Durable Goods Orders blow out to the upside

- by New Deal democrat

Manufacturers' new orders for durable goods were reported up +4.9% by the Census Bureau, significantly higher than expectations. Last month's initially reported decline of -2.5% was halved to -1.3%.

Beyond simply being one month of particularly good data, manufacturers' new orders are a component of the Leading Economic Indicators, and are now decisively higher than at any point since the end of last year. This also completes the third part of an important trifecta of LEI indicators -- more on that tomorrow.

For those asking, "What will the economic recovery build upon?" we have at least part of our answer. It will be done the old-fashioned way, via manufacturing.

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Wednesday Commodities Round-Up

The weekly agricultural prices chart is weakening. First, notice all the EMAs are now moving lower. The shift has been subtle but it's clearly there. EMAs smooth the price action so we can see in real time what the current short, medium and long-term trend line looks like. Here, all the trends are now moving lower. In addition, prices are now below the trend line that started in late 2008. That's negative as well.


On the daily chart we see a very neutral situation. First, prices and EMAs are in a ntight range indicating a clear lack of direction While prices are still above a trend line, most of the price action has been to hug the line; an attempt to move above it could not be sustained. Clearly, traders are wondering where to move prices next.

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Reality Bites

The government and councils are finally waking up to the burden that they have imposed on the taxpayer, wrt the burgeoning public sector and its defined benefit pension schemes.

It seems that millions of public sector workers will face having their pensions reduced, as politicians battle to save the public sector from financial meltdown and avoid a middle class tax revolt.

The Times reports that John Denham, the Communities Secretary, is drawing up plans to downsize the public sector pensions which face a shortfall of at least £60BN.

The Department for Communities and Local Government, keen to avoid a winter of strife, have said that it would ensure that council pensions were fair, solvent and affordable.

The reality is that whatever the promises made, the current level of pension benefits for the public sector is unsustainable and cuts will be made.

The public sector workers will not react well to the cuts, and the country will be in for a very rocky ride as the industrial action taken will doubtless mirror that of the dying days of the last Labour government in 1979.

Funny how history repeats itself!

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Today's Markets

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Above is a chart of the transportation average. I included it because it hasn't risen above previous levels. In fact it may be forming a double top. Notice that even though we are seeing second top, the underlying technicals of that top are weak -- the RSI is lower and the MACD is printing a lower number. That means the prices in the second top are weaker than the first which is not a good development.

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Bernanke To Get Second Term

From the WSJ:

Wall Street and academic economists in recent weeks showed enthusiasm for giving Mr. Bernanke a second term, and some administration insiders felt similarly even though Mr. Bernanke was appointed by -- and served in the White House of -- President George W. Bush. Appointing a Democrat such as Janet Yellen, president of the Federal Reserve Bank of San Francisco, or Alan Blinder, former Fed vice chairman -- both former advisers to President Bill Clinton -- would have been popular with many Democrats. But a move by Mr. Obama to install his own person at the Fed might have have rattled markets and unsettled the foreign investors.

"I think this is a good thing for the markets," said Byron Wien, chief investment strategist at Blackstone Group. "Rather than going through a catechism of what Bernanke's done wrong, let's look at the net result. The economy is improving and the financial system is on the mend. It's a long way from perfect but it's also a long way from where it was a year ago."

Sometime over the last six months I was re-reading the Depression section in Milton Friendman's A Monetary History of the US. There is a chapter called The Great Contraction which details the banking system problems of the 1929-1933 period. Essentially, there were three banking panics over that time period which essentially froze the US economy and led to a huge drop in GDP. This is what Bernanke was trying to avoid with all of his plans. And -- he's been successful as the economy is currently bottoming.

The primary knock against Bernanke is he didn't see the mess coming. This is true. Oddly enough, the only people to see this coming were economic bloggers. There is a general train of thought going around that people who didn't see this mess shouldn't be involved in the clean-up. But frankly, Bernanke's outside the box thinking on how to solve the credit market problem should get solid marks. And the real grade should come in the performance of the credit markets since Bernanke's massive intervention. Interest rates are down. That tells us the risk premium has been priced at a far more normal level which is a damn good thing.

Ben is one of the key players that has helped us to get out of the mess. He deserves a second term.

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From Invictus: CFNAI Update II

Those who have followed me over at Blah3.com know of my affinity for the Chicago Fed’s National Activity Index (CFNAI). I like it because it’s an amalgam of 85 distinct data points that has a very good historical correlation to the ebbs and flows of the business cycle.

The Chicago Fed describes it this way: “The CFNAI is a weighted average of 85 existing monthly indicators of national economic activity. It is constructed to have an average value of zero and a standard deviation of one. Since economic activity tends toward trend growth rate over time, a positive index reading corresponds to growth above trend and a negative index reading corresponds to growth below trend.” (See here for a .pdf of the 85 components and their weightings.)

The folks in Chicago also advise us to look at the 3-month moving average for a better take on what’s going on with the economy.

I posted here with an update to this week’s CFNAI release, which printed at -1.69 (3-mo MA).

This recession is the seventh covered by the CFNAI. Of the previous six, only three have seen the 3-month MA dip below -2.00, and our current recession hit -3.63 in January. So I thought it might be interesting to see what the prior deep (CFNAI breaches -2.00) recessions looked like in CFNAI terms. Here’s what I found:



The 1973 recession ended in its seventeenth month (March 1975) with the 3-month MA of the CFNAI at -2.96. However, although nonfarm payrolls printed -186k in April 1975, it printed +160k in May, and was off to the races starting in July. We’re not there yet on employment.

The 1980 recession saw the recession end with the 3-month MA at -2.20; the very next print was -0.89. Unfortunately, that recovery was unsustainable, and the economy slipped back into recession about one year later, with the 3-month CFNAI spending most of that time in negative territory and never moving above 1.17.

For the three “deep” recessions, the average 3-month CFNAI value in the first month of recovery is -1.45:



As I mentioned previously, I continue to be very concerned about sustainability, and strongly suspect the NBER is going to take its sweet time to make an announcement, as they need to be sure the economy is standing on its own two feet and not being propped up primarily by government largesse. Having said that, we appear to be on the cusp of moving toward a number that might signal recession’s end – or at least a brief hiatus until its resumption.

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American Stupidity

Ever wonder why America can't seem to shoot straight on some issue? Here's why:

From the NY Times:

Chinese companies have already played a leading role in pushing down the price of solar panels by almost half over the last year. Shi Zhengrong, the chief executive and founder of China’s biggest solar panel manufacturer, Suntech Power Holdings, said in an interview here that Suntech, to build market share, is selling solar panels on the American market for less than the cost of the materials, assembly and shipping.

So, that's the stage we're setting. There is an industry which is obviously going to be a tremendous driver of growth. But is the US a driver? No. Let's look at why:

Backed by lavish government support, the Chinese are preparing to build plants to assemble their products in the United States to bypass protectionist legislation. As Japanese automakers did decades ago, Chinese solar companies are encouraging their United States executives to join industry trade groups to tamp down anti-Chinese sentiment before it takes root.

This doesn't happen in the US. Why? There is a contingent of incredibly stupid people in this place called Washington. They typically have an "R" after their name. According to their political ideology, this is "picking winners" which the market is supposed to do. So, instead od pouring money into a sector that is growing we're left with nothing.

But wait -- there's more:

Since March, Chinese governments at the national, provincial and even local level have been competing with one another to offer solar companies ever more generous subsidies, including free land, and cash for research and development. State-owned banks are flooding the industry with loans at considerably lower interest rates than available in Europe or the United States.

There is another party in the US called the Democratic party. And their vocal minority that seems to get all the press is very anti-business. Working with corporations is bad and evil; money was invented by Satan to corrupt our souls. Profits are terrible and horrible and should be avoided.

This is why other countries get ahead of us. They don't listen to the screamers on either side of the political aisle.

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Treasury Tuesdays

This is a very interesting chart. There are currently two key features. First, notice that the 91.5 level has offered a tremendous amount of resistance -- prices have approached that level three times in the last month of so only to be rebuffed. Secondly, notice that the EMAs are bunched together in a tight range and are tied together with prices. This tells us the market is pretty directionless right now.

From a fundamental view, this directionless makes sense. There is a tremendous amount of supply coming to market which is adding downward pricing pressure. However, there is continued talk of the market's need to sell-off a bit, which would increase Treasuries appeal because of their safe haven status. In short, the cross currents are strong right now.

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Today's Markets

OK -- it's yesterday's market. Anyway ....



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First, notice the market sold-off a bit from roughly the first week of June to the first week of July. What's interesting about this is no one is mentioning it, even though there is now current talk of the need for the market to sell-off a bit. Was this sell-off enough to scare out the less convinced traders? Who knows. But the point is maybe this blow-off was enough for the market to move higher.

The upward move is still in place. It started in early July and shows no signs of abating. In addition, the MACD is about to give a but signal. All the EMAs are moving higher, the shorter EMAs are about the longer EMAs and prices are above the EMAs. The only bearish element to this chart is the RSI is dropping. However, no chart is perfect -- that is, not chart will ever give you a situation where it shows only buy signals.

Bottom line, the percentages say we're moving higher.

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Mortgage Approvals Rise

The British Bankers's Association (BBA) has released figures that show that overall mortgage lending has declined month on month in July, in spite of the fact that there has been an increase in the number of mortgage approvals.

Mortgage approvals for house purchases in July have hit a 17-month high of 38,181, up from 35,564 in June.

BBA figures also show that net consumer borrowing fell by an annual amount of £0.2BN. However, outstanding balances rose by 8.7% (to £24.7BN) as a result of interest debt.

The sword hanging over the "economic recovery" is the level of consumer debt, not the strength or otherwise of the housing market.

The BBA may do well to remind its members that by profiteering from excess charges and extortionate rates of interest, the banks are threatening the economic recovery.

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