Chicago PMI Declines in March

Chicago PMI declined sharply from a reading of 62.6 in Feb to 58.8 in March (compared to a consensus call for a decline of 61.0). This is a sharp decline and combined together with the continued job losses in March as reported in ADP employment report suggests continued weakness in the economy.

The market has gone way ahead of itself pricing in a perfect V-shaped recovery. It's going to be a question of "when" and not "if" for a strong pullback.

Bull Market Anniversary

Today marks the anniversary of the bull market that started on March 10th 2009. S&P500 has gained a whopping 68%, Dow 61% and Nasdaq 85% since then.

A lot of people have been questioning this rally since the past few months and an unusually low trading volume over these past months confirms that most people are sitting on the sidelines waiting to press the panic button. On one hand, there are people who are changing strategies to succeed in this market and there are some who are preaching patience as the key to succeed. Few days ago, there was an excellent post by Barry Ritholtz, which exactly hits on most people's sentiment.
Here is what he offered as an advice to a person who wrote to him:

“I’m rapidly losing faith in this whole game, Barry.”

Followed his terrific response:

XXXXXXX,

I cannot restore your faith or improve your morale (Only you can do that). What I can do is share with you what I have learned over two decades, and perhaps in these words you might find some small comfort.

Yes, there is an insanity to the markets that can make you mad if you let it. Instead, learn to see the delightful absurdity of it all. Revel in the stupidity, learn to read when the ‘wisdom of the crowd’ turns into an angry mob. Find some Zen in the foolishness of others.

Step back and look for the variant perception . . . then wait for it to become a money maker.

Consider this was an issue from 1996 or 97 until the collapse in 2000, and from 2005 to the collapse in 2008-09. It is a 3 or 4 or even 5 year time lag between the earliest inklings of recognition of mass stupidity/insanity, to any eventual collapse.

Time is always on the side of the patient. Study, learn, absorb all you can. You are waiting for the next opportunity to make your bones, your fortune, your reputation. It will come along eventually — if you wait for it and are in a position to take advantage when the moment arrives. As Pasteur said, “Chance favors the prepared mind.”

You must become a philosopher, a historian, a statistician, a trial lawyer, and a psychologist when looking at Mr. Market. Simply reading the data and trying to trade/invest off of it is a sucker’s game. The noise so totally outweighs the signal that it is easy to get caught up in distractions. For the vast majority of investors, dollar cost averaging into Indexes — then forgetting about it til retirement — is their best bet. Its not my favorite strategy, but anything else is too complex for mom and pop to work for them.

But you work in the business, and your clients want/need to outperform, so you must give them something value added. You need to be able to comment on the madhouse — and you can do so acerbically, mockingly, derisively at times — while recognizing, acknowledging, and waiting for the technical set up to bet against the crowd.

The saying goes “The trend is your friend.” The smart money adds ” ‘cept the bend at the end.” The momo crowd, the lemmings, the mad money all pile onto that trend as the trees grow to the sky. Especially at the end — that’s when the weight of the sheeples, the johnny-come-latelies ultimately pressures that tree, and is what causes that deadly “bend at the end.”

You must learn patience, young grasshopper. You must have faith that EVENTUALLY, the sorta kinda, almost efficient market will figure it out. That is when money returns to its rightful owners. There will be long periods of time when the blowhards, the jackasses, the arrogant, the ignorant will be eating better than you. During the dot com bubble, the dumber you were, the more money you made. Many of those who understood how silly things were missed out on the boom.

But this state of affairs is temporary. Eventually, the knaves starve to death under the oppressive force of their own ignorance. Be patient. The day of reckoning is often surprisingly late in its arrival, but it will not be denied. The beast must be fed.

Trust me when I tell you, its worth the wait . . .

US Light Vehicle Sales Drop 3.5% in Feb

US Light Vehicle sales dropped 3.5% from January to a seasonally adjusted annual rate (SAAR) of 10.million vehicles. On an year over year basis, the no. however jumped 13.4%. The year over year comparison is easier as Feb'09 sales stood at an all time low of 9.17 million SAAR.

This is still however a very strong report, given the record snow storms we had in the northeast this month.

ISM Manufacturing Expands At A Slower Pace In Feb

Per the ISM Report published today, Manufacturing continued to expand in February but at a slower pace. The PMI index registered a 56.5 percent reading, a drop of 1.9 points from January's reading of 58.4. As discussed before, any reading above 50 indicates an expansion - so, this is still good news.

Key Highlights from the report:
* New Orders index declined 6.4 percentage points (65.9 percent in Jan to 59.5 in Feb). This is the 8th consecutive month of growth for New Orders.
* Production index declined 7.8 percentage points (66.2 in Jan to 58.4 in Feb). This is the 9th consecutive month of growth for Production.
* Employment notched up by 2.8 percentage points (53.3 in Jan to 56.1 in Feb). This is the 3rd consecutive month of growth in manufacturing employment.

In general, this is a strong ISM report showing continued expansion. There are a lot more economic reports in the pipeline this week including February car sales due tomorrow, ISM Non-Manufacturing report on Wednesday, ADP report on Wednesday and BLS unemployment report on Friday.