Archive for January, 2012

Santa Anita

Friday, January 20th, 2012

Would anyone argue that the 2012 season for U.S. horse racing started the day after Christmas at Santa Anita?  It’s a beautiful place, full of excitement.  A backdrop of snow-capped mountains frames the art deco structure as winter sunshine glints off the backs of powerful horses and their rider’s shimmering silken colors.  The track is a mile long oval.  While many a tout will offer his opinion as the buglers blow, no one knows which horse will win until someone’s nose crosses the finish line.  The one that breaks quickest from the starting gate may ultimately finish last.  The announcer calls the pace, breaking the action down, naming leaders at the quarter-mile, half-mile, and down the stretch.

So it is with the stock market.  Many analysts will push his list of winners and losers early on, but each year is full of surprises.  Take 2011 for example.  It was a slam dunk year, the third within our four-year presidential cycle.  For seventy years it has seen a positive finish.  Only a fool would have bet against it and only a fool would have won.

Some of the data we follow here at Atlas breaks the year down into quarters just like the announcer at Santa Anita.  We take note as financial data is generated and report them to you.  What we don’t do is try to pick winners in advance.  We follow trends instead, allowing them to decide how investments should be allocated.  Should we be owners and buy equities, loaners and pick up bonds, or just keep our powder dry in a money market substitute?

Each quarter will come and go and different portions of our portfolio will lead or lag at each split, but the ultimate winner may not be the one leading at any particular point in time.  Unlike a horse race, this event has no end.  By employing a computer driven relative strength analysis daily we hope to stay in or close to the lead.  When everything is bunched up, it can be hard to see who is winning, but I can assure you of one thing: that would be a terrible time to get off your horse.  Investing is a race which lasts a lifetime and to win the roses you must stay in the saddle.  We will help hold the reins.

December Retail Sales

Thursday, January 19th, 2012

Retail sales grew slightly in December according to the U.S. Census Bureau.  The slow change was primarily due to adjustments made to the prior two months.  December’s 0.1 percent growth came after a 0.4 percent change in November (originally reported as 0.2 percent) and October’s 0.7 percent growth that was previously tallied as 0.6 percent.  The revisions gave December a bigger hurdle to get over, so the month’s advanced estimate is not as bad as 0.1 percent suggests.

Year-over-year retail sales have increased 7.7 percent.  Gasoline did some heavy lifting in 2011 as sales grew 17.7 percent!   The increased cost of petrol had a large influence on this jump.  According to the U.S. Energy Information Administration, the nation’s average weekly price for gas was between $2.56 and $2.93 in 2010 and between $3.03 and $3.91 last year.  The consumption habits of the country continue to adjust as non-store retailers saw annual growth of 12.5 percent while brick and mortar stores tended to grow substantially slower.  One other area of fast growth last year was in auto dealer sales.  They picked up by 10.5 percent over the prior year.

As the adjusted figures from October and November suggest, retail sales are subject to rather large revisions after more complete data is compiled.  December moved in the right direction, so hopefully any modifications will continue to abet the recent positive direction of sales, but adjustments have been known reverse the course of previous estimates as well.  The nation has traditionally relied on consumption to drive its prosperity.  If our economy settles into a period that Atlas feels will be marked by slower consumption growth, America will need to rely on other areas of the economy to maintain a trajectory similar to the average rate of the previous several decades.  Since the government is looking for ways to cut its contribution, the difference will need to be made up by business investment and exports, or we will have to live in a slower growing economy.  (by C. Cox)

November’s Trade Deficit

Wednesday, January 18th, 2012

In November, according to the Commerce Department, the U.S. trade deficit soared by $4.5 billion to $47.8 billion.  This jump, which was much worse than anticipated, came as exports fell 0.9% against a jump of 1.3% in imports.  Oil prices increased, contributing to much of the overall gain, but also our foreign customers seem to be pulling back even as foreign suppliers increase their penetration into our marketplace.  When we try at Atlas to ascribe cause to these gyrations, increasingly we see signs of a slow recovery taking place here in America. Thus we must look abroad to find a more complete explanation.

There appear to be two forces working against each other outside of the U.S.  China seems to be enjoying a broad recovery following a recent slowdown engineered by their central bank.  Whenever evidence of this shows up in some data point, global equity markets tend to rally.  Then as counterpoint an article about the crisis surrounding Europe’s monetary system is published and markets go into a swoon.  Overlaying all of this is geo-political uncertainty surrounding possible problems in the oil market where prices yo-yo to their own set of circumstances.

While headlines show equity markets worldwide continue to experience increasing volatility with large valuation swings seeming to take place almost every week, behind these numbers lives are led and business gets done.  In this global economy an increase in certainty is sorely needed but currently the only sure bet seems to be that more uncertainty will hold sway for some time to come.

Cultural Economics

Tuesday, January 17th, 2012

Let’s pretend you are a cultural anthropologist living in Oregon with no sense of geography.  You have never heard of Japan and aren’t even aware that such a country exists.  This means you don’t know that one year ago a massive tsunami washed huge portions of their culture into the Pacific.  Fortunately, since you enjoy passing time as a beachcomber, a strong current has been moving all the flotsam from that disaster across the ocean toward the very beach you patrol.  For the next year or so quantities of it will wash up at your feet.  You will examine some small bits and pieces but possibly entire homes full of artifacts will also come ashore.  It will be from all of these discoveries made over time that you piece together a picture of how that strange culture you are now studying was functioning.

Perhaps here at Atlas we could consider ourselves to be economic anthropologists since our approach to understanding current global economic conditions is similar to that taken by our scientist referenced above.  Little bits and pieces of information drift onto our computers, all of which describe some fraction of the whole as it looked a while ago.  Depending on the mass of the subject, some info arrives with a lag of just weeks.  Some can take quarters, even a year or more when it comes to dating recessions and such.  We compile this information as it comes, distill it to its essence, then post it as one of our daily blogs for your consumption.

You might question the timeliness of our daily emails.  Sometimes the information they contain seems to date back a month or more so you could reasonably ask, “Have you ever considered dating your emails?  I mean with the date they are written.  You’ve explained that they are always a bit behind, but I often find myself wondering exactly where they fit into the recently reported events.”  Here at Atlas we often discuss the relevance of some data point between ourselves for much the same reason.  Occasionally something comes in that already seems contradicted by fresher data but we don’t throw anything out.  We record it with hope that upon review months later total integration produces a more complete picture that we may have initially missed.  What you see each morning is relatively fresh; we try to send nothing out which wasn’t released within the last two weeks.  Seeing how all these pieces relate to the whole is akin to our anthropologist assembling a view of Japanese society based on discovered artifacts.

CIVETS Society

Friday, January 13th, 2012

If you awoke one morning to find your bedroom infested by civets, would you (a) call an exterminator, (b) conclude last night’s yogurt was tainted, (c) think you just came to at a rock concert, or (d) assume your mobile home had somehow been transported to Africa while you slept?  Yes!  Good for you.  That is the right answer.

Generally speaking the civet (also called toddycat by some) is a mammal famed for its ability to transform coffee beans into expensive ground roast merely by treating them to a digestive process which ends when someone pulls the end product out of its scat.  They also have glands which produce a pungent secretion which, when scraped from the animals extremities, helps stabilize the odor in your perfume.  Isn’t it interesting that two of the jobs you would least want in the whole world involve this little toddycat?

CIVETS is also now an acronym in global finance which has gained favor over the more cumbersome BRIC.  You will recall the latter stands for Brazil, Russia, India and China, four emerging market nations which together were seen as the economic saviors of our capitalistic way of life.  Although these players have begun to falter each in their own way, do not be concerned.  A new hope arises from the frontier markets which is what we call the new emerging emerging countries.  Our focus now turns to Colombia, Indonesia, Viet Nam, Egypt, Turkey and South Africa (hence CIVETS).  The term was coined initially by Robert Ward of the Economist Intelligence Unit but Jim O’Neill of Goldman Sachs fame is currently getting the credit for using it in a new book he just had published.  Let them fight that one out between themselves.  I mention it so that you’ll say you heard it here first and I can take all the credit.

Why are the CIVETS so important all of a sudden?  Because their demographic contains a soaring number of youngsters.  Given the pace at which old folks are beginning to tap their version of social security in the developed world, we’re going to need these kids to help keep the checks coming.  Imagine, America dialed 911 and Viet Nam answered.

December Supply Managers

Thursday, January 12th, 2012

The Institute for Supply Management’s two monthly indicators continued to show signs of expansion in December.  Putting in a six month high, the reading on manufacturing not only showed continued growth, but the growth accelerated to 53.9 from November’s 52.7.  The service sector, a much larger part of our economy, also accelerated with its reading of 52.6 besting the 52.0 figure from the prior month.

One of the first things to look at in the manufacturing side is the new orders.  The orders precede actual manufacturing, so it is seen as an indication of things to come.  New orders rose almost an entire point to 57.6 after putting in a strong reading in November and now sit at an eight month high.  Another area showing improvement is inventories.  They fell at a faster pace than in November meaning that the products being manufactured are not sitting idle after completion.

The service sector segment of the economy continued its string of improvements by putting in the 25th consecutive month of increases.  The reading does suggest only mild growth but new orders did improve to 53.2 from 53.0 in November.  The employment reading is worth looking at since the majority of our nation’s workers are employed in the service sector.  This month’s survey shows a slowdown in the decrease of jobs as 6 out of 18 industries reported additional hiring, 9 decreased their workforce, and 3 signaled no change.

The slow recovery saga continues for now.  These two indicators are showing growth, but the rate of change is rather gradual leaving our economy vulnerable to shocks.  Sources of potential shocks seem countless these days, so Atlas remains cautious.  We continue to derive our portfolio mix from those medium- to longer-term areas of leadership within the investment world. While continuing to examine and comment on our economic indicators, we will make adjustments based on this relative strength analysis. (by C. Cox)

December Unemployment

Wednesday, January 11th, 2012

The employment picture improved considerably in December according to the latest jobs figures from the Bureau of Labor Statistics.  The rate of unemployment fell to 8.5 percent from 8.7 percent in November and is now lowest it has been nearly three years.  Next, employers claim to have added 200,000 jobs during the final month of 2011.  The report is very encouraging from the perspective of both the household and establishment surveys.

There are now roughly 13.1 million unemployed Americans.  The impact of the “mancession” is still being felt as 8 percent of adult males that are available for work do not have jobs.  The gender gap has certainly closed as the ratio of unemployed women was only slightly better at 7.9 percent.  A year ago the unemployed rates for men and women over the age of 20 were 9.4 and 8.1 percent respectively.  The difference in the overall unemployment rate comes from the 16-19 segment of the population where 23.1 percent are unemployed, but even this sub-section saw an improvement of .6 percent for the month.

The establishment survey indicates 1.6 million jobs were gained in 2011.  Of those jobs, private payrolls increased by 1.9 million while government staffing fell 280,000 for the year.  Private employers added 212,000 to their staff as the country’s governments shed 12, 000 in December.  Two more encouraging developments came from the establishment survey as the average workweek increased six minutes, and the average hourly wage grew by 4 cents to $23.24. The average wage has now increased by 2.1 percent in the last twelve months.

The wage increases, longer work week, and additional jobs are all constructive for a recovering economy.  The level of unemployment is still much too high, but the latest trend has been moving in the right direction.  Atlas is far from declaring all clear, but this indicator appears to be moving away from the direction of imminent danger.  (by C. Cox)