Archive for January, 2010

Fighting Debt

Friday, January 29th, 2010

If a huge cephalopod, say like a really Giant Squid, had a human hand on the end of each of its ten tentacles, there would still not be enough fingers left to point at all the causes being singled out as the reason our economy is in such a mess.  Politicians and bankers blame each other.  Republicans and Democrats do the same while Libertarians are convinced the major parties were both complicit.  Lobbyists fume while courts take sides, often opposing the decisions made by their cohorts in another district.  Generally though, that amorphous entity labeled “The Government” gets most of the blame.  Hence we have the Tea Party phenomenon where citizens rail against health care reform while carrying signs demanding that The Government keep its hands off our Social Security.  However, possibly the biggest single cause of our woes should be laid individually at our own feet since the explosion of debt seen at both the household and corporate level over the last thirty years is where the pain is being felt the most.  Parallels between today and the 1930s are frequent, but the Great Depression seems to have ended because of a global conflagration rather than policy and stimulus measures.  While I would never advocate World War as a cure for what ails us, I would suggest we need to gear up for battle.  We need to fight this accumulation of debt tooth and nail.  Deleverage!  Win the War!  We must fight debt to the last man.  That shall be our rally cry.  To accomplish this on the scale that I fear may prove necessary will not be either easy or cheap.  Therefore, the government may need to bank roll this effort by selling War Bonds to finance this Great War on Debt.

December Leading Economic Indicators

Thursday, January 28th, 2010

The Conference Board’s Index of Leading Economic Indicators jumped up 1.1% in December, on the heels of the 1.0% gain (revised from +0.9% originally reported) we saw for November.  The big difference between short-term and long-term interest rates, called the spread, provided much of the upside impetus, followed by building permits, and the stock market’s rise that month.  In fact, all ten components that comprise this index were positive in December, including a slow-down in delivery times.  I have always found that one particularly interesting, even if somewhat counterintuitive.  The logic for it implies a slowdown in deliveries must be a sign of a pick-up in backlogged orders.  That, in turn, suggests more aggressive ordering of raw materials, an extension of hours worked, possibly even new hiring is just around the corner.  That’s why the components of this report are seen as having some predictive value, hence their combined status as leading indicators.  While not considered an especially important report in its own right, we like to use it here at Atlas Indicators as confirmation of other trends we think may be developing.  Thus it is a welcome sign that supports more optimistic views such as those seen in some of our other indicators.

December Producer Prices

Wednesday, January 27th, 2010

The Department of Labor said headline prices at the wholesale level rose just 0.2% in December, a welcome slowdown from the torrid pace of advance we saw last month.  The primary driver on the upside for producer prices this time was food prices.  Unfortunately, the momentum that has been building inside this data now has it leaping up at an annualized 4.7% seasonally adjusted rate, two full points higher than what we worried about in November.  Even without applying the seasonal factors, the annualized rate of increase is a strong 4.4%, a number that quickly catches our attention.  It does not, however, seem to have such an effect on most economists who prefer instead to watch the core number which excludes both food and energy.  In December the core PPI was unchanged and has now risen on an annualized basis (with or without any adjustments) by 0.9%, which is actually down from the 1.2% gain reported in November.  Thus the report will likely be well received and suggest no tightening is imminent from the Federal Reserve.

December Industrial Production

Tuesday, January 26th, 2010

While the Federal Reserve’s release of the December industrial production numbers showed a strong 0.6% headline increase, disappointment lurked just below the surface. First, the gain was posted off of a November number which they revised down by .2%, though it still grew at a similar 0.6% rate. Unfortunately, the current reading was all about the weather as the record-breaking arctic blast suffered by much of the nation caused the output from utilities to soar 5.9%. Adding to the impact of this increase, last month’s number for this component was revised further down by 0.6% to reflect a total 2.4% decline. The mining component rose slightly in December, up 0.2%, which followed on a 2.1% jump the prior month (revised from +1.9%). It was the manufacturing component though that took an unwelcome hit, off 0.1%, and the November number was also revised down by 0.2% to show a gain of 0.9%. The prior month’s reading remains strong even after the revision, but no gains produced in December is a letdown after the stronger numbers seen in both November and October. Momentum may be gaining, but, if so, it’s in a stutter step fashion. The output of durable goods rose just 0.1% and November was revised down by 0.4% to reflect an overall 0.6% rise, while non-durables fell 0.1% in December with no prior revisions. The capacity utilization rate for November did get revised up 0.2% to 71.5% and gained another 0.5% in December to hit a 72% total. Looking at industrial production on a year-over-year basis shows it is down just 2.0%. This is an improvement over November’s 4.9% shortfall (also revised up 0.2% from the -5.1% originally given) and the 13% decline we witnessed just six months ago. We’ll take some comfort in that and await next month’s news.

December Consumer Prices

Monday, January 25th, 2010

The December Consumer Price Index rose 0.1% at the headline level, pretty much as expected.  Housing remained unchanged for the month and recreation tumbled a bit; combined, these two factors account for the relatively steady reading.  Helping to keep it positive were slight rises in both food and energy.  The year-over-year rate of consumer inflation at the headline level surged to 2.8% from the 1.9% reading we saw in the prior month.  The core CPI, which subtracts food and energy prices, also rose 0.1% in December, bringing its gain Y/Y to 1.8%, also a 0.1% increase from November’s annualized figure.  There seems to be little we currently can anticipate that might drive this measure of inflation higher besides exogenous influences like bad weather on crop prices or a global dust-up which roils the energy markets.  Therefore, despite the slight uptick seen in December, we will leave our needle as is, at least until the Labor Department provides us with their January update next month.

Big Mac Attack

Friday, January 22nd, 2010

Here at Atlas Indicators we take pride in the lengths we will go to avail ourselves of the best research we can possibly afford.  We will sacrifice our bodies for the cause.  We will even sacrifice yours on occasion.  Thus it happens that I recently found myself dining at a local McDonald’s with Jack and Carmen, two clients who share my enthusiasm for going that extra mile in search of truth.  As background, allow me to remind you that the Big Mac is not just iconic; it is also used by The Economist, a publication to which I subscribe, to measure the relative value of currencies.  The theory states that, given McDonald’s strict standards regarding their menu, a Big Mac is prepared in exactly the same way in countries around the world.  Determining how much this particular delight to gourmands everywhere costs in both the local currency and in U.S. dollars at the prevailing conversion rate, provides us with a measure they call Purchasing Power Parity.  Turns out we locals get a pretty good deal relative to most anywhere else.  But wait, there’s more!  UBS, a Swiss bank, decided to see just how long it took citizens of 73 cities around the world to earn enough to buy a Big Mac.  Here we do it in about 12 minutes.  In Nairobi it takes roughly two hours.  We earn ten burgers to their one.  What Jack, Carmen, and I discovered is that we only needed five minutes to consume that which we strove twelve to pay for.  How that startling piece of research will prove helpful in portfolio construction remains to be seen.  Right now I’m thinking it might need further research.  Want fries with that?

December Retail Sales

Thursday, January 21st, 2010

December retail sales, according to the Commerce Department, fell 0.3%, surprising many economists, most of whom were looking for a slight increase.  The declines were spread across a wide swath of categories, dragging down the performance of over half the sub-categories that comprise the report.  Core retail sales, which exclude both auto and gasoline sales, declined 0.3% for the month.  Total sales in 2009 declined by 6.2%, which gives the year the distinction of producing the worst annual decline seen since records began being collected in 1992.  It also marks just the second time we have seen retail sales fall over an entire year, 2008 being the first, when they ended down 0.5%.  This data produces a disappointing setback for projections of an imminent recovery, especially since it captures the holiday shopping season.  Remember though, we saw a strong surge in both October and November.  In fact, the November headline total was revised upward by 0.5% to reflect a very strong 1.8% increase while core sales were increased 0.4% to 1.0%.   Statistics are a funny thing, and the same report still provides some encouragement to those economists who see momentum building in our economy.  Compared to December of 2008, monthly sales rose 5.4% after jumping 2.5% in November.  For now, we here at Atlas Indicators will hold to the more optimistic view, having never felt the recovery would move unabated forever upward.  We will see if the new year brings consumers back to the stores when the figures for January are released.