Treasuries are Looking Like A Short

The US treasury market has been slightly off for the last few years, largely because of one large buyer: the Fed.  The central bank's bond purchases have put a continual bid in the market, thereby keeping prices are elevated levels.  However, the charts are telling us the market thinks the Fed is a bit closer to getting out of the bond buying business, which tells us it's time to short the market.  Let's take a look at the charts:

 

On the daily chart, we see the May-September sell-off which was caused by the Fed stating it was going to begin to taper it's bond buying program.  During this sell-off, the market lost a little over 9%.  But from September to the beginning of November a small rally occurred.  There are two reasons for this.  First, we have a natural counter-rally to the sell-off, as some traders thought the sell-off was overdone and subsequently buy at what they perceive to be as value levels.  At the same time, some of the overall economic numbers were printing at weak levels, which implied the Fed wouldn't be tapering as soon as thought.  

However, last week we had two important reports: GDP printed at 2.8% and the employment report printed at a little over 200,000 jobs created.  This indicated the economy had withstood the shutdown in fairly decent shape, which implies the underlying economy is in fact far stronger than anticipated.  As a result, the IEFs broke their short-term trend line from the September-early November rally.

Just as importantly, the weekly charts shows that prices have broken a weekly trend line as well. 

These charts are all saying the same thing: if you're going to short treasuries, now's the time.

A thought for Sunday: putting this all in perspective

- by New Deal democrat

First of all, apologies for the light posting this past week. Both Bonddad and I were up to our elbows in alligators with our day jobs, and neither of us had any spare time.

In my case, I was attending a seminar that required 12 hours+ of partipation and study in another part of the country, Rather than talk shop with other members of my own profession, I got acquainted with a guy who was in the US on his very first, 2-month, assignment outside of the third world country that is his home.   I had noticed that he had breakfast and dinner by himself, so I went over and introduced myself.  He told me that he stayed in touch with his wife and family by skype each night.

He also told me that the island he lived on had just one month ago been the epicenter of a magnitude 7 earthquake, and showed me photos of the damage in the town where he lived -- in the central Philippines.

On the last night of my stay, he asked me if I had heard about the approaching supertyphoon.   I hadn't.   We were going to say our good-byes at breakfast the next morning, but he never showed.

I can only imagine what it must have been like to skype with his young wife as Supertyphoon Yolanda bore down on their town, and the power went out.

I'll try to get back in touch this week, and I'll let you know if I hear anything.

Weekly indicators for November 4 - 8 at XE.com

- by New Deal democrat

Click on the link for this week's edition of Weekly Indicators at XE.com. The nearly 3 year low in gas prices, plus the receding of the effects of the government shutdown, cetainly are helping.

Commodity Prices Are At Bay

Above is a weekly chart of the total commodities index.  While it is fairly dominated by oil, the other commodities are present in sufficient quantities to make the following point: there just isn't much commodity based inflation in the system right now.  And overall, that's a very good thing as it allows the various central banks to keep rates low as the world at large is still in pretty weak economic shape.

Primary coincident economic indicators for September continue to show slow growth

- by New Deal demorat

[Note: this was supposed to be a post at XE.com, but we're still working on uploading graphs, and I wanted to make sure I got this information out.]

For four years, there has been a brand of pundit I mock as "Doomers." These are the people who, week after week and month after month have written long-winded, persuasive sounding epistles, usually accomplanied by whatever data point is pointing south now, explaining that the economy is nowhere near growing, or never adding jobs, or heading for a double dip, a triple dip, or whatever dip it is going to be next. When the eonomy doesn't cooperate, or last month's sure-fire negative indicator improves, it is lost to the memory hole and on to the next sure harbinger of DDOM! we go.

Meanwhile those of us who are just boring nerds keep our eyes focused on the data, operating under the theory that it is far more likely than not, that it's not different this time, and that data has consistently told a story of slow but steady improvement.

September brought us more of the same. Typically the NBER looks at four sets of data -- production, jobs, sales, and income -- to decide if the economy is in a recession or expansion. Two of those -- sales and income - have already surpassed their pre-recession peaks. This month a third -- industrial production -- moved wtihin 1% of its prior high.

Here's what the four primary coincident indicators of the economy look like as of their last report.

First, here's industrial production, which is sort of "the first among equals." Most often the NBER dates recessions from the month this series tuns:



Industrial production rose 0.6 in September. At its current pace, it will finally exceed its 2007 peak sometime this winter.

Next, here is real income excluding transfer payments (e.g., disability payments):



This broke through its pre-recession high over a year ago, and as of its last report in August, was still rising.

Next, here is real retail sales:



These also exceeded their pre-recession highs about a year ago. While real retail sales declined slightly in September, the positive trend is fully intact.

Finally, here is nonfarm payrolls:



Jobs have been the real laggard among the four big categories. While about 7 million jobs have been added since their low at the beginning of 2010, we are still close to 2 million below that peak. At our current pace, it will take another year before we have as many jobs as we did at the end of 2007 -- and that isn't adjusting for population growth.

So the story remains the same as it has been since the bottom of the recession in 2009. The economy continues to impove, just not enough to substantially improve the lot of the average American household.

Mexican ETF Consolidating

The weekly chart for the Mexican ETF shows two important trends.  The first is a rally that started in mid-2011 and lasted until the Spring of 2012.  During this time we see rising momentum and increased CMF readings, indicating money flowing into the market.  From trough to peak, prices increased about 68%, which is an impressive showing for any index.

But for this year, prices have retreated as the overall economy has slowed.  Here's a chart of the annual percent change in Mexican GDP:

In addition, the new president is attempting to push through an impressive and broad series of economic and political reforms, which has led to a slowing economy.

   

Weekly Indicators for October 28 - November 1 at XE.com

- by New Deal democrat

Due to a significant decline in interest rates from their recent highs, weekly indicators are generally improving and for the most part have bounced back from their weakness during the federal government shutdown. Click on the link for the full report at XE.com.

P.S. I'm not 100% sure the link will take you directly to the post. If it doesn't, please let me know in comments.

Oil Breaks Support and Continues Move Lower

Oil has broken the support level at the 97/98 level and is continuing to move lower.  Prices have moved through the 200 day EMA and are currently resting at the 38.2% Fib level from the mid-April - late August rally.  More importantly, the chart is in a very bearish orientation right now: prices are clearly moving lower, momentum is dropping and volume is flowing out of the market.

This is a very important development for the economy, as the decrease will give consumers more in-pocket income to spend.

California glitches still having major impact on initial jobless claims

. - by New Deal democrat

UPDATE: California says this week's number does not include any backlog. The following post describes its large continued impact on last week's number.

Computer issues in California continued to bedevil the weekly initial jobless claims reports through last week's report. In early September, computer issues prevented the Sunshine State from entering all of its initial claims. That ended after a few weeks, but then California had to catch up in its data entry, thus distorting data to the upside. There is a one week delay in reporting state by state data, so this post does not discuss this morning's report.

But get a load of this: last week unadjusted initial jobless claims fell by 49,000 in the other 49 states, but rose by 15,000 in California!

Now , to the nerdy numbers. As I did last year with regard to Superstorm Sandy, we can arrive at a good estimate the "real" initial jobless claims have been, by comparing the unadjusted average for the other 49 states this year vs. last year in the same week, and projecting this year's "real" number by assuming that the percentage of claims in the other 49 states are the same percentage of the total this year as they were last year.For the other 49 states, claims were 83.2% of what they were last year. Since last year, seasonally adjusted, there were 372,000 claims, if California behaved similarly the 50 state number this year last week would have been 309,000.

Using this method, the below list shows the seasonally adjusted weekly jobless claims number on the left, and the right is the average adjusting for the likely impact of California's computer issues:

Sep 07  294,000  318,000
Sep 14  311,000  327,000
Sep 21  307,000  313,000
Sep 28  308,000  314,000
Oct 05  373,000  329,000
Oct 12  362,000  335,000
Oct 19 350,000 309,000
Oct 26. 340,000. -------


[Note: Since the raw state data is published with a one week lag, we do not know yet what this week's number will be.]

Here's what happens to the 4 week moving average:

Sep 28 305,000 318,000
Oct 5 324,750 320,500
Oct 12 337,500 323,500
Oct 19 348,250 321,750


October 5 and 12 were the two weeks during which federal workers affected by the government shutdown applied for unemployment insurance. In September, California's problems probably resulted in an underount of -53,000 claims by the above calculations. I had hoped that one week ago was the last week affected by California distortions, since cLose to 50,000 of those claims we're made up in the prior two weeks. That obviously wasn't the case, but hopefully this week was the end.

YoY Consumer prices in October likely Near or at lowest in 50 years ex-great recession

- by New Deal democrat

For the last few months I have been using the change in the price of a gallon of gas to forecast that month's CPI in advance. My point has been, that all you really need to know about inflation is the price of gasoline. So far each prediction has turned out to be within 0.1% of the actual number.

For September I predicted a rise of +0.1%. Inflation was actually reported at +0.2%, making the YoY inflation rate +1.2%:



On Monday the E.I.A. reported gas prices for the final week of October, so we can estimate October's inflation rate now. My method is to take the change in the price of a gallon of gas and divide by ten, then add 0.1% to 0.2% to account for core inflation, or else divide by 16 to be more conservative, to arrive at the non-seasonally adjusted inflation rate.

In September the average price of a gallon of gas was $3.53.2. This month it was $3.34.4. That is a -5.3% decline. Dividing by 10 gives us -0.53%, and adding 0.1% to 0.2% gives us a rounded -0.4% decline. Dividing by 16 gives us a -0.33% decline, and adding 0.1% to 0.2% gives us a rounded -0.2% decline.

The seasonal adjustment for October last year was +0.2%. This gives us a final seasonally adjusted inflation rate that rounds to -0.2% to 0.0%.

That will replace last October's +0.2% inflation rate, so that the YoY inflation rate will be approximately +0.9%. This will be lowest YoY inflation rate for the last 50 years outside of the great recession.

Since my number one concern is jobs and income, it's worth noting that this inflation rate is also subdued enough to suggest that real YoY wages have probably increased again in October (graph below is though September):



and may be getting closer to their all-time high set in 2010.

European ETF In Strong Rally

For the longest time, the EU was in a recession.  However, over the last few months it appears that the region is slowly pulling out of its economic malaise.  The markets -- acting in their role of leading indicator -- anticipated this improvement as shown by the weekly IEV chart:

The IEV bottomed in late 2011 and retested its lows about 9 months later in the spring of 2012.  However, since then we've seen a strong rally as prices moved through the 200 week EMA, printing a series of higher highs and higher lows.  Now we see prices above all the EMAs and the greater distance between the shorter and longer EMAs.  Also note the increase in volume over the last few months, indicating a move by investors into this ETF.

The daily chart shows a strong rally over the last four months, as again prices are printing a series of higher highs and higher lows.  But pay particular attention to the MACD: it may be moving to give us a sell signal -- or at least a signal not to make a move into the market just yet. 

Cattle Rallying

While most of the commodity world is decidedly bearish, cattle is rallying.  Let's start with the weekly chart:

Cattle was in a downward trend for most of the last two years.  But recently, prices have broken through resistance and moved above the shorter EMAs.  Momentum is positive and money is moving into the market.

The daily chart shows the rallying in far more detail.  Prices bottomed in mid-May and have been moving higher since.  We see a fair amount of resistance around the 26.75-27.25 area -- which also corresponds to the 200 day EMA.  Once that line was crossed, prices have consistently moved higher.

Last Week's Important International Economic Numbers

This is over at XE.com

Chinese Market Breaks Support

The Chinese market had a sharp sell-off in early June.  Since then, however, we've seen a sustained and very solid rally.  Prices consolidated in a triangle pattern through September and August, with prices using the rally's trend line as the lower line of support.  The MACD was declining during this time, but this is a standard technical development during periods of consolidation. 

Last week prices took a major drop, breaking support.  This is occurring right inside a key technical area -- the Fibonacci retracement levels from the early February highs and late September lows.  Adding to the importance of this development is it's occurring around the 200 day EMA.

Two notes for Sunday: on Social Security and XE

- by New Deal democrat

It's Sunday, so you know what that means: I get to say whatever I want.

First, a note on XE.com. I know posting has been light here for a couple of weeks, but that has more to do with the government shutdown and lack of data than with Bonddad and me being elsewhere. I expect posting to ramp back up somewhat starting this week.

If you've followed our links over to XE, you know that the format is a little clunky. We can't crosspost in both places, but as we said when we told you we had landed paying gigs, we absolutely want you to be able to follow us, so we've been posting links to make it easy for you. XE intends to improve the format, probably by establishing a separate "blog" header at the top of their home page. They also want to give us more functionality with graphs and hyperlinks. It's a work in progress, and it should improve over the next few months. And, by the way, in case you didn't click over yet, in this week's "Weekly Indicators" column we find out that somebody on the President's Council of Economic Advisors apparently knows of or reads the column, because they adopted an almost identical format with the same name, "Weekly Indicators," to report data during the government shutdown.

Also, nothing makes me go so berserk as talks of grand bargaining away Social Security. I've been working on a Democrat-only, no GOP compromise desired, no-catfood plan to keep the Social Security trust fund solvent forever - and I do mean, so long as the USA exists. Crucially, it relies on automatic triggers that kick in both if the program is overfunded and underfunded - so, for example, withhholding taxes can automatically go down, and benefits be increased, under this plan. There is never, and I do mean never, a need for further Congressional legislation. The plan takes Social Security off the table not just for Boomers and X'ers, but Millenials -- and the grandchildren of Millenials when that time comes as well.

I had hoped to have the post ready for today, but it's going to take at least one more week. Stay tuned.

Weekly Indicators for the week of October 21 at XE.com

-by New Deal democrat

The high frequency indicators are continuing their post-shutdown bounce. Click on the link to read the article.

"Real" initial jobless claims 335,000 ex-California computer glitches

. - by New Deal democrat

Computer issues in California have bedeviled the weekly initial jobless claims reports since the bginning of September. As I did last year with regard to Superstorm Sandy, we can arrive at a good estimate the "real" initial jobless claims have been, by comparing the unadjusted average for the other 49 states this year vs. last year in the same week, and projecting this year's "real" number by assuming that the percentage of claims in the other 49 states are the same percentage of the total this year as they were last year.

Using this method, the below list shows the seasonally adjusted weekly jobless claims number on the left, and the right is the average adjusting for the likely impact of California's computer issues:

Sep 07  294,000  318,000
Sep 14  311,000  327,000
Sep 21  307,000  313,000
Sep 28  308,000  314,000
Oct 05  373,000  329,000
Oct 12  362,000  335,000
Oct 19 350,000 ------------

[Note: Since the raw state data is published with a one week lag, we do not know yet what this week's number will be.]

Here's what happens to the 4 week moving average:

Sep 28 305,000 318,000
Oct 5 324,750 320,500
Oct 12 337,500 323,500
Oct 19 348,250 ------


October 5 and 12 were the two weeks during which federal workers affected by the government shutdown applied for unemployment insurance. In September,California's problems probably resulted in an underount of -53,000 claims by the above calculations. Close to 50,000 of those claims have been made up in the last two weeks. We might have one more week of distortion, and hopefully that will be the end.

RBA Should Lower Rates to Increase Australian Growth and Stem Aussie's Rise

This is up over at XE

RBA Should Lower Rates to Increase Australian Growth and Stem Aussie's Rise

This is up over at XE

Delayed September Jobs Report: More Meh

This is up over at XE.