Tuesday, November 16, 2010

What do the Harbingers of the May slowdown say now?

- by New Deal democrat

In a post at the beginning of the summer, I identified 7 harbingers of the second half stall. With Euro Crisis two prominent in the news, along with the Shanghai market crash, it is worthwhile to see what the harbingers are showing now. I don't have time to post graphs, but here is the list:

Harbingers which have turned down:

Shanghai stock index - 10% crash in 2 days. Who sez QE2 isn't having its desired effect?!?

Oil prices at 4% of GDP - Oil came very close to $90 again within the last 2 weeks

Harbingers that have not confirmed a slowdown:

Bond yields correlation with stock prices - these are still moving as mirror images, not in tandem, indicating no concern of deflation

Real M1 and M2 money supply stagnant or shrinking - to the contrary, both had pretty strong growth in October

Libor index rising - this is probably the most telling harbinger of all. Not only is it still asleep, it has actually declined in the last couple of weeks. There is ZERO anticipation of banking stress evident.

Harbingers that are unknown:

Price growth exceeded wage growth - These are only current through September at present. CPI is anticipated to increase about .3% for October, and this is likely to be more than wage growth.

Decline in housing permits and purchase mortgage applications - purchase mortgage applications are trending sideways and permits are due out tomorrow. They are also expected to trend sideways.

In summary, the signs are not aligning to confirm another stall as of now.