Bernanke Reiterates the Fed’s “Whatever It Takes” Pledge for the Thousandth Time
by ilene - July 21st, 2010 5:27 pm
To summarize and save you time, Jr. Deputy Accountant writes:
Bernanke Reiterates the Fed’s "Whatever It Takes" Pledge for the Thousandth Time
I won’t call Bernanke a one trick pony since he’s got more tricks than a Hollywood madam but I will say this: the man is nothing if not consistent.
Federal Reserve Chairman Ben Bernanke told Congress Wednesday the economic outlook remains "unusually uncertain," and the central bank is ready to take new steps to keep the recovery alive if the economy worsens.
Testifying before the Senate Banking Committee, Bernanke also said record low interest rates are still needed to bolster the U.S. economy. He repeated a pledge to keep them there for an "extended period."
Whatever it takes!
Full text of Bernanke’s semi-annual monetary policy check-in with Congress may be found via the Board of Governors.
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DiggServices ISM Growth Slows – Jobs, Imports, Export Orders Contract; Manufacturing vs. Services ISM – Which is More Important and Why?
by ilene - July 6th, 2010 3:56 pm
Services ISM Growth Slows – Jobs, Imports, Export Orders Contract; Manufacturing vs. Services ISM – Which is More Important and Why?
Courtesy of Mish
In yet another sign the economy is cooling substantially, three components of the June Services ISM are now in contraction, with the overall index declining much faster than economists expected.
From the June 2010 ISM Report On Business®:
In June, the NMI registered 53.8 percent, indicating continued growth in the nonmanufacturing sector for the sixth consecutive month, but at a slightly slower rate than in May. A reading above 50 percent indicates the non-manufacturing sector economy is generally expanding; below 50 percent indicates the non-manufacturing sector is generally contracting.
Employment activity in the nonmanufacturing sector contracted in June after one month of growth. ISM’s Non-Manufacturing Employment Index for June registered 49.7 percent.
Orders and requests for services and other non-manufacturing activities to be provided outside of the United States by domestically based personnel contracted in June after three consecutive months of growth.
ISM’s Non-Manufacturing Imports Index contracted in June after three consecutive months of growth.
The above link also contains the Manufacturing ISM.
Recovery Withers on the Vine
There is really not much to like in either of the ISM reports.
Inquiring minds also note Factory Orders Fall More Than Expected; Recovery Withers on the Vine
You should not have to be a genius to figure out the rebound in manufacturing was a result of four factors now withering on the vine.
- Inventory replenishment
- Unsustainable stimulus
- Housing incentives pushing demand forward on appliances
- Rebound in auto sales from extremely depressed levels
Is Europe going to lead the world recovery? China? US Consumers?
The answers are No, No, and No
Manufacturing was the one bright spot but its best days are now long gone. Moreover China Manufacturing Slows for Second Month; US ISM Weaker than Expected; Weekly Unemployment Claims Stubbornly High; Existing Home Sales Plunge
Budgetary Murder
This depression (and we are in one, masked only by safety nets galore), is The Price We Pay For Budgetary Murder.
Unfortunately, the budgetary murder continues unabated, and that will prolong this depression.
Japan is in its mess because of Keynesian and Monetarist stimulus, we are in this mess because of Keynesian and Monetarist stimulus, and the UK is in its mess because of Keynesian and Monetarist stimulus. Yet the
…
What the Revised 1st Quarter GDP Numbers Really Mean
by ilene - June 30th, 2010 3:35 am
What the Revised 1st Quarter GDP Numbers Really Mean
Courtesy of Rick Davis at Consumer Metrics Institute
On June 25th the BEA quietly revised its measurement of GDP growth for the first quarter of 2010 down for the second time, this time to 2.7%. The newly revised growth estimate nearly matches the Consumer Metrics Institute’s original projection for the first quarter, which was 2.62%. The big difference is that the Consumer Metrics Institute’s projection (based on our Daily Growth Index) was available on November 30, 2009 — seven months ago.
Because the Consumer Metrics Institute’s Daily Growth Index only lags the real-time consumer economy by several days and has a day-by-day time resolution, the Daily Growth Index can also tell us something totally missing in the BEA report: that the newly revised GDP ‘freeze frame’ picture captures a moment in time when consumer demand was dropping at a rate of about .08% per day. This means that the difference between the revised GDP and our original projection represents only a single day of economic change. But more importantly, our Daily Growth Index shows the dynamics of the economy at the point in time when the BEA ‘still picture’ was taken.
One other important note should be made about the June 25th BEA release: in it the BEA also increased the inventory component within the 2.7% number from 1.65% to 1.88%. That means that the net-after-inventory-adjustments number was less than 0.9%, and over two-thirds of the reported aggregate growth was from relatively unpredictable inventory swings.
If factories were unwittingly growing inventories during the first quarter in the face of what was really slackening consumer demand, the official GDP numbers for both the second quarter and the third quarter (to be released 4 days before the U.S. mid-term elections) could be interesting, since factories could very well over-correct again — but in the opposite direction.
Because Friday’s BEA release mirrors our Daily Growth Index from November 30th, the index’s subsequent course provides some insight into where the economy has been heading since then. Roughly half a quarter later (on January 15th, 2010) the index fell into net year-over-year contraction. During the nearly two quarters since then the index has been showing mild but continued contraction. When that contraction is charted along with similar contraction ‘events’ from 2006 and 2008 it can be seen that 2010 is shaping up as…
Getting a Grip on Reality – Reflation Dead in the Water
by ilene - June 22nd, 2010 5:18 pm
Getting a Grip on Reality – Reflation Dead in the Water
Courtesy of Mish
Economist Dave Rosenberg warns investors to Get a Grip on Reality.
Double-dip risks in the U.S. have risen substantially in the past two months. While the “back end” of the economy is still performing well, as we saw in the May industrial production report, this lags the cycle. The “front end” leads the cycle and by that we mean the key guts of final sales — the consumer and housing.
We have already endured two soft retail sales reports in a row and now the weekly chain-store data for June are pointing to sub-par activity. The housing sector is going back into the tank – there is no question about it. Bank credit is back in freefall. The recovery in consumer sentiment leaves it at levels that in the past were consistent with outright recessions. Last year’s improvement in initial jobless claims not only stalled out completely, but at over 470k is consistent with stagnant to negative jobs growth. And exports, which had been a lynchpin in the past year, will feel the double-whammy from the strength in the U.S. dollar and the spreading problems overseas.
Spanish banks cannot get funding and another Chinese bank regulator has warned in the past 24 hours of the growing risks from the country’s credit excesses. A disorderly unwinding of China’s credit and property bubble may well be the principal global macro risk for the remainder of the year. Indeed, perhaps the equity market finally realized yesterday that allowing China more control to defuse an internal property and credit bubble may well be a classic case of “be careful of what you wish for.”
The Bond Cycle and Deflation
I was at an event recently where I was able to see two legends among others – Louise Yamada and Gary Shilling. Louise made the point that while secular phases in the stock market generally last between 12 and 16 years, interest rate cycles tend to be much longer – anywhere from 22 to 37 years; and she has a chart back to 1790 to prove the point! So while all we ever hear is that this secular bull market in bonds is getting long in the tooth, having started in late 1981, it may not yet be over. After all, the deleveraging part of this cycle
…
No green shoots here
by ilene - June 3rd, 2010 11:30 pm
Consumer Metrics Institute Personal Finance Index Continues to Deteriorat
Courtesy of Rick Davis at Consumer Metrics Institute
Below is an addendum to the update sent out on Tuesday, addressing new data reflecting changes in consumer behavior concerning their debt:
The Consumer Metrics Institute’s Personal Finance Index continued its decline for the sixth consecutive week, with it now showing a year-over-year decline in consumer confidence in excess of 40%.
This contrasted sharply with the situation as recently as the end of January 2010, when the same measure of confidence was showing a year-over-year gain in excess of 7%. The Consumer Metrics Institute’s Personal Finance Index is composed of a number of data series, some of which collect transactions that are precursors to the initiation of default and/or foreclosure activities. The levels of these negative activities are inverted before being included in the ‘Personal Finance Index’, so that a rapid rise in Consumer transactions with default and foreclosure counseling services, for example, will drive that particular index down.
[http://www.consumerindexes.
The Personal Finance Index is not alone in reflecting continued weakness. In fact, our ‘Weighted Composite Index’ (which is by far our best daily aggregate measure of the consumer ‘demand’ side of the economy) has shown a relatively steady deterioration since peaking in August 2009, with the trailing month now recording contraction in excess of 2%.
[http://www.consumerindexes.
The sliding ‘trailing quarter’ as reflected in our ‘Daily Growth Index’ has also reached a level consistent with a year-over-year contraction rate of about 2%, after initially dropping into net contraction on January 15th. When compared to previous contraction events in 2006 an 2008 this particular episode of contraction in consumer demand is following a unique profile: at it’s worst it is still milder than the mild 2006 event but it has gone on longer than even the 2008 event without forming a clear bottom.
[http://www.consumerindexes.
If the housing market is expected to recover soon, a significant increase in demand for residential real estate loans will need to be occurring in the near future. Although there has been a recent minor upturn in consumer interest in refinancing on a year-over-year basis, it may only be a sign that consumers are beginning to expect that the historically low mortgage rates are nearing an end.
[http://www.consumerindexes.
A more telling development would be for a similar upturn in consumer interest in new loans, which we…
MasterCard Study Says Consumer Spending Has Taken A Break
by ilene - June 3rd, 2010 9:56 pm
MasterCard Study Says Consumer Spending Has Taken A Break
Courtesy of Mish
Michael McNamara, Vice President, Research and Analysis for SpendingPulse, observes Consumer Takes a Respite as Spending in Many Sectors Declines.
The momentum in consumer spending that was building through the first quarter, seems to be taking a breather in the second quarter of 2010, at least so far. Financial volatility in the capital markets and ongoing macroeconomic issues could account for this shadow cast over the recovery in consumer spending. Some sectors seem to be responding to specific disruptive events, such as the expiration of the Federal housing tax credits, where previously we’d noticed a beneficial "echo" effect on housing related categories such as Furniture and Furnishings.
In addition, Memorial Day occurring a week later than it did last year, could have pushed some spending into June, 2010. Nevertheless, we continue to see strength in pricing, and in most categories, we are registering solid increases in the SpendingPulse Price Index, indicating that inventories continue to be aligned to demand, and retailers have not had to return to steep discounting.
Price Wars
In response to Michael McNamara’s statement "retailers have not had to return to steep discounting" I counter with Foreclosure Life Raft; Price Wars at Walmart; Electrical Demand Drops Two Straight Years, First Since 1949.
Wal-Mart, Target, Costco, others are clearly in the midst of price wars hoping to capture market share.
YouTube Commentary From McNamara
Here’s a short YouTube video with additional commentary from Michael McNamara.
Factors in Spending Respite
McNamara discusses several factors in the spending respite.
- Some Memorial Day sales falling into June instead of May. This may benefit June sales.
- Financial market volatility impacts big ticket items and durable goods.
- The end of $8,000 housing tax credits pushed forward big ticket spending items like furniture and appliance.
Spending Trends
Interestingly, apparel sales and footwear showed a significant decline although online apparel sales were up 20-30% depending on category.
Furniture sales were down 9% compared to a year ago. This was in spite of a mini-rush to buy housing ahead of the expiring tax credit. Perhaps we see a bump in furniture and appliance sales in June or July after some of those home purchases close, but that will be the last hurrah in my opinion.
Luxury retail spending showed an increase of 9.7%…
Consumer Metrics Institute Previews 3rd Quarter GDP
by ilene - June 1st, 2010 7:54 pm
Consumer Metrics Institute Previews 3rd Quarter GDP
Courtesy of Rick at Consumer Metrics Institute
On May 27th the BEA released its first revision to its 1st Quarter 2010 GDP growth rate measurement, lowering the number from a 3.2% annualized growth rate to 3.0% annualized growth. One day later the Consumer Metrics Institute’s ‘Daily Growth Index’ was signalling what we should expect the BEA’s measurement of the 3rd Quarter 2010 GDP growth rate to be: contracting at about a 2.0% rate.
The prior BEA estimate of 1st Quarter 2010 GDP growth trailed our ‘Daily Growth Index’ by 127 days, and because of the rapid rate that the economy was cooling when the measurements were being made, the newly adjusted estimate is now trailing our ‘Daily Growth Index’ by 125 days. The 3rd Quarter of 2010 ends 125 days after May 28th, when our ‘Daily Growth Index’ was recording a ‘growth’ rate of -1.99%. If the BEA estimates continue to trail our ‘Daily Growth Index’ in a consistent manner we should expect that the 3rd Quarter’s GDP ‘growth’ rate will be in the -2.0% neighborhood.
Several things were interesting about the BEA announcement, which seems to have been largely ignored by the equity markets on a day when the Dow Industrials were up over 280 points. Not only was the total growth rate revised downward by .2%, but the impact of inventory building was adjusted upward from 1.57% to 1.64%, meaning that the end growth rate of consumer demand (net of inventory build-ups) was dropped from about 1.63% to something closer to 1.36% — a 17% reduction that was hardly worthy of a 280 point rally in the markets. Perhaps the U.S. equity markets should obsess less about Greece and Spain and pay more attention to what is happening with consumers in their own domestic economy.
Since we first reported that our ‘trailing quarter’…
US GDP growth rate is unsustainable; recovery will fade
by ilene - April 30th, 2010 5:14 pm
US GDP growth rate is unsustainable; recovery will fade
Courtesy of Edward Harrison at Credit Writedowns
The US turned in a fairly robust quarter in Q1 2010, with real GDP growth meeting expectations at 3.2% annualized. This comes on the back of a very robust annualized 5.6% growth in the previous quarter. This is the best growth two-quarter growth we have seen since 2003.
However, when one digs deeper, it is obvious this growth is unsustainable because it is predicated on a reduction in savings rates and a releveraging of the household sector. As a result, I expect weak GDP growth in the second half of 2010.
The problem with the BEA reported numbers is the composition of GDP growth. The BEA says in its data release:
Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 3.2 percent in the first quarter of 2010, (that is, from the fourth quarter to the first quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 5.6 percent.
The Bureau emphasized that the first-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency (see the box on page 3). The "second" estimate for the first quarter, based on more complete data, will be released on May 27, 2010.
The increase in real GDP in the first quarter primarily reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, exports, and nonresidential fixed investment that were partly offset by decreases in state and local government spending and in residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.
The deceleration in real GDP in the first quarter primarily reflected decelerations in private inventory investment and in exports, a downturn in residential fixed investment, and a larger decrease in state and local government spending that were partly offset by an acceleration in PCE and a deceleration in imports.
So the gain in GDP was due to consumption, while GDP decelerated from Q4 2009 due to inventory, exports, residential investment, and state and local government spending.
Translation: These numbers are entirely dependent on an increase in consumer spending. Everything else is becoming a drag on…
Is 103 Months to Clear Housing Inventory Too Optimistic?
by ilene - April 26th, 2010 3:30 am
According to my friend Patrick Pulatie, CEO for Loan Fraud Investigations, the number of months to clear housing inventory is likely to be much greater than 103 months. Below, he explains why the 103 figure is too low.
In a follow up article Pat discusses HAMP and explains why HAMP = Foreclosure. – Ilene
Number of the Week: 103 Months to Clear Housing Inventory
103: The number of months it would take to sell off all the foreclosed homes in banks’ possession, plus all the homes likely to end up there over the next couple years, at the current rate of sales.
How much should we worry about a new leg down in the housing market? If the number of foreclosed homes piling up at banks is any indication, there’s ample reason for concern.
As of March, banks had an inventory of about 1.1 million foreclosed homes, up 20% from a year earlier, according to estimates from LPS Applied Analytics. Another 4.8 million mortgage holders were at least 60 days behind on their payments or in the foreclosure process, meaning their homes were well on their way to the inventory pile. That “shadow inventory” was up 30% from a year earlier.
Based on the rate at which banks have been selling those foreclosed homes over the past few months, all that inventory, real and shadow, would take 103 months to unload. That’s nearly nine years… Read more here.>>
****
Pat says not so fast. Here are his reasons why the 103 month estimate is too low.
There are problems with the numbers that the article uses to arrive at the 103 months.
The HAMP modifications will have a failure rate of at least 75%. That is due to the Debt Ratios that the mods are approved at. In Feb, the mean ratio was 59.8%. In Mar, it was 62.7%, which to increase that much, most every
…
PARTS OF THIS MARKET ARE LOOKING IRRATIONAL
by ilene - April 16th, 2010 4:49 pm
PARTS OF THIS MARKET ARE LOOKING IRRATIONAL
Courtesy of The Pragmatic Capitalist
I haven’t thought the 75%+ rally was particularly irrational over the course of the last 12 months. Surprised by the strength? Absolutely. But irrational, no. As of late, we’ve begun to see signs that the consumer is back, but the equity action implies that the consumer is not only back, but ready to break records. In late 2006 I wrote a letter that said:
“So here we sit with a relatively healthy economy, signs of inflation and record housing prices. Sounds pretty good, right? Not so fast. The markets could certainly move higher if housing doesn’t collapse, but we see very few scenarios in which that can happen. When the housing market slows consumers will spend less and businesses will begin to suffer. The US economy will then fall into a recession and European and Asian countries will quickly follow suit as the world’s greatest consumers wilt under the environment of low liquidity and higher debt….The credit driven housing bubble remains the greatest risk to the equity markets at this time.”
I said the market was due for a potentially crippling recession as the yield curve inverted, consumer balance sheets were turned upside down, and a housing bubble was brewing. Just days before the market crashed in 2008 I said the market had all the ingredients for a crash. In late 2008 I said the market had overreacted and would likely revert towards the mean in 2009 for a total return of 18%.
The day before the market bottom in March 2009 I said government intervention would likely generate an equity rally. But I did not come close to predicting that we were on the precipice of a 75% 12 month move. Not even close. On the other hand, I have never thought the move was particularly irrational and didn’t fight the tape through 2009.
I was very constructive on the market heading into 2010 and maintained that stimulus, strong earnings and an accommodative Fed would result in higher stock prices in H1. I point this out not because I am trying to toot my own horn or gloss over my many imperfections (many can be emphasized), but overall I have been able to not only foresee the macro mechanics driving the market, but have also done a fine job translating that into…
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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...
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coordinator for PSW. She manages the Favorites backup site
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