Headwinds for the USA Economy

It’s not Greece that’s in the headlines today – for a change! Mind you, there’s plenty going on behind the scenes in that respect, more of which later.

Today however it’s the USA that interests me most.

We have some numbers come out, none of which suggest the American economy is booming, despite what most economists – and Wall St – would have us believe.

First, there was yesterday’s big push back up in the Dow (DJIA) after the previous few days had seen it drop to nearly 17600 – a “significant level” in my view, because a drop below that price – and especially, a close below 17600 – will signify the end of the long term uptrend. So why the push back up and why do I see it as not being a particularly healthy sign? Simply because it was largely driven by a rise in the price of banking stocks, based entirely on announcements of increased dividends and stock buybacks. In other words, bribery. In my view, offering higher dividends when the underlying fundamentals of a stock have not actually improved in any measurable way, amounts to just that. And stock buybacks tend always to be done when prices are already elevated, and for me, they tend simply to be carried out to allow a specific stock price to be reached, where company director bonuses are triggered. So overall, yesterday’s big push back up, means little, in my view.

In the “real economy” of the USA, we saw that retail sales are down for the third consecutive month, while the Producer Price Index (PPI) saw February’s figure down half a percent month on month, against a consensus expectation of +0.1%. Furthermore, the American government says that it “may not have the money” to provide 100% guarantees to the pensioners of insolvent pension schemes. Meanwhile, “real” (as in full time) jobs continue to be shed, with Target Corp the latest big company to get rid of even more staff. 1700 jobs are going, and on top of that, a further 1400 previously advertised vacancies, are being pulled. According to BLS (Bureau of Labor Statistics) figures, full time jobs in the USA, are down 143000 since 2008 – hardly a sign that USA Inc truly is back in business! (And especially since the population has increased by some 16 million during the same period.)

Elsewhere, it appears the Japanese “recovery” is much weaker than had been thought – hardly a surprise really.

Coming back to Greece for a moment, it seems relations are pretty sour between the new government and Brussels, with insults and accusations being traded ahead of next week’s (interminable…) meetings about financial matters. Varoufakis, the Greek finmin, said yesterday that “The ECB is pursuing a policy asphyxiating to our government”, while Weidman (head of Germany’s central bank) suggested that “The Athens government has squandered the trust of its EU partners”. The Athens government has even lodged an “official complaint” with Brussels, against Schaeuble, Germany’s finmin, for allegedly “insulting” Varoufakis by calling him “foolishly naive”. (Which of course is obviously a perfectly true description of the former academic Greek finmin, who still seems to live in his ivory tower.)

There’s just too much macho posturing going on here, for any meaningful long term solutions to be reached.

Finally, in the forex markets, EURUSD is slowly recovering – it may still fall a little more, but with Goldmans predicting “parity within six months” I suspect parity is a long way off – and the next major move will be upwards. Gold meantime is struggling to find a temporary bottom, while crude oil (WTI) is looking for $40 or so. Once that level has been reached, a strong retrace is highly probable, to $50 at the very least.