Archive for February, 2012

Big Bang

Friday, February 17th, 2012

As a sit-com The Big Bang Theory has enjoyed tremendous success.  I’m told it is entering its fifth year of production which is some kind of golden goose since it allows for syndication and residuals to the cast for a long time to come.  Amazing for a story about a group of young Cal Tech scientists but that’s the magic of Hollywood.  The show’s title is obviously a play on the concept found in physics which describes how the universe began.

Actually, I should have said attempt to describe how it all began since there’s still a stumble or two left when tackling the first one or two trillionths of a second at inception.  Apparently no one has asked the Greeks who explained it all centuries age.  They say creation began when the goddess Chaos emerged and that makes about as much sense to me as Einstein, et. al.  Judging from the nightly news I’d say she remains well ensconced in her homeland to this day.

The word chaos translates loosely as “a gap” so I suppose today’s view of the world’s economic future is about as chaotic as it can get.  Central banks everywhere seem bent on creating scads of money out of their own primordial soup in a still vain attempt to stimulate spending.  This leads one group of forecasters to warn us that inflation is coming, possibly even hyperinflation and the demise of our currency.  Another group points to the pending bankruptcies they see coming on an individual, corporate, and sovereign scale.  Their warning, equally strident, is against continued deflation, possibly even an abysmal world-wide depression.

Meanwhile, the world’s equity and fixed income markets rise and fall like ends of a teeter-totter with every headline as investors attempt to determine which view will ultimately prove out.  Portfolios are caught between Scylla and Charybdis marked more by volatility than any true sense of direction.  Like all others, here at Atlas we aren’t sure in which direction resolution will ultimately lead so we continue to maintain a rather defensive portfolio posture.  In time, some say, Chaos had a son named Helios.  Let’s hope he shows up soon to shine a little light on this foggy monetary Keynesian creation.

January Treasury Budget

Thursday, February 16th, 2012

The treasury budget improved during the month of January according to the Department of Treasury. The monthly deficit was a mere $27.4 billion after totaling $86 billion in December.  This is the lowest in fiscal year 2012 and less than every month in the fiscal year 2011.  At the top of the report, the Treasury was kind enough to point out the primary reason for the large improvement.  There were accelerated payments that had to go out in December since the first day of January fell on a Sunday.

The calendar should not get all of the credit however.  In terms of receipts every month this year has been better than its corresponding month in 2011.  The government has been able to collect more in taxes as the economy continues to grow.  Americans had almost $90 billion withheld from their paychecks in January.  Year-to-date, the Federal Government has managed to spend less as well.  These outlays have contracted by 3.25 percent as the government attempts to be more austere.

The White House says their most recent Budget is attempting to contribute to making the country more fiscally fit.  According to the summary table from the White House’s website, the administration would like to increase annual receipts by $433 billion and only increasing outlays by $7 billion thus bringing the deficit to under $1 trillion dollars for the first time in four years in 2012.  This plan is sure to add fuel to the partisan culture in the beltway.  Everybody seems to know that we have to fix our country’s budget, but there is no agreement on how to do it.  It feels like the nation has come to a fork in the road, and to paraphrase Yogi Berra, we are taking it.  (by C. Cox)

Aristophanes

Wednesday, February 15th, 2012

While I totally miss The Far Side by Larson, I do enjoy Conley’s Get Fuzzy.  So there I was yesterday afternoon, sitting on the couch reading the funnies when my smart phone came home from school.  “Dude!” it tweeted, “You need to get a life.  Take a walk or something; don’t just sit there like a dial-up analog device.”

I don’t know about you, but I hate being judged by machines and found lacking no matter how right they are.  Still, I did the adult thing.  Instead of cutting the cord to its recharger, I went out into the garage to sulk and have a talk with my car’s GPS.  “What’s with the attitude?” I asked.

“It’s your new t-shirt,” she replied, “The one with electromyographic sensors which sends your personal fitness data to the phone.  Apparently you had been sitting still for so long that they were wondering if you were dead.”

Like any good parent, I worry that my electronics may catch a virus associating with the wrong applications.  I asked my twelve-year-old nephew to help me grasp the extent of the problem and he laughed, “It’s not a problem.  It’s one of the drivers of economic recovery.”

Did you know that since the iPhone was introduced in 2007 that close to one million apps have been created for iPhones, iPads, and Android alone according to a recent paper from TechNet?  Their best guess is that nearly 500,000 new jobs have been created by this field over the last five years. While continuing to expand rapidly, this trend is so new that the Labor Department doesn’t yet accurately track it, but money is being made and wealth is getting shared.  Productivity is being enhanced.  With all the energy a five-year-old can muster an employment revolution is springing up in cities across America.

Now I’ll admit that I sometimes personify Newton’s whole “body at rest stays at rest” concept, but these new electronic devices should still have a bit more respect for their elders.  Not only am I older, but some in my demographic cohort actually invented their precursors.  And I’m not ashamed to take some credit for the newest advances in cloud computing.  After all, I myself was living in a fog long before it became fashionable.

Year End Trade Balance

Tuesday, February 14th, 2012

America’s trade balance worsened in December according to the latest figures released from the Bureau of Economic Analysis.  A jump in imports outpaced the increase of exports leading to a 3.7 percent gap of $48.8 billion.  The good news may be that Americans felt secure enough to consume more.  In turn, the rest of the world reciprocated.  But the net result will likely be negative for Q4 GDP revisions after all this data gets factored in to the final report since the deficit grew in the last two months with a faster increase in the final month of the year after slowing in October.

This trade gap, the highest in six months, developed as capital and consumer goods led an increase in imports. Not only does this suggest companies are feeling confident enough about the future to boost investment, but individuals in the aggregate are signaling they have a better outlook also as they parted with more cash in December over November.  In fact, purchases of goods and service from other countries reached their highest level in over three years.

The year ended with a trade deficit of $558 billion versus $500 billion in 2010.   Such a shortfall is not encouraging, but it has been the norm in America for decades.  The take-away from the latest report has to be the welcome growth of both imports and exports.  Further, consumption continues to improve world-wide.  The post-recession sticking point has continuously been the abnormally slow pace of recovery.  Only time will tell if this time truly is different from other post WWII recoveries, but Atlas does not think we are upsetting the apple cart when we suggest it certainly feels different.

Sam Had It Right

Monday, February 13th, 2012

Trying to avoid paying taxes is a pastime as old as, well, trying to collect taxes.  Misty of Chincoteague may be a delightful children’s tale but it is probably rooted in colonial tax evasion.  An underground economy based on cash payments “under the table” or barter appears to operate, even flourish, within most economies.  The current problem with the Euro can be traced in part to Greece and their blatant culture of tax evasion, but such habits are by no means relegated to just one country.

Bloomberg reports that Italian police now man checkpoints where they stop expensive vehicles, luxury SUVs and Porsches for instance, record the driver’s personal information which then gets sent to the national tax agency.  There the car owner’s declared income is examined to see if it’s sufficient to justify a well-to-do lifestyle.  If not, get ready for the audit!   Italy has conducted at least five such raids so far this year; last year they began doing the same with yachts berthed in their harbors.

Times are tough for many here in the U.S. today, but we are hardly on the brink of insolvency and the demise of our currency–yet.  Still, there are some who make a convincing argument that such an outcome isn’t all that far away if we don’t tame our deficit.  I’ll not argue either side of that debate; rather, allow me to offer just the slightest hint that there’s just the teeniest chance a similar program could be initiated here if push really came to shove.  What would all those folks with their Mercedes, Lexus, and Hummers do then?  If such a trend were to develop here which follows that unfolding in Italy today, used car lots would fill rapidly with unwanted and amazingly cheap (by comparison to their sticker) upscale autos.

Sam Walton was no piker.  Upon his death the estate he left, tied to the enormous success he had founding Wal-Mart, was estimated to be in the $16 billion range.  Yet he was also famous for dressing plainly and driving a rather common, even old, model car.  He would never have suffered the indignity and wasted moments enduring such a pop audit.  Keep an eye out to see if the winds of change begin to blow ill.  If they do, downscale.  Get a cheap car, maybe kick a dent or two in its side and pretend to be humble.  If you act like you own the world, a visit from the IRS may follow in short order.

January Unemployment

Friday, February 10th, 2012

The labor market is improving according to the Bureau of Labor Statistics’ release for January.  The unemployment rate moved down to 8.3 percent from 8.5 percent in December.  That is after being at 9.1 percent as recently as August.  Employers added 243,000 jobs in the first 31 days of the year.  This is in addition to the 60,000 jobs found in positive revisions to November and December.

The numbers beneath the headlines were mixed.  The average workweek was extended by six minutes to 34.5 hours.  Weekly earnings also improved, inching up 0.2 percent for the month.  They are now up 2.5 percent year-over-year.   Private employers hired 257,000 while government payrolls contracted by 14,000 following the government’s December slip of 7,000. The country’s labor participation rate fell to a level not seen since 1983; it has been trending down since the turn of the century.  The underemployment improved to 15.1 percent from 15.2 percent but this still means 1 in 7 Americans are working less than they prefer.

While the labor market faces major headwinds, the gusts are easing.  The country needs to see similar labor growth in the foreseeable future or this month will look like an aberration.  Keep in mind, the economy saw similar headline figures in the months of February – April of last year but still managed to grow slower in 2011 than it did in 2010 by over 40 percent.  (by C. Cox)

January Institute of Supply Management

Thursday, February 9th, 2012

Each side of the economy improved in January according to the Institute of Supply Management.  The rate of improvement was better for the service side of America, but the factory sector made headway as well.  The non-manufacturing reading went from 52.6 in December to 56.8 in January while the manufacturing survey improved to 54.1 from 53.1 over the same period and has now grown for 30 consecutive months.

The service sector’s new orders (an indication of future business) surged by almost 5 points to 59.4.  This should lead to an increase in general activity in the months to come.  As the largest employment segment of the economy, an 8 point increase pushed the employment component to the best reading of the recovery.  Business activity accelerated in January.  This increase may find its way into the first quarter’s GDP reading as should any new orders completed before the end of March.

The manufacturing side of the economy tends to be more sensitive to the business cycle than the service side, so with any luck last year’s slowing trend is complete, and the recovery will continue.  Factory new orders moved higher so production has a larger pipeline to work through.  The output in January did expand but did so at a slightly slower rate.  Also, manufactured exports improved at a faster rate while imports slowed.  This should help GDP by decreasing the trade deficit.

Overall the ISM readings are pointing to continued growth.  The non-manufacturing recovery high of February 2011 has not been matched but the service sector is moving in the right direction.  Manufacturing has improved in each of the last three months after a relatively steep drop that began last May.  The recovery seems to be progressing after being slowed by some sort of speed bump in the last half of 2011.  (by C. Cox)