Saturday, November 24, 2012

Weekly Indicators: Thanksgiving recovery from Sandy edition

  - by New Deal democrat

The limited October data released this past week was mainly housing and it was positive, including existing home sales and housing starts. Permits declined slightly from their 4 year high the month before. Consumter sentiment also declined slightly from its multi-year high. The Leading Economic Indicators rose 0.2, continuing the generally slow advance this year.

The impact of Hurricane Sandy on most of the high frequency weekly indicators is abating, although there is still an effect on some of them such as initial jobless claims.

Same Store Sales and Gallup consumer spending returned to weakly positive across the board:

The ICSC reported that same store sales for the week ending Novmeber 16 fell -0,3%w/w and were up +2.5% YoY.  Johnson Redbook reported a typically weak 1,8% YoY gain. Johnson Redbook has consistently been lower than the other series for consumer spending. The 14 day average of Gallup daily consumer spending as of November 21 was $69, compared with $68 last year for this period. This is Gallup's first positive YoY week since Sandy.

Bond yields were mixed and credit spreads reamined close to their recent lows:

Weekly BAA commercial bond yields increased +0.01% this week to 4.47%. Yields on 10 year treasury bonds fell -0.09%to 1.59%   The credit spread between the two increased by 0.10% to 2.88. Spreads have increased in the last few weeks, but are still closer to their 52 week low.

Housing reports were again generally positive, reflecting the continued rebound in this sector:

The Mortgage Bankers' Association reported that the seasonally adjusted Purchase Index declined -2.2% from the prior week, and is also down -6% YoY (last year at this time they were at a 2 year high). These remain in the upper part of their 2+ year range. The Refinance Index also declined -3% for the week, but this is still near its recent multi-year highs.

The Federal Reserve Bank's weekly H8 report of real estate loans this week fell 15 w/w to 3539. The YoY comparison decreased to +1.2%, and is 1.9% above its bottom.

YoY weekly median asking house prices from 54 metropolitan areas at Housing Tracker  increased +2.2% from a year ago.  YoY asking prices have been positive for over 11 months.

Money supply remains generally positive:

M1 declined -0.9% for the week, but increased +1.2% month over month.  Its YoY growth rate declined slightly to +13.3%. Real M1 also declined to +11.1% YoY. M2 was up +0.4% for the week, and was up 0.8% month over month.  Its YoY growth rate increased slightly to 7.5%, so Real M2 remained steady at 5.3%. The growth rate for real money supply remains quite positive.

Employment related indicators were mixed, mainly due to Sandy:

The Department of Labor reported that Initial jobless claims fell from 438,000 to 410,000. The four week average rose by 13,000 to 396,250. If this follows a similar pattern to that of Hurricane Katrina, by next week we should be back near a normal reading in the weekly number.

The American Staffing Association Index was again level at 95, the same level at which has been for over 2 months. The sieways trend in this index remains similar to last year.

The Daily Treasury Statement showed that for the first 14 days of November, $104.9 B was collected vs. $99.1 B a year ago, a $5.8 B increase. For the last 20 days ending on Wednesday, $142.4 B was collected vs. $136.0 B for the comparable period in 2011, an increase of $6.4 B or +4.7%. Tax collections continue to run very well.

Rail traffic remained negative YoY, but still due to coal, while the diffusion index rose again:

The American Association of Railroads  reported that total rail traffic was down -7,000 carloads YoY, or -1.3%.  This is another improvement over the last few weeks. Non-intermodal rail carloads were again off a large -4.3% YoY or -12,900, once again entirely due to coal hauling. Excluding coal. Negative comparisons increased again to 11.  Intermodal traffic was up 5900 or +2.4% YoY.

Finally, the price of oil rose slightly again while gasoline fell, but gasoline usage was positive:

Gasoline prices fell another $.02 last week to $3.43. This is still higher than last year at this time. Oil prices per barrel increased from $87 to $88.28. Surpirsingly, Gasoline usage was actually UP for one week at 8908 M gallons vs. 8898 M a year ago, or +0.1%. The 4 week average at 8739 M vs. 8602 M one year ago, was also up again, +2.2% YoY.

Turning now to the high frequency indicators for the global economy:

The TED spread declined towards its 52 week low, down to 0.22. The one month LIBOR  rose slightly off its 52 week low of 0.2075, up to 0.2085. Both are well below their 2010 peaks.

The Baltic Dry Index rose from 1036 to 1090. The longer term declining trend in shipping rates for the last 3 years remains. The Harpex Shipping Index fell 3 to a new 52 week low of 364.

Finally, the JoC ECRI industrial commodities index rose from 120.04 to 120.13. It was again slightly positive YoY.

The weekly data is rebounding from Hurricane Sandy's influence. Housing is now a consistent positive. Bonds, money supply, and bank rates also continue positive. Rail loads are positive ex-coal, negative including coal. Gas prices are helpful. Consumer spending has returned to slightly positive. Tax withholding is positive. Only credit spreads were a negative this week. Initial jobless claims are still due to Sandy, but should be more normal next week. Given the positive if muted tone, all things considered we can give thanks.

Have a nice weekend.

Thursday, November 22, 2012

Liveblogging World War 2: FDR's 1942 Thanksgiving Day proclamation

- by New Deal democrat


With a tip of the hat to Prof. Brad DeLong's "Liveblogging World War 2" ...


"It is a good thing to give thanks unto the Lord."

Across the uncertain ways of space and time our hearts echo those words, for the days are with us again when, at the gathering of the harvest, we solemnly express our dependence upon Almighty God.

The final months of this year, now almost spent, find our Republic and the nations joined with it waging a battle on many fronts for the preservation of liberty.

In giving thanks for the greatest harvest in the history of our nation, we who plant and reap can well resolve that in the year to come we will do all in our power to pass that milestone; for by our labors in the fields we can share some part of the sacrifice with our brothers and sons who wear the uniform of the United States.

It is fitting that we recall now the reverent words of George Washington, "Almighty God, we make our earnest prayer that Thou wilt keep the United States in Thy holy protection," and that every American in his own way lift his voice to Heaven.

I recommend that all of us bear in mind this great Psalm:

The Lord is my shepherd; I shall not want.
He maketh me to lie down in green pastures; he leadeth me beside the still waters. He restoreth my soul; he leadeth me I the paths of righteousness for his name’s sake
. Yea, though I walk through the valley of the shadow of death, I will fear no evil; for thou art with me; thy rod and thy staff they comfort me.
Thou preparest a table before me in the presence of mine enemies; thou annointest my head with oil; my cup runneth over.
Surely goodness and mercy shall follow me all the days of my life; and I will dwell in the house of the Lord for ever.

Inspired with faith and courage by these words, let us turn again to the work that confronts us in this time of national emergency : in the armed services and the merchant marine; in factories and offices; on farms and in the mines; on highways, railways and airways; in other places of public service to the Nation; and in our homes.

NOW, THEREFORE, I, FRANKLIN D. ROOSEVELT, President of the United States of America, do hereby invite the attention of the people to the joint resolution of Congress approved December 26, 1941, which designates the fourth Thursday in November of each year as thanksgiving Day’ and I request that both Thanksgiving Day, November 26, 1942, and New Year’s Day, January 1, 1943, be observed in prayer, publicly and privately.

IN WITNESS WHEREOF, I have hereunto set my hand and caused the seal of the United States of America to be affixed.

DONE at the City of Washington this eleventh day of November, in the year of our Lord nineteen hundred and forty-two, and of the Independence of the United States of America the one hundred and sixty-seventh.


* "Freedom from Want", Norman Rockwell, 1943

Wednesday, November 21, 2012

Happy Thanksgiving

My Dad gets in later today, so I'm booked with family events through the weekend.  NDD is off as well but will have something up tomorrow.  We'll both be back on Monday.

Have a good holiday.

Until then, enjoy some muppets:

The Economic Impact of Global Warming

The World Bank has issued a devastating report on the impacts of global warming.  The executive summary alone is enough to illustrate the depth of the problem.

Here is a brief summation from the executive summary:

The 4°C scenarios are devastating: the inundation of coastal cities; increasing risks for food production potentially leading to higher malnutrition rates; many dry regions becoming dryer, wet regions wetter; unprecedented heat waves in many regions, especially in the tropics; substantially exacerbated water scarcity in many regions; increased frequency of high-intensity tropical cyclones; and irreversible loss of biodiversity, including coral reef systems.

And most importantly, a 4°C world is so different from the current one that it comes with high uncertainty and new risks that threaten our ability to anticipate and plan for future adaptation needs.

The lack of action on climate change not only risks putting prosperity out of reach of millions of people in the developing world, it threatens to roll back decades of sustainable development.

It is clear that we already know a great deal about the threat before us. The science is unequivocal that humans are the cause of global warming, and major changes are already being observed: global mean warming is 0.8°C above pre industrial levels; oceans have warmed by 0.09°C since the 1950s and are acidifying; sea levels rose by about 20 cm since pre-industrial times and are now rising at 3.2 cm per decade; an exceptional number of extreme heat waves occurred in the last decade; major food crop growing areas are increasingly affected by drought.

Despite the global community’s best intentions to keep global warming below a 2°C increase above pre-industrial climate, higher levels of warming are increasingly likely. Scientists agree that countries’ current United Nations Framework Convention on Climate Change emission pledges and commitments would most likely result in 3.5 to 4°C warming. And the longer those pledges remain unmet, the more likely a 4°C world becomes.

Data and evidence drive the work of the World Bank Group. Science reports, including those produced by the Intergovernmental Panel on Climate Change, informed our decision to ramp up work on these issues, leading to, a World Development Report on climate change designed to improve our understanding of the implications of a warming planet; a Strategic Framework on Development and Climate Change, and a report on Inclusive Green Growth. The World Bank is a leading advocate for ambitious action on climate change, not only because it is a moral imperative, but because it makes good economic sense.

Morning Market Analysis

Let's start by looking at the BRICs' long term charts.  I looked at the Brazilian long-term chart yesterday

The Chinese market broke out of its consolidation pattern about a month an a half ago, but has since fallen back to trading within the range.  Prices are now right at the 200 week EMA and the remaining EMAs are trading in a tight pattern around the 200 week EMA.

Both the Indian market (top chart) and Russian marker (bottom chart) are trading in a sideways consolidation pattern at the bottom of multi-year charts.  Both are also below their respective 200 week EMAs.

The charts above (and yesterday's Brazilian chart) show that the previous primary drivers of the world economy are not in a position to do so now.  China is changing the composition of its economy by making it less export dependent.  This is leading in part to the slow down in Brazil.  Russian is heavily dependent on raw material exports and India has a big problem with its government structure.

After spiking in the spring, the grains complex has been slowly moving lower.  Prices are now trading at the 50 week EMA at price levels established in early 2011. 

The daily chart shows this in more detail.  Prices spiked in the early summer as the effect of the US drought started to become apparent.  Prices have been drifting lower and are now trading at the 200 day EMA.  Also note the negative MACD and CMF reading.

Tuesday, November 20, 2012

Bonddad Linkfest

  1. Conservatives assert themselves in GOP fight (WaPo)
  2. Fixing loopholes alone won't cure fiscal cliff (Poitico)
  3. Markets shrug off French downgrade for now (Marketwatch)
  4. Homebuilder sentiment hits 6-year peak (Marketwatch)
  5. Foreclosures drop 19% YOY (Marketwatch)
  6. BOJ policy statement (BOJ)
  7. The end of the equity cult (FT)
  8. US pension plans unrealistic targets (FT)

Something Else to Think About

From Barry over at the Big Picture -- What Else is Driving the Markets?
1) Earnings are the weakest in 3 years
2) Portfolios have been poorly positioned for higher Capital Gains and Dividend taxes
3) Europe crisis unresolved, and getting worse
4) The 17% rally in first 3 quarters had markets ahead of themselves
5) The decreasing impact of Federal Reserve QE.
Let me add a few more points.

1.) We're entering the last month of the year when trading desks are half full and people are taking more time off.

2.) The Middle East is a powder keg.  Even if we get a resolution to the current Israeli/Palestinian conflict, there is Iran.

3.) Japan is in the middle of another recession.

4.) China's economy is re-balancing, leading to slower growth.

5.) Australia's economy, which is heavily resource dependent, will start to experience a slowdown in the next 12-18 months as projected capital projects come to fruition and no other source of growth is in the wings.

6.) The US is still stuck in the 0%-2% growth range.

7.) Long-term unemployment is still a big problem

8.) State and local governments are still implementing their own version of austerity on the US economy.

9.) The South Korean Economy is slowing down

10.) Brazil is experiencing slow growth.

Australian and Canadian Dollars Are Now Officially Reserve Currencies

From Marketwatch:

The Australian and Canadian dollars, the world’s leading commodity-rich currencies, are being formally classified as official reserve assets by the International Monetary Fund, marking the onset of a multi-currency reserve system and a new era in world money. 

In a seemingly innocuous yet highly portentous move, the IMF is asking member countries from next year to include the Australian AUDUSD +0.6277%  and Canadian dollars USDCAD -0.4432%  in statistics supplied by reserve-holding nations on the make-up of their central banks’ foreign exchange reserves. The technical-sounding measure, reflecting growing diversification of the world’s $10.5 trillion of reserves, is likely over time to exert wide-ranging impact on world bond and equity markets. 

Expanding by two the list of officially recognized reserve assets from the present five — the dollar, euro, sterling, yen and Swiss franc — signals a new phase in the development of reserve money. For most of the past 150 years, the world has had just two reserve currencies, with sterling in the lead until the First World War, and the dollar taking over as the prime asset during the past 100 years. 

Morning Market Analysis

Both the Italian (top chart) and French (bottom chart) market moved through month long downside resistance yesterday.  The Italian market did so on very strong volume.  In contrast, the French market's volume is a bit uninspiring.  Both are also at to near the 200 day EMA, making the move that much more important.   The key to yesterday's moves is today's follow-through.

Oil had a strong move through resistance yesterday.  Over the last week and a half, prices have moved though the 10, 20 and 50 day EMA, while also getting a buy signal from the MACD.  The next logical price target on this chart is the 200 day EMA level.

The weekly chart of the Brazilian market shows an incredibly weak technical picture.  Prices have broken through a nine month trend line after approaching a Fibonacci fan.  In addition, the MACD and RSI are showing weakness.

The industrial metals market continues its bottoming process.  After a sharp fall in October, prices bottomed at the 18 price level for about a month.  Now prices are moving higher and yesterday, they moved through key resistance. 

Monday, November 19, 2012

Bonddad Linkfest

  1. The Republicans future really isn't that bad (WaPo)
  2. Republicans at a crossroads (Politico)
  3. Harden US infrastructure before it's too late (Politico)
  4. Is Rush Limbaugh's America Gone (NYT)
  5. Yen bears see vindication (BB)
  6. Bespoke's sector snapshot (Bespoke)
  7. S&P is the cheapest since Reagan (BB)
  8. Two types of currency intervention (The Money Illusion)
  9. Tax reform won't do much for growth (Wonkblog)

The US' Infrastructure Is Still In Terrible Shape

Every so often, I like to return to this topic: the rotten state of the US' infrastructure.  I realize it's old news and no one in Washington really cares, but the US does need serious work in this area.

Europeans visiting the Northeastern United States – and many parts of the East Coast — can show their children what Europe’s infrastructure looked like during the 1960s.


Malte Lehming, opinion-page editor of the Berlin newspaper Tagesspiegel, noted in his essay “Welcome to America. Take a Number” in The New York Times:
I spent half a day hunting for a store with flashlights in stock, because a storm had knocked out our power. In five decades in Germany I have never experienced a single power failure, because the power lines are usually underground and well maintained.
Imagine that – life without power failures! In much of the Northeastern United States – and perhaps in many other parts of the country as well – lengthy power disruptions are part of the American way of life. In Princeton, they occur somewhere in the township after almost every thunderstorm or snowstorm, as branches snap from trees and take down vulnerable power lines.

Last fall, for example, after a brief storm dumped wet snow on trees, many parts of New Jersey, Princeton included, were without power for about a week. Parts of Connecticut were without power for more than two weeks.

The EU's Recession In Ugly Pictures

Consider the following charts of economic activity from the Euro area:

Courtesy of Dr. Ed, we see that overall EU industrial production hasn't recovered to its pre-recession levels with the exception of Germany.  Most troubling is France, as it is the second largest economy in the Union and is in danger of slipping further into negative territory.

And consider these two charts from the latest Markit Manufacturing survey.  The top chart shows that overall manufacturing in the EU area has been contracting for over a year.  The bottom chart shows that this problem is widespread, with most countries save Ireland below a reading of 50, indicating expansion.

Overall GDP growth has been weak for six consecutive quarters.  We see two straight quarters of slight contraction (the textbook definition of recession).  In addition, save for the zero print three quarters ago, the region would have seen six straight months of contraction.

Year over year retail sales have been negative for the last two years.

Above is a chart of retail sales for both the EU core and overall EU 27.  Note that neither total has rebounded to pre-recession levels.  The only element keeping these figures from collapsing is the steady performance of the EU 27, which are simply moving sideways.

The top chart shows that overall IP has been declining since 3Q22.  The lower chart shows the YOY rate of decline in both the core and periphery group has been sharp for the last six months.

And the unemployment rate continues to inch higher.

The above charts paint a very disturbing picture: the EU is in a recession and is currently showing no clear path out.

Morning Market Analysis

The overall tenor of the markets has become decidedly defensive.  The dollar and bonds are outperforming commodities and equities over multiple time frames (weekly, monthly and three month) as money looks for safe plays.  The technology sector continues to drop as well.  Staples, health care and utilities dropped last week, but at a smaller rate than other sectors, further reinforcing the safety trade dimension to current trading.

The 30 minute SPY chart (top chart) shows two important technical developments last week.  First, prices broke support between the 137.5-138 level and fell about 2% to 135.  Next, prices consolidated in a sideways move between 135 and 136.5 on Thursday and Friday.  The daily chart (bottom chart) shows that prices have broken the 200 day EMA and are now headed for the 38.2% Fib level just above 134.  All of the underlying technicals argue for a continued move lower: the MACD is dropping, prices are weakening, money is flowing out of the market and the shorter EMAs are all moving lower.

The entire treasury curve has caught a bid and moved through important technical areas.  The 3-7 year sector (top chart) has moved above the upper resistance line of its consolidation pattern.  In addition, it's moved above the 127.70 price level.  The 7-10 year sector (middle chart) broke its downward sloping resistance line last week and has also moved above key resistance in the 108.5/108.6 area.  The 20+ year end of the market (bottom chart) broke key downside resistance a few weeks ago and has also moved above key levels at the 124 level.  Currently, 127 offers resistance.