Growth retreating to the bear's cave

Wednesday, April 27, 2005

Durable goods orders came in far below expectations. With a minus of 2.8 percent, the biggest since November 2002, it undershot the analysts consensus of plus 0.3 percent to such an extent I am still grasping for words.
As these were March figures, they are most likely to destroy hopes that GDP growth, to be published on Thursday, really declined to only 3.6 (3.9) percent on a year-to-year basis.
With the strongest declines seen in the transportation and computer sector, the hopes of the Federal Reserve for an uppick in technology related capital investments, stated in the FOMC minutes from March 22, vanish like the whiff of Chanel No.5 in a commuter train. Also note that the February figure, then supporting the stock market for a couple of points upwards, was revised to minus 0.2 percent after a provisional figure that had showed 0.5 percent growth initially. Growth finally retreats to the bear's cave, as the majority of the most recent figures has shown - consumer confidence, housing starts and the Philly Fed Index - to name only the three most recent shockers that put a lid on Wall Street's half hearted recovery from the year's lows.
The spate of bad numbers is to continue this week. Besides a now probably already much more cautious expectation for Thursday's GDP figures, consumer sentiment and the NAPM index on Friday are likely to be more nails in the bull's coffin.
From the view of the technician the charts don't offer any reason for optimism either. The S&P 500 has distanced itself far from the key resistance at 1163 that used to be a formidable support since the beginning of 2005 after the triple top above 1200. Next support zone to be found around 1100, then 1000 and then? Dow watchers see the next support at the psychological level at 10,000, followed by a support zone between 9800 and 9750. But with more fundamentally negative surprises in the bushes, see todays previous post, I think we are headed for a down year in stocks.
Bonds will not be able to escape the bear's claws either. Inflation figures have no other way than up once business has no other way than to pass on its higher oil and material bills to consumers.
The backed-by-nothing dollar took a little dive after the durable goods orders shock. I want remind my readers that it is the strength of an economy that gets reflected in a currency. Higher interest rates have nothing to do with the attractiveness of a currency. In doubt about this correlation? Take a look at the development of the Zimbabwe dollar. That currency startetd out a rate of 55:1 to the dollar after independence. Conclusion: It's never the economy but always politics that destroy a currency.


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