Do the Numbers Really Add Up?
07/15/2014 12:01 am EST
The unexpected news out of the Euro zone last week shocked the markets and MoneyShow's Jim Jubak is looking at other data to assess the true state of the global economy.
For the week ahead, I think we ought to focus on the difference between meaningful data and lots of data, but that basically adds up to noise. We're moving to the heart of earnings season. We've got some kind of banking economic crisis in the Euro zone, we've got numbers out of China that say maybe China is growing fast, maybe China is growing slow, so we've got lots and lots and lots of numbers. I question whether any of them really add up to anything.
To take the example of the Euro zone, what we've got right now is a sort of banking crisis that's based on the second largest bank in Portugal having its parent default on a couple of debt payments, or miss a couple debt payments; not default, miss a couple debt payments. Well, Portugal is about the entire assets of the Portuguese bank consist of about 1.6% of the assets in the Euro zone banking system, so not big by and of itself, but you've got this reviving fear that we're headed back to a Euro zone debt crisis, that it's an indicator of weakness in economies in the Euro zone, and people are putting one and one together and creating trend lines so that right at the same time as we're getting this news out of Portugal, we're also getting economic numbers from France and Italy that show big declines month to month, this is April and May, of like 1.7 and 1.2, France and Italy respectively, in industrial output, so it seems like both those economies are slowing. You put that together, even though those are different time frames, you put that together with the problems in the Portuguese bank system and suddenly you've got all of the causes of the Euro zone debt crisis back, and so we had a 3.2% decline in the week of July 7 in the Stocks 600 which is the benchmark equivalent to the S&P for Europe, biggest decline in quite awhile, on this, and I would argue coincidence, and not even a coincidence in terms of exactly coincidence, but a coincidence in terms of when the information got out there.
Our economy is slowing in real time. Is the banking crisis in Portugal an indicator of anything else? Not at all clear. We're putting data together but it's not clear that the addition we're doing to the data really makes any difference. Same thing as we're getting in the United States, we're going to get lots and lots and lots of earnings numbers. Whether they really add up to anything in terms of the big question which is how fast is the US economy actually growing remains to be seen. We've had numbers from Wells Fargo that indicate the mortgage market is pretty good. We've had numbers from Alcoa that indicate, well, the commodities aluminum market is not doing too bad but not doing really great. We've had some numbers that indicate maybe retail sales are not, retail sales of retailors, where else would it be, are not that great but we really don't have a sense of a trend and it's going to be buried in the data and we're going to have to tease it out, and it's not quite clear that we're going to tease it out in any meaningful way. This makes this market very risky, remember we just hit $17,000 on the Dow, S&P is up near all time highs, so you've got a lot of down side, if you will, a lot of room to re-trace in this rally, not much certainty going ahead. It certainly argues for caution simply because we don't know really where we are.