Signs of a recovery look promising in manufacturing, auto sales, real estate and other key sectors. But problems remain, and you should start protecting your portfolio now.
The economy is looking increasingly dicey for 2010.
What if there's a double-dip recession?
But recent numbers suggest that instead of accelerating off that fourth-quarter growth, the economy might be headed for a slowdown in 2010. Not all the way back to negative numbers but definitely a deceleration at a time when just about every stock is priced for acceleration in revenue and earnings.
There's nothing certain in these numbers. And I'm sure some of you will add them up differently. But let me give you the evidence that growth, rather than picking up, is going to start sputtering in 2010.
So far the numbers look pretty good for the fourth quarter.
Manufacturing continues to expand, according to the Institute for Supply Management survey. Yes, manufacturing activity dipped to a reading of 53.6 in November. That was lower than economists' consensus forecast of 55 and down from the 55.7 mark for October. But anything above 50 shows that the manufacturing sector is expanding. November marked the fourth consecutive month the index came in above 50.
November auto industry sales also strengthened, climbing to an annual rate of 11 million units in the United States. That's up from an annual rate of 10.5 million in October and 9.2 million in September. On Nov. 5, I wrote, "October is the first month since December 2008 to see the annualized rate of sales top 10 million units -- without the push of a government subsidy." More from MSN Money and MoneyShow.comAnother lost decade for investors?Hyperinflation gurus are just plain wrong3-step strategy for a twitchy marketJubak on video: Dollar's woes will lingerNew crisis ahead? 5 things to watchJubak on video: Auto sales data encouragingAnd now November has come in at an 11 million annual rate -- again without subsidies. In the month, General Motors reported that sales ran 6.3% above those of November 2008. Ford (F, news, msgs) was flat with November 2008 but picked up market share for the 13th time in the past 14 months. (Chrysler Group was the big loser, with sales down 25%.)
There were even promising signs out of the residential-real-estate sector. Released Dec. 1, the National Association of Realtors' October index of pending home sales was up 3.7% from October 2008. The index measures the number of new signed contracts for purchases.
If the data look that good for November, why am I worried about 2010? Three reasons:Worry No. 1: No steam in the stimulus Anecdotal evidence -- which is often less reliable than official surveys but runs ahead of the official surveys -- shows signs that the economic stimulus from last February is (a) wearing off sooner than expected in some sectors of the economy and (b) was indeed, as some of us worried at the time, too small to stem the rise in unemployment.
In the construction industry, for example, anecdotal evidence gathered by The Wall Street Journal strongly suggests that highway-construction companies have just about completed the small projects funded by the February stimulus package. Even with the stimulus work, unemployment in the construction industry had climbed to 19.1% in October from 10.7% in October 2008. In the transportation and material-moving sector, unemployment stood at 11.6% in October, up from 7.9% in October 2008.
The stimulus bill provided only $28 billion (out of $787 billion) for highway construction. And while stimulus money for bigger projects is still working its way into the economy, that $28 billion was spent largely on smaller, "shovel-ready" work that has just about been completed.
A recent survey by the Associated General Contractors of America indicated that 44% of contractors expect to lay off additional workers because of economic conditions.
The hope was that the stimulus package would be enough to get the economy back on a self-sustaining growth path. That hasn't happened yet. At least not in this sector.Worry No. 2: A lack of confidence Deeper analysis of some of the positive data from November reveals just how hesitant the recovery is.
Take a closer look at the manufacturing survey, for example. There's no sign yet that manufacturers are willing to bet on the economic recovery and build products before they have orders. An analysis by Briefing.com showed production falling slightly, even as manufacturing continued to expand, in response to a drop in new orders in October. Orders picked up again in November, but the production numbers didn't. I'd expect to see the production numbers climb again in December in response to that increase in orders.
This manufacturing to orders is also reflected in inventory numbers that show that no one is willing to build inventories in anticipation of future orders and sales. When orders fall, manufacturers cut production rather than keeping machines running and building inventory.
While it is a big positive that manufacturing is expanding, these numbers show that confidence is still extremely fragile.
Continued: Sad states
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Daddy,
I agree with you about going to cash if he is asking for recommendations about what to do. However, I don't say why you say go to cash and learn about MACD. Every trader, whether it be a scalper, daytrader, swing, position, needs to develop their own way to interpret the many different indicators available into a viable trading plan. I am not trying to get nasty, but everyone needs to figure out what works best for them. If MACD works for you, great! It may not mean or do much for him. As for market timing, if you are the one who finally figured it out, please tell the rest of us, or at least me!
Iffy...humm...okay....
Stok, we have successfully executed market timing (known as Tactical Asset Allocation) since mid-1999. This is broad-market timing using macro-economic analysis. We went to cash in early 2000 for reasons obvious to anyome who knows about bull/bear market trends or poker (chips off the table). Back in after S&P bounced off 800 twice in late 2002 and we waltzed into Baghdad. Out in 2007 after the early Roubini call and after four year bull. Back in after the 3/09 crash at 50% with a lot of International Small Cap (OAKEX up 70% YTD) and Gold Mining (BGEIX up 65% YTD). The rest of the 50% goes in to Buy Low after the coming pullback per Mr. Jubak's excellent article.
See a fee-only Independent RIA who practices active asset management AND who has an economics degree AND who has successfully made a lot of money in the markets since 1999. It was not that difficult, but it did require patience, research, lots of work and some poker skills to take the risk.
Honorable Jim Juback.
Is Nostradamus your distant relative ?
Indubitably, Albert Einstein is not.
Is 2010, the year of a double dip fiasco?
Is 2011 the year of massive inflation, deflation and commenced depression ?
Is 2012 the infinite crash of Wall Street, absent of any add-on bail outs, all Govs are Bankrupt ?
Is 2012 the Messiah year ? (Caput ? Finito a la musica with socialism, communism, capitalism, imperialism and alike distorted acronyms ?)
Is it possible that in 2013 there will be Independialism, i.e., formation of multi tribal, independent class inhabitants comprised of micron governments, Worldwide ?
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