Weekly Economic Indicators: Wall Street Versus Main Street

English: A frame from a screencast from the US...

English:  Chairmen Ben Bernanke (Photo credit: Wikipedia)

The economic release schedule for the week of March 18th is as follows

  • Monday:  Housing Market Index
  • Tuesday:  FOMC Meeting Begins, ICSC-Goldman Store Sales, and Housing Starts
  • Wednesday:  MBA Purchase Applications, FOMC Meeting Announcement, FOMC Forecasts, and Chairman Press Conference
  • Thursday:  Weekly Jobless Claims, PMI Manufacturing Index Flash, FHFA House Price Index, Existing Home Sales, Philadelphia Fed Survey, Leading Indicators, and Fed Balance Sheet
  • Friday:  None

I spoke with Gordon Charlop Ph.D., Managing Director, Rosenblatt Securities, and frequent CNBC commentator, about what he will be watching. This week Charlop will focus on the overall market, weekly jobless claims, FOMC meeting, and the housing data.

Overall Market

Charlop believes the current market is supported by government stimulus and at some point Federal Reserve Chairman Ben Bernanke has to pull the needle out of the balloon; it will take a considerable amount of effort to unwind the central bank's monetary policy. “We have over stimulation and high unemployment.” Charlop sees a tale of two economies:  the financial markets, particularly the rally in equities versus the main street economy which is still in a recovery mode. Banks are essentially gobbling up credit and equity in hopes of maintaining yields, but it is not trickling down to the bigger economy. This is unsustainable. Separately, Charlop says there is instability in Europe, fo example Italy and its political imbalance. Charlop predicts that a correction is imminent, and the sooner we get a pull back, the healthier it would be for the equity markets.

Weekly Jobless Claims

Charlop remains skeptical about the jobless claims data, despite the trend in the numbers coming down over the past few weeks. This does not account for people who have dropped out of the workforce looking for work and the U6 numbers, workers who are under employed. He pointed out that the critical driver of this market is the US consumer and retail sales. He commented, if consumer confidence improves, jobs will start to come back.

FOMC Meeting

According to Charlop, it will be interesting to see what Chairman Ben Bernanke says after the FOMC meeting on Wednesday. The Federal Reserve can't keep handing out free money forever. Charlop is a strong proponent of free markets - let the demand in the credit market be the cause of lower interest rates. Now instead, banks are keeping  money provided by the Fed and investing it, rather than assisting in alleviating the foreclosure mess in the country.  Charlop questions how the central bank will unwind the biggest stimulus in American history.  He expects more FOMC members to become hawkish as the equity market keeps going higher and the main stream economy keeps lagging.

Housing Data

This week the economic calendar is loaded with housing related data, including housing market index, housing starts, MBA purchase applications, FHFA house price index, and existing home sales. Charlop said everything seems to be pointing toward a housing recovery, but lending is still tight and home buyers are still facing difficulty getting a mortgage. Also, the foreclosure process still needs to work itself through the system; this is where Charlop sees the disconnect between the financial system and the housing sector. The housing market is certainly on the mend and improving, but not where it could be in this recovery. This is because of the huge debt load homeowners are carrying. Charlop also sees an aging population and infrastructure problems, including crumbling bridges and tunnels as challenges impacting the housing sector.

Final Word

Charlop said traders feel the recent run in the equity market is overdone referring to risk in the buyside. He added that “it will take one incident to suck all the momentum out of this bull market.” That will be the correction traders have been waiting for to buy the dips and sell the rally.

 

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