Sham-Weimar --- made in Germany so you know its good
See you on Monday morning
Friday, May 8, 2009
Weekend Beagle and Weimar
It's that time of the week. Don't think about the markets or the economy. To that end....
Sham-Weimar --- made in Germany so you know its good
See you on Monday morning
Sham-Weimar --- made in Germany so you know its good
See you on Monday morning
The Stress Tests, Part II
Let's move to the latest report from the Treasury Department. It indicates several problems.
1.) "Each potential BHC (bank holding company) was instructed to estimate potential losses on its loan, investment securities, and trading portfolios." Does anyone see a problem here? The banks estimated the losses. That's a great example of the fox guarding the hen house.
2.) Consider the following table:
Click for a larger image
This is the set of assumptions provided to the firms that were "a common set of indicative loss rate ranges for specific loan categories under conditions of the baseline and the more adverse economic scenarios. Firms were allowed to diverge from the indicative loss rates where they could provide evidence that their estimated loss rates were appropriate."
Where available, let's compare these rates to information from the latest Quarterly Banking Profile from the FDIC.
Above is a chart for the non-current rates on loans secured by 1-4 family residences. This is the current experience. The numbers in the table are for the cumulative two year loss rate in percent. Currently, the actual experience of first lien mortgages are right in line with the baseline scenario. The first lien and HELOCS are below. It's extremely important to remember these numbers don't exactly correlate -- one is a quarter over quarter change and one is a cumulative two year scenario.
Above is a chart of non-current C and I loan rates.
Above is a chart for currrent credit card loss rates.
Remember with all of these chart we have to convert the current numbers into a "cumulative 2-year loss rate". But, given current numbers the collateral assumptions aren't bad.
1.) "Each potential BHC (bank holding company) was instructed to estimate potential losses on its loan, investment securities, and trading portfolios." Does anyone see a problem here? The banks estimated the losses. That's a great example of the fox guarding the hen house.
2.) Consider the following table:
Click for a larger image
This is the set of assumptions provided to the firms that were "a common set of indicative loss rate ranges for specific loan categories under conditions of the baseline and the more adverse economic scenarios. Firms were allowed to diverge from the indicative loss rates where they could provide evidence that their estimated loss rates were appropriate."
Where available, let's compare these rates to information from the latest Quarterly Banking Profile from the FDIC.
Above is a chart for the non-current rates on loans secured by 1-4 family residences. This is the current experience. The numbers in the table are for the cumulative two year loss rate in percent. Currently, the actual experience of first lien mortgages are right in line with the baseline scenario. The first lien and HELOCS are below. It's extremely important to remember these numbers don't exactly correlate -- one is a quarter over quarter change and one is a cumulative two year scenario.
Above is a chart of non-current C and I loan rates.
Above is a chart for currrent credit card loss rates.
Remember with all of these chart we have to convert the current numbers into a "cumulative 2-year loss rate". But, given current numbers the collateral assumptions aren't bad.
The Stress Tests Part I
Yesterday the Federal Reserve issued the stress test report. This is all I'm going to write about today because it's really important news. But before we get to the results, let's look at the actual stress test used by the Fed to see what the basic scenario was.
Let's start with their GDP assumptions. Here is the chart of their baseline and more adverse GDP projections:
I'm assuming that "4 quarter percent change" is the same as year over year percent change. Notice the economy is already performing worse than expected in the GDP stress tests.
The current unemployment rate is more in line with the worst case scenario
The Fed's worst case scenario of home prices assumes a 22% year over drop this year. That is -- in December of this year prices will be 22% lower than in the 4th quarter of 2008. Prices are already falling at a roughly 18% year over year rate in February. Lots of people were excited when the Case Shiller number didn't set a record low in the latest report.
So
GDP is already performing more poorly than the Fed's stress test.
The worse case scenario for unemployment is the most realistic possibility.
Home prices are already closer to the Fed's worst case scenario than the median baseline forecast.
Bottom line: the worst case scenario is the most realistic scenario.
Let's start with their GDP assumptions. Here is the chart of their baseline and more adverse GDP projections:
I'm assuming that "4 quarter percent change" is the same as year over year percent change. Notice the economy is already performing worse than expected in the GDP stress tests.
The current unemployment rate is more in line with the worst case scenario
The Fed's worst case scenario of home prices assumes a 22% year over drop this year. That is -- in December of this year prices will be 22% lower than in the 4th quarter of 2008. Prices are already falling at a roughly 18% year over year rate in February. Lots of people were excited when the Case Shiller number didn't set a record low in the latest report.
So
GDP is already performing more poorly than the Fed's stress test.
The worse case scenario for unemployment is the most realistic possibility.
Home prices are already closer to the Fed's worst case scenario than the median baseline forecast.
Bottom line: the worst case scenario is the most realistic scenario.
Employment -539,000
From the BLS:
Let's break these down.
Unemployment increased .4 percent. Over the past 12 months, that number has increased 3.9%.
The best read of job creation from the last expansion is total growth of 8.2 million. Now we've lost almost 70% of those jobs that have been created. That's a record.
All undustries -- save education and health care -- lost jobs
So -- the numbers overall were terrible. Let's look at some charts.
The unemployment rate is now the highest it been since the early 1980s recession
People unemployed for 5-14 weeks is now at the absolute highest level in in the last 30 years
The number unemployed for 15 weeks is now at the absolute highest level in over 30 years
The number unemployed for 27+ weeks is now at the absolute highest level in 30 years
The median weeks of unemployment is now the nearly the highest its been in 30 years
U6 which is "Total unemployed, plus all marginally attached workers plus total employed part time for economic reasons, as a percent of all civilian labor force plus all marginally attached workers" is now atthe highest level since 1994.
Nonfarm payroll employment continued to decline in April (-539,000), and the unemployment rate rose from 8.5 to 8.9 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Since the recession began in December 2007, 5.7 million jobs have been lost. In April, job losses were large and widespread across nearly all major private-sector industries. Overall, private-sector employment fell by 611,000.
Let's break these down.
Unemployment increased .4 percent. Over the past 12 months, that number has increased 3.9%.
The best read of job creation from the last expansion is total growth of 8.2 million. Now we've lost almost 70% of those jobs that have been created. That's a record.
All undustries -- save education and health care -- lost jobs
So -- the numbers overall were terrible. Let's look at some charts.
The unemployment rate is now the highest it been since the early 1980s recession
People unemployed for 5-14 weeks is now at the absolute highest level in in the last 30 years
The number unemployed for 15 weeks is now at the absolute highest level in over 30 years
The number unemployed for 27+ weeks is now at the absolute highest level in 30 years
The median weeks of unemployment is now the nearly the highest its been in 30 years
U6 which is "Total unemployed, plus all marginally attached workers plus total employed part time for economic reasons, as a percent of all civilian labor force plus all marginally attached workers" is now atthe highest level since 1994.
Forex Fridays
Click on all images for a larger image.
It's been really interesting watch the weekly chart evolve. Prices formed a double top over the last 6-9 months but have since fallen from the second peak. Notice how both the RSI and MACD printed a lower point on the second peak giving a possible signal that a double top was forming. Prices have fallen from the double peak and formed a bear flag. However prices are now below that level as well.
The daily chart gives us a better reading of the bear flag break down. Notice following events in the following order.
1.) Prices hit the top line of the bear flag. The stochastics give a sell signal
2.) Prices break through the lower line of the bear flag
3.) Prices rebound into the 10 and 20 week SMA but the Stochastics say sell. Also note the MACD has started to move sideways and is getting closer to giving a sell signal
4.) Once prices break through the lower support line the stochastics are less imporant because they are more of a pattern signal. Now the MACD becomes more important
5.) The MACD gives a sell signal a bit after prices move through the lower supoprt line.
It's been really interesting watch the weekly chart evolve. Prices formed a double top over the last 6-9 months but have since fallen from the second peak. Notice how both the RSI and MACD printed a lower point on the second peak giving a possible signal that a double top was forming. Prices have fallen from the double peak and formed a bear flag. However prices are now below that level as well.
The daily chart gives us a better reading of the bear flag break down. Notice following events in the following order.
1.) Prices hit the top line of the bear flag. The stochastics give a sell signal
2.) Prices break through the lower line of the bear flag
3.) Prices rebound into the 10 and 20 week SMA but the Stochastics say sell. Also note the MACD has started to move sideways and is getting closer to giving a sell signal
4.) Once prices break through the lower support line the stochastics are less imporant because they are more of a pattern signal. Now the MACD becomes more important
5.) The MACD gives a sell signal a bit after prices move through the lower supoprt line.
Thursday, May 7, 2009
Today's Markets
Click on all images for a larger image
Was today a reversal day?
Prices opened higher but then moved lower on several strong downward sloping bars. Prices levels out until a little after 12 when the moved lower on a gap down. Prices then moved lower until just before the close when they jumped into the 10 minute SMA
The reason I asked (rhetorically) is based on the above chart (a move higher that can't be sustained) along with this chart:
Which shows an engulfing pattern on today's price.
I should add -- the question is extremely premature.
Was today a reversal day?
Prices opened higher but then moved lower on several strong downward sloping bars. Prices levels out until a little after 12 when the moved lower on a gap down. Prices then moved lower until just before the close when they jumped into the 10 minute SMA
The reason I asked (rhetorically) is based on the above chart (a move higher that can't be sustained) along with this chart:
Which shows an engulfing pattern on today's price.
I should add -- the question is extremely premature.
Employment Overview
Here are some relevant charts and graphs. What started this post was the following chart:
That's a good looking chart of initial unemployment claims. The bottom line is we have enough data to make a call that the 4-week moving average appears to be topping out. That's a very good sign. But then there was this passage from the Econoday report:
While initial claims are topping, continuing claims are still setting records. That indicates that while the immediate lay-off situation is improving the continuing situation is still poor at best. Here are some relevant charts from the BLS that explain the situation in mare and better detail. I have used (when possible) a time frame that goes back to 1960.
Let's start with the overall unemployment rate which currently stands at 8.5%. This is the second worst rate of unemployment in the last 30 years. Let's delve deeper into the data:
Above are the charts for the number of people unemployed for 15+ weeks and the number of unemployed for 27+ weeks. While the percentage of the population represented by this number would be lower now than in the early 1980s because of the population increase, the absolute number of both figures is at a historical record. That tells us that the rate of job creation -- the flip side of job destruction -- is deteriorating right now.
Above is a chart for the number of people who are part-time for economic reasons. Again -- the absolute number is at a nearly 30 year high.
Finally, the median weeks people are unemployed is high, currently standing at 11.2 weeks. The has been higher twice in the last 30 years.
So -- the rate of job destruction appears to be topping. HOWEVER, we're not out of the woods yet as the rate of job creation has yet to pick up.'
That's a good looking chart of initial unemployment claims. The bottom line is we have enough data to make a call that the 4-week moving average appears to be topping out. That's a very good sign. But then there was this passage from the Econoday report:
Initial jobless claims showed improvement in the latest week but continuing claims set another record high. Continuing claims in the April 18 week jumped 133,000 to 6.271 million, another record level and the 15th straight increase. A month-to-month comparison, useful for a gauge on the April employment report, showed significant deterioration, up 704,000 from 5.567 million at mid-March. But initial claims appear to have peaked in March, suggesting that continuing claims may plateau within a few months. Initial claims for the April 25 week slipped 14,000 to 631,000, down from 645,000 the week before.
While initial claims are topping, continuing claims are still setting records. That indicates that while the immediate lay-off situation is improving the continuing situation is still poor at best. Here are some relevant charts from the BLS that explain the situation in mare and better detail. I have used (when possible) a time frame that goes back to 1960.
Let's start with the overall unemployment rate which currently stands at 8.5%. This is the second worst rate of unemployment in the last 30 years. Let's delve deeper into the data:
Above are the charts for the number of people unemployed for 15+ weeks and the number of unemployed for 27+ weeks. While the percentage of the population represented by this number would be lower now than in the early 1980s because of the population increase, the absolute number of both figures is at a historical record. That tells us that the rate of job creation -- the flip side of job destruction -- is deteriorating right now.
Above is a chart for the number of people who are part-time for economic reasons. Again -- the absolute number is at a nearly 30 year high.
Finally, the median weeks people are unemployed is high, currently standing at 11.2 weeks. The has been higher twice in the last 30 years.
So -- the rate of job destruction appears to be topping. HOWEVER, we're not out of the woods yet as the rate of job creation has yet to pick up.'
The Stress Tests Part I
Yesterday the Federal Reserve issued the stress test report. This is all I'm going to write about today because it's really important news. But before we get to the results, let's look at the actual stress test used by the Fed to see what the basic scenario was.
Let's start with their GDP assumptions. Here is the chart of their baseline and more adverse GDP projections:
I'm assuming that "4 quarter percent change" is the same as year over year percent change. Notice the economy is already performing worse than expected in the GDP stress tests.
The current unemployment rate is more in line with the worst case scenario
The Fed's worst case scenario of home prices assumes a 22% year over drop this year. That is -- in December of this year prices will be 22% lower than in the 4th quarter of 2008. Prices are already falling at a roughly 18% year over year rate in February. Lots of people were excited when the Case Shiller number didn't set a record low in the latest report.
So
GDP is already performing more poorly than the Fed's stress test.
The worse case scenario for unemployment is the most realistic possibility.
Home prices are already closer to the Fed's worst case scenario than the median baseline forecast.
Bottom line: the worst case scenario is the most realistic scenario.
Let's start with their GDP assumptions. Here is the chart of their baseline and more adverse GDP projections:
I'm assuming that "4 quarter percent change" is the same as year over year percent change. Notice the economy is already performing worse than expected in the GDP stress tests.
The current unemployment rate is more in line with the worst case scenario
The Fed's worst case scenario of home prices assumes a 22% year over drop this year. That is -- in December of this year prices will be 22% lower than in the 4th quarter of 2008. Prices are already falling at a roughly 18% year over year rate in February. Lots of people were excited when the Case Shiller number didn't set a record low in the latest report.
So
GDP is already performing more poorly than the Fed's stress test.
The worse case scenario for unemployment is the most realistic possibility.
Home prices are already closer to the Fed's worst case scenario than the median baseline forecast.
Bottom line: the worst case scenario is the most realistic scenario.
Janet Yellen on the Recovery
From the San Francisco Fed:
The above scenario is a big reason why I think the 2.1% increase in personal consumption expenditures last quarter was a misnomer -- or at least not the great sign that people think it was.
I can point to a number of specific factors in this recession that are likely to weaken recovery. First, despite signs that consumer spending is stabilizing, the chance of strong and sustained consumption growth appears low. For years prior to the recession, households went on a spending spree of major proportions. This occurred during what has come to be called the “great moderation,” a period of about two decades when recessions were infrequent and mild, and inflation was low and stable. This may have lulled households into a false sense of security. The personal saving rate fell from around 8 percent two decades ago to almost zero in recent years as households financed their lifestyles by drawing on increasing stock market and housing wealth, and taking on higher levels of debt.
Now, the era of such low saving may be over. Falling house and stock prices have vaporized trillions of dollars in household wealth. The destruction of their nest eggs is prompting households to rebuild savings. The deleveraging of household balance sheets could restrain spending for years. Indeed, the personal saving rate is finally on the rise, averaging more than 4 percent so far this year. It wouldn’t surprise me if this effect persists, as the shock of the financial crisis convinces many households that they need to save higher fractions of their incomes for the long term. Of course, ultimately this would be good for economic growth, channeling resources from consumption to investment. That said, the transition could be painful if subpar consumption growth restrains the pace of economic recovery.
The above scenario is a big reason why I think the 2.1% increase in personal consumption expenditures last quarter was a misnomer -- or at least not the great sign that people think it was.
Today's Markets
Actually it's yesterday's market, but who's counting?
Again -- this is an incredibly bullish chart. Notice how prices move higher, consolidate gains and then move higher again. It's absolutely gorgeous.
Too bad I don't see the fundamental reason for this. Actually, along that from I'm now convinced I will never be a bull ever again.
Thursday Oil Market Round-Up
The weekly chart is still very bullish. After a long and painful fall at the end of last year, prices consolidated in a triangle pattern over a 4 month period. Now prices have broken out of that pattern to the upside. The rallied and fell back to the 10 week SMA. Now they have advanced beyond the previous high which is technically a good sign. Also note the MACD and RSI have upward sloping trends and each has plenty of room to run.
The daily chart shows the consolidation. In actuality we had two triangle patterns where prices consolidated. Also note that prices rallied from the first triangle, topped and moved sideways for a bit and now are moving higher. Moves like this allow the market to "catch its breath" as it were. Some traders get out and others get in. Finally, note the MACD has given a buy signal and the RSI is increasing.
All of this is perplexing against the fundamental backdrop.
Oil stocks are increasing and are far above the average range.
Gas stocks are near the top of their average range.
Gas prices are holding steady at just above $2.00/gallon. This indicates there isn't must demand pull on prices. The lack of demand pull is coming from
A big decrease in the miles driven.
And yesterday I looked at the price charts of various transportation sub-components. They weren't pretty.
Wednesday, May 6, 2009
Orbitz Down Earnings Got Me Thinking....
From the WSJ:
I'm a big fan of Dow Theory, which basically says averages have to confirm each other. If one average goes up, other averages should also increase. This is especially true with the Transportation averages. If things are better, we should be shipping more stuff and traveling more. The reverse is also true. So if things are getting better according to Ben, why is Orbitz reporting a poor quarter?
So, here are some charts from Prophet.net that show sub-sections of the transportation industry.
Click on all images for a larger image
This chart really caught my eye. If things are getting better shouldn't we be shipping more stuff? Prices are still moving lower and volume is still high indicating traders are dumping shares.
And the railroads trucking and shipping areas are still moving lower. On the positive side, at least the volume has subsided on the shipping and trucking charts.
And we sure aren't traveling individually or in a business capacity yet.
Bottom line - the transportation subsets don't tell a story of recovery.
Orbitz Worldwide Inc.'s first-quarter loss widened sharply on a write-down related to declines in the company's stock price.
The online travel agent has looked to aggressively cut costs as demand falls. Businesses and consumers have been scaling back travel amid the weak economy, and those cutbacks hurt companies like Orbitz, which allows customers to book hotels and flights at discount rates through its site.
The company posted a loss of $336 million, or $4.02 a share, compared with a year-earlier loss of $15 million, or 18 cents a share. The latest results included a $332 million write-down because of the decline of the company's stock price during the quarter. Total operating costs more than doubled, although cost of revenue declined on lower volume.
I'm a big fan of Dow Theory, which basically says averages have to confirm each other. If one average goes up, other averages should also increase. This is especially true with the Transportation averages. If things are better, we should be shipping more stuff and traveling more. The reverse is also true. So if things are getting better according to Ben, why is Orbitz reporting a poor quarter?
So, here are some charts from Prophet.net that show sub-sections of the transportation industry.
Click on all images for a larger image
This chart really caught my eye. If things are getting better shouldn't we be shipping more stuff? Prices are still moving lower and volume is still high indicating traders are dumping shares.
And the railroads trucking and shipping areas are still moving lower. On the positive side, at least the volume has subsided on the shipping and trucking charts.
And we sure aren't traveling individually or in a business capacity yet.
Bottom line - the transportation subsets don't tell a story of recovery.
More Signs of Credit Thawing
From the WSJ:
Here's the accompanying chart
A key measure of risk reached its lowest level since last fall as investors snapped up the biggest junk-bond issue of the year, further signs companies can now borrow to meet their cash needs but still have to pay above-normal rates.
.....
"A few months ago, you couldn't give a bond away," said Mitch Stapley, chief fixed-income officer for Fifth Third Bank in Grand Rapids, Mich. "But now signs are coming into place that things are looking better, there becomes a scramble to get that credit exposure."
Credit markets are extending a rally that took hold in April -- tracking gains in stock markets -- as investors became more confident banks were recovering from the recent market turmoil and the housing market was showing signs of having hit a bottom. The reduction in Libor indicates liquidity is returning to the financial system, and the ability of companies to sell debt shows they can finance themselves, albeit at higher rates.
Momentum gathered in deals eligible for a federal program to boost consumer lending, and Bank of New York Mellon sold bonds without government backing.
Here's the accompanying chart
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