tag:blogger.com,1999:blog-55258600728150923712024-03-12T22:54:28.884-04:00Steve Blitz Morning NotesITG Investment ResearchSteve Blitzhttp://www.blogger.com/profile/11097177577987597255noreply@blogger.comBlogger133125tag:blogger.com,1999:blog-5525860072815092371.post-38428522644217349082011-05-19T08:32:00.000-04:002011-05-19T08:32:25.681-04:00Quick Take on FOMC Minutes: Letting the Hawks Have Their Day, Raising Downside RisksWhen does the Fed first tighten? We will know the answer by September. By that time the economy will have worked through enough of the current downside risks listed in the most interesting addition to the minutes. To the extent that the recovery is still intact by the fall we could very well see the first steps towards removing monetary accommodation in the fourth quarter. The more interesting question will be whether the Chairman has the support to do something if those downside risks cause the recovery to falter, and what that something would be. <br />
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The minutes contain what is, by now, the rather standard argument between the hawks and doves on inflation risk in a high unemployment economy. To me, the more important addition to the minutes is the much broader view on the potential for downside in the economy in the second half of the year:<br />
<blockquote>“While rising energy prices posed an upside risk to the inflation forecast, they also posed a downside risk to economic growth. Although most participants continued to see the risks to their outlooks for economic growth as being broadly balanced, a number now judged those risks to be tilted to the downside. These downside risks included a larger-than-expected drag on household and business spending from higher energy prices, continued fiscal strains in Europe, larger-than anticipated effects from supply disruptions in the aftermath of the disaster in Japan, continuing fiscal adjustments at all levels of government in the United States, financial disruptions that would be associated with a failure to increase the federal debt limit, and the possibility that the economic weakness in the first quarter was signaling less underlying momentum going forward.” </blockquote><br />
I believe that this view is shared by Bernanke, Dudley and Yellen.<br />
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The hawks have the upper hand right now in driving Fed policy; the Chairman, Dudley, and Yellen will have their day again if the economy falters as they fear it will. It seems to me that there is no other rational political way for the Chairman to play his hand.Steve Blitzhttp://www.blogger.com/profile/11097177577987597255noreply@blogger.com10tag:blogger.com,1999:blog-5525860072815092371.post-23380960372720468862010-10-08T15:07:00.001-04:002010-10-08T15:10:30.090-04:00The “Great Stall” In ActionLooking at the 64,000 private sector jobs created in September, after accounting for the usual 24,000 in health care, the rest were either in temporary business services or at restaurants (which is kind of temporary work as well). Thankfully people who are employed still like to eat out. <br />
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Against all this, local government employment contracts -- a sure sign of federal stimulus money falling away. There was also the announcement of a 300,000 jobs takeaway from the total because of benchmark revisions that go in effect in February. This essentially removes the net add from the BLS's broken birth/death adjustment<br />
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Here we are after nine consecutive months of growth in private sector jobs and the broad U-6 unemployment rate sits at 17.0% compared with 17.3% when the year began. Total private payrolls are just shy of 108 million -- the last time payrolls were this low, prior to the current recession, was March 1999. A decade of employment gains wiped out and at the current pace it will take another decade to get back to the pre-recession peak at 115.6 million. On the good news front, the tenure of long-term unemployment has been shrinking since May. <br />
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Unknown healthcare and tax costs are having a negative impact but not nearly as much as the lack of demand growth from any important sector of the economy. The policy plan now is to boost exports through a depreciated dollar with quantitative ease offsetting any rise in interest rates related to foreign debt holders wanting a higher yield to compensate for the loss on holding dollars.Steve Blitzhttp://www.blogger.com/profile/11097177577987597255noreply@blogger.com2tag:blogger.com,1999:blog-5525860072815092371.post-13067834267461219412010-08-05T09:09:00.001-04:002010-08-05T09:10:55.860-04:00The “Great Stall” Opens Volatility Season for StocksThe “Great Recession” didn’t give way to the “Great Depression” – rather it transformed itself into the “Great Stall”. The July ISM data underscored the current circumstance with reported declines in net new orders in the manufacturing and non-manufacturing sectors. It is hard to interpret the ADP reported increase of 42k jobs in July as heralding an upswing in employment, especially when it contains a drop of 21k jobs at goods-producing firms and a decline of 6k jobs at manufacturing firms. Unemployment claims for the week of July 31st are out this morning and have again surprised to the upside. Recognition of sustained low growth, plus the rising risk of deflation inherent with a stalled economy having substantial resource slack, will hit the equity market precisely when the volatility season begins and reaches its peak in October.Steve Blitzhttp://www.blogger.com/profile/11097177577987597255noreply@blogger.com0tag:blogger.com,1999:blog-5525860072815092371.post-13195409521282763252010-06-23T15:44:00.000-04:002010-06-23T15:44:41.533-04:00Fed Officially Between "Rock" and "Hard Place"The FOMC is officially worried about growth and deflation risk and they are at the ready to act if need be. Financial conditions have become “less supportive of economic growth” but don’t believe for a minute that the reason rests on ”developments abroad” -- the economic recovery is now “proceeding” rather than “continued to strengthen” while everything aside from business spending is either weak or depressed. The shift of the phrase regarding the “moderate pace of recovery” from starting the sentence about the Fed’s anticipation of a gradual return to full employment in the context of price stability to the end of the sentence and then starting the sentence with “Nonetheless” speaks volumes – in Fedspeak. More surprising was adding that “underlying inflation has trended lower” before their standard line about substantial slack and restrained cost pressures. The Fed is telling us that deflation risk is now on the table. <br />
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To underscore their concern about deflation and lower growth, the ”monitor the outlook” phrase was broken out into a separate paragraph. As for Hoenig’s dissent, it had to stay considering that its removal would’ve signaled that the Fed lurched to one step from pressing the panic button. <br />
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The FOMC is now confronted with limits of monetary policy when rates are zero. The banking system is stuffed with cash but the liquidity is sitting in reserves at the Fed essentially against legacy assets of too many bad loans and broken securities. The cash isn’t there to lend out—banks haven’t even taken down as many Treasury securities relative to total bank credit as they normally do at this point in the cycle. Nonfinanical corporations are also sitting on a mountain of cash, but it matches a mountain of long-term debt raised to put cash in the coffers and lower the volume of short-term obligations—and net worth is still well below the pre-recession peak. At some point, the corporate cash will go into hopefully productive capital investments, but the opportunities aren’t there yet.<br />
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<a href="http://www/majesticresearch.com">The Fed is officially between the “rock” and the “hard place”</a>Steve Blitzhttp://www.blogger.com/profile/11097177577987597255noreply@blogger.com0tag:blogger.com,1999:blog-5525860072815092371.post-53549734750320005052010-06-11T09:43:00.000-04:002010-06-11T09:43:26.844-04:00Consumers Drop the BatonRetail sales are not as negative as the headline, but they were also never as positive as April’s headline. Core retail sales, sales without spending for autos, building materials and gasoline, was up 0.10% in May after falling 0.22% in April. Discretionary retail sales, purchases of items people don’t have to buy, fell 0.05% in May after falling 0.26% in April. Positive and negative volatility in several spending categories can be tied to the boom in house buying in April. Bottom line, consumers only spend when they have to and they don’t spend much -- spending is not the recreational activity it was prior to the recession. Unemployment is still at extraordinary high levels, there is no equity to take out of homes, and the stock market has proven of late to be an unsteady source of wealth to fund purchases. This economy is still a long way from consumers picking up the growth baton from manufacturers. And manufacturers are facing renewed headwinds of their own, thanks to the cheapening of European exports into Asia. <a href="http://www.majesticresearch.com">Second half GDP growth is not going to surprise to the upside.</a>Steve Blitzhttp://www.blogger.com/profile/11097177577987597255noreply@blogger.com0tag:blogger.com,1999:blog-5525860072815092371.post-66550155046930802622010-06-04T14:04:00.002-04:002010-06-04T14:04:31.105-04:00May Employment -- This Is What a Deleveraging Economy Looks LikeIt is time to stop searching for the right letter to describe the recovery. It isn’t a V and it won’t be a W, it is a hyphen – flat, low growth indicative of an economy in the process of deleveraging. There is no other interpretation for an add of only 41,000 private jobs plus the downward revision to the April jobs numbers. The median number of weeks out of work climbed to record 23 weeks and of those unemployed 46% have been out of work for more than 26 weeks. And the data from Labor is that much more suspect – in the worst recession since the 1930s the birth/death add in the 12 months ending in May added 427,000 jobs against a reported decline of 831,000 jobs. Without the adjustment the number of jobs lost would have been 51% bigger. The percent of firms surveyed that are hiring plus one-half of those standing still dropped to 54.1% from 66.7% last month. Judging from still elevated jobless claims, the slowdown in new job listings posted on the internet, and the fading impact of government stimulus, <a href="http://www.majesticresearch.com/">it is difficult to see how job growth strengthens from here in a politically acceptable time frame to the levels that cut into unemployment.</a>Steve Blitzhttp://www.blogger.com/profile/11097177577987597255noreply@blogger.com0tag:blogger.com,1999:blog-5525860072815092371.post-69597503505049574092010-05-25T09:20:00.000-04:002010-05-25T09:20:02.887-04:00Home and Equity Valuations -- Nowhere to Go But SidewaysBy focusing on the monthly bounces in the housing data one risks missing the bigger point – the two main assets supporting household balance sheets and, by extension, the global economy at large, have nowhere to go but sideways. Equities and homes are priced to a level that can be appraised as fair or expensive, depending on one’s view point, but neither can realistically be called cheap.When the equity bubble popped in 2000 the economy could weather the collapse because a housing bubble could replace it. A “bubble-swap” followed by "double-burst" occurred in the late 1970s, when the culprit was a deep recession followed by soaring price inflation followed by a deeper recession. Today there is no potential for unlocking domestic equity valuations as there was in 1982. As for housing, it took 20 years before the real dollar volume of existing home sales cracked the high of the late 1970s. The potential for global growth is locked up in the Asian trade surplus. Once that spending power is unleashed on the world real economic recovery can begin. Until then, governments can only buy time by swapping leverage for leverage.<a href="http://www.majesticresearch.com/"> Majestic Research</a>Steve Blitzhttp://www.blogger.com/profile/11097177577987597255noreply@blogger.com0tag:blogger.com,1999:blog-5525860072815092371.post-89346466857384202652010-05-14T09:45:00.000-04:002010-05-14T09:45:37.461-04:00Retail Sales -- Less Than Meets The EyeThe consumer is back but only for holidays, birthdays and anniversaries. Yes, the April data are a payback for the boost to March from the early Easter but to end the analysis there is to understate how much more careful consumers are about spending their money. Control retail sales (sales less autos, gasoline, and building materials) were down -0.25% against a 0.66% raise in March. Spending on purely discretionary items were also down -0.26% in April. With more hiring and fewer layoffs, consumption is set to grow but not drive the economy. If it does do the driving, it would mean lower savings and that ensuing romp through the mall will end up being short-lived. Recent downside volatility in the equity market should, if anything, reinforce the notion that try as consumers might to convince themselves otherwise, the outcome of this recovery and the recovery of their portfolios are not yet assured. <a href="http://www.majesticresearch.com">Read more -- Majestic Research</a>Steve Blitzhttp://www.blogger.com/profile/11097177577987597255noreply@blogger.com0tag:blogger.com,1999:blog-5525860072815092371.post-55585307442956880062010-05-12T10:26:00.001-04:002010-05-12T10:26:16.753-04:00Trade Balance ImprovedThe headline number showed the trade balance worsening by $996 million in March and the culprit was oil prices. The balance of trade in services improved by $813 million and the balance of trade in goods net of oil improved by $296 million – a $1.1 billion improvement in the balance of trade. As far as GDP accounting is concerned, the headline number, which includes oil, is what counts. But when counting on an export driven recovery and the impact of that on the rest of world, it is the non-oil deficit that matters. All in all, strong export growth is the reason why business spending is up along with rail traffic in containers. So far so good, but there are quite a few black swans swimming around in the middle of the pond. Continued positive momentum in trade is anything but assured.Steve Blitzhttp://www.blogger.com/profile/11097177577987597255noreply@blogger.com0tag:blogger.com,1999:blog-5525860072815092371.post-21037483060950135232009-11-06T10:43:00.003-05:002009-11-06T10:49:24.714-05:00Employment Data Diffuses to Stalled WeaknessThe obvious truism is that turning monthly job losses into gains means getting firms to hire and the Diffusion Index shows that along those lines the number of firms adding workers has only managed to improve to levels equal to the lows of previous post-war recessions.<br />
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<a href="http://www.econmkts.com/">To Read The Whole Article Please Go To Pangea Market Advisory </a><br />
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</div>Steve Blitzhttp://www.blogger.com/profile/11097177577987597255noreply@blogger.com1tag:blogger.com,1999:blog-5525860072815092371.post-14786856559649066932009-10-29T11:31:00.001-04:002009-10-29T12:44:26.371-04:00Third Quarter GDP -- Does One Quarter Make A Trend?Even after accounting for government-program induced spending on cars and homes, there were enough positive signs in the data this morning to signal that a statistical end to the recession has occurred. The big jump in GDP will. . . .<br />
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<a href="http://www.econmkts.com/">To read the whole article go to Pangea Market Advisory</a>Steve Blitzhttp://www.blogger.com/profile/11097177577987597255noreply@blogger.com0tag:blogger.com,1999:blog-5525860072815092371.post-19561771524284837712009-10-28T17:15:00.001-04:002009-10-28T17:16:52.578-04:00Durable Goods Orders - The Fed is Debating What?We are all guilty of converting data into changes, percent changes or percent changes of the percent change for the purpose of identifying early a change in trend. I thought it would be a good idea today to just look at the dollar amount of new orders for durable goods without putting the series through a series of mathematical calisthenics (see chart below). Not being able to resist some sort of contortion I show the series in real dollar terms as well. Either way, the stark collapse in orders and the meager bounce from the bottom suggests what today’s consumer survey told us – the economy has bottomed but it isn’t bouncing.<br />
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<a href="http://www.econmkts.com/">Read the whole article -- go to Pangea Market Advisory</a>Steve Blitzhttp://www.blogger.com/profile/11097177577987597255noreply@blogger.com0tag:blogger.com,1999:blog-5525860072815092371.post-11627642413868586812009-10-19T15:41:00.001-04:002009-10-19T16:04:23.310-04:00Bernanke Calls For Balance & Asia Could Care Less Fed Chairman Ben Bernanke spoke today on <a href="http://www.federalreserve.gov/newsevents/speech/bernanke20091019a.htm">"Asia and the Global Financial Crisis" </a>at the Federal Reserve Bank of San Francisco’s Conference on Asia and the Global Financial Crisis, Santa Barbara, California. This call for balanced growth policies in Asia has been made before by Bernanke, Geithner, Summers and others. The call appears to be falling on deaf ears as far as Asian exporters are concerned. Here are some excerpts from today's Bloomberg News article "<a href="http://www.bloomberg.com/apps/news?pid=20601109&sid=ah6NVgkesLv4">Won Crushes Yen as Dollar Substitute in Asian Rally</a>" -- <br />
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To read the whole article <i>free of charge</i> go to <a href="http://www.econmkts.com">Pangea Market Advisory</a>Steve Blitzhttp://www.blogger.com/profile/11097177577987597255noreply@blogger.com0tag:blogger.com,1999:blog-5525860072815092371.post-13070882088148625952009-10-16T12:31:00.003-04:002009-10-19T16:05:16.227-04:00Capacity Utilization, Fed Policy, Oil and China -- One Big Gordian KnotThe production and capacity numbers released this morning indicate that the recession likely ended in June. But it as important, if not more so, to recognize that the reported 70.45% capacity utilization rate only just reaches the 70.93% low of the 1981-82 recession (the previous worst economic crisis since the Depression). The importance of this indicator owes to the Fed’s historic consideration of capacity utilization as the best real time indicator of economic activity (<a href="http://www.federalreserve.gov/pubs/feds/2009/200932/200932abs.html">see the working paper “Improving Real-Time Estimates of the Output Gap” by Thomas Trimbur</a>). From the official end of the past two recessions it took the Fed 38 and 32 months respectively before the first increase in the funds rate (see chart). The timing, of course, depends on how fast spare capacity is taken up. After the 2001 recession it took 32 months for capacity utilization to go from 73.53% to only 77.74%<br />
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<a href="http://www.econmkts.com/">To read whole article go to Pangea Market Advisory</a>.<br />
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</div>Steve Blitzhttp://www.blogger.com/profile/11097177577987597255noreply@blogger.com0tag:blogger.com,1999:blog-5525860072815092371.post-84362886196882455652009-10-14T16:39:00.000-04:002009-10-14T16:39:17.830-04:00Cash for Clunkers -- It Worked!The "cash-for-clunkers" program has been the subject of more negative comments and bad puns than anything an administration has put out for a long long time. Most of the comments have focused on the program's inevitable failure to permanently raise the level of spending for autos and/or anything else. By extension, the reaction is that Obamanomics is a complete bust. Political rage absent of thought to other possibilities is not the best way to go through life, unless your goal is to get crankier as you get older. The chart below plots out auto industry inventories, sales, and the inventory/sales ratio.The cash for clunkers progam moved the auto industry out of depression and into recession at an extraordinarily rapid pace. This saved a lot of investors, public and private, a lot of money,<br />
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We can see now that the program was never really intended to be a permanent boost to sales, I think even Larry Summers and Ben Bernanke knew that. The cash for clunkers trade was meant to alleviate an extraordinary overhang of unsold cars under which an entire industry was about to collapse. Normal recession metrics for sales, inventories, and production are now in play and they will be for some time but the government accomplished what it set out to do -- saving an industry and giving it the time to do what's necessary to save itself short-term and for the long haul. It will be a while before we know whether the auto industry finally gets it right, but at least they now have the time to figure it out.<br />
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhBVPLjB0K_LABE1J5JKVlGlDAqTEIHCFcDtvww2YYbiTBKLoN2pSXLem0hG04feiZqntiFe8uZDjL5m6c5-fCoPSICgSAOmxdymc52mlHuACPbW7OkNimjAttbDIPCV6EyzDhSDATxqeUu/s1600-h/auto_sales_inventory.gif" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhBVPLjB0K_LABE1J5JKVlGlDAqTEIHCFcDtvww2YYbiTBKLoN2pSXLem0hG04feiZqntiFe8uZDjL5m6c5-fCoPSICgSAOmxdymc52mlHuACPbW7OkNimjAttbDIPCV6EyzDhSDATxqeUu/s320/auto_sales_inventory.gif" /></a><br />
</div>Steve Blitzhttp://www.blogger.com/profile/11097177577987597255noreply@blogger.com5tag:blogger.com,1999:blog-5525860072815092371.post-27940594358261617722009-10-14T12:01:00.000-04:002009-10-14T12:01:12.205-04:00Retail Sales - A Question of MomentumPronouncements that the “Great Recession” is over require third quarter spending to continue into the final three months of the year. While it looks like Wall Street employees will have the cash to buy holiday gifts, the country is a lot bigger and today’s retail sales give some pause to the notion that the economy has positively turned positive.<br />
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<a href="http://www.econmkts.com/">To see charts and read whole blog, please go to Pangea Market Advisory </a>Steve Blitzhttp://www.blogger.com/profile/11097177577987597255noreply@blogger.com0tag:blogger.com,1999:blog-5525860072815092371.post-36215193577249399492009-10-09T17:14:00.002-04:002009-10-09T17:19:29.301-04:00Stocks & Bonds -- In SynchIn the past several years there have been some divergent valuations between the credit and equity markets, with the equity market tending towards the more optimistic. The chart below compares the P/E ratio of the S&P500 Industrial sector to the option adjusted spread (OAS) of the Merrill Lynch BBB Coporate Index. This chart of daily data covers the period from Jan 2002 up until yesterday. The data points for the past month are in red.<br />
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If there is undue optimism in the market it is shared by bond and equity investors. The P/E ratios travelling between 14 and 16 line up on the marginally conservative side relative to OAS levels just over 300 basis point -- but keep with the general trend of lower OAS translating into higher P/E ratios. In sum, the credit and equity markets are cautiously optimistic over future earnings and the ability to pay off debt. This isn't to say they are right, only to say that there is a reasonable consensus.<br />
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</div>Steve Blitzhttp://www.blogger.com/profile/11097177577987597255noreply@blogger.com0tag:blogger.com,1999:blog-5525860072815092371.post-35802186054887244772009-10-08T18:45:00.000-04:002009-10-08T18:45:09.071-04:00The Price of Gold Says Nothing About The DollarThe price of gold is up sharply and so is the chatter about inflation, debt, and the demise of Western Civilization. At a time when the critical global economic issue is unbalanced growth the golden chatter ignores gold’s price in real dollars versus gold’s nominal price in yen, euros, and sterling. If the U.S. is coming apart at the seams how come the real dollar price of gold is only 66% of the 1980 peak? Why does the yen today buy as much gold as the dollar does and also as much as the dollar did in 1980? Gold costs less for Europe than it does for Japan or the U.S., fair enough, but gold also costs Europe 1.5 times more than it did when gold peaked globally in 1980.<br />
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<a href="http://www.econmkts.com">Go to Pangea Market Advisory to see the whole article.</a>Steve Blitzhttp://www.blogger.com/profile/11097177577987597255noreply@blogger.com1tag:blogger.com,1999:blog-5525860072815092371.post-30501231803105724732009-10-07T16:22:00.001-04:002009-10-07T16:33:13.351-04:00Technical Outlook for 10-Year Treasury Yield -- UpdateI have been writing on the technical outlook for Treasury yields for some time and since the spring my forecast has been for a second half rally based on two factors. First, Treasuries rally in the second half of the year. I can not give anyone a good reason why that should be true, market prices really should not have any seasonal bias, but I have been around long enough to recognize a strong pattern when I see one and not let fundamentals get in the way. Second, yields and inflation bottom in the first year of economic recovery -- and we haven't turned that corner just yet. If you want to be optimistic and say the recession ended in June (a view I do not share, as my work tells me the fourth quarter will be negative for real GDP) then the bottom for yields occurs next year.<br />
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As for the current marketplace, the chart below shows that yields have dropped through some key selling pressure and the 10-year is set to at least challenge 3.00% and more likely to drop to a 2.80% yield. This is all on target with my writings in the spring and there is certainly nothing to dissuade me now.<br />
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Longer-term please understand that the market is building a base to finally break through the downward yield channel that dates back to 1986. Look for the big break to higher yields to begin in the first half of 2010.<br />
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Part and parcel with the recovery is higher real yields to temper the leveraged consumption growth that was so damaging to the structure of the economy. This is going to be a capital spending expansion, if the policy makers get it right, supported by a revalued yuan and yen. Can we stop talking about the horrors of a depreciated dollar and begin talking about ending the unfair competitive nature of Asian trade policy -- keeping their currencies unreasaonably cheap in order to keep their labor cheaper. But that is a tale for a different article.<br />
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</div>Steve Blitzhttp://www.blogger.com/profile/11097177577987597255noreply@blogger.com0tag:blogger.com,1999:blog-5525860072815092371.post-82523934625984756392009-10-02T10:59:00.004-04:002009-10-06T16:06:14.367-04:00The V Flops to an L as Duration of Unemployment Hits a New Record<div class="MsoNormal">The September employment data and attendant revisions should put to rest any notion of a “V” shaped recovery . . . .<br />
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<a href="http://econmkts.com/">To read post please go to Pangea Market Advisory</a>Steve Blitzhttp://www.blogger.com/profile/11097177577987597255noreply@blogger.com0tag:blogger.com,1999:blog-5525860072815092371.post-46059418765524470252009-10-01T18:42:00.001-04:002009-10-06T16:03:35.012-04:00New Orders Index Bodes Well For Employment, CDS Spreads Augur Caution<div class="MsoNormal">On the eve of the September employment data, the ISM data released this morning bodes well . . .<br />
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To read the rest of this article please go to <a href="http://econmkts.com/joomla">Pangea Market Advisory website</a>.Steve Blitzhttp://www.blogger.com/profile/11097177577987597255noreply@blogger.com0tag:blogger.com,1999:blog-5525860072815092371.post-15632394403322068392009-09-30T16:19:00.002-04:002009-10-06T16:04:13.841-04:00Corporate Cash & Capital Spending<div class="MsoNormal">Second quarter GDP data for corporate profits present a level of cash flow that has usually been prologue to. . . .<br />
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To read whole article go to<a href="http://www.econmkts.com/"> Pangea Market Advisory</a>Steve Blitzhttp://www.blogger.com/profile/11097177577987597255noreply@blogger.com0tag:blogger.com,1999:blog-5525860072815092371.post-24900847262311797772009-09-29T17:50:00.003-04:002009-10-06T22:08:51.721-04:00October Stock Market -- Most Volatile of AllThe calendar turns to October -- historically the most volatile month in the year (see chart). It is also telling that the average price change for the month is close to zero (see chart). In other words, there is no bias to the direction of price in the first month of the fourth quarter -- only that prices get there with a lot of noise. The biggest down October<br />
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To read complete blog go to <a href="http://www.econmkts.com">www.econmkts.com</a>Steve Blitzhttp://www.blogger.com/profile/11097177577987597255noreply@blogger.com1tag:blogger.com,1999:blog-5525860072815092371.post-75641798582116594892009-09-25T09:49:00.004-04:002009-09-25T10:13:51.425-04:00There's no V in DurablesIt is important to remember that durable goods data are notoriously volatile from month to month so patterns and trends inform more than point estimates. Looking at nondefense capital goods less aircraft the pattern of sales, shipments, unfilled orders and inventories suggests that the worst of the recession is over but we are far from recovery of any shape let alone a V. <br /><br />Inventories and sales are still in deep negative territory on a year-over-year basis. For those looking to shorter measures of momentum -- new orders are down for the second consecutive month. To the extent that inventory restocking is supposed to help lift the economy past the current quarter, the ratio of inventories to new orders has peaked but the ratio is only down to the peak levels of the 2001 recession (see chart).<br /><br />All told this isn't great news for the hawks squawking about V-shaped recoveries and inflation. The economy is better in that the economy has moved into a mild recession from a near economic collapse. There is still a long way to go.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiS7fhFtjlQ_sgMGogd3NPgNFLQpyQ-1hmOrPLGfzFhkylUS5sVU98zdiGxRRJWvxpCuts5qil3Ldq-Ku3NpBpPuUPNrFj1C94iUnsvUcuNwQ6sItKu9PsEI_7cS-Cs7MW3awqXtcMZrvRH/s1600-h/durable_goods.gif"><img style="cursor:pointer; cursor:hand;width: 400px; height: 294px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiS7fhFtjlQ_sgMGogd3NPgNFLQpyQ-1hmOrPLGfzFhkylUS5sVU98zdiGxRRJWvxpCuts5qil3Ldq-Ku3NpBpPuUPNrFj1C94iUnsvUcuNwQ6sItKu9PsEI_7cS-Cs7MW3awqXtcMZrvRH/s400/durable_goods.gif" border="0" alt=""id="BLOGGER_PHOTO_ID_5385407709538323522" /></a>Steve Blitzhttp://www.blogger.com/profile/11097177577987597255noreply@blogger.com0tag:blogger.com,1999:blog-5525860072815092371.post-87312626180293405402009-09-23T14:40:00.007-04:002009-09-23T16:29:59.160-04:00Recovering Is Not Recovery And The Fed Is Still A Long Way From TighteningThe Fed has moved from agnostic to true believer when it comes to economic recovery. More specifically, they see a "V" shaped return to positive growth as a better bet than a slow upturn. They signaled their upgrade of the economy's prospects by stating that economic activity has "picked up" rather than "is leveling out" (August statement) and that the FOMC now believes their policies will "support a strengthening of economic growth" rather than "contribute to a gradual resumption of sustainable economic growth".<br /><br />The Fed is going to test its belief first by reducing their support of the credit market. They signal that the financial crisis is over when they state that the Fed will now only "continue to employ all available tools" rather than "employ a wide range of tools". The narrower need for policy options is underscored by the FOMC pushing out the finish line of its plan to purchase $1.25 trillion in agency mortgage-backed securities from year-end to March 2010. Buying less per week means less market support and you can be sure that should conditions warrant they will end up owning less than the targeted amount. The proof-in-the-pudding will be how credit spreads react as the Fed begins tip-toeing away from the market.<br /><br />Belief, however, is not certainty and the Fed made sure to let everyone know that it sees only a "gradual return to higher levels of resource utilization" -- meaning high unemployment and low factory usage is going to be with us for quite a while longer. Capacity utilization is the Fed's real time indicator of when the punch bowl needs to leave the party and utilization rates are still below the lows of the previous recessions (<a href="http://econmkts.blogspot.com/2009/09/before-minutes-capacity-utilization.html">see earlier blogs</a>). "V" shaped or not, it will take a long time before we see levels that made the Fed tighten in the past. Therefore the FOMC "expects that inflation will remain subdued for some time". To underscore the greater impact of resource utilization on overall inflationary pressures, the FOMC removed any reference to energy and commodity prices. <br /><br />In other words first steps first -- remove the market's liquidity underpinnings before even considering a higher Federal funds rate. And if past is prologue we will be well into 2011 at best before the funds rate is above 0.25%.Steve Blitzhttp://www.blogger.com/profile/11097177577987597255noreply@blogger.com0