Friday, June 12, 2009

Weekend Beagle and Weimar

It's that time of the week. Think about anything except the economy and the markets. I'll be back early Monday morning.

Consumer Confidence Up

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From Reuters:

U.S. consumer confidence rose to a nine-month high in June but failed again to surpass its level of September 2008, when the spectacular failure of Lehman Brothers sent the world economy into a tailspin, a survey showed on Friday.

The Reuters/University of Michigan Surveys of Consumers said its preliminary index of confidence for June rose to 69.0 from May's 68.7. That was slightly below economists' expectations of 69.5, according to a Reuters poll.

Worryingly, the report's gauges of inflation expectations rose to their highest in months, creating concern for the Federal Reserve, which has pumped money into the financial system to spur recovery from the worst recession in decades.

For the third month now the overall consumer sentiment reading was at its highest since the Lehman debacle last September, which caused severe strains in financial markets, while not breaking through that month's level of 70.3.

Note the following points:

1.) This is the fourth increase in a row. That's important.

2.) As the article notes, we're still not above last September's level. While I am please to see the increases I will be happier when the number is above previous levels.

3.) The inflation expectation is worrying because it indicates people may start to act on inflation expectations.

However -- and overall -- this is a good report.

Is the Debt Binge Over?

The Fed released the Flow of Funds report yesterday. I'll be delving into it next week as it provides some of the most valuable and comprehensive data available on the US economy. But for now, simply consider these data points:

More wealth disappeared in the U.S. this year, and both households and businesses reduced their borrowing, a Federal Reserve report says.

The data Thursday also indicated slower commercial mortgage borrowing.

The Fed said total net worth of households fell 2.6%, or $1.33 trillion, in the first quarter, as their property values fell and portfolios shrank before stock prices rallied in March.

Net worth dropped to $50.38 trillion from $51.71 trillion in the fourth quarter. Net worth is assets minus liabilities. The 2.6% drop followed a decline of 8.6% during the fourth quarter.

And then there is a possible change in US attitudes about debt:

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Forex Fridays

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The weekly chart still has a bearish bias. Both the RSI and MACD are moving lower. Prices are below all the SMAs. The 10 week SMA has moved below the 20 week SMA, and the 10 week SMA has been moving lower for the last two months.

While the general tone of the daily chart is negative, prices are currently in a bear market flag/pennant pattern. First, note the SMA arrangement -- all the SMAs are moving lower and the shorter SMAs are below the longer SMAs. Prices rallied starting at the beginning of June, but they ran into upside resistance at the 20 day moving average and have since moved lower. While both the MACD and RSI have risen, the price drop frm the 20 day SMA indicates a prices are probably still in a downward trend.

Thursday, June 11, 2009

Today's Markets

It's a trading range, plain and simple.

More Signs of Bottoming

From the Department of Labor:

In the week ending June 6, the advance figure for seasonally adjusted initial claims was 601,000, a decrease of 24,000 from the previous week's revised figure of 625,000. The 4-week moving average was 621,750, a decrease of 10,500 from the previous week's revised average of 632,250.

The above chart indicates several important points. First, the 4-week moving average topped out in roughly mid-April and has been declining since. That's 6 weeks of a decline --- not enough to say with certainty the trend is clear but enough to say there is a strong possibility the trend has changed. Second, note the total number has been fluctuating between 600,000 and 660,000 or so since late February.

Combine that chart with this one:

And you see the possibility of further declines is more likely than not. This is good because unemployment claims are the front-end of the labor market; claims must drop before we can see improvement in the longer term measures of unemployment.

In addition,

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for May, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $340.0 billion, an increase of 0.5 percent (±0.5%)* from the previous month, but 9.6 percent (±0.7%) below May 2008. Total sales for the March through May 2009 period were down 9.7 percent (±0.5%) from the same period a year ago. The March to April 2009 percent change was revised from -0.4 percent (±0.5%)* to -0.2 percent (±0.2%)*.

The above chart divides the last 9 months into two categories.

1.) The end of last year when sales crashed and burned.

2.) The last 5 months when the month over month change fluctuated more around 0% change -- an improvement.

Also note that retail sales increased .5% without car sales.

Bottom line -- this is good news.

Beige Book, Pt. II

Yesterday the Fed released the Beige Book. The general tone of the report was negative/down. However, there were some signs of improvement as well.

Reports from the twelve Federal Reserve District Banks indicate that economic conditions remained weak or deteriorated further during the period from mid-April through May. However, five of the Districts noted that the downward trend is showing signs of moderating. Further, contacts from several Districts said that their expectations have improved, though they do not see a substantial increase in economic activity through the end of the year.

Let's take a look at the various districts lead paragraphs to see where the signs of improvement lie:


Most First District business contacts report ongoing declines in sales or orders from a year earlier. Aside from biopharmaceuticals, manufacturers say business continues to drop off and they are cutting capital spending, employment or hours, and compensation. Software and information technology services firms are also seeing revenues fall from a year ago, as are staffing firms. However, a few manufacturers and staffing firms cite some stabilization or positive signs recently. Residential and commercial real estate markets remain in the doldrums, with declines in prices and sales (or rents and occupancy) continuing into March and April. Retailers are the exception, with a majority of respondents reporting modest sales increases from a year ago. Manufacturers say input costs are roughly flat, while their selling prices are flat to down. Retailers' and software firms' prices are holding steady, while temp firms' bill rates and pay rates are declining. "Uncertain" continues to be the operative word regarding the outlook, although contacts in several sectors see more reason for optimism now than six weeks or three months ago.

New York:

The Second District's economy has shown signs of stabilizing since the last report, though some sectors continued to weaken. The labor market remains exceptionally slack and has yet to show signs of leveling off. Manufacturing sector contacts indicate that activity has generally stabilized and express increasingly widespread optimism about the near-term outlook. Retailers indicate that sales improved somewhat in May and were roughly on plan but still down moderately from a year earlier. Consumer confidence rose noticeably in April and May, rebounding from a record low. However, tourism activity in New York City showed further signs of softening since the last report. Commercial real estate markets have been mixed since the last report, with Manhattan's market continuing to weaken, but most surrounding markets slack but stable. Housing markets appear to be stabilizing in much of the District but continued to weaken in New York City. Finally, bankers again report increased demand for home mortgages but steady to somewhat weaker demand in other loan categories; they also report further tightening in credit standards and continued moderate increases in delinquency rates across all segments.

Overall, the New York report is pretty good, indicating things are normalizing.


Economic activity in the Third District continued at a slow rate in May. Manufacturers, on balance, reported declines in shipments and new orders. Retailers gave mixed reports, noting gains in sales during the month at discount stores but weakening sales at stores selling higher-priced merchandise. Motor vehicle dealers indicated that sales remained sluggish. Bank loan volume has been level in recent weeks, and credit quality has continued to deteriorate. Residential real estate sales showed a slight seasonal gain in May but remained below the level of a year ago. Nonresidential real estate investment and construction activity continued to be slow. Service-sector activity has been generally slow in recent weeks. Business firms in the region reported level or falling input costs and output prices in May.

The outlook in the Third District improved slightly in May. Although contacts do not foresee substantial increases in activity in the near term, more now believe the decline in economic activity might be near a bottom. Manufacturers forecast a rise in shipments and orders during the next six months. Retailers expect sales to gain strength slowly, but auto dealers expect sales to remain slow for the rest of the year. Bankers anticipate little growth in lending. Residential real estate agents and home builders believe market conditions might be stabilizing, but they do not expect sales to move up solidly until next year. Contacts in nonresidential real estate expect leasing and purchase activity to remain weak during the balance of the year but perhaps move up somewhat during the fourth quarter. Service-sector firms expect activity to be slow during the next few months, at least.

Philly is a hopeful report -- we hope things get better and think they will. But we don't have any solid signals of late.


Economic activity in the Fourth District weakened somewhat since mid-April. Reports from factories show an appreciable decline in production and new orders. Residential construction remains weak, while commercial and industrial building decreased. Commercial and residential builders reported that project financing is very difficult to obtain. On balance, sales by District retailers were stable. New motor vehicle sales slowed, while purchases of used vehicles showed a modest improvement. Coal production fell substantially, with little change noted in oil and gas output. Freight transport volume remains at low levels. Refinancing applications for residential mortgages remain very strong, though other types of consumer lending were characterized as stable. Commercial and industrial lending activity is mixed. Core deposits grew strongly.

Employment declines were seen in manufacturing, commercial construction, and energy. Staffing firms reported a falloff in job openings. Given the weak labor market, wage pressures are contained. For the most part, input and product prices were stable or declining. Capital spending has been frozen or trimmed back to mainly critical maintenance projects.

I don't expect Cleveland to get better anytime soon -- even after the recovery starts full force. The reason is Detroit and the car markets problems. So long as that problem is out there, this region will be in bad shape.


Although economic activity in the Fifth District remained sluggish in recent weeks, some encouraging trends are beginning to emerge. District manufacturers reported a rise in demand as new orders and shipments grew. Contacts at District ports observed weak conditions, but noted signs of potential improvement. Residential lending activity picked up as contacts noted an increase in purchase loans, while residential real estate agents also reported an overall uptick in sales activity. Commercial real estate contacts observed a modest increase in leasing activity, although vacancy rates inched up in most markets and reports of rent declines and concessions were common. Nonetheless, demand for commercial loans remained weak with some continued deterioration in credit quality. Retail revenues--including big-ticket sales--generally declined since our last report, as did revenues at services firms. Retail price growth slowed, according to contacts, while prices at services firms declined. Temporary employment activity was weak, although some agents expected improvement in the next few months.

The main positives here are a pick-up in residential real estate activity and manufacturing orders.


Sixth District business contacts reported that economic activity continued to contract in late April and May, although the pace of decline had moderated in some industries and most noted that their outlook had improved. Information from retailers was consistent with sluggish consumer spending, but sales were largely in line with modest expectations. Most auto dealers noted further declines in sales, while tourism-related spending slowed further in late spring. Real estate contacts suggested that ongoing weakness in home sales had moderated in several areas and inventories of unsold single-family homes were trending down. However, most commercial construction reports remained negative as vacancy rates continued to rise. Fewer manufacturers cited reduced production and orders than in the previous report, although overall activity remained quite weak. Banking contacts remarked that general business and consumer loan demand was soft. Labor market conditions continued to be weak, although fewer firms reported layoffs than earlier in the year. Price pressures remained relatively stable throughout the District.

Note that again real estate is moderating. Manufacturing is declining at a slower rate and lay-offs were declining.


Overall, economic activity in the Seventh District weakened in April and May. Consumer spending decreased and the pace of business spending slowed. Construction activity continued to be weak, although residential real estate conditions showed some improvement. Both manufacturing activity and labor market conditions deteriorated further. Credit conditions improved, but remained tight for some firms. Downward pressure on prices and wages diminished. Wet weather delayed planting of both corn and soybeans in the District.

Chicago's proximity to Detroit and the industrial mid-west is a problem and will be for the foreseeable future.

St. Louis:

The economy of the Eighth District has weakened further since our previous report. Activity in the manufacturing and service sectors declined further. Retail and auto sales in April and the first half of May were down from a year ago. Residential and commercial real estate markets continue to be weak. Overall lending at a sample of large District banks decreased moderately during the first quarter of 2009.


The contraction in the Ninth District economy moderated since the last report. Modest decreases in activity occurred in the consumer spending, services, residential construction and real estate, agriculture and manufacturing sectors. More substantial drops in activity were noted in commercial construction and real estate, and in the energy and mining sectors. Spring tourism activity was mixed, and residential real estate saw more activity. Labor markets continued to weaken, and wage increases were modest. Price increases remained subdued.

Again -- there is talk of moderation and better results in real estate.

Kansas City:

The Tenth District economy declined at a slower pace in April and May with firmer expectations of improvement going forward. Consumer spending was weak and was expected to remain soft. An uptick in manufacturing orders helped stabilize expectations for future production. Residential real estate activity strengthened with stronger sales and increased building permits. In contrast, commercial real estate market conditions deteriorated, and energy activity declined further. Crop conditions held steady while livestock producers cut herds. Bankers reported a rise in deposits and stable loan demand with no erosion in loan quality. Consumer price and wage pressures remained low. Producer prices declined at a slower pace with some firms noting that higher commodity prices boosted material and fuel costs.

Activity declined at a "slower pace"; an "uptick" in manufacturing; baking conditions are getting better as well.


Economic conditions in the Eleventh District remained weak from mid-April to late May, but there were increased reports of stabilization. Contacts in several industries said demand had improved slightly or had firmed since the last survey. Many characterized current conditions as bouncing along the bottom. While outlooks were slightly more optimistic than in past surveys, most contacts said they remain extremely cautious and do not expect any sustained improvement in the near term. Labor market conditions remain soft as firms continue to implement hiring freezes in the face of uncertainty.

Like Philly, this is an expectations report; we think things are going to get better but we're still "bouncing along the bottom".

San Francisco:

Economic activity in the Twelfth District slowed further on net during the survey period of mid-April through the end of May, although the reports again pointed to signs of stabilization or improvement in some sectors. Upward price pressures remained modest overall, and upward wage pressures were largely absent. Retail sales continued to be anemic, and demand softened further for service providers. Manufacturing activity generally remained at extremely low levels or eased further, although conditions continued to improve for makers of information technology products. Demand held largely steady for agricultural producers and remained somewhat weak for providers of natural resources. Home sales continued to firm in many areas, but construction activity stayed stuck at low levels, and demand for commercial real estate continued to deteriorate. Loan demand weakened further on net and credit availability remained tight.

So -- what is the general conclusion? We're still in a bad place economically, but there are signs things are stabilizing along the bottom.

Thursday Oil Market Round-Up

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The weekly chart is still very bullish.. Prices have continued to rally after a consolidation at the end of last fall's sell-off. The MACD and RSI are still very positive. The 10 and 20 week SMA are still rising and prices are still above them. In addition, prices are still moving towards the 50 week SMA; crossing same would be another bullish development.

As with the weekly chart, the daily chart is also bullish. The price/SMA alignment is the most bullish possible: prices are above the all the SMAs, all the SMAs are rising and the shorter SMAs are above the longer SMAs. Finally, both the MACD and RSI are rising as well. The only negative on the chart is the RSI has been over 70 a bit of the last few weeks and the MACD is approaching levels where it previously reversed.

Now -- let's take a look at the fundamentals

Oil supply is still above average; but

Gas supply is dropping like a stone. In addition,

Gas demand is rising, leading to

An increase in prices.

Wednesday, June 10, 2009

Today's Markets

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It's pretty clear: we're in a narrow trading range have have been for about a week. We need either a move above 95.50 or a move below 93. Until that happens, we're stuck.

Beige Book

From the Federal Reserve:

Reports from the twelve Federal Reserve District Banks indicate that economic conditions remained weak or deteriorated further during the period from mid-April through May. However, five of the Districts noted that the downward trend is showing signs of moderating. Further, contacts from several Districts said that their expectations have improved, though they do not see a substantial increase in economic activity through the end of the year.

The general tone of the report is negative, but there are positive developments. I will deal with this in more detail tomorrow.

A Damn Good Idea

From Bloomberg:

House Republicans would let non-bank institutions fail in bankruptcy court and strip the Federal Reserve of supervisory powers as part of a plan to revamp U.S. financial regulations, a draft document showed.

Republican lawmakers are also proposing a market stability board, led by the Treasury secretary, to identify risks that may jeopardize the financial system, according to an outline of the plan obtained by Bloomberg News. Republicans in the House Financial Services Committee are scheduled to release a plan June 11. The Obama administration will announce its regulatory proposal June 17.

“From this time forward, businesses should not anticipate the federal government to step in and bail them out,” Representative Scott Garrett, a New Jersey Republican who will help unveil the plan, said yesterday in a telephone interview. “That’s contrary to the fundamental ideas of capitalism and free markets.”

Now -- stripping the Fed of its supervisory powers is damn stupid and shouldn't even be considered. However, the Fed does need to use its powers more often, instead of when a financial meltdown is occurring. The financial stability board sounds interesting, but I'm not sure it would be needed if we keep the Fed as the central regulator.

But, the idea of creating a special bankruptcy code provision in the "too big too fail" category is a damn good idea and one that should be enacted ASAP.

Banks Repaying Some TARP money

From the WSJ:

The Treasury Department granted permission to 10 of the nation's largest financial institutions to repay $68 billion in government-bailout cash, showing that the industry is rebounding from losses that sank some firms and caused the world economy to buckle last year.

Tuesday's announcement set the stage for J.P. Morgan Chase & Co., Goldman Sachs Group Inc., Morgan Stanley and seven other financial-services companies to escape federal restrictions imposed in return for capital infusions under the Troubled Asset Relief Program. They included curbs on executive pay, dividend increases, hiring certain foreign workers for U.S. jobs, and lavish spending on corporate jets and conferences, which fueled a public backlash.

While the collapse of the U.S. banking system is no longer seen as an imminent danger, access to the capital markets remains difficult and bank balance sheets are clogged with troubled loans and other assets. Most of the nation's 8,000 banks are being hammered by the recession, and the number of bank failures is expected to climb. The 10 banks seeking to return government money will be able to continue leaning on the U.S. government in other ways, including by issuing debt guaranteed by the Federal Deposit Insurance Corp.

In addition to J.P. Morgan, Goldman and Morgan Stanley, Treasury officials gave the go-ahead to return capital to regional banks U.S. Bancorp and BB&T Corp., credit-card issuers American Express Co. and Capital One Financial Corp. and institutional banks Bank of New York Mellon Corp., State Street Corp. and Northern Trust Corp.

When TARP was first announced, the Treasury Department essentially forced all the largest banks in the country to participate. The logic behind that move (which I agree with) was that if one large bank accepted money but others didn't it would make the bank that accepted money look weak, possibly leading to a run on the bank. When all the banks accepted the money no one institution would have the competitive advantage over other banks.

The banks that are returning the money were fairly healthy before the problems emerged -- therefore, there is little shock to their efforts to pay the TARP money back.

However -- there is a possible problem:

Some analysts worry that financial institutions that repay bailout money now may turn to Washington again if the economy worsens and losses overwhelm banks. One of the most vexing problems of the credit crisis — how to rid banks of their troubled mortgage investments — remains unresolved.

Is the Treasury allowing the banks to leave too soon? There is (unfortunately) only one way to find out.

Wednesday Commodities Round-Up

Let's take a look at gold.

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Above is the chart that bothers me the most -- and I hope I'm reading this wrong. BUT, the longer term gold chart could be seen as a reverse head and shoulders formation. This implies that gold has one hell of an upward run in the future.

I used the 6 month chart to get a better read of the the SMA picture. First, notice the 200 day SMA has been near neutral for the better part of the year. Considering the extreme moves we have seen, that's a pretty amazing stunt and implies the long-term outlook is still cloudy. However, the short-term indicators are pretty positive. The shorter SMAs are above the longer SMAs and all the SMAs are moving higher. The 10 day SMA has taken a short-term dip, but prices are just below and are using the 20 day SMA as technical support. If prices move through the 20, then the 10 day SMA will be in trouble. But until that happens, we're still in an up-swine.

Tuesday, June 9, 2009

Today's Markets

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There is little more to say about the markets. The SPYs continue to move in a sideways pattern, although they are right next to the 10 day SMA which is usually when prices start to change/move.

The big concern for me is the transports, which I still think might be forming a double top.

It's Looking Like a Jobless Recovery

From Marketwatch:

Employers' hiring plans for the third quarter didn't budge from their record-low second-quarter outlook, according to Manpower's latest Employment Outlook Survey.

A net -2% percent of employers said they plan to hire in the upcoming third quarter, flat from the -2% who said they would hire in the second quarter, on a seasonally adjusted basis, according to the Milwaukee-based firm's survey of 28,000 U.S. companies. (The second-quarter outlook was revised down to -2% from -1%.)

Right now there is no reason to hire -- and there won't be for awhile.

Small Business Confidence Up

From CNBC:

An index measuring sentiment among small business owners gained for the second consecutive month, moving just below a level that would indicate positive growth in the economy.

The National Federation of Independent Business survey registered an 88.9 reading, a notch below the 90 that would indicate the climate for small businesses is growing rather than merely not shrinking as quickly.

"We've been suggesting that we will be slightly negative this quarter and push through to positive in the third," NFIB Chief Economist William Dunkelberg said in a live interview on CNBC.

Nine of the 10 indicators in the NFIB survey were either flat or positive, with credit concerns being the only dark spot.

"They expect it to be difficult to get financing over the next six months," Dunkelberg said. "In spite of the heavy easing that's going on they're not seeing a real optimistic outlook."

When people are feeling positive, they typically spend more money and make more investments. That is not guaranteed, but it is a good sign. Or -- another good sign.

A Note On My "Bullishness"

Over the last few months, my opinion about the economy has changed. I have come from a very bearish stance to one of moderate bullishness. I say moderate because it is my belief the facts (not my opinion) indicate the worst is behind us. In other words, the economy is in a trough, the worst is over and now we are in the process of moving "forward" (and I use the word forward in an extremely liberal sense).

This is the chart that started it

Yes -- I know the level is still high. But notice the 4-week moving average topped out in February and has since moved lower? Also notice the number is no longer advancing? Finally, notice this is the only period where this type of movement has happened in the last year and a half? That is good news. I am also aware that people are still losing their jobs at a fast rate. But, you have to start somewhere. The economy is not just going to emerge from a horrible mess at 3% growth and 5% unemployment -- it's just not going to happen.

Now -- combine that chart with this one:

Then I started to notice these charts of public sentiment:

Notice the number of people who think the economy is poor has decreased and the number of people who think it's fair has increased (even though the number of fair's has decreased of late it is still higher than it was a few months ago).

Notice the number of people who say the economy is getting better is increasing? Even though there has been a move back higher in the "economy getting worse number" the positive response is still increasing.

Then we have this poll:

Simply put, people are feeling better about the economy. This is a huge issue because happier people are more like to spend more money.

And there are other pieces as well.

The ISM Manufacturing index bottomed at the end of last year and is currently increasing.

The ISM non-manufacturing index is has bottomed as well.

The point is there are multiple data points that show the worst is behind us.

NOW LET ME ADD -- I have been very clear that I think the recovery will be weak at best. Simply put, there are no strong drivers going forward. And that means we should get use to lower growth and higher unemployment for the foreseeable future. But that does not mean we should ignore the facts and not opinions.

Treasury Tuesdays

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Let's start with a long-term view of the short end of the curve as represented by the SHYs. Notice this chart started to rally in mid-2007 -- right when we started to hear about financial problems. This part of the market continued to rally until early 2008 when it sold off only to rally again starting in mid-2008. Then it rallied until the end of last year when it started its current sell-off.

However, take a step back and simply notice that the last year and a half could be considered a standard reaction to extreme financial dislocation. That means the latest sell-off would be a return to normalcy.

Notice that much of what was written about the SHYs also applies to the IEFs. And again, that means the recent sell-off could be seen as a return to normalcy -- that is, we're getting back to a normal yield curve with non-"the world is falling apart" interest rates.

On the daily IEF chart, we are clearly in a bear markets. Prices have fallen through th e20 0day SMA, all the SMAs are moving lower, the shorter SMAs are below the longer SMAs and prices are below all the SMAs. Also note the 10 and 20 day SMAs have moved through the 200 day SMA and the 50 day SMA is about to move through the SMA.

Monday, June 8, 2009

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Prices opened at lower prices today and stayed there until just before 2:30 when they surged. Some speculate the reason is Krugman's speech that he sees growth by the end of the summer. But, who the hell knows. Also notice that prices didn't close at the high, but instead fell on fairly high volume.

On the daily chart notice that prices are are moving sideways in a rectangle pattern. Also note prices are moving towards the 10 day SMA, so we'll find out if it holds here.

GDP and the Unemployment Rate

Below are four graphs which correlate the year over year percentage change in GDP and the unemployment rate. Notice the year over year percentage change in GPP bottoms before the unemployment rate tops. That means we need to see GDP declines stop before we can even think of unemployment's rising stopping.

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Economic Recovery

This is from a speech by the Eric Rosengren from the Boston Fed on May 21:

Figure 4 highlights the recovery in several components of the economy in the first year following the trough of a recession. Several interesting patterns appear. In the previous three recoveries, the housing sector has shown the largest percentage change among the components of GDP shown in the figure. This largely reflects that this interest-sensitive component is usually buoyed by the reductions in interest rates that are the normal monetary policy response to recessions. This is why many analysts have highlighted the importance of seeing the bottom of the housing market for the economy to begin a true recovery.

Another important point related to recovery is that consumption needs to grow. While the percent change in consumption looks small in the figure relative to some of the other components, it is important to remember that consumption is by far the largest component of GDP. Because consumption accounts for more than two-thirds of GDP, these percent changes are on a large base. In short, it is very difficult to have a recovery without consumers being willing to spend, which was a motivation for some of the fiscal stimulus being directed towards increasing consumption.

In contrast, business fixed investment is not usually the driver in the initial stages of the recovery, as businesses are hesitant to hire more workers and make further investments until the recovery is more firmly established. Government spending also plays a role in recovery, as you can see in Figure 4. Certainly in the current recession, policymakers hope the stimulus spending will play a role. Furthermore, exports normally grow during the initial stages of a recovery. This is why it is important to us that policymakers worldwide respond to a recession that is clearly global.

Here is the chart from his speech:

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Notice residential real estate investment was indeed the largest percentage change component in all three of the last recoveries. That means there is little reason to think we're going to see a gangbusters recovery, especially when building starts are at multi-decade lows:

In addition, there is little reason to think consumers will be the driving force of the recovery considering the destruction in their overall wealth:

The bottom line is there isn't a driver for growth -- at least one that I can see right now.

About the Birth/Death Adjustments

There has been a great deal of debate over the last few years about the birth death adjustments in the BLS employment report. So, let's remove the BLS from the last 4 month's of data to see what the employment numbers would look like without the birthdeath adjustments.

In January there were 134,333,000 jobs and in February there were 133,652,000 jobs for a net loss of 681,000 jobs. In January the B/D adjustment was a (+)134. That means the net for February without the B/D adjustments was 815,000 lost.

In February there were 133,652,000 jobs and in March there were 133,000,000 jobs for a net loss of 652,000 jobs. In January the B/D adjustment was a (+)114. That means the net for February without the B/D adjustments was 766,000 lost.

In March there were 133,000,000 jobs and in April there were 132,496,000 jobs for a net loss of 504,000 jobs. In January the B/D adjustment was a (+)226. That means the net for February without the B/D adjustments was 730,000 lost.

In April there were 132,496,000 jobs and in May there were 132,151,000 jobs for a net loss of 345,000 jobs. In January the B/D adjustment was a (+)220. That means the net for February without the B/D adjustments was 565,000 lost.

So without the B/D model adjustments we see the following total job losses for February - May


Now, in saying the number series is getting better I am not saying "isn't it great that all those people lost those jobs! Party time! Let's get a keg!" What I am saying is the number series shows improvement. You can't turn a battleship around in a second. I would love to say we are going to wake up tomorrow and GDP growth is going to be at 3% and unemployment will be at 5.5%. It's not going to happen that way. We won't see numbers like that for at last a year and a half (and probably longer). But you have to start somewhere. And the numbers indicate that we've started on the path.

Market Mondays

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The SPYs chart is bullish. First, prices have been rising since early March. All the SMAs are moving higher, the shorter SMAs are above the longer SMAs and prices are above all the SMAs. Prices have crossed the 200 day SMA, which is a sign the market is now in bullish territory. The 10 day SMA has crossed over the 200 day SMA and the 20 day SMA is about to move through as well. The only drawback to this chart is the diminishing volume

The QQQQs are also bullish. Prices have crossed over the 200 day SMAs, as have the other, shorter SMAs. All the short SMAs are moving higher, the shorter SMAs are now above the longer SMAs and prices are above all the SMAs. As with the SPYs, the only drawback to this chart is the diminishing volume.

This is also a bullish chart. Prices have crossed over the 200 day SMA. The 10 day SMA has crossed over the 200 day SMA and the 20 day SMA is about to. The shorter SMAs are moving higher, the shorter SMAs are above the longer SMAs and prices are above all the SMAs. This is a strong looking chart.

The only problem right now is the Transports which may be forming a double top. Notice the first top has higher volume than the second. Also note prices are below the 200 day SMA, meaning they could use the SMA for technical resistance. We don't know if they will or not going forward, but that is what the chart says.