incredibly robust recovery rally. Of late, the stock market has been powering to new multi-year, and in the case of some indices, all-time highs. Of course, if one were just looking at the action of the stock market, you might be fooled into a better impression than is warranted regarding the state of affairs for the broad US economy. In fact, over the last few years, the decoupling between Wall Street and Main Street has been unparalleled, with Wall Street perfecting its levitation act on the back of record doses of new credit and stock buy backs.

In this vein, we are dedicating today’s update to look at the current trends in the US Economy, and the creation of a ‘watch list’ – Ten Signs for Recession. In our view, it is very likely the case that the underlying mortgage market in the US is still a long way from recovery. In fact, we would not be the least bit surprised to see more problems surfacing in the months ahead as option ARM resets in 2007 will total over 1 trillion dollars. While some may argue that the problems in the mortgage market to date will be confined to the Sub-Prime market, in our view, chances are high that both the ALT A and Prime markets will be affected as the Real Estate market slows further. In addition, we also do not buy into the logic that a down cycle in Real Estate can somehow be excised from impacting the rest of the economy, and for that matter, the financial markets. Before the proverbial Fat Lady Sings, all will be affected, yet this is a slow motion slow down, and much of this will only become more visible with the passage of more time.

-cut-

What is fascinating, and more than a little surreal, is the way the headlines continue to sound buoyant (dominated mainly by the stock market), while behind the scenes the economy is clearly “JUST NOT FABULOUS!” to use the trendy expression among teens here in early 2007. Want more proof? OK, just look at the chart above which shows Nominal Retail Sales smoothed using a three month moving average as the basis for an annual rate of change. Is the line gaining or losing momentum? Notwithstanding all claims and protestations to the contrary, retail sales are in a downtrend and fast approaching the 3% threshold which has been the edge of recession territory. Looking a little deeper, it is also worth noting that normally very ‘stable’ business in the Beer, Wine and Spirits sector is showing signs of a slow down. In the next two charts, we show Retail Sales for “Restaurants and Bars” and “Beer and Wine” both using annual rates of change. Note that in recent months, there has been a distinct trend toward slowing sales.

http://www.financialsense.com/Market/wrapup.htm