Archive for June, 2010
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 wholly unique:
As the chart shows, the current contraction has progressed for nearly two quarters without yet tracing a clearly formed bottom. And any measure of the severity of an economic slowdown must include not only maximum rate of contraction, but duration as well. Although the 2010 event has been milder than 2008 in terms of absolute negative growth rates observed, if it progresses long enough the aggregate economic pain could be substantial. For a little perspective, the total economic impact of 2010’s contraction is already nearly twice what was experienced in 2006, when the GDP slipped to a barely positive +0.1% growth rate. And (to date) the total economic impact of the 2010 event represents nearly a full third of the pain experienced during the ‘Great Recession’ of 2008-2009.
The key message to take from these numbers is that the fundamental change in consumer behavior which we have been observing over the past three quarters is likely to be protracted. Although this change in behavior is most clearly shown in our data by consumer reluctance to take on new or increased debt, it probably reflects de-leveraging much more than balance sheets — almost certainly including de-leveraged consumer expectations for the near future.
At the Consumer Metrics Institute we measure day-by-day changes in the discretionary durable goods transactions of internet shopping consumers. We genuinely believe that the real economy lives where ‘Main Street’ consumers are (figuratively and/or literally) clicking ‘Add to Shopping Cart’, not where the BEA’s factories slavishly follow the consumer’s lead. The millions of consumers we measure respond collectively to what they see going on with their own local economy, family and friends. And right now real-world ‘Main Street’ consumers are demonstrating significant caution.
Thank you,
Rick Davis
Consumer Metrics Institute
Courtesy of The Pragmatic Capitalist
John Hussman is officially sounding the double dip siren. He issued a similar call in November of 2007:
Based on evidence that has always and only been observed during or immediately prior to U.S. recessions, the U.S. economy appears headed into a second leg of an unusually challenging downturn.
A few weeks ago, I noted that our recession warning composite was on the brink of a signal that has always and only occurred during or immediately prior to U.S. recessions, the last signal being the warning I reported in the November 12, 2007 weekly comment Expecting A Recession. While the set of criteria I noted then would still require a decline in the ISM Purchasing Managers Index to 54 or less to complete a recession warning, what prompts my immediate concern is that the growth rate of the ECRI Weekly Leading Index has now declined to -6.9%. The WLI growth rate has historically demonstrated a strong correlation with the ISM Purchasing Managers Index, with the correlation being highest at a lead time of 13 weeks.
Taking the growth rate of the WLI as a single indicator, the only instance when a level of -6.9% was not associated with an actual recession was a single observation in 1988. But as I’ve long noted, recession evidence is best taken as a syndrome of multiple conditions, including the behavior of the yield curve, credit spreads, stock prices, and employment growth. Given that the WLI growth rate leads the PMI by about 13 weeks, I substituted the WLI growth rate for the PMI criterion in condition 4 of our recession warning composite. As you can see, the results are nearly identical, and not surprisingly, are slightly more timely than using the PMI. The blue line indicates recession warning signals from the composite of indicators, while the red blocks indicate official U.S. recessions as identified by the National Bureau of Economic Research.
Read the full article here.
Source: Hussman Funds
Moving averages are one of the most widely followed indicator in technical analysis.
Simply put, when the price of an index or stock stays above a particular price moving average line on a chart, that price level serves as support — a level where buyers reside.
If the price falls below a moving average line and “can’t” break through from the underside, this price level is a line of resistance — a price level where sellers hover.
That’s an easy explanation of moving averages for you.
Learn to integrate Elliott wave analysis with other technical disciplines. Read the FREE Ultimate Technical Analysis eBook to discover some of the favorite technical analysis methods used by the analysts at Elliott Wave International. Learn more and download your free, 50-page technical analysis ebook here.
A commonly watched line is the 200-day moving average.
After the DJIA fell below its 200-day moving average in May, prices remained mainly below the line until June 15, when the market rose 213 points. But, as this chart from Elliott Wave International’s June 16 Short Term Update shows, the NYSE volume has remained muted:
“There was no follow-through today. More stocks closed down than up on the day on the NYSE, within the S&P 500 and also for the DJ Composite. Today’s Big Board volume was similarly slow relative to yesterday. …” — Steven Hochberg, Short Term Update, June 16, 2010
With a lack of buying conviction, how long will the stock indexes remain above the 200-day moving average?
For the answer, you need to look at the DJIA’s Elliott wave structure. It strongly suggests the market will move in a definite direction in a matter of days or weeks.
Learn to integrate Elliott wave analysis with other technical disciplines. Read the FREE Ultimate Technical Analysis eBook to discover some of the favorite technical analysis methods used by the analysts at Elliott Wave International. Learn more and download your free, 50-page technical analysis ebook here.
This article, DJIA’s 200-Day Moving Average,was syndicated by Elliott Wave International. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts lead by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.
Much to the surprise of those who thought the U.S. housing market would enjoy another buying surge during the final two months of the homebuyer tax credit, the National Association of Realtors reported that home sales fell last month and remain far below the levels reached late last year when the first round of tax credits expired.
Of course, seasonal adjustments play a big role in the November-May comparison shown above since, normally, late fall sees the beginning of a dramatic slowdown in buying activity and the raw data is typically adjusted upward. But, nevertheless, the comparison is still quite striking and one can only imagine where the sales totals will go in July when no government money gets handed out with each home purchase.
Existing home sales fell 2.2 percent last month, from an upwardly revised annual rate of 5.79 million in April to 5.66 million in May, and the inventory of unsold homes remains quite elevated, the months of supply metric falling only slightly from 8.4 to 8.3 months, well above the low of 6.5 months back in November.
The median sales price for all types of homes sold was $179,600, up 2.7 percent from a year ago, and the number of distressed home sales continued to slow, down from 33 percent in April to 31 percent in May, far below the peak level of 50 percent back in early-2009.
Living in some dreamworld located far, far away from planet Earth, NAR President Vicki Cox Golder, said that home prices are stabilizing:
With distressed sales at roughly the same level as a year ago, the gain in home prices is a hopeful sign that the market is in a good position to stand on its own without further government stimulus.
As for Chief Economist Lawrence Yun, he’s a bit less sanguine, more concerned about those homebuyers who may not meet the June closing deadline in order to get their government money:
We are witnessing the ongoing effects of the home buyer tax credit, which we’ll also see in June real estate closings. However, approximately 180,000 home buyers who signed a contract in good faith to receive the tax credit may not be able to finalize by the end of June due to delays in the mortgage process, particularly for short sales.
In addition, many potential sales are being delayed by an interruption in the National Flood Insurance Program. Florida and Louisiana, also impacted by the oil spill, have the highest percentage of homes that require flood insurance.
Naturally, the realtors’ trade group supports the efforts of Congress to extend the closing deadline by a few months, but, based on developments in Washington yesterday, this does not seem likely.
Courtesy of Joshua Brown, The Reformed Broker
I never understood President Obama’s fealty to the “clean” coal industry lobby. I also didn’t appreciate the President’s lumping in of natural gas with the rest of the “fossil fuels” during his Oval Office address this month. Sure, nat gas is a fossil fuel by definition, but it’s way cleaner than coal and exponentially more abundant on American soil than crude oil is. It’s also more feasible for things like buses and trucks than solar, geothermal, corn, hamster wheels, etc.
Anyway, China is now seeing the light on natural gas according to reports this morning. They plan to double their usage of it – at the expense of their coal use – by 2015.
From Platts:
China plans to double the natural gas share of its total energy consumption basket from the current 4% to 8% by 2015, a source close to the country’s National Energy Administration said Monday.
The shift would come at the expense of the share of coal in the mix in order to increase its use of cleaner energy, the source added.
On Saturday, China’s administrator of the national energy administration Zhang Guobao told a closed-door session at the APEC meeting in Fukui, Japan, that the country was working on raising its natural gas share in the primary energy mix to boost energy efficiency.
China currently uses coal to meet 70% of its energy needs. Renewables, including hydro, oil and nuclear power account for the remainder. The source said that oil usage would remain unchanged at 26% from 2011 through 2015.
Why is the transition to natural gas so obviously advantageous to seemingly everyone except the denizens of our nation’s capital? What is it about a safer, cleaner, more domestic fuel source that they don’t understand?
We’ve talked about the pending American Power Act that congress is expected to vote on over the next few weeks.
In that bill is a $64,000 tax credit per truck for each heavy vehicle switched over from diesel to compressed natural gas. Hopefully, China’s move this morning adds some urgency and confidence into the process so that congress realizes that this is a “do”.
I’m hoping for a job-creating revolution should the Act pass, as infrastructure, exploration, storage and transmission capabilities across the country are upgraded. There are estimates that say over a half million jobs could be created.
More employment, less money sent over to our enemies in the War on Terror, cleaner burning fuel. Win, win, win.
Courtesy of Bondsquawk
Regarding today’s negative growth rate index “Let’s not sugarcoat it, it’s a sharp drop,” says ECRI managing director, Lakshman Achuthan.
(Source: Tech Ticker)
The Labor Department reported that consumer prices in the U.S. fell last month at their fastest pace since December of 2008, down 0.2 percent in May after a decline of 0.1 percent in April, driven lower by tumbling energy prices.
On a year-over-year basis, the overall consumer price index is now up just 2.0 percent and looks ready to go lower in the months ahead since the big annual energy price increases that have kept the price index elevated during the first half of the year are now all but over.
By category, it was the familiar story of volatile energy prices and steadily rising costs for medical care and education while categories such as housing, apparel, and entertainment continue to show declines from a year ago.
Energy prices were up 14.7 percent from a year ago based on the May data that included a 27 percent increase in the cost of gasoline, however, when the June data is reported next month, gasoline prices will be about even from the same time in 2009, meaning that a huge decline in the overall price index could be seen.
For example, a back-of-the-envelope calculation shows that substituting zero for the current annual energy price increase where it appears in the May data in both the housing and transportation categories would produce a change of 0.0 percent for the overall consumer price index.
Next month at this time, we’ll probably be talking about de-flation again…
From the NY Fed: Empire State Manufacturing Survey
The Empire State Manufacturing Survey indicates that conditions for New York manufacturers improved in June. The general business conditions index edged up from its May level to 19.6, extending its string of positive readings to eleven months. The new orders and shipments indexes were also positive and higher than their May levels. The inventories index remained near zero for a second straight month, indicating that inventory levels were little changed.
…
The new orders index rose modestly, to 17.5, and the shipments index climbed to 19.7. The unfilled orders index was negative for a third consecutive month, at -1.2.
…
The index for number of employees slipped 10 points, to 12.4, and the average workweek index climbed from zero last month to 8.6.
This came in slightly below expectations. This is more evidence that the inventory adjustment is over. Manufacturing continued to improve, although at a somewhat slower pace than earlier this year.
Odd market action today, in which curious rumors surfaced out of quant land, that Goldman was being used as a gold surrogate for liquidation purposes. We closed at last Friday intraday high: should the market continue upward, the NFP news from last week that the economic situation is now indicative of a double dip will be fully priced in. Alas, volume now refuses to confirm trends on either the upside or the downside. More and more investors will simply not participate whatsoever in this incredibly volatile market. Below is a PV of the SPY (no ES today due to the June-September roll): volume is now consistently below cumulative averages.
Courtesy of JESSE’S CAFÉ AMÉRICAIN
This is making the rounds as a rumour, but it has credibility, and I have been expecting it as they need to set aside some serious reserves for litigation and damages caused.
The company is in deep trouble, and the CEO is making all the classic errors we learned not to do in the crisis management courses in business school.
The rumour is so widespread that I am sure it will make the wires somewhere and I will look for it.
I do not expect BP to declare bankruptcy as this story suggests, although it would be an interestingly foul gambit to try and avoid its liabilities.
British Petroleum had been at the heart of darkness many years ago, as in the example of the Iranian coup d’etat of 1953 and imprisonment of Iran’s democratically elected leader Mohammad Mosaddegh, followed by over twenty years of tyranny and torture. Some think this is what had inspired Eisenhower’s parting words about the Anglo-American military-industrial complex.
Although through aggressive use of public relations had improved its image, BP has long been noted by investigative reporters and environmentalists as a bad boy among the corporate multinationals, preferring to spend money on PR, politicians, and regulators rather than planning and safety. BP: Slick Operator and BP’s Other Spill by Greg Palast for example, and those radicals at the Seattle Times: BP’s Trail of Accidents and Scandals Lead to Alaska. When Sarah Palin, former governor of Alaska winks and says “I’m your gal,” she just might not be winking at you, chump change.
I thought it was interesting that they bought the search term “oil spill” from Google to better direct the flow of information from the public.
And then of course there is the issue of insider selling that occurred prior to the more complete release of the extent of the Gulf oil leak disaster involving BP executives and former executives, and of course Goldman Sachs. Gulf Oil Spill to Drag Goldman Sachs into Trading Scandal?
This is not to say that all corporations are corrupt all the time, not at all. But neither are they naturally good, all the time. It underscores the need for regulation, and investigations into the type of corruption which was apparently widespread in the agencies that regulated the banks, the oil drilling industry, and the stock markets. Maintaining a system of justice, the rule of law, is not something you do once and then sit back and then trust to the natural goodness of men and women to limit their profits to do the right thing when no one is watching.
“How are the mighty fallen, and the weapons of their warfare perished.”
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