Economic News

[Spaf]

Fundamentals

Fundamentals: Watching market behavior​

What goes up must come down, is true for the economy as it is for physical objects. When peaks are reached doesn't mean that anything is wrong. Conditions may be that stocks are just overbought and need to come back down. A Trough is the opposite of a peak and is generally associated with oversold conditions.

However, economic indicators have to be understood as the key to various cycles in the market. The most popular indicators track employment, rates, housing, production and other factors that tell us how the economy is doing.

My major 4 indicators are the Four Horsemen:

From left to right are Earnie [earnings], Krude [energy], Rats [rates], and Inflat [inflation]. Money is not a Horseman, but he is a factor. The Federal Reserve board is the Cartel. The Cartel gives kickbacks to certain Horsemen in order to control Inflat; the really bad Horseman.

My strategy is very simple. When the Horsemen appear: run for the G-Fund. When they leave the territory it's ok to invest. However, one or two of the Horsemen always seem to be around. That's what makes the game interesting!

Rgds, and be careful! Spaf

 

[Birchtree]

The Odd Couple

From TWSJ:

Bond-market participants are naturally inclined toward pessimism on the economy while stock-market investors have an optimistic bent. They're especially at odds right now.

Over in the bond market, yields on two-year and 10-year Treasury notes flit around the same level. Usually, the 10 year yields more than the two year, because investors demand a higher return for locking their money up in a longer-term instrument. When the 10 year yields the same, or less than, the two tear, it is often a sign that bond traders think the economy is about to slow or even contract, and the Federal Reserve will be cutting rates.

The traders in the bond market, for the most part, don't think the U.S. economy is in dire shape. Other factors, like heavy investment from abroad, have helped make the 10-year note's yield unnaturally low. Still, the 10-year yield has gone from 0.86 of a percentage point above the two-year yield a year ago to 0.02 of a percentage point below the two-year yield yesterday, hardly a sign of great confidence in the economic outlook.

Meantime, over in stock land, the view on the economy is relatively positive. An analysis by Goldman Sachs analyst tells the story. Goldman's equity trading-strategy group argues that the strong performance of growth sensitive stocks relative to the rest of the market suggests investors believe that the U.S. gross domestic product will expand at an annual rate of more than 4% over the next two years. That would be much better than the 1.1% growth registered in the fourth quarter and better than the average growth rate of 3.5% over the past two years.

To some extent, stocks may be taking their cues from strong rconomic growth in developing countries. Companies with big overseas divisions, like Caterpillar Inc., have been raking in overseas profits. But Goldman's analysis suggests expectations of strong foreign sales don't explain all of investors' ebullience.

The upshot: In the months ahead, either bond investors are likely to be proven too pessimistic or stock investors are likely to be proven too optimistic. Take your bets now - porridge anyone?

 

[Wizard]

(1) Bond market is saying there is no value in stocks.

(2) CAT has been going up because of this great plan to have farmers grow our energy and the jerk on my avator has been pumping it for a month. You know that plan that 24 hours after the State of the Union - was just an example. Sorry Saudi Arabia did not mean to offend you. Wink, wink.

CAT is now very toppy. RSI has turned down and it is starting to labor:

http://stockcharts.com/def/servlet/SC.web?c=cat

Besides Komatsu is a much major stronger company and builds better heavy equipment. If they ever get an ADR and trade on the NYSE - CAT is toast. If you every got off your couch and travel you would see their equipment all over Asia.

 

[Wizard]

Birchy you need to step back and think. You are still reading the idiots "professionals" that burnt you the last time.

GS Chief Investment ANALyst is Abbey Joesph Cohen - who never went bullish. Rode it down the whole way. My price target on the NASDAQ is 7500for 2000. This is the bottom, this is the bottom...ok this is really the bottom.

How she still has a job is one point but the creme does not rise at the top at that organization.

If they are pumping it that means they are all ready in the stock. They do not make money by writing a free report to you.

Guess who worked there? The jerk on my avatar. That should tell you something.

 

[Oldcoin]

This is an excerpt from an article I received on line today. Most of what they say deals with the difference between the tax collected and what should be collect, this is referred to as the “Tax Gap”. I thought it was interesting that the GAO seems to be saying the same thing that Tech has been saying all along.


Published by Tax AnalystsTM

United States Government Accountability Office

GAO
Testimony Before the Committee on Budget, U.S. Senate

TAX GAP

Statement of David M. Walker
Comptroller General of the United States

Wednesday, February 15, 2006

GAO-06-453T

What GAO Found

Our nation's fiscal policy is on an imprudent and unsustainable course. As long-term budget simulations by GAO show, over the long term we face a large and growing structural deficit due primarily to known demographic trends, rising health care costs, and lower federal revenues as a percentage of the economy. GAO's simulations indicate that the long-term fiscal challenge is too big to be solved by economic growth alone or by making modest changes to existing spending and tax policies. Rather, a fundamental reexamination of major policies and priorities will be important to recapture our future fiscal flexibility.

Underreporting of income by businesses and individuals accounted for most of the estimated $ 345 billion tax gap for 2001, with individual income tax underreporting alone accounting for $ 197 billion, or over half of the total gap. Corporate income tax and employment tax underreporting accounted for an additional $ 84 billion of the gap.

 

[The_Technician]

Was that a reference

to me Oldboy.....If so I'm honored...

OUr economics has been broken in a planned way by entities who wanted to make monies overseas....the only way to do that is to "break" our economic engine....and they have been doing that since the 70's....starting with taxes that just put a hamper on everything we know of.....spending that is extravagant, and give aways to foreign countries when we need to keep that money at home paying off the deficit.....

Who holding the tiller has done a very poor job and you and my kids will suffer for it......we're just a money pot for those who bill they govt taxes......

 

[Oldcoin]

to me Oldboy.....If so I'm honored...

Yes Technician, it was a reference to you. Keep up the good post. Thanks

 

[Fivetears]

No Way...

Underreporting of income by businesses and individuals accounted for most of the estimated $ 345 billion tax gap for 2001, with individual income tax underreporting alone accounting for $ 197 billion, or over half of the total gap. Corporate income tax and employment tax underreporting accounted for an additional $ 84 billion of the gap.

Who in this fine U.S. of A. would ever work "under-the-table" to get out of paying more income taxes?

The Government better check their 6; The people are being financially forced to do things like this to survive.

They're also getting tired of funding "Pork Barrel" Politics.

 

[The_Technician]

Sometimes

to me Oldboy.....If so I'm honored...

OUr economics has been broken in a planned way by entities who wanted to make monies overseas....the only way to do that is to "break" our economic engine....and they have been doing that since the 70's....starting with taxes that just put a hamper on everything we know of.....spending that is extravagant, and give aways to foreign countries when we need to keep that money at home paying off the deficit.....

Who holding the tiller has done a very poor job and you and my kids will suffer for it......we're just a money pot for those who bill they govt taxes......


I wish I would read what I type.....don't you.....


I should have typed...


OUr economics has been broken in a planned way by entities who wanted to make monies overseas....the only way to do that is to "break" our economic engine....and they have been doing that since the 70's....starting with taxes that just put a hamper on everything we know of,.....spending that is extravagant, and giveaways to foreign countries when we need to keep that money at home paying off the deficit.....

Whoever is holding the tiller during the last 30 years has done a very poor job and you, yours, me and my kids will suffer for it......we're just a money pot for those who bill the govt taxes......

 

[cowboy]

"under the table"

LOL!!! I think there is a lot of "under the table" stuff going on just ask "BILLY" Clinton!! I do believe though that the accounting systems are going to get worse as the preparer of your tax information has no accountability in what they do. I do believe the individual is mainly liable but I have seen accountants getting very imaginative with these forms and the loopholes are larger also.

 

[Oldcoin]

I met a man who had to work and get paid "under the table" to pay his taxes that he owed from his day job. Kinda like a dog chasing his tail.

 

[oldschool]

Weekend reading - housing bubble?

Here's a link to an interview with Robert Schiller on housing prices. Makes some interesting observations on the likely views of the new Fed Chairman.

http://news.ft.com/cms/s/b343303a-9eb0-11da-ba48-0000779e2340.html

 

[oldschool]

From an interview yesterday discussing housing prices on the Financial Times website:

Alan Greenspan was praised for his handling of the economy during his interminable run as head of the Fed; in particular for his rapid cuts in interest rates to keep the economy afloat after the last stock market crash.

Yet this has pumped up the housing bubble even more. I want to provoke mild-mannered Shiller into a little criticism. What, exactly, can Ben Bernanke, Greenspan’s successor, do to rescue the US economy if the property market crashes? Has the Fed already used up its one silver bullet - that of interest rate cuts?

“Bernanke thinks there is no housing bubble,” says Shiller. “According to the White House website, he said recently that the fundamentals explained house price movements except in some speculative markets.” The new chairman of the Fed is a “brilliant man”, Shiller continues, but he has not shown any interest in behavioural economics.

And this is where he has underestimated the danger posed by real estate speculation. “He is not attuned to one of the great innovations of our time, that is, bringing psychology back into economics.”

Here we come to the crux of Shiller’s theories about asset bubbles, whether tulips, shares or property: people get excited as they see the price of an asset rising, so they buy more, which pushes the prices up further until they are unsustainable. “The bubble is made by a ‘story’, by excitement and glamour,” he says. And then, once a market loses that momentum, it will experience negative feedback, where people rush to sell before things worsen further.

 

[oldschool]

China not letting currency move much...

China has again said it won't have a faster acceleration of its currency - rather it wants to continue its policy of “gradualism” so that businesses can learn to adjust to currency movements.

A statement published on the website of the central bank, the People’s Bank of China, part of its quarterly survey of the economy, said Beijing would maintain a “basically stable” renminbi.

 

[The_Technician]

Looks like

China has again said it won't have a faster acceleration of its currency - rather it wants to continue its policy of “gradualism” so that businesses can learn to adjust to currency movements.

A statement published on the website of the central bank, the People’s Bank of China, part of its quarterly survey of the economy, said Beijing would maintain a “basically stable” renminbi.

its going to become a problem, does China expect the rest of the world to succumb to their way of economic control..........I think not...I would be looking for some sort of trade barricade world wide on this point.

 

[The_Technician]

Recap of US Markets
STOCKS



Equity investors are facing a dilemma. A solid economic growth path bodes well for corporate profits, but it also means that inflationary pressures are more likely to accelerate unless the Fed raises rates further. Slower economic growth means that the Fed could stop raising rates sooner, but it portends a slower profit stream. So equity investors sometimes react well to growth and sometimes they react well to sluggish activity. Notice that daily trends in the various indexes are mixed. On the whole, the Nasdaq composite and the Russell 2000 performed best this week.

Equity prices continue to show healthy gains from year-end levels. The Dow is up 5.2 percent, surpassing increases in the S&P 500 (+4.4 percent) and the Nasdaq composite (+4.9 percent). It is matching the year-to-date gain in the Wilshire 5000. The small cap sector is outperforming the rest of the market by a wide margin with the Russell 2000 up 12 percent from year-end levels.

BONDS
Fed Chairman Ben Bernanke addressed the Economics Club of New York on Monday night giving his thoughts on the yield curve and monetary policy. In my view, the speech was covered in an academic fashion - giving several sides to the story. The bottom line was that Bernanke didn't believe that the flat or inverted yield curve that we are currently experiencing is signaling an upcoming recession. He also debunked, to some extent, the view that long-term U.S. security yields have been dampened by strong foreign demand for our securities since long term rates appear to be low globally. After all was said and done, he suggested that whether the yield curve is signaling recession - or is inverted because of special factors - will depend on what other economic indicators tell us.
Many market players were upset by Bernanke's comments because he did not signal that the Fed would soon stop raising rates. In fact, Wall Street economists have not really changed their views about Fed policy after hearing the new Fed chairman. Among the 22 U.S. primary dealers, everyone believes that the Fed will raise the fed funds rate target to 4.75 percent next week. The majority of primary dealers (with only a few dissenters) believe the FOMC will raise rates to 5 percent at the May 10 meeting. Only a couple of economists among this group believe the Fed will raise the target rate to 5.25 percent at the June 29 meeting. But among those economists who believe the Fed will pause in June, some still expect the target to rise further and peak at 5.5 percent this year.



Last week the yield curve was slightly normal in that long rates were higher than short rates (although the middle of the curve was lower than either long end or the short end). This week, the curve flattened again with the 2-year note yield higher than both the 10-year and 30-year yields. After Bernanke's speech on Monday, bond investors became more jittery in advance of the upcoming FOMC meeting.

Markets at a Glance

Weekly percent change column reflects percent changes for all components except interest rates. Interest rate changes are reflected in simple differences.

 

[The_Technician]

The Economy
PARTIAL RECOVERY IN DURABLE GOODS ORDERS
New orders for manufacturers' durable goods rose 2.6 percent in February - which sounds solid until one considers that new orders plunged 8.9 percent in January. However, even the revised January figure is less dire than the initial report which showed a 10.2 percent drop. Faithful readers of this column can surmise that aircraft orders are the culprit. These rose nearly 60 percent in February after plunging roughly 80 percent in January. But what about the rest of the durable goods sector?

Once again, the bulk of manufacturers' orders are concentrated in transportation and computers & electronics. Total transportation orders (which includes motor vehicles and ships in addition to aircraft) jumped 13.4 percent in February but averaged monthly gains of 1.5 percent over the past six months. Over the past three months, transportation orders averaged monthly declines of 4.1 percent. New orders for computers & electronics jumped 4.2 percent in February, although the six-month average for these orders was a negative 0.4 percent. Over the past three months, however, these orders have averaged monthly gains of 1.3 percent. All other durable goods sectors were down in February.
Primary metals fell 2.5 percent in February, are showing no growth over six months, and are averaging monthly declines of 1.8 percent over the past three months. Fabricated metals declined 1.9 percent in February but are posting average monthly gains of 0.3 percent over the past six months and average monthly gains of 1 percent over the past three months. Machinery orders dropped 6.3 percent in February. Over the past six months, machinery orders have averaged monthly gains of 0.2 percent but averaged monthly decreases of 0.2 percent over the past three months. Electrical equipment fell 3.2 percent in February, but averaged monthly gains of 0.6 percent over the past six months and 1.7 percent hikes over the past three months.
The sectors with average monthly increases over three months and six months show more promise (fabricated metals and electrical machinery). Otherwise, the bulk of the durable manufacturing sector is hardly growing.
HOME SALES RISE IN FEBRUARY
Sales of new single-family homes plunged 10.5 percent in February after posting a revised 5.3 percent drop in January. February new home sales fell in the South and West, although they rose in the Northeast and Midwest. In contrast, January sales fell in the Northeast, Midwest and South, but rose in the West. Sales of new homes were 13.4 percent lower than a year ago.
Sales of existing homes surprised market players with a 5.2 percent rise in February. Since sales are counted at closing, this means that most of these sales were generated in January when unseasonably warm weather had boosted housing starts as well. Since existing home sales are a much larger share of the housing market than new home sales, total single-family homes increased 2.7 percent in February. This brought sales almost, but not quite, back to December levels.

Rather than focus on February sales alone, it's best to look at the trend in the housing market. And the trend is decidedly down. Home sales peaked in June and have edged down slowly but surely ever since. A more dramatic decline is evident in the MBA purchase index, which also appears to have peaked during the summer. From time to time this index did post gains in the fall and winter, but generally, the trend was down.

Refinance activity is somewhat more stable than home purchases. But refinance activity is down from this summer as well. Given that mortgage rates are roughly 75 basis points higher than they were in June when home sales peaked, it makes sense that refinance activity has diminished. A slower pace of refinance activity means that consumers will have to satisfy themselves by spending within their income - and not use their homes to enhance their cash flow. Perhaps the saving rate will rise in this environment. Borrowing is less desirable, after all.
PPI SHOWS MIXED VIEW ON INFLATION
The PPI plunged 1.4 percent in February as energy and food prices both fell sharply during the month. Energy prices fell 4.7 percent while food prices dropped 2.7 percent; both had been steady in January. Excluding these two volatile components, the so-called core PPI increased 0.3 percent in February, just a bit less than last month's 0.4 percent hike. On a year-over-year basis, the PPI rose 3.7 percent in February, showing steady improvement from the peak inflation rate of 6.6 percent seen last September. The core PPI is up 1.7 percent from a year ago, a slight acceleration from the past month. It too is down from the peak core rate of 2.8 percent registered last July. Over the past 10 years, the core PPI approached 3 percent only once - in 2005.

 

[The_Technician]

The Fed monitors all inflation indicators. They surely have models how inflation rates in one index might affect inflation rates in other indexes. The chart below depicts the core PPI relative to the core CPI. Notice that consumer price inflation is generally, although not always, higher than producer price inflation. This occurs because the CPI is primarily made up of service prices, while the PPI is primarily goods prices. Prices for goods are more sensitive to the business cycle than prices for services. While it is likely that a downward trend in the core PPI will lead to a downward trend in the core CPI, there does not appear to be a rule of thumb relationship (one to one, two to one, etc.).

The Bottom Line
Market players focused on Ben Bernanke's speech this week and probably over interpreted his remarks. Most likely this occurred because: 1) Bernanke is new and market players need to learn to interpret his remarks, like they did for Greenspan. The general conclusion thus far is that he appears to speak clearly, but like an economist, he gives all sides of the issue. (Hey, what's wrong with that?) But market players are beginning to think that he may prove as difficult to decipher as Greenspan. Well, perhaps that will be true. But let's cut him some slack - he hasn't even presided over his first FOMC meeting yet. That comes next week. 2) Market players focused on Bernanke because economic news releases were slim and they had nothing else to talk about during most of the week.
Durable goods orders are weak - and these will have to improve if we expect better manufacturing activity in the next several months. As I've said before, aircraft alone can't keep this economy afloat. The housing figures are somewhat mixed in that home sales are generally showing much more moderation than housing starts (which were still rising on trend through February). This could set us up for a sharp reversal in the housing market if real estate developers are stuck with new houses - and fewer buyers. Yes, housing is very location specific, so not all regions of the country will face the same housing misallocations, but there will be some shakeout.
Economic indicators will be slight again next week, but everyone will of course focus on the Fed. Investors are all expecting a rate hike, but the post-meeting statement will get even more attention than usual. Will Bernanke use this occasion to change the tenor of the statement, or will the changes be more gradual?
Looking Ahead: Week of March 27 to March 31

Tuesday
The Conference Board's consumer confidence index declined 5 percentage points in February to 101.7. The University of Michigan's consumer sentiment index remained unchanged in early March and this suggests that The Conference Board's attitude survey might also stop falling. However, these two surveys can be at odds with one another.
Consumer confidence Consensus Forecast for Mar 06: 102
Range: 99.8 to 105.0
The Fed is not likely to surprise market players on Tuesday when they announce a rate hike of 25 basis points in the federal funds rate target at the end of their FOMC Meeting. While the rate hike will probably not surprise investors, Ben Bernanke could set some new communication trends and market players around the globe will anxiously await the post-meeting statement.
Fed funds rate target Consensus Forecast for Mar 28, 06: 4.75 percent (+0.25 pct)
Range: None
Thursday
New jobless claims fell 11,000 in the week ended March 18 to 302,000, bringing the 4-week moving average up to 303,500. This was the first drop in four weeks and the third straight week for a level over the 300,000 mark.
Jobless Claims Consensus Forecast for 3/25/06: 305,000
Range: 300,000 to 315,000
The Commerce Department's preliminary estimate revealed that real GDP expanded at a sluggish 1.6 percent rate in the fourth quarter of 2005 with weakness in consumption expenditures and investment spending. While a large revision between the advance and preliminary estimates is not unusual, a large revision between the preliminary and final estimates is not likely.
Real GDP Consensus Forecast for Q4 05: 1.7 percent annual rate
Range: 1.4 to 1.9 percent annual rate
GDP deflator Consensus Forecast for Q4 05: 3.3 percent annual rate
Range: 3.2 to 3.3 percent annual rate
Friday
Personal income increased 0.7 percent in January, faster than recent monthly gains. Look for a similar gain in February based on the employment situation. Personal consumption expenditures rose 0.9 percent in January boosted by durable and nondurable goods spending. The retail sales report showed that consumption expenditures plunged in February.
Personal income Consensus Forecast for Feb 06: 0.4 percent
Range: 0.3 to 0.6 percent
Personal consumption expenditures Consensus Forecast for Feb 06: 0.0 percent
Range: -0.3 to 0.4 percent
At the mid-March reading, the University of Michigan's consumer sentiment index remained unchanged at 86.7. While labor market conditions remain healthy, consumers may be feeling the pinch of higher energy costs for their cars and homes.
Consumer sentiment Consensus Forecast for Mar 06: 87.0
Range: 85.5 to 88
Factory orders decreased 4.5 percent in January, but look for a reversal in February. Durable goods orders rose 2.6 percent during the month, primarily due to increased aircraft orders. Manufacturers' durable goods outside the aircraft sector have not been very strong, but perhaps the nondurable goods sector will perform better.
Factory orders Consensus Forecast for Feb 06: 1.4 percent
Range: 0.2 to 2.2 percent
The NAPM-Chicago's business barometer fell 3.6 percentage points in February to 54.9. This index, which measures both manufacturing and non-manufacturing activity in the Chicago region, is often considered a leading indicator for the ISM manufacturing index. The New York Fed survey was higher in March than in February, although the Philadelphia Fed survey dipped slightly during the month. NAPM-Chicago Consensus Forecast for Mar 06: 56.5
Range: 52.5 to 60

 

[The_Technician]

M3 Money supply

Recent research indicates that the the M3 has increased 100% since 1997, thats double fold of currency printed in 9 years.....do you wonder why it costs so much more to do things of late???? Everything should costs twice as much and your income is worth about half if you haven't had a raise since '97....your labor is cheap........

 

[Spaf]

The Kingdom of TSP
The Economy
April 14, 2006​

Is it doom and gloom or a bed of roses. The past has indicators that interest rates and energy are major concerns (worries and woes). However, on the other hand, the economy appears to be resilient and in good shape. On [$SPX] the 50 day moving average has established a nicely increasing trend:

http://stockcharts.com

Can the consumer withstand oil at $70 a barrel? Will it go above 70? Will the Fed cease the rate increases? All, good concerns, but we can take it too far and worry our selves to death. The psychological concerns can hide some good information, such as:

Industrial output rose 0.6% in March Posted 4/14/2006 9:45 AM ET

WASHINGTON (Reuters) — http://www.usatoday.com/money/economy/production/2006-04-14-ind-prod-march_x.htm

So it's not doom, nor is it rosy. Looks like a good day for a picnic....Happy Easter!......