A hearty welcome back to the grind for those in the office today. For years on end I have avoided breaks, vacations and general contact with civilization for the good of sharpening the analytical market mind. But in my advancing age, I have slowly learned that a five-hour reprieve on a holiday from all things market is reasonable as a means to restore the creative juices.
Alas, that five-hour pause was only an hour on Christmas Day as the family picked my brain on the fiscal cliff and the accountant brother preached impending tax-filing doom. The opinion I have on the market near term is well documented (bearish), so there is really no need to state the obvious 'cause I am not budging. At this juncture, my daily intelligence gathering is focused on unearthing supporting evidence for the bearish thesis on risk assets, better to have a wall of defense in case a bull is inclined to step to this young, market-analyzing stud.
Here are a couple of bricks in that wall:
The Dow Transports and S&P Railroad indexes have been on a sneaky, methodical tapering off since Dec. 17. When I look at the charts of each, it's as if the market is trying to whisper to the bulls with the highest IQ level to cash in chips won on falsehoods rather than substantive information. Further, the direction of these domestically-oriented indices continues to reflect hope that the U.S. avoids a cliff-induced 1H13 recession. I have maintained the view the U.S. will narrowly avert a 1H13 recession, but am experiencing newfound reservations on that assumption should stocks in fact dive in the next two weeks. Recall, earlier in the week I assigned an above-average probability for a large down day in the markets shortly (more robust than Dec. 21), fed by a ruthless concoction of (1) a stopgap fiscal cliff deals being delayed into the start of January and (2) that stopgap measure bringing forth a credit rating downgrade while politicians craft a hurried, half-baked finally piece of legislation. If you are not re-reading the series of events from the traumatic debt ceiling event, do so today.
I like to live dangerously (you see the Twitter avatar) and will toss this out there. The path to slightly negative 1Q13 GDP is possibly being laid as we speak. Consider (1) two dreadful reads on consumer confidence (the Conference Board report this week I anticipate will fall sharply from November highs and increase the angst on the health of the consumer (2) in almost three months, profit growth estimates on companies have shed 700 bps to around 3% (S&P) AND profit warnings are outpacing positive preannouncements by a more than a 3-to-1 ratio. Not sure how you interpret this, but I see this as a meager level of profit growth that has greater risk to running negative and surprising the still-too-amped Wall Street.
Face it, our buds in DC have done it again, passed the buck on a known issue to the final moment only to give us something that is of mediocre quality. Mediocrity will breed an upset market and an upset market is one where stock valuations are forcefully adjusted following weeks of being led down a road of promises.
Definitely not surprised by the less-than-stellar holiday sales numbers. The holiday season ended as it begun, provided you understood what to look for amidst an array of sexy survey data. Here is some required viewing and reading to get insight into where I was coming from in December on the consumer. Feel free to comment below the post, or reach out via e-mail.
P.S. You are NOT to buy retail stocks today.