Thursday, May 31, 2012
Ireland Goes to the Polls On Treaty
From the Washington Post
Linked by a common currency but not a common economy, the crisis-battered euro-zone nations are facing a pivotal choice: Either move more closely together or risk their currency union breaking apart. But are European voters — some in nations divided by centuries of rivalries — willing to take that leap toward closer integration?
The fiercely independent Irish are about to offer a window into the answer.
From the emerald hills of Donegal to the shores of Cork, the Irish go to the polls Thursday in a referendum on a regionwide fiscal treaty inked in January that would impose strict limits on budget deficits and debt. European governments that ratify the treaty will effectively surrender a measure of sovereignty over two of their most sacred economic rights — how much they can borrow and how much they can spend — to the bureaucrats in the region’s administrative capital of Brussels.
The referendum, in many ways, is shaping up as a litmus test of the willingness of Europeans to more deeply link their economic fortunes. As the region’s crisis deepened, European Commission President Jose Manuel Barroso underscored the urgency on Wednesday, heightening calls for radical rule changes that would begin to make the 17 member nations of the euro zone act more and more like the 50 U.S. states.
Why Is State College Tuition Spiking? It's A Lack Of Funding
Yesterday I linked to a piece on the Carpe Diem Blog that argued that "college for all" was bad policy. The post noted the increase in tuition and attributed it entirely to an increase in demand. However, it's really a lack of funding that has been shifting the burden of state schools onto the backs of students. Consider these data points:
The state school system used to provide a great, inexpensive way for students without means to obtain an affordable college education. But the lack of investment in these systems over the last 20 years has led to an increase in tuition costs.
• From 1990-1991 to 2010-2011, total state appropriations rose from $65.1 billion to $75.6 billion. But state funding actually declined in relative terms. [From Bonddad: in inflation adjusted terms, this is a decline]
• If states had provided the same level of per capita support as in 1990-1991, they would have invested $80.7 billion in 2010-2011.
• If states had provided the same level of funding per public, full-time equivalent student as in 1990-1991, total appropriations in 2009-2010 would have equaled approximately $102 billion, an amount 35.3 percent higher.
• The proportion of their revenues that public colleges and universities received from state appropriations dropped from 38.3 percent in 1991-1992 to 24.4 percent in 2008-2009. Rising tuition, fees, and room and board represent a shift in support from the state as a whole to individual students and their families.
In addition, the financial aid system has failed to keep pace with escalating costs, forcing students and their families to rely on financing strategies that reduce their odds of completing school.
• States reoriented their financial aid programs away from need-based assistance to merit-based aid, which favors wealthier students. Students not only pay more than they used to but also borrow more extensively.
The state school system used to provide a great, inexpensive way for students without means to obtain an affordable college education. But the lack of investment in these systems over the last 20 years has led to an increase in tuition costs.
Spain Haemorrhaging Cash
Data from the Bank of Spain shows that a net of Euro66.2BN was sent abroad last month, the most since records began in 1990.
Morning Market Analysis
Given yesterday's sell-off, let's check in on the US averages to see where we are in relation to key levels
The IWMs are the worst off -- which is to be expected as they're the riskiest of the averages. However, prices are only down about 10% from their highs in late Market. Prices are under the 200 day EMA. They recently formed a relief rally, but hit resistance at the 20 day EMA. The most important level here is the 74.25 level; a move below that make the next logical price target a bit above 70.
The QQQs found support at the 200 day EMA -- which was also just below the 50% Fib level. Right now the big technical support is to be found at the 200 day EMA; a move through that level would lead to the 59.50 level being the next logical level of support. Also note: the QQQs have only dropped about 10.5%.
The SPYs are right above the 200 day EMA. Like the other averages, they rallied over the last week, only to drop yesterday. However, the SPYs have only dropped about 7.75% from their highs. But, like the QQQs and IWMs, we see a deteriorating technical situation: declining MACD, negative CMF and increased volatility.
Two of the above averages have hit the "correction" level -- a drop of 10% or more. However, the SPYs are still lagging that drop.
The dollar has moved through the 61.8% Fib level of the long, 2010-1012 sell-off. Prices have also moved through the highs established at the beginning of the year and the 200 week EMA. The dollar is benefiting from the safety trade as traders flee the euro. The next logical price target is right below the 23.5 level.
The IWMs are the worst off -- which is to be expected as they're the riskiest of the averages. However, prices are only down about 10% from their highs in late Market. Prices are under the 200 day EMA. They recently formed a relief rally, but hit resistance at the 20 day EMA. The most important level here is the 74.25 level; a move below that make the next logical price target a bit above 70.
The QQQs found support at the 200 day EMA -- which was also just below the 50% Fib level. Right now the big technical support is to be found at the 200 day EMA; a move through that level would lead to the 59.50 level being the next logical level of support. Also note: the QQQs have only dropped about 10.5%.
The SPYs are right above the 200 day EMA. Like the other averages, they rallied over the last week, only to drop yesterday. However, the SPYs have only dropped about 7.75% from their highs. But, like the QQQs and IWMs, we see a deteriorating technical situation: declining MACD, negative CMF and increased volatility.
Two of the above averages have hit the "correction" level -- a drop of 10% or more. However, the SPYs are still lagging that drop.
The dollar has moved through the 61.8% Fib level of the long, 2010-1012 sell-off. Prices have also moved through the highs established at the beginning of the year and the 200 week EMA. The dollar is benefiting from the safety trade as traders flee the euro. The next logical price target is right below the 23.5 level.
Wednesday, May 30, 2012
Bonddad Linkfest
- Italian and Spanish yields increase at recent auction (FT)
- GOP anti-tax rhetoric is softening (Politico)
- Euro Commission Reports spark EU equity market rally (Reuters)
- Economists expect a 50BP cut in Brazilian interest rates (Reuters)
- Economic sentiment drops in the EU (Europa)
- EU business climate continues to drop (Europa)
- Texas production index holds steady (Dallas Fed)
- Dryness may lower western Australian crop yield (Agrimoney)
- Emerging markets are faltering (Marketwatch)
- US consumer confidence falls (Marketwatch)
The Exact Wrong Policy Proscription Regarding Education
From Carpe Diem:
For reasons unknown, the US political right has a big problem with educating people. Whether it's the "threat of liberal indoctrination" (ever talked with professors in the business school ?) or some other such nonsense, the lack of respect for education and educational achievement is palpable -- and grows more and more every year.
The problem with the above statement is this chart:
The more educational achievement you have, the lower your unemployment rate. And this is not a matter of .5% here and there, it's a noticeable difference.
"The college-for-all crusade has outlived its usefulness. Time to ditch it. Like the crusade to make all Americans homeowners, it’s now doing more harm than good. It looms as the largest mistake in educational policy since World War II, even though higher education’s expansion also ranks as one of America’s great postwar triumphs.
.....
MP: The chart above shows graphically the results of the "college-for-all crusade." In the 1970s and 1980s only about one out of three high school graduates went on to college. Now about half of all high school graduates attend college. And most of them now graduate with student loan debt of $25,000 and many are having a hard time finding a job.
For reasons unknown, the US political right has a big problem with educating people. Whether it's the "threat of liberal indoctrination" (ever talked with professors in the business school ?) or some other such nonsense, the lack of respect for education and educational achievement is palpable -- and grows more and more every year.
The problem with the above statement is this chart:
The more educational achievement you have, the lower your unemployment rate. And this is not a matter of .5% here and there, it's a noticeable difference.
The EU Oversteps The Mark
The EU has said today that the Eurozone should consider setting up a banking union and allow a rescue fund to directly boost the capital of banks to further stop expensive bailouts from pulling down governments’ own finances.
That's all very nice, in theory. However, the EU is not the ECB; it is up to the ECB and central banks to determine the capitalisation levels of European banks.
That's all very nice, in theory. However, the EU is not the ECB; it is up to the ECB and central banks to determine the capitalisation levels of European banks.
Why Are the BRICs -- and the Slowdown of China and India -- So Important
Over the last month or so, we've seen stories that the two big BRIC economies of India and China are slowing down. However, a fundamental question that we have not answered is this: why are the BRICs -- and more importantly India and China -- so important?
The first answer is population. Consider these charts of total population:
The combined total of the Chinese and Indian population is about 2.5 billion. That comprises about 37% of the world's 6.8 billion population -- a very significant number. More importantly, that number is 66% of the population of the 10 largest economies in the world.
In addition, from a purchasing power parity perspective, China is the third largest and India is the fourth largest economy in the world.
A slowdown that effects this many people is bound to hurt. And, most importantly, there are no countries of comparable size to take the reins.
The first answer is population. Consider these charts of total population:
The combined total of the Chinese and Indian population is about 2.5 billion. That comprises about 37% of the world's 6.8 billion population -- a very significant number. More importantly, that number is 66% of the population of the 10 largest economies in the world.
In addition, from a purchasing power parity perspective, China is the third largest and India is the fourth largest economy in the world.
A slowdown that effects this many people is bound to hurt. And, most importantly, there are no countries of comparable size to take the reins.
Morning Market Analysis
The technology sector is the largest sector of the SPY's accounting for a little under 20% of the average. Overall, this sector has dropped about 7.4%. Prices are right about the 200 day EMA and are also being hemmed in by the 10 and 20 day EMA. Also note the declining momentum and CMF. The real issue with this chart is the 200 day EMA; so long as prices stay above/near that level, I don't see any major problems.
However, the weekly chart says the 26.75 price level is the most logical price target for this sector.
The XLFs (which comprise 14% of the SPYs) have broken through the 200 day EMA. Prices are currently in a rebound rally, but the deteriorating technicals (dropping MACD and CMF) tell us that the rally is purely technical. the 13.6 level (the 38.2% Fib level) is key; a move through that level would send the average lower.
The weekly XLF chart is also deteriorating; the MACD has given a sell signal and the CMF is declining. Prices rallied to the 200 week EMA, but were rebuffed. Prices are right at the 61.8% Fib level, but are contained by the 10, 20 and 50 week EMA.
The XLV, which account for 11.8% of the SPYs, are in a slightly downward sloping channel. But they have found strong support at the 81.8% Fib level.
The weekly chart shows that prices are at support levels established in mid-2011.
The two largest areas of the market -- technology and finance -- are clearly correcting. However, both have support on their respective weekly charts. The health care sector is moving lower, but its movement could also be classified as a holding pattern.
Tuesday, May 29, 2012
Bonddad Linkfest
- Republican Keynseians (NYT)
- The UK/Euro Connection (FT Alphaville)
- US consumer sentiment increases (Marketwatch)
- Interview with Canadian Banking Regulator (Marketwatch)
- UK devises contingency plans (FT)
- Weaker euro should boost EU exports (FT)
- Japanese unemployment at 4.6% SA (JSB)
- German inflation drops (BB)
Unemployment Benefits Start to Get Cut
This is not the proper way to deal with this situation:
The checks are stopping for the people who have the most difficulty finding work: the long-term unemployed. More than five million people have been out of work for longer than half a year. Federal benefit extensions, which supplemented state funds for payments up to 99 weeks, were intended to tide over the unemployed until the job market improved.In February, when the program was set to expire, Congress renewed it, but also phased in a reduction of the number of weeks of extended aid and effectively made it more difficult for states to qualify for the maximum aid. Since then, the jobless in 23 states have lost up to five months’ worth of benefits.Next month, an additional 70,000 people will lose benefits earlier than they presumed, bringing the number of people cut off prematurely this year to close to half a million, according to the National Employment Law Project. That estimate does not include people who simply exhausted the weeks of benefits they were entitled to.Separate from the Congressional action, some states are making it harder to qualify for the first few months of benefits, which are covered by taxes on employers. Florida, where the jobless rate is 8.7 percent, has cut the number of weeks it will pay and changed its application procedures, with more than half of all applicants now being denied.
So -- Who Is Really Spending More?
There's been a pretty big debate about whether or not the administration is the most spendthrift administration in the world, universe, or galaxy. What started this off was an article by Rex Nutting over at Marketwatch titled, Obama Spending Binge Never Happened. After that, the predictable sources chimed in in predictable ways. So, let's do what we always do, which is look at the data.
Above is a chart of federal government expenditures in logarithmic format. This data makes very clear that no one is immune to the charges of too much spending; instead we see that regardless of who is in power in the White House or Congress -- or whatever permutation/combination thereof -- spending increases. In actuality, this is to be expected. Government spending is a component of overall GDP; as GDP increases, government spending would also increase.
Looking at the most recent data, we see a large bump from about $3.2 trillion to about $3.5 trillion at the beginning of fiscal 2010. This would have been the stimulus. However notice that after that big bump, there is a leveling out, especially over the last 8 quarters. Currently, we see spending at about the $3.7 trillion level, indicating an increase of about $200,000 billion over two years. This really isn't that much in a $15 trillion dollar economy.
The above chart is a 5 year chart of total government expenditures, which shows the spending in a bit more detail.
So, what we see is stimulus spending increasing total government spending. But then we see a leveling off of that spending after the stimulus was enacted.
Let's look at a few more data points. The following charts from the data collected by the CBO on their historical data page.
The above chart shows mandatory spending on basic programs such as SS, disability, medicaid, medicare etc... as a percentage of GDP. These were at 10.5% in 2007, 15% in 2009 and 13.5% in 2011. Part of this increase is due to "income security" expenses (read: unemployment insurance). These expenses increase from 1.8%/GDP in 2008 to 3%/GDP in 2010. We also see an increase in medicaid spending of .5%/GDP from 2008-2011 and a bump of 2.6%/GDP in "other programs" in 2009. Put another way, a large reason for this increase is a widening of the social safety net as a result of the Great Recession.
Also of consideration is the retiring of the baby boomers, which has led to increased payouts from Social Security. These increased from 4.2% of GDP in 2007 to 4.8% of GDP in 2011.
Finally, let's look at the other side of the equation: taxes:
Above is a chart that shows tax revenue as a percentage of GDP for various taxes. This chart shows some very interesting data.
1.) The estate tax has been a minimal component of total tax revenue of the US government.
2.) Despite claims that the US corporate tax rate is one of the highest in the world (which is technically accurate, but in fact a gross oversimplification of the numerous ways corporations in fact pay no tax), tax revenue from corporations is near a 40 year low.
3.) Tax revenue from individuals -- despite claims that we're over-taxed and over-burdened in the current economy -- is in fact near a 40 year low.
3.) Social insurance taxes are actually near their lowest in many nearly 40 years.
So, let's add all this up.
First, spending has increased. But it's the kind of spending you'd expect to see in a recession, where we increase spending for things like unemployment insurance and overall increased use and utilization of the social safety net. It's also important to remember that baby boomers are starting to retire, adding further demands on the social insurance expenditures.
Second, this is as much an issue with low taxes. That is, raising taxes on individuals and closing loopholes for corporations would help to close the budget gap. And, please, spare me the "we can't tax job creators" lingo; the "job creators" already have a ton of money and they're not creating squat now.
Above is a chart of federal government expenditures in logarithmic format. This data makes very clear that no one is immune to the charges of too much spending; instead we see that regardless of who is in power in the White House or Congress -- or whatever permutation/combination thereof -- spending increases. In actuality, this is to be expected. Government spending is a component of overall GDP; as GDP increases, government spending would also increase.
Looking at the most recent data, we see a large bump from about $3.2 trillion to about $3.5 trillion at the beginning of fiscal 2010. This would have been the stimulus. However notice that after that big bump, there is a leveling out, especially over the last 8 quarters. Currently, we see spending at about the $3.7 trillion level, indicating an increase of about $200,000 billion over two years. This really isn't that much in a $15 trillion dollar economy.
The above chart is a 5 year chart of total government expenditures, which shows the spending in a bit more detail.
So, what we see is stimulus spending increasing total government spending. But then we see a leveling off of that spending after the stimulus was enacted.
Let's look at a few more data points. The following charts from the data collected by the CBO on their historical data page.
The above chart shows mandatory spending on basic programs such as SS, disability, medicaid, medicare etc... as a percentage of GDP. These were at 10.5% in 2007, 15% in 2009 and 13.5% in 2011. Part of this increase is due to "income security" expenses (read: unemployment insurance). These expenses increase from 1.8%/GDP in 2008 to 3%/GDP in 2010. We also see an increase in medicaid spending of .5%/GDP from 2008-2011 and a bump of 2.6%/GDP in "other programs" in 2009. Put another way, a large reason for this increase is a widening of the social safety net as a result of the Great Recession.
Also of consideration is the retiring of the baby boomers, which has led to increased payouts from Social Security. These increased from 4.2% of GDP in 2007 to 4.8% of GDP in 2011.
Finally, let's look at the other side of the equation: taxes:
Above is a chart that shows tax revenue as a percentage of GDP for various taxes. This chart shows some very interesting data.
1.) The estate tax has been a minimal component of total tax revenue of the US government.
2.) Despite claims that the US corporate tax rate is one of the highest in the world (which is technically accurate, but in fact a gross oversimplification of the numerous ways corporations in fact pay no tax), tax revenue from corporations is near a 40 year low.
3.) Tax revenue from individuals -- despite claims that we're over-taxed and over-burdened in the current economy -- is in fact near a 40 year low.
3.) Social insurance taxes are actually near their lowest in many nearly 40 years.
So, let's add all this up.
First, spending has increased. But it's the kind of spending you'd expect to see in a recession, where we increase spending for things like unemployment insurance and overall increased use and utilization of the social safety net. It's also important to remember that baby boomers are starting to retire, adding further demands on the social insurance expenditures.
Second, this is as much an issue with low taxes. That is, raising taxes on individuals and closing loopholes for corporations would help to close the budget gap. And, please, spare me the "we can't tax job creators" lingo; the "job creators" already have a ton of money and they're not creating squat now.
Case Shiller index shows turn in housing prices
- by New Deal democrat
I haven't read any commentary by others on this morning's release of the Case-Shiller indexes. Unlike most others I focus on the seasonally adjusted numbers, since they will show a turn sooner.
This morning both the 10 and 20 City indexes went up for the second month in a row. That is the first time there have been two monthly advances in a row since 2007, outside of the period of the $8000 housing credit which ended in April 2010. Fifteen of the 20 cities in the larger index showed increasing prices. Only 4 cities -- New York, Chicago, Detroit, and Atlanta -- declined to new lows. A fifth, Portland, decreased this month but was above its January low.
Unless the much-anticipated foreclosure tsunami arrives (and waiting for it has approached the level of Waiting for Godot), it appears the turn in the market is here.
I haven't read any commentary by others on this morning's release of the Case-Shiller indexes. Unlike most others I focus on the seasonally adjusted numbers, since they will show a turn sooner.
This morning both the 10 and 20 City indexes went up for the second month in a row. That is the first time there have been two monthly advances in a row since 2007, outside of the period of the $8000 housing credit which ended in April 2010. Fifteen of the 20 cities in the larger index showed increasing prices. Only 4 cities -- New York, Chicago, Detroit, and Atlanta -- declined to new lows. A fifth, Portland, decreased this month but was above its January low.
Unless the much-anticipated foreclosure tsunami arrives (and waiting for it has approached the level of Waiting for Godot), it appears the turn in the market is here.
Morning Market Analysis
Let's start the holiday shortened week by looking at where we are in the market cycle.
The SPYs have fallen from their latest high around the 142 area to the 200 day EMA and have rebounded from that level to the 132 handle. Prices have found resistance at the 10 day EMA. All the shorter EMAs are moving lower, the MACD is declining, the CMF is negative and Bollinger Band Width is increasing, telling us that we're in a period of increased volatility. The relief rally of last week is characterized by
The weekly chart shows that prices have retreated from highs and are now at the 50 week EMA. We see several levels of technical support established by Fib fans and retracements between current prices and the 200 day EMA.
The P and F chart shows that the SPYs have price support at the 120 level -- quite a ways below current levels.
The equity markets are clearly in a correction phase as shown on both the daily and weekly charts. While there are Fib levels on both charts, we don't see price support until the 120 level, which is cause for some concern.
The weekly charts of the entire treasury curve show that the safety trade is on in a big way. All time sections of the chart are now at or near multi-year highs. In addition, the entire treasury curve is very low: consider this chart from Bloomberg:
30 year rates are now below 3% -- an incredibly low level.
Basically, we're right back where we were last year at this time. The EU has scared the hell out of the markets, sending equities lower and treasuries higher.
The SPYs have fallen from their latest high around the 142 area to the 200 day EMA and have rebounded from that level to the 132 handle. Prices have found resistance at the 10 day EMA. All the shorter EMAs are moving lower, the MACD is declining, the CMF is negative and Bollinger Band Width is increasing, telling us that we're in a period of increased volatility. The relief rally of last week is characterized by
The weekly chart shows that prices have retreated from highs and are now at the 50 week EMA. We see several levels of technical support established by Fib fans and retracements between current prices and the 200 day EMA.
The P and F chart shows that the SPYs have price support at the 120 level -- quite a ways below current levels.
The equity markets are clearly in a correction phase as shown on both the daily and weekly charts. While there are Fib levels on both charts, we don't see price support until the 120 level, which is cause for some concern.
The weekly charts of the entire treasury curve show that the safety trade is on in a big way. All time sections of the chart are now at or near multi-year highs. In addition, the entire treasury curve is very low: consider this chart from Bloomberg:
30 year rates are now below 3% -- an incredibly low level.
Basically, we're right back where we were last year at this time. The EU has scared the hell out of the markets, sending equities lower and treasuries higher.
Monday, May 28, 2012
Happy Memorial Day
The markets are closed today and so are we. I'll be barbequing some ribs and enjoying the first game of the Stanley Cup playoffs.
We'll be back in the AM
Have a safe holiday.
We'll be back in the AM
Have a safe holiday.
Greece Seizes Up
As Greece spirals downwards towards financial oblivion, the caretaker government has suspended rebates and payments to suppliers of the public sector.
Additionally, according to The Slog, all loans by banks to any business, regardless of viability, have been stopped. The reason being that there has been a combined rush for credit alongside a massive hemorrhage of withdrawals from bank accounts.
Unsurprisingly, foreign companies importing to Greece are asking for cash in advance.
It is clear that this situation is unsustainable.
Additionally, according to The Slog, all loans by banks to any business, regardless of viability, have been stopped. The reason being that there has been a combined rush for credit alongside a massive hemorrhage of withdrawals from bank accounts.
Unsurprisingly, foreign companies importing to Greece are asking for cash in advance.
It is clear that this situation is unsustainable.
Sunday, May 27, 2012
Weekly Indicators: Memorial Day muddle through edition
- by New Deal democrat
There was little monthly data reported in this past week. New and existing housing sales both rose, as did several housing indexes, adding to the evidence that the recovery in housing sales is real, albeit from record low levels. Consumer confidence rose to the highest levels since before the great recession, including the expectations index which is a component of the Leading Indicators.
The high frequency weekly indicators were mixed this week, but generally neutral to positive as the Oil choke collar continues to disengage. One indicator stands out as negative.
Let's start again with the negative indicator. Rail traffic was mixed again this week. The American Association of Railroads reported a -1.6% decrease in total traffic YoY, or -8,400 cars. Non-intermodal traffic was down by -14,700 cars, or -5.0% YoY. Excluding coal, this traffic was up 11,400 cars. A total of 8 of 20 subgroups were negative, including ethanol-related grain shipments were also off, as were chemicals, metals, and scrap. Intermodal traffic was up 7,300 carloads, or +3.1%.
Housing was mixed:
The Mortgage Bankers' Association reported that the seasonally adjusted Purchase Index fell -3.0% from the prior week, and also fell -3.8% YoY. The Refinance Index jumped another +5.6% with record low mortgage rates. This index remains in the upper part of its 2 year generally flat range.
The Federal Reserve Bank's weekly H8 report of real estate loans, which turned positive YoY for the first time in 4 years two months ago, rose 0.1% this week, and its YoY comparison rose +0.7% to +1.6%. On a seasonally adjusted basis, these bottomed in September and are up +1.7%.
YoY weekly median asking house prices from 54 metropolitan areas at Housing Tracker were up +2.7% from a year ago. YoY asking prices have been positive now for 6 months, and median current list prices remain higher than at any point last year. The Case-Shiller repeat sales index for January-March will be reported this week and of course will be closely watched.
Employment related indicators were also neutral to positive:
The Department of Labor reported that Initial jobless claims remained the same at 370,000 last week. The four week average fell 5000 to 370,000. This measure has been essentially flat for 4 weeks after its April spike.
The Daily Treasury Statement for the first 18 days of May showed $114.2 vs. $118.2B for May 2011. This has everything to do with the month starting on a Tuesday rather than a Monday. For the last 20 reporting days (4 x each day of the week), $133.7B was collected vs. $128.0B a year ago, an increase of $5.1B, or +4.0%.
The American Staffing Association Index remained at 93 for the fourth week in a row. It remains two to three points below the all time records from 2006 and 2007 for this week of the year. It would have to remain flat or worse for another 2 to 3 weeks for me to be concerned at all about its trajectory.
Same Store Sales continue to be solidly positive:
The ICSC reported that same store sales for the week ending May 19 fell -1.7% w/w, but were up +3.8% YoY. Johnson Redbook reported a 2.7% YoY gain. Shoppertrak did not report. The 14 day average of Gallup daily consumer spending was strongly positive at $74 vs. $65 in the equivalent period last year. The continued strength in consumer spending completely undercuts the meme that flat consumer income is dragging us back into recession.
Money supply was positive:
M1 rose +1.8% last week, and also rose +0.3% month over month. Its YoY level increased to +16.6%, so Real M1 is up 14.3%. YoY. M2 rose +0.1% for the week, and was up +0.3% month over month. Its YoY advance rose slightly to +9.6%, so Real M2 increased to +7.3%. Real money supply indicators continue to be strong positives on a YoY basis, although they have had a far more subdued advance since September of last year.
Bond prices rose and credit spreads fell. This is also a yellow flag:
Weekly BAA commercial bond yields fell -.10% to 4.98%. Yields on 10 year treasury bonds also fell even more, -.14% to 1.74%. The credit spread between the two remained even at 3.24%. Strongly falling bond yields mean that fear of deflation is strong. Spreads have been widening for the 6 weeks.
The energy choke collar continues to disengage:
Gasoline prices fell for the fifth straight week, down another .04 to $3.71. Oil fell slightly again this week, to $90.86. Oil prices are now below the point where they can be expected to exert a constricting influence on the economy. Since gasoline prices follow with a lag, we can expect gasoline to fall to that point in about a month as well. The 4 week average of Gasoline usage, at 8790 M gallons vs. 8961 M a year ago, was off -1.9%. For the week, 8633 M gallons were used vs. 9025 M a year ago, for a decline of -4.3%. Gasoline usage is generally moving towards parity with the reduced levels that began to be established one year ago.
Turning now to high frequency indicators for the global economy:
The TED spread remained at 0.390, near the bottom of its recent 3 month range. This index remains slightly below its 2010 peak. The one month LIBOR fell slightly to 0.239. It is well below its 12 month peak set 3 months ago, remains below its 2010 peak, and has returned to its typical background reading of the last 3 years.
The Baltic Dry Index fell sharply from 1140 to 1034. The Harpex Shipping Index, on the other hand, rose from 445 to 457 in the last week, and is up 82 from its February low of 375.
Finally, the JoC ECRI industrial commodities index fell again, from to 120.25 to 119.64. This indicator appears to have more value as a measure of the global economy as a whole than the US economy.
Due to global weakness, the Oil choke collar is loosening. Bond yields of all sorts are falling. Rail shipments are also signalling caution. Internal signs of the US economy generally remain positive, as they have all year. Several months ago, I identified consumer spending and gasoline usage as key areas to watch. They are holding up well. Aside from the big payrolls report next Friday, watch personal income to see if declining inflation helps alleviate the downturn in real income. Also, with the revision to 1st quarter GDP this week will come the report on Gross Domestic Income. Since there is evidence that GDP is revised in the direction of GDI over time, this will be an important landmark for the direction of the US economy.
Saturday, May 26, 2012
Weekly Indicators: undisclosed holiday location edition
- by New Deal democrat
I'm vacationing this weekend, but will get this up sometime before Sunday night. In the meantime, enjoy yourselves over hot dogs, hamburgers, and the libations of your choice!
I'm vacationing this weekend, but will get this up sometime before Sunday night. In the meantime, enjoy yourselves over hot dogs, hamburgers, and the libations of your choice!
Friday, May 25, 2012
Weekend ..... 12C!?!?!?!?!
I realize that in posting this picture, I'm really dating myself. However, above is my indispensable HP 12C Financial Calculator. I've had this for over 15 years. As you can tell, it's been heavily used. It's been dropped, banged around briefcases and the like. If you look really closely at the lower right hand corner, you'll notice that one of my gods thought it was a chew toy for a very brief time.
However, all the keys still work. And frankly, I couldn't live without it; it's a bit of a safety blanket.
I'll be back on Monday; NDD will post the weekly numbers on Saturday.
Have a safe and happy weekend.
The India Story is Deteriorating
From the FT:
This is a huge story. Back in 2009, I noted that foreign economies would help to lift the world economy out of recession.
However, that story is now changing. As the above story notes, India is having serious problems that will hamper growth going forward. That means that overall, the world economy has a big problem.
India’s economy has been slowing for more than a year as corruption scandals involving senior members of the Congress-led coalition government have paralysed parliament and blocked key reforms to boost investment.
India’s macroeconomic landscape has deteriorated further since the start of the year. New Delhi’s fiscal and trade deficit have ballooned to 5.8 per cent and 9.9 per cent of GDP respectively, while inflation has shot back into double digits.
The Indian rupee also weakened to a record low against the dollar this week, which is likely to fuel inflation further in coming months.
Meanwhile, industrial output contracted 3.5 per cent in March 2012 and exports have been declining consistently, as demand in Europe for cheap Indian goods has dropped.
This is a huge story. Back in 2009, I noted that foreign economies would help to lift the world economy out of recession.
There's a great myth that goes around the Internet: the US doesn't make things anymore. If that were true, then we would have exported $1.8 trillion dollars of goods in 2008. And in 2008, we exported $108 billion of foods and beverages, $388 billion of industrial supplies, $457 billion of capital goods, $121 of automotive products and $161 billion of consumer goods. In other words, exports account for about 13% of GDP. And they may become far more important to US growth:This has occurred over the last 3 years, as US exports have been a bright spot in the expansion.In the process of gorging on overseas goods and services, the US by happenstance fired up emerging economies such as China, Korea, Taiwan, India, Brazil and Mexico to build their productive capacities and spawn their own middle classes and consumer cultures. Paulsen has long called this trend the US's "emerging-market Marshall Plan."As US consumer spending slows we will import less, thereby lowering the total amount of imports in the trade deficit formula. At the same time, Emerging economies have seen a growing middle class which will want to buy more goods and services. And some of those will come from the US.
However, that story is now changing. As the above story notes, India is having serious problems that will hamper growth going forward. That means that overall, the world economy has a big problem.
The Dollar -- the De Facto Safety Trade
Earlier today, I noted that that dollar is approaching key levels and may be about to rally. The charts below show that the dollar is, in fact, the only safe haven currency out there.
The Australian economy is actually one of the best performing economies in the globe. But recent numbers have shown some weakness, leading the Australian central bank to lower rates. The primary issue here is a bi-furcated economy; mining and natural resources are doing very well, but other areas of the economy are a bit weaker.
The weekly euro chart shows that it's moving through key support levels, with the next logical price target around 118.5.
The yen started to drop in February when the BOJ announced they would engage in additional easing and possibly accept a higher inflation rate. The yen has rallied over the has few months largely because it's considered a haven currency. But we still have the specter of the BOJ in the background.
The Swiss franc was considered a haven currency, until the Swiss Central Bank intervened aggressively in the market (the highlighted yellow area). Since then the franc has been much more subdued.
The pound is caught between two countervailing trends. One one hand, it's a haven currency close to Europe, making it the natural choice for the safety trade for EU traders. On the other hand, the UK economy is in terrible shape. In addition, inflation is higher than the BOE wants, interest rates are low and there are further rumblings about additional easing.
The Australian economy is actually one of the best performing economies in the globe. But recent numbers have shown some weakness, leading the Australian central bank to lower rates. The primary issue here is a bi-furcated economy; mining and natural resources are doing very well, but other areas of the economy are a bit weaker.
The weekly euro chart shows that it's moving through key support levels, with the next logical price target around 118.5.
The yen started to drop in February when the BOJ announced they would engage in additional easing and possibly accept a higher inflation rate. The yen has rallied over the has few months largely because it's considered a haven currency. But we still have the specter of the BOJ in the background.
The Swiss franc was considered a haven currency, until the Swiss Central Bank intervened aggressively in the market (the highlighted yellow area). Since then the franc has been much more subdued.
The pound is caught between two countervailing trends. One one hand, it's a haven currency close to Europe, making it the natural choice for the safety trade for EU traders. On the other hand, the UK economy is in terrible shape. In addition, inflation is higher than the BOE wants, interest rates are low and there are further rumblings about additional easing.
Grexit Imminent
The long awaited Grexit is now regarded as imminent, with the likely "planned" departure occurring on 2nd/3rd of June. Given that a Grexit ought to catch the markets and people by "surprise", be prepared for the "planned" departure date to be brought froward to this weekend.
French banks are in panic mode, and are now (somewhat late in the day) drafting plans for the Grexit.
In other news, Bankia has suspended its shares and has asked the Spanish government for a bailout of Euro15BN; to add to the pressure on the beleaguered Spanish government, the autonomous region of Catalonia has also asked to be bailed out to the tune of around Euro13BN.
French banks are in panic mode, and are now (somewhat late in the day) drafting plans for the Grexit.
In other news, Bankia has suspended its shares and has asked the Spanish government for a bailout of Euro15BN; to add to the pressure on the beleaguered Spanish government, the autonomous region of Catalonia has also asked to be bailed out to the tune of around Euro13BN.
Germany Ups The Ante On Greece
In the never ending game of chicken between Greece and Germany (the Eurozone's paymasters), Germany has just upped the ante by threatening to withhold the next tranche of bailout many.
The "threat" was of course "subtle", as per the use of the phrase "not problematic":
Russian Market @russian_market
The "threat" was of course "subtle", as per the use of the phrase "not problematic":
Russian Market
"German finance ministry spokesman says not problematic if the next Greek aid tranche is delayed beyond the end of June"
Thursday, May 24, 2012
Morning Market Analysis
I didn't mean to publish this until the AM. But, so long as it's up....
It appears the SPYs may be trying to bottom. Consider these charts:
First, on the daily chart, prices are currently trending up the lower part of a Fib fan. In addition, they're hitting resistance at the 10 day EMA. However, the lower volume totals for the last four trading days indicate this is probably a relief rally to the move lower that occurred throughout May.
The 60 minute chart shows that the 130/131 price level is providing some support.
And the 30 minute chart shows that prices are consolidating in a triangle consolidation pattern. Resistance is around the 133 level and support is around the 129.5/130 level.
Oil is still trying to find a bottom. The 92.3 level provided some support for a few days, but prices have moved through that level. The rate of decline has lessened, indicating a bottom is probably closer, but we still haven't reached it yet.
The dollar is close to making an important technical break-through at the 22.7/22.8 area. A move through that level would make the 23.4/23.5 level the next logical upside price target.
It appears the SPYs may be trying to bottom. Consider these charts:
First, on the daily chart, prices are currently trending up the lower part of a Fib fan. In addition, they're hitting resistance at the 10 day EMA. However, the lower volume totals for the last four trading days indicate this is probably a relief rally to the move lower that occurred throughout May.
The 60 minute chart shows that the 130/131 price level is providing some support.
And the 30 minute chart shows that prices are consolidating in a triangle consolidation pattern. Resistance is around the 133 level and support is around the 129.5/130 level.
Oil is still trying to find a bottom. The 92.3 level provided some support for a few days, but prices have moved through that level. The rate of decline has lessened, indicating a bottom is probably closer, but we still haven't reached it yet.
The dollar is close to making an important technical break-through at the 22.7/22.8 area. A move through that level would make the 23.4/23.5 level the next logical upside price target.
Bonddad Linkfest
- EU composite PMI at 35 month low (Markit)
- UK revised GDP at -.3% (PDF)
- Germany IFO Business Climate (IFO)
- Australian LEIs increase slightly (Conference Board)
- BOJ Rate Decision (BOJ)
- BOE Minutes (BOE)
- EU economy contracting (FT)
- France calls on ECB to issues bonds (FT)
- Durable Good Increase Slightly (Census)
- Initial Claims at 370,000 (DOL)
Housing: department of "Huh?!?"
- by New Deal democrat
Yesterday Barry Ritholtz published a piece that read, in its entirety:
For the crowd who are still clinging to the RE recovery meme, have a gander at these charts. Note that there are more new permits than starts, and more new starts than completionsNow, let me say that Barry has been a friend of this blog and has cross-published Bonddad or myself a number of times, so there is no ill will whatsoever, but we do have a disagreement about whether housing prices are making a bottom. Further, like Bill McBride, I really think we're past the point where it can be argued that housing sales aren't recovering (i.e., going up, even if the raw numbers are still very very low).
In any event, Barry's entire point puzzled me, since housing permits exceeding starts, which in turn would exceed completions is exactly what I'd expect to see in a recovery. The reason is the timing. Permits take place a month or months before a house is started, which in turn takes a number of months to complete. So it housing sales are going up, the increase has to make its way through the system chronologically. For example, is sales are going up 1% a month, and it is six months between getting a permit and starting the house, and 6 more before completion, we'd have something like 112,000 permits this month, with 106,000 starts based on permits taken out 6 months ago, vs. 100,000 completions of permits taken out a year ago. The reverse would apply in downturns.
Just to be sure, I went to the data. First let's pull up the entire history of housing permits, just to see the periods of time housing was going up vs. down.
Now let's subtract housing starts from housing permits. We'd expect to see a negative number in recessions and a positive number in expansions. what we actually get suggests a strong secular change over time (I have no idea how you get starts exceeding permits for several decades straight, but there it is). But at very least from 2000 to the height of the housing boom, there were more permits granted than starts begun. During the bust, more starts were made than permits issued. And now recently, more permits have once again been issued than starts made:
But it is in comparing starts with completions that the pattern really asserts itself. Here there is no doubt of the truth that starts exceed completions in a boom, and trail them in a bust:
So Barry winds up making a very effective case that the housing recovery has indeed begun.
Long Term View of the Markets Not Looking Good
Pulling the camera lens back to a monthly view, the charts of the major averages aren't looking that good. Consider the following:
In the last three year, the IWMs have rallied into the 80-85 price area and failed. Also note the declining MACD over the last two peaks, indicating declining momentum. However, we do an increase in the CMF, telling us that money is flowing back into the market.
Like the IWMs the SPYs have rallied into a key area (140-142) twice over the last three years, only to be rebuffed. Also note the moderating MACD reading.
The NASDAQ is defying the overall trend by have a "higher high, higher low" rally since 2009. The MACD reading is positive, as is the CMF. Also note the rising EMA picture, with the shorter above the longer, all moving higher and prices above the EMAs.
The failure of two averages to make new highs -- and to be denied when they tried to move higher -- is not a good sign.
In the last three year, the IWMs have rallied into the 80-85 price area and failed. Also note the declining MACD over the last two peaks, indicating declining momentum. However, we do an increase in the CMF, telling us that money is flowing back into the market.
Like the IWMs the SPYs have rallied into a key area (140-142) twice over the last three years, only to be rebuffed. Also note the moderating MACD reading.
The NASDAQ is defying the overall trend by have a "higher high, higher low" rally since 2009. The MACD reading is positive, as is the CMF. Also note the rising EMA picture, with the shorter above the longer, all moving higher and prices above the EMAs.
The failure of two averages to make new highs -- and to be denied when they tried to move higher -- is not a good sign.
Morning Market Analysis; the Flight To Safety
Let's start by looking at the treasury market, where we see that the entire curve is trading near or above the top of a trading range that started at the end of last summer. This is the respective highest level for all of these sections of the curve in nearly two years. While the MACD has given a buy sign for all the sections, I wouldn't expect too much of a rally from here, largely because treasuries are constrained by yield on the flip side. However, the positive and rising readings from the respective CMFs tell us that money is flowing into the markets.
We see the exact same situation along all parts of the corporate curve as well; short, intermediate and long-term parts of the curve all all near two year highs, largely due to a flight to safety.
We also see the same flight to safety issues in the municipal and mortgage back bond markets.
Simply put, investors are looking to park money in interest yielding investments to ride out the storm.
