Europe Is a Bigger Problem Than the Slowing U.S. Economy!

May 4, 2012.

The U.S. economic recovery may be only stumbling now, but the economies of Europe are crumbling, and the debris cannot help but contaminate the world.

strongest economy. Yet even its Purchasing Manager’s Index (PMI) fell to 46.2 in April from 48.4 in March. Any number below 50 indicates recessionary contraction. So the further plunge in its PMI has even Europe’s strongest economy sitting on the edge of a potential recession.

As I showed in a chart on my Thursday blog, the current severe decline in Germany’s PMI is eerily similar to its declines just prior to the global market’s 1998 mini-crash, the 2000-2002 bear market, and the 2007-2009 bear market.

If that is not enough to be concerned about by itself, as reported this week, Europe’s second largest economy, France, saw its PMI remain in negative territory at 46.9 in April. And as a whole, the 17-nation euro-zone’s PMI plunged to 46.7 in April from 49.1 in March.

Meanwhile, the United Kingdom (U.K.), a member of the European Union but not of the euro-zone, has already reported that its economy has been negative for two straight quarters, officially in a recession.

Obviously, Europe is in serious trouble, and here’s why it’s not likely to get better anytime soon.

Austerity programs adopted to tackle the huge eurozone debt crisis by cutting government jobs and services are not only adding to economic weakness going forward, but are running into public protests, and further undermining consumer confidence.

Sunday’s elections in Greece and France are expected to reflect that unrest.

The election in Greece is projected to result in considerable political instability. The two major parties are seen as unlikely to receive a majority of the vote even between the two of them. That would make the formation of even a coalition government a formidable task that’s likely to result in the need for another election within months, and put Greece’s latest bailout package in jeopardy. To meet the requirements of the bailout, Greece’s government must come up with an additional $15 billion in spending cuts by June. Given its shaky financial condition, with its economy already mired in recession, that would be difficult enough for a government firmly in control of decisions, let alone a parliament expected to be severely fragmented between numerous political parties.

In France, it’s widely expected President Nicolas Sarkozy will lose the election to Socialist Party challenger Francois Hollande. That could also result in additional tensions in the eurozone if Hollande follows through on the issues he campaigned on, including insistence on renegotiation of the recently agreed German-led eurozone fiscal compact.

With Europe’s economies already seriously hurting, populations protesting the austerity measures, and its debt crisis now threatening to spread to Spain and Italy, the last thing Europe needs is more political uncertainty.

How important are Europe’s worsening problems to the rest of the world?

The United States may be the largest single economy in the world, but the economy of the European Union as a whole is larger.

That puts its importance as a global trading partner, and therefore the odds of its economy being a leading indicator for the rest of the world’s economies, right up there with the U.S.

That may be why even many of the ten largest global economies outside of the U.S. and Europe, including China, Japan, India, Brazil, Russia, are already in fairly significant corrections even though their economies are not slowing as significantly as those of Europe. Perhaps they see what’s coming toward them.

Meanwhile, the U.S. market has been remarkably resilient in the face of not only the problems in Europe but the clear signs of its own economic recovery being in trouble again. The Dow closed at a new rally high just a few days ago.

Is that resilience a positive sign, or dies it perhaps create a concern that the U.S. market would have further to fall from here than markets in Asia and Europe if it should decide it also needs to factor a recession in Europe into its prices?

Sy Harding is president of Asset Management Research Corp, and editor of www.StreetSmartReport.com, and the free market blog, www.streetsmartpost.com. He can also be followed on Twitter @streetsmartpost

The Fed Will Come to Rescue But Deliberately Late!

April 27, 2012.

There can be no doubt anymore that the global economic recovery is in trouble again.

In the U.S. we can see it in the reversals of previously positive economic reports; unexpected declines in durable goods orders, industrial production, new home sales, existing home sales, new home starts, construction spending, new jobs creation, personal income, consumer confidence, small business confidence, and so on.

The Chicago Federal Reserve’s National Activity Index (CFNAI), designed to measure nationwide economic activity, was reported this week to have declined for the third straight month, dropping into negative territory in March.

On Friday, the Commerce Department reported the U.S. economy already slowed considerably more than expected in the first quarter, with GDP growth slowing to just 2.2% from the third quarter’s 3.0%.

In Europe, the 17-nation euro-zone has already slid back into recession.

Meanwhile, the eurozone debt crisis has spread to Spain, the eurozone’s fourth largest economy, where in its recession unemployment has spiked up to 24.4%. On Friday, Standard & Poor’s downgraded Spain’s credit rating for the second time, citing worries about the country’s banking system. There are rising concerns that Spain’s government will not be able to meet its debt obligations and will have to seek a financial bailout, like Greece, Ireland, and Portugal before it. But due to its significantly larger size and larger debts, it would be much more difficult to rescue.

This week the Dutch government collapsed, its president and his cabinet resigning after failure to reach agreement with the opposition on austerity measures to tackle its debt and deficit problems.

Meanwhile, the United Kingdom, which is a major member of the European Union, but not a member of the euro-zone, announced this week that its economy contracted again in the first quarter, its second straight quarter of negative GDP, putting it officially in a recession.

In Asia, China, the world’s second largest economy, has had to lower its slowing economic growth estimates three times in recent months, adding to analysts’ concerns that its economy may be coming in for a hard landing. China’s economy is dependent to a great extent on exports, and its current –account surplus was cut by more than half in the first quarter by weaker export growth.

Also, in a surprise move on Wednesday, Standard & Poor’s cut its outlook for India, Asia’s third largest economy, from stable to negative, and restated its credit rating of BBB-minus, just one notch above junk. The credit-rating service cited its concerns about India’s ability to solve deep-seated problems that have clouded its economic outlook.

In each of the last two years when the economic recovery stumbled the Federal Reserve came to the rescue with additional stimulus. And in his press conference on Wednesday, Fed Chairman Bernanke promised to come to the rescue again “if it becomes necessary”. Yet, at its FOMC meeting on Wednesday the Fed decided to do nothing for now.

The situation as I see it is that the Fed doesn’t want to repeat its mistakes of the past, of being so accommodative that bubbles form (in stocks in 2000, and in real estate in 2006). So in an effort to make sure that neither the economy nor the stock market become over-heated, it prefers to let both the economy and stock market periodically slide back and cool off a bit before coming to their rescue at the last minute.

At least that was its approach in each of the last two years.

In each of those years, the Fed waited until worsening economic reports created fears that the economy was actually sliding back into recession, and the stock market was plunging in reaction, the S&P 500 down 15% (in 2010), and 20% last year, before it came to the rescue, with QE2 in 2010, and Operation Twist last year.

Waiting until the last minute, until the stock market was down double-digits, before providing more stimulus worked well both times, to keep the recovery going without causing either the economy or stock market to become over-heated. So why not again?

Meanwhile, having seen it happen two years in a row, investors are confident they can rely on a similar rescue this year. So unlike the last two years when the market nose-dived when the economy began to stumble, this year the market is showing a remarkable ability to ignore the similar clear evidence that the recovery is in trouble again, perhaps even more trouble than last year.

The potential problem with that, if the Fed indeed waits again until the stock market joins the economy in sliding back and cooling off a bit before it comes to the rescue, is the market’s confidence and resilience may delay the very rescue it’s depending on, until the economy’s rescue becomes more difficult.

That is what happened with the eurozone’s recovery, as its central bankers waited each time for market declines to tell them they needed to take more action, and by then it was too late, and the crisis worsened.

Sy Harding is president of Asset Management Research Corp, and editor of www.StreetSmartReport.com, and the free market blog, www.streetsmartpost.com. He can also be followed on Twitter @streetsmartpost

Beware of Defensive Stock Advice!

April 20, 2012.

With the U.S. economic recovery stumbling again, the euro-zone debt crisis back in the headlines, and ‘Sell in May and Go Away’ on the minds of many investors, Wall Street is beginning to put out advice on how to prepare for a potential market correction.

No matter what happens to the economy people will still have to eat, drink, and take their medicines. So food, beverage, healthcare, and drug companies will continue to do well in an economic or market downturn. And the stocks of solid companies that pay high dividends will also provide portfolio protection as the dividends will help offset any decline in the stock prices.

But before you rush out to buy stocks like McDonald’s (MCD), Coca Cola (KO), Kraft Foods (KFT), Proctor & Gamble (PG), Abbott Labs (ABT), Merck (MRK), Bristol Myers Squibb (BMY), or high dividend paying utilities like PPL Energy (PPL) or Duke Energy (DUK), be aware of the actual history of so-called ‘defensive stocks’ during market downturns.

It is true that consumers will have to continue to eat, drink, and take their medicines, but investors do not have to continue to value the earnings of those companies as highly as they did in a rising market. Stocks that sell at 20 times earnings in a rising market may only sell for 10 times earnings when a correction makes investors more bearish and less confident. So even though a company’s earnings continue to rise, its stock will usually be dragged down by the falling market.

The failure of defensive stocks to protect portfolios has been demonstrated over and over again. But Wall Street’s advice remains the same in every cycle. Don’t raise cash, just switch to buying and holding defensive stocks.

When the market was potentially topping out in 2000, stocks widely recommended as defensive, due to paying high dividends or being solid companies in industries sure to continue to do well if the economy stumbled, included McDonald’s, Alcoa, Bristol Myers Squibb, Merck, Coca Cola, Disney, DuPont, Fannie Mae, General Electric, IBM, and WalMart.

Defensive? They plunged an average of 59% to their lows in the 2000-2002 bear market, worse than the 49% decline of the S&P 500.

The utility sector was also recommended for portfolio protection since utilities are noted for paying high dividends. But the DJ Utilities Average plunged 60% in the 2000-2002 bear market, far surpassing the ability of the high dividends to offset the losses.

In the 2007-2009 bear market, using exchange-traded funds (ETFs) as a proxy for the defensive sectors, while the S&P 500 plunged 50% in that bear market, the popular HLDRS Pharmaceuticals etf (PPH) lost 43%, the VanGuard Healthcare etf (VHT) plunged 42%, and the SPDR Consumer Staples etf (XLP) fell 35%. Meanwhile, the ‘defensive’ high-dividend paying DJ Utilities Avg. plunged 48%.

In the summer correction in 2010, the S&P 500 declined 15%. The HLDRS Pharmaceuticals etf (PPH) declined 14%, the VanGuard Healthcare etf (VHT) declined 17%, and the SPDR Consumer Staples etf (XLP) fell 10%, and the DJ Utilities Avg. lost 13%.

In last summer’s correction, the S&P 500 declined 20%, the HLDRS Pharmaceuticals etf (PPH) declined 15%, the VanGuard Healthcare etf (VHT) declined 18%, the SPDR Consumer Staples etf (XLP) fell 13%, and the DJ Utilities Avg. lost 12%.

The first is that there seems to be nothing to gain by repositioning into so-called defensive holdings when risk of a correction, or even a bear market, becomes high. One may come out the other side just as well by keeping current holdings.

However, the problem with doing so is that a 30% decline requires a 42% gain to get back to even, while a 50% decline requires a 100% gain to get back to even. That usually takes several years of the next bull market just to get back to even.

Taking profits and moving to cash when risk is high would seem to be a much better strategy, so that one keeps those profits and can immediately begin making additional profits when the correction or bear market ends, rather than needing the next few years just to get back to even.

Another approach, which I prefer, is that the best defense is often a good offense. That is, realizing that profits, rather than losses, can be made in market corrections.

For instance, while the S&P 500 plunged 49% in the bear market of 2000-2002, the Rydex Inverse S&P 500 fund (RYURX), designed to move opposite to the S&P 500, gained 96.5%. How could it gain almost twice as much as the S&P 500 lost? A loss of 50% requires a 100% gain to get back to even, and the inverse fund was moving opposite to the S&P 500.

ETF’s have become more widely available and popular since the 2000-2002 bear, and in the 2007-2009 bear market, while the S&P 500 lost 50% of its value, the ‘inverse’ ProShares Short S&P 500 etf (SH) gained 86%.

Even in last summer’s correction, while the S&P 500 lost 20% of its value, the inverse etf SH gained 20%.

So investigate before investing, especially in Wall’s Street’s suggested ‘defensive’ holdings.

Sy Harding is president of Asset Management Research Corp, and editor of www.StreetSmartReport.com, and the free market blog, www.streetsmartpost.com. He can also be followed on Twitter @streetsmartpost

More Impetus For A Summer Correction!

April 13, 2012.

Another week of economic reports adds to the likelihood of a summer correction in the stock market again this year, and even to the possibility that it has already begun.

After four or five months of surprisingly strong economic reports that fueled the rally off the October low, it looks like the U.S. economic recovery has reached another slippery slope that has it sliding backward again.

Two weeks ago it was negative surprises from the important housing industry, signifying it has not reached a bottom yet after all, and that the Chicago Fed National Activity Index, designed to gauge economic activity nationally, fell back into negative territory for the first time in four months.

Last week it was the shock of the dismal employment report for March, indicating the previous several months of jobs improvement were temporary.

This week it was the surprising jump of 20,000 new weekly unemployment claims, indicating the jobs reversal in March is continuing in April. There was also the first decline in the NFIB Small Business Optimism Index in five months. And the University of Michigan Consumer Confidence Index declined in April versus the consensus forecast of economists for further improvement in April.

The reports of recent weeks have cooled off global hopes that the U.S. economic recovery would continue to strengthen and provide support for faltering global economies, rather than have the faltering global economies drag the U.S. down with them.

The U.S. economic recovery also stumbled in each of the last two summers, but that was not the only catalyst for the U.S. stock market corrections in those two years. The euro-zone debt crisis was as big a concern.

Unfortunately, the euro-zone debt crisis, which seemed to have been resolved a few months ago by the bailout of Greece and massive infusions of extra liquidity into eurozone financial systems, has returned. And this time the focus is on Spain, a much larger and more difficult economy to bail out than Greece should it come to that. It was reported Friday that Spain’s banks had to borrow $416.7 billion from the ECB liquidity fund in March compared to $223.8 billion in February. Borrowing by all banks in the 17-nation euro-zone in March totaled $1.48 trillion, and Spain accounted for 28% of it.

European stock markets have been responding to the new debt crisis concerns (as well as their slowing economies) since early March, with markets in Germany, France and the United Kingdom already down an average of 8% since the end of February.

Meanwhile, concerns that China’s economy, the 2nd largest in the world, might be slowing to a hard landing were heightened by Friday’s report that China’s economy grew by 8.1% in the 1st quarter, down from 8.9% in the 4th quarter of last year, and below the forecasts of 8.3%.

Chinese Premier Wen Jiabao had projected China’s growth will slow to 7.5% this year, but a growing number of analysts believe it will overshoot on the downside into a hard landing, a concern enhanced by Friday’s report.

Meanwhile, Brazil’s government projects its growth rate, running at 7.5% in 2010, will be cut in half to just 3.8% this year.

So, it was another week of disappointing reports from all directions.

My Seasonal Timing Strategy remains in its favorable season and 100% invested, for the moment anyway. And my non-seasonal Market-Timing Strategy has come off its October buy signal, but only to neutral, not yet on a sell signal.

However, I suspect the next opportunities for profits may well come from the downside, in short sales and positions in inverse ETF’s designed to move up when markets move down.

On any sell signal, some of my favorites from the last two summer corrections will likely be my favorites again. They include the ProShares Short S&P 500, symbol SH, the ProShares Short Russell 2000, symbol RWM, and ProShares Short QQQQ (the Nasdaq 100), symbol PSQ.

I suggest, in preparation for the possibility of a correction, that investors familiarize themselves with the various methods of positioning for profits from the downside. The market usually goes down much faster than it goes up, making it more difficult for those who are not prepared. The market again demonstrated its tendency to go down faster than it goes up by recently losing more than two months of gains in just five days in response to unexpected negative economic reports.

Sy Harding is president of Asset Management Research Corp, and editor of www.StreetSmartReport.com, and the free market blog, www.streetsmartpost.com. He can also be followed on Twitter @streetsmartpost

More Impetus For A Summer Correction!

April 13, 2012.

Another week of economic reports adds to the likelihood of a summer correction in the stock market again this year, and even to the possibility that it has already begun.

After four or five months of surprisingly strong economic reports that fueled the rally off the October low, it looks like the U.S. economic recovery has reached another slippery slope that has it sliding backward again.

Two weeks ago it was negative surprises from the important housing industry, signifying it has not reached a bottom yet after all, and that the Chicago Fed National Activity Index, designed to gauge economic activity nationally, fell back into negative territory for the first time in four months.

Last week it was the shock of the dismal employment report for March, indicating the previous several months of jobs improvement were temporary.

This week it was the surprising jump of 20,000 new weekly unemployment claims, indicating the jobs reversal in March is continuing in April. There was also the first decline in the NFIB Small Business Optimism Index in five months. And the University of Michigan Consumer Confidence Index declined in April versus the consensus forecast of economists for further improvement in April.

The reports of recent weeks have cooled off global hopes that the U.S. economic recovery would continue to strengthen and provide support for faltering global economies, rather than have the faltering global economies drag the U.S. down with them.

The U.S. economic recovery also stumbled in each of the last two summers, but that was not the only catalyst for the U.S. stock market corrections in those two years. The euro-zone debt crisis was as big a concern.

Unfortunately, the euro-zone debt crisis, which seemed to have been resolved a few months ago by the bailout of Greece and massive infusions of extra liquidity into eurozone financial systems, has returned. And this time the focus is on Spain, a much larger and more difficult economy to bail out than Greece should it come to that. It was reported Friday that Spain’s banks had to borrow $416.7 billion from the ECB liquidity fund in March compared to $223.8 billion in February. Borrowing by all banks in the 17-nation euro-zone in March totaled $1.48 trillion, and Spain accounted for 28% of it.

European stock markets have been responding to the new debt crisis concerns (as well as their slowing economies) since early March, with markets in Germany, France and the United Kingdom already down an average of 8% since the end of February.

Meanwhile, concerns that China’s economy, the 2nd largest in the world, might be slowing to a hard landing were heightened by Friday’s report that China’s economy grew by 8.1% in the 1st quarter, down from 8.9% in the 4th quarter of last year, and below the forecasts of 8.3%.

Chinese Premier Wen Jiabao had projected China’s growth will slow to 7.5% this year, but a growing number of analysts believe it will overshoot on the downside into a hard landing, a concern enhanced by Friday’s report.

Meanwhile, Brazil’s government projects its growth rate, running at 7.5% in 2010, will be cut in half to just 3.8% this year.

So, it was another week of disappointing reports from all directions.

My Seasonal Timing Strategy remains in its favorable season and 100%, for the moment anyway. And my non-seasonal Market-Timing Strategy has come off its October buy signal, but only to neutral, not yet on a sell signal.

However, I suspect the next opportunities for profits may well come from the downside, in short sales and positions in inverse ETF’s designed to move up when markets move down.

On any sell signal, some of my favorites from the last two summer corrections will likely be my favorites again. They include the ProShares Short S&P 500, symbol SH, the ProShares Short Russell 2000, symbol RWM, and ProShares Short QQQQ (the Nasdaq 100), symbol PSQ.

I suggest, in preparation for the possibility of a correction, that investors familiarize themselves with the various methods of positioning for profits from the downside. The market usually goes down much faster than it goes up, making it more difficult for those who are not prepared. The market again demonstrated its tendency to go down faster than it goes up by recently losing more than two months of gains in just five days in response to unexpected negative economic reports.

Sy Harding is president of Asset Management Research Corp, and editor of www.StreetSmartReport.com, and the free market blog, www.streetsmartpost.com. He can also be followed on Twitter @streetsmartpost

Lousy Jobs Report Confirms Fed's Suspicions!

April 6, 2012.

In his widely covered speech two weeks ago, Fed Chairman Bernanke said the anemic U.S. economic recovery seemed to be continuing, but that the Fed was suspicious of the positive employment reports of recent months. His actual words were “the better jobs numbers seem somewhat out of synch with the overall pace of the economic expansion.” Later in his speech he referred to the improvements in the jobs picture in relation to the anemic economic recovery as “a puzzle”.

The Fed’s suspicions seem to have been validated by Friday’s employment report which showed that only 120,000 new jobs were created in March compared to the consensus forecast of another increase of more than 220,000 jobs.

Added to the recent dismal reports from the housing industry indicating the promising housing reports of recent months were also only temporary, the jobs report certainly raises concerns regarding the sustainability of the U.S. economic recovery.

It also throws considerable cold water on hopes that the U.S. economic recovery will offset global slowdowns and prevent a threatening global recession.

The U.S. is just not that kind of economic powerhouse anymore.

Too many U.S. jobs were shipped overseas over the last ten years, to countries where wages are much lower. That grew the economies of those low-wage countries at the expense of the U.S. economy.

China for example overwhelmed U.S. retail stores with ‘Made in China’ labels. Its economy averaged blistering 10% annual growth over those ten years.

But over the last couple of years those overheated economies in Asia and other low-wage areas like Brazil, have run into problems, primarily rising inflation. That prompted their governments to try to slow their economies significantly by raising interest rates, and imposing tighter fiscal and monetary policies.

As a result Chinese Premier Wen Jiabao projects China’s growth will slow to 7.5% this year, while a growing number of analysts are concerned it could even overshoot on the downside, into a hard landing in recession. Brazil’s government projects its growth rate, running at 7.5% in 2010, will be cut in half to just 3.8% this year.

Economies in the 17-country euro-zone are sliding into recessions, quite a few already there.

Meanwhile, the U.S., which used to be the powerhouse of global growth, has experienced a ‘lost decade’, the worst for the U.S. economy in modern times, with two recessions since 2000. Even in its recovery from the negative growth of the 2008-2009 ‘Great Recession’, it has averaged only around 2% annual GDP growth, and it’s projected to come in around 2% this year - if the anemic economic recovery manages to continue.

With the dramatic slowdowns in the economies of its global trading partners, U.S. exports will certainly come under further pressure.

U.S. consumers have a well-deserved reputation for spending more than they make.

However, in the agony of the 2008-2009 financial melt-down and its aftermath they became worried about their futures and actually began acting like their global counterparts, saving money and paying down debt, buying only what they needed and could afford.

But U.S. consumers also have short memories, previous fears quickly forgotten once there is a glimmer of hope that good times have returned.

So with the return of headlines pointing to the U.S. economic recovery, and an improving jobs picture, U.S. retail sales have been surprising on the upside.

Thomson Reuters reported Friday that retail sales prior to Easter are beating forecasts, with the biggest increases coming from clothing retailers. And that retailers’ profits are increasing as more consumers are willing to pay full price rather than looking for bargains, which had become their main focus in recent years.

It was recently reported that Personal Spending increased a surprising 0.8% in January, while Personal Income was up only 0.2%. The U.S. stock market responded positively to the news of the jump in spending, ignoring the report’s more important ratio of spending to income, as a predictor of the ability of consumers to maintain such a level of spending in the future.

And now we have Friday’s jobs report indicating the previous improvement in the jobs picture, like the improvement in the housing industry, were only temporary.

Meanwhile, global stock markets recognize the economic problems in their own countries, with many having fallen back into bear markets.

And while the U.S. has been preening over its stock market’s impressive continuing rally in March, with the S&P 500 up 3% for the month, the FT World Markets Index EX U.S. declined 3% in March.

Those are not good signs for continuing consumer and investor confidence in the U.S., nor for the U.S. economic recovery, nor for the already ‘long in the tooth’ stock market rally.

Sy Harding is president of Asset Management Research Corp, and editor of www.StreetSmartReport.com, and the free market blog, www.streetsmartpost.com. He can also be followed on Twitter @streetsmartpost

Don't Shrug Off the Similarities to the Last Two Aprils!

March 30, 2012.

Almost a year ago in this column I pointed out the eerie similarities in April (2011) to conditions the previous April (2010). And sure enough the similarities continued into almost identical 20% market corrections before the bull market resumed.

And here we are again this year looking at eerie similarities as March draws to a close, this time to the last two Aprils.

I’m hearing a lot of assurances that this time is different. It would defy the odds for the market to follow an identical pattern for three straight years. Besides it’s an election year, and already the Fed is making noises about coming to the rescue if needed.

Using that logic it would also defy the odds that surrounding conditions would follow the same pattern for three straight years. But that is just what is happening.

Like the last two years, the S&P 500 has had an impressive rally to a potentially overbought condition above its long-term 200-day m.a., and technical indicators, while still on buy signals, are in their overbought zones.

Meanwhile, investor sentiment, usually very bullish at market tops and very bearish at market bottoms, has reached high levels of bullishness, low levels of fear, similar to what was seen near the market peaks in April 2010, and 2011.

That can be seen in the VIX Index, also known as the Fear Index. It is usually at high levels of fear at correction lows and good buying opportunities, and at low levels of fear (high levels of bullishness and complacency) at rally and market tops.

Then there is the U.S. economy. In each of the last two years the economic recovery showed surprising strength during the fall and winter months, and then as we approached April economic reports began showing the recovery to be stumbling.

This year has been an identical repeat so far, with surprisingly strong economic reports through the winter, but a string of negative surprises in the last couple of weeks, including unexpected reversals in home sales and home prices, in the Fed’s business and manufacturing indexes, and in consumer confidence. On Wednesday it was reported that the Chicago Fed’s National Activity Index, designed to gauge economic activity nationally, fell into negative territory last month for the first time in three months.

In each of the last two years, dark clouds also floated in from Asia in the form of concerns that China was going to slow its economy too much in an effort to ward off rising inflation, and from Europe in the form of worries that the eurozone debt crisis would implode and plunge European economies into recessions.

And here we are this spring, with major Asian markets in sharp declines over indications that China has indeed slowed its economy into what will be a hard landing, and evidence that the 17-nation eurozone is already in recession.

Also in each of the last two years, as the Federal Reserve’s April FOMC meeting approached, in the wake of strong economic reports during the winter months, Fed Chairman Bernanke said the economic recovery was looking good, but the Fed was concerned about continuing high unemployment, and stood ready to provide further monetary easing if needed.

In his speech last week, Chairman Bernanke indicated the Fed believes the recovery continues but is suspicious of the improvement in employment, and stands ready to provide further easing if it becomes necessary.

If the eerie similarities should continue it might be well to keep in mind that the market topped out on April 26 in 2010, and April 29 last year, forcing the Fed to come to the rescue during the summer months.

I know, I know. It can’t happen three years in a row. But so far it actually is, even including the super strong rally of the last two quarters.

Sy Harding is president of Asset Management Research Corp, and editor of www.StreetSmartReport.com, and the free market blog, www.streetsmartpost.com. He can also be followed on Twitter @streetsmartpost

Here We Go Again Already?

March 23, 2012.

What is it about the economic recovery so far that allows good news to last for only six months at a time before fears rise again, and the economy needs another adrenaline fix from the Fed? The pattern has been clearly reflected in the stock market, which saw its historical pattern of making its gains in the winter months and suffering corrections in the summer months even more pronounced in 2010 and 2011.

Just when it seemed we could relax, the U.S. economic recovery surprising with its strength, the Greek debt crisis kicked into the bushes, and most global stock markets in impressive six-month rallies, here comes dark clouds and rumbles of thunder again.

Global economic reports were unsettling from all directions this week.

The closely watched 17-nation eurozone PMI index, which measures both manufacturing and service sector strength, dropped to 48.7 in March. That was the eurozone PMI’s third straight monthly reading beneath 50, which is the dividing line between expansion and recessionary contraction, indicating Europe is sinking deeper into recession..

The similar HSBC PMI index for China, the world’s second largest economy, shocked markets, coming in at 48.1, its fifth straight monthly reading beneath 50.

Worries also rose in the Latin America region on warnings from the World Bank that “more than other regions, commodity exporting countries in Latin America [like Brazil and Argentina] would be vulnerable to any decline in commodity prices that might accompany a credit event in Europe.”

At the same time, a research report on Latin America from JP Morgan noted the importance of China, a major buyer of commodities and raw materials from the region, saying, “China’s influence in driving Latin America’s growth has increased sharply since 2008, so whatever happens in China’s economy matters for Latin America even more.”

Asia, Europe, Latin America. They’re so far away. Should U.S. investors care?

Absolutely. Global economies have always tended to move in tandem, into and out of good times and bad times pretty much simultaneously. That tendency has become more pronounced over the last 20 years as countries around the world have become even more dependent on exporting their raw materials and manufactured goods to each other.

So, if other major global economies are experiencing slowing economic growth, some even sliding back into recessions, how reasonable is it to expect the U.S. to escape a similar fate?

Already we may be seeing early warning signs in this week’s U.S. economic reports.

Economists were looking for reports from the U.S. housing industry, the first since a month ago, to confirm the economic recovery is spreading into that important sector.

Unfortunately, the reports were disappointing. They were that new housing starts unexpectedly fell 1.1% last month, existing home sales fell 0.9%, the inventory of unsold homes jumped 4.3%, and new home sales fell 1.6% (compared to the consensus forecast that they would rise 3.8%).

The U.S. stock market stumbled some in reaction to the arrival of global dark clouds, while elsewhere, markets in France and Hong Kong plunged more than 3% for the week, markets in Brazil, China, and Germany more than 2%.

Meanwhile, areas often perceived as safe havens, gold and U.S. treasury bonds, which had fallen to multi-week lows, bounced back some as money flowed back into them.

But this week’s darkening economic clouds just as another six-month cycle from last October’s low rolls around, and with 1st quarter earnings reports just two weeks away, are reasons for investors to remain cautious and alert.

Sy Harding is president of Asset Management Research Corp, and editor of www.StreetSmartReport.com, and the free market blog, www.streetsmartpost.com. He can also be followed on Twitter @streetsmartpost