Monday, November 30, 2009

Seasonal Adjustment Cherry Picking

I just wanted to make a very short post in regards to the issue New Deal Democrat brought up earlier today about seasonal adjustments and how many in the blogoshpere (and in print) are trying to use the unadjusted data to back up their claims that the economy is getting worse.

You can't have it both ways, either you adjust or you don't. And if you decide not to then you must accept that last month the unadjusted household survey showed an unemployment rate of 9.5% (instead of the adjusted 10.2%) and the establishment survey showed an unadjusted employment GAIN of 641,000 jobs. Sadly, neither of those numbers backed up the "economy is getting worse" claims and thus the same people who are clamoring to use the unadjusted jobless claims data are using the adjusted employment situation data. Seems kinda hypocritical to me, but who am I.

Sorry for the short post, but it had to be said.

Today's Market


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A.) Notice the incredible range that trading took today. Prices touched all the major EMAs. Going down to the 50 day EMA is a big deal -- it indicates there is a lot of bearish sentiment out there right now. However, also note the prices formed a narrow candle.

About Seasonal Adjustment of Initial Jobless Claims

- by New Deal democrat

The canard that we should ignore Seasonally Adjusted Initial Jobless Claims in favor of the non-seasonally adjusted claims is back. This canard was least seen masquerading as a "black swan" back in July, when as now seasonally adjusted claims were falling because the non--seasonal number of claims was not rising as much as would normally be expected at that time of year.

Of course, none of the people telling us that "non-seasonally adjusted claims are the real claims" had a peep to say about the subject back in September when SA claims were running at 557,000, and NSA claims were at 466.267 (having fallen from 671,242 in early July). Were there any breathless headlines about 200,000 fewer "real" job losses? No, of course not. NSA claims only matter when they are higher (for seasonal reasons) than SA claims.

In the case of the blogger in July, his black swan quickly turned up dead in August as jobless claims resumed their fall. The Doomsayers now will just as surely be proven wrong come the end of January -- by which time they will ignore the data and simply move on to the next reason to predict Armageddon.

But given the sudden downdraft in SA claims to 466,000 last week, Prof. Brad DeLong not unreasonably asks if the seasonal adjustments are missing something. The long answer, I suppose, would have to be given by the BLS statisticians themselves (and they would probably respond to a query from Professor DeLong), but we can give a good approximate answer, because there are comparable past episodes that suggest a result.

In addition to this past July, the other episodes include the severe recessions of 1974 and 1982. Both of these deep recessions each featured two periods of large seasonal adjustments: once as they deepened and once again as they abated. Let's take a look at them.

First, here is a graph of both SA and NSA initial jobless claims during the 1974 recession:



The 1973-74 holiday season NSA spike appears to have sometimes - but not always - exaggerated the underlying trend upward. Similarly, the July 4 1975 spike seems to have briefly exaggerated the underlying trend downward. In neither case, however, did the SA reverse or hide the trend. It is almost impossible to read what if anything the 1974-75 holiday season NSA spike may have done, as it occurred right at the height of SA claims. If anything, in that case it may have slightly muted the trend - but again, the trend is unmistakable.

Next, here is a graph of both SA and NSA initial jobless claims during the 1982 recession:



While the 1981-82 holiday season NSA spike appears to have had no affect on the underlying trend, the 1982-83 spike appears to have amplified the downward trend, as briefly so did the July 4 1983 spike. Contrarily, the July 4 1982 spike seems to have muted the upward trend in claims, but only for a couple of weeks.

Similarly, the July 4 spike this past summer briefly amplified the downward trend in jobless claims - but my no means hid the trend.

It seems likely that last week's sudden SA decline in initial jobless claims similarly amplified the underlying downward trend -- but by no means hides any alleged "real" countertrend higher. Just as in August initial jobless claims never again were recorded at the 600,000+ level they had been in June, it seems likely that by the end of January, there will be a slight rebound in initial claims - but never again hitting the 500,000+ recorded in October.

In short: the official adjustments may sometimes overcompensate for seasonal spikes during periods of big recessions, but if anything exaggerate rather than hide the underlying trend.
__________

One final note: Prof. DeLong says that
[t]he worry is that not as many people are being laid off because there aren't as many people at work in construction and Christmas rush goods-producing jobs to be laid off, and that we should be at the very least cautious in interpreting one-week movements in unemployment insurance claims. Perhaps we want to argue that the labor market is improving in a sense, but we should be clear on what sense that improvement is. It is: in a normal year new weekly unemployment insurance claims rise by about 100,000 in the month before Thanksgiving; this year they have risen by only about 50,000. So things are getting better.

In the ultmate sense of jobs in the economy, I wonder if the Professor's worry isn't something of a wash. Yes, it's true that temporarily employed workers would have had paychecks for 8 or 12 or 16 weeks. But on the other hand, the failure to hire, let's say, 100,000 seasonal workers in July-September means that there were 100,000 less jobs recorded in the jobs survey those months, and 100,000 layoffs that will not correspondingly be counted in the November jobs survey. So in the payroll employment sense, the effect washes out.

Hysteria and Economic Blogs: Why They're Best Friends

Reading blogs that in any way write about economics has generally become an exercise in utter futility. According to most good news is either propagated by corporate whores who are blind to the realities around them or presented without considering "all" the facts. All government statistics and all economists are wrong -- unless they support or present a bearish viewpoint. Then the facts are treated as irrefutable truths presented by intellectual gods. And Goldman Sachs or the Federal Reserve manipulated everything to further some plot. In other words, ridiculous conspiracy theories are far more common than simple factually based analysis. How did things get so out of line?

There are several reasons. The first and most obvious is, "if it bleeds it leads." This is a saying from the days when newspapers were the predominant form of presenting and communicating information. Bloody pictures and sensationalistic headlines simply sold more newspapers. Translate that to the blogsphere and proclamations that the economy is going to hell will probably attract more readers. For reasons that I still don't understand, train wrecks are fun to watch. I'm reminded here of the album by Megadeath titled Peace Sells ... But Who's Buying?

Then there is the issue that many people in the blogsphere were right about the economy. Over the last three or so years, the only people who issued any warnings about the US' economic trajectory were blogs. At first they were the lunatic fringe, the voice in the wilderness. But after the crash happened more people tuned into blogs to get their financial information. Readership increased. But as the facts changed -- as we saw economic indicators start to bottom and then turn positive -- blogs did not change their opinions. The reasons here are two fold. First, many people made a name for themselves by being bearish. Changing their perception would mean giving up the quality that made them famous in the first place and thereby threaten their readership. The second is many people have a preconceived perspective -- that is, some people are fundamentally bearish regardless of the economic environment. Just as importantly, there are some who want things to be bad in order to create an environment where fundamental change is more likely. In other words, these people have a clear political agenda; they simply use economics to accomplish these ends. There is nothing wrong with this. But their bias should be understood and clearly made.

Third, there is the simple fact that people who write about the economy don't understand the economy. Here is a classic example. The unemployment rate is a lagging economic indicator. This means it goes down after the economy starts growing. The intuitive reason for this is simple. During a recession businesses cut production and lay people off. As the economy starts to grow, businesses first increase production and the hours that their existing work force works. Then, as demand picks up more and more, businesses start to hire again. However, reading the economic blogsphere it becomes very obvious that people writing about the economy don't know about this relationship. I'd love to tell you that unemployment will suddenly drop to 5% next quarter. But that's just not going to happen because that's not the way the economy works. Certain things happen at certain times in economic cycles.

And finally there are the conspiracy theories floating around the Internet. According to some the entire crash was orchestrated by Goldman Sachs. According to others, the Federal Reserve is part of a secret plot to do ... something. The reality is the economic meltdown was caused by numerous, inter-related events coming together in what is literally a once-in-a-lifetime perfect economic storm. It's going to take a long time to sort through the mess to figure out what went wrong and how all of those pieces fit together. In difficult times it's easy to scapegoat parties and institutions. The reality is it's a lot more complicated.

So, here's the reality of where we are. The economy is back from the brink; we're no longer falling off a cliff. Last quarter the economy grew by 2.8%. Yes, that was the result of the stimulus -- which is exactly what is supposed to happen at the end of a recession. However, we have a lot of work to do. The unemployment rate is still over 10.2%. Unemployment benefits must be increased and extended. And plans to get the unemployment rate down should be initiated.

Market Monday's



A.) The SPYs are forming a broadening top.

B.) The EMA picture is still bullish: the shorter EMAs are above the longer EMAs, and teh longer EMAs (20 and 50) are still moving higher. The 10 day EMA is moving lower, but this EMA is always more volatile.

C.) Momentum is decreasing.

D.) Notice that on the most recent top the A/D failed to make a new high. In other words, the same amount of volume/people are participating; we're not seeing a huge new rush of new investors. That's concerning.




A.) Leading up to the new high we see very weak candles.

B.) When prices hit new highs, we see very weak candles.

Bottom line: this is a very weak top to a market.

Friday, November 27, 2009

Weekly Indicators: "National Beached Whale Day" special edition!

- by New Deal democrat

Yesterday the turkeys were stuffed. Today, it's 300 million stuffed Americans who are imitating beached whales, so keep your belt unbuckled and check out how the high-frequency economic indicators fared last week.

Monthly indicators were mixed. The BEA revised 3rd Quarter GDP down to 2.8%, as expected, due primarily to an increase in imports. On the brighter side, Personal Consumption Expenditures - a measure which generally leads the business cycle - improved, as did personal income and real disposable income. The Case-Schiller house price index continued to show monthly improvement, and better Year over Year comparisons, although still down on that basis. New Home Sales for October also showed improvement. New orders for nondefense capital goods - a Leading Indicator - improved.

Consumer confidence improved from earlier this month, but still declined compared with the last several months. The Chicago Fed’s National Activity Index (CFNAI) stalled, declining slightly for the first time this year. Durable goods declined substantially, a complete surprise compared with expectations. The American Trucking Association also reported a small decline in October traffic, the second in a row. My co-blogger Silver Oz points out that some of the improvement in rail traffic might have to do with substitution effects due to the price of oil.

Now, the high-frequency weekly indicators:

The BLS reported initial jobless claims, seasonally adjusted, were 466,000. On an unadjusted basis they were totaled 543,926. By contrast, last year there were 609,138 initial claims.

The ICSC reported same store retail sales were unchanged from the previous week, and up 3.3% from a year ago, and said
ICSC Research now expects same-store sales for November to increase 4 percent to 6 percent as easy year over year comparisons will dominate the results.

Meanwhile, ShopperTrak

reported that year-over-year GAFO retail sales increased 0.9 percent for the week ending November 21 while sales rose a slight 0.2 percent versus the previous week ending November 14.

GAFO retail sales posted a minimal gain as the previous week contained the Veteran’s Day holiday which allowed consumers an extra day to spend – providing a rather difficult comparison. ShopperTrak noted that in many years the week following Veteran’s Day shows retail sales declines, so even a slight increase could be a good sign for the retail industry heading into Thanksgiving week and Black Friday....

Rail traffic continued to point to bullishness, as intermodal traffic remained stable, while baseline, cyclical, and total traffic went UP! It is particularly bullish that cyclical traffic went up this late in November. (Last week a commenter asked why I use this site vs. the AAR site. The short answer is that I am looking for high-frequency weekly data to see if the economic expansion is stalling or not, and the AAR's report is monthly. The two reports on a monthly basis appear to give virtually identical numbers).

The Daily Treasury Statement for November 24 showed $103.1 million paid withholding taxes so far this month compared with $111.3 on November 24 last year. This is still the best Year-over-Year comparison since March, and while it continues to show great stress in the jobs market as well as for state and local municipalities, it may be bottoming on an absolute basis now.

The Department of Energy's weekly report showed that demand for gasoline, after spending several weeks lower than one year ago, improved last week slightly compared with last year. Refinery stocks are running above average as they have all year.

The Price of Oil fell under $74 on the Dubai investment scare. Given that result, a couple of more middle eastern petrosheikhdoms getting into financial trouble might be kinda nice!

Wednesday, November 25, 2009

Happy Thanksgiving

To everyone,

We're signing off for the rest of the week. Have a good Thanksgiving.

We'll be back on Monday.

A Personal Note to the Doom and Gloomers from Bonddad

This is Bonddad. I mention that because there are four writers here: me, New Deal Democrat, Invictus and Silver Oz.

I (as in Bonddad) still believe the economy will grow in the 1%-2% range for the next few quarters. I have been saying that for the previous 6 months. Until I see otherwise, I will continue to hold to that prediction. In case you are wondering, there are several reasons for this.

1.) We are use to major quarter to quarter percent changes in PCEs. However, these do not need to grow at a fast pace to add to growth. If we see 1% PCE growth per quarter that will be sufficient for now.

2.) We still have a lot of stimulus money left to spend.

3.) We have a lot of inventories to rebuild.

4.) Exports are increasing. Yes, they are increasing at a slower rate than imports. But the point behind the increase in exports is it shows our trading partners are also growing. And contrary to the great myth of the econo-blogsphere, the US still manufactures a lot of stuff. We just do it with fewer people.

5.) The Fed is keeping rates very low.

I have yet to see any data which seriously undermines the above points.

Now, there are other writers who post here. I asked them to post here because they provide a solid counter-balance to my viewpoint. And unlike the vast majority of doom and gloomers, Silver Oz and Invictus provide thoughtful, well-researched and well-presented presented commentary. They both know the difference between the household and establishment job survey. And they're analysis does not jump around from point to point in an attempt to desperately hold onto a perspective. Instead, they rely on a dispassionate reading of data.

For those of you who are apparently having trouble with reading comprehension, everyone signs off on their work at the bottom of the page. So, before you assign a particular writer's viewpoint to me (or mine to somebody else), please look at the bottom of the page before doing so. It's really not that difficult.

Three steps forward, two steps back

- by New Deal democrat

In addition to the very good (relatively speaking of course) Initial Jobless Claims report this morning (see below), there were 4 other economic releases pushed up to today due to the Thanksgiving holiday. Two were good, two not so good.

Personal income and spending were both up:
Personal income increased $30.1 billion, or 0.2 percent, and disposable personal income (DPI)increased $45.7 billion, or 0.4 percent, in October, according to the Bureau of Economic Analysis.

Personal consumption expenditures (PCE) increased $68.3 billion, or 0.7 percent. In September, personal income increased $20.7 billion, or 0.2 percent, DPI increased $21.3 billion, or 0.2 percent, and PCE decreased $60.3 billion, or 0.6 percent, based on revised estimates.

Real disposable income increased 0.2 percent in October, compared with an increase of 0.1 percent in September. Real PCE increased 0.4 percent, in contrast to a decrease of 0.7 percent.

Shorter good news: consumers have more to spend, and they are spending it. This is necessary for job creation.

Additionally, New Home Sales rose 6.2 percent to an annual pace of 430,000, the highest level since September 2008, the Commerce Department said today in Washington. The median sales price fell 0.5 percent and the number of unsold homes reached a four-decade low.

On the other hand, the University of Michigan "index of consumer expectations fell 2.1 points to 66.5. This is an upward revision from the 63.7 reported in early November, which economists were expecting would be revised to 64.0." This is a leading economic indicator, and while better than most of this year, is still worse than September or October, so this will be a negative.

The other bad news was that orders for durable goods fell during October:
New orders for manufactured durable goods in
October decreased $1.0 billion or 0.6 percent to $166.2
billion, the U.S. Census Bureau announced today. This
was the second monthly decrease in the last three
months. This followed a 2.0 percent September
increase. Excluding transportation, new orders
decreased 1.3 percent. Excluding defense, new orders
increased 0.4 percent.

Despite that, the portion of the durable goods orders that is considered one of the 10 Leading Economic Indicators was up:
Nondefense new orders for capital goods in October
increased $0.6 billion or 1.2 percent to $54.6 billion.

There is some evidence (see, e.g., Invictus' post about the CMI, as well as the American Trucking Association's Index) that manufacturing may have stalled in October. We'll find out a lot more on Monday with the ISM report. Despite that, the majority of the reports are good.
----------------
P.S. While you are doing your annual post-Thanksgiving imitation of a beached whale on Friday, belly up to the computer, because I will be posting the regular "Weekly Indicators" then as usual.

Gold Hits New High



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A.) In September and October, prices rose in a gentler manner. They'd hit a high and the round out the action. This allowed the market to absorb the gains.

B.) So far this month, gold is simply screaming higher.

C.) The RSI is telling us prices are a bit overbought, but

D.) The MACD is saying there is plenty of momentum and

E.) The A/D line is telling us people are still moving into the market.

Also note the EMA situation: the shorter EMAs are above the longer EMAs, all the EMAs are moving higher and prices are above all the EMAs.

This is still a very bullish chart.

Initial Jobless Claims: 466,000 !

- by New Deal democrat

The BLS reported that for the week ending Nov. 21, seasonally adjusted initial jobless claims were 466,000. Last week's number was revised to 501,000. This is the best showing since "Black September" 2008 when the economy nearly ground to a panicked halt.

The 4-week moving average was 496,500, a decrease of 16,500 from the previous week's revised average of 513,000. The 4 week seasonally adjusted moving average is now about 24% lower than the peak of 658,750 on April 3 of this year.

Unadjusted, there were 543,926 new claims, an increase of 68,080 from the week before, and well below the 609,138 initial claims in the same week last year. In unadjusted terms, this was the best new claims number, relative to normal seasonal adjustment, in well over a year.
Because the BLS normally surveys business payrolls in the week ending the 12th of the month, this decrease if it persists won't show up until the December jobs number. If it does, according to my previous research, this indicates that jobs are actually being added to the economy. In this position I am at odds with people like Berkeley Economics Professor Brad DeLong and Calculated Risk, who say that the claims number must drop ot 400,000 before jobs are added. A number like today's is why I said I have no problem being proven wrong, provided that it is done quickly!

In that regard, here is a repost of some numbers I posted two weeks ago:

At the time of the 501,250 4 week average of new jobless claims reading in 1990, payrolls lost 160,000 that month and 211,000 the next. In 2001, the new jobless claims high of 489,250 coincided with payroll losses of 325,000 that month and 292,000 the next. This year, we have already seen in August new jobless claims in the 560,000-570,000 range coinciding with a payroll loss of 151,000.

Treasury Tuesdays

Sorry for being late with this. This week has been very crazy with with are traveling.


A.) Prices broke a two month uptrend

B.) Prices are now in a new uptrend that is confirmed by

C.) A Rising MACD

D.) A very strong A/D line that indicates there is a strong demand for Treasuries and

E.) A rising RSI

I want to return to the strong A/D line as it indicates that even when the market was in a correction in October there was not a flight out of the Treasury market. That is very important considering the equity markets rallied for the first part of October. This tells us there is still an undercurrent of concern in the markets regarding the rally. I think part of this is end of the year, lock in your profits thinking. However, the equity rally is getting thinner -- meaning we're seeing the rally gravitate to the big cap stocks. This is a safety play.

Wednesday Commodities Round-Up



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The main issue with the agricultural prices chart is there is no clear direction either way. There are three different consolidation patterns with no strong up or down move between them. The MACD and RSI confirm there is no momentum in either direction. The EMAs are all moving higher, but they are in a very tight pattern. Prices are simply bouncing from one consolidation pattern to the other.

The only key takeaway from this chart is the accumulation/distribution line which shows that volume is leaving this market.

Tuesday, November 24, 2009

FOMC Minutes in a Minute

The FOMC released the minutes from its Nov. 3-4 meetings. Lately these minutes have really had something for everyone. As for me, I picked up on the following:

"While these developments were positive, participants noted that it was not clear how much of the recent firming in final demand reflected the effects of temporary fiscal programs to support the auto and housing sectors, and some participants expressed concerns about the ability of the economy to generate a self-sustaining recovery without government support."

This, to me, encapsulates exactly where we are right now -- still on life support without a clue as to how the patient might fare if it were withdrawn.

And there was this:

"The weakness in labor market conditions remained an important concern to meeting participants, with unemployment expected to remain elevated for some time. Although the pace of job losses was moderating, the unusually large fraction of those who were working part time for economic reasons and the unusually low level of the average workweek pointed to only a gradual decline in the unemployment rate as the economic recovery proceeded. In addition, business contacts reported that they would be cautious in their hiring and would continue to aggressively seek cost savings in the absence of revenue growth. Indeed, participants expected that businesses would be able to meet any increases in demand in the near term by raising their employees’ hours and boosting productivity, thus delaying the need to add to their payrolls; this view was supported by aggregate data indicating rapid productivity growth in recent quarters."

In all, I think the FOMC minutes were another "things are less bad" report, but there are still very real concerns about the fragility of whatever recovery we may experience and the ease with which it might jump the tracks.

GDP Up 2.8%: Case Shiller Improves

I'm still traveling. Posting will be sporadic today and tomorrow. I think all of us will be taking Thursday and Friday off.


From the BEA:

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 2.8 percent in the third quarter of 2009, (that is, from the second quarter to the third quarter), according to the "second" estimate released by the
Bureau of Economic Analysis. In the second quarter, real GDP decreased 0.7 percent.

The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, the increase in real GDP was 3.5 percent (see "Revisions" on page 3).

The increase in real GDP in the third quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, private inventory investment, federal government spending, and residential fixed investment that were partly offset by a negative contribution from nonresidential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

The upturn in real GDP in the third quarter primarily reflected upturns in PCE, in private inventory investment, in exports, and in residential fixed investment and a smaller decrease in nonresidential fixed investment that were partly offset by an upturn in imports, a downturn in state and local government spending, and a deceleration in federal government spending.



A few points.

1.) Durable expenditures increased 20.1%. This is obviously the result of cash for clunkers. However, non-durable expenditures increased 1.7% and service expenditures increased 1%. In other words, we saw good increases in all the components of PCEs.

2.) Auto related activity added 1.45 to overall growth. This will of course be a lightening rod where people will argue this wasn't real growth because of the C4C program. To that I would respond with the following: at the end of every recession we typically see government incentives to increase activity. If memory serves, at the end of the last recession we saw an increase in the depreciation deduction as a way to increase business investment. In addition, government spending typically accounts for about 20% of overall economic growth. If you're going to jump on the C4C number, fine. But please revise all economic numbers to take out all government programs at all times simply to be consistent. Finally, I've noticed trend where people who argued for the stimulus are now arguing against the latest GDP number. So -- make up your mind please.

3.) Residential investment increased 19.5%. That's a good sign. However, remember the housing starts decreased last month at a 10% clip.

4.) Exports increased 17% and imports increased 20%. While this is an overall negative for the report (this combination subtracts from growth) it does indicate that we are growing.

So -- I'm still pleased.

The Case Shiller index is also showing better numbers. First, here is the chart that shows the year over year percentage change in prices:


Notice the rate of decline continues to decrease. In other words, we're moving in the right direction.

In addition:


About half of the large cities showed improvement. Also note the rate of decline in those cities that showed a decline was low.

Consumer confidence was flat:

Conference Board data show no significant improvement in consumer confidence during November. The headline index rose slightly to 49.5, still disappointing compared to August's 54.5 level that raised expectations at the time of significant second-half improvement. A key to those expectations was a rise in the expectations index toward 80, a level that right now seems out of reach with the index currently at 68.5. The present situation index remains near record lows, down 1 tenth to 21.0. The present assessment of the jobs market eroded slightly, with slightly more saying jobs are hard to get, now at 49.8 percent, and slightly fewer saying jobs are plentiful, at 3.2 percent. Inflation expectations are benign, unchanged for a third straight month. Today's report points to no improvement in the labor market and will not boost expectations for holiday retail sales.


Here is the chart:



Confidence has been moving sideways since April. This is largely the result of the jobs market. When unemployment continues to increase consumer's aren't going to be happy. The good news in this number is it hasn't crashed. The had news is it hasn't gone higher. Considering the unemployment rate this is probably about as good as we can expect.

So, the economy is still growing, the housing market is still improving but consumer's are still sanguine.

CFNAI -- Yellow Flag?

The Chicago Fed’s National Activity Index (CFNAI) printed yesterday, and the 3-month moving average – which is what the folks in Chicago tell us to look at – declined for the first time in 2009 (click through for larger image):

Though not necessarily cause for concern, the decline is certainly worth keeping an eye on. As one data point does not a trend make, I'll simply suggest this could be a yellow flag.

Below I have charted the 3-month moving average of CFNAI for the four recessions in which it breached –2.00 (in other words, nasty recessions).

The circular markers represent the points at which the NBER determined the recessions ended. The diamond marker is where the ‘79 - ‘80 recession bleeds into the ‘81 recession (the purple line from the point of that diamond coincides exactly with the light blue line at month one. Got it?).

Given the fact that some NBER metrics are still in decline (employment, real income), and that another (real retail sales) is arguably flat-lining, I’m not sure we’ll be seeing an end-of-recession call any time soon, and today’s downturn in the 3-month MA of CFNAI bears close watching in the months ahead.

Monday, November 23, 2009

Today's Market

This is Bonddad -- I'm traveling early tomorrow AM and am hopelessly behind on packing right now. I'll post some market stuff when I get to Cincinnati where my wife and I are spending Thanksgiving.

Geitner Leaving?

From The Street.com

Geithner's tenure has been rocky with lawmakers and the public, and recently he has appeared to have fallen out of favor again. Geithner has come under criticism for the Obama administration's regulatory overhaul, which he had a key role in developing, as well as the bailout of American International Group (AIG Quote) and its trading partners, like Goldman Sachs(GS Quote), during his position as New York Federal Reserve chief in the previous administration.

Last week, he got into a heated exchange with members of the Joint Economic Committee over the handling of the economic crisis, with Republican Rep. Kevin Brady of Texas asking whether he'd resign and saying "the public has lost all confidence in your ability to do your job."

It's unclear whether that will happen, but JPMorgan's Dimon may be at the frontline of possible successors, according to the New York Post. Dimon has had what appears to be a friendly relationship with regulators. He has also been quite vocal in his views about regulatory proposals, even if they don't necessarily benefit the industry or JPMorgan. For instance, while he has been critical of plans for a consumer protection agency, he recently wrote an op-ed in the Washington Post outlining his opposition to the notion of "too big to fail," despite the fact that his bank is considered just that.


I haven't written much about the Obama economic team. I don't think they're bad, but I also don't think they're great. But, I have to wonder how good anybody is when they're handed the worst financial situation in the last 60 years. While arm chair quarterbacks will of course point out all the mistakes they perceive, these are the same people who don't know the difference between the household and the establishment job survey. In other words, take the criticism with the largest grain of salt possible.

In addition, we're at a point where impatience is trumping reality. Considering the damage that the economy was in a year ago -- when there was a very real threat of a deflationary spiral like that the started the Great Depression -- we're actually doing OK. We saw growth last quarter (as have a number of countries), the manufacturing sector has rebounded, housing is bottoming, consumer spending is flat, and exports and imports are rising. The main issue is the unemployment rate which is a lagging indicator and for which there is unfortunately no silver bullet.

My political guess (for what it's worth) is someone will probably get fired largely to assuage anger and frustration. Who it is doesn't matter.

Unemployment and Establishment Jobs Growth at the State Level

From the BLS:

Regional and state unemployment rates were generally little changed or higher in October. Twenty-nine states and the District of Columbia recorded over-the-month unemployment rate increases, 13 states registered rate decreases, and 8 states had no rate change, the U.S. Bureau of Labor Statistics reported today. Over the year, jobless rates increased in all 50 states and the District of Columbia. The national unemployment rate rose to 10.2 percent in October, up 0.4 percentage point from September and 3.6 points from October 2008.

In October, nonfarm payroll employment increased in 28 states and the District of Columbia, decreased in 21 states, and remained unchanged in 1 state. The largest over-the-month increase in employment occurred in Texas (+41,700), followed by Michigan (+38,600), California (+25,700), North Carolina (+12,100), and Pennsylvania (+10,600). Michigan experienced the largest over-the-month percentage increase in employment (+1.0 percent), followed by the District of Columbia (+0.8 percent), Montana (+0.7 percent), Oklahoma (+0.6 percent), and Utah (+0.5 percent). The largest over-the-month decrease in employment occurred in New York (-15,300), followed by Florida (-8,500), Georgia (-7,500), Virginia (-7,100), and South Carolina (-5,800). Wyoming (-0.9 percent) experienced the largest over-the-month percentage decrease in employment, followed by Idaho and Nevada (-0.4 percent each), and South Carolina (-0.3 percent). Over the year, nonfarm employment decreased in all 50 states and increased in the District of Columbia. The largest over-the-year percentage decreases occurred in Arizona (-6.9 percent), Michigan (-6.4 percent), Nevada (-6.0 percent), Georgia (-5.6 percent), and Wyoming (-5.5 percent).


First, remember there are two employment surveys -- the establishment and the household; hence the divergence of results.

The unemployment numbers shouldn't surprise anyone. In last months employment report we saw an increase in the unemployment rate from 9.8% to 10.2%. However, the fact that a majority of states saw job growth is encouraging. Better yet, two states (California and Michigan) saw growth. These are states that have been hit hard by real estate (California) and the auto sector issues (Michigan).

Bottom line: the second part of the report is encouraging.

OECD Countries Emerge From Recession

From the WSJ:

The world's developed economies emerged from recession in the third quarter, as their combined gross domestic product grew for the first time since the first three months of 2008.

Figures released Monday by the Organization for Economic Cooperation and Development showed economic output in its 30 members during the three months to September was 0.8% higher than in the second quarter, although it was 3.3% lower in annual terms.

The OECD said the combined GDP of the Group of Seven largest developed economies rose 0.7% from the second quarter, but was also down 3.3% from a year earlier.

Market Monday's

Click for a larger image



The P&F chart really shows how large cap stocks have done. Above is a P&F chart of the OEF -- the ETF that tracks the S&P 100, or the biggest stocks in the S&P. Notice that there is a ton of volume on the up moves. Also note there is only one small down move of any significance over the last 7-8 months. This tells us the big cap stocks are the big movers of this market.



A.) The QQQQs broke a long-term uptrend at the end of September.

B.) Now prices are forming a broadening top pattern, indicating we may be reversing.


On the transports, notice

A.) Prices broke an uptrend at the end of September and

B.) Prices have tried to move through the 72-73 area three times without any success. Also notice we have a descending bottom.

Most importantly, as prices on the larger stocks have made new highs, the Transports have not confirmed.



A.) The IWC (Microcap) formed a double top

B.) Prices fell to the 200 day EMA and then

C.) Formed an upward sloping channel.

So, we have a ton of money still going into the large cap stocks. However, the transports and micro-caps are not following suit. That tells us the rally is getting narrower which is not healthy.

As if on cue, the WSJ weighs in:

Signs of wariness are appearing in financial markets as investors worry that the end of the year could bring challenging trading conditions.

Last week saw a steep drop off in stock-market trading volume and a surge in demand for short-term government debt, indications that investors and financial institutions are growing cautious and retreating from riskier bets.

That defensive behavior is relatively common toward the end of the year. But this year it's happening earlier than usual. An uncommon confluence of events is driving the shift. The biggest catalyst is a reluctance among investors to take on new aggressive bets and avoid a late-year blow-up in their portfolios. Many are sitting on big gains after a 58% surge in the Dow Jones Industrial Average since early March and record returns from some corporate bonds.

"People who have booked some significant gains…are looking to take risk levels down," says Brian Fagen, co-head of Americas liquid market sales at Barclays Capital.

Friday, November 20, 2009

Weekend Weimar and Beagle

It's that time of the week. Here are the latest pictures of our kids ...



Weekly Indicators

- by New Deal democrat

Both the monthly data and the high frequency weekly data were mixed, but with a generally bullish bias.

The monthly data included a bad housing report, mediocre increases in industrial production and capacity utilization, a decent but not outstanding LEI, an mixed Empire State index, and a strongly positive Philly manufacturing index.

Meanwhile, as to the weekly data:

The BLS reported new jobless claims remained the same as last week on an SA basis at 505,000. On a 4 week average basis, this series continues to decline.

Edmunds automotive said that on a preliminary basis,
U.S. new-vehicle sales are expected to rise in November from a year earlier, adjusted for two fewer sales days this year .... [C]ar sales are seen rising 3.8% in the U.S. from a year ago. Without the adjustment for there being 23 selling days this year and 25 last year, the auto Web site's estimate is 4.5% below last year's sales and down 15% from October...."

The overall annualized sales rate in November is projected to be 10.3 million, down slightly from October's 10.43 million rate.
The ICSC reported that same store sales fell -0.1% last week, the second minimal decline in a row. On a YoY basis, sales are up 2.4%, and

ICSC Research expects same-store sales for November could be
as strong as up 5 to 8 percent.
ShopperTrak an increase of 0.7% in mall retail sales compared with a year ago, and also up 7.5% from the previous week.

Rail traffic continued to improve -- not just in a relative sense to last year, but in an absolute sense as well. This is bullish. Last week commenter Olephart correctly observed that I had posted a graph which didn't really make my point. Cyclical traffic frequently starts to decline in October, but sometimes not until now. As of mid-November, it is not just flat, but actually turned up last week.

The Daily Treasury Statement as of November 18 showed $85.8 Million in withholding taxes paid month-to-date, compared with $86.7 Million last year. For the last week, this year's totals have been generally equal to or slightly ahead of last year's. Since this data series tends to lag the end of recessions by one quarter, this may be the month it finally turns.

Oil retreated from its flirtation with $80, as of midday Friday trading at $76.50.

When will the economy add jobs? November update

In September I took a long look at Leading Indicators for job growth, and concluded that they have historically turned in the following order:

(1) Real retail sales bottom and turn.
(2) Initial Jobless claims turn.
(3) The ISM manufacturing index turns above 50, i.e., signals actual growth.
(4) Industrial Production turns.
(5) ISM manufacturing index is above 53, ISM employment is at -5 or above, initial jobless claims are at least a sustained 16%-20% off peak, and both Industrial Production and Real retail sales have advanced at a rate of 2.5% or more year-over-year from the bottom.

In September, (1) through (4) had apparently already happened. Number (5) is all about the strength of the turns. Based on the strength of the Leading Economic Indicators, I concluded with a prediction that payrolls would most likely hit bottom and turn around in November or December, +/- 1 month.

Two months later, how is that playing out? A major revision in data calls into question one large element of the analysis. There are three very positive developments, and three negative or flat. Details below.

The Positive Developments
I. Initial Jobless Claims

In the first installment of the series, I looked at initial jobless claims. I noted that (1) in those recessions and recoveries where jobless claims fell steeply, peak unemployment occurred within 2 months of the point where jobless claims fell 12% from the peak; but (2) in those recessions and recoveries where jobless claims fell slowly, peak unemployment occurred not at the 12% mark, but only when new jobless claims were more than 16% less than peak claims, and stayed more than 16% off for at least 3 months thereafter.

In September, initial claims were still less than 16% off their highs. That has changed dramatically. Jobless claims have fallen substantially, and as of today the 4 week moving average stands at 514,000, more than 21% off the peak of 658,750, over 7 months ago. Here is a graph comparing this recession with the two previous "jobless recoveries" and the V shaped deep recession of 1982 in terms of the first 7 months of post-peak initial jobless claims:

In the last month, our recession/recovery has become more comparable to the 1982-3 recovery than previously. As you can see, in the two "jobless recoveries," new jobless claims failed to penetrate the 20% off level except for a brief instance in summer 2002 (coinciding with a brief positive jobs number). Should the present trend continue this indicator predicts actual job growth this month or next.

[Note: In this regard I am at odds with such esteemed luminaries as Berkeley Prof. Brad DeLong and Calculated Risk, who believe that jobless claims must fall all the way to 400,000 before jobs will actually be added, based on the last two "jobless recoveries." I disagree, based on the recoveries from the deep 1970s and 1980s recessions. All I can say is that the data is already not behaving in accord with their analysis. Nevertheless, I would be glad to be proven wrong provided it occurs quickly!].

II. ISM Manufacturing

I next looked at the ISM Manufacturing Index, and concluded that the 53 level (50 is the dividing line between expansion and contraction) is the point where jobs began to be added in the very strong recovery after 1982, as well as during the week recoveries of 1992 and 2002. Further, a reading over 54 on the index has always coincided with actual job growth.

Additionally, whenever the hiring vs. firing sub-index was -5 or higher (i.e., no more than 5% more employers plan to fire than hire) and rising, where other evidence indicates a recession is ending, that has always indicated net employment growth was imminent, at least on a temproary basis; and also, whenever current staffing intentions were 65+. and hiring plans were 15+, that has always coincided with positive jobs numbers in the BLS survey, including during and after the "jobless recoveries" of 1992 and 2002.

This record has now been broken. The ISM surged in October to 55.7, and the employment index is at +53.1:

Despite this indication of actual net hiring in the manufacturing sector, the October BLS jobs data claimed 61,000 job losses in manufacturing -- the most in four months! -- and 190,000 total job losses. Everybody knows that the BLS significantly revises their initial numbers, and I suspect the report of job losses in manufacturing is going to be substantially revised.

III. Industrial Production

In part 3 of the series I noted that industrial production tends to peak a median +2 months before payrolls, and to trough at the end of recessions a median +1 month before payrolls. Of the 10 troughs since World War 2, in 8 of them industrial production troughed within 2 months of the payrolls number. Further, the only times that industrial production has led employment growth by a relatively long period of time, it has also shown weak growth -- less than 5% a year. In more typical V shaped job recoveries, it has grown at a rate of 10% or more a year.

In October, industrial production continued to move positively. It has grown 2.9% in the last 4 months, or in other words indeed growing at a rate of more than 10% a year. Here is a graph comparing that growth with growth in the first 4 months of the V shaped recovery of 1983 vs. the "jobless recoveries" of 1992 and 2002-03:


This, like the trend of initial jobless claims, is at levels consistent with actual job growth this month or next.

Three Negative or Flat Developments

I. ISM Non-Manufacturing

One unique factor of this "Great Recession" is how strongly services jobs have been hit, much moreso relative to manufacturing than in any post-WW2 downturn, as shown on this graph:


In the last few months, however, the percentage of job losses in services compared with manufacturing has, if anything, increased. Indeed, while the ISM manufacturing report has been strong, the ISM non-manufacturing report has been consistent with the tepid growth in real retail sales. I did not include this in my original analysis, in part because the data does not have a long record at all -- less than 15 years. That being said, here is a graph showing that in the 2002-03 expansion, normed at 100 for an ISM Nonmanufacturing reading of 60, showing that job growth in services did not occur until that point in 2003:

As of October, this index has stalled at just above 50, and the employment subindex fell to 41.1 (meaning substantial layoffs). Based on this sparse record, one would have to say that the prospects of job growth in any services sector in the next few months look remote, at best.

II. GDP Growth

I have previously shown in a discussion of "Okun's law" that over the last decade or more it has taken 2% YoY growth in GDP for even 1 net job to be added. Here's an updated graph demonstrating that relationship (with YoY GDP growth shown in blue, payrolls in red):


This suggests that, while 3rd quarter GDP was initially reported up at an annual rate of 3.5%, which surprised most people (it may be revised downward somewhat due to increased imports), at least two more quarters of such growth must take place for YoY GDP to reach +2%. The Leading Economic Indicators at this point do indicate positive GDP growth in the 4th quarter, carrying over at least into part of the first quarter of 2010, but after that, the jury is out -- especially with $80 Oil.

III. Real Retail Sales

A major revision of recent data by the Census Bureau calls this element of my analysis into question. I described real retail sales as the Holy Grail of Leading Indicators for job growth, noting that his consistently turned at both tops and bottoms, an average of 3-5 months before job growth or losses turned. When real retail sales stay flat, they generate a lot of noise, and a longer period between the turn in sales and payrolls. Strong turns in sales generate reliable subsequent moves in payrolls in subsequent months. In general, with regard to recoveries, an increase of about +2.5% a year is necessary to reliably generate a subsequent move in real retail sales.

On a three month smoothed average basis, real retail sales bottomed in April of this year. Despite October's growth of 1.4%, nasty revisions downward of August and Septmber totaling -1.3% mean that real retail sales are up only about 0.9% off that low, for an annual rate of 1.7%. In short, the revisions keep real retail sales within the range of "noise." The past few months may be the beginning of a solid upward trend, or continued revisions may mean the series stays flat with no growth whatsoever.

Here is a graph comparing the trend in Real Retail Sales since its smoothed bottom in April with the first 7 months of growth during the expansions of 1983, and 1992, and the first eight months of growth in 2001 (September and October 2001 show extreme volativity for obvious reasons so I also included November):


This is simply not consistent with job growth yet.

Conclusion: BLS revisions and John Maynard Keynes

John Maynard Keynes famously justified a change in opinion by saying, "When the facts change, I change my opinion. What do you do?" Well, a critical fact in my analysis has changed.

Three indicators -- ISM manufacturing, Initial Jobless Claims, and Industrial Production -- are now at levels typically associated with actual job growth in previous recoveries. All three of these series exceed their growth in the two "jobless recoveries" of 1992-3 and 2002-3.

The "Holy Grail," however, Real retail sales, is only trending sideways or slightly higher albeit for unique reasons (cash for clunkers). The substantial downward revisions in real retail sales in August and September call into question when the overall jobs number will turn. While industrial production is indeed having a "V" shaped recovery so far, growing at a rate similar to 1983; by contrast, Real retail sales' anemic growth is similar to -- and even weaker than -- its pattern in the last "jobless recovery," below the 3% annual growth typically associated with job growth. The services sector is stagnated with continuing substantial job losses, and GDP growth, while impressive, isn't impressive enough to think that jobs will actually turn positive by year's end.

At the end of the day, the Leading Economic Indicators either work or they don't. If they work, then the coincident indictors of real income, real retail sales, and employment must start to trend upward shortly. What may be developing is a bifurcated economic expansion, in which jobs in manufacturing are added back quickly (hence, not a "jobless recovery") but services continue to shed jobs as consumers continue to repair their balance sheets and shop discerningly for bargains (thus a "job loss recovery"). This tends to move the turning point for jobs into January-March (January at least being consistent with my original prediction).

Finally, as I said in my concluding installment in September and have reiterated since: let me be the first to acknowledge that this is not a scientific truth or certainty, but a best estimate based on a logical review of existing data with a long history that accommodates both traditional and "jobless" recoveries.

Regarding "Facts"

Invictus has a piece just below where he highlights a fairly typical event: a public figure making up facts as they go along. Unfortunately, this is more and more of a regular event.

At first I found this existed on the right side of the political aisle. The reality is extremely conservative economic doctrine -- the whole "let the market work it out" argument -- just doesn't work as planned. The basic problem is any system needs rules to survive and prosper along with referees. Imagine a sporting event without a ref. No one would go because eventually it would break down into a fight. In addition, we need rules to create a structure. That's just the way things work.

But we're also seeing this more and more on the left side of the political aisle. As the recovery has continued -- as the data has turned more and more positive -- there are more and more allegations that the data is rigged -- at least the data that is positive. People go on to quote negative data as if it is gospel. And economists are ignorant bastards -- until they're bearish. Then they are to be trusted completely. In other words, people on the left are now guilty of what they accused the Republicans of -- making up facts to fit a preconceived world view.

What we are seeing more and more is the existence of multiple realities where people can find "facts" to fit their view. Think tanks on both sides of the aisle are happy to spin in any direction.

The problem is no one is living in reality. Anything that conforms to their world view is golden; anything that doesn't conform to their world view is corrupt. And as a result of all of this, we're not going to get anywhere.

Forex Fridays



We're still seeing an incredibly bearish overall trend in place. Note that we are still seeing a trend of lower highs (A) and lower lows (B). Also note the bearish orientation of the EMAs (D) -- all are moving lower and the shorter are below the longer.

However, there is still the possibility of a double bottom emerging (C). Note the momentum increased on the second bottom and the RSI printed a higher total. Fundamentally, it's still very difficult to see what the catalyst for a rebounding dollar would be. The US is printing tons of debt and our overall interest rates are still very low. While we have printed a stronger GDP, the economy is still on shaky ground.

Thursday, November 19, 2009

Business As Usual: Make Stuff Up

During Tim Geithner's somewhat contentious appearance before Congress today, some Republicans took every opportunity to get their shots in. Congressman Michael Burgess (Asshat-TX), was no exception. He got his sound bite in -- "I don't think you should be fired, I think you never should have been hired," or something to that effect. Whatever, he's entitled to his opinions, but not his own facts.

It's what the Congressman said immediately before that that intrigues me, as he and Geithner duelled on the merits of different economic policies, Burgess being all about "cut taxes and get out of the way." He said, and I quote:

“When I came here in 2003 we were in a jobless recovery. Tax relief was passed in May of 2003 and as a consequence, by July of that year we were adding jobs at a significant [ed. note: he stresses "significant"] rate. It [referring to tax relief] seems to have worked fairly well.”

Watch it here at 3:57 into the video.

Well, if by "significant" he means a 25,000 add in July 2003 followed by a
-42,000 loss in August, then he's on to something. Otherwise, he's just a lying sack of shit (whose office was oddly unable to answer my simple question as to what the hell he was talking about):

Business as usual: Just make stuff up.

P.S. Congressman, if you're out there, just drop your response in the comments section.

Today's Market

I've spent a fair amount of time explaining why I don't like the current market. This is another post along those lines.

Click for a larger image



A.) On November 9 prices gapped higher, printing a strong bar. That's the kind of event bulls like.

B.) The prices clustered in a very narrow range, printing three very weak candles. This is a terrible way to follow-through from a strong up day.

C.) Prices can't gtet above the 111 level in a meaningful way. They try but just can't get above the level with any momentum. This is followed by today's action which was a sell-off.

The EMA picture is still bullish. But notice that prices just aren't moving higher with any conviction. Combine with with the weak performance by the Tranports and microcaps and I'm just not impressed.

Housing Starts Drop

From the Census:

Privately-owned housing starts in October were at a seasonally adjusted annual rate of 529,000. This is 10.6 percent (±8.7%) below the revised September estimate of 592,000 and is 30.7 percent (±8.3%) below the October 2008 rate of 763,000.


However, let's put that number in visual perspective:


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The total annual pace of housing starts (1 unit) has been between 476,000 -511,000 for the last five months. So far, that looks like a low-level range. In addition,


Click for a larger image

Total starts have been in a roughly 100,000 unit range for 10 months.

Right now, it looks like we're bottoming.

October Leading Indicators

As I predicted a couple of weeks ago, October Leading Economic Indicators (and revisions to September) came in at +0.3, the seventh positive reading in a row. This suggests that economic growth will continue through this quarter and the first quarter of 2010 as well.

To repeat what I said then: typically, even in the last two "jobless recoveries", jobs began to be added to the economy when the YoY LEI was up +5% or better. This month will replace the awful -1% of October 2008, meaning that for the last 7 months, the LEI is up 5.9%, and up 4.2% YoY. If the LEI simply print flat for November and December, the YoY growth will be +5.0%, consistent with jobs being added in December or January.

In view of this week's poor housing permits number, that should prove interesting.

Sage Wisdom For Investing -- In Anything

I oft mention David Rosenberg, and he oft mentions one of the wisest men on Wall St., Bob Farrell. Farrell is a legendary, Hall of Fame market maven and technician who plied his trade for decades at Merrill Lynch. When he left (he still writes a subscription-only newsletter), he penned his Market Rules to Remember, which I'd posted a long while ago over at Blah3 and will share with the Bonddad crowd now. These rules are truly timeless, and applicable to investing in just about anything. Without further ado:

1) Markets tend to return to the mean over time.
2) Excesses in one direction will lead to an opposite excess in the other direction.
3) There are no new eras -- excesses are never permanent.
4) Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways.
5) The public buys the most at the top and the least at the bottom.
6) Fear and greed are stronger than long-term resolve.
7) Markets are strongest when they are broad and weakest when they narrow to a handful of blue chip names.
8) Bear markets have three stages -- sharp down, reflexive rebound, and a drawn-out fundamental downtrend.
9) When all the experts and forecasts agree -- something else is going to happen.
10) Bull markets are more fun than bear markets.

Print them out and keep them handy. You'll be glad you did.

Intial Jobless Claims: 505,000

The BLS reported that for the week ending Nov. 14, seasonally adjusted initial jobless claims were 505,000. Last week's number was revised slightly higher to 505,000 as well.

"The 4-week moving average was 514,000, a decrease of 6,500 from the previous week's revised average of 520,500."

Unadjusted, there were 479,295 new claims, a decrease of 53,132 from the week before, and well below the 513,000 initial claims in the same week last year.

In unadjusted terms, this was the best new claims number, relative to normal seasonal adjustment, in over a year. The 4 week moving average is now about 21% lower than the peak of 658,750 on April 3 of this year. Needless to say, the continuing decline in the number of new claims bodes well for the jobs outlook.

Thursday Oil Market Round-Up



A.) Prices are still contained by a trend line

B.) The EMA picture is still bullish -- the shorter EMAs are above the longer EMAs. But also notice the 10 day EMA is more or less horizontal, indicating a flat line short term trend. The longer terms trends (20 and 50 day EMAs) are still positive. Finally, note that on several times over the last few weeks prices have used the 200 day EMA as technical support.




A.) Momentum is decreasing but not crashing. This is standard in a consolidation pattern.

B.) The A/D line is still positive, indicating we have not seen a huge outflow of money from the market.

Wednesday, November 18, 2009

Today's Market



Yes, the SPYs are rallying. BUT

A.) Notice that prices have not been able to get above 111.50. Also note the candles are getting smaller. And

B.) There is low volume. If people are so excited about this market then they should be stampeding into the market, thereby increasing volume.


And if the market is so strong, why aren't the Transports confirming the rally?



A.) Or the microcaps -- which are still hitting resistance at the EMAs.

This is not a broad rally which is very disconcerting.

Congress and White House Look At Jobs Bill

From the NY Times:

With Congressional Democrats in near-panic amid forecasts that unemployment will remain high through next November’s midterm elections, a party leader said on Thursday that the House will pass a new “jobs bill” before Dec. 18.

Senate Democrats likewise are weighing options. And the signals from Congress follow by a day the White House’s announcement that President Obama will follow his “Forum on Jobs and Economic Growth” on Dec. 3 with a “Main Street Tour” starting the next day in Allentown, Pa., and continuing to other hard-hit places in coming months.

With more than half of last winter’s $787 billion package of tax cuts and stimulus spending still in the pipeline, Representative Steny H. Hoyer, the Democratic majority leader from Maryland, said the new measure should not be called another stimulus bill.

“I don’t want it to be as broad as that,” he said. “I want it to be very targeted on jobs.”

He indicated that the legislation might include money for public jobs, which many liberals have advocated; tax credits to employers for new hires, an Obama campaign proposal that was shelved early this year amid concern that businesses might game their payrolls; and additional spending for infrastructure and road projects.

First, this is an overall good idea. With unemployment at 10.2% every little bit helps.

But it's also important to remember exactly what has happened in the economy and where we are in the cycle to understand exactly what is going on. And no -- the following is not an endorsement of bad times; it is simply an explanation of the facts without a judgment attached.

At the end of last year and the beginning of this year the US was losing jobs at a rate of 600,000/month. That lasted for 5 months. Or to put it another way, the US lost 3 million jobs in 5 months. That is almost half of all the jobs created during the last expansion. That tells us the severity of the economic situation was indeed severe. Employers simply cut everybody they could and then some. In addition, we have also learned that the BLS has added an additional 800,000 jobs losses to the official job loss total. These will be added in February. This further indicates we were in an extremely severe economic contraction.

Currently the economy is back from the brink. We printed a solid GDP number last quarter and the rate of job losses continues to decrease. In addition, the pace of initial unemployment claims continues to move lower. All of these facts tell us we're moving in the right direction. BUT -- and this is very important -- remember where we were last year at this time. There were a lot of people talking about depressions and deflationary spirals. These are the most severe economic events we can experience. The repercussions of these events last a long time.

Does this statement imply that I am unsympathetic to the unemployed? No. I have never advocated (and will never advocate) that we decrease or cut off unemployment benefits or show any less sympathy for those who have lost their jobs. That is not the point of the above recitation of historical facts. The point is things are moving in the right direction. Recoveries -- especially from near financial collapses -- don't happen overnight. As the article states we've only just started to use the stimulus money. We've just printed our first quarter of positive GDP growth. By this time next year things should be better.




October CPI: the end of the Deflationary Bust

- by New Deal democrat

This morning's CPI came it at +0.3%, slightly higher than estimates. YoY CPI is -0.2%. This is undoubtedly the swan song for deflation this year. Almost certainly we will find that this month prices increased about 2.0% YoY.

All things considered, that's a good thing. Here's a graph showing YoY inflation for consumers (blue), finished goods (red), and commodities (green):



When all three are rising, green more than red more than blue, that's bad and almost always triggers a recession (always in the presence of an inverted yield curve 1 year previously). That's because price pressures in crude goods can't be passed on to producers, who in turn can't turn them on to consumers, so there are cutbacks, triggering a recession. All three then proceed to fall, as demand slackens.

When demand hits bottom, crude increases can be passed on to producers with room to spare (so profits increase), and similarly producers can pass on increases to consumers. Increased demand and increased profits lead to economic expansion and hiring new employees. (Graphically this means all three lines rising, with blue higher than red higher than green.)

As I have repeastedly noted, this was also true of the Great Depression and the 1920's booms and busts.

In short, the K.I.S.S. signal -- a positive yield curve, a rising rate of price changes, and cpi exceeding ppi -- together with the positive LEI of the last few months, indicate the economy will show growth for the 4th quarter.

A Positive Economist

FYI: there are people who see positive things in the economy. (I realize he's probably just a corporate shill who is relying on compromised data, but anyway...)

Wednesday Commodities Round-Up


A.) Prices consolidated in a triangle pattern from roughly mid-October to mid-November.

B.) Prices moved out of this price range by gapping higher and printing a very strong candle. Also notice the volume surge that took place.

Also note that prices are still above the long-term trend line. Finally, we still have a very bullish EMA orientation -- the shorter EMAs are above the longer EMAs, all the EMAs are moving higher and prices are above all the EMAs.



A.) Like copper, agricultural commodities formed a triangle consolidation pattern from roughly mid-October to mid-November.

B.) Price broke out of this pattern yesterday by printing a strong bar on high volume.

The EMA picture is a bit more muddled. Prices have been coalescing around the 200 day EMA and the shorter EMAs are below the 200 day EMA. In addition, notice the EMAs are in a tight range. Ideally in a bull market we'd like to see a more bullish orientation for the EMAs.

Tuesday, November 17, 2009

Today's Market


A.) The QQQQs may be forming a broadening top formation.

B.) but the EMA picture is still very strong -- the shorter EMAs are above the longer EMAs, all the EMAs are rising and prices are above all the EMAs.

C.) Momentum was leaving the index, but

D.) We've seen a recent increase in overall momentum and

E.) If we're really topping out, why aren't we seeing money flow out of the market? Instead, we're seeing the A/D line hold steady.

Empire State and Retail Sales Recap

From the NY Federal Reserve:

The Empire State Manufacturing Survey indicates that conditions for New York manufacturers improved in November, but at a somewhat slower pace than in October. The general business conditions index fell 11 points, to 23.5. The indexes for new orders and shipments posted similar declines. Pricing pressures eased, with the prices paid index positive but lower than last month and the prices received index rising to a level just below zero. Employment indexes fell from October’s elevated levels, remaining slightly positive. Future indexes conveyed an expectation that activity and employment would improve in the months ahead and that both input and selling prices would increase significantly.


Here is the relevant chart:


Notice the index is currently at levels associated with expansion. Also note the index has rebounded from the extremely low levels we saw earlier this year. SilverOz has noted that part of most statistical rebounds we are seeing is due to the extreme readings we saw earlier this year; that is, part of what we are seeing is a standard rebound. I think that's accurate. The economy literally hit the brakes at the end of last year/beginning of this year. However, I think there are continuing signs the economy is recovering. Here are additional charts from the report:


Notice the overall trend for both overall business and new orders is positive.

Also note the employment component of the report is also getting better.

Retail Sales Increase:

From the Census Bureau:

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for October, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $347.5 billion, an increase of 1.4 percent (±0.5%) from the previous month, but 1.7 percent (±0.5%) below October 2008. Total sales for the August through October 2009 period were up 1.5 percent (±0.3%) from the same period a year ago. The August to September 2009 percent change was revised from -1.5 percent (±0.5%) to -2.3 percent (±0.3%).


Here are some very important observations:

Excluding the 7.4% increase in auto sales, retail sales rose 0.2% in October, the data showed. Sales excluding autos have risen for three months in a row and in five of the past six months.


Simply put, sales are moving in the right direction. Also note the alot of the increase was car sales - in a post cash for clunkers world. That tells us there is still demand for autos out there without government stimulus.

Here is the relevant chart:



A while ago I noted that we can look at the recent data in the following way:

A.) The complete contraction in any spending and

B.) The recovery where the pace of month over month percentage changes returned to more normal levels. That appears to be where we are now.

Short version, both of these pieces of data are positive.

Industrial Expansion, Services Stagnation (and Weekly Indicators)

- by New Deal democrat

The release of October retail sales yesterday and industrial production this morning make for interesting bookends to the economic situation.

This morning Industrial Production for October was reported up a mere 0.1%. Capacity utilization was reported up 0.2%. I tend to ignore the latter number, since it generally tracks the former, and capacity utilization has been in decline literally for decades, reflecting America’s relative industrial decline. Industrial production, however, is an excellent coincident indicator for industrial growth or weakness. Whether October's meager increase means a slowing down of the trend of expansion, or is just one month's noise, is impossible to tell. In any event, this means that since its bottom at the end of the second quarter, industrial production has grown 2.9% in four months (or about 12% a year), which is the best rebound from a recession trough since 1982. In other words, so far manufacturing is having a V-shaped recovery.

On the other hand, while yesterday’s retail sales figures appeared great at first blush, up +1.4% from September and topping estimates substantially, the downside was the very nasty revisions to August and September. August was revised down from +2.7 to +2.2. September was revised down from -1.5 to -2.3. In other words, those two months together went from +1.2 to -0.1. The efficacy of “cash-for-clunkers” as anything other than a momentary blip appears to have been entirely revised away. Ouch! Thus September may have actually made a new low in real retail sales for the recession. Over the longer term, since April, real retail will be about +0.8 instead of +2.0 as it may have otherwise appeared. The services economy isn’t having a V-shaped recovery; in fact it is barely having a recovery at all.

The above contrast fits perfectly with the ISM manufacturing and non-manufacturing data. Manufacturing moved into expansion first, and is already expanding faster than it has coming out either post-1982 recession. Non-manufacturing, however, is barely expanding at all. Employment in manufacturing has already started to increase, according to the ISM manufacturing report, but employment in services is continuing to fall, and actually fell off at a worse rate last month. This analysis also seems to dovetail well with Invictus’ take on the divergence between large vs. small employers. I’ll have more to say about this divergence in an extended post in a couple of days.

So we have two bookends for the economy: industrial expansion, services stagnation. The recovery from the recession is all about selling goods to foreign consumers, chiefly Asians, whose standard of living is improving. On the other hand, the American consumer is no longer the engine of global growth, but the caboose. His/her standard of living is in decline, and will only turn around when the structural forces which led to that decline have been abated.

One final note: the October growth in retail sales was not surprising, if you’ve been following my “Weekly Indicators” each Friday. I have been tracking these items precisely because they give high volume real-time information. So when automakers reported sales up 10% from September to October, and when the ICSC reported ever-improving week over week sales followed by good monthly same store sales for October, it appeared likely that the retail sales number would oblige, and it did.

From Bonddad:

From the NY Federal Reserve:

The Empire State Manufacturing Survey indicates that conditions for New York manufacturers improved in November, but at a somewhat slower pace than in October. The general business conditions index fell 11 points, to 23.5. The indexes for new orders and shipments posted similar declines. Pricing pressures eased, with the prices paid index positive but lower than last month and the prices received index rising to a level just below zero. Employment indexes fell from October’s elevated levels, remaining slightly positive. Future indexes conveyed an expectation that activity and employment would improve in the months ahead and that both input and selling prices would increase significantly.


Here is the relevant chart:


Notice the index is currently at levels associated with expansion. Also note the index has rebounded from the extremely low levels we saw earlier this year. SilverOz has noted that part of most statistical rebounds we are seeing is due to the extreme readings we saw earlier this year; that is, part of what we are seeing is a standard rebound. I think that's accurate. The economy literally hit the brakes at the end of last year/beginning of this year. However, I think there are continuing signs the economy is recovering. Here are additional charts from the report:


Notice the overall trend for both overall business and new orders is positive.

Also note the employment component of the report is also getting better.

Retail Sales Increase:

From the Census Bureau:

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for October, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $347.5 billion, an increase of 1.4 percent (±0.5%) from the previous month, but 1.7 percent (±0.5%) below October 2008. Total sales for the August through October 2009 period were up 1.5 percent (±0.3%) from the same period a year ago. The August to September 2009 percent change was revised from -1.5 percent (±0.5%) to -2.3 percent (±0.3%).


Here are some very important observations:

Excluding the 7.4% increase in auto sales, retail sales rose 0.2% in October, the data showed. Sales excluding autos have risen for three months in a row and in five of the past six months.


Simply put, sales are moving in the right direction. Also note the alot of the increase was car sales - in a post cash for clunkers world. That tells us there is still demand for autos out there without government stimulus.

Here is the relevant chart:



A while ago I noted that we can look at the recent data in the following way:

A.) The complete contraction in any spending and

B.) The recovery where the pace of month over month percentage changes returned to more normal levels. That appears to be where we are now.

Short version, both of these pieces of data are positive.