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Ed Yardeni
O Ed Yardeni είναι διεθνούς φήμης αναλυτής και σύμβουλος επενδύσεων
19 Ιανουάριος 2011
MAJOR TOPICS: Hello Hu! World Trade Booming. Hot Transports.
BULLET POINTS: (1) Visit our new blog. (2) Small and big deals. (3) The largest
exporter and the biggest lender. (4) China offers easy credit to the world. (5)
Technicians are bearish again. (6) From Death Crosses to Golden Crosses. (7)
Fundamentals are bullish. (8) Fats Waller and global trade. (9) They have emerged.
(10) Still recommending overweighting Airfreight & Logistics and Railroads.
NOTICE: Our Morning Briefings are now available on FactSet.
I) BLOG: We just launched our blog yesterday and invite you to visit it at
blog.yardeni.com. I believe that I was the first economist on Wall Street with a
website back in 1995. There are certainly lots of economists with blogs these days.
We will use ours to highlight one or two charts that are related to the major topic of
our Morning Briefing. Today we focus on the boom in world trade.
II) CHINA: Chinese President Hu Jintao arrived at Andrews Air Force Base outside
Washington on Tuesday for his first visit to the US capital since 2006. Today he will
meet with President Obama and other officials. On Thursday, he'll meet with
congressional leaders and business executives before traveling to Chicago. It’s a short
visit, and it is unlikely to generate any significant market moving news, as China
continues to move markets around the world.
There will undoubtedly be another round of discussions about America’s trade
imbalance with China. China is now the world’s largest exporter with the nation’s
exports totaling $1,553bn during the 12 months through November 2010, exceeding
Germany’s total of $1,258bn over the same period. China exported $361bn of goods
to the US, while the US exported only $90bn to China over the 12 months through
November. The resulting US trade deficit with China was at a record high of $271bn.
While there is a great deal of political fury in Washington about this imbalance, it’s
very small compared to nominal GDP in the US, which was nearly $15tn during Q32010. From this perspective, Washington’s obsession with forcing the Chinese to let
their currency appreciate as a way to narrow the trade deficit with China seems rather
beside the point.
The point is that China is not only the world’s largest exporter; it has also emerged as
the world’s largest lender. And America has become the world’s largest borrower.
They say if you owe enough to your bank, then you own the bank. America doesn’t
have that sort of leverage over the Chinese, who owned $895.6bn in US Treasuries
during November. Nor are Americans in a position to compete successfully in global
trade contests, where trade financing can make or break deals.
Yesterday’s India Daily reported: “China has lent more money to other developing
countries over the past two years than the World Bank, says Financial Times. In
reality China and India has loaned in excess of $180 billion to the developing world
dwarfing the World Bank's loan commitment of $100 billion in the same period. It is
an indication of the scale of Beijing’s and New Delhi's economic reach and their drive
to secure natural resources. Most of the loans and some outright aid have been geared
towards promoting imports of Chinese and Indian goods and services. It has also
concentrated on energy resource gathering and creating an alternate source for access
to capital for poorer nations.”
The FT article mentioned in the India Daily story appeared yesterday. It noted that
China Development Bank and China Export-Import Bank signed loans of at least
$110bn to other developing country governments and companies in 2009 and 2010.
Last October, India’s Reliance Power agreed to purchase $10bn in Chinese power
generation equipment thanks to a generous 12-year loan that undercut GE’s bid by a
whopping 60%! Seller financing works wonders at attracting and closing deals. The
Chinese have a huge pot of money to lend out that continues to grow along with the
nation’s trade surplus. As a consolation prize, GE is expected to sign a series of deals
with China this week worth over $4bn.
Seller financing does work wonders until it stops working. It can create speculative
bubbles that eventually burst. Right now, the Chinese are doing their best to invest
their money around the world to produce more raw materials. They’ve committed
some of their spare change to aiding debt-challenged EU governments by committing
to purchase some of their bonds. They need stability in Europe, which imported
$311.2bn of Chinese goods over the past 12 months through December.
China’s global outreach program is clearly motivated by the nation’s desperate need
for more food, energy, and industrial commodities. With such a large motivated buyer
in the market, it’s no wonder that commodity prices are soaring, and should continue
to do so this year. The Chinese are bound to counter Washington’s demands for a
stronger currency by complaining that the Fed’s QE-2.0 program is boosting
commodity prices. Nice try. The fact is that China’s inflation problem is homegrown.
No one does quantitative easing better than the Chinese. As I’ve noted previously,
over the past two years through November, China’s international reserves, bank
reserves, and M2 are up 47.6%, 51.9%, and 58.9%.
III) STRATEGY: Some of my best friends are technicians. Heck, Joe and I dabble in
this ancient art on a weekly basis. Yesterday’s “Abreast of the Market” column in the
WSJ focused on bearish technical indicators. They are mostly bearish because they are
warning that there is too much bullishness in the market. The S&P 500 has been up
seven weeks in a row, the longest stretch of weekly gains in four years. It hasn’t
closed below its 10-day moving average in more than 30 trading days. Sentiment
surveys show bulls significantly outnumbering bears, which typically is what happens
near market tops before corrections or bear markets.
Technicians were also mostly pessimistic last summer. Back then, they were bearish
because the S&P 500 was falling and they expected it would continue to do so,
especially when the S&P 500 fell below its 200-day moving average on May 20. They
also saw a Death Cross in their charts when the 50-day moving average fell below the
200-day moving average on July 1. There was an ugly looking head-and-shoulders
formation to boot. And who can forget the dreaded Hindenburg Omen? It also merited
a column in the WSJ in the August 26, 2010 issue (linked below). Now the S&P 500
is 12.5% above its 200-day moving average. Joe observes that it has been in a Golden
Cross formation since October 21, when the 50-dma rose above the 200-dma.
Joe and I agree that the rally looks to be on thin technical ice. However, we don’t
expect a meltdown. On the contrary, we won’t be surprised if global stock markets
continue to melt up and make technicians even more nervous. Our Fundamental Stock
Market Indicator rose to yet another cyclical high in early January led by another
record high in industrial commodity prices. Both the Fed and the PBOC continue to
provide lots of liquidity through their policies of quantitative easing. Most
importantly, the stock market rally has been based on a very robust rebound in global
exports, production, and profits, which should continue through the first half of this
year.
* S&P 500 Q4 Earnings Season Monitor (daily): About 8% of the S&P 500
companies have finished reporting Q4-2010 earnings, and the early results indicate
that it’s off to a good start. We expect more companies to report higher y/y earnings
and revenues in Q4, and expect that the earnings and revenue surprises will be bigger
than in Q3. With results in for 40 of the 500 companies, earnings and revenues are
5.5% and 1.8% above the analysts’ forecasts. Earnings are 152.8% higher than a year
ago and revenues are up 18.9% y/y. Excluding the volatile Financials sector, the
earnings and revenue surprise improves to 9.2% and 2.1%, respectively. Y/Y earnings
and growth excluding Financials falls to 30.3% and 11.8%, respectively. Q4 is certain
to mark the S&P 500’s eighth straight positive earnings surprise following six
negative surprises in a row through Q4-2008.
* Fundamental Stock Market Indicator (weekly): Is our Fundamental Stock
Market Indicator (FSMI) still a good coincident indicator for the S&P 500? Better
than ever! Our FSMI is the average of the Weekly Consumer Comfort Index (WCCI)
and our Boom-Bust Barometer (BBB). It rose for the 21st time in 23 weeks, up 2.0%
during the week ending January 8 and 30.1% over the 23-week period. The recent
move up in the FSMI has put it at its highest level since April 2008. The BBB has
driven the gain. It did slip 0.7% during the latest reporting week, but remains on steep
uptrend, rising 19 of the past 21 weeks for a total gain of 39.2%. Claims edged higher,
based on 4-wa, but remain near their lowest readings since July 2008. The CRB raw
industrials spot price index has soared to new highs. The WCCI slumped 3 points
during the week ending January 15 after jumping 5 points to a three-year high the
prior week.
* Stock Market Sentiment Indicators: Investors Intelligence Bull/Bear Ratio
slipped to 2.68 this week after climbing to an 8½-month high of 3.00 last week. The
reading was at 0.78 at the end of August, which was the lowest since March 24, 2009.
Bullish sentiment fell to 56.0% from 57.3%, remaining near mid-December’s 58.8%
reading which was the highest since late 2007. Bearish sentiment edged up to 20.9%
from 19.1%, which was the fewest bears since early May. The percentage of advisors
predicting a correction fell for the second straight week from 25% to 23.1%. The
AAII Bull Ratio declined to 69.1% during the week ending January 12, after climbing
from 72.0% to 75.4% the prior week. Bullish sentiment fell from 55.9% to 52.3%,
while bearish sentiment rose from 18.3% to 23.4%. In the futures pits, large
speculators are neutral on the S&P 500 and slightly bullish on the Nasdaq. S&P 500
Put-Call Ratio increased to 1.70, based on 4-wa, after edging down from 1.67 to 1.65
the prior week.
* S&P 500 Technicals (weekly): How’s the technical picture looking for the S&P
500 and its 10 sectors? The S&P 500 is at a new bull market high after testing its 50-
dma in late November, and has risen 26.6% from the July 2 low. The S&P 500 is
trading 4.8% above its rising 50-dma, and 12.5% above its rising 200-dma, up from
last week’s reading of 3.7% and 10.9%, respectively. The S&P 500 has been in a
bullish Golden Cross pattern since October 21. A Golden Cross indicates that the S&P
500 is in a bull market. It occurs when the 50-dma is higher than the 200-dma, and
both averages are also rising. Its 50-dma is 7.4% above its 200-dma now--having
risen off a September bottom (-3.2% on September 1) to the highest level in nearly a
year (since February 18, 2010). At Tuesday’s close, nine of the 10 S&P 500 sectors
were in a Golden Cross too. Telecom is trading 0.6% below its 50-dma, but remains
8.1% above its 200-dma.
IV) WORLD TRADE: As Fats Waller observed in his 1937 hit song, “The joint is
jumpin’, It’s really jumpin’, Come in, cats, and check your hats, I mean this joint is
jumpin’!” That swinging tune comes to mind as I look at the latest data on world
trade. Exports were really jumping at the end of last year and should continue to
swing higher this year. Exports are booming around the world, including in the US,
and driving global industrial production to new highs. That’s been great for corporate
earnings all around the world too, which should continue to push stock prices higher.
Many of the outperforming industries should continue to be those that benefit most
from booming exports. As the song goes: “To say that things are jumpin' leaves not a
single doubt that everything is in full swing when you hear someone shout. Here ‘tis:”
(1) Actually, a widely followed measure of the volume of world exports and our
favorite measure of global industrial production are dancing cheek-to-cheek. There is
an amazingly close fit between the export measure compiled by the Netherlands
Bureau of Economic Policy and the OECD’s measure of global industrial production,
which includes the 30 members of the organization and six major non-member
emerging economies. Both have rebounded from their 2009 lows back to the record
highs of 2008, and should be in record territory this year.
(2) The value of world exports--a series compiled by the IMF--soared over 50% since
its February 2009 cyclical low. It should surpass the record high of 2008 early this
year. Emerging nations are leading the boom, with their exports up 65% during the
current global recovery. That’s nearly double the gain of G7 exports, which are also
staging an impressive recovery.
(3) Emerging nations’ exports surpassed the exports of the G7 nations in July 1996.
Since then, their share of total world exports expanded from 50.1% to 65.5%, while
G7’s share dropped from 49.9% to 34.5%. The divergence between the New and Old
World’s shares should continue to widen as the emerging economies continue to
expand at a rapid clip and trade more with each other. (See Figures 3 and 4 in today’s
blog post.)
* World Trade: Which countries are leading the global trade boom? Emerging ones.
The value of world trade rebounded 53.3% since its February 2009 bottom to the
highest pace in almost two years during October. G7 exports increased 35.7% over
same period, while export growth in the rest of the world was nearly double that at
64.8%. Emerging nations’ exports, as a share of total exports, surpassed G7
economies in July 1996. Since then, their share has expanded from 50.1% to 65.5%,
while G7’s share has shrunk from 49.9% to 34.5%. Industrial commodity prices are
signaling continued strength in global trade. The CRB Raw Industrials Spot Price
Index, which is one of our favorite indicators of global economic activity, is soaring
again, suggesting a continued boom in both the volume and value of trade.
* Emerging Economies Exports: Are exports at record highs in Emerging Markets?
They are in many of them, especially in Asia and Latin America. In dollar terms,
exports in Indonesia, Korea, Brazil, and Chile have more than doubled from their
respective cyclical lows. Also staging impressive recoveries, with exports up more
than 70% from their 2009 lows: China, Singapore, Indonesia, Poland, and Romania;
up more than 60%: Argentina, Colombia, and Mexico; up more than 50%: Malaysia
and the Czech Republic. Regionally, Asian exports are at or near new highs in the
countries we track, with several going vertical recently. Latin American exports are
on steep uptrends except for Venezuela, where exports are stuck at recent lows. In
Eastern Europe, exports are trending higher in most countries we track, except for
Russia where they are moving sideways. Exports in the Ukraine and Hungary have
emerged from recent flat trends.
* G7 Exports: Are G7 exports approaching record highs? Yes they are. G7 exports
are up almost 40% since the spring of 2009 to two-year highs during November 2010.
Japan’s exports are up 59.4% from the March 2009 low through November 2010. The
UK finished second in the G7 growth derby, with exports up 43.7% over the same
time period. Canadian and German exports were close behind, up 37.3% and 37.0%
from their respective lows, with France and Italy up just over 30%. All gained
strength late last year after brief lulls.
* US Merchandise Trade: What impact is trade having on the US economy? It likely
added to GDP growth last quarter for the first time since Q3-2009. The real goods
trade deficit widened from $44.8bn to $45.2bn in November, but the average $45.0bn
gap during the first two months of Q4 is below Q3’s $48.8bn deficit. Real
merchandise exports remain on uptrend, only 4.0% below June 2008 record high,
while real imports are stalled around recent highs. The nominal US goods deficit
widened to $50.4bn in November after narrowing from $57.9bn to $49.8bn over the
prior two-month period. Nominal exports rose to the highest in more than two years in
November, while imports remain in flat trend. On a 3-month basis, nominal
merchandise exports outpaced imports, increasing 16.7% (saar) in the three months
ending November versus a 3.0% decrease for imports. The nominal services trade
surplus rose to $12.9bn in November, above Q3 average of $12.2bn, suggesting
services trade also contributed positively to Q4 GDP.
* US Exports to New vs. Old World: Are US companies finding more customers for
their exports in Emerging Markets? Yes, indeed. Since the start of 2000, their share of
US exports has increased from 30.5% to 40.6% through November 2010. These
exports are up 26.7% from 2009 low, based on 12-month sum, and 59.5% based on
actual monthly data. US exports to all regions except Japan and Europe climbed to
72.9% of all exports, the highest since the summer of 1978 and near April 1976’s
record high of 73.5%.
* Global Industrial Production: How goes global production? It remains on an
uptrend, but has lost some momentum. Asian and Latin American production indexes
are up big from latest cyclical lows, but most are stalled around recent cyclical highs.
China’s production still setting new highs, up 13.7% y/y in November. Taiwan
production has rebounded to new highs, after moving sideways for several months.
India’s output remains in volatile flat trend, 7.5% below July 2010’s record high.
Output in South Korea rose 1.4% in November, following a 3-month slide, and is
43.6% above its December 2008 low. Japanese output climbed 1.0% in November,
following a five-month drop of 5.4%. It’s 4.5% below May’s cycle high. In Latin
America, Mexican factory output is up 15.6% from its June 2009 low, while Brazilian
output is up 24.1% from its low. Both are stalled at cycle highs. European production
trending higher, up 13.1% since April 2009 bottom. Output indexes in Germany,
Italy, and France were 20.5%, 11.2%, and 10.8% above their respective 2009 lows,
with Germany on steep uptrend. UK factory production has increased 4.9% from its
bottom posted in August 2009. In North America, US output climbed to new cycle
high in December, following a brief dip. Canadian production is stalled around recent
highs, up 0.6% in October following a 1.6% loss and a 0.3% gain the prior two
months. In Eastern Europe, Poland production is up 19.0% from January 2009 low,
while Russian production is 13.6% above its December 2008 bottom, though both
have been moving sideways recently.
* G7 Capacity Utilization: How much excess capacity is there globally? Plenty.
Capacity utilization rates are rebounding in the G7 economies, though Japan’s rate
has turned down. Most remain considerably below pre-recession highs, though rates
in Canada and Germany are closing in.
* European Retail Sales: Where are eurozone retail sales heading? Nowhere.
November’s volume, excluding autos, fell 0.8%, following little growth the prior
three months, dropping to the bottom of its recent flat trend. Sales were only 0.9%
above September 2009 low, and 3.7% below February 2008 peak. Real nonauto retail
sales in France, Sweden, and Finland remain on uptrends, with Austria stalled around
recent highs. German sales were trending higher, but have turned down recently.
Belgium sales rebounded sharply from a big drop earlier in 2010, holding the gain in
November. Sales turning up in Italy, still in flat trends in the Netherlands and
Slovenia. Sales falling in the PIGS nations: Portugal, Ireland, Greece, and Spain, with
Portugal and Greece especially weak.
V) FOCUS ON TRANSPORTATION INDUSTRY (overweight): The stock price
index for the overweight rated S&P 500 Transportation Composite rose 29.7% in
2010 and is up 2.7% ytd to a record high. This composite performed better than the
Retail Composite stock price index and all 10 S&P 500 sectors in 2010. Forward
earnings up in December for a sixteenth straight month and at a record high since
August. Analysts expect annual earnings growth of 18.3% in 2011 and 15.9% in 2012
after surging 49.4% in 2010. Forward P/E of 16.1 is still relatively high and 24%
above the market, but suggests that the earnings recovery will continue to roll along.
NERI at 26.0% in December and positive for 15 straight months.
* S&P 500 Transportation, Railcar Loadings & Truck Tonnage: Has the recovery
in train and truck traffic stalled recently? Yes, but it should be a temporary pause.
Railcar loadings were little changed around 23-month highs in early January. Truck
tonnage slipped 0.1% in November, following a two-month gain of 2.8%. It remains
at the top of recent flat trend. It’s up 5.9% ytd versus the comparable 2009 period.
Railcar loadings increased 10.9% y/y during the week ending January 8, based on 26wa, with total carloads up 7.7% and intermodal loadings up 15.4%.
* Air Freight & Logistics (overweight): Overweight-rated Air Freight & Logistics
rose 25.8% in 2010 and is up 0.4% ytd and near a new bull market high. Forward
earnings up 1.5% m/m in December, but is still down 12.1% from the record high in
2007. Analysts expect annual earnings growth of 18.3% in 2011 and 15.6% in 2012
after surging 44.3% in 2010. P/E ratio at 18.5 in December and at a steep 43%
premium to the market. Both should fall if the V-shaped recovery in forward earnings
persists. Air freight pricing includes surcharges for higher fuel costs and has been
positive y/y since April after 16 months of negative readings. Pricing down to 9.9%
y/y in December from a cyclical high of 10.7% in October, but is up from a record
low of -25.8% in August 2009.
* Railroads (overweight): Overweight-rated Railroads’ stock price index rose 37.2%
in 2010 and is up 6.1% ytd to a new record high. Forward earnings 1.4% m/m in
December to a record high too as the consensus annual earnings forecasts continue to
rise. Analysts expect annual earnings growth of 17.3% in 2011 and 16.4% in 2012
after surging 46.5% in 2010. P/E up to 13.8 in December, but its relatively expensive
6% premium to the market suggests investors expect earnings to keep rising for a
while. NERI at 38.6% in December, and positive for 10 straight months following 15
negative readings in a row through March 2010. Y/Y percent change in the 26-week
ma of railcar loadings positive since mid-April for the first time since early 2007, but
down from a record high. Freight rate pricing down to 5.0% y/y in December from a
21-month high of 7.4% y/y in June, but positive since January 2010. Freight rate
pricing correlated well with changes in forward earnings in the past.
VI) UPDATES & LINKS: We have updated Analyst's Handbook: Transportation,
Global Industrial Production, and Valuation chartbooks on our website. Questions,
comments, downloading problems: [email protected] or call 480-6641333.