Archive for October, 2009

Mustang Sally

Tuesday, October 20th, 2009

Mack Rice’s hit tune about a woman who is warned that her frivolous behavior may ultimately result in a loss of the privileges she currently takes for granted has apparently resonated with audiences for decades.  It still gets plenty of air time on the radio and at wedding receptions well over forty years after it was introduced.  We may never know how well Sally took the admonition to heart, but a similar refrain has been playing lately regarding America’s apparent attitude that the dollar is a privilege we can use or abuse as we wish.  Recently, a rumor, quickly denied, circulated that certain oil producing nations in concert with China, Russia, Japan, and France were looking for a viable alternative to our dollar as a global medium of exchange.  This was apparently in reaction to what some view as our government’s wanton spending spree fueled by printing presses shoveling out devalued dollars full tilt.  At any rate, the world’s markets reacted, driving the dollar’s value down, pulling the rug out from under the stock market, and causing precious metals prices to soar.  The fact that no such currency exists, and that creating one would involve first building a trading infrastructure that will be years in the making, didn’t seem to matter, at least for one day.  Also mooted, that the purchaser of oil would pay for the cargo with gold, seems a bit of a stretch.  At current prices for both commodities, the average tanker’s load of 2,000,000 barrels would require well over four tons of gold, not exactly pocket change.  But the warning is clear and hopefully we will respond appropriately lest our currency’s dominance eventually is as forgotten as Mr. Rice.  Will our dollars be replaced by bank notes picturing Wilson Pickett in lieu of George Washington?

September Supply Managers

Monday, October 19th, 2009

One of our favorite data points here at Atlas Indicators is a two-part report issued by The Institute for Supply Management.  I started following it long ago when it was still called the purchasing manager’s report, a title that helps clarify the major source of information it provides.  Who else would have a better feeling for a company’s order flow, both of raw materials coming in and finished products going out?  Such knowledge leads to other insights such as hiring plans and labor relations or sales and profit margins.  The first half of September’s report, which covers the manufacturing sector of our economy, slipped .3 points to 52.6, still above the break-even level of 50.  Within it those components which were positive last month, such as new orders or production, remain so but to a lesser degree.  Equally, components that had been negative like employment or inventories continued to show deterioration but at a slower pace.  Activity from the service side of our economy is covered by the second half of the report which is usually issued a couple of days after the first.  Here we saw a pronounced 2.5 point gain which pulled the index from a negative reading to 50.9 points.  New orders, order backlogs, and output all jumped onto the positive side.  Unemployment, still weak at 44.3, was barely changed.  The net take away from this month’s data points to an economy that now appears to be growing, albeit slowly, but still indicating that the recession may indeed be ending.  We’ll look for more follow through over the next few months before making such a bold call.

Flat-lined and Healthy

Friday, October 16th, 2009

Survivalists teach that in some extremely severe environments, fasting allows you to survive longer than will the pursuit of food.  This is because more energy gets expended in the search for nourishment than whatever you ultimately find can replenish.  In such circumstances it’s better to sit still and hope relief arrives before your demise.  Currently a flotilla of cargo ships larger than the combined navies of the United States and Britain lies at anchor in the South China Sea.  Global commerce has shrunk to such an extent that they can’t earn enough to cover expenses, so they sit, hoping to be rescued by economic recovery before they rust away.  One of the data points we follow here at Atlas Indicators is the Baltic Dry Index (BDIY:IND at Bloomberg), a measure of shipping costs.  From its high of 11,793 set in May of 2008, the measure plummeted over 94% to 663 in December of the same year.  It has subsequently recovered in a series of fits and starts, currently hovering in the lower half of a trading range between 2,000 and 4,000.  Perhaps a baseline is forming, one where demand and competitive pressures offset each other, allowing global traders to factor in freight costs with some longer-term reliability.  In such a case, the Baltic Dry chart may look less like the Himalayas and begin moving in a more horizontal fashion.  That could be healthy for world trade.  A flat line needn’t always be synonymous with death in the ER; it could signal a sustainable economic recovery is beginning to take shape everywhere.  We could use it.

Yesterday Was Cold

Thursday, October 15th, 2009

Yesterday was cold so I wore a sweater to work today.  I should have listened to the weatherman first.  The temperature must have jumped by 20 degrees and I was baking.  Tomorrow I may just come to work in my skivvies.  Perhaps I should check the forecast first.  Those guys who predict the weather used to do it based on aching bunions, the Farmer’s Almanac, and wooly caterpillars, but not anymore.  Now they use huge computers, satellite monitors, and sophisticated algorithms.  We do much the same here at Atlas Indicators when investing our client’s money.  Using the best technology, information from sources worldwide, and lots of proprietary conceptualization, we attempt to forecast how an ideal portfolio should be assembled, one that can flourish when the sun is shining but offer shelter when it storms.  Instead of frontal systems marking highs and lows, we employ various indicators which we hope allows us to capture the highs while avoiding the lows.  Some of them can be found at marketkapz.com by clicking on “My Favorite Market Indicators.”  Others are included in our morning commentary which is emailed to subscribers but also available at the same website.  We also employ telephones which allow rapid, reliable two-way communication between any of us and you.  Try one or more out and let us know what you think.

Three-Legged Races

Wednesday, October 14th, 2009

Three-legged races involve tying one person’s left leg to the right leg of someone else, then exhorting them to run toward a finish line faster than other pairs similarly bound.  If you have ever seen such an event, or been a contestant, you know both partners could individually outrun the two together.  It won’t help matters to amputate one of the three legs, expecting the pair to now hobble more efficiently toward their goal.  Interestingly, we find somewhat analogous situations in the current financial environment.  Are we seeing such circumstances after the collapse of Wall Street and subsequent absorption of major investment banks by huge commercial banks?  Following the collapse of Lehman Brothers, the viability of even the world’s largest banks was brought into question, and doubts still linger.  That the major investment firms were all absorbed into these banks, often at the behest of the government, argues persuasively that their health was no more robust than the acquirers, and likely appreciably weaker.  While plenty of examples can be found, consider the shotgun wedding of Merrill Lynch with Bank of America.  Both were limping before the race, and now claim being tied together will allow them to reach full recovery even sooner than if they remained apart.  This despite the press suggesting Bank of America’s head tried to stop the deal when the extent of Merrill’s internal injuries became more apparent.  The government seems to have strongly suggested he not do so, apparently feeling cutting off the deal could prove disastrous to the entire banking system, and the wedding was consummated.  Let’s hope they have a leg to stand on.

Kisses Won’t Make It Better

Tuesday, October 13th, 2009

The September household survey within the jobs report showed people continued losing their jobs, bringing the unemployment rate up a tenth from August to 9.8%, matching the level last seen in 1983.  As usual, revisions were made to the prior month’s data which depressed them a bit more as well.  Losses were wide spread, touching both the goods-producing and service-providing sectors.  Construction and manufacturing, both part of the former, saw declines.  Retail and government jobs, both part of the service sector, also tailed off, though the latter was felt mainly at the local level.  The numbers would have been worse had not a large group of people decided to withdraw themselves from the workforce, bringing the “labor force participation rate” down to 65.2%, a 23-year low.  The “underemployment rate” rose to 17%; it is a tally of the unemployed plus discouraged and involuntarily part-time workers.  Since the recession officially started in December of 2007, we have lost 7,200,000 jobs here in the U.S.  Wages grew by just .1% in the month which will do nothing for future retail sales.  Worse, the average workweek shrank by .1 to 33.0 hours, showing no sign that economic activity was picking up.  Economists are fond of emphasizing that the unemployment rate tends to rise even after a recession ends, but that is small comfort to the guy who was laid off.  If someone tells you they just lost their job, it provides no solace to murmur sympathetically, “I was pretty sure you would.”

September consumer confidence

Monday, October 12th, 2009

September consumer confidence, per the Conference Board’s monthly report, was certainly less ebullient than that seen last month.  August was revised up another .4% to 54.4, but this month saw a 1.4 point decline to 53.1.  Many of the individual components which make up this report showed more weakness than expected by the consensus of economists polled.  More folks said jobs are getting harder to come by, and that doesn’t bode well for retail sales or, by extension, corporate profits, nor does it imply any relief for upcoming payrolls data.  Further, more folks expect to see their pay drop (19.8% of those asked) versus increase (11.2%), again something that could dampen enthusiasm for retail purchases.  The number of people planning to buy a car declined, raising questions about the longer-term impact of the government’s Cash for Clunkers stimulus program.  Did it actually draw people in to buy while the offer was on the table, thereby “stealing” sales that may have been planned originally for “sometime later?”  Part of the answer will come when we see vehicle sales numbers soon.  The same concern applied to homebuyers.  Here again the number of would-be owners dropped from Augusts’ total, and we must ask if this is partially the result of another stimulus plan possibly about to terminate.  Unfortunately, this month’s report raised more questions and provided few answers.  Data due out over the next few weeks may help provide some.  Stay tuned; we’ll let you know.