Friday, February 19, 2010

Weekly Indicators: Daily Treasury Statement edition

- by New Deal democrat

I wonder if Trim Tabs will write a report on what the Daily Treasury Statement is showing so far this month? Details below.

Monthly data showed more strong gains in industrial production, as manufacturing is indeed having a V-shaped recovery. The Empire State and Philly Fed indices were also good. Housing starts and permits were higher than expected, and are positive year over year now (another data point that pessimists won't be able to cite anymore). Producer prices increased more than expected, but consumer prices were sedate, and core prices turned negative for the first time in almost 30years, mainly due to the now-downside distortions of Owners' Equivalent Rent.

Turning to the high-frequency weekly data ....

The ICSC reported that for the week ending February 13, YoY same store sales declined -0.7%. Week over week they declined -1.6%.

Similarly, Shoppertrak reported that:
ShopperTrak’s National Retail Sales Estimate™ (NRSE) today reported that year-over-year GAFO retail sales slipped 2.4 percent for the week ending Feb. 13 while sales increased 8.8 percent versus the previous week ending Feb. 6.
The company’s data shows snowstorms across the Midwest, South and East slowed spending early last week, only to improve later as consumers dug out....
The E.I.A. reported that gas prices fell to $2.62 a gallon, the lowest in several months. Weekly gasoline usage and continues to be lower than last year, and worse, continues to decline whereas last year it was increasing. This may be a harbinger of high prices causing consumer retrenchment, or it may also just be the east coast blizzards. Oil prices closed out the week at about $80, another disheartening development.

Railfax reports that both cyclical and intermodal traffic continues to run ahead of last week in 2009, although those and also baseline traffic declined last week vs. rising last year.

The BLS reported new jobless claims of 473,000, causing some concern by among others my co-blogger Bonddad about a break in the pattern. Personally, I see no break from the longer term patter established beginning last April, although I very much want to see declines from 480,000 in the next couple of weeks.

Finally, as promised, the best has been saved for last. In a continuing surprise, and exactly as NOT promised by Trim Tabs, as of February 17, withholding taxes are running ahead of this month last year for the second week in a row: $95.8B in 2010 vs. $94.0B in 2009. There are 7 reporting days left in the month. This will be very interesting to watch....

Regarding the Discount Rate Increase ...

Yesterday -- after the markets closed -- the Federal Reserve increased the discount rate.

There are a few points that should be mentioned regarding this development.

1.) This is the rate the Fed charges banks who borrow short-term from the Fed. All the Fed is doing is putting the discount window back on normal footing. That's it. And to that end:
While borrowing by banks from the Fed’s discount window has already fallen to more historically normal levels from its peak in October 2008, many small and medium-size businesses still find it difficult to obtain loans, a major concern of the Obama administration and Congress.

Randall S. Kroszner, an economist at the Booth School of Business at the University of Chicago and a former Fed governor, said after the announcement: “This is a technical change that makes sense as a precondition for other changes, but is not a precursor of short-term change.”

And consider these points from the
WSJ's Economic Blog:

* To normalize capital markets, the Fed has to eliminate the distortions quantitative ease create and, to this end, raising the discount rate is the first of many necessary steps. The last step will be directly raising short-term markets rates, be it the Fed funds rate or the IOER [interest rate on excess reserves]. We still don’t know what will guide the Fed to do how much and when, and that is a problem. Today’s move was designed to take free arbitrage off the table rather than be any statement about the state of the economy other than that the financial system is stable enough to begin standing on its own. A stable financial system is necessary for the economy to grow but not sufficient. The minutes of the January FOMC meeting were a sober assessment of the economy giving little sense that prospects are for anything more than stable growth around 2% to 3% despite record monetary and fiscal stimulus. Given this outlook, a pace of unwind as accelerated as some FOMC members seem to want is very much unlikely. – Steve Blitz, Majestic Research

* While the increase in the discount rate came a bit earlier than we thought, it was clearly heralded by Chairman Bernanke in his testimony on February 10. … This step, in combination with the closure of most short-term liquidity programs earlier this month “is intended as a further normalization of the Fed’s lending facilities” in light of continued improvement in financial market conditions. We too would like to emphasize that the discount rate is a tool for addressing financial system stress, while the fed funds rate is a tool for addressing macroeconomic stability. … Just like easing the terms for discount window lending programs was the first response of the Fed to the crisis (in August 2007), its removal is now the first part of the exit strategy. – Harm Bandholz, UniCredit Research

2.) Ask yourself a simple question: when should a central bank raise interest rates? When there is no need to stimulate the economy. That makes this a good sign. If the Fed were worried about the pace of the recovery, they wouldn't even think about raising the discount rate. The fact they are thinking about it indicates they see the economy in a more positive light

Jobless Claims Up 31,000

There is a bit of confusion about the meaning of the number.

From Bloomberg:

Stocks and commodities dropped in immediate reaction to a much larger-than-expected level of jobless claims, at 473,000 in the Feb. 13 week vs. expectations for 440,000. There are important special factors possibly affecting the data but their effects are unknown and the Labor Department isn't offering any explanations. There was extremely heavy weather through most of the nation in the reporting week, and results from four states had to be estimated including the key states of Texas and California with holiday backlog in the latter having skewed prior reports.

In addition, there is the WSJ:

The number of workers filing new claims for jobless benefits jumped by 31,000 to 473,000 in the week ended Feb. 13, the Labor Department said Thursday. Bad weather can make it harder to calculate jobless claims, among other things making it more difficult for state agencies that collect and process the numbers to adjust for seasonality and forcing some states to simply estimate claim levels.

But Marketwatch reported:

Bad weather around much of the eastern half of nation apparently had little net impact on new claims last week. Many state employment offices were closed but most people file by phone or online. However, it's likely that some people who lost work due to the storms filed for a claim, wrote John Ryding and Conrad DeQuadros of RDQ Economics.

I'll split the difference and say there was some effect, but it will take a few weeks to shake out. That being said, here is a chart of the data:

Notice that since roughly the end of November, claims have been stuck on a weekly basis between ~450,000 and ~475,000. This is a bothersome development. Before then we saw a nice, continually moving lower number. But now the number is stuck in a range. Some of this sticking is due to technical issues. This week's number is the second time in about 6-7 weeks there has been an issue related to collection of the data. That is responsible for some of the blip we saw. However, I'd like to see the weekly number start of move lower.

Dragonchild on the logistics logjam

Hoisted from the comments yesterday, this is worthy of its own post. Dragonchild responded to my point about companies "hoarding" jobs:


To get into the "lead time" scene in a little more detail, there's a "traffic jam" effect at work. You know how it takes only a single accident to bring a freeway to a grinding halt? It only takes a shortage of ONE part to stop a production line. This is why a lot of suppliers are able to get away with stretching their lead times for now. If any resource, component or service is in short supply and the nature of it prevents it from rebounding capacity quickly, then ALL suppliers are stuck in the same situation. So if supplier A and supplier B both buy widgets and the widgets are in critically short supply because they've been cleaned out, then even if A hired more workers, there's no competitive advantage. For increased operating costs, you just use up your existing inventory faster until you're in a "line stop" situation as you wait for more parts. This is why suppliers have been able to ignore purchasers' screams of outrage; they're all in the same boat.

NDD is correct that this can't go on forever. Purchasers are notoriously cheap bastards (they're PAID to be cheap bastards), but long lead times means more capital tied up in inventory. If a part takes 30 weeks to deliver, the OEM needs to buy up 30 weeks' worth of parts. That can be an awful lot of capital when we're still recovering from a liquidity trap. Also, you lose the flexibility to adapt to changing market conditions and can get soaked. Companies hate buying a pile of parts, only to sit on them for two years because sales slowed (even if they do well overall because another product line overperformed).

The "hoarding" of jobs is indeed happening and isn't something businesses are eager to proactively reverse in a time of uncertainty, but as for why there's pressure building up, what's killing the momentum on the ground level isn't a dam of collusion so much as a logjam in logistics. As fast and flexible as our economy is touted to be, the MBAs don't know squat about logistics. You can buy and sell companies so quickly today, but industry still moves like a freight train in slow motion.

Forex Fridays

Prices are in a classic up (A), down (B) (Consolidate in a classic pennant pattern), up (C).

D.) Prices moved below the upward sloping trendline but then moved higher in response to the Fed's discount rate announcement yesterday (the price bar is actually today's future's move).

Today's Market

I was tied up in meetings yesterday -- so here's the recap of the last week:

A.) Prices dropped in the AM on Monday, but spent the rest of the day getting back to "0".

B.) Prices gapped higher on Tuesday, and then continued to move higher throughout the day.

C.) Prices again gapped higher at the open and then moved higher.

D.) Prices did not gap higher at the open, but did bump higher during trading.

E.) Throughout the week (so far, at least) prices have used the EMAs as technical support.

Thursday, February 18, 2010

More on Industrial Production

- by New Deal democrat

Spencer at Angry Bear, discussing yesterday's +0.9% increase in industrial production, produces an excellent graph comparing the increase in production since it bottomed last June with prior "minor" or "major" recessions, and calls this rebound "moderate":

Another way to look at it, however, is to remember
Lakshman Achuthan of ECRI's point that, in the long view, recoveries from recessions since WW2 have been less and less robust. Indeed, when you tally up Spencer's division of "minor" recessions(in regular type) and "major" ones (in bold), here's what you get:

So I continue to think that the best way to view this recovery in production is to compare it with the last V-shaped recovery (1983) and "jobless" recoveries (1992-3 and 2002-3). Seven months after the bottom of production, here is what they look like:

This recovery in production, unlike the two last "jobless" recoveries, is definitely V-shaped, looking very much like that of 1983.

Commenter Dragonchild has made an excellent point several times about how suppliers are stretching out deliveries rather than hiring new employees. In other words, they are "hoarding" jobs. I don't see how it can go on much longer. If there are 10 vendors in a market, surely 1 or 2 are going to figure out that they can grab market share this year by hiring at least new temporary workers and promising shorter delivery times. Once that happens, the other vendors almost have to match them, and the dam breaks.

So while this recovery has been "jobless" so far, because payrolls ex-November haven't been positive, that doesn't necessarily mean there isn't going to be a delayed V.

Thursday Oil Market Round-Up

First, let's start with a general "you are here" observation. Since the end of last summer, prices have been moving between ~34 and 41. In essence, prices are moving more sideways than up and/or down.

Here's a closer look at the last 6 months. The main point is prices are moving between two points.

Note the similarities and the differences between points A and B. First, note the nearly mirror image of the EMAs. However, with point B prices are moving more to the right/sideways than up.

Wednesday, February 17, 2010

Today's Market

Yesterday, I noted the primary issue for the market was that prices had moved through the 10 and 20 day EMA, but ran into upside resistance at the 50 day EMA. All of this occurred at point A. Now at (B), we have prices above all the EMA, but forming a spinning top which is considered to be a bearish pattern but in fact doesn't perform like that ">as often as though.

A few more points. The first is to note the importance of looking at the performance of all industries. Here is a chart of the micro-caps:

Note this average -- which represents risk appetite -- broke above the EMAs day before yesterday. This was a prelude to yesterday's move. Also note

The DIAs moved higher yesterday (as in through the 50 day EMA) as well.

Industrial Production Increases (again)

From the Federal Reserve:

Industrial production increased 0.9 percent in January following a gain of 0.7 percent in December. Manufacturing production rose 1.0 percent in January, with increases for most of its major components, while the indexes for both utilities and mining advanced 0.7 percent. At 101.1 percent of its 2002 average, output in January was 0.9 percent above its year-earlier level. The capacity utilization rate for total industry rose 0.7 percentage point to 72.6 percent, a rate 8.0 percentage points below its average from 1972 to 2009.

Let's take a look at the data:

Click for a larger image

Note that overall production and capacity utilization has increased 6 straight months. Also note that last month all industries increased overall production and capacity utilization.

Also note that -- with the exception of construction -- we've had a majority of months show an increase for both overall production and capacity utilization for all industry groups and market groups. In short, the above chart is clear: things are getting better.

Above is a chart of overall industrial production. Note how it graphically shows how the number is improving.

Click for a larger image

Finally, note that capacity utilization is increasing as well.

Housing Starts Increase 2.8%

From the Census:

Privately-owned housing starts in January were at a seasonally adjusted annual rate of 591,000. This is 2.8 percent (±11.5%)* above the revised December estimate of 575,000 and is 21.1 percent (±12.3%) above the January 2009 rate of 488,000.

Let's go to a chart of the data:

I think the real statement about housing starts is they have stabilized at low levels.

FOMC Minutes

Yesterday, the Fed released the minutes from the January 26th meeting. Let's take a look at their assessment of the economic situation:

Some indicators suggested that the deterioration in the labor market was abating. The pace of job losses continued to moderate: The three-month change in private nonfarm payrolls had become progressively less negative since early 2009; that pattern was widespread across industries. The unemployment rate was essentially unchanged from October through December. The labor force participation rate, however, had declined steeply since the spring, likely reflecting, at least in part, adverse labor market conditions. Moreover, hiring remained weak, the total number of individuals receiving unemployment insurance--including extended and emergency benefits--continued to climb, the average length of ongoing unemployment spells rose steeply, and joblessness became increasingly concentrated among the long-term unemployed.

Here are some charts of the relevant data.

The 4-week moving average of initial unemployment claims continues to drop. Note the pace of the decline is on par with rate of decline after the early 80's recession.

It appears the unemployment rate has topped out.

And, the total pace of job losses continues to moderate.

Total industrial production (IP) rose in December, the sixth consecutive increase since its trough. The gain in December primarily resulted from a jump in output at electric and natural gas utilities caused by unseasonably cold weather. Manufacturing IP edged down after large and widespread gains in November. For the fourth quarter as a whole, the solid increase in manufacturing IP reflected a recovery in motor vehicle output, rising export demand, and a slower pace of business inventory liquidation. Output of consumer goods, business equipment, and materials all rose in the fourth quarter, though the average monthly gains in these categories were a little smaller than in the third quarter. The available near-term indicators of production suggested that IP would increase further in coming months.

We looked at IP yesterday, as the Fed just released it's latest report. Suffice it to say the latest reading added another month of positive economic data.

Consumer spending continued to trend up late last year but remained well below its pre-recession level. After a strong increase in November, real personal consumption expenditures appeared to drop back some in December. Retail sales may have been held down by unusually bad weather, but purchases of new light motor vehicles continued to increase. The fundamental determinants of household spending--including real disposable income and wealth--strengthened modestly, on balance, near the end of the year but were still relatively weak. Despite the improvement from early last year, measures of consumer sentiment remained low relative to historical norms, and terms and standards on consumer loans, particularly credit card loans, stayed very tight.

While real (inflation-adjusted) retail sales have bottomed without a real increase

Real personal consumption expenditures (Real PCEs) are up since bottoming at the beginning of the year. Also note the upward pace continues.

The recovery in the housing market slowed in the second half of 2009, even though a number of factors supported housing demand. Interest rates for conforming 30-year fixed-rate mortgages remained historically low. In addition, the Reuters/University of Michigan Surveys of Consumers reported that the number of respondents who expected house prices to increase continued to exceed the number who expected prices to decrease. Sales of existing single-family homes rose strongly from July to November but fell in December, a pattern that suggested sales were pulled ahead in anticipation of the originally scheduled expiration of the first-time homebuyer credit on November 30. Still, existing home sales remained above their level in earlier quarters. Sales of new homes also turned down in November and December, retracing part of their recovery earlier in the year. Similarly, starts of single-family homes retreated a little from June to December after advancing briskly last spring. The pace of construction was slow enough that even the modest pace of new home sales was sufficient to further reduce the overhang of unsold new single-family houses.

Let's look at the data. All the charts below are from Calculated Risk -- who still has the best real estate charts on the web. We'll start with new homes:

The pace of new home sales is still at the bottom. It rebounded a bit, but in reality the best way to describe the current pace of new home sales is "bumping along the bottom."

The good news is the months of supply is now in line with the top part of the range for historical norms, and

the total amount of homes on the market is now at the low end of historical norms. In other words, the excess inventory of new homes inventory has been worked off.

Let's move to the existing home market:

Existing home sales took a big dive last month, which was largely attributed to the confusion about the new home buyer's tax credit status.

The total inventory of existing homes continues to move lower, but is still at high levels compared to the historical norm. In addition,

The number of months it would take to clear the existing inventory at the present sales pace is still above the historical norm as well.

So, we have a new home sales market that is healing and an existing home sales market that is in the process of healing but still has a ways to go.

Real spending on equipment and software apparently rose robustly in the fourth quarter following a slight increase in the previous quarter. Spending on high-tech equipment, in particular, appeared to increase at a considerably more rapid clip in the fourth quarter than in the third; both orders and shipments of high-tech equipment rose markedly, on net, in October and November. Business purchases of motor vehicles likely also climbed in the fourth quarter. Outside of the transportation and high-tech sectors, business outlays on equipment and software appeared to change little in the fourth quarter. Conditions in the nonresidential construction sector generally remained poor. Real spending on structures outside of the drilling and mining sector dropped in the third quarter; data on nominal expenditures through November pointed to an even faster rate of decline in the fourth quarter. The pace of real business inventory liquidation appeared to decrease considerably in the fourth quarter. After three quarters of sizable declines, real nonfarm inventories shrank at a more modest pace in October, and book-value data for this category suggested that inventories may have increased in real terms in November. Available data suggested that the change in inventory investment—including a sizable accumulation in wholesale stocks of farm products—made an appreciable contribution to the increase in real gross domestic product (GDP) in the fourth quarter.

Spending on equipment and software appears to have turned the corner, but

Non-residential fixed investment is still bouncing along the bottom. In addition,

Total inventories appear to have bottomed, but are still waiting for a big move higher. In addition,

The inventory to sales ratio is at low levels, indicating business has cut inventories to the bone. The question now is "can business continue cutting inventories, or will they be forced to start adding inventory?"

Consumer price inflation was modest in December after being boosted in the preceding two months by increases in energy prices. Core consumer price inflation remained subdued. Price increases for non-energy services slowed early last year and remained modest throughout 2009, reflecting declining prices for housing services and perhaps the deceleration in labor costs. Price increases for core goods were quite modest during the second half of 2009. According to survey results, households' expectations of near-term inflation increased in January; in addition, median longer-term inflation expectations edged up, though they remained near the lower end of the narrow range that has prevailed over the past few years.

Inflation isn't an issue. Consider these charts:

CPI is increasing again, but hardly at a rate that could be considered scary.

We see the same pattern with PPI. We want a little inflation as that indicates somewhere in the system we have either enough demand pull or cost push inflation to keep the economy moving forward.

The U.S. international trade deficit widened in November, as a sharp rise in nominal imports outpaced an increase in exports. The rise in exports was driven primarily by a large gain in agricultural exports, which was partially offset by a decline in exports of consumer goods that followed robust growth in October. Imports of oil accounted for roughly one-third of the increase in total imports, though most other categories of imports also recorded gains.

There's good news and bad news with the above number. The bad news is the US is still a net importer, which subtracts from overall GDP growth. Here is the chart:

The chart shows the overall trade balance is again moving in the wrong direction. However,

Net exports are increasing. This is good news as it will add some upward pressure to the jobs picture.

Impact of Stimulus Spending This Year

On August 31, I wrote an article titled the Fits and Starts Expansion. In that article, I noted the effect of the stimulus package:

So, between actual spending and tax reductions, 2010 should see the direct impact of roughly $350 billion ($225 in spending and $131 in tax reduction). The real issue here is the multiplier effect -- how much of a larger effect will the spending have. Frankly, we won't know until the money is spent. But next year we'll see the ripple effect of the combination of tax cuts and spending. This will help growth.

Today the WSJ has an article on the effect of stimulus spending:

Proponents of the stimulus program focused attention on infrastructure projects during the fight to win approval for it last year. But the bulk of the money proposed for projects like new rail lines and water projects—about $180 billion in all—is likely to be spent this year at the earliest. During year one of the stimulus, only about $20 billion of money was handed out for infrastructure projects.

"I think we'll see a lot more stimulus money get into actual contracts and actual hiring in 2010 than we did in 2009," said Kenneth Simonson, chief economist of the Associated General Contractors of America.

The ramped-up stimulus spending in 2010 will contribute 1.4 percentage points to gross domestic product growth this year, said Brian Bethune, chief U.S. financial economist for IHS Global Insight.

I have no idea as to the actual numerical effect on GDP. However, we're going to see some growth from it.

The Shape of What's to Come?

From my local newspaper, Page 1 above the fold:

Teachers Reopen Contract, Vote to Reduce Raises

In a move heralded by [the Board of Ed president] as "unprecedented and historic," the teachers union voted to reopen its contract and take a reduction in its previously negotiated salary increases for the next two years.

The union negotiated in 2007 for minimum 3.25 percent and maximum 4.25 percent salary increases for the years 2010-11 and 2011-12. That contract was to expire June 30, 2012. But with Tuesday's [Feb 9] vote by the union, teachers reopened the contract and agreed on a scheduled salary growth decrease of 1 percentage point in 2010-11 and an added 1 percent in 2011-12. Their terms save the district $624,000 this year and a total of $1,286,000 next year: a total over the two years of $1,910,000. The memorandum of understanding extends the contract one extra year, giving the teachers a 2 percent salary increase for 2012-13 at no added cost to the district. The agreement also ensures no teacher layoffs.

The article continues as a love-festy, kumbaya-like, group hug between the district's administration and the union. Whether or not that's an accurate portrayal of what went on behind closed doors, who knows and, frankly, who cares? That said, I think one of the smartest ways forward is for both sides of the labor equation to acknowledge and accept the fact that they need each other and need to work together to manage what is an ongoing crisis at the state and local levels. Balance sheets -- federal, state, local and household -- are going to continue shrinking, and this type of cooperative spirit is likely going to be a necessary ingredient in helping the country manage through it. I applaud both sides for their willingness to negotiate in good faith and make the necessary concessions. Hopefully this spirit will prevail elsewhere and similar agreements might be struck; I think we'd all find the alternatives rather unsavory.

P.S. Far be it for me to proselytize, but get involved if you can -- attend local town board or school board meetings. Review budget proposals. Ask questions. Make suggestions. And, if you're so inclined, run for elected office.

P.P.S. This is deflationary.

Wednesday Commodities Round-Up

Consider the two breakouts highlighted on the chart. Both came after standard consolidations.

A.) After a triangle consolidation, prices formed a strong candle on increased volume. This is a great looking breakout and should have attracted a lot of attention.

B.) This breakout was less then spectacular and the volume was weaker. That doesn't mean it isn't a legitimate breakout. It does mean it's more suspicious.

A.) Note the break-out is really a spinning top -- a weak candle. Also note the lack of volume. This is note a great looking break-out.

A.) The EMA picture is jumbled. Prices are above the EMAs, both all three are in a tight range with the shorter EMAs below the longer.

B.) The MACD has given a buy signal and

C.) Money is flowing into the security.

Tuesday, February 16, 2010

Today's Market

A.) Prices have been in a downward trajectory for the last ~month

B.) Prices tried to rally, but found upside resistance at the 10 day EMA.

C.) Prices again tried to rally, but found resistance at the 10 day EMA.

D.) Today, prices broke through the 10 and 20 day EMA and found resistance at the 50 day EMA.

Companies are Pulling Bond Sales

From Bloomberg:

Companies are pulling bond sales at the fastest pace since the credit markets seized up 2 1/2 years ago on concern that the inability of European governments to trim their budget deficits will threaten a global recovery.

At least 16 borrowers including Montreal-based airplane maker Bombardier Inc. and Italian betting company Snai SpA have postponed or withdrawn $7.3 billion of debt sales over the past month, according to data compiled by Bloomberg. That’s the most since more than 50 were canceled in the months after financial markets began to freeze in July 2007.

The extra yield investors demand to hold high-risk company bonds rather than the safest government debt has jumped almost 1 percentage point since Jan. 11, the biggest increase since March, according to Bank of America Merrill Lynch’s Global High- Yield Index. European finance ministers are meeting in Brussels amid mounting pressure to explain what steps they’ll take to help Greece reduce its swelling fiscal shortfall.

“Investors are concerned about Greece and the broader economy much more than they were a couple of months back,” said Jonathan Moore, an analyst at Evolution Securities Ltd. in London. “They understandably want to charge more, and most companies aren’t willing to pay that price.”

The reason companies are pulling sales from the market is simple: they don't want to pay higher interest rates for bonds they sell. In addition, there is concern that the Greek situation will bleed into the economy at large causing a slowdown -- that is, that the Greek situation will be the precipitating event of another recession. No one wants to go into debt before a recession.

Let's take a look at some charts from the corporate market to see how severe the damage is.

A.) Prices rebounded after the massive sell-off caused by the financial crisis.

B.) Prices have consolidated in their upward trajectory.

Note there has been an increase in volume over the last few months. However -- so far -- prices are holding right at technical support

I should add, considering JNKs massive rally last year, a sell-off that lasts a few months could also be seen as a healthy dose of profit taking. That being said, the Fibonacci levels for a sell-off are in this chart:

The LQDs - the investment grade corporate bond ETF -- has the same pattern and the JNKs:

A.) Prices rebounded from extremely oversold levels and

B.) Are currently consolidating.

However -- unlike the JNKs -- there isn't a mass exodus in the form of volume leaving the security. In other words, the sell-off is occurring in the higher yielding/higher risk areas of the market.

Empire State Increases

From the NY Federal Reserve:

The Empire State Manufacturing Survey indicates that conditions for New York manufacturers improved at a healthy pace in February. The general business conditions index climbed 9 points, to 24.9. The new orders index fell, though it remained positive, and the shipments index inched downward as well. The inventories index rose sharply, to 0.0, its highest reading in considerably more than a year. The prices paid index was little changed from its high level last month, and the prices received index remained just above zero for a second consecutive month. Employment indexes were positive for a second consecutive month, although at relatively low levels. Future indexes continued to show a high level of optimism about the six-month outlook.

Business activity improved for a seventh consecutive month in February, and at a relatively rapid pace. The general business conditions index rose 9 points to 24.9, with 42 percent of respondents reporting that conditions had improved over the month, and 17 percent reporting that conditions had worsened. Although the new orders index fell 12 points, it remained positive, at 8.8. The shipments index also fell, from 21.1 to 15.1, while the unfilled orders index held steady at 2.8. The delivery time index retreated to -6.9. The inventories index rose sharply, to 0.0, its highest reading in well over a year, with more than a quarter of respondents reporting rising inventory levels over the month.


Employment indexes remained just above zero. The index for number of employees was 5.6, with 21 percent of respondents reporting increased staffing levels and 15 percent reporting reduced levels.


Future indexes suggested that manufacturers in New York State were expecting conditions to improve further in the months ahead. The future general business conditions index was slightly lower than last month, but remained at a relatively high level of 52.8, with 60 percent of respondents expecting conditions to improve over the next six months.

Here is a chart of the data:

Note the overall number is well withing the range associated with an economic expansion.

The regional manufacturing reports were some of the original economic numbers that caught my eye and got me thinking the economy was turning around.

Treasury Tuesdays

Note that the IEFs (the 7-10 year Treasury Bond market) rose to the 50% Fibonacci retracement level before hitting upside resistance.

A.) Note the EMA picture is very confused. All the shorter EMAs are in a tight bunch with no clear direction - none. While prices are below the 200 day EMA, they have been moving around it without making a firm move in one direction or the other.

Monday, February 15, 2010

Bonddad's Job Prediction ...

On August 22, I wrote the following:

Now -- that leads to the final question: when will the jobs come back? In order for that to happen we need to see at least one quarter of a positive GDP and probably two. That means the soonest we can expect a drop in the unemployment rate would be the a few months from now and that is only under the rosiest of scenarios. The most likely possibility is it won't be until the end of the first quarter of next year before we start to see a ticking down (and that assumes a stronger rate of growth than I think is going to happen).

Now, the overall growth rate of the US economy has surprised me. The fourth quarter's number was great. I have been expecting -- and am on the record as thinking -- US growth will be in the 1%-2% range for this expansion.

However, we had some job growth in November followed by contraction in December and a neutral reading in January.

Japan Grows 4.6%

From the WSJ:

The gloom is lifting a bit from the Japanese economy, as sharp growth from China and other Asian neighbors is lifting exports and spurring more capital spending by the nation's manufacturers.

While the spotlight in recent weeks has been on the travails of two corporate icons—quality problems at Toyota Motor Corp. and the bankruptcy of Japan Airlines Corp.—profits for most Japanese companies surged at the end of 2009, while the economy grew faster than a 4% annualized pace for the three months ended Dec. 31.

Significant problems still hang over the world's second-largest economy—a distinction Japan retained by expanding just enough to stay bigger than China, at least through the end of last year. Economic growth was elevated by government stimulus spending that is slated soon to expire, and will be hard to extend, given the country's huge public debt. Profit growth came off a low base, and was largely the result of cost-cutting, as revenues continued to fall amid persistent deflation.


Japan's 4.6% annualized growth rate for the fourth quarter—announced by the government Monday morning—follows robust growth reports for the same period from the U.S., which notched 5.7% expansion over the previous quarter, and China, which had 10.7% growth. Europe has, for now at least, replaced Japan as the central drag on global growth among the world's leading economies, reporting last week growth of just 0.4% for the period.

Separately, Monday, Daiwa Capital Markets released a survey summarizing the results of the recent earnings period, showing that, on average, the 300 major Tokyo-listed companies reported a 217.1% increase in pretax profits during the October-December quarter.


But with last year's 12-trillion-yen stimulus plan ending soon and being replaced by more modest measures, consumer spending is expected to fade. "The pace of the growth is expected to become slower early this year, as areas like consumption are largely supported by government policy," said Mari Iwashita, chief market economist Nikko Cordial Securities.

Japan is in a similar situation to the US. They've had some good growth that has been created by government stimulus. However, the question is will that growth continue as the stimulus fades? We won't know until the figures come out. However, the market is cautious. Consider this chart:

We can break the Japanese market's chart down into two areas. The first is (A), which is essentially a technical rebound from the extremely oversold conditions following the crash. However, since that time the market has stalled, waiting for confirmation from the economic numbers. The upward sloping channel (B) tells us that traders are in a clear wait and see posture.

Market Mondays

A.) Prices rose to the 61.8% Fibonacci level, found upside resistance and

B.) Retreated to the 50% Fibonacci line

A.) Diagonal line A is still holding as upside support, although prices did move briefly through the trend line.

Lines B and C are the most important support lines on the chart right now.

D.) The EMA picture is bearish. The shorter EMAs are below the longer EMAs, all the EMAs (save the 10 day EMA which has currently moved higher) are moving lower and prices are below the EMAs. However, a move through the 10 day EMA would be a positive development.