The Mess That Greenspan Made - Part 11

Sentiment Rises, Stocks Fall

Right up until the chart below was prepared, it seemed the key point of this post was going to be that consumer sentiment is holding steady near some its best post-recession levels, but, in looking at the curve below it seems more important to ask what all the hubbub is about in the stock market that, according to some, is in some kind of death spiral.

Anyway, the American mood remained near its best levels since the 2008 recession as the Reuters/University of Michigan consumer sentiment index rose from a final March reading of 80.0 to 82.6 in the first of two readings for April.

This is consistent with other recent measures of consumer confidence and, for this index, marks the highest level since last July. While the full-month reading for April could move lower when it is reported in two weeks, it is worth noting that sentiment was higher in only four other months going back more than six years. The expectations component rose from 70.0 to 73.3 and current conditions improved from 95.7 to 97.1.

Survey director Richard Curtin commented, “Economic news reaching consumers grew more favorable in early April. Net reports on changes in employment were more favorable, and negative mentions about current economic policies eased.”

Rising gasoline prices have yet to have a signicant impact on inflation expectations as the one-year outlook for overall price increases actually fell from 3.2 percent to 3.1 percent while the five-year outlook moved up only slightly from 2.9 percent to 3.0 percent.

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Risk Appetite Not What it Used to Be

In this item by Humble Student of the Market (i.e., fellow Seeking Alpha contributor Cam Hui), readers are alerted to a disconcerting topping pattern in one measure of the risk appetite for U.S. stocks, though it’s important to point out that a similar “risk off” development almost exactly a year ago did little to stop the fun that was had by all.

More specifically:

The recent carnage in the high flying Biotech and Social Media stocks are well-known, but the technical effects of the damage is likely to be long lasting. The chart below shows a composite index that I built based on an equally-weighted long position in the NASDAQ 100 and Russell 2000 (high beta risk-on index) minus an equally weighted short position in the defensive sectors of Consumer Staples, Telecom and Utilities (low beta risk-off index), where the composite Risk Appetite Index is set at 100 on December 31, 2011.

As the chart shows, the Risk Appetite Index has violated an uptrend and has started to roll over. This picture of fading risk appetite forms a negative divergence when compared to the SPX, which remains in an uptrend.

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It appears that the absence of an obvious catalyst for yesterday’s brutal stock market sell-off (that is, aside from the belated realization that prices have already risen too high) has a lot of people uncomfortably scratching their heads today about whether to buy or sell and this story and video segment below from USA Today captures the sentiment fairly well.

Admittedly, I try not to read too much about this sort of thing from the mainstream financial media (yes, CNBC trotted out Marc Faber again yesterday after stocks tumbled), but a cursory review of what was being offered revealed the distinct lack of one talking point that has been popular so far this year as stocks have struggled, namely, the thinking that we should “just get this correction out of the way”, presumably so that stocks can go on to achieve their full potential, preferably sooner rather than later.

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Friday Morning Links

MUST READS
Tech stock rout continues in Asia – CNN/Money
This stock market needs a correction – buckle up – MarketWatch
Rising Stock Market Boosts College Savings – Fiscal Times
Marc Faber says ‘This will be the worst since ‘87′ – Daily Mail
Biggest Credit Bubble in History Flashes Warning – Testosterone Pit
Ukraine wants to buy European gas to boost energy security – Reuters
Bitcoin Falls Below $400, Down More Than 60% From Record High – TechCrunch
Sebelius Resigns After Troubles Over Health Site – NY Times
Kathleen Sebelius is resigning because Obamacare has won – Vox
SEC eyes test that may lead to shift away from ‘dark pools’ – Reuters
Why We’re in a New Gilded Age – Krugman, NY Book Review
The Next America – Pew Research

To find out what Tim thinks of today’s news, subscribe to Iacono Research

MARKETS/INVESTING
Tech sell-off roils global markets – AP
5 reasons why Nasdaq sell-off spells caution – USA Today
The Collapse Of Momentum Stocks Is An Ominous Change – Comstock Funds
No, It’s Not A “Stock Picker’s Market”, Whatever That Means – Zero Hedge
Investor Pessimism At Nine-Week High, But Little Concern About Ukraine – Barron’s
Treasuries Head for Biggest Weekly Gain in Month on Rate Outlook – Bloomberg
A.M. Metals Roundup: Gold Steady-Firm, Holding Thursday’s Gains – Kitco
Hugely outnumbered – Western gold bears by Asian gold enthusiasts – Mineweb
The US Government Has Rigged Precious Metals Markets For 80 Years! – Coin Week
Large Decline Of Shanghai & Comex Silver Stocks – SRSrocco Report
Exploration spending – at 4 year low – to fall even more – Reuters

ECONOMY/WORLD/HOUSING/BANKING
How Not to Do Macroeconomics – Unlearning Economics
Inconvenient Truths To Slow Income Inequality Bandwagon – Forbes
The world economy may well be stuck in neutral for years – Telegraph
China’s inflation accelerates to 2.4% year-on-year in March – CNA
Osborne to rebuke austerity critics in first major US speech to – Guardian
Weidmann Citing QE Legitimacy Paves Way for ECB Consensus – Businessweek
Property prices are rising swiftly. The Bank of England may intervene – Economist
Homes sales in D.C. region fall for third straight month – Washington Post
When Will The Fed Change Its Reaction Function? – Fed Watch
Bernanke Settles Back Into Research World – WSJ
Losing Interest – Project Syndicate

 
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