"Economists are pessimists: they've predicted 8 of the last 3 depressions."
--Barry Asmus

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Thursday, January 20, 2011

Existing Home Sales! Leading Indicators! The Philadelphia Fed!

First off, existing home sales.  You want to see this up for the trickle-down impact.  It's not as significant as new home sales, but people will still tend to take out mortgages and buy durable goods when they buy an existing home, so good numbers are still things that can make the market happy.  And the market is looking for a little happiness on this one.  November saw 4.68 million new sales, and analysts are calling for 4.9 million sales in December.  For the actual figures we turn, as always, to the National Association of Realtors.  How did things turn out?  On a seasonally adjusted basis, we saw an expectations-beating 5.28 million sales.  The national median existing home price was $168,800, and distressed homes rose to a 36% market share.
Next up, The Conference Board's index of leading indicators.  Last month, the index was up 1.1, and analysts are expecting things to cool off to only a 0.6 increase on the index.  And what does The Conference Board say to this?  The Conference Board says "The US LEI Increases Sharply Again".  December sees us up 1.0 (beating expectations) to a level of 112.4.  And why do you care?  You care because leading indicators are seen as pointing the direction the economy is heading.  If the leading indicators are pointing up, it should mean good times ahead.
Finally, we have the Philadelphia Fed's January 2011 Business Outlook Survey.  December's results were revised downwards from 24.3 to 20.8 (not great), but the analysts are still optimistic and expecting to see a 20.0 for January.  The actual result is a 19.3, close but no cigar.  On the other hand, this is the fourth consecutive month of positive readings for the index, which shows continued improvement in new orders, demand for manufactured goods, and shipments.  Also, 25% of reporting firms indicated an increase in employment while only 7% reported a decline.  Costs are increasing (which we knew from the PPI), but the majority of reporting firms expect to see growth continue.
So what, you say?  Well, this is rather like the Empire State Manufacturing Survey (from Monday), but bigger.  The Philadelphia Federal Reserve District covers a larger geographic area, so it's considered to be a little more representative of the nation's economic activity.  The takeaway that traders are likely to get from this report is that, while things aren't perfect for manufacturers, they are looking up.  Strongly.

First Time Jobless Claims Are Pretty Good, Actually

Once again, it's time for First Time Jobless claims, where analysts are expecting to see the number of new claims drop to a seasonally-adjusted 420,000/  And what does the Department of Labor think of that prediction?  The Department of Labor thinks they're wrong.  Seasonally adjusted, initial jobless claims decreased to 404,000[1] for January 15.
As of January 1, a total of 9,607,423[2] people were claiming UI benefits from one program or another.  That is an increase of 401,237 from December 25, but it is also down 2,234,837 from January 1 2010[3].
Now what's interesting is the fact that only five states saw their first time claims decline by more than 1000, while 33 states saw first time claims increase by more than 1000.
Anyway, I'll be back around 10 AM with Existing Home Sales and Leading Indicators.
[1]  Not adjusted, we see 550,594 claims.  Which is down from last week, when 763,098 people filed for unemployment.  So both the trend and the actual number improved this week.
[2]  Not seasonally adjusted.
[3]  Before you celebrate the decline, keep in mind that there is no data in this report on how many out of that 2,234,837 are now employed vs.. how many just used up their benefits.

Asian Tiger Metric Stance!

First off we have New Zealand's CPI figures for Q4 2010.  Q3 saw a 1.1% increase, and the analysts were looking for Q4 to be up 1.9%.  In reality they were up 2.3%, missing expectations by 40 bps (which also caused CPI to be up 4.0% for the year).  Part of it the blame is pinned on a 250 bps increase in their goods and services tax that went into effect on October 1.  That's not the sole cause, however.  Transport was up 4.3%, food was up 2.1% (although, interestingly, vegetable costs were down 3.3%), housing & household utilities was up 1.6% and recreation & culture was up 2.9%.
And now, China.  You think your nation releases a bunch of economic data at once?  Your Economic Data Release Technique is pig dung before the power of their Five Simultaneous Metrics Style kung fu[1]!  We have CPI, GDP, Industrial Production, PPI, and Retail Sales.  And what happened?
  • November CPI was at 5.1%.  Analysts were predicting 4.4% for December.  China missed expectations, coming in at 4.6%, but that's still a 50 bps decline in the rate of increase of consumer costs.  Food prices were up 9.6% for the month, though, which hurt.  For the year, CPI finished off at a 3.3% increase.
  • GDP came in at 10.3% for the year, up 140 bps from 2009.
  • December Industrial Production was up 20 bps to a level of 13.5%, meeting expectations.  For the year, output was up 15.7%.
  • December PPI missed expectations by 30 bps, coming in at 5.9% (still down 20 bps from November, though).  For the year, PPI was up 5.5%.
  • Retail Sales were up 40 bps in December to a 19.1% increase, with the annual increase coming in at 18.4%.
So yeah.  Maybe President Hu has a point when he says that the value of the yuan isn't the primary problem with the US economy.
But anyway, let's move on to Europe.  German PPI has come in at 0.7% for the month, missing expectation by 20 bps and spiking 50 bps from November.  For the year, PPI comes in 20 bps over expectations as well to finish at 5.3%.
[1]  I've been watching a lot of Shaw Brothers movies recently.

Wednesday, January 19, 2011

British Unemployment, Manufacturing For Loonies, And US Housing

First, we look overseas.  Great Britain released its Labour Market Report at 4:30 AM EST today, and it was relatively good.  November saw claimant count unemployment[1] drop a revised 3200 to a level of 4.5%.  For December, claimant count unemployment declined 4100 (beating expectations by 4100), but the claimant count unemployment rate remained unchanged.  (By comparison, the ILO Unemployment Rate[2] remained unchanged at 7.9%).  Average earnings for the year also declined 10 bps to 2.1%, missing expectations by 10 bps.

Canada has released it's Manufacturing Sales figures for November, which looks at the dollar[4] level of manufactured durable and nondurable goods shipments.  October saw a 1.7% increase, and the analysts were looking for things to slow down to only a 0.5% increase for November.  Unfortunately, while they were right to expect things to slow down, they were way off in how much.  Shipments declined to a -0.8% decrease.  November was a bad month for Canadian factories, apparently.

But, when you get right down to it, this is being written in the United States.  And the United States, historically speaking, doesn't really care what happens outside its borders unless it has a direct and visible impact on us[5].  So let's see what's happening domestically:

The Mortgage Bankers' Association's weekly Purchase Applications Report is out.  Last week the purchase index (tracking the number of new mortgages) was down 3.7%, the refinance index was up 4.9%, and the composite index was up 2.2%.  For the week ending 1/14 the purchase index was down again, but only 1.9%, while the refinance index was up 7.7% and the composite index was up 5.0%.  Things may be looking up for the new and existing home sales indexes.

Speaking of which, the other thing we're looking at today are Housing Starts for December.  Last month saw 555,000 new starts, and the Street is looking for that to taper off a little with only 550,000 new homes starting construction.  New construction permits hit came in at a revised 544,000.  The actual results are mixed.  Actual housing starts came in at a seasonally-adjusted 529k (missing expectations), but a seasonally-adjusted 635k permits were issued.  Also, a seasonally-adjusted 585k homes were completed, up from November's revised 553k.  So, the Street will be unhappy at the comparatively small number of new homes that started, but there's a whole bunch more new ones on the horizon to get everyone revved up again.

[1]  Say what now?  Claimant count unemployment, according to wikinvest, is the number of people claiming unemployment benefits.  The claimant count unemployment rate is then the claimant count unemployment level divided by the total number of available full and part-time jobs in the UK.
[2]  Again, say what now?  The ILO[3] Unemployment Rate is the percentage of economically active people who are unemployed by ILO standard.  This means people who are out of work but actively looking for a job, or who are out of work and are waiting to start a new job in the next two weeks.
[3]  Yes, I've footnoted a footnote.  The ILO is the International Labour Organization.
[4]  As measured in "loonies".  You've got to love a nation that puts a duck on it's currency.
{5]  Or our foreign policy objectives.  Or if the other nation has stuff we want.  Or if the other nation happens to be Communists.

Tuesday, January 18, 2011

T-Note Flash Crash, Federal Reserve May Need A Bailout, And WikiLeaks Outs Tax Evaders

You might have missed it, but the Treasury bonds were crushed earlier today by a roughly $6 billion trade in 30-year Treasuries..Yes, billion.  With a "b".  In Treasuries.  At one point, the 30-year Treasury was down 1 6/32, bringing the yield to 4.61%[1].  Early reports were that it was a "fat-finger trade", but Tradeweb - the electronic platform that processed the trade - denies this.  "Reports of a multibillion dollar customer trade error on Tradeweb this morning are completely false.  Indeed, Tradeweb has a number of safeguards and warnings incorporated into its electronic markets to prevent 'fat-finger' errors of this type," was the official word from the company.
The 30-year Treasury has recovered somewhat, closing with a yield of 4.56%.  Still, with the "flash crash" a distant but still bad taste in the mouths of most investors, this won't do much to improve the confidence of an investing public that is already skittish about bonds in general.
Speaking of debt, there's some interesting analysis showing that the Federal Reserve could find itself in a position where it needs to recapitalize[2].  Here's the theory:  the fed has purchased right around $2 trillion (yes, with a "t" this time)) in mortgage-backed securities, US Treasuries, and "toxic assets", and still holds about $1 trillion.  Now, a general rule is that as prevailing interest rates go up then the value of existing bonds goes down.  So, according to Varadarajan Chari[3], if inflation goes up 2%-3%, it could cut the value of the Fed's holdings by around 10%, giving the Fed a $100 billion loss.  On paper, at least.  Of course, as we all know, paper losses only matter if your forced to realize them.  But the Fed could be left holding some of these securities for 20 to 30 years, showing a loss on their books the whole time.  While it wouldn't disrupt the Fed's activities (the Fed funds rate and the printing press don't care about paper losses), it would certainly result in a significant political backlash.
And in WikiLeaks news, Rudolf Elmer - a former employee of Switzerland's Bank Julius Baer - has reportedly handed documents over with details by more than 2000 wealthy business leaders and lawmakers attempting to evade tax payments.  Given the other things Wikileaks has told us, this could be just the latest in a series of embarrassments for world governments.
[1]  Putting it in perspective, that nearly drove it to an eight-month high.
[2]  That's fancy talk for "get bailed out".
[3]  An economics professor at the University of Minnesota who is also a consultant to the Minneapolis Fed.

News You Can Use

Remember all the excitement about the private placement sale of Facebook shares?  Well, under regulatory and media scrutiny, Goldman Sachs has decided to limit the private placement to shareholders outside the United States.  Goldman is denying that this is due to any regulatory requirement by the SEC, but former SEC Chairman Harvey Pitt points out that "it conceivably could be argued that Goldman was benefiting from a general solicitation, via news reports of its efforts on behalf of Facebook," something that is not allowed for private placements.
Citibank missed expectations for Q4.  They announced $0.04/share profits for the quarter;  not bad, given that they lost $0.33/share for Q4 2009, but still missing the $0.08/share analysts were expecting to see.  Amongst other problems their fixed-income revenue is down 56% and securities and trading revenues are down 6%.  Also, they had to take a $1.1 billion hit to revenues because of their overall liabilities.
Responding to (most recently) Treasury Secretary Geithner's comments about China and it's monetary policy, Chinese Foreign Ministry spokesman Hong Lei said "A great many factors have proven that the renminbi's[1] exchange rate policy is not the main cause of the China-US trade imbalance."[2]  The commentary is the latest Chinese response ahead of Chinese President Hu Jintao's Tuesday visit to the United States, where he will be landing to a group of US Senators (led by Senator Charles Schumer) who are trying to pass legislation designed to "punish" China for not allowing its currency to rise in value.
[1]  Another name for the yuan..
{2]  Being diplomatic, he didn't add "so stop whining".

A Slow Day For Economic Measures

The three-day market weekend has dragged on into a fourth day, at least as far as economic data is concerned.  There's just not a lot due out today.
Great Britain reported CPI figures, which were bad.  CPI was up 60 bps for the month to 1.0%, missing expectations by 30 bps.  This brings it to 3.7% for the year (missing expectations by 30 bps as well).  Stripping out energy and food, core CPI was still up 0.7 bps, with annual core CPI hitting 2.9%.
Germany's ZEW[1] Survey is out as well, with mixed results.  This is a survey of business confidence, both about current and future conditions, and businesses are only marginally more confident about the present than they were in December.  For January, the Current Conditions Index climbed 20 bps to 82.6%, missing expectations by 40 bps.  On the other hand, Business Expectations (looking to the future) climbed 1,110 bps to finish out at 15.4, beating expectations by 700 bps.  From this,we learn that the German economy is confident, if they can just survive today.
Speaking of business confidence, the Empire State Manufacturing Survey has just been released by the New York Fed.  Last month, we came in at a level of 9.89 for the general business conditions index, and the Street is looking for a 14.0 for January.  The actual results are a 11.92 for the general business conditions index, missing expectations (obviously) but still showing improvement.  Most other current measures improved substantially as well.  The new orders index increased 1036 bps to 12.39, the shipments index improved 1,823 bps to 25.39, and the number of employees index climbed 1,183 bps to 8.42.  The supplemental questions revealed that a little more than half of respondents expect their workforce to increase in the year ahead, while only 15% expect to cut workers, with sales growth (or decline) driving the majority of the answers.
All of that is, of course, modestly good news.  This isn't a case of "as goes the Empire State Manufacturing Survey, so goes the nation", but this is watched as a first clue to how the nation's manufacturing is performing.
That's about it for today.  New Zealand will be reporting its CPI figures around 4:45 PM EST, and China throws out a horse-choking wad of data around 10 PM, but that will have much more of an impact on tomorrow.
I now return you to your regularly-scheduled round of worrying about the technology sector today.  It appears that Steve Jobs has proven that an apple a day does not necessarily keep the doctor away.
[1] That's the German acronym for "Center for European Economic Research".