Guest Post: Macro Outlook According to Street of Walls

Street of Walls is a brand new site that’s doing some interesting things with data visualization and community.  The site is authored by Wall Street professionals who maintain anonymity so they can continue to work at their firms.  It’s got some interesting information on hedge fund holdings, banking etc.  I recommend you check it out for yourself at the link below.  In the meantime, the team there put together a macro outlook that is very timely.  Enjoy – Josh


Current Macro Environment

This week the team at Street of Walls took at the current microenvironment, below are their thoughts. 

Growth Stocks Take a Hit

Jobless claims were much better than expected this week, but growth stocks we heavily sold as fears over consumer spending and China increase. Stocks like FOSL, HMIN, TIF, and WYNN all were heavily sold, even on days when the market was up.  Consumer discretionary spending, and in particular, luxury spending has held up exceptionally well, even as the fears over Europe spread. This effect had been described as the “rich get richer and poor get poor.” But maybe that isn’t true, and maybe everyone is finally starting to suffer. Maybe the rich have finally cracked!

Top ranked Wall Street economist Nancy Lazar, of ISI, expects real consumer spending to slow to a paltry .9% year over year in the first quarter of 2012, down from her 2% previous expectation.  If the American luxury consumer is finally tapped out, what does that mean for the stock market? Will Noriel Roubini and David Rosenberg finally be justified, or are too many people and institutions tied to the success of the market? Should we be shorting this tape given all the bad news and increased volatility?

Short at your own risk

Hedge funds have continued to show a lack of ability to generate returns, and with most funds being down 2-5% year-to-date, you can certainly make a case for heavy tape painting going into the 4Q. Painting the tape may be an understatement of what is about to come. It could more like an all out color war. Add to that, Obama’s career may be tied to how the stock market closes this year, so he is heavily incentivized to make some magic happen. Even though the luxury consumer may finally be cracking and housing prices may not rise for a long time, the system is just set up against shorting, so short at your own risk.

Housing, Even the Bears Are too Optimistic

Housing also continues its woeful path of failed recovery attempt after failed recovery attempt. Even the “pessimistic” reports on housing are probably too optimistic. A survey that just came out by the Professional Risk Managers International Association for FICO found that “49% of respondents do not expect housing prices to rise back to 2007 levels until 2020.” In most bubble areas, housing prices are down 50%, so in order for housing prices to increase back to peak levels, they would need to double from today’s price in 9 years, indicating a compounded growth rate of 8% a year for 9 years. That seems almost impossible. The only people who seem to be benefiting from the QE1-3 are the mortgage brokers, as they seem to have an endless supply of newly lower rates continuously allowing them to go back to their customers and tell them how they can lower their mortgage payment again, despite their just having refi’ed 6 months ago. Mortgage brokers are again making a lot of money, even though they will tell you a sob story of how hard it is to close a deal because appraisals keep coming in below purchase price.


Street of Walls

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