1952: Compilation

The following posts are all part of the Bonddad Economic History Project's 1952 series.

GDP 
PCEs
Investment
Exports and imports
Employment and income
Government receipts
Inflation and Fed Policy

Bonddad Linkfest

1. Architectural billings increase (BB)
2. 5-year treasuries hit record low yield (BB) 
3. Hedge funds increase bullish commodity bets (BB)
4. Portugal sees bond yields spike (FT)
5. How the EU crisis is bullish for commodities in the medium term (FT)
6. Gold hits 7-week high (FT)
7. The austerity debacle (NYT)
8. BEA's personal income and spending report (BEA)
9. South Korea's current account falls (WSJ)
10. Cattle herd the lowest in 60 years (WSJ)

We're All Keynesians Now

The New Yorker Magazine has a great piece on economic policy in the early years of the administration.  It is written by Ryan Lizza and is one terrific piece of journalism.  It is very detailed and nuanced -- which of course means that very few will actually read it.

Part of the article is based on a memo from Larry Summers to the President regarding the fiscal stimulus.  Here is a link (PDF) to the entire article -- which I also recommend you read as it's a fascinating analysis of a very difficult time. 

At this point, it's important to note a big difference in the economic world: there are those who believe that Keynes was correct in his economic analysis, and that Keynes basic ideas have been repeatedly born out by history and data. Then there is the Chicago school of economics who live in a fantasy world where economic models are populated by "rational individuals" and prices aren't sticky (seen a chart of housing prices recently?)   Need I say more?  Simply put, history and data clearly show that targeted government spending boosts economic growth. Hence, note the wide swath of people and organizations who supported the idea of stimulus:

• Robert Reich believes it should be $1.2 trillion over two years, but also indicated it could be larger.
• Joe Stiglitz believes it should be $1 trillion over two years.
• Paul Krugman: at least $600 billion in one year
• Jamie Galbraith: $900 billion in one year
• Institute for America's future (signed by Dean Baker, Andy Stern, Leo Gerard, John
Sweeney, and others): at least $900 billion

Republican Economists

Marty Feldstein was an early proponent of a spending-only package and currently
believes it should be $400 billion in the first year.
• Larry Lindsey, a former Federal Reserve Governor and NEC Director, estimates that
$800 billion to $1 trillion is desirable.
Ken Rogoff (widely respected macroeconomist, former chief economist of the IMF,
former McCain adviser): $1 trillion over two years
• Mark Zandi (widely quoted economist, fom1er McCain adviser): at least $600 billion in one year

Others:

• Senior Federal Reserve officials appear to be of the view that a plan that well exceeds
$600 billion would be desirable.
• Adam Posen (Deputy Director of the Peterson Institute): $500 to $700 billion in one year
• Goldman Sachs: $600 billion in one year
• Open Letter signed by 387 economists including Nobel Laureates Robert Solow, George
Akerlof, and Joe Stiglitz on November 19th [note that most economists, including Stiglitz,
support higher stimulus numbers today than they did a month ago]: $300 to $400 billion
per year

Put another way, it's not if we should do this, but how much we should spend.

I should add, I would fully expect some Republicans to now argue that none of the Republicans quoted are in fact "real Republicans" but merely RINOs.

Again, this is not rocket science.  In fact, it's simple addition.   

A Closer Look At Manufacturing.

As we close out January, let's take a look at the overall state of US manufacturing.

New York appears to be rebounding somewhat:

The Empire State Manufacturing Survey indicates that manufacturing activity expanded in New York State in January. The general business conditions index climbed five points to 13.5. The new orders index rose eight points to 13.7 and the shipments index inched up to 21.7. The prices paid index was positive and slightly higher than it was last month while the prices received index jumped twenty points to 23.1, indicating a significant pickup in selling prices. Employment indexes were positive and higher, pointing to higher employment levels and a longer average workweek. Future indexes conveyed a high degree of optimism about the six-month outlook, with the future general business conditions index rising nine points to 54.9, its highest level since January 2011.

While these are not readings on the level of what we saw last year, they are an improvement from the 4Q11 when indicators went negative for a few months.

Philly appears to be in more or less the same boat:

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, edged up slightly from a revised reading of 6.8 in December to 7.3 in January.* The demand for manufactured goods showed continued growth this month: The new orders index remained positive for the fourth consecutive month but declined from a revised reading of 10.7 in December to 6.9 this month. The shipments index also remained positive but fell 3 points. The indexes for both delivery times and unfilled orders recorded slightly negative readings this month.

Richmond reported similar numbers:

In January, the seasonally adjusted composite index of manufacturing activity — our broadest measure of manufacturing — increased nine points to 12 from December's reading of 3. Among the index's components, shipments gained fourteen points to 17 and new orders doubled, picking up seven points to finish at 14. The jobs index picked up eight points to 4.

Most other indicators also suggested stronger activity. The capacity utilization indicator advanced eight points to finish at 8, while the index for backlogs of orders gave up five points to end at −4. Additionally, the delivery times index was almost unchanged at 3, while our gauges for inventories were mixed in January. The finished goods inventories index lost fourteen points to 9, while the raw materials inventory index gained five points to end at 18.

Texas manufacturing, however, was weaker:

Texas factory activity weakened slightly in December, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, posted a second negative reading but moved up from –5.1 to –1.3. This suggests a slowing of the pace of decline.

Other measures of current manufacturing conditions indicated flat activity in December. The new orders index suggested stagnant demand, registering a near-zero reading after dipping into negative territory last month. The shipments index was little changed from its November reading and continued to suggest flat shipment volumes. The capacity utilization index was also near zero although it rebounded from last month, rising from –10.2 to 0.7.

Kansas, however, was printing just over 0:

The month-over-month composite index was 7 in January, up from revised totals of -2 in December and 4 in November (Tables 1 & 2, Chart).  The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexess  Manufacturing activity increased in both durable and nondurable goods-producing plants, with

particular strength in chemical, fabricated metal, and aircraft production. Most other month-over-month indexes also improved in January. The production and shipments indexes jumped to their highest levels since June, and the new orders index climbed from -2 to 8. The order backlog index was positive for the first time since last summer, and the employment index rebounded from -5 to 9.  The new orders for exports index increased and the raw materials inventory index  moved higher, while the finished goods inventory index was unchanged.

The Chicago Fed's Midwest Index also increased in it's latest report:

The Chicago Fed Midwest Manufacturing Index (CFMMI) increased 1.7% in December, to a seasonally adjusted level of 87.4 (2007 = 100). Revised data show the index was unchanged in November. The Federal Reserve Board’s industrial production index for manufacturing (IPMFG) increased 0.9% in December. Regional output in December rose 8.4% from a year earlier, and national output increased 4.0%.

At the national level, industrial production is still going fairly well:

Industrial production increased 0.4 percent in December after having fallen 0.3 percent in November. For the fourth quarter as a whole, industrial production rose at an annual rate of 3.1 percent, its 10th consecutive quarterly gain. In the manufacturing sector, output advanced 0.9 percent in December with similarly sized gains for both durables and nondurables. The output of utilities fell 2.7 percent, as unseasonably warm weather reduced the demand for heating; the output of mines moved up 0.3 percent. At 95.3 percent of its 2007 average, total industrial production in December was 2.9 percent above its level of a year earlier. The capacity utilization rate for total industry rose to 78.1 percent, a rate 2.3 percentage points below its long-run (1972--2010) average.

Here's a chart of IP's overall progress:

While still below recession levels, we're still moving consistently higher.

And the latest ISM was good:

"The PMI registered 53.9 percent, an increase of 1.2 percentage points from November's reading of 52.7 percent, indicating expansion in the manufacturing sector for the 29th consecutive month. The New Orders Index increased 0.9 percentage point from November to 57.6 percent, reflecting the third consecutive month of growth after three months of contraction. Prices of raw materials continued to decrease for the third consecutive month, with the Prices Index registering 47.5 percent, which is 2.5 percentage points higher than the November reading of 45 percent. Manufacturing is finishing out the year on a positive note, with new orders, production and employment all growing in December at faster rates than in November, and with an optimistic view toward the beginning of 2012 as reflected by the panel in this month's survey."

The ISM index moved lower at the end of last year but stayed about 50.  Now it's moving higher again, although the move so far is preliminary.

Overall, manufacturing is again moving in the right direction, which jibes with the latest Beige Book's manufacturing report:

Manufacturing activity expanded in most Districts, generally continuing its steady overall expansion or, in the case of Atlanta, reversing a slowdown in prior periods. For the sector as a whole, further growth or improved conditions were reported by almost all Districts, except for Cleveland, Richmond, and Dallas, which reported that activity was largely stable or mixed, and Kansas City, which noted a slight decline. The strongest reports came from subsectors such as heavy equipment manufacturing and steel, for which demand has been boosted by robust growth in the energy, agricultural, and auto manufacturing sectors. Reports from Cleveland, Richmond, Atlanta, Chicago, and St. Louis confirmed vibrant activity for auto manufacturers, primarily for domestic makes. By contrast, demand remained somewhat weak for firms in housing-related subsectors, such as a door manufacturer in the Richmond District, furniture manufacturers there and in the St. Louis and San Francisco Districts, and makers of lumber and wood products in the San Francisco District. Demand for computers and related electronic components rose further, according to Kansas City, Dallas, and San Francisco. However, the pace of growth has slowed significantly from earlier in 2011, and Boston noted declining sales of semiconductors, mainly due to weaker demand from Asia. According to Dallas and San Francisco, aircraft makers saw further demand increases. Those Districts also noted weak domestic demand for refined petroleum products that was largely or completely offset by robust foreign demand. Demand grew smartly for food producers in the Philadelphia and Dallas Districts, but in the Kansas City District food processing was one of the weakest performers within the manufacturing sector. Export sales of assorted manufactured products generally performed well according to Atlanta and Chicago, although slower economic growth in China and Europe held back sales for some manufacturers.

Cleveland reported that capacity utilization remained below normal in most subsectors, with the notable exception of steel producers, who were operating at or near normal levels. Similarly, Chicago noted that some auto suppliers appear to be approaching capacity constraints, which may limit further production increases in the near term. Atlanta reported that recent flooding in Thailand was likely to exert modest restraint on auto production. Ongoing capital investments and increases in capacity were reported for various manufacturing concerns in the St. Louis and Minneapolis Districts and for an auto producer in the Richmond District.

UPDATE: The Dallas Fed printed their number today, and it was beter:

Texas factory activity increased in January, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose from 0.2 to 5.8, suggesting growth resumed this month.

Other measures of current manufacturing conditions also indicated growth in January. The new orders index jumped to 9.5, its highest reading in six months, after two months in negative territory. Similarly, the shipments index turned positive after two negative readings, rising from –1.1 to 6.1. Capacity utilization increased further in January; the index moved up from 4 to 8.5. Twenty-eight percent of manufacturers noted higher capacity utilization, the highest share in nine months.

Morning Market: Is The Rally Over?

The 60 minute chart shows that prices moved sideways last week, using 131 as support.  However, the overall uptrend is still intact

The 30 minute chart shows last week's price action in more detail.  Monday and Tuesday were technically meaningless.  On Wednesday, we see the rally inspired by the Fed's minutes, but that was completely erased by the end of trading on Thursday.  Friday we see a saucer formation that never really materialized.  

The weekly chart tells the real story: after consolidating in a symmetrical triangle pattern at the end of last years, prices broke higher.  However, last week prices printed a spinning top candle pattern, which is considered a sign of a halt to the rally.

The treasury market, on the other hand, had a good week, as prices caught a bid.  Notice how the entire curve rallied last week, bouncing off of technical support.  By publicly stating that they were not going to raise rates until 2014, the Fed told the market the current crop of treasury bonds was as good as it was going to get from a yield perspective for quite sometime, thereby making current issues that must more valuable.

So we have a sideways equity market and a rallying treasury market.  That means we're seeing some stalling in the overall risk-on move of the preceding weeks.  Some of this is technical; market don't rally forever.   In addition, on the shorter charts, we didn't see a big move lower; merely a consolidation sideways.  However, we do want too keep our eye on support levels going forward.

Industrial metals are still in a strong rally.  Prices have moved through important resistance levels, and the now the shorter EMAs are moving lower.  We also see the MACD, A/D and CMF point to continued rallying.  Some of this rally is caused by a weakened dollar, but that doesn't account for the entire rally.

The dollar has been dropping for the last few weeks. After consolidating sideways in mid-January, prices have been consistently moving lower.  Part of this is the result of a strengthened euro, which was in turn caused by the EU appearing to be closer to solving their problems.  The more recent move lower, however, was caused by the Fed keeping rates low for a few years. 

The dollar's daily chart is now very bearish; the momentum and volume indicators are all moving lower and prices have moved through support.

What's important here is the fundamental reason for the sell-off.  First, we have money moving back into the euro at the expense of the dollar.  In addition, the Fed has stated they will be very accommodating for several years.  The first scenario is positive for the US economy, assuming the momentum continues.  The second is also positive, as lower rates should increase borrowing. 

Overall, it appears the markers are pausing -- at least so far.  A big reason for my thought there is the underlying market situation: last week, the following was the order of top five best performing sectors: basic materials, consumer discretionary, industrials, technology and utilities.  Four of those five are riskier market sectors, and utilities probably rose because of an expectation of long-term low interest rates which makes high yielding utility stocks attractive.  In addition I also think the rally in industrial metals is telling.

But, like all pauses, it's important to keep an eye open to all possibilities.   

Weekly Indicators: continuing positive trends edition

- by New Deal democrat

First, as to the monthly reports, home sales continued poor, but consumer confidence jumped back further, completely regaining its pre-debt debacle levels. In the rear view mirror department, 4Q 2011 GDP was +2.8% although some internal components were weaker. Those few sources who thought a new recession might begin by the end of 2011 were almost certainly wrong.

Turning now to the high frequency weekly indicators:

Weekly employment-related data was mixed.

The BLS reported that Initial jobless claims rose by 25,000 to 377,000, which is still an excellent in comparison with almost any report in the last 4 years except for the week preceding. This is the last report affected significantly by seasonality. The four week average declined by 1500 to 377,500. This is close to the lowest level since mid-2008.

The American Staffing Association Index rose by 3 to 87 last week, the best January reading since 2008, and significantly ahead of last year.

The Daily Treasury Statement showed that withholding for the first 17 days of January 2012 was $138.6 B vs. $132.7 B a year ago. Adjusting +0.27% due to the 2011 tax compromise, for the last 20 reporting days, $162.0 B was collected vs. $156.9 B a year ago, a gain of +3.3%.

Housing data was mixed:

The Mortgage Bankers' Association reported that seasonally adjusted purchase mortgage applications decreased 6.5% YoY and was also down -9.7% from one week ago. The overall trend remains flat since June 2010. Refinancing fell -5.2% in the last week.

For the seventh week in a row, YoY weekly median asking house prices from 54 metropolitan areas at Housing Tracker were positive, up +3.7% YoY. This is the best reading in close to 5 years. The number of metropolitan areas with YoY positive sking prices increased to 31. The number with YoY declines of greater than 5% decreased to 7.

Sales and transportation continued positive:

Retail same store sales were relaitvely weak. The ICSC reported that same store sales for the week ending January 21 increased 2.8% YoY, but were down -1.4% week over week. Shoppertrak, did not report, however, Johnson Redbook reported a weak 2.5% YoY gain, the weakest in 6 months.

The American Association of Railroads reported an increase in weekly rail traffic for the week ending January 21, 2012, with U.S. railroads originating 287,734 carloads, up 1.6 percent compared with the same week last year. Intermodal volume for the week totaled 219,706 trailers and containers, up 3 percent compared with the same week last year.

Money supply and Credit spreads were also positive:

M1 increased +0.4% last week, and +2.3% month over month. It is also up 18.9% YoY, so Real M1 is up 15.9%. This is about 5% off peak YoY gain at the end of last summer. M2 was up +0.2% week over week, and up +1.4% month over month, and up 10.1% YoY, so Real M2 was up 7.1%. This is about 3% less than its YoY reading at the crest of the tsunami.

Weekly BAA commercial bond rates declined .01% to 5.20%. Yields on 10 year treasury bonds rose .01% 1.96%. Falling spreads on lower rates is the best signal of improvement, although it is only for two weeks. This spread had a 52 week maximum difference in October and has been tightening slightly in the last few weeks.

Gasoline usage in particular continues to be much lower YoY:

Oil rose slightly to close at $99.56 a barrel on Thursday. This is about at the recession-trigger level calculated by analyst Steve Kopits (adjusted for general inflation). Gas at the pump was flat at $3.39. Measured this way, we are just at or slightly above the 2008 recession trigger level. Gasoline usage, at 8098 M gallons vs. 8632 M a year ago, was off -6.2%. The 4 week moving average is off -6.4%. Since last March the YoY comparisons have been almost uniformly negative, and substantially so since July. It's at least possible some of this reflects the unusually warm winter most of the country has been experiencing.

Now let's turn to new high frequency indicators designed to track the global slowdown/recession:

The TED spread is at 0.500 down from 0.520 week over week. This index is slightly above its 2010 peak, but has declined from its 3 year peak of 4 weeks ago. The one month LIBOR is at 0.270, down .007 from one week ago, below its 12 month peak of three weeks ago, and also remains below its 2010 peak.

The Baltic Dry Index at 726 continued to plummet -136 as it has for the last 4 weeks and further continues to decline from its October 52 week high of 2173. The Harpex Shipping Index was declining for a full year, but at 394 is above its 52 week low of 389 three weeks ago. It declined -2 last week. Please note that these two indexes are influenced by supply as well as demand, and have generally been in a secular decline due to oversupply of ships for over half a decade. The Harpex index concentrates on container ships, and has been leading at recent tops and lagging at troughs. The BDI concentrates on bulk shipments such as coal and grain, and has been more lagging at the top but has turned up first at the 2009 trough.

Finally, the unweighted Shadow Weekly Leading Index was slightly negative this week. Next day, so was the ECRI WLI. Once again I not surprised.

Global worries have continued to abate. In the US virtually all the news is positive, but some weakly so, and mortgage applications contnue to bounce up and down along their two year bottom. There remains no sign of any present or imminent downturn in the economy right now.

Have a good weekend.

Really -- Austerity is a Really Stupid Idea, Completely Divorced From Data and Reality

Today, the BEA released the initial estimate of 4Q GDP.  Above is a chart of the percentage change in 4Q11 GDP and the elements that contributed or subtracted from GDP growth.  Guess what?  Austerity subtracted from growth.  This occurred because of contractions at the federal (which subtracted .62 from the calculation) and state level (which subtracted .32 from the calculation).  

I would be remiss if I didn't add that this is not what Socialism looks like, either.

A Special Note From Bonddad on the Absolute Stupidity Behind the Expansionary Austerity Movement

We've written quite a bit here about how mind-numbingly stupid the idea of austerity is.  My reasoning is simple: government spending is a component of the GDP equation (which is C+I+(X-M)+G).  This equation has been around a long time, and is a basic component of macro-econoimcs.  Under the basic concepts of math, if you lower a value in an equation that involves addition, you wind up with a lower total number on the other side of the equals sign.

In addition, we have a ton of data from the existing attempts to use this idea that it really doesn't work.  Here's a post I wrote a little bit ago titled, "this is not what socialism looks like."  In the US, government spending at the state level has been contracting for 6 of the last 8 quarters.  Guess what?  It's subtracting from overall US growth.  We're not the only country to experience this first hand: we've also see it happen in the Baltic States and Ireland.  And of course, China spent massively to avoid the effects of the recession and their economy has grown at a very strong pace, proving the point from the opposite side of the argument.  Then of course, there was the US experience during the Great Depression when we saw growth rates of around 10% for three years straight and then 5% the following year thanks to government spending.  And, as I've noted in my history projects, Korean War spending shifted the US economy into overdrive in the early 1950s (see here, here and here).

Now we have more data that shows how stupid austerity is, this time coming from England.  First, this outcome was projected to happen, as reported by Bloomberg on July 13, 2010:

U.K. Prime Minister David Cameron’s planned budget cuts increases the chance the economy will slip back into recession, said Geoffrey Dicks, who heads economic forecasting at Britain’s new fiscal watchdog.

Responding to questions during a parliamentary hearing in London today, Dicks said measures proposed in the June 22 budget led his office to shave 0.5 percentage points from its growth forecast in the “near term.” His Office for Budget Responsibility predicts an expansion of 1.2 percent in 2010.

“There are some budget measures which will have reduced demand,” Dicks told the Treasury Committee, which scrutinizes economic policy. “The near-term outlook for GDP is not as good as it was before the budget. I still don’t think that will mean a double dip, but logically the chances of that happening have increased.”

Someone in the British government knows their macro and someone doesn't.  Guess who?  From Professor Brad DeLong:

Yep. This many months after the start of the Great Depression, the British economy was rapidly converging back to its pre-depression level of production under Chancellor of the Exchequer Neville Chamberlain's policy of using stimulative policies to restore the price level to its pre-Great Depression trajectory.

By contrast, the Cameron-Osborne policies of expansion-through-austerity have produced a flatline for real GDP, and the odds are high that British real GDP is headed down again.

In less than a year, if current forecasts come true, the Cameron-Osborne Depression will not be the worst depression in Britain since the Great Depression, but the worst depression in Britain… probably ever.

That is quite an accomplishment.

Reality continues to intrude rudely and sharply into the proposals of the austerity crowd. Yet, despite the overwhelming amount of data that disproves their central thesis, they continue to cry for austerity.  Obviously, facts, data and logic are meaningless now, as, despite the fact that that we have an overwhelming amount of data, we continue to hear from people who argue on the other side of them.  We are clearly through the looking glass in regards our public discourse.

Bonddad Linkfest

1. Greek talks continue (BB)
2. Emerging market stocks hit 5 month high (BB)
3. Fed statement (FRB)
4. Fed's economic projections (FRB)
5. Brazil central bank signals lower rates area ahead (BB)
6. Wheat rallying; Russia may have to curb exports (BB)
7. Italian yields declining (BB)
8. Bernanke transforms the Fed (FT)

1953: GDP and Contributions to Growth

According to the NBER, the early 1950s expansion lasted from October 1949 to July 1953.  We can clearly see the contraction in the last two quarters in this chart:

We see the economy growing strongly in the first quarter, hitting a 7.7% growth rate.  Consumers are adding a fair amount to the overall growth, but the real contributor is government spending, which accounts for 43% of overall growth.  We see the same type of scenario play out in the second quarter, but government spending now accounts for 70% of all economic growth.  The third fourth quarter have contractions, where the big contributor to the contraction is the drop in investment, with consumer spending and government spending also contributing to the slowdown.

Also note the severity of the contraction, especially in the fourth quarter, where we see the economy contract by 6.2%.  That's a very large drop, and one we're not use to seeing.

Beta testing the Shadow Weekly Leading Index (week 3)

- by New Deal democrat

As readers know, I am trying to reverse engineer the ECRI Weekly Leading Index.

Research has revealed that the WLI (per Lakshman Achuthan) has 7 components. We know that two are initial jobless claims and the JoC-ECRI commodity index. Six of the seven are public record.

Since the possible early monthly reports were reported two weeks ago, they wouldn't count in any event. This week we can begin to find out if the components are weighted (almost certainly they are) and their relative weights, since several components had significant moves in opposite directions,

Here are the presumed components of the WLI, with several possible alternative measures:

JoC ECRI 122.01 123.87 +1.5%

FRB H8 real estate loans flat
Alternatively, MBA PMA -9.7%

sp 500 1289.09 to 1315.38 +2.0%

wbaa bonds* 5.21 to 5.20 0.0%
Alternately, DJ Bond Avg 115.05 114.90 -0.1%

Credit spreads* 3.26 to 3.24 -0.1%
Altrnatively, real m2 9733.8 to 9756.1 0%

Initial jobless claims* 352k to 377k +7.1%

[*Note: these are inverse relationships, so the higher the number, the lower the growth score]

The unweighted average change is -2.2 if purchase mortgage applications are used, and -0.6 if the alternative real estate loans is the metric. The predicted week over week change is therefore predicted to be negative in either event. A positive result would suggest that commodity prices are weighted more heavily compared to initial claims and either real estate metric.

We'll see tomorrow.

A Closer Look At the Four Largest SPY Sectors

On Monday, I noted that the underlying technicals of the market had changed; more aggressive, "growth areas" of the market were rising.  Below are daily charts of (in order technology, financials, energy and health care ETFs).  Combined, these four sectors comprise 57% of the S and P 500.

Technology (which accounts for 19.39% of the SPYs) is in a strong uptrend.  After consolidating in a symmetrical triangle, prices have been moving higher.  All the EMAs are rising and the shorter are above the longer.  The MACD is positive and the A/D and CMF are all rising.  Notice that over the last four days, we've also seen a bump in volume.

Financials (which account for 14% of the market) are also rising.  However, add that they have (finally) crossed their 200 day EMA to the picture. 

Energy is a bit behind the curve, as it it still constrained by the highs of late October.  However, prices are bumping up along that line.  Also note the positive underlying techncials -- rising EMAs and volume indicators.  The MACD is not negative, but also not positive, which is obviously a slight negative. 

Health care (which accounts for 11.64% of the average) shares all the above bullish points, save one: the MACD is about (or already has) given a sell-signal.  Yesterdays prices action, if it continues, could change that development, but we need several days of strong price action for that trend to develop.

Overall, the largest sectors are, well, looking pretty good.  If energy breaks out (which is highly likely assuming the volatile oil market environment) it would replace the possible downward pressure exerted by a correcting health care sector. 

Morning Market

Yesterday's market was really a tale of two markets, with the prices moving sideways under a little after lunch, and then rallying strongly for the remainder of the day.  The main cause was the Fed releasing it's statement that interest rates should stay very low for a few years.

The daily chart shows that prices are still rallying and are in an uptrend.  Also note that the MACD have given a further buy signal.

Yesterday, we say a strong pop in gold on extremely high volume.  Also note the bullish underlying technicals -- the MACD is rising, the shorter EMAs are rising, and the A/D and CMF show money flowing into the market.  The big reason for the move is the perception among investors that the Fed's policy will be long-term inflationary.

On the weekly chart, gold prices have broken through a longer-term resistance line.  

Industrial metals are in a strong rally now.  They've moved through all the EMAs and the shorter EMAs are rising.  We're seeing money flow into the market and the MACD is rising.  This is good, because

The dollar dropped sharply yesterday, and looks to be moving lower.  The reason for the sharpness of the drop was, again, the Fed's move.  This was a double, negative whammy for two reasons.  First, it implies a possible future inflationary environment, and second, it means interest rates will stay low for the foreseeable future.  Both outcomes are dollar negative.  The first scenario devalues the security and the second means that traders will not have a high interest rate when they purchase physical currency and park it in the US.

1952: Inflation and Fed Policy

This posting is part of the Bonddad Economic History Project 

CPI was quite moderate.  The YOY percentage change started at 4% and slowly decreased throughout the year to a little under 1%.  Now, this type of deceleration can also be a sign of a potential recession on the horizon, which did start in the 3Q of 1953.

The YOY percentage change in PPI was negative for the entire year, indicating the input prices were dropping.

The above charts shows the absolute PPI level for the year, which shows the drop more completely.

As a result of the stable inflation picture, we see that the Fed did not raise rates in 1952. We also see that interest rates were fairly steady, with the exception of the continued upward movement of Treasury Bills, which jumped higher at the end of the year.  The Fed explained the increased as an increased demand for loans at the end of the year.

The above table shows the increase in various types of loans over the year.  Note the slow pace at the beginning of the year, while we see a big bump in the 4th quarter.  We see two reasons for the increase.  Business loans increased, with almost all of the increase coming in the fourth quarter.  In addition, "other loans to individuals" increased by $2.2 billion , but this increase came from a strong growth in the second, third and fourth quarters (for more on the increase in consumer credit, see the 1952; PCE post).

The above tables shows that corporate security issues rose strongly in 1952, and competed for commercially available capital.  The increase in 4th quarter lending was probably partially caused by an inability to complete an offering prior the end of the year.  Again, note the large increase in consumer credit.

In short, what we see here is a fairly stable financial system. 

Emerging Market/BRIC Currencies Breaking Out

Granted, they're breaking out from low levels, but they are breaking out.

Here's the Real Problem At the Federal Level

I've shows this graphic a few times in various forms, but it really deserves to be repeated.  At the federal level, we have two issues: low tax receipts and high spending.  As I've pointed out a few times, the big issue in the spending room is health care costs in the federal budget.  However, at some point, taxes are going to have to go up as well.

The above graph is from Econbrowser.

Morning Market

All three, 60 minute charts of the major equity averages show that prices are still in an uptrend. 

The dollar is a different story.  The top chart (a daily chart) show that prices have broken their uptrend and found support at lows established in early January.  In addition, the shorter EMAs are moving lower and the 50 day EMA is moving sideways.  The MACD has given a sell signal and the A/D and CMF show money is leaving the market.

On the lower, weekly chart, we see that prices have broken their upward trend line.  While the MACD is still positive, it is approaching a sell signal.  However, the trend break is the real story here.

This is a chink in the bullish market argument, as a rising dollar would be a sign of improved investor sentiment toward the US economy as a place to invest.  Some of this decline is due to the euro's recent risk (it has broken it's downward sloping channel patter).  However, I'm guessing there is also some second guessing occurring regarding the US economy's overall situation.

After breaking slight upward sloping trend lines, the IEFs an TLTs are hitting support established over the last few months.  Prices need to make moves through these support levels to give the bulls added upside momentum.

Right now, it appears we're seeing a bit of upward hesitancy.  This is to be expected, given that last week we saw prices move through important technical levels.  However, a pause can quickly turn into a reversal with the right fundamental change, so we definitely need to keep our eyes open.

Bonddad Linkfest

1. European service and manufacturing index rises (BB)
2. Greek bondholders and officials clash over terms of deal (BB)
3. India cuts reserve ration to encourage lending growth (BB)
4. US beef exports to Japan may increase (BB)
5. Japan becomes net importer (WSJ)
6. Portugal may need second bail out (WSJ)
7. European consumer confidence rises slightly (WSJ)
8. Spain has another successful bond sale (WSJ)
9. US treasury yields hit 2012 high (WSJ)
10. Don't be stupid; it's not about the money (TPM)

1952: Government Receipts and Expenditures

I'm including information on the 1950 and 1951 federal budget situation in this post, and will continue to look at federal expenditures and receipts from this point going forward as part of the Bonddad Economic History Project.  

This is interesting.  First, here is the chart of federal receipts and expenditures from the BEA:

The red lines are receipts and the blue lines are expenditures.  Notice that, according to BEA data, the government ran a surplus from 1Q50 to 4Q52.  However, according to the then prevailing information, the government ran a deficit:

 So -- why the difference.  My guess is the BEAs data is the result of a far more complete data set being available for the measurement.

Here's a graphical picture of the above chart:

The above chart shows the increase in the deficit as measured in the 1950s occurred in the second half.  My guess is, given the lack of computerization in the 1950s, the second half had a much stronger revenue collection than previously estimated by the Treasury.

By the end of 1952, US nominal GDP was $371.4 billion and the total public debt outstanding was $267.4 billion, giving us a debt/GDP ratio of 72% -- a very manageable amount.

The above table shows that the vast majority of the federal governments expenditures went for wars time spending, as defense spending accounted for 71% all federal spending.  Here's a graph of the data:

The above chart places the Korean War expenditures in graphical form, shows the extreme amount of distortion caused by the war spending.