Consumer Sentiment

Given all of the international excitement, one burning question fills the hearts and makes sleepless the nights of the average broker:  How is the American consumer taking the news?  Well, maybe I exaggerate.  But it is an interesting question.

 

For January, the Consumer Sentiment Index came in at 74.2, which beat expectations (but was lower than December's results).  The Consumer Expectations Index rose to 69.3, and the Current Conditions Index fell to 81.8.  The Econoday-surveyed analysts are expecting a new level of 75.1.

 

Now, turning to the University of Michigan for the report (cheerfully titled "Improved Job Prospects Trump Rising Prices"), we get a fairly sunny picture.  The Consumer Sentiment Index rose to 77.5, the Consumer Expectations Index rose to 71.6, and the Current Conditions Index rose to 86.9.

 

Interestingly enough, the Consumer Sentiment Index moved along household income lines.  It was up 9.7% among households with incomes above $75,000, but fell 1.4% among lower income households.

Fourth Quarter 2010 GDP, Preliminary Revision

The big mover for economic data today is Gross Domestic Product, which (if you aren't familiar with it) is the sum of all private domestic consumption, plus gross private domestic investment, plus government spending, plus the current trade balance.  It is pretty much assumed to represent the health of a nation's economy.

 

GDP reporting is, in a word, peculiar.  It gets reported three times for each quarter.  There is an advance report, a preliminary revision the following month, and then a final revision.  This month, we're getting the preliminary revision for Q4 2010.  The advance report showed GDP up 3.2% for the quarter, with the price index (one possible measure of inflation) up 0.3%.  The Econoday-surveyed analysts are looking for the preliminary revision to show Q4 GDP increase to 3.4%, with the price index remaining at 0.3%.

 

For the actual results we turn to the Bureau of Economic Analysis, which has chosen to crush the fragile hopes and dreams of the analysts.  In the preliminary revision, real GDP was revised downward to 2.8% for Q4 2010.  This still represents an increase from Q3's 2.6% final result, but it is not calculated to make the markets happy.  The price index rose 2.1% in Q4, unchanged from the advance report[1], while the "core" price index rose 1.2%.

 

I would say that this is likely to shake the markets up, but the futures are still green.  As of right now, anyway.  Go figure.

 

[1]  I took the 0.3% price index for Q3 from the Econoday page.  I'm not sure where they got it from, looking at the BEA information.

Al Qaeda's Hallucinogenic Chocolate Milk

The Libyan "protests"[1] continue to escalate.  Reuters is reporting that that the fighting in Zawiyah has resulted in fatalities.  The official Libyan newspaper puts the death toll at 23, and Al Jazeera is reporting it at 100 or more.  This, combined with the fact that the US is "examining all options, including imposing a no-fly zone over Libya, in its response to the Libyan government's attempts to crush the revolt"[2], combined to drive domestic April oil futures to a high of $103/barrel before finally settling at $97.28 (according to CNN Money).

 

Gaddafi himself has blamed the entire revolt on milk.  Milk and al Qaeda.  "Their ages are 17.  They give them pills at night, they put hallucinatory pills in their drinks, their milk, their coffee, their Nescafe," he said in a statement to Libyan state television yesterday.

 

The Swiss government has also frozen all assets he has on deposit in their nation.  After the "milk and Nescafe" comments, it seems a little unclear as to whether this move was done to prevent him from accessing his cash if he flees the country, or if it was done to comply with Swiss regulations regarding seniors with diminished capacity.

 

Algeria - Libya's eastern neighbor - seems to be the next player in the game titled "Islamic nations facing demands for democracy".  In an effort to get ahead of the curve, they have ended their 19-year state of emergency[3]. The protestors seem to be of the opinion that this is not really enough at all, but they aren't nearly as frisky as the Libyan protesters.  Not yet, anyway.  But Algeria is also an OPEC member nation, and holds (as of 2009) 1.1% of OPEC's oil reserves.  That means they have 0.8756% of the world's crude oil reserves.  They also export something on order of 747,000 barrels of oil per day.  This means that any and all concerns about protests and uprisings in Algeria will be the same concerns about protests and uprisings in Libya, albeit on a slightly smaller scale.

 

So watch the news, and see how long it takes for Algeria to drive the market down.

 

[1]  You know.  With the protest with the guns.  And the pitched battles.

[2]  As a side question, you have to wonder where we get off doing that.  I mean, if there was an uprising in the United States that left the government trying to retake everything west of the Rockies, and Canada attempted to impose a no-fly zone on us, we wouldn't take it well.

[3]  You could probably argue that after 19 years, it isn't so much a "state of emergency" as "the status quo".  But then you wouldn't be an Algerian despot.

New Home Sales

Better late than never, right?

 

Last month, we had results that were substantially better than expected.  The Econoday analysts were looking for 300,000 new single-family home sales in December, and we had 329,000 sales.  This month, the same analysts are looking for 310,000 new home sales for January.  Are they overoptimistic, or are they playing it safe?  Let's find out.

 

The joint US Census Bureau/HUD press release seems to have kicked those analysts in the metaphorical teeth.  Seasonally adjusted, January 2011 saw 284,000 new single-family home sales.  That's 'only' about 26,000 short of expectations.  Also, the December figures were revised downwards to 325k (not all that big an adjustment, really).  The median home price decreased $10,900 to $230,600, while the average price decreased $31,100 to $260,300.  The report doesn't come right out and say so, but the drop in sales can probably be blamed on last month's showing of Fimbulveter II:  Snowmageddon.

Guns, Swords, And Oil

What we may have to be calling the Libyan Revolution continues to dominate the news.  Reuters reports that rebel forces have seized important cities near the capital of Tripoli, including Misrata (the third largest city in Libya) and Zawiyah )an oil terminal just 50 km west of Tripoli).  Pro- and anti-Gaddafi forces (including, according to some reports, the Libyan army) are reported to be clashing.  "It is chaotic there," stated Mohamed Jaber who passed through Zawiyah on his way to Tunisia, "There are people with guns and swords."

 

Al Jazeera is reporting that "major swathes of territory in the east of the vast North African country now appear to be under the control of pro-democracy protesters."  They also report soldiers firing on protesters in Az Zawiyah with "heavy artillery", killing as many as 100 protesters and injuring 400 more.  They also confirm the Reuters report that pro-Gaddafi forces (called the "Hamza brigade") attacked Misrata, but that so far the revolutionaries have held the town in the face of "heavy machine guns and anti-aircraft guns".  They also state that the protesters/revolutionaries control the coastline from the Egyptian border to the cities of Tobruk and Benghazi.

 

One effect this has had on the international market is to drive up April oil futures internationally.  The price per barrel hit $119.79 intraday before falling back to around $114 per barrel.  On an average day, Libya produces 1.6 million barrels of oil.  The revolution[1] has cut that production by at least 25%.  Analysts are concerned that if the disruption continues it will force prices up further, because OPEC's "spare capacity" may be unable to absorb the losses.  One Reuters analyst feels that we could see oil hit $158/barrel.

 

So, naturally, the US indexes are green at this moment.  Go figure.

 

[1]  Because, really, once the swords and the guns come out, it's hard to call it a "protest" with a straight face.

And Toyota Looks Like It'll Have A Bad Day As Well...

From: CNN Breaking News [mailto:BreakingNews@mail.cnn.com]

-- Toyota recalls more than 2 million vehicles to fix problem of gas pedals getting stuck in floor mats.

One CNN Center Atlanta, GA 30303
(c) & (r) 2011 Cable News Network

When Your Husband Goes To Jail, How Do You Pick Up The Pieces?

Well, if you're Diane Passage, the third wife of convicted-but-not-yet-sentenced Ponzi fund operator Kenneth Starr, you do it by returning to the career you left behind when you got married.

 

In this case, as a stripper.  At Scores.  On their reality TV show, following the lives of Scores strippers.

 

Don't worry, though.  She's keeping it classy.  ""They'll be filmed at work," stated a spokesman for the Scores Media Group, "but there will be no nudity."

First Time Jobless Claims

Durable goods orders did pretty well.  Will first time jobless claims continue the trend, giving us something optimistic to look at while we wait for Libya's burgeoning civil war to sink all of Africa into (more) chaos and turmoil (and wrecking BP's oil exploration deal in the process)?

 

Well, the Econoday-surveyed analysts seem to think so.  If you recall, last week gave us seasonally-adjusted 410k new jobless claims, dead on what was expected.  The analysts are looking for some improvement on that, calling for first time claims to fall to 405,000.

 

And the US Department of Labor does not dissapoint.  In fact, they're telling the analysts that they were far too conservative.  The first time claims for the week ending 2/12 were adjusted upwards to 413,000 - not great, but not terrible.  On the other hand, they are reporting only 391,000 seasonally-adjusted claims for the week ending 2/19.  The seasonally adjusted insured unemployment level was revised upward for 2/12 to 3,947.500 (from 3,911,000), and for 2/19 they are reporting a level of 3,892,750 (an improvement from either the advance or the revised figures).

 

Things still aren't bad if you look at the unadjusted numbers.  Unadjusted first time claims for 2/19 came in at 383,998 (down from last weeks 421,713), and the unadjusted insured unemployment level came in at 4,536,884 (down from last week's 4,544,310)[1].  As always, there are no figures indicating how many of the people that fell out of the insured unemployment level did so because they found work, and how many fell out because they have exhausted their benefits.

 

[1]  A decrease of 7,426.  Rather a drop in the bucket.  Although the DoL must have adjusted the unadjusted level, because they are claiming a decrease of 35,422.  They just don't say that they did.

Durable Goods Orders

Last month, the market was disappointed by a 2.5% decline in durable goods orders for December. Analysts had been looking for a 1.5% increase, so this was very much a letdown. But, last month's terrible shock notwithstanding, the Econoday-surveyed analysts are still optimistic. They are calling for 3.0% growth for January 2011.

And why are they looking for growth? Why do they care? Because this represents manufacturing orders for real, physical products. Positive results mean that the manufacturing sector is doing well, which can point the way towards positive GDP growth.

But, is the optimism justified? Or are the hopes and dreams of the markets about to be shattered by the cold, hard blow of stark reality? Turning to the US Census Bureau, we find that durable goods orders increased 2.7% in January. Interestingly enough, December's durable goods orders have also been revised upwards from a 2.5% decline to only a 0.4% decline. How that works, I don't know. I just report this.

Ex-transportation, January durable goods orders actually declined 3.6%, implying quite strongly that transportation orders drove quite a lot of the durable goods activity for the month. In addition, ex-defense durable goods orders were up only 1.9%. Obviously, a reasonable chunk of those transportation orders were military vehicles (whether ordered by the DoD or by foreign nations[1], we don't know from the report)..In fact, transportation equipment as a category was up 27.6% and the "defense aircraft and parts" component of that category was up 20.6%. The worst performance for a category came from machinery, which was down 13.0%, and the worst performance for a category component was communications equipment (down 14.4%).

[1] Yes, we do sell tanks and HMMWVs and fighter jets to other countries. Also, assault rifles, anti-armor and anti-aircraft missiles, ammunition, uniforms, and so on and so forth. The Taliban was a great customer of ours, back in the 80's.

You decide...

Is this man

a) A military dictator vowing to die a martyr in his country

b) A failed contestant for American Idol

c) An extra seen in the background of a rerun of Samford and Son

d) Some homeless guy beatboxing on a subway for change

Existing Home Sales

The news is out, and it looks good. Turning to the National Association of Realtors for the data, we learn that existing home sales for December were revised downward to 5.22 million. That's the bad news. The good news is that January existing home sales increased 2.7% to a seasonally adjusted annual rate of 5.36% - beating expectations and also beating both the preliminary and revised December figures. According to Lawrence Yun, chief economist for the NAR, "The uptrend in home sales is consistent with improvements in the economy and jobs, which are helping boost consumer confidence. The extremely favorable housing affordability conditions are a big factor, but buyers have been constrained by unnecessarily tight credit. As a result, there are abnormally high levels of all-cash purchases, along with rising investor activity."

What does he mean by "rising investor activity"? Well, first-time buyers represented 29% of January existing home purchases (down from 33% in December and 40% in January 2010), while investors represented 23% of the purchases (up from 20% in December and from 17% in January 2010). All cash sales constituted 32% of the January sales, the highest level since the NAR started tracking that data point in October 2008.

Why Are The Markets Worried About Libya?

It's a fair question. At first glance, while the situation there looks pretty bad for at least two groups of people in the nation[1], there doesn't seem to be a huge reason for the international markets to panic about what is happening there. They didn't flip out about Yemen, after all.

I won't pretend to be an expert in geopolitics and how they apply to the economy, so I won't pretend to give you an exhaustive list of everything everyone is concerned about, but here things to consider in no particular order:

First, Libya (technically the Socialist People's Libyan Arab Jamhiriya) is a member of OPEC. Nobody in the markets wants to see OPEC get riled up, because oil prices tend to rise when that happens.

Second, Libya is a member of OPEC[2]. OPEC controls something like 79.6% of the world's proven oil reserves. Libya, all by itself, holds 4.4% of OPEC's oil reserves, which works out to about 3.5% of the world's oil. That's roughly 46.42 billion barrels, as of the end of 2009. Even if the markets weren't concerned about OPEC as an organization getting riled up about the excitement in Libya, that's still an enormous amount of oil to be left untouched thanks to a violent civil war.

Third, Libya is a state that has historically suported terrorists and possesses what we euphemistically refer to as 'weapons of mass destruction". If "Brother Leader and Guide of the Revolution" Quadhafi finds himself out of power, the worst case could be Werwolf-style guerilla activity in the nation for years to come and/or a massive retaliatory use of chemical weapons[3].

Fourth, Libya has spent the last decade giving financial assistance to poorer African nations and participating in the African Union, so they have a lot of friends on the continent. The nation has actually played a vital role in arranging humanitarian assistance to refugees and in negotiating an end to various local conflicts (such as the genocidal conflict in Darfur). If the Libyan government were to collapse, it could actually destabilize international politics in northern Africa, if not throughout the entire continent.

Fifth, there's always the standard set of concerns. Civil war in Libya could conceivably spill out of Libya's borders, transforming into a larger regional and/or making the Mediterranean dangerous to navigate. Peace is almost always more profitable for business, unless you manufacture weapons.

{1] Those groups are 1) the ruling government and 2) the people rising in rebellion.

[2] This is not just a reiteration of the first point. Work with me, here.

[3] That's worst case, of course. But the markets like looking at the worst case.

Mortgages and Sales

We begin the morning off with the MBA Weekly Applications Survey. Last week was pretty bad, with the composite index falling 9.5%, the purchase index falling 5.9%, and the refinance index falling 11.4%. The only bright spot, and this was only a bright spot if you aren't a mortgage broker, is that the average rate for the 30-year fixed-rate mortgage also dropped to 5.12%.

This week? Things have picked up this week, according to the press release. The composite index is up 13.2% for the week ending February 18, with the purchase index up 5.1% and the refinance index up 17.8%. Apparently, people were jumping on the low interest rate bandwagon which headed lower thanks to concerns about Libya. The average rate for the 30-year fixed-rate mortgage dropped to 5.00%[1].

Now, let's move on to department store sales. Last week's ICSC-Goldman Store Sales saw a drop of 1.4% for the week. This week, the data for the week ending 2/19 shows a rebound as major retail chains reported an average of a 2.6% increase in sales. Comparing that to the Redbook, we had a 2.2% increase in year-over-year sales last week, while this week we're looking at a year-over-year increase of 2.7%.

In other words, the handful of minor market indicators we have are looking optimistic. That is all overshadowed, though, by the looming specter of the 10 AM EST release of Existing Home Sales figures for January 2011. The Econoday-surveyed analysts are looking for an annual rate of 5.25 million existing home sales, slightly down from December's 5.28 million annual rate, but we'll find out for sure at 10 AM.

[1] So, if you were refinancing or buying a home last week, and you got a good rate, thank the people of Libya.

Consumer Confidence

As economic measures go, this is one of those big movers and shakers. Traders like to see good confidence numbers, because consumer spending is a large (roughly 30%-50%) component of GDP. And how did we do?

The Conference Board's press release shows that we did pretty well. The Consumer Confidence Index increased to 70.4 from January's 64.8, while the Present Situation Index increased to 33.4 (from January's 31.1) and the Expectations Index increased to 95.1 (from January's 87.3). All of which is a fancy way of saying that people are confident, moreso about the future than about how things look right now.

That 70.4, though? That's a three-year high. That's not bad at all.

Of course, with all the excitement about Libya right now, the Middle East is once again overwhelming any good news from home. So don't be too surprised if we don't see the markets pop on this news.

S&P Case-Shiller HPI

We're starting the morning off with home prices. We don't have any analyst expectations (or, at least, none that are being reported by Econoday), so let's just move on to the results.

According to the press release, home prices are still trending downward. The Composite-10 is down 0.9% for December (down 1.2% for the year), and the Composite-20 is down 1.0% for December (down 2.4% for the year). Washington is the only Metropolitan Area with positive growth (up 0.3% for the month and 4.1% for the year), although San Diego manages to be a second MSA with positive yearly growth (up 1.7%, but down 0.7% for the month). This is actually the lowest annual growth rate since Q3 2009, and "11 markets - Atlanta, Charlotte, Chicago, Detroit, Las Vegas, Miami, New York, Phoenix, Portland (OR), Seattle and Tampa - hit their lowest levels since home prices peaked in 2006 and 2007."

So, yeah. Not great. But right now, the markets are holding their breath to see how consumer confidence will look at 10 AM. I'll be back with the results around then.