Archive for June, 2013

Avoiding Swine Flu

Friday, June 28th, 2013

While we must be careful about accepting stereotypes too literally, I think most folks would agree that in general pigs have developed an unfavorable reputation. I have never owned a pig so am by no means to be considered an authoritative source of information regarding either the pot-bellied or tea cup variety, but I have done some research. What I have found does not compel me to adopt one. They are intelligent and perpetually hungry which means they can usually figure out how to get into any closet, cupboard, refrigerator, whatever, in search of food. They also like to root; this is another way of saying it is quite probably that a pet porker might just look under your wall-to-wall carpet for a snack–more than once. They can apparently be trained to use a litter box but you should be aware of two things. First, “little” pigs grow to weigh 150 to 200 pounds in about five years which means you are going to need a whale of a box. Second, since what they mostly want to do is eat, they must constantly make room for new gnoshes by eliminating the old. Any attempt to handle this situation by feeding them less, risks having them in turn consider sampling you. Many a farmer has lost a finger or two to a hog; at home, should you choose to take in a pig, you may want to keep your toes covered and a watchful eye on small children.

Speaking of pigs, have I told you the one about bankers? Globally, the fixed income, equity, and gold markets really took it on the chin after Fed head Bernanke suggested recently that the current era of easy money will come to an end some day. Indices everywhere seemed to tank in unison on what was (1) obvious and (2) still scheduled for some time in the undefined future. The rout caused Richard Fisher, the Dallas Fed’s president, to tell The Financial Times that “Markets tend to test things…I do believe that big money does organize itself somewhat like feral hogs. If they detect a weakness or a bad scent, they’ll go after it.”

So there you have it. Pigs are called pigs because they act pretty much as nature intended. Bankers, and many other large money centers, may be likened to swine because they sometimes have a tendency to emulate one. I, for one, shall bring neither pigs nor bankers as pets into my household and would strongly recommend that you let any urge to do so pass prior to fulfillment. Get a guppy maybe. Meanwhile, here at Atlas, we will continue trying to keep your portfolio inoculated against Swine Flu. (by J R)

May Industrial Production

Thursday, June 27th, 2013

The Federal Reserve’s industrial production report showed no growth in the output of physically made goods for the month of May. This flat month follows April’s revised decline of 0.4 percent; the initial tally was a decline of 0.5 percent. The second quarter is off to a slow start.

The internals of the release were mixed. Manufacturing managed to increase 0.1 percent, but that follows declines in each of the previous two months. Mining output was 0.7 percent higher after climbing 1.1 percent in April. Utilities were the big drag for the month. They fell 1.8 percent, and that is on the heels of a 3.2 percent decline in the prior period.

Capacity utilization edged lower in May. This measures the proportion of capacity being used during the month. The current estimate is 77.6, down from 77.7. This is a difficult concept to measure so a small move down is not an attention getter here at Atlas. Should it persistently change in one direction, we will begin to take note. The take away for now is that the proportion is below the long-term average of 80.2, so it is not suggesting that the country’s physical output is being limited by its capacity.

The central bank, which conveniently produces this indicator, may be perturbed by the recent figures. Despite all of the efforts to jumpstart the economy, America’s physical output is not responding very robustly. Nonetheless, housing and financial asset prices have continued to grow. This may suggest the central bank’s actions are not finding their way into all the parts of our economy where assistance would be most beneficial. (by C. Cox)

May Retail Sales

Wednesday, June 26th, 2013

Consumers counter-punched the slow economy in May with a surprisingly strong retail sales report according to the Census Bureau. The monthly increase was 0.6 percent, putting its year-over-year increase at 4.6 percent. The aggregated report was rather strong with continued strength in some areas, but there was weakness in a few curious subcategories.

Retail sales were provided a boost by autos, food & beverages, and building materials. Vehicle sales jumped 1.8 percent in May after gaining 0.7 percent in April and accounted for about half of the month-over-month improvement in the headline number. Food & beverages staged a turnaround in May after being negative in April. This was a concern for Atlas to start the second quarter because it takes a financially stressed household to cut back food purchases. Hopefully April’s weakness was an anomaly. Building materials buttressed retail sales’ increase, strengthening by 0.9 percent in May.

Some weakness was seen in a few discretionary areas. Food services and drinking places fell (i.e. eating out versus at home). This contrasts the strength of the category in April. Furniture purchases were lower, which does not square with the strength seen in the housing market; perhaps the old furniture will do. Electronics and appliance stores were down for the month and are now lower than a year ago.

The overall report was positive. This indicator represents over 20 percent of the economy, so it gets close attention. Atlas will monitor the minutia of the report to look for signs of consumer stress, but for now there does not appear to be any widespread weakening. (by C. Cox)

First Quarter 2013 Productivity and Labor Cost

Tuesday, June 25th, 2013

The revised numbers for productivity and unit labor costs in the first quarter of 2013 were lower than first tallied according to the Bureau of Labor Statistics. The growth in the nation’s nonfarm output per hour worked was closer to 0.5 percent instead of the first estimate of 0.7 percent. Unit labor costs got a huge revision. It was first thought that cost of labor associated with producing a “unit” was 0.5 percent higher on an annualized basis, but after surveying additional information, it appears the employment costs fell a staggering—and historic–4.3 percent.

Productivity is comprised of two components, output and hours worked. The nation’s output was an annualized 2.1 percent more than in the previous quarter. It only took 1.6 percent more hours worked, resulting in the 0.5 percent productivity gain. Year-over-year, the output increased by 2.4 percent and hours worked ticked up 1.5 percent.

The primary influence on the lower unit labor costs was the revised 3.8 percent decrease in hourly compensation. Combined with the 0.5 percent increase in productivity, the annualized unit labor cost fell 4.3 percent as noted above. The report does not explain the huge drop in compensation but it must reflect a decline in wages, benefits, or both. Is it possible that businesses are front running the future demands of the Affordable Care Act by making cuts to both?

This is another report that is likely to keep the Federal Reserve cautious as the year wears on. There has been recent scuttlebutt about the central bank tapering its accommodative policies as some within the various bank regions worry about the side effects of experimental monetary tactics. This productivity and unit labor costs report is likely to strengthen Ben Bernanke’s position for the approach. He may argue that the economy’s efficiency is falling since the difference in productivity gains between the 12-month look back and the annualized figure released in this quarterly report is negative, going to 0.5 percent from 0.9 percent. Also, with unit labor costs falling as quickly as it did, there is little evidence that wages will become the source of inflation anytime soon. (by C. Cox)

April International Trade in Goods and Services

Monday, June 24th, 2013

Our trade gap with other nations widened in April according to Bureau of Economic Analysis.  The deficit moved from a revised $37.1 billion (originally $38.8 billion) to $40.3 billion.  This increased shortfall was a result of imports growing faster than exports.

Comfort can be found in the fact that trade activity picked up on both sides of the ledger.  Exports rose by $2.2 billion over March while imports ticked up some $5.4 billion.  Looking deeper, we see the primary driver increasing our deficit was the difference in non-petroleum goods imports versus exports. This growing chasm may speak to the relative strength of the U.S. economy versus the rest of the world.  In particular, American firms increased their imports of consumer goods.   Further proof can be seen as our petroleum gap improved yet again, dropping from $20.5 billion to $19.7 billion as America’s reliance on foreign oil continues to diminish.

In the short-run the take away is that both imports and exports have improved.  The wider gap will subtract more from the next quarterly Gross Domestic Product tally, but it is encouraging to see both the U.S. and foreign economies demand more from each other.  With businesses upping their purchases of consumer goods made abroad, local firms may be anticipating added demand from U.S. consumers.  Atlas hopes the presumption is correct because many good things can result within an economy when the largest segment has a growth spurt.  (by C. Cox)

Health Tips for June, 2013

Friday, June 21st, 2013

Your crew here at Atlas sincerely hopes you know we want nothing but the best for you. While it is obvious that we spend most of our time tending to matters concerning portfolios, we do come across items relating to general health concerns. Here are a few recently encountered of which you should be aware:

Australian researchers found that polyphenols found in dark chocolate can promote calmness by reducing oxidative stress. After 30 days downing dark-chocolate drinks with high levels of such stuff, participants reported positive effects. In the future, we intend to make sure our diet contains sufficient chocolate.

The European Union has determined that up to 50% of processed animal weight is discarded. A Russian food company, applying technology developed by this EU project, plans to add meat scrap extract to ice cream, thereby boosting its protein content. Good news; now we have something over which we can pour dark chocolate syrup!

A U.S. government study by civil defense officials found bottled (or canned) beer absorbs little radiation when exposed to an atomic blast. The flavor also remains unimpaired. If you are loading up your shelter in preparation for a nuclear war, consider keeping the bar well stocked. It may also help you maintain a cheerful attitude during the event.

Scientists at Tufts University successfully grafted eyes from one tadpole onto the backside of another, allowing the recipient to see where it had been. There is some thought that we may all one day be able to have eyes in the back of our head. This could prove especially useful after a nuclear war if you are the only one in your neighborhood with any beer. We’ll keep you updated. (by J R)

May Industrial Production

Thursday, June 20th, 2013

Our nation’s industrial production, according to the Federal Reserve, continued showing the weakening momentum we saw in April on into May. The headline number remained unchanged and last month’s total did get revised up one-tenth to reflect a -0.4% decline. The consensus was looking for a slight two-tenths improvement so the report tends to provide emphasis for our concern voiced in last month’s report that a weakening trend could be developing in this indicator.

Utilities pared their output further, off 1.8% in May, following the 3.2% decline registered in April. Mining added 0.7% to the 1.1% gain we saw last month. Manufacturing rose a scant 0.1% which does little to offset the previous 0.4% decline. In fact, this is the first increase we have seen in four months. A separate report showing a wide-spread gain in inventories may cause manufacturers to become more cautious, returning this data series to the negative column.

Capacity utilization rates also took a slight tumble down 0.1% to 77.6% in May, following a similar 0.1% downward revision from the original April total. This provides further evidence that our economy may be slowing a bit. If that pans out, expect the Federal Reserve to send a clear signal it intends to maintain the pace of its stimulus measures via so-called quantitative easing programs for some time yet. Should they do so, Atlas expects it could be taken as good news for both the equity and fixed income markets in today’s perverse monetary environment. (by J R)