Archive for November, 2009

October Leading Economic Indicators

Monday, November 30th, 2009

The Conference Board’s release of its Index of Leading Economic Indicators for October met with a less than enthusiastic reception from the equities markets.  Estimates for an increase had ranged from .2% to .5%, with the consensus looking for a .4% jump.  They got .3%, but reaction on the New York Stock Exchange led to a quick drop of over 150 points, although the decline was pared to just under 100 by the close.  While it is, in my experience, somewhat superficial to attribute any day’s market action to a single data point, the general take away suggests some economists may now be looking for a slower growth rate in the first half of next year than many had hoped for.  Obviously this could have some undesirable consequences, such as a labored improvement of the unemployment statistics.  It might even, horror of horrors, spur Congress to dream up further stimulus programs.  In an election year they will no doubt tend to lean in that direction anyway, so any encouragement will likely fall on fertile ground.  Our ballooning national deficit would only be exacerbated by such a move, possibly leading to further weakness in our currency.  Let’s hope the LEI shows stronger numbers in both November and December.

Casper the Friendly Trader

Friday, November 27th, 2009

Certainly you remember watching Casper the Friendly Ghost disappear when he needed to.  All he had to do was lose the sheet and presto, nothing was there.  Of late, the protection offered bondholders who chose to insure their portfolios with Credit Default Swaps has appeared somewhat more spectral than hoped for as well.  As “naked” CDSs have proliferated, the questionable ability of underwriters to make good on their promises has contributed to the current financial crisis, even leading firms deemed “too big to fail” into failure, AIG being a case in point.  Buying insurance makes sense; using a policy to protect yourself from loss should your house burn down is reasonable.  What is not reasonable is buying four more policies on houses that don’t exist.  But, according to The Economist, 80% of the CDSs don’t actually cover any bonds, thus the epithet “naked” is applied to them.  While the sellers of these naked contracts argue they are needed to provide liquidity, we can only say with certainty that they are needed to boost the earnings of originating bankers enough to pay the huge salaries some on Wall Street currently enjoy.  Perhaps returning to a direct one-to-one relationship might prick two bubbles, the excess profits earned on phantom insurance policies and the pay schedules that encourage such risky behavior.  If nothing is done, the next financial disaster is probably inevitable.   If stricter regulation is put in place the only one to lose his shirt may be Casper the friendly trader.

October Consumer Price Index

Wednesday, November 25th, 2009

The October Consumer Price Index grew by .3% for the month, just one-tenth of a percent more than consensus expectations.  Higher energy prices were the primary culprit.  Year-over-year the CPI registers a very weak .2% drop, which means it picked up substantially over the 1.3% annualized rate of decline posted in September.  The core CPI was also up .1% higher than consensus, growing at a .2% rate.  Here the annualized rate of increase is 1.7%, a gain of .2% over September.  Motor vehicle prices, both new and used, enjoyed a strong move to the upside in October, accounting for most of the gain we saw at the core level.  The Labor Department, which issues this report, uses this index in conjunction with two other price gauges to calculate the changes you and I experience whenever we open our wallets.  The CPI is their broadest measure since it captures the cost of services, things we buy ranging from airline tickets to movies to health care.  Additionally, they incorporate changes in wholesale prices from the Producer Price Index and the cost of imports from our trade reports.  We follow all three here at Atlas Indicators and attempt to provide timely updates to you regarding their status.  Ultimately, when they are pulling in concert either up or down for an extended period, you can be sure the Federal Reserve will react by changing interest rates.  Thus as an indicator of the future cost of money, they are very important indicators to track.

Happy New Year!

Tuesday, November 24th, 2009

Instead of using a normal calendar, our country runs on a fiscal year that ends each September.  Thus the U.S. Treasury was recently able to report just how prudently they managed on our account during the first month of this new year.  It wasn’t so hot.  I suspect you or I would get institutionalized if we behaved the same way.  They overspent by $176.4 billion dollars.  Of course that may not look so bad when you consider it’s just a touch over last October’s $155.5 billion dollar deficit.  Part of the problem relates to earnings, although I’m sure many would agree with me that the government rarely really works.  Anyway, year-over-year receipts fell for the month by 18% even as spending increased 6%.  Blame our current recession for the short fall and ongoing stimulus for the jump. Obviously, if we have just begun a new year we must have ended one as well, so how did we do for the last 12 months?  Our deficit for last year totaled $1.42 trillion, which means it pulled off a triple plus over the prior year’s $454.8 billion dollar miss.  While prudence has not been a hallmark of government spending (the average October deficit has been $61.7 billion for the last ten years), we can only marvel at this stunning performance and wonder how the bills are going to get paid.  No doubt the trend will continue to weigh on our dollar while bolstering the case for precious metals and other such inflation hedges.

October Retail Sales

Monday, November 23rd, 2009

Here at Atlas Indicators we have been eagerly awaiting the Commerce Department’s report on October’s retail sales.  Many of our other indicators have been showing a slow, persistent shift toward the positive, but consumption still remains the Holy Grail of economic recovery.  Unless folks are willing to lay out their hard-earned cash, there is no economy; that’s why consumption makes up the lion’s share, some 70%, of our GDP.  Overall, October retail sales blew past consensus estimates, recording a 1.4% gain.  Unfortunately, some of the shine from this report was removed as a .8% downward revision to September’s already negative number pulled it further into the red to post a total -2.3% decline.  While retail sales on an annualized basis are still negative, off 1.7%, this is a huge improvement from the 6.3% Y/Y shrinkage we saw in September.  When we look at “core” retail sales which subtract autos and gasoline, we see a .3% jump which matches September’s rise (after a negative .1% revision).  This points to where October’s strength lies since auto sales, up 7.4%, seem to have rebounded quickly from the drought seen in September (down 14.3%) as the government’s Cash for Clunkers incentive appears to have pulled some sales forward into August.  Gas prices remained basically unchanged.  The biggest weakness was still related to housing where declines were registered in areas such as building materials and home furnishings.  The surprising strength of this report is most welcome, but we will want to see an improving trend manifest over the holidays before feeling comfortable about moving our indicator for retail sales further into positive territory.

Noble Nobel Awards

Friday, November 20th, 2009

Much has been made of late regarding who gets prestigious awards, how and why.  Our own president’s recent Nobel Prize generated such a cacophony that many other equally meritorious recipients of similar honors were lost in the crowd.  To rectify this, we here at Atlas Indicators want to highlight this year’s winners in Mathematics and Economics of the 2009 Ig Nobel prize recently bestowed at Harvard.  The Zimbabwean Reserve Bank won for math due to their recent production of the country’s new bank notes, issued in a convenient range of denominations from one cent up through 100 trillion dollars.  That’s change you probably shouldn’t believe in.  For economics the award was shared jointly by directors, executives, and auditors from four Icelandic banks for their work demonstrating how a tiny bank can be changed into a huge bank and then back again into a tiny one.  The application of this approach was  used by the country of Iceland itself, somewhat in parallel, whereby this year’s winners also provided assistance to show that the same methodology can actually accomplish similar results for an entire nation’s economy.  For further details on these winners and others you can visit www.improbable.com.  While I would never stoop to such a low and obviously self-serving level as to suggest AIIA be nominated for consideration in the 20th First Annual Ig Noble Prize Awards, I do sometimes secretly, and in the middle of my darkest nights, wonder how it could be done.

September Trade Imbalance

Thursday, November 19th, 2009

The U.S. trade deficit with the rest of the world worsened substantially in September, falling to $36.5 billion dollars.  Imports jumped 5.8% for the month led by increased demand for petroleum even as the price per barrel was rising.  Another reason for the increase is attributed to more autos and auto parts being brought into the country to satisfy the surge in demand seen by our government’s Cash for Clunkers stimulus plan.  Still, given the lower demand for everything induced by our recession, imports have declined on a year-over-year basis by 20.6%.  Exports rose 2.9% in September and are down Y/Y 13.2%.  The weaker dollar seems to be helping this side of the equation as it makes our goods cheaper to foreign buyers.  Interestingly, the surge in imports for September is being seen by some as evidence the U.S. consumer is beginning to stir from his slumber.  If that pans out, we should see retail sales begin to move up.  That would be good news for everyone, although we must be wary of seasonally induced factors as the holidays come upon us.