The magnificent 7 and equity markets - Review 11

Since I last wrote about the magnificent 7 in February 2011, a lot has happened and it is rather appropriate to review where do we stand at the beginning of 2012.

Despite all discussions about recession/double dip in the US for most of 2011, it did not occur and growth looks to carry on, whilst at a moderate pace; this is strikingly different from what we have been witnessing in Europe since the summer and the inability of European policy makers to put the eurozone (“EZ”) house in order.

In 2011, the DJ increased 5.5% (the S&P 500 was flat) which is not so bad given what happened in the world, and in Europe in particular. If one picked up dividend aristocrats it was a reasonable year in the US.

 In Februray 2011 I wrote: “Economic news from the US continue to point towards a continued GDP growth and a (slowly) improving situation in unemployment; Commercial and Industrial Loans at All Commercial Banks in the US have definitely passed the trough and now seems to be well entrenched in an upward move”.  . The latter indicator has displayed the 12^th positive number in a row for a total of USD +114 bn (USD -411 bn during the 25 months starting in November 2008) and this points towards a continued growth in the US 6 months ahead.

Friday’s employment numbers were rather positive at +200k bringing the unemployment rate down to 8.5%.

Things indeed went in the right direction and 2012 starts under the same auspice bearing that:

• The FED continues with its low interest rate policy along the yield curve, which is most likely during a Presidential election year and in the current economic environment.
• International investors continue to buy the US debt, which they should in my opinion by the lack of other choice, continuing to believe that the US will tackle one for all its deficit and inflation will be kept in check. 

In Europe, the picture is getting worse by the month, even the German engine is slowing down markedly. There are more and more voices calling for custom tariffs to fend off imports from low costs producing countries and added regulation: Europe has been naïve with its strong euro policy (well, it was Germany’s call to get the euro) and is battling the last war with increasing regulation, taxation and bureaucracy. Until the EZ sorts out its mess (both banks and over indebted countries) growth will be sub-par. This being said, like in the US, there are world class companies, which are more affected by what happens in the fast developing world, and very profitable niche players that we like to find at P&C.

Fast growing economies in the rest of the world keeps up forging ahead whilst inflation continues to be a real issue (food prices remain very high in China and India, albeit going down recently). However, this is more a consequence of a growing population and a faster developing middle class: a strong engine to growth. In addition, some countries like India are going 2 steps forward and one backwards in terms of liberalization of their markets (for example opening up the country to foreign supermarket companies). 

The graph below is self-explaining…

S&P 500 Banks index: for over two years, the index has traded range bound and has yet to decisively to breach the 165 level; there is no sign this happening any time soon and, conversely, there is no sign of a deterioration either, US banks continuing to recapitalize thanks to an unabated FED QE. In my opinion, the level comes from a continuing reappraisal of the future profitability of banks (less leverage + more controls = lower ROE) versus their ability to pass on additional costs to customers. Neutral.

Global 1200 financial index: The index broke its 200 MA in May 2011 and several support levels, reflecting the deepening crisis in the EZ and the need to recapitalize European banks beyond the official numbers (not talking about OTC derivatives where nobody knows what the global risk is, even banks on an individual basis probably do not know their real risk); the solid 800 floor was penetrated without a whisper and now represents a resistance. The outlook for a number of Europeans banks is bleak and the introduction of Basle III rules ahead of the 2019 deadline is adding pressure. Negative.

TED spread (LIBOR USD 3 mth - US 3 mth T-bills): since July, the spread has deteriorated but in an orderly manner (the OIS displays the same pattern) and is nowhere near the 2008 crisis levels, with central banks reacting very quickly by opening USD swap lines and the ECB offering 3 years lines of credit (LTRO) in the tune of EUR 426 bn. Neutral

USD bank BBB 10 yr - US 10 yr yield: In July the spread started to widen markedly, whilst well below the extraordinary stress of 2008-2009, to pause for the past 2 months. Neutral.

OEX volatility: OEX volatility had a spike during the summer but did not break the high of 2010 and has since come back to the low 20s. Positive.

S&P Case Shiller house price index: The latest data for US home values (October) published 27^th December have continued to go down for the 5^th consecutive month, only two cities showing positive numbers.

The unadjusted data are negative (-4% since July, the recent high); adjusted data display the same pattern:

Composite-10: Oct 2011: m/m -1.1%; y/y -3.0%

Composite-20: Oct 2011: m/m -1.2%; y/y -3.4%

As the report comments:

“Some of the other housing statistics posted relatively healthy figures for November, but it seems that most of the good news was confined to the multi-family sector. Existing home sales rose in November, but are still at a low annual rate of about 4.0 million. Single family housing starts also rose, but remain close to record lows and are still down about 1.5% versus October 2010.”

The recovery did not materialize. Negative.

Oil price: The WTI oil reached a peak of $115 to settle down in a $80 - $110 range. In 2011, the story was he spread between the WTI and Brent which reached $25 in August reflecting the glut of crude at refineries in the US and the Arab world revolutions with oil disruptions in Libya. In the US, unconventional oil & gas recovery is a game changer which explains low prices for natural gas at below $4/btu: Neutral.

Conclusion: The indicators on the banking situation deteriorated, whilst other indicators are mostly neutral. The macro-economic situation between Europe and the US is diverging to the advantage of the latter, even if in both cases public finances are in disarray. The magnificent 7 are telling us that nibbling equity markets will provide an interesting return.

2011 was bumpy and 2012 will be no less hectic.

Continue investing in high yielding equities / net cash companies with a strong franchise and look at strong brands in fast growing economies.

09/01/2011

 

Sources:

Markets & Beyond: The magnificent 7 and equity markets - Review 10

http://marketsandbeyond.blogspot.com/2011/02/magnificent-7-and-equity-markets-review.html

US Department of the Treasury: Monitoring the economy

http://www.treasury.gov/resource-center/data-chart-center/monitoring-the-economy/Documents/monthly%20ECONOMIC%20DATA%20TABLES.pdf

S&P/Case-Shiller Home Price Indices

http://www.standardandpoors.com/servlet/BlobServer?blobheadername3=MDT-Type&blobcol=urldocumentfile&blobtable=SPComSecureDocument&blobheadervalue2=inline%3B+filename%3Ddownload.pdf&blobheadername2=Content-Disposition&blobheadervalue1=application%2Fpdf&blobkey=id&blobheadername1=content-type&blobwhere=1245326665736&blobheadervalue3=abinary%3B+charset%3DUTF-8&blobnocache=true

Markit (via Business Insiders): Manufacturing PMI indices by country

http://www.businessinsider.com/chart-of-the-day-manufacturing-pmis-january-2011-vs-december-2011-2012-1?nr_email_referer=1&utm_source=Triggermail&utm_medium=email&utm_term=Money%20Game%20Chart%20Of%20The%20Day&utm_campaign=Moneygame_COTD_010312

The magnificent 7 and equity markets - Review 10

I have not written about the magnificent 7 for a couple of months and it is rather appropriate to review them following the strong performance displayed by equity markets around the world since then.

In September I wrote: “I have not changed my view of no double dip and the FED QE2 (USD 1 trillion dollar additional liquidity) if confirmed will fuel asset prices. […]The S&P500 … has yet to pass the 1200 mark again which I expect to be done by the end of the year”. Since September, the S&P 500 went up 20% (including last week correction). Late October the market started to accelerate and became overextended; events in the Arab world have triggered an overdue correction.

Economic news from the US continue to point towards a continued GDP growth and a (slowly) improving situation in unemployment; Commercial and Industrial Loans at All Commercial Banks in the US have definitely passed the trough and now seems to be well entrenched in an upward move: it shows that banks are again net lenders to the economy (+ USD 13.7 billion in two months – for other economic indicators please refer to http://marketsandbeyond.blogspot.com/2011/02/us-economy-outlook.html). In Europe Germany is almost exclusively the only growth engine with a rapidly improving economy on the back of strong exports and an improving domestic consumption. Fast growing economies in the rest of the world continue to forge ahead whilst inflation is becoming a real issue and will put pressure on Central Banks/Governments to act sooner rather than later; this is reflecting in stock markets (+/- 10% down).

S&P 500 Banks index: the index has traded range bound for 18 months and has yet to decisively to breach the 165 level; there is no sign this happening any time soon and, conversely, there is no sign of a deterioration either. In my opinion, the level comes from a continuing reappraisal of the future profitability of banks (less leverage more controls) versus their ability to pass on additional costs to customers. Positive.

Global 1200 financial index: Since July 2009, the world financial is trapped within a 20% range, 800 representing a solid floor and 1000 a ceiling difficult to decisively pass. Reasons for this are equivalent to the US: new domestic/regional rules and new BIS capital ratios. However, in Asia, banks are slightly under pressure due to persisting questions about the magnitude of non-performing loans in China in a booming economic environment which is spurring inflation, whilst in Europe fears about the health of Eurozone banks regularly comes back to the forefront together with problems with PIGS countries. The index continues trading around its 200 days moving average. Positive.

TED spread (LIBOR USD 3 mth - US 3 mth T-bills): the spread continues to stand well below its 20 years average (the OIS displays the same pattern whilst has started to pick up since December reflecting persistent question marks about the quality of European banks’ assets) . The interbank market shows no stress. Positive.

USD bank BBB 10 yr - US 10 yr yield: After posing for a coupe of months, the spread started to march downwards again in November. Positive.

OEX volatility: OEX volatility continued to regress to break the 20% level, recently checked by events in North Africa and the Middle East. Neutral.

S&P Case Shiller house price index: The latest data for US home values (December) published 22^nd February have continued to go down for the 5^th consecutive month, only two cities showing positive numbers.

The unadjusted data are negative (-4% since July, the recent high) - adjusted data post the same pattern:

Composite-10: Dec 2010: m/m -0.85%; y/y -1.20%

Composite-20: July 2010: m/m -0.96%; y/y -2.38%

As the report comments:

“We ended 2010 with a weak report. The National Index is down 4.1% from the fourth quarter of 2009 and 18 of 20 cities are down over the last 12 months. Both monthly Composites and the National Index are moving closer to their 2009 troughs.”

The slow recovery faltered. Negative.

Oil price: The oil prices broke through $ 90/b to trade at $ 112 for the Brent and $98 WTI. The situation in the Arab world compounded already rising oil prices. Events in Libya (1.6 million b/day production, now shut down) escalated fears in the market even if there is no penury expectation due to spare capacity within OPEC that would come on-stream if needed (+/-3 million b/day). However, continued unrest in the region and a real possibility of this spreading to Gulf producing states, including Saudi Arabia, will continue to maintain high prices: this will act as a tax on growth; for the past 40 years, all recessions had oil prices spiking beforehand. In the US natural gas prices traded well below $4/btu until Friday when prices passed the $4 mark; still, they remain at depressed levels thanks to shale gas. Uranium jumped 50% to $65 since our last review late September. Half-way has been walked to the June 2007 at $138: Negative.

Conclusion: The indicators on the banking situation remain significantly positive, the rest definitely turned down. Equity markets are correcting (overdue since the divergence with the 200 days MA was getting overstretched); the risk is that this correction gathers pace due to higher oil prices and inflationary pressure already significant in fast growing economies (and starting to appear in the Western world) leading to monetary tightening. The magnificent 7 are telling us that it is time to reduce exposure to equity markets in fast growing economies and high beta stocks elsewhere.

Continue investing in high yielding equities / net cash companies with a strong franchise. Opportunities will soon come up in emerging markets.

Sources:

S&P/Case-Shiller Home Price Indices

http://www.standardandpoors.com/indices/sp-case-shiller-home-price-indices/en/eu/?indexId=spusa-cashpidff--p-us----

The magnificent 7 and equity markets - Review 9

In my previous review (10th August), I concluded: “The 15% correction seems to have just been a pause in a bull market ... I stick to my no tightening by the FED expectation … and the ECB any time soon despite the rhetoric. This will be supportive to equity markets and a major tailwind.”

I have not changed my view of no double dip and the FED QE2 (USD 1 trillion dollar additional liquidity) if confirmed will fuel asset prices.

After a low reached late August on the S&P 500 at 1050, the market has since regained 100 points and is trading around its 200 days moving average which has been flat since the beginning of the summer (watch if it is turning down). The S&P500 is at the same level as in January and has yet to pass the 1200 mark again which I expect to be done by the end of the year.

Economic news from the US continue to point towards a slower GDP growth and still high unemployment, but no double dip; Europe has also showed recent signs of better growth, mainly due to German exports. Fast growing economies in the rest of the world do not show signs of weakeness.

One interesting indicator is the Commercial and Industrial Loans at All Commercial Banks in the US released Monday: it displayed the 3rd consecutive month of growth, the first time since October 2008; whilst at an extremely slow pace (USD 4 billion increase over the 3 months compared to USD 404 billion decrease between October 2008 and June 2010), it shows that banks are again net lenders to the economy and the sector is healing.

S&P 500 Banks index: the index has traded range bound for a year and has yet to decisively to breach the 165 level; there is no sign this happening any time soon and, conversely, there is no sign of a deterioration either. In my opinion, the level comes from a continuing reappraisal of the future profitability of banks with new rule domestically and new capital ratio to be adopted at the next G20 summit in Seoul in November versus their ability to pass on additional costs to customers. Positive.

Global 1200 financial index: Since July 2009, the world financial is trapped within a 20% range, 800 representing a solid floor and 1000 a ceiling difficult to pass. Reasons are equivalent to the US: new domestic/regional rules and new BIS capital ratios. However, in Asia, banks are slightly under pressure due to persisting questions about the magnitude of non-performing loans in China in a booming economic environment, whilst in Europe fears about the health of Eurozone banks regularly comes back to the forefront together with problems in Greece and Ireland in an economic environment lifeless. The index continues trading around its 200 days moving average which turned negative during the summer. Positive.

TED spread (LIBOR USD 3 mth - US 3 mth T-bills): the spread is now well below its 20 years average. OIS (displays the same pattern. The interbank market shows no stress thanks to massive QE and balance sheet repair. Positive

USD bank BBB 10 yr - US 10 yr yield: The spread continues to evolve above historical average but at stabilized in the 3% region i.e. the pre-Lheman crisis level. No sign of deterioration. Positive.

OEX volatility: OEX volatility is in the low 20% but still above its pre-August 2007 crisis. We need this indicator to stay at or below 20%. Positive.

S&P Case Shiller house price index: The latest data (July) published Tuesday continue to show improvement in the price of US home values which are back to the levels where they were in late 2003. Although home prices increased in most markets in July versus June, both Composites saw these monthly rates moderate in July.

The unadjusted data continue to be positive (2009 numbers in bracket):

Composite-10: July 2010: m/m +0.79%; y/y +4.05% (m/m +1.70%; y/y -12.70%)

Composite-20: July 2010: m/m +0.65%; y/y +3.18% (m/m +1.66%; y/y -13.25%)

As the report comments:

“While we could still see some residual support from the homebuyers’ tax credit, which covers purchases closing through September 30th, anyone looking for home price to return to the lofty 2005-2006 might be

Disappointed. Judging from the recent behavior of the housing market, stable prices seem more likely.”

“… the monthly rates also seem to be weakening. The next few months may give us an idea of the true strength of the housing market, as the temporary economic stimuli will have ended. Housing starts, sales and inventory data reported for August do not show signs of a robust market, and foreclosures continue.”

Signs are mixed and do not point towards a rapid recovery. Average.

Oil price: The oil prices continue to be trade in a $70-82/b tight range. Not much happening on the energy front. In the US natural gas prices trade well below $4/btu from $6 I January. Uranium went up $3 to $48 since our last review early August, level where it was in October 2009, still 3 times below its peak in June 2007 at $138: Positive.

Conclusion: All these indicators are positive but for the housing market. The 15% pre-summer correction seems to have just been a pause in a bull market having recouped over 50% of the losses. The magnificent 7 are telling us that equity market continue to be resilient with no sign of turning negative (do not forget, this is a trend view not a trading view).

The corporate results season for Q3 will soon start and should be supportive; I however do not anticipate anything more than a slow increase in equity markets over the next few quarters.

Continue investing in high yielding equities / net cash companies with strong franchise and selected stocks in fast growth economies.

Despite the strong showing of some financial stocks, I continue to stay clear.

The magnificent 7 and equity markets - Review 8

The S&P 500 has recovered 2/3 of its 15% April/June correction and is just trading above its 200 days moving average, itself in a flattish slope (the 1000 level held well). 

Economic news from the US are pointing towards a slower GDP growth and still high unemployment, but no double dip; Europe has showed recent signs of better growth, mainly due to German exports that are reaching growth rates not seen since 1984.; Fast growing economies in the rest of the world do not see signs of weakening, despite the continued fear of a real estate bubble in China (but authoritarian states are better armed to prevent/cope with it).

The magnificent 7 are telling us that equity market continue to be resilient with no sign of becoming negative. (I recommend readers to go to the GTI web site (www.global-thematic.com) for their monthly newsletter, one of the best available – don’t forget to quote Markets & Beyond to get a special welcome).

S&P 500 Banks index: after falling +/- 25% during the recent equity markets correction, the index is stalling on the 140 level. There is still a lot of noise around additional regulations of the banking sector in the US which to me is largely included in prices. Technically, the sector closely trades around its 200 days MA. Positive.

Global 1200 financial index: The world financial lost +/- 20% during the April-June correction, mainly due to the sovereign default risk in the Eurozone and has since recovered 2/3. The index is trading around its 200 days moving average. The publication in July of stress test results for 91 EU banks has alleviated fears of a meltdown in the short term at least. Positive.

TED spread (LIBOR USD 3 mth - US 3 mth T-bills): After peaking mid-June at nearly 50 basis points (0.5%), the spread went sharply down whilst not yet at its “normal” level. The interbank market shows little stress. Positive

USD bank BBB 10 yr - US 10 yr yield: Whilst still high and above historical average, the spread is back to it April 2008 level; it has been however stalling around the 3% mark since mid-April. Positive.

OEX volatility: OEX volatility is above 20% but 50% below its recent peak in May. We need however this indicator to stay at or below 20%, but the trend is right. Positive.

S&P Case Shiller house price index: The latest data (May) published 27th July continue to show improvement in their annual rates of return. Measured from June/July 2006 through May 2010, the peak-to-date figures for the 10-City Composite and 20-City Composite are -29.6% and -29.1%, respectively.

In May, the adjusted 10-City and 20-City Composites numbers show the 12th m/m and 10 out of 12 months consecutive increase respectively; the unadjusted data are also positive (2009 number in bracket).

Composite-10: May 2010: m/m +1.25%; y/y +5.4% (m/m +0.50%; y/y -16.8%)

Composite-20: May 2010: m/m +1.27%; y/y +4.6% (m/m +0.52%; y/y -16.9%)

As the report comments :

“While May’s report on its own looks somewhat positive, a broader look at home price levels over the past year still do not indicate that the housing market is in any form of sustained recovery … The last seven months have basically been flat.”

“We need to watch where the housing markets will go after these temporary stimuli go away. June’s existing and new home sales and housing starts data do not show much real improvement in those statistics either. It still looks possible that the housing market might bounce along the bottom for the foreseeable future, before showing any real improvement that will filter through to the rest of the economy”

Whilst one should not be distracted by short term noise, recent data are also pointing towards a decrease in prices. Signs are mixed and do not point towards either a rapid recovery or a double-dip. Average.

Oil price: The oil prices continue to be trade in a $70-90/b. Not much happening on the energy front. In the US gas prices trade below $5/btu from despite a positive seasonal factor. Uranium is back where it was in November 2009 at $45: Positive.

Conclusion: All these indicators are positive but for the housing market. The 15% correction seems to have just been a pause in a bull market.

Continue investing in high yielding securities / net cash companies with strong franchise and selected stocks in fast growth economies.

Despite the strong showing of some financial stocks, I prefer to stay clear in Western economies.

I stick to my no tightening by the FED expectation (only the fed funds really matter, not the discount rate) and the ECB any time soon despite the rhetoric. This will be supportive to equity markets and a major tailwind.

The magnificent 7 and equity markets - Review 7

The S&P 500 has fully recovered its January/February correction and continues trading above its 200 days moving average, itself in a positive slope. We are now a year after the through reached on 9th March last year with a 68% gain. The magnificent 7 are telling us that equity market are resilient with no sign to become negative. Most markets are positive and among the BRIC countries, Brazil is near it all time high and China is still in consolidation phase that started during the 2009 summer (I recommend the reader to go to the GTI web site for their monthly newsletter, one of the best available – don’t forget to quote Markets & Beyond to get a special welcome).

S&P 500 Banks index: the index has finally breached the 140 mark, a level not reached since December 2008. The index continues to trade above its 200 days moving average. Technically, the sector is slightly in overbought territory but nothing to worry about. Positive.

Global 1200 financial index: The world financial sector has almost totally recovered from its beginning of the year weakness, following the alleviation of fears of a Greek default. The index is back above its 200 days moving average. If there is no meltdown in the Eurozone area due to difficulties to finance budgets deficits and refinance public debt, the index should rather quickly break the 1000 level. Positive.

TED spread (LIBOR USD 3 mth - US 3 mth T-bills): The spread is now near its 20 years low reached in 2000, at less than 12 basis points (0.12%). The interbank market shows no stress and reflects the continued ample liquidity provided to US banks by the FED. Positive.

USD bank BBB 10 yr - US 10 yr yield: The picture continues to steadily improve despite the increasing number of US banks being taken over by the FDIC. Whilst still high and above historical average, the spread has steadily decreased to 3.5%, where it was in July 2008. Positive.

OEX volatility: OEX volatility is back to its low of the year at 17%, 10% less than the spike registered in January when the Greek crisis became widely known. We need this indicator to stay at or below 20%. Positive.

S&P Case Shiller house price index: The latest data (December) published 23rd February continue to show improvement in their annual rates of return. The S&P/Case-Shiller U.S. National Home Price Index, which covers all nine U.S. census divisions, recorded a 2.5% decline in the fourth quarter of 2009 versus the fourth quarter of 2008. This is a significant improvement over the annual rates reported in the first, second and third quarters of the year, at -19.0%, -14.7% and -8.7%, respectively.

In December, the adjusted 10-City and 20-City Composites numbers show the 7th m/m consecutive increase in both indices; the unadjusted data are however showing for the 3rd consecutive month a slight decrease.

Composite-10: December 2009: m/m +0.3%, y/y -2.4%

Composite-20: December 2009: m/m +0.3%, y/y -3,8%

The rate of improvement seen during the summer 2009 has not been sustained and the health of the recovery is still unclear. Signs are becoming more positive but still ambivalent. Slightly positive.

 

Oil price: The oil prices continue to be capped at +/- $80/b. Not much happening on the energy front. In the US gas prices, after recovering to +/- $6/btu from +/- $2.5/btu, are back below $5/btu with the number of rig count increasing rapidly. Uranium is back where it was in April 2009 in the $40 region: Positive.

Conclusion: All these indicators are positive. The 10% correction seems to have just been a pause in a bull market, does it?

I cannot however believe that all is fine. There are too many headwinds ahead (I will write an analysis on this subject in a forthcoming paper). This is mainly a trading market. For the rest, invest in high yielding securities / net cash companies with strong franchise.

I continue to expect no tightening by the FED (only the fed funds really matter, not the discount rate) and the ECB any time soon despite the rhetoric. This will be supportive to equity markets and a major tailwind.

The magnificent 7 and equity markets - Review 6

After a 10% decline between 20th January and 5th February, the S&P 500 is recovering and is still above its 200 days moving average, itself in a positive slope. We are now 10 month up after the trough reached on 9th March 2009. The magnificent 7 are telling us that there is no reason to become negative on equity (I recommend the reader to go to the GTI web site for their monthly newsletter, one of the best available – don’t forget to tell them that you are coming from Markets & Beyond).

S&P 500 Banks index: For 6-7 months the index has traded in a narrow 120-140 band. The index and the 200 days moving average continue to. The index is still 70% below the nadir reached in February 2007. The 120 support is holding very well. Positive.

Global 1200 financial index: The world financial sector did not hold the 1000 mark reflecting woes with sovereign risk in Europe, Greece in particular, and European banks exposure to this risk. The index went through the 200 days moving average but is not extended its losses. Positive.

TED spread (LIBOR USD 3 mth - US 3 mth T-bills): The spread is holding well its normal levels and is below 20 basis points (0.20%). The interbank market shows no stress. Positive.

USD bank BBB 10 yr - US 10 yr yield: Whilst still high and above historical average, the spread has steadily decreased since July and is nearly 3% below the highest point reached in March standing at 4.5%. Positive.

OEX volatility: OEX volatility had a spike corresponding to the Greek problem, but quickly came back near to previous levels. We need this indicator to stay at or below 20% however. Neutral.

S&P Case Shiller house price index: The latest data (November) published 26th January marked approximately 10 months of improved readings in the annual statistics, beginning in early 2009, and is the third consecutive month these statistics have registered single digit declines, after 20 consecutive months of double digit declines.

Adjusted numbers show the 6th m/m consecutive increase in both indices; the unadjusted data are however showing for the 2nd consecutive month a slight decrease. Prices for both indices are back to late 2003 level.

Composite-10: November 2009: m/m +0.24%, y/y -4.5%

Composite-20: November 2009: m/m +0.24%, y/y -5,3%

The signals are still unclear concerning the health of the recovery despite prices falling less rapidly y/y.

Signs are becoming more positive but still ambivalent. Slightly positive.

 Oil price: The oil prices continue to be capped at +/- $80/b. Not much happening on the energy front. In the US gas prices have recovered to +/- $6/btu from +/- $2.5/btu. One interesting development is the announcement of a new nuclear plant being commissioned in the US for the first time in 30 years: Positive.

Conclusion: All these indicators but OEX volatility (neutral) are positive. I was expecting a 20-25% correction and only 10% did materialized. 

I am again ambivalent: in the US, news are getting better if not great on the economic front and the earning season was good with 70% of companies reporting better than expected numbers, but are deteriorating in Europe. They look OK in emerging markets, China slowing down what was becoming an overheating economy, particularly in the real estate sector, and India expecting to grow above 7%. Nevertheless, there are strong headwinds ahead: wages are in a deflationary mood in the Western world, unemployment remains high, budget deficits are not really improving with a GDP growth which is muted, public debt is growing faster than ever. I do not expect any tightening by the FED and the ECB any time soon despite the rhetoric: we still are in a deflationary environment, and bank’s balance sheets are not strong enough to weather any large additional shock.