ECRI TURNS NEGATIVE
by ilene - June 11th, 2010 5:37 pm
ECRI TURNS NEGATIVE
Courtesy of The Pragmatic Capitalist
Via Barrons:
The Economic Cycle Research Institute today offered up its view of last week’s “weekly leading indicators,” a closely watched private mailing, today showed a dip in the indicator for the week ended last Friday to 123.2, a decline of 3.5%, in contrast to the 0.3% rise the preceding week.
The Institute’s Lakshman Achuthan, however, remarked that “While the plunge in WLI growth to a one-year low assures a significant slowing in U.S. economic growth in the coming months, the recent weakness has not lasted long enough to signal a new recession threat.”
The ECRI notice follows better-than-expected consumer confidence data this morning from the University of Michigan, but also a smaller-than-expected gain in business inventories in April, this morning’s weak retail sales data for May and, of course, last Friday’s disappointing jobs number.
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DiggBut, You Sputtered, I’m Just A Hack….
by ilene - May 27th, 2010 3:07 pm
But, You Sputtered, I’m Just A Hack….
Courtesy of Karl Denninger at The Market Ticker
That is, with all my pesky math and charts like this:
Remember that I’ve been preaching for a while that we embedded a roughly $500-600 billion structural deficit into the economy post-2000? And that now, in response to this recession (and in a refusal to admit that we have been playing credit drunk) we’ve now embedded a roughly 10% structural deficit – three times the former?
Before you consider me a chucklehead for having the temerity to look at the math you might take it up with the BIS - the Bank of International Settlements, or the "bankers’ bank" – which agrees with me:
According to the Bank for International Settlements, the United States’ structural deficit — the amount of our deficit adjusted for the economic cycle — has increased from 3.1 percent of gross domestic product in 2007 to 9.2 percent in 2010.
Gee, you mean they looked at the same chart I’ve been preaching from?
This stuff isn’t hard folks!
Now Einhorn of Greenlight Capital, a rather-well-known hedge fund manager, is sounding off. He said:
A good percentage of the structural increase in the deficit is because last year’s “stimulus” was not stimulus in the traditional sense. Rather than a one-time injection of spending to replace a cyclical reduction in private demand, the vast majority of the stimulus has been a permanent increase in the base level of government spending — including spending on federal jobs.
Yep.
This is exactly what I’ve been saying now since this mess began and the "response" became clear: Government didn’t "stimulate", it instead built in structural deficits – just as it did in 2003.
But you can read David’s missive any time you’d like, or the BIS’.
The key question is why would the government take such a step?
Some would claim that it was about trying to exert more control over the economy, as of there is some sort of grand conspiracy extant to take every piece of control you have over your life and transfer it to government.
I’m a bit more realistic in my assessment – and less conspiratorial.
Government did this because it was the only way to avoid having to admit that we have too much debt in the…
Consumer Confidence Expectations Soar, Current Confidence in Gutter; Larry Summers Yaps about Second Stimulus
by ilene - May 25th, 2010 4:04 pm
Consumer Confidence Expectations Soar, Current Confidence in Gutter; Larry Summers Yaps about Second Stimulus
Courtesy of Mish
Although the consumer confidence current conditions index remains in the gutter, the expectations index shows increasing optimism. Please consider Consumers Gain Confidence as Employment Improves.
The Conference Board’s confidence index rose to 63.3, exceeding all estimates of economists surveyed by Bloomberg News and the highest level in two years, according to a report from the New York-based private research group. Other figures showed home prices rose less than projected in the year through March.
“I’m relatively optimistic that we’ll get through the European debt crisis without dire economic consequences, but the jury is still out on that one,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut. Home prices “are going to drag along the bottom for a while until we get a better handle on the overhang” of inventories.
The Conference Board’s measure of present conditions increased to 30.2 this month, the highest level since December 2008. The gauge of expectations for the next six months surged to 85.3, the highest point since August 2007, four months before the recession began.
The percent of respondents expecting more jobs will become available increased to the highest point since December 2003.
Confidence, “although still weak by historical levels, appears to be gaining traction,” Lynn Franco, director of the Conference Board Consumer Research Center, said in a statement. Expectations have been “fueled primarily by growing optimism about business and labor market conditions,” she said.
Expectations Not the Same as Jobs
Present conditions are telling one story while expectations are another. However, expectations are not the same as jobs. People are starting to believe nonsense about the strengthening economy even as the treasury market and credit markets are singing a different tune.
I happen to believe the credit markets.
5-year treasury yields and rising junk bond yields paint a far different picture than consumer expectations. (Please see Corporate Bonds Smacked, Junk Yields Rise, Deals Pulled; Treasuries Rally; Yield Curve Flattens; Global Slowdown Coming for details).
No matter what one thinks of the US economy in isolation, it should be crystal clear that Europe is slowing and China is gasping for air with an export model not prepared for a slowdown anywhere, let alone a global slowdown.
Moreover, various stimulus packages in the US have run their…
Fears of Great Depression II
by ilene - May 21st, 2010 5:04 am
Fears of Great Depression II
Courtesy of Rom at Bondsquawk
As the markets tumbled around the globe, risks are increasing that the European debt crisis could spill over and derail a global recovery and into a global recession according to the U.K.’s Telegraph.
Bill Gross of bond fund Pimco said that hedge funds were starting to liquidate their positions in a bid to preserve their capital – a worrying “mini relapse” towards 2008 territory.
Andrew Roberts, head of European rates strategy at RBS, said “Great Depression II” could now be approaching, adding: “It now has potential to speed toward its conclusion; a European $1trn package which does little and political panic tells you we are about to reach the end of the road. The world should be discussing deflation, not inflation.”
Telegraph states that while the plunge in world stock markets comes from the troubles of Europe, fears that the crisis may cripple the world’s fragile economies as they recovery from the U.S. financial crisis, were bolstered by recent economic data.
The European Commission produced “flash” data showing consumer confidence falling from a 23-month high of -15 in April to a seven-month low of -17.5 in May.
In the US there was a surprise 25,000 increase in jobless claims to 471,000 in the week ending May 15. The deterioration in the employment picture, coming hard on the heels of Wednesday’s drop in inflation, underlined worries that the US is exposed to a possible global double-dip recession.
Interestingly, the website reported that other countries that suffer high debt ratios may soon be exposed which could further escalate the crisis.
One rumour abounding on Thursday was that a major rating agency will soon have to downgrade Japan’s credit score, potentially bringing the world’s second-biggest economy into the spotlight.
If the latest rumor comes to fruition, the recent decline in stock prices could be just the beginning of another prolonged bear market that could trigger the world economies into a state of depression.
Read the Full Article
Whipsaw Wednesday – Is Los Angeles Burning?
by Phil - April 21st, 2010 8:13 am
Is Los Angeles Burning?
Well, if not, it may be soon as 3,500 city jobs go on the chopping block including 61 firefighters in an area that routinely bursts into flames. Los Angeles County seeks to eliminate an additional 1,400 positions with both the County and the City looking to trim their budgets down from last year. “The mayor’s budget plan will make it harder to do business here, harder to raise a family and harder to keep neighborhoods safe,” the Coalition of Los Angeles City Unions said on April 16. The group represents 22,000 workers. The mayor’s proposed budget includes $63 million in savings from forcing some employees to take as many as 26 days off without pay.
We talked about this last month, Los Angeles, like hundreds of other cities across America, is simply out of money and, unlike the US Government, they can’t go endlessly into debt and pretend it doesn’t matter. Fitch just cut LA’s bond ratings to A- on the 16th following a similar cut by Moody’s on April 7th. Spending in LA County, with 9.8M residents, will be reduced by $885M or 3.7% from last year while the city is relying on one-time tricks like selling bonds based on future parking meter collections to avoid drastic cutbacks – this year.
As we get closer and closer to budget time (fiscal years begin July 1st) for local governments, we’ll get a clearer picture on what this recovery really looks like. Cities and Counties are collecting less income tax revenues not more, their expenses (inflation) are going up, not down and their taxable land bases and sales tax collections are down, not up. It’s easy to fudge national numbers as you only have to control a couple of dozen reports written by a hundred Federal employees operating under a strict hierachy – try doing that on a national scale with 50 states, 3,141 counties and 18,000 cities and towns and things tend to fall apart and, from that rubble, you may actually get to the truth!
I sent out a special Alert to Members this morning titled "Notes on AAPL and Complacency" in which I warned that "I am DEEPLY disturbed by the combination of complacency AND bubble valuations I’m seeing in the markets." People are all excited that AAPL earned $3.33 per share yesterday but, as I pointed out: THAT’S PER $250 SHARE! While AAPL is still my all-time favorite…
Consumer Sentiment Sinks in April
by ilene - April 16th, 2010 1:39 pm
Consumer Sentiment Sinks in April
Courtesy of Econompic Data
Bloomberg details:
Confidence among U.S. consumers unexpectedly fell in April to the lowest level in five months, indicating Americans are discouraged about the labor market.
The Reuters/University of Michigan preliminary index of consumer sentiment dropped to 69.5 from a reading of 73.6 in March. The gauge was projected to rise to 75, according to the median forecast in a Bloomberg News survey of 69 economists.
Lagging confidence threatens to restrain household spending, which accounts for about 70 percent of the economy. While recent figures showed retail sales picked up in March, a 9.7 percent unemployment rate and mounting home foreclosures are risks for the recovery.
GDP Contraction Coming In Second Quarter 2010?
by ilene - February 26th, 2010 2:34 pm
GDP Contraction Coming In Second Quarter 2010?
Courtesy of Mish
I have been speaking with Rick Davis at the Consumer Metrics Institute about leading economic indicators. Davis claims his data leads the GDP by about 17 weeks while noting that other so-called "leading indicators" are merely a reflection on the stock market and yield curve.
Davis captures his data solely from online transactions of real consumers, in real time.
Here are a four charts. The first chart shows the Consumer Conference Board LEI, not the Consumer Metrics Index.
Consumer Conference Board LEI vs. S&P 500
Davis writes:
Is the conference board LEI really leading anything or is it merely a reflection of the stock market? A look at the actual values of the LEI and the S&P 500 over the last four years confirms the indicator is really a coincident indicator for the equity markets, published once a month, three weeks in arrears.
Weighted Composite Index (WCI) vs. S&P 500
The above chart shows the Consumer Metrics Weighted Composite Index (WCI) vs. the S&P 500 Index. Watch what happens when the above data is offset by 5 months.
WCI vs. S&P 500 Shifted 5 Months
The Consumer Metrics website shows most of the WCI components advancing. However, housing and consumer spending account for roughly 60% of the index and those are contracting.
It is hard to make a case on the basis of so little data, but at least since 2006 we see evidence of actual leading.
However, the stock market does not always follow the economy nor is the stock market a leading indicator of the economy.
Please see Is the Stock Market a Leading Indicator? for a discussion.
Thus, as interesting as the above chart may be, I would not recommend using Consumer Metrics Data to project stock market movements. However, when a stock market is as lofty as this one, and a recovery is priced in that is not likely to happen, I would expect the stock market to decline if the economy tanks.
Daily Growth Index (DGI) vs. BEA GDP
The above chart shows Consumer Metrics Daily Growth Index (DGI) plotted against GDP.
According to Davis the DGI is 91-Day moving average of the WCI that corresponds to a trailing ‘quarter’, and is translated from a 100-base number into a +/- percentage. For example 99 on the WCI would roughly correspond…
“Nacent” Recovery or “Nacent” Economic Collapse?
by ilene - February 25th, 2010 4:30 pm
"Nacent" Recovery or "Nacent" Economic Collapse?
Courtesy of Mish
Fed Chairman Ben Bernanke is one of the best contrarian indicators one could possibly find. Yesterday, Bernanke told the House Financial Services Committee that the U.S. economy is in a “nascent” recovery.
Given his historical track record of complete failure on matters like housing, the recession, and jobs, his yapping about the “nascent” recovery suggests the very best we can expect is for the recovery to stall, and more likely enter a double dip recession if not completely collapse.
Unexpectedly Bad News
Let’s recap some recent "unexpected" bad news.
Durable Goods "Unexpectedly" Drops
Please consider Equipment Demand Slows to Start 2010
Orders for durable goods excluding transportation unexpectedly fell 0.6 percent, the most since August, while a measure of bookings for business equipment showed its biggest decrease in nine months, the Commerce Department in Washington said. The Labor Department said new claims for unemployment insurance rose to a three-month high.
Factories may be taking a pause to gauge demand after boosting production in the second half of 2009 to replenish inventories. Reports earlier this week showed weaker consumer sentiment and home sales, underscoring Federal Reserve Chairman Ben S. Bernanke’s view that the recovery is “nascent” and still requires interest rates near zero.
“There’s no reason to think this is the start of a double-dip — some back and fill is standard operating procedure in recoveries,” Chris Low, chief economist at FTN Financial in New York, said in an e-mail to clients. “Rising jobless claims, weaker orders and falling consumer confidence suggest the economy is retrenching in the first half of the first quarter.”
Happy Talk On Durable Goods
Just take a look at that happy talk. There is every reason to think this may be the start of a double-dip recession. All we have seen is inventory replenishment, government spending, and various stimulus measures like cash-for-clunkers and housing tax credits that have withered on the vine.
Durable Goods Details
- Orders for non-defense capital goods excluding aircraft, a proxy for future business spending, fell 2.9 percent last month, the biggest drop since April 2009.
- Orders for machinery slumped 9.7 percent in January, the most in a year.
- Orders for motor vehicles and parts dropped 2.2 percent in January after a 5.5 percent gain.
- The big bright spot was Boeing received orders for 59 aircraft
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Is Consumer Confidence a Contrarian Indicator?
by ilene - February 24th, 2010 2:55 pm
Is Consumer Confidence a Contrarian Indicator?
Courtesy of Mish
On Tuesday economists were surprised when the Consumer Confidence Index Plunged To 46.
The Conference Board’s confidence index slumped to 46, below the lowest forecast in a Bloomberg News survey of economists, from 56.5 in January, a report from the New York- based private research group showed today.
Economists forecast the confidence index would decrease to 55 from a previously reported 55.9 January reading, according to the median of 68 projections in the Bloomberg survey. Estimates ranged from 50.9 to 59.
The Conference Board’s measure of present conditions decreased to 19.4, the lowest since February 1983, from 25.2.
Across the Atlantic, conditions are deteriorating as well. The New York Times has that story in Europe’s Recovery Shows Signs of Stalling.
“Recovery in our largest export market — the euro area — appears to have stalled,” Mervyn A. King, governor of the Bank of England, told a committee in Parliament.
There were disappointing economic reports from other European countries as well Tuesday. French consumer spending on manufactured goods in January experienced its worst decline in two years in part because of the end of a cash-for-clunkers program, while Italian consumer confidence fell this month to its lowest level since July.
Belgium’s business sentiment indicator was flat this month instead of the increase that analysts had expected.
A Contrarian Indicator?
Mark Hulbert at MarketWatch thinks that consumer confidence is a contrarian indicator on the basis It’s darkest before the dawn.
According to the Conference Board’s "Present Situation Index," which measures how consumers are feeling about the economy right now, they are even more pessimistic today than they were at the depths of the 2007-2009 bear market. In fact, as analysts have been quick to point out, you have to go back several decades to find another occasion when consumers were this glum about the economy.
Here’s one thing to remember before we get too dejected by this news, however: The last time that the Present Situation Index was as low as it is now was at the end of 1982 and early 1983. Coming as it did at the beginning of a two-decades-long bull market, that was a great time to get into stocks.
As Nathan Rothschild famously once said, the time to buy is when the blood is running in
…
Consumers Ask – What Recovery?
by ilene - February 24th, 2010 2:23 pm
Consumers Ask – What Recovery?
Courtesy of Tom Lindmark at But Then What
So, a weak consumer confidence survey confirms what anyone with an ounce of sense and the ability to engage in social conversation with a broad swath of Americans could have told you months ago. A lot of people are hurting and those that aren’t know too many who are and are, therefore, terrified that they could be next in line.
Outside of New York and Washington, things are bleak even for those who are employed. Everyone is looking over their shoulders just to make sure that the ax isn’t poised above their neck. Supposedly secure occupations like teachers, cops and firemen don’t look so untouchable any longer. Cities and states that government workers were counting upon to come through with their retirement packages are teetering and just to make the potion more distasteful, new taxes, fees and surcharges are being piled onto already stretched budgets.
John Carney has a good post up about what went wrong or more appropriately why all the great thinkers got this recovery talk all wrong. Here’s a bit of what he has to say, but take a couple of minutes and read the whole post:
Why was it different this time? The problem this time is that we’re in what the Keynesians would call a “liquidity trap.” Consumers, having been savaged by the housing bubble and its consequences, continue to be fearful of the future. Government regulation is making consumer spending more difficult by increasing capitalization requirement for banks and squeezing consumer access to credit. Huge debt overhangs from the boom still have many people trying to pay down debts instead of engaging in new spending. To put it briefly, the supply of funds to fuel economic growth is still very low because cautious Americans do not have faith in the recovery.
Economic planners will describe the situation as an “excess liquidity preference” and recommend more government spending to push the economy toward higher employment. Unfortunately, unless we’re really lucky, much of this government spending will likely be long-term destructive because it will direct funds in the wrong directions because it isn’t subject to market discipline. In any case, the current political atmosphere seems particularly unwelcoming to additional deficit spending. So we’d better hunker down and get ourselves adjusted to an economy with a
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
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