Here is a weekly chart showing the stock at multiple year highs.
http://photos1.blogger.com/blogger/2915/2560/400/rnwksh.png
I drew in the short position and noted the VWAP for the period where short position rose. For instance, from April to May, the short position rose by approximately 500,000 shares. The average price for the April to May period was 9.07. We can approximate that these 1/2 million shares are down by about $2.00. How would you feel if you were short? If the shorts get spooked, RNWK could see a nice spike higher.
http://photos1.blogger.com/blogger/2915/2560/400/RNdaysh.png
Posted by Brian at 8/31/2006 11:33:00 AM
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Index (SPY, QQQQ, SMH) Charts
***CHECK THE VIDEO BELOW, IT IS LIVE NOW***
The markets continue to display classic bullish patterns. Forget all the talk about "low volume", it is a seasonal issue only. The fact is, volume does not pay, only price does and prices are moving higher. Would you rather make $10,000 on heavy volume or light volume? What kind of dumb question is that, right? Volume is a RELATIVE measurement. Think of it as "relative to the event". In this case, the "event" is the rally 2 weeks ago. Relative to that rally, the volume decreased on the pullback and now that prices are moving higher again, the volume is also increasing. This pattern shows that the buyers have more conviction relative to the sellers and that is why prices are increasing.
Click charts to enlarge
http://photos1.blogger.com/blogger/2915/2560/400/spy.png
http://photos1.blogger.com/blogger/2915/2560/400/SMH.png
http://photos1.blogger.com/blogger/2915/2560/400/qqqq.1.png
Posted by Brian at 8/29/2006 05:37:00 PM
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Technical Analysis Review of QQQQ, SPY & stocks 8/29/06
Technical analysis of the stock market and individual stocks includingNasdaq 100 (QQQQ), S&P 500 (SPY), iShares Russell 2000 Index (IWM), Semiconductor HOLDRs (SMH), CDC Corp. (CHINA), OSI Pharmaceuticals Inc. (OSIP), Broadwing Corporation (BWNG), Foundry Networks, Inc. (FDRY), China Medical Technologies Inc. (CMED), Cymer Inc. (CYMI). Integrated Device Technology Inc. (IDTI), Dollar Tree Stores Inc. (DLTR), Rudolph Technologies Inc. (RTEC), Halliburton Co. (HAL), Intuitive Surgical Inc. (ISRG). Trend analysis for daytraders and swingtraders of stocks and options.
Posted by Brian at 8/29/2006 04:27:00 PM
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Blog Archive[*]▼ 2009 (256) [*]▼ 03/22 - 03/29 (8) [*]Today's Markets[*]Transportation Not Looking So Rosy[*]We're Nowhere Near a Bottom in Housing[*]Treasury Tuesdays[*]Today's Markets[*]The Negative Response to Geithner's Plan[*]The Geitner Plan[*]Market Monday's[*]► 03/15 - 03/22 (24) [*]Weekend Wiemer and Beagle[*]About that Nationalization Idea....[*]A Closer Look At Inflation[*]Forex Fridays[*]Today's Markets[*]The Credit Crisis Explained[*]Federal Express Issues Ugly Report[*]The Treasury's Plan[*]Thursday Oil Market Round-Up[*]Today's Markets[*]The Fed's Statement[*]Personal Consumption Expenditures and Recoveries[*]A Floor For Housing?[*]Wednesday Commodities Round-Up[*]Today's Markets[*]Empire State Borrowing Report[*]Industrial Production Drops -- Again[*]Treasury Tuesdays[*]Today's Markets[*]Today's Market[*]Ben On 60 Minutes[*]Economy, 1,874,112 Bonddad 0[*]About the Cramer Stewart Dust-Up and The Power of ...[*]Market Mondays[*]► 03/08 - 03/15 (23) [*]Weekend Weimer and Beagle[*]US Wealth Drops Big Time[*]The Stimulus Plan, Pt II[*]Forex Friday's[*]Today's Markets[*]Today's Markets[*]Retail Sales Drop[*]The Stimulus Plan, Pt I[*]We're Nowhere Near A Bottom In Housing[*]Thursday Oil Market Round-Up[*]Today's Markets[*]The Worthlessness of Analysts[*]About the Citi Announcement[*]Wednesday Commodities Round-Up[*]Today's Markets[*]Bernanke Calls For Sweeping Changes[*]Don't Expect Employment to Pick-Up Anytime Soon[*]Treasury Tuesdays[*]► 03/01 - 03/08 (22)[*]► 02/22 - 03/01 (21)[*]► 02/15 - 02/22 (17)[*]► 02/08 - 02/15 (21)[*]► 02/01 - 02/08 (23)[*]► 01/25 - 02/01 (24)[*]► 01/18 - 01/25 (22)[*]► 01/11 - 01/18 (25)[*]► 01/04 - 01/11 (26)[*]► 2008 (1038) [*]► 12/28 - 01/04 (10)[*]► 12/21 - 12/28 (8)[*]► 12/14 - 12/21 (21)[*]► 12/07 - 12/14 (20)[*]► 11/30 - 12/07 (23)[*]► 11/23 - 11/30 (11)[*]► 11/16 - 11/23 (24)[*]► 11/09 - 11/16 (25)[*]► 11/02 - 11/09 (20)[*]► 10/26 - 11/02 (21)[*]► 10/19 - 10/26 (22)[*]► 10/12 - 10/19 (24)[*]► 10/05 - 10/12 (21)[*]► 09/28 - 10/05 (22)[*]► 09/21 - 09/28 (21)[*]► 09/14 - 09/21 (29)[*]► 09/07 - 09/14 (15)[*]► 08/31 - 09/07 (14)[*]► 08/24 - 08/31 (15)[*]► 08/17 - 08/24 (19)[*]► 08/10 - 08/17 (20)[*]► 08/03 - 08/10 (17)[*]► 07/27 - 08/03 (22)[*]► 07/20 - 07/27 (22)[*]► 07/13 - 07/20 (21)[*]► 07/06 - 07/13 (17)[*]► 06/29 - 07/06 (14)[*]► 06/22 - 06/29 (24)[*]► 06/15 - 06/22 (22)[*]► 06/08 - 06/15 (13)[*]► 06/01 - 06/08 (23)[*]► 05/25 - 06/01 (16)[*]► 05/18 - 05/25 (24)[*]► 05/04 - 05/11 (15)[*]► 04/27 - 05/04 (24)[*]► 04/20 - 04/27 (22)[*]► 04/13 - 04/20 (18)[*]► 04/06 - 04/13 (19)[*]► 03/30 - 04/06 (17)[*]► 03/23 - 03/30 (18)[*]► 03/16 - 03/23 (24)[*]► 03/09 - 03/16 (27)[*]► 03/02 - 03/09 (25)[*]► 02/24 - 03/02 (28)[*]► 02/17 - 02/24 (25)[*]► 02/10 - 02/17 (30)[*]► 02/03 - 02/10 (30)[*]► 01/20 - 01/27 (25)[*]► 01/13 - 01/20 (26)[*]► 01/06 - 01/13 (25)[*]► 2007 (1389) [*]► 12/30 - 01/06 (20)[*]► 12/23 - 12/30 (17)[*]► 12/16 - 12/23 (23)[*]► 12/09 - 12/16 (25)[*]► 12/02 - 12/09 (24)[*]► 11/25 - 12/02 (26)[*]► 11/18 - 11/25 (21)[*]► 11/11 - 11/18 (33)[*]► 11/04 - 11/11 (31)[*]► 10/28 - 11/04 (27)[*]► 10/21 - 10/28 (24)[*]► 10/14 - 10/21 (25)[*]► 10/07 - 10/14 (24)[*]► 09/30 - 10/07 (21)[*]► 09/23 - 09/30 (27)[*]► 09/16 - 09/23 (25)[*]► 09/09 - 09/16 (25)[*]► 09/02 - 09/09 (27)[*]► 08/26 - 09/02 (31)[*]► 08/19 - 08/26 (34)[*]► 08/12 - 08/19 (38)[*]► 08/05 - 08/12 (32)[*]► 07/29 - 08/05 (30)[*]► 07/22 - 07/29 (16)[*]► 07/15 - 07/22 (21)[*]► 07/08 - 07/15 (24)[*]► 07/01 - 07/08 (18)[*]► 06/24 - 07/01 (28)[*]► 06/17 - 06/24 (25)[*]► 06/10 - 06/17 (20)[*]► 06/03 - 06/10 (25)[*]► 05/27 - 06/03 (27)[*]► 05/20 - 05/27 (25)[*]► 05/13 - 05/20 (20)[*]► 05/06 - 05/13 (25)[*]► 04/29 - 05/06 (27)[*]► 04/22 - 04/29 (28)[*]► 04/15 - 04/22 (33)[*]► 04/08 - 04/15 (34)[*]► 04/01 - 04/08 (37)[*]► 03/25 - 04/01 (44)[*]► 03/18 - 03/25 (32)[*]► 03/11 - 03/18 (39)[*]► 03/04 - 03/11 (41)[*]► 02/25 - 03/04 (43)[*]► 02/18 - 02/25 (27)[*]► 02/11 - 02/18 (31)[*]► 02/04 - 02/11 (23)[*]► 01/28 - 02/04 (20)[*]► 01/21 - 01/28 (11)[*]► 01/14 - 01/21 (17)[*]► 01/07 - 01/14 (18)[*]► 2006 (91) [*]► 12/31 - 01/07 (20)[*]► 12/24 - 12/31 (17)[*]► 12/17 - 12/24 (21)[*]► 12/10 - 12/17 (20)[*]► 12/03 - 12/10 (13)
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Tuesday, March 24, 2009Today's Markets
Click on all images for a larger image
http://3.bp.blogspot.com/_4jIlyJ10uJU/SclUcdhC-lI/AAAAAAAAB0Q/kuPp-wtMwDo/s400/Chart+of+SPY10.gif
It's been a long time since I've seen a 5 minute chart that looked like this. Boy does it look good. This is a solid rally. Notice that prices have been rallying for the entire period, but have engaged in solid moves followed by profit-taking and consolidation areas.
http://2.bp.blogspot.com/_4jIlyJ10uJU/SclUcV9leWI/AAAAAAAAB0Y/wVt3xeYYWqE/s400/Chart+of+SPY1.gif
On the daily chart, it's important to point out possible levels where prices could sell-off to in the eventual sell-off. Therefore, take note of all the Fibonacci levels along with the moving averages because these are possible support levels. Also note there are plenty of support levels out there, which should help everybody breath more of a sign of relief right now.
Posted by bonddad at 3/24/2009 04:44:00 PM
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Transportation Not Looking So Rosy
From Reuters:
World airlines are set to lose $4.7 billion this year as a result of the global recession that has shrunk passenger and cargo demand, industry body IATA said.
The International Air Transport Association had estimated in December the industry would lose $2.5 billion in 2009.
"The state of the airline industry today is grim. Demand has deteriorated much more rapidly with the economic slowdown than could have been anticipated even a few months ago," Director-General Giovanni Bisignani said on Tuesday.
"The relief of lower fuel prices is overshadowed by falling demand and plummeting revenues. The industry is in intensive care."
IATA, which represents 230 airlines including British Airways (BAY.L), Cathay Pacific (0293.HK), United Airlines (UAUA.O), and Emirates (EMIRA.UL), also raised its estimate of international airline losses in 2008 to $8.5 billion, from its previous $8 billion estimate.
And consider this table from the Association of American Railroads:
http://2.bp.blogspot.com/_4jIlyJ10uJU/Scj6OTp6BQI/AAAAAAAAB0I/lgVt6vGPPCM/s400/rail+traffic.JPG
Click for a larger image
We'll need better news from the transportation sector before we can say the economy is moving at top speed.
Posted by bonddad at 3/24/2009 11:30:00 AM
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Labels: transportation
We're Nowhere Near a Bottom in Housing
From Bloomberg:
Purchases rose 5.1 percent to an annual rate of 4.72 million from 4.49 million in January, the National Association of Realtors said today in Washington. The median price slumped 15.5 percent from a year ago, the second-biggest drop on record, and distressed properties accounted for 45 percent of all sales.
.....
Home sales have been falling since 2005 and prices peaked in 2006. The S&P/Case-Shiller home-price index of 20 metropolitan cities was down 18.5 percent in December from a year earlier, a record decline, the group said last month.
Frankly, the only statistic I need to see right now is the year over year price number. So long as we're seeing double digit declines we're nowhere near a bottom in housing. When we start to see YOY price declines slow to 5% or so, then we'll be able to start talking about a bottom -- but not until then.
However, there are technically some signs that a bottom could occur:
The realtor group’s affordability index reached a record high in January.
That tells us that home buying is far more feasible right now. In addition, we can expect mortgage rates to remain low for sometime:
Fed policy makers last week announced the central bank will buy as much as $300 billion in long-term Treasuries and more than double mortgage-debt purchases to $1.45 trillion. The central bank had already committed to buying $600 billion of mortgage-backed securities and bonds sold by government- sponsored housing agencies.
Regarding the "first time home buyer tax credit is spurring demand" argument, the tax credit itself is really an interest free loan from the government rather than a real tax credit.
Posted by bonddad at 3/24/2009 09:30:00 AM
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Treasury Tuesdays
Click on all images for a larger image
http://2.bp.blogspot.com/_4jIlyJ10uJU/ScjFUxRkTjI/AAAAAAAABz4/DxQDv-Zrz5s/s400/Chart+of+IEF.gif
Just to remember where we are, Treasury prices spiked at the end of last year in response to the credit crisis. However, prices have come down since then, although they are still above the 200 day SMA and the line of support established from the high in September of last year.
http://3.bp.blogspot.com/_4jIlyJ10uJU/ScjF4cfvqaI/AAAAAAAAB0A/xJaLXW9Iga0/s400/Chart+of+IEF3.gif
On the three month chart, we see the rally that occurred after the Fed's last policy statement where they essentially said they would be purchasing Treasuries. Since then, prices have sold off. However, the Fed essentially put a floor in Treasury prices with it's announcement.
Posted by bonddad at 3/24/2009 06:39:00 AM
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Monday, March 23, 2009Today's Markets
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The was one heck of a rally today:
http://2.bp.blogspot.com/_4jIlyJ10uJU/ScgAuegiRZI/AAAAAAAABzU/eUISiLA2hSE/s400/Chart+of+SPY5.gif
The market opened with a big gap up and moved higher until lunch and then sold off a bit. Then prices continued their move higher, closing at session highs on strong volume.
http://4.bp.blogspot.com/_4jIlyJ10uJU/ScgBIB_h9mI/AAAAAAAABzc/-lU6TvsxbX8/s400/Chart+of+SPY.gif
On the daily chart, notice that prices moved above the 50 day SMA today. That's incredibly important from a technical level right now.
http://3.bp.blogspot.com/_4jIlyJ10uJU/ScgBbdnrYnI/AAAAAAAABzk/0JHotTDYST8/s400/Chart+of+SPY.gif
Also note that prices moved though key technical resistance levels today.
Bottom line: this is a nice looking chart. In addition, I'm expecting prices to pull back to technically important levels over the next few weeks.
Posted by bonddad at 3/23/2009 04:35:00 PM
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The Negative Response to Geithner's Plan
We all know that Krugman is against the plan. However, Galbraith offers some great observations.
Posted by bonddad at 3/23/2009 11:59:00 AM
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The Geitner Plan
From the WSJ:
However, the financial system as a whole is still working against recovery. Many banks, still burdened by bad lending decisions, are holding back on providing credit. Market prices for many assets held by financial institutions -- so-called legacy assets -- are either uncertain or depressed. With these pressures at work on bank balance sheets, credit remains a scarce commodity, and credit that is available carries a high cost for borrowers.
.....
Today, we are announcing another critical piece of our plan to increase the flow of credit and expand liquidity. Our new Public-Private Investment Program will set up funds to provide a market for the legacy loans and securities that currently burden the financial system.
The Public-Private Investment Program will purchase real-estate related loans from banks and securities from the broader markets. Banks will have the ability to sell pools of loans to dedicated funds, and investors will compete to have the ability to participate in those funds and take advantage of the financing provided by the government.
The funds established under this program will have three essential design features. First, they will use government resources in the form of capital from the Treasury, and financing from the FDIC and Federal Reserve, to mobilize capital from private investors. Second, the Public-Private Investment Program will ensure that private-sector participants share the risks alongside the taxpayer, and that the taxpayer shares in the profits from these investments. These funds will be open to investors of all types, such as pension funds, so that a broad range of Americans can participate.
Third, private-sector purchasers will establish the value of the loans and securities purchased under the program, which will protect the government from overpaying for these assets.
The new Public-Private Investment Program will initially provide financing for $500 billion with the potential to expand up to $1 trillion over time, which is a substantial share of real-estate related assets originated before the recession that are now clogging our financial system. Over time, by providing a market for these assets that does not now exist, this program will help improve asset values, increase lending capacity by banks, and reduce uncertainty about the scale of losses on bank balance sheets. The ability to sell assets to this fund will make it easier for banks to raise private capital, which will accelerate their ability to replace the capital investments provided by the Treasury.
This program to address legacy loans and securities is part of an overall strategy to resolve the crisis as quickly and effectively as possible at least cost to the taxpayer. The Public-Private Investment Program is better for the taxpayer than having the government alone directly purchase the assets from banks that are still operating and assume a larger share of the losses. Our approach shares risk with the private sector, efficiently leverages taxpayer dollars, and deploys private-sector competition to determine market prices for currently illiquid assets. Simply hoping for banks to work these assets off over time risks prolonging the crisis in a repeat of the Japanese experience.
.....
We cannot solve this crisis without making it possible for investors to take risks. While this crisis was caused by banks taking too much risk, the danger now is that they will take too little. In working with Congress to put in place strong conditions to prevent misuse of taxpayer assistance, we need to be very careful not to discourage those investments the economy needs to recover from recession. The rule of law gives responsible entrepreneurs and investors the confidence to invest and create jobs in our nation. Our nation's commitment to pursue economic policies that promote confidence and stability dates back to the very first secretary of the Treasury, Alexander Hamilton, who first made it clear that when our government gives its word we mean it.
Let's move through this paragraph by paragraph:
1.) First -- I like the term "legacy assets". It's a nice and polite way of saying, "we're stuck with some really old garbage".
Now -- let me back up a bit further and provide a bit of a history lesson here. Securitization -- the process of taking single loans, pooling them with other loans of similar qualities (same interest rate, maturity date etc..) has been around for about 30 years now. For anyone who wants to really delve into this process, read any of the fixed income books by Frank Fabozzi. In other words, the problem hasn't been the system of securitization. Instead the problem has been the "lend to securitize" market of mortgage lenders that sprung up over the last 15 years like weeds. These lenders had no incentive to make quality loans because they sold the loans off faster then the loans would go bad.
These are essentially mortgage related assets who's value is depressed right now thanks to the housing market. There are a lot of questions related to these assets. Let's start with the big one: what are they worth? The problem is most of these assets are "thinly traded" -- meaning there aren't enough trades to determine an "average price". And therein lies the real problem with most of these bonds -- we can't figure out what they are worth.
Secondly, is their price unrealistically low right now because of the problems in the housing market? That is, are prices unrealistically depressed? There is no answer to this question. Most owners would say yes -- which explains why they are arguing for a relaxing of the mark to market rules. In general I would agree with this sentiment, but only by adding this very important caveat: prices are depressed if the owner's intention is to hold the asset to maturity. Finally, will these assets increase in value over time to where a profit can be made? No one really knows the answer to this question either, although assuming the maturity date is far away enough (say 10+ years) the answer is probably yes.
Here are the underlying principles:
Three Basic Principles: Using $75 to $100 billion in TARP capital and capital from private investors, the Public-Private Investment Program will generate $500 billion in purchasing power to buy legacy assets – with the potential to expand to $1 trillion over time. The Public-Private Investment Program will be designed around three basic principles:
* Maximizing the Impact of Each Taxpayer Dollar: First, by using government financing in partnership with the FDIC and Federal Reserve and co-investment with private sector investors, substantial purchasing power will be created, making the most of taxpayer resources.
* Shared Risk and Profits With Private Sector Participants: Second, the Public-Private Investment Program ensures that private sector participants invest alongside the taxpayer, with the private sector investors standing to lose their entire investment in a downside scenario and the taxpayer sharing in profitable returns.
* Private Sector Price Discovery: Third, to reduce the likelihood that the government will overpay for these assets, private sector investors competing with one another will establish the price of the loans and securities purchased under the program.
Here are the advertised merits:
The Merits of This Approach: This approach is superior to the alternatives of either hoping for banks to gradually work these assets off their books or of the government purchasing the assets directly. Simply hoping for banks to work legacy assets off over time risks prolonging a financial crisis, as in the case of the Japanese experience. But if the government acts alone in directly purchasing legacy assets, taxpayers will take on all the risk of such purchases – along with the additional risk that taxpayers will overpay if government employees are setting the price for those assets.
So -- the government provides some funding, to be matched by the private sector. The plan states this will "maximize the impact of each taxpayer dollar" and "share the risk", both of which are fundamentally true assuming, of course, there is a desire by the private sector to participate. Assuming that is true, then the two propositions are true.
Here's how it would work:
* Banks Identify the Assets They Wish to Sell: To start the process, banks will decide which assets – usually a pool of loans – they would like to sell. The FDIC will conduct an analysis to determine the amount of funding it is willing to guarantee. Leverage will not exceed a 6-to-1 debt-to-equity ratio. Assets eligible for purchase will be determined by the participating banks, their primary regulators, the FDIC and Treasury. Financial institutions of all sizes will be eligible to sell assets.
* Pools Are Auctioned Off to the Highest Bidder: The FDIC will conduct an auction for these pools of loans. The highest bidder will have access to the Public-Private Investment Program to fund 50 percent of the equity requirement of their purchase.
* Financing Is Provided Through FDIC Guarantee: If the seller accepts the purchase price, the buyer would receive financing by issuing debt guaranteed by the FDIC. The FDIC-guaranteed debt would be collateralized by the purchased assets and the FDIC would receive a fee in return for its guarantee.
* Private Sector Partners Manage the Assets: Once the assets have been sold, private fund managers will control and manage the assets until final liquidation, subject to strict FDIC oversight.
All of this hinges on two points:
1.) The banks wanting to sell an asset, and
2.) Private bidders arriving at a price the banks are willing to take.
These two points are critical. There is nothing forcing banks to participate in the program. And that is the real problem. And there is a big reason keeping the banks from participating: finding out that various assets aren't worth anything.
However, assuming banks are willing to play this isn't bad. I would change a few things -- the most important being the government provided leverage. I think the private sector should pony up a whole lot more. But that's just my opinion which is completely unsolicited.
In addition, no plan is perfect. There are no guaranteed solutions to any of our problems right now. Specifically, nationalization has a ton of problems associated with it. However, overall I think this is workable.
Posted by bonddad at 3/23/2009 06:47:00 AM
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Market Monday's
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http://1.bp.blogspot.com/_4jIlyJ10uJU/Scd0EhfZsFI/AAAAAAAABzE/X1aBvBkJJXE/s400/Chart+of+SPY1.gif
With the one month chart, notice the following:
-- The market has enjoyed one heck of a run, moving from roughly 67 to 76.
-- Prices moved over the 50 day SMA but couldn't keep above it.
-- The 10 day SMA has crossed over the 20 day SMA
-- The 20 day SMA has moved into a horizontal position
-- The 50 day SMA is still moving lower
-- Notice there have been some incredibly strong bars during this rally.
http://3.bp.blogspot.com/_4jIlyJ10uJU/Scd0xHdxEtI/AAAAAAAABzM/4n8CFJZ32pA/s400/Chart+of+SPY5.gif
The chart from last week shows a two and a half day rally that ended near the end of trading on Thursday when prices fell through the upward sloping trend line. Notice that during the rally prices formed numerous bull market flags to consolidate gains. The sell-off lasted for most of Friday and is most likely the result of natural before the weekend profit taking; no one wants to hold a position in this market over a two day weekend.
Posted by bonddad at 3/23/2009 06:35:00 AM
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Older Posts
Posted by bonddad at 3/20/2009 11:30:00 AM
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A Closer Look At Inflation
Click on all pictures for a larger image.
From the BLS:
The Producer Price Index for Finished Goods advanced 0.1 percent in February, seasonally adjusted, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. This rise followed a 0.8-percent increase in January and a 1.9-percent decline in December. At the earlier stages of processing, prices received by manufacturers of intermediate goods decreased 0.9 percent in February after falling 0.7 percent in the previous month, and the index for crude materials declined 4.5 percent following a 2.9-percent decrease in January. (See table A.)
There has been a some virtual ink spilled over the question of deflation -- that is, are we going into a period of deflation somewhat like that of the Great Depression. So far the evidence is a bit mixed. First, The change from the preceding month in core PPI has only been negative once in the last 12 months. This was November's -.1 decline. This tells me that so far the decline has to do with the commodity deflation over the last 9 months as this chart shows:
http://4.bp.blogspot.com/_4jIlyJ10uJU/ScOS6J1Kl-I/AAAAAAAAByc/KD0CYWpksgc/s400/CRB.png
However, we have seen one of the biggest drops in overall PPI in an incredibly long series of data:
http://3.bp.blogspot.com/_4jIlyJ10uJU/ScOTHhTzRxI/AAAAAAAAByk/WBawCRv_fCA/s400/PPI+Long.png
In addition, the year over year number is still scary:
http://2.bp.blogspot.com/_4jIlyJ10uJU/ScOTWRJ3skI/AAAAAAAABys/RjGSPD5kktw/s400/PPI+YOY+change.png
But also note in the above chart that prices have dropped at this level before -- in 2001 -- without the fear of deflation emerging.
In addition, so far the rate of decline in both intermediate and crude goods as decreased over the last two months. Intermediate goods decreased at a roughly 4%/month clip in the October, November and December of last year, but fell at a .7% and .9% clip in January and February of this year. Crude goods show a similar pattern: they fell at (approximately) 16%, 14% and 5% in October, November and December of last year but at a 3% and 4.5% clip in January and February of this year.
In other words, from the PPI perspective, I'm leaning towards the "there isn't a deflation problem" conclusion.
From the BLS:
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.5 percent in February, before seasonal adjustment, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The February level of 212.193 (1982-84=100) was 0.2 percent higher than in February 2008
Like the PPI data, the CPI data shows drop in 4Q of 2004 and increases so far this year. For October, November and December of last year there were drops in overall CPI of -.8%, -1.7%, -.8%, respectively, but in January and February of this year we saw increases of .3%, .4% respectively. More importantly, this appears to be a commodity related situation. The month over month rate of increase in core CPI for October - February was .0%, .1% , .0%, .2%, .2% respectively.
That does not mean there shouldn't be cause for concern. Consider this chart of CPI data
http://3.bp.blogspot.com/_4jIlyJ10uJU/ScOYBqwbxYI/AAAAAAAABy0/Pmnp8uBQdRI/s400/CPI+Long.png
That's one of the largest drops in CPI the data has seen over the last half century. In addition,
http://3.bp.blogspot.com/_4jIlyJ10uJU/ScOYT4Jy16I/AAAAAAAABy8/qZjwJyYfaGw/s400/CPI+YOY+Change.png
The year over year chart of CPI is ugly, and its far too early to tell if we're at the beginning of an upswing or not.
In general, it looks to me as though the price drops of the last 5 months are related and confined to the energy/commodity drops of the last 9 months. That does not mean we shouldn't keep an eye on these numbers. But the latest upticks in overall data and the lack of spreading to core numbers gives me the impression the "deflationary spiral" argument is losing steam.
Posted by bonddad at 3/20/2009 09:30:00 AM
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Labels: CPI, PPI
Forex Fridays
http://4.bp.blogspot.com/_4jIlyJ10uJU/ScOMRRgxzjI/AAAAAAAAByU/ZUgsyAV14BE/s400/USD+d.png
The rally that started at the end of last year is now over; prices have convincingly moved through the upward sloping trend line that started in December of last year. Prices have also moved through all the SMAs which will pull them lower. Additionally, the 10 day SMA has moved through the 20 day SMA and the 10 and 20 day SMA are both moving lower. Finally, the MACD shows momentum has moved downward and the RSI tells us prices are weakening.
http://2.bp.blogspot.com/_4jIlyJ10uJU/ScOMQl4-uII/AAAAAAAAByM/KARnBt7-wLQ/s400/USD+w.png
The long debate about whether the market was forming a double top is now over. Thanks to the Fed saying it will basically print tons of dollars prices have dropped.
Posted by bonddad at 3/20/2009 07:29:00 AM
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Thursday, March 19, 2009Today's Markets
http://2.bp.blogspot.com/_4jIlyJ10uJU/ScLChg4jmaI/AAAAAAAAByE/JInwg_iKhPI/s400/Chart+of+SPY.gif
A few points:
-- The 10 day SMA has moved through the 20 day SMA
-- Prices moved through the 50 day SMA today, but couldn't close above the level
-- The 20 day SMA is now moving sideways
-- Prices are still in a confirmed rally.
Posted by bonddad at 3/19/2009 05:08:00 PM
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The Credit Crisis Explained
The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.
Thanks to Matt Register at Corporate Finance Associates
Posted by bonddad at 3/19/2009 02:30:00 PM
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Federal Express Issues Ugly Report
From the WSJ:
FedEx Corp. said net income dropped 75% in its fiscal third quarter, below even Wall Street's grim predictions for a company considered a bellwether of the national and global economy.
The shipping company also said it plans to cut $1 billion in expenses in the coming fiscal year, mostly from its Express unit, which generates nearly two-thirds of the company's overall revenue. Revenue at the Express unit was off 18% for the quarter ended Feb. 28. Overall, the company saw a 5% drop in its Express daily package volume for the quarter.
.....
The company said its cost-cutting plans will include job cuts, though it didn't provide specifics. It will also reduce network capacity at its express and freight segments, cut back work hours and expand its compensation reductions to non-U.S. workers, where allowed.
From a Dow theory perspective, this is terrible news.
Posted by bonddad at 3/19/2009 12:31:00 PM
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The Treasury's Plan
From the WSJ:
The Treasury's bank strategy is twofold. One, get enough capital into the 19 biggest banks so everyone believes each can withstand a really bad recession. Two, get toxic assets off their books so banks will pick up the pace of new lending, and savvy big-money investors will put money into the banks and help achieve the first objective.
The unfortunately named "stress test" -- which conjured up images of Citigroup collapsing on a treadmill -- was meant to be a confidence builder, though announcing it seems instead to have magnified doubts and uncertainty about the banks. The notion is to figure out by the end of April how much capital cushion each of the 19 big banks needs to survive a bad recession (that's the "stress test") and then give those that need more capital six months, until Oct. 31, to raise it privately or take a bigger taxpayer investment on different terms than former Treasury Secretary Henry Paulson offered. Until then, the Federal Deposit Insurance Corp. will guarantee bank debt so no one need worry about lending to them, or so the Treasury hopes. None of the 19 banks will flunk the test; the only question is which will need taxpayer capital in the fall.
Let's think this through.
The Treasury plan wants the individual banks to act privately before more taxpayer money comes into the equation. On the pro side, this will prevent the use of more taxpayer money if its successful. On the bad side, its takes time to raise capital during which a number of bad things could happen. In addition, who would invest money in these banks? However, I think the third quietly implied option of this part of the plan is there will be mergers between weak and strong banks of one sort or another in reaction to the "stress test".
The last piece of the Geithner plan comes soon: Buying toxic loans and securities, mostly linked to real estate, from the banks and others. One challenge is putting a fair price on them. The Paulson Treasury spent months trying to fashion auctions in which the government would buy these assets. It never bought any. The Geithner Treasury decided that approach wouldn't work. What's more, it hasn't nearly enough taxpayer money to buy enough of the assets to make a difference.
So the plan is to form joint ventures between the Fed and money managers like Pimco or BlackRock. The Treasury kicks in, say, $1 for every $1 the private guys put in. The private investors, not the government, decide what securities to buy from the $1 trillion or so in securities linked to real estate or consumer loans. The private guys decide what price to pay. That's their business. Taxpayers and the investors would share the profits, if any. If the Fed lends to these ventures, they'll be able to buy more securities and pay more for them.
A separate set of joint ventures will shop among the $1 trillion or so in toxic loans on bank books. This effort will be leveraged by FDIC lending. The hope is that some banks will make themselves more attractive to private investors by selling toxic assets to the new joint ventures, and thus ease both parts of the banking problem simultaneously.
The central problem with this plan is the central problem with all plans dealing with the bad assets: will the banks be willing to sell and at what price? There is no guarantee anyone will be willing to sell or buy at a rate the market would like. I think this plan has an OK chance of working, but that is hardly a ringing endorsement.
I will think the best idea we've had so far is to make one big bank out of the remaining taxpayer funds, use that bank to buy the good assets from the troubled institutions and then let the banks keep the bad assets to manage. That still makes the most sense to me, largely because it only involves the creation of one structure which would be easier to monitor.
While this is not the best plan, we're left with a question of "what else can be done?" While there are still calls for nationalization of the banks, the current problems with the TARP plan -- that is, the increasing number of politically motivated bailouts -- indicates that my fears the process will be politicized are well founded. If we can get rid of that problem I think it would be appropriate. But until that question is answered, I still don't think it makes sense.
Posted by bonddad at 3/19/2009 09:30:00 AM
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Thursday Oil Market Round-Up
http://2.bp.blogspot.com/_4jIlyJ10uJU/ScIusq2DclI/AAAAAAAABx8/dpXbYGeR2LE/s400/oil+w.png
The weekly chart shows that oil has clearly broken through the upper trendline of the triangle consolidation pattern hat started in the 4th quarter of 2008. Also note the MACD gave a buy signal in late January and the RSI has been rising for several months. Prices are also above the 10 and 20 week SMA and the 10 week SMA has turned positive.
http://3.bp.blogspot.com/_4jIlyJ10uJU/ScIusbxFP6I/AAAAAAAABx0/K6X6omTsJ-c/s400/oil+d.png
The most important development is the movement of prices and the SMAs into a more bullish configuration. Note that prices are now above all the SMAs, the shorter SMAs are now above the longer SMAs and all the SMAs are rising. This is very bullish. Also note we have gains in the RSI and a rising MACD.
Bottom line: this is a bullish chart.
Posted by bonddad at 3/19/2009 06:37:00 AM
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Labels: oil
Wednesday, March 18, 2009Today's Markets
Click on all images for a larger image
http://4.bp.blogspot.com/_4jIlyJ10uJU/ScFf7LesDcI/AAAAAAAABxk/YsoW6HuPwfQ/s400/Chart+of+SPY10.gif
This is a really nice looking chart. Notice how prices have risen and fallen in a nice pattern. In addition, prices have consolidated gains in bull market pennant patterns and then gone on to rise some more.
http://2.bp.blogspot.com/_4jIlyJ10uJU/ScFf62iDg2I/AAAAAAAABxc/OZZfw3z8wGo/s400/Chart+of+SPY1.gif
Prices have moved through the 10 and 20 week SMA with strong bars. The 10 day SMA has turned positive and is approaching the 20 week SMA. Prices now have two SMAs of support. The only problem is volume should be stronger for this to be a bona-fide rally. But, I think most people would take the gains so far.
http://4.bp.blogspot.com/_4jIlyJ10uJU/ScFkLeqTfhI/AAAAAAAABxs/edbEQIKbJhk/s400/Chart+of+SPYfib.gif
I added chart of Fibonacci levels to show where a pullback from today's highs could go to. This way we know where sell-off target levels are.
Posted by bonddad at 3/18/2009 03:45:00 PM
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Wednesday Commodities Round-Up
http://3.bp.blogspot.com/_4jIlyJ10uJU/ScDe-WZfx7I/AAAAAAAABw0/DkcF_V1zh8s/s400/ricultural.png
Agricultural prices have been in a triangle consolidation pattern since the end of last year. But there are signs they might be coming out of that. First, note the RSI is rising, indicating prices are increasing. Also note the MACD is increasing, indicating momentum is picking up. There is also some upside room on the STOs, which are a better indicator when prices are trending as they are within the triangle. However, prices and the SMAs are in a tight range, telling us the market is still "making up its mind", as it were.
http://3.bp.blogspot.com/_4jIlyJ10uJU/ScDdmmLO1jI/AAAAAAAABwk/xEuu8bGKCGw/s400/industrial+metals.png
Industrial metals are in the same position as agricultural prices -- consolidating in a pattern. Prices and the SMAs are in a tight range, indicating some indecision. However, there is upsid eroom on the STOs, the MACD is rising and the RSI is rising. There are a lot of reasons for prices to move higher right now.
Underlying both of these sectors is the anticipation the economy will rebound, meaning there will be an increased demand for both food and the raw materials of industrial production (industrial metals). The question is when will the rebound happen? We'll get to that a bit later.
Posted by bonddad at 3/18/2009 06:39:00 AM
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Tuesday, March 17, 2009Today's Markets
http://3.bp.blogspot.com/_4jIlyJ10uJU/ScASmuQeLTI/AAAAAAAABwc/yeX8uzdXmWU/s400/Chart+of+SPY.gif
Although the markets opened lower they continued higher for the rest of the day. Notice that prices advanced, then pulled back on a regular basis until at the end prices simply spiked higher on solid volume.
http://2.bp.blogspot.com/_4jIlyJ10uJU/ScASJWj6RdI/AAAAAAAABwM/5sbEnHBeUbA/s400/Chart+of+SPY10.gif
Although prices pulled back on Monday, they are right back into rally mode today.
http://3.bp.blogspot.com/_4jIlyJ10uJU/ScASIslCzsI/AAAAAAAABwE/QD7aIdj0sYY/s400/Chart+of+SPY1.gif
This is looking like a rally. Notice the strong bars moving higher and the solid move through the SMAs. The only issue is the lack of solid volume compared with the sell-off of over the last few weeks. But, everything else is looking bullish right now.
Posted by bonddad at 3/17/2009 04:11:00 PM
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Empire State Borrowing Report
The recent NY Federal Reserve Manufacturing report had a series of questions related to borrowing -- specifically whether the need to borrow had increased or decreased, what the needs for new credit were for and what the perception of the credit markets was. Let's look at the responses (click for a larger image):
http://1.bp.blogspot.com/_4jIlyJ10uJU/Sb_E3ObP3SI/AAAAAAAABv8/HGrGOckJ_bA/s400/fed+2.JPG
Notice the following:
Question 2: Notice the increase from "same" to "tighter" from the last survey. However, also note the number of firms who responded "same" in the latest survey was 57% for the last 12 months and 60% for the last three months. That's a clear majority of firms.
Question 3: The number of firms who said banks' credit requirements were "much tighter now" increased to 25.5% of respondents. But again a majority 53% said the requirements were the same.
Question 4: The number of respondents who said the cost of borrowing increased rose, but so did the number of respondents who said the cost decreased.
Question 5: 69.9% of all respondents said the limits on the lines of creased were the same.
My guess is the firms that need money are the ones who are answering that credit is tightening and harder to get while the firms who have some type of cushion are responding things are OK. Again -- that's a guess.
Posted by bonddad at 3/17/2009 11:30:00 AM
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Labels: NY manufacturing
Industrial Production Drops -- Again
From the Federal Reserve:
Industrial production fell 1.4 percent in February; the overall index has now declined for 4 consecutive months and for 10 of the past 12 months. At 99.7 percent of its 2002 average, output in February was 11.2 percent below its year-earlier level and was the lowest level since April 2002. Production in the manufacturing sector moved down 0.7 percent, with broad-based declines among its components. An increase in the production of motor vehicles and parts after the extended plant shutdowns in January, however, added nearly 1/2 percentage point to the change in manufacturing production. Outside of manufacturing, the output of mines moved down 0.4 percent, while a swing to above-average temperatures contributed to a 7.7 percent drop in the output of utilities. The capacity utilization rate for total industry fell to 70.9 percent, a rate 10 percentage points below its average from 1972 to 2008. This rate matches the historical low for this series, which was recorded in December 1982; the data for total industrial utilization begin in 1967.
Let's take this apart, piece by piece.
-- IP has declined 4 consecutive months. That's called a trend. And this trend is not very good.
-- IP has declined 10 of the past 12 months. That's also called a trend. And this trend is not very good.
-- Industrial production is now below the 2002 level. Here's a relevant graph from the St. Louis Federal Reserve:
http://1.bp.blogspot.com/_4jIlyJ10uJU/Sb-PNiP9NCI/AAAAAAAABvk/ijxT1vRSpu0/s400/INDPRO_Max_630_378.png
Here's a chart of utilization from the report:
http://4.bp.blogspot.com/_4jIlyJ10uJU/Sb-P_otgPSI/AAAAAAAABvs/h51yIzPKnvc/s400/Utilization.JPG
We're now at the lowest level of utilization in over 40 years.
There are two areas that stand out as the main culprits of the drop: construction and autos (consumer durable goods):
http://3.bp.blogspot.com/_4jIlyJ10uJU/Sb-QoDK1DXI/AAAAAAAABv0/z0ODKKaSTYw/s400/Cars+and+construction.JPG
However, that does not mean everything is hunky-dory in other areas. It simply means those two areas are especially bad.
Posted by bonddad at 3/17/2009 09:30:00 AM
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Labels: industrial production
Treasury Tuesdays
http://3.bp.blogspot.com/_4jIlyJ10uJU/Sb-MOfcQtII/AAAAAAAABvc/_nCT-M5WpQg/s400/Chart+of+IEF1.gif
The year long chart simply shows that Treasury's have retreated since they peaked at the end of last year.
http://2.bp.blogspot.com/_4jIlyJ10uJU/Sb-MOAJgL0I/AAAAAAAABvU/pb1glDTHeF0/s400/Chart+of+IEF.gif
Notice the Treasuries are still in a triangle consolidation pattern. Prices are tied together with the 10 and 20 day SMA.
Posted by bonddad at 3/17/2009 06:40:00 AM
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Today's Markets
http://3.bp.blogspot.com/_4jIlyJ10uJU/Sb-K5Z54QPI/AAAAAAAABvM/_je_fUbb4KA/s400/Chart+of+SPY10.gif
Taking a look at the 10 day chart, notice that last week's rally was a really solid move upward. Prices continued to move through previous levels of resistance and formed some solid bull market pennant formations to consolidation gains. However, all things must come to an end and prices yesterday broke through the upward sloping trend line.
http://2.bp.blogspot.com/_4jIlyJ10uJU/Sb-K5GagH-I/AAAAAAAABvE/Zskafnoyv7o/s400/Chart+of+SPY.gif
Notice that prices have moved through the 10 and 20 day SMA. However, yesterday's volume was very weak compared to the volume of the rally.
Posted by bonddad at 3/17/2009 06:31:00 AM
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Monday, March 16, 2009Today's Market
I'm traveling today and will post this first thing in the morning.
Posted by bonddad at 3/16/2009 04:00:00 PM
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Posted by bonddad at 3/16/2009 01:30:00 PM
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Economy, 1,874,112 Bonddad 0
In the post below, I note that I called the bear market. That being said, I think I am missing the employment picture, so to keep myself honest ......
Click for a larger image
http://2.bp.blogspot.com/_4jIlyJ10uJU/Sb1u3GcSUuI/AAAAAAAABu8/IuCDzfQAhQE/s400/showimage.asp.gif
On November 18 of last year I wrote the following:
Above is the remainder of the chart. Again, note the job destruction is nowhere near the 53% level mentioned above.
OK -- so where am I going with this? The best read on total establishment job creation during the latest expansion is 7.2 million jobs. So far the economy has lost 1,179,000 jobs or 16.66%. So let's assume we see a rate of job destruction on parallel with the worst rate in the last 60 years. That would bring total job destruction to 3.6 million.
Now -- remember that we've already lost 1.2 million jobs. This means we have an addition 2.4 million to go. At a 240,000/month clip that means we've got 10 months of heavy job losses left. That places the end of the news of terrible job losses somewhere next summer. And that assumes we'll see a rate of job destruction on par with the worst rate of the last 60 years.
Let me add on final caveat: there are no guarantees in economics. Remember -- home prices always go up? Yeah, me too. The point is the above analysis could be off for a variety of reasons. All I'm trying to do is get a read of when the recession will be over.
Things have gotten much worse since then. We've lost 4.4 million jobs so far, or 53% of the total number of jobs lost in the previous recession. And the above chart of unemployment indicates we're not done yet.
That's why I (hopefully) add the important caveat to my analysis (like I did above). If I don't, please keep it in the back of your mind at all times: the economy will make an ass out of economists whenever possible.
Posted by bonddad at 3/16/2009 11:30:00 AM
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About the Cramer Stewart Dust-Up and The Power of Blogs
I watched all of the Stewart routines dealing with CNBC along with the interview with Cramer. First -- I don't watch Jim Cramer. I barely watch CNBC. I'm a big fan of Bloomberg. CNBC, well, sucks. I find their reporting to be sub-par and their analysis to be shallow (at best). Bloomberg is a far better product.
That being said, I should also add that I think all analysts are worthless. Consider this from the latest Barron's:
Click for a larger image:
http://1.bp.blogspot.com/_4jIlyJ10uJU/Sb1pfCkBi6I/AAAAAAAABu0/XkkThbSRHrY/s400/Barrons.JPG
Simply put -- no one did well long-term. And everyone got destroyed over the last year. That means no one -- NO ONE - - advised their clients get the hell out, shift into something safe and wait it out. Part of the problem is none of these guys knew we were in a recession. Consider this:
Back on Oct. 1, analysts predicted Q1 earnings for S&P 500 companies would rise 25.7% vs. a year earlier, according to Thomson Reuters. By Jan. 1, they were predicting a decline of 12.5%. Now the forecast calls for a 34.1% plunge.
That rights -- 9 months into a recession, analysts thought that earnings would increased 25.7% y/o/y. That's how clueless these guys are.
And no -- there were plenty of people who called the problem.
A look at my writings indicates that I wrote an article on November 22, 2007 which concluded:
1.) The multi-year charts indicate the rally is still on, although the high volume over the last year may indicate we have seen a selling climax.
2.) The year chart shows traders have a hair trigger, and will sell on high volume.
3.) The Russell 2000 has broken a 4 year uptrend and is nearing a bear market sell-off point.
4.) The Transports are in bear market territory, preventing a Dow theory confirmation.
5.) Market breadth has been declining, especially on the NASDAQ during its latest rally.
6.) Investors are moving into Treasury debt, indicating a flight to safety may be going on.
This market has some serious chinks in its armor. The Russell 2000 and Transportation average are cause for serious concern. So is the lack of market breadth during the NASDAQ's latest rally and the Treasury market rally. If only one of the preceding facts was occurring we could dismiss it. However, with all four occurring at the same time, it's important to take a close look at the market to see if a rally can continue.
On November 24, I wrote the following:
At the end of every week, I go to the stockcharts.com performance function to see how the major ETFs (using the XL__ series) have performed over various time frames. I look at returns for the following time periods: year, 180 days, 90 days, 30 days, 10 days and week. What I'm looking for are general trends to see how money is shifting in the market. I then look at the charts to see what they are saying.
Here are some observations from that analysis.
1.) The XLEs and XLBs -- which were a prime driver of the latest bull market -- have stopped advancing. This may be a sign that traders who rode these sectors for most of the year are getting out and taking profits.
2.) The financials -- which comprise about 20% of the S&P 500 -- have a negative return for all the time periods.
3.) Consumer discretionary has a negative return for all but one time frame (yearly).
4.) Over the last 30, 10 and weekly period, the best performing sectors are utilities (which performed best over the last 30 days) and consumer staples (which performed best over the last 10 days). Energy popped over the last 5 day period, largely thanks to oil's rally.
In short, it looks as though traders are taking profits in the previously strong areas of the market and are shifting those realized gains into safer, recession resistant areas of the market.
And I am far from the only one who was concerned. Barry at the Big Picture, Mish and Calculated Risk all wrote about their concerned about the economy and the markets as a whole. If you had read the blogs and avoided the financial channels and then acted on the advice you would have done just fine.
Posted by bonddad at 3/16/2009 09:30:00 AM
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Market Mondays
Click on all images for a larger image
http://1.bp.blogspot.com/_4jIlyJ10uJU/Sb1nJFUdEqI/AAAAAAAABus/E8D8n0j53eQ/s400/spy+1.png
Notice the following on the daily chart:
-- Prices have moved through the downward sloping trend line that started in early February
-- Prices have moved through the 10 and 20 week SMA
-- The 10 week SMA is turning more positive
-- The MACD has given a buy signal
-- The RSI is rising
-- The Money Flow index rising
However
-- The shorter SMAs are below the longer SMAs
-- The 20 and 50 day SMA are still moving lower
http://3.bp.blogspot.com/_4jIlyJ10uJU/Sb1nIkSpDRI/AAAAAAAABuk/jpSGD6Uuo54/s400/spy+w.png
Notice the following on the weekly chart
-- The MACD is moving higher
-- The RSI is rising on a longer scale.
HOWEVER
-- Prices are still below all the SMAs
-- All the SMAs are moving lower
-- The shorter SMAs are below the longer SMAs
Bottom line: we have a long way to go -- especially on the long term chart -- before we're out of the woods.
Posted by bonddad at 3/16/2009 05:00:00 AM
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Friday, March 13, 2009Weekend Weimer and Beagle
It's time to stop thinking about the markets and the economy. In fact -- do anything except thing about those two things right now.
To that end, here are some You Tube dog videos
I'll be back on Monday.
Posted by bonddad at 3/13/2009 02:48:00 PM
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US Wealth Drops Big Time
From the WSJ:
The wealth of American families plunged nearly 18% in 2008, erasing years of sharp gains on housing and stocks and marking the biggest loss since the Federal Reserve began keeping track after World War II. The Fed said Thursday that U.S. households' net worth tumbled by $11 trillion -- a decline in a single year that equals the combined annual output of Germany, Japan and the U.K. The data signal the end of an epoch defined by first and second homes, rising retirement funds and ever-fatter portfolios.
Past downturns have been mere blips compared with the losses Americans faced last year, which set them back to below 2004 levels. "In the postwar period, we've never had anything other than very modest declines. That life experience led many people to think that houses were a one-way bet," says Douglas Cliggott, the chief investment officer of Dover Management LLC.
This is a primary reason why I am not optimistic about the bump in retail spending. Simply put, people are poorer and when they are poorer they spend less.
Posted by bonddad at 3/13/2009 01:42:00 PM
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The Stimulus Plan, Pt II
The plan has a very interesting table regarding multipliers. A multiplier is an estimate of the "cumulative impact of various policy options on GDP over several quarters"
http://1.bp.blogspot.com/_4jIlyJ10uJU/SbpSMmFSKjI/AAAAAAAABuU/fQk09KIdn8I/s400/stim+1.PNG
Notice that spending can have a minimum multiplier of 1 -- meaning each dollar spent adds that dollar to the national GDP total -- and a maximum multiplier of 2.5 -- meaning each dollar spent adds 2.5 dollars to total GDP. The truth is most likely in the middle somewhere.
The reason for this multiplier effect is simple. Government body buys $1 of goods. Someone has to sell those goods to the government. In addition, someone has to make those goods which are then sold to the government. And someone has to extract the raw materials to put into those goods. In short, a purchase stimulates the entire chain of production from extraction to sale. Hence the possibility of a higher multiplier.
http://3.bp.blogspot.com/_4jIlyJ10uJU/SbpUXSERdwI/AAAAAAAABuc/XIf2oi_VyrU/s400/stim+2.PNG
First, these estimates are from the Joint Committee on Taxation, whose website is here. Notice that with tax cuts the multiplier is higher for lower and middle income tax cuts than upper income tax cuts. Why? A tax cut for lower and middle income people effects a larger amount of people -- that is, there are more taxpayers in the middle income brackets than higher tax brackets. According to this table from the Tax Policy Center there were 1448 tax units in the 28% tax bracket in in 2007 compared with 73 in the 33% bracket. Basically, this is simple math.
Posted by bonddad at 3/13/2009 09:30:00 AM
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Forex Friday's
Click on all images for a larger image
http://4.bp.blogspot.com/_4jIlyJ10uJU/SbpM0CjH82I/AAAAAAAABuE/RN7Vpg8V1jU/s400/usd+w.png
The weekly chart shows the dollar is deciding whether it wants to form a double top or continue rallying. In the "continuing to rally" camp there is a bullish indication from the MACD, the fact that prices have moved through previous highs the fact that prices are still in a confirmed uptrend. In the "we're forming a double top" camp is the lower RSI for the second peak than the first peak along with the weak candles at the very top (a spinning top followed by a strong move down).
http://2.bp.blogspot.com/_4jIlyJ10uJU/SbpN6NSRwMI/AAAAAAAABuM/cnf63VwLwdQ/s400/usd+d.png
On the daily chart notice the following:
-- Prices have broken through the trend line started in mid-December
-- The MACD is giving a sell signal
-- Prices ran into a lot of resistance around the 89 level, which is just above the previous peak
-- Prices have moved through the 10 and 20 week SMA
Posted by bonddad at 3/13/2009 07:06:00 AM
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Labels: dollar
Today's Markets
OK -- it's yesterday's markets. But you get the idea.
http://2.bp.blogspot.com/_4jIlyJ10uJU/SbpHWAQB3DI/AAAAAAAABts/6dJ7gSJaE30/s400/Chart+of+SPY10.gif
The 10 day chart shows an impressive rally that has returned prices to their level 10 days ago. Note there are several possible trend lines for this mini-rally.
http://2.bp.blogspot.com/_4jIlyJ10uJU/SbpHpl0LBZI/AAAAAAAABt0/uEBbkwrVRK4/s400/Chart+of+SPY.gif
Ignore the last bar on the chart.
Prices have moved through the 10 and 20 day SMA in three days and the 10 day SMA is starting to move into positive territory, but we're a long way off from a big turnaround. Prices have increased about 11% in the last three days. that's an impressive rally. My guess is there are several reasons.
1.) A standard short-covering rally.
2.) The market has been technically oversold for weeks, yet has continued to move lowed. Oversold readings usually lead to strong counter-rallies.
3.) Citi's announcement that it is showing a profit implied we might be seeing the beginning of the end of problems in the financial sector. Citi has long been called a "dead-bank walking", so this announcement was particularly important for the rally
Posted by bonddad at 3/13/2009 06:44:00 AM
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Thursday, March 12, 2009Today's Markets
Actually -- I'm in a meeting for the rest of the day. I'll post this first thing in the morning.
Posted by bonddad at 3/12/2009 04:00:00 PM
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Retail Sales Drop
From the Census:
The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for February, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $346.8 billion, a decrease of 0.1 percent (±0.5%)* from the previous month and 8.6 percent (±0.7%) below February 2008. Total sales for the December 2008 through February 2009 period were down 9.4 percent (±0.5%) from the same period a year ago. The December 2008 to January 2009 percent change was revised from +1.0 percent (±0.5%) to +1.8 percent (±0.2%).
Retail trade sales were down 0.1 percent (±0.7%)* from January 2009 and 9.8 percent (±0.7%) below last year. Gasoline stations sales were down 32.3 percent (±1.7%) from February 2008 and motor vehicle and parts dealers sales were down 23.5 percent (±2.1%) from last year.
First -- could the people at the Census start adjusting these numbers for inflation? Nominal numbers are just worthless.
Secondly -- this is being touted as good news (and it is). But before we start congratulating ourselves, let's remember where we are. Here are the relevant charts from the St. Louis Fed:
http://1.bp.blogspot.com/_4jIlyJ10uJU/SblMDQeIiKI/AAAAAAAABtU/SwfuAot30Qk/s400/RRSFS_Max_630_378.png
Retail sales have dropped hard and fast for over a year. To say this is a reprieve from the drop is very premature.
http://2.bp.blogspot.com/_4jIlyJ10uJU/SblMLZsxnsI/AAAAAAAABtc/0PnxHnjKQ-E/s400/research.stlouisfed.org.png
And the YOY chart shows we've got serious problems as well.
http://1.bp.blogspot.com/_4jIlyJ10uJU/SblMnZUQKiI/AAAAAAAABtk/hfEN2AIgjJw/s400/adv10209.gif
And as the advance chart shows the auto industry is still in serious trouble. When I see people start to move back into the auto and housing market -- which would indicate more confidence in the future -- then I'll be relieved.
Posted by bonddad at 3/12/2009 12:49:00 PM
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The Stimulus Plan, Pt I
I'm going to spend a bit of time over the next few days on the stimulus plan. It is the most important bill to come down the Congressional pike in some time. I'll be using the CBOs analysis which is available here (click on PDF).
Let's start with this picture (click for a larger image):
http://3.bp.blogspot.com/_4jIlyJ10uJU/SbeuG-S-9jI/AAAAAAAABrk/WCrCM4Gvj_s/s400/ARRA.JPG
Without the plan we're looking at a drop in GDP in the 4th quarter of this year of roughly 7% below out output potential. More importantly, look closely at the GDP baseline estimate for national GDP going forward (the solid line at the bottom). According to the CBO we would be experiencing a "net output gap" (producing at a level below out maximum potential) for 5 years. That's one heck of a big problem staring us in the face. While these are estimates and therefore subject to debate regarding their veracity, it highlights the central problem. The US has been in a recession since December 2007. Over the last 12 months the economy has lost 5 million jobs. In January, industrial production was 10% below year ago levels. GDP contracted at a 6.2% rate in the fourth quarter. In short, the US is limping right now and is clearly in need of some help.
A lot has been written about the fact the CBO estimates the net long-term effect will be slightly negative. Here's the reports statement regarding that drop (click for a larger image):
http://3.bp.blogspot.com/_4jIlyJ10uJU/Sbeyw35ujmI/AAAAAAAABrs/7xtwTJm62A4/s400/Long-term+1.JPG
Bottom line: according to the CBO the main long-term negative is the crowding out public debt will cause relative to private capital in the market. But there are several important caveats:
http://4.bp.blogspot.com/_4jIlyJ10uJU/SbezbOFa-hI/AAAAAAAABr8/EhM_0kveE7A/s400/long-term+2.JPG
http://3.bp.blogspot.com/_4jIlyJ10uJU/SbezbO65AqI/AAAAAAAABr0/kGFZ3aj-VXM/s400/long-term+3.JPG
In short, the CBO feels confident in their analysis of crowding out relative to private investment but not so confident regarding the long-term effects of infrastructure and education spending. The point here is a lot was made of the CBO saying this plan would hurt the economy. But -- the CBO is issuing a pretty big caveat.
Posted by bonddad at 3/12/2009 11:30:00 AM
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We're Nowhere Near A Bottom In Housing
From the AP:
Despite halts on new foreclosures by several major lenders, the number of households threatened with losing their homes rose 30 percent in February from last year's levels, RealtyTrac reported Thursday.
Nationwide, nearly 291,000 homes received at least one foreclosure-related notice last month, up 6 percent from January, according to the Irvine, Calif-based company. While foreclosures are highly concentrated in the Western states and Florida, the problem is spreading to states like Idaho, Illinois and Oregon as the U.S. economy worsens.
"It doesn't bode well," for the embattled U.S. housing market, said Rick Sharga, vice president for marketing at RealtyTrac, a foreclosure listing firm. "At least for the foreseeable future, it's going to continue to be pretty ugly."
.....
While the number of foreclosures continue to soar nationwide, banks have held off listing properties for sale, Sharga said. There were around 700,000 such properties nationwide at the end of last year, making up a "shadow inventory" of unsold homes that could drag the housing crisis out even longer.
.....
Still, the faltering economy, driven down by the collapse of the housing bubble, is causing the housing crisis to spread. Nearly 12 percent of all Americans with a mortgage -- a record 5.4 million homeowners -- were at least one month late or in foreclosure at the end of last year, according to the Mortgage Bankers Association. That's up from 10 percent at the end of the third quarter, and up from 8 percent at the end of 2007.
If we add the 700,000 "shadow inventory" to the current existing inventory we're back over 4 million total houses for sale (click for larger image. Thanks to Calculated Risk).
http://1.bp.blogspot.com/_4jIlyJ10uJU/SbkBH72ubAI/AAAAAAAABtE/SzeOEkD4kMo/s400/EHSInventoryJan09.jpg
Posted by bonddad at 3/12/2009 09:30:00 AM
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Thursday Oil Market Round-Up
Click on all images for a larger image
http://3.bp.blogspot.com/_4jIlyJ10uJU/Sbj4uI5keJI/AAAAAAAABs0/VREvSF0LbXk/s400/oil+w.png
The weekly chart shows the market is still in a triangle consolidation pattern. However, notice the RSI is rising and the MACD has given us a bullish crossover signal.
http://4.bp.blogspot.com/_4jIlyJ10uJU/Sbj4ubKQKDI/AAAAAAAABs8/_K3J_abcEkc/s400/oil+d.png
The MACD has been rising since November and the RSI has been increasing for the last month. In addition, this chart clearly shows the triangle consolidation that started at the end of last year. The SMA picture is still muddled with the 10, 20 and 50 bunched together within a few points of each other. However, the summer is typically a time when oil rallies as the "summer driving season" kicks into high gear.
Posted by bonddad at 3/12/2009 06:57:00 AM
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Labels: oil
Wednesday, March 11, 2009Today's Markets
http://4.bp.blogspot.com/_4jIlyJ10uJU/SbgdtRBwn5I/AAAAAAAABsc/6FKEAqAQ5so/s400/Chart+of+SPY2.gif
While the SPYs were up today, the chart tells us that prices made most of their up on the open. Prices trended down until a little after 1 then rallied with a sell-off into the end.
http://1.bp.blogspot.com/_4jIlyJ10uJU/SbgeVERO02I/AAAAAAAABsk/zPD_XZsFxtg/s400/Chart+of+SPY10.gif
On the 10 day chart, notice the market was moving lower through last Friday. But since Monday the market has been moving higher. In other words, it's looking more like we're in a reversal of the downtrend.
http://4.bp.blogspot.com/_4jIlyJ10uJU/SbgeqP1t85I/AAAAAAAABss/L1bZbSeLUu4/s400/Chart+of+SPY.gif
On the daily chart, notice that prices have bounced through the 10 day SMA. However, also notice that volume for the last two days is low compared to the sell-off the preceding few days.
Posted by bonddad at 3/11/2009 03:21:00 PM
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Labels: market analysis
The Worthlessness of Analysts
One analyst has downgraded Bank of America to a sell. The median recommendation is a 2.5 on a scale of 5 with 5 being sell.
The median recommendation for Citigroup is 3.1 on a scale of 5 with 5 being sell.
And to think these people still go on TV and make recommendations.
Posted by bonddad at 3/11/2009 11:30:00 AM
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About the Citi Announcement
From IBD:
But Citi has an operating profit so far in 2009 — excluding likely write-downs and loan loss provisions — CEO Vikram Pandit said in an internal memo to staff Monday.
"I am most encouraged with the strength of our business so far in 2009," he wrote. "We are profitable through the first two months of 2009 and are having our best quarter-to-date performance since the third quarter of 2007."
They forgot to add the phrase "sucker" to the internal memo. For the last few weeks markets have been dying to hear good news -- any good news. However, trusting anyone involved with a financial firm is stupid beyond belief.
But Wall Street has learned to distrust claims of financial health. The CEOs of mortgage finance giants Freddie Mac (FRE) and Fannie Mae (FNM) expressed confidence in their firms' viability before they were taken into receivership. Lehman Bros.' CEO gave similar assurances before the investment bank went bankrupt last year.
"One of the questions investors have is transparency. How much information are they telling me and what's the validity of the information," said Kris Niswander, associate director at SNL Financial.
Let's just say I'll believe it when I see it.
Posted by bonddad at 3/11/2009 09:30:00 AM
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Wednesday Commodities Round-Up
Click on all images for a larger image
http://2.bp.blogspot.com/_4jIlyJ10uJU/SbejE451mQI/AAAAAAAABrU/avepR7VJj48/s400/Chart+of+GLD.gif
The Gold chart is right at an important trend line -- one that started in the 4Q of last year. Part of the reason for the rally is a safe haven play; whenever investors get scared about the future gold becomes an attractive investment. In addition, inflationary concerns were rising due to the massive amount of government spending hitting the system.
http://2.bp.blogspot.com/_4jIlyJ10uJU/SbejE5CFkWI/AAAAAAAABrM/6zWZIGLM5E0/s400/Chart+of+GLD3.gif
The three month chart shows the correction in more detail. Prices are right at the trend line. In addition, prices are at the 50 day SMA which is another important technical marker. The short term SMAs -- the 10 day SMA -- has turned lower and the 20 day SMA is turning horizontal. In other words, the upward momentum is cooling.
From a fundamental perspective it appears that traders/investors have cooled on gold. However, we are in very uncertain times right now which could help gold catch a bid.
Posted by bonddad at 3/11/2009 06:38:00 AM
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Labels: commodities
Tuesday, March 10, 2009Today's Markets
Click on all images for a larger image
http://1.bp.blogspot.com/_4jIlyJ10uJU/SbbIlmJqBUI/AAAAAAAABrE/BqBknhrM5Vw/s400/Chart+of+SPY1.gif
Wow - I'd almost forgotten what a market rally looked like! Seriously, the market popped higher on the open, consolidated gains and then moved higher at 11. Prices drifted lower until 1:30 and then moved higher into the close. All in all a nice day.
http://2.bp.blogspot.com/_4jIlyJ10uJU/SbbIlQF81nI/AAAAAAAABq8/UqkMxjgxIA4/s400/Chart+of+SPY10.gif
Simply notice that the 10 day long downward move may have been broken. What we need tomorrow is a follow-through day.
Posted by bonddad at 3/10/2009 03:07:00 PM
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Bernanke Calls For Sweeping Changes
From Bloomberg:
Federal Reserve Chairman Ben S. Bernanke urged a sweeping overhaul of U.S. financial regulations in an effort to smooth out the boom-and-bust cycles in financial markets.
“We should review regulatory policies and accounting rules to ensure that they do not induce excessive” swings in the financial system and economy, the central bank chief said today in remarks prepared for an address to the Council on Foreign Relations in Washington.
Bernanke recommended that lawmakers and supervisors rethink everything from the amounts firms set aside against potential trading losses and deposit-insurance fees to protections for money-market funds. His remarks reflect a judgment that the U.S., just like emerging-market nations in the past, failed to properly manage a flood of capital over the past decade and a half.
Bernanke also reiterated his call for an agency to take on overarching responsibility for financial stability. While he didn’t specify which regulator should take that job, he noted that the Fed was first formed to address banking panics and said the initiative would “require” some role for the central bank.
Congress and the Obama administration are embarking on the broadest revamp of the oversight of U.S. finance since the Great Depression. Bernanke’s speech marks the Fed’s contribution to the policy debate.
Gee -- y think?
Posted by bonddad at 3/10/2009 11:30:00 AM
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Labels: employment
Treasury Tuesdays
Click on all images for a larger image.
http://4.bp.blogspot.com/_4jIlyJ10uJU/SbZRW8eUVwI/AAAAAAAABqs/q0H8JHWeOQk/s400/Chart+of+IEF1.gif
Notice on this 1 year chart that while bond prices were at incredibly high levels at the beginning of the year they have since come down. Prices are still over the 200 day SMA indicating a bull market, however.
http://3.bp.blogspot.com/_4jIlyJ10uJU/SbZRWq68aNI/AAAAAAAABqk/uXCVA6t9Q1s/s400/Chart+of+IEF.gif
Prices have been consolidating in a triangle consolidation pattern since the beginning of February. However, the SMAs are now giving a different picture. The 50 and 10 day SMA are moving lower while the 20 day is moving higher. Prices are tied together with the 10 and 20 day SMA indicating a lack of direction.
From a fundamental perspective there are two macro-situations competing right now. Pulling prices lower is the massive supply of treasury bonds coming to market over the next 9-12 months. However, keeping prices higher is the safety play which will continue to long as the stock market continues to move lower.
Posted by bonddad at 3/10/2009 06:38:00 AM
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Labels: Treasury Market
Monday, March 9, 2009Media Appearance
Today I was on the BBC Program World Have Your Say.
Here is a link to the show. I was on in the last 7-10 minutes.
http://downloads.bbc.co.uk/podcasts/worldservice/whys/whys_20090309-1900a.mp3
Posted by bonddad at 3/09/2009 05:11:00 PM
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Today's Markets
http://1.bp.blogspot.com/_4jIlyJ10uJU/SbWPvtlb_5I/AAAAAAAABqc/dN4pAjOG3eg/s400/Chart+of+SPY.gif
On the daily chart notice we're in a very bearish position. Prices are moving lower, prices are below all the SMAs, the shorter SMAs are below the longer SMAs and all the SMAs are moving lower. While the chart today printed a hammer, we printed a similar bar a littel over a week ago and it didn't do much. However, today we saw lower volume which could be encouraging.
http://1.bp.blogspot.com/_4jIlyJ10uJU/SbWPvFiFTZI/AAAAAAAABqU/5JOnXL0zjIU/s400/Chart+of+SPYd.gif
For the second day in a row prices opened higher but were unable to maintain their upward momentum. However, prices today closed above the lows of Friday. In addition there were two bars moving higher at the end of trading with strong volume surges. However, I wouldn't get too excited about that just yet.
Posted by bonddad at 3/09/2009 04:52:00 PM
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Buffet In Words and Pictures
From CNBC:
Yeah. The economy, ever since we talked in September, we talked about it being an economic Pearl Harbor and how--what was happening in the financial world would move over to the real world very quickly. It's fallen off a cliff, and not only has the economy slowed down a lot, people have really changed their behavior like nothing I've ever seen. Luxury goods and that sort of thing have just sort of stopped, and that's why Walmart is doing well and you know, and I won't name the ones that are doing poorly. But there's been a reset in people's minds, and we see that in something like Geico where year after year after year we say you can save some money insuring with Geico, and year after year there's been a certain number of people who have said, `You know, I've got this pal, Rotary Joe, and I've been insuring with him and for 100 bucks, why should I shift?' Every week we're just seeing it build and build. More and more people are calling. Our price differentials haven't widened, our advertising isn't that much different, but the American public really has changed their buying habits. On the reverse side, our jewelry stores just get killed in a period like this. And high end gets hurt the most, next down gets hurt the second most, and the lowest people get hurt the least.
Take a look at this chart from the WSJ. 7 stores posted gains in February. 4 (BJs, Sam's Wal-Mart and Costco) were discounters.
In addition, consider these two charts from the St. Louis Fed:
http://3.bp.blogspot.com/_4jIlyJ10uJU/SbU_rb1OLII/AAAAAAAABqM/Pn6Q6Rb7LsI/s400/RRSFS_Max_630_378.png
http://4.bp.blogspot.com/_4jIlyJ10uJU/SbU_qu0i99I/AAAAAAAABp8/JerMwDmYBoc/s400/research.stlouisfed.org.png
http://3.bp.blogspot.com/_4jIlyJ10uJU/SbU_qF1_RVI/AAAAAAAABp0/IAN9UaAgNrQ/s400/PCE_Max_630_378.png
http://3.bp.blogspot.com/_4jIlyJ10uJU/SbU_q5lIPNI/AAAAAAAABqE/MXFuqG_DUNQ/s400/pce+yoy.png
Posted by bonddad at 3/09/2009 11:03:00 AM
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Dividend's Are Dropping
From IBD:
U.S. companies have already slashed $40.7 billion in dividends in 2009, topping last year's $40.6 billion in just over two months.
No bank now ranks among the top 30 dividend-paying companies in terms of total dollars. Financial companies pay out only 11% of dividend income vs. more than 30% before the credit crisis hit, says S&P analyst Howard Silverblatt.
Dividends among S&P 500 companies are on track to fall 22.6% in 2009, the most since 1938, with many more cuts likely. The pain has spread from shareholders in banks to investors in auto, consumer discretionary and other stocks.
This shouldn't be a surprise. But it is another reason for more investors getting out of the market.
Posted by bonddad at 3/09/2009 09:14:00 AM
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Market Monday's
Click on all images for a larger image
http://3.bp.blogspot.com/_4jIlyJ10uJU/SbPWI7Nyc5I/AAAAAAAABpM/Hs0j8zGuSD8/s400/Chart+of+SPY+line.gif
While I usually don't line line charts, this one helps to show the major trend of the last year. Prices are in a clear downtrend. Rallies have been bear market flags or pennant patterns that have offered an opportunity to short the market.
http://4.bp.blogspot.com/_4jIlyJ10uJU/SbPWIquga9I/AAAAAAAABpE/bIYrzTvlZ8w/s400/Chart+of+SPY+after+line.gif
Above is the same chart of the SPYs but with candles.
The following charts show the market is oversold.
http://3.bp.blogspot.com/_4jIlyJ10uJU/SbPXBSXcVtI/AAAAAAAABpk/YOtG7Q2srXg/s400/Chart+of+SPY+will.gif
http://1.bp.blogspot.com/_4jIlyJ10uJU/SbPXBEwLFzI/AAAAAAAABpc/gRQUuikg_zk/s400/Chart+of+SPY+rsi.gif
http://4.bp.blogspot.com/_4jIlyJ10uJU/SbPXA9h7JPI/AAAAAAAABpU/nXI9TwCGzL8/s400/Chart+of+SPY+ch.gif
However, the MACD tells us we have a ways to go.
http://1.bp.blogspot.com/_4jIlyJ10uJU/SbPX2hsNZjI/AAAAAAAABps/bJahWMZ1T-M/s400/Chart+of+SPY+macd.gif
Posted by bonddad at 3/09/2009 05:00:00 AM
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Labels: market analysis
Friday, March 6, 2009Media Appearance
I'll be on Air America at 6:05 CST to talk about the latest employment disaster report.
Posted by bonddad at 3/06/2009 03:21:00 PM
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The Employment Situation in Pictures.
Click on all for a larger image. There are presented in no order of importance. All have been updated with today's information.
http://3.bp.blogspot.com/_4jIlyJ10uJU/SbFZr4gAzEI/AAAAAAAABo8/lDW05__L4DY/s400/UNRATE_Max_630_378.png
http://4.bp.blogspot.com/_4jIlyJ10uJU/SbFZr0dRkSI/AAAAAAAABo0/rROLi3jvLVw/s400/UEMPMED_Max_630_378.png
http://3.bp.blogspot.com/_4jIlyJ10uJU/SbFZmML_BGI/AAAAAAAABos/ZcLAvnO-YS0/s400/UEMP27OV_Max_630_378.png
http://2.bp.blogspot.com/_4jIlyJ10uJU/SbFZmLduTnI/AAAAAAAABok/MGDW7TBiR4c/s400/UEMP15OV_Max_630_378.png
http://3.bp.blogspot.com/_4jIlyJ10uJU/SbFZl5WwCrI/AAAAAAAABoc/mpPA0a9GjP8/s400/UEMP5TO14_Max_630_378.png
http://1.bp.blogspot.com/_4jIlyJ10uJU/SbFZlWwgD1I/AAAAAAAABoU/qHUsFzDhPGE/s400/EMRATIO_Max_630_378.png
http://1.bp.blogspot.com/_4jIlyJ10uJU/SbFZlHhpH2I/AAAAAAAABoM/MphGthpxqbQ/s400/CIVPART_Max_630_378.png
Posted by bonddad at 3/06/2009 11:11:00 AM
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Employment Down -651,000
From the BLS:
Nonfarm payroll employment continued to fall sharply in February (-651,000), and the unemployment rate rose from 7.6 to 8.1 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Payroll employment has declined by 2.6 million in the past 4 months. In February, job losses were large and widespread across nearly all major industry sectors.
.....
The number of long-term unemployed (those jobless for 27 weeks or more) increased by 270,000 to 2.9 million in February. Over the past 12 months, the number of long-term unemployed was up by 1.6 million. (See table A-9.)
.....
In February, the number of persons who worked part time for economic reasons (sometimes referred to as involuntary part-time workers) rose by 787,000, reaching 8.6 million. The number of such workers rose by 3.7 million over the past 12 months. This category includes persons who would like to work full time but were working part time because their hours had been cut back or because they were unable to find full-time jobs. (See table A-5.)
.....
About 2.1 million persons (not seasonally adjusted) were marginally attached to the labor force in February, 466,000 more than a year earlier. These individuals wanted and were available for work and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. Among the marginally attached, there were 731,000 discouraged workers in February, up by 335,000 from a year earlier. Discouraged workers are persons not currently looking for work because they believe no jobs are available for them. The other 1.3 million persons marginally attached to the labor force in February had not searched for work in the 4 weeks preceding
the survey for reasons such as school attendance or family responsibilities. (See table A-13.)
.....
Total nonfarm payroll employment dropped by 651,000 in February. Since the recession began in December 2007, about 4.4 million jobs have been lost, with more than half (2.6 million) of the decrease occurring in the last 4 months. In February, employment declined in most major industry sectors, with the largest losses occurring in professional and business services, manufacturing, and construction. Health care continued to add jobs over the month. (See table B-1.)
Let's break this information down.
1.) The best read of job growth for the last expansion is a total of 8.2 million jobs created. 2.6 million jobs were lost in the last 4 months, or 31%. Since the recession began, we've lost 4.4 million jobs or 53%. There is no way to spin those numbers as anything except terrible.
2.) The number of people who worked part-time for economic reasons increased by 787,000. That's also a ton of people. That number has increased by 3.7 million over the last 12 months -- also a ton of people. That facts tells us two relevant data points. First, businesses are still cutting back sharply. Secondly, there is probably at least one more month of horrible job losses in the works; that number is simply too high for there not to be another serious round of job losses coming down the pike.
3.) Year over year, the unemployment rate of service occupations has increased from 6.7% to 9.1% the unemployment rate of natural resources, construction and maintenance has increased from 9.1% to 17.7% and the unemployment rate of production, transportation and material employment has increased from 6.6% to 13.1%.
4.) Hours worked is decreasing across a wide swath of industries.
Simply put, this is an incredibly ugly report.
Posted by bonddad at 3/06/2009 09:30:00 AM
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Labels: employment
Forex Friday's
Click on all images for a larger image
http://1.bp.blogspot.com/_4jIlyJ10uJU/SbEd5MfxfPI/AAAAAAAABoE/7L4DGTM0At8/s400/dollar+w.png
The weekly chart is very positive. Notice the following:
-- The MACD is giving a buy signa
-- The RSI is rising indicatin increasing price strength
-- Prices have been rising for the last three months
-- Prices have broken through upside resistance
-- All the SMAs are moving higher
-- The 10 week SMA is about to cross over the 20 week SMA, which will lead to a very bullish alignment of all the shorter SMAs being above the longer SMAs
http://1.bp.blogspot.com/_4jIlyJ10uJU/SbEd4yDWZoI/AAAAAAAABn8/IGhGAH-gxPU/s400/dollar+d.png
Notice the following on the weekly chart:
-- Prices have been rising since mid-December
-- All the SMAs are moving higher
-- The shorter SMAs are above the longer SMAs
-- Prices are above the SMAs
-- The MACD is increasing
Bottom line: this is a good example of a bullish chart.
Posted by bonddad at 3/06/2009 06:57:00 AM
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Thursday, March 5, 2009Today's Markets
Click for larger image
http://4.bp.blogspot.com/_4jIlyJ10uJU/SbBchNR1KJI/AAAAAAAABn0/IAh21CTfmTM/s400/Chart+of+SPYd.gif
The 5-minute chart shows a clear downward trajectory interrupted by bear market flag patterns. In other words, people have been selling into the rallies.
http://2.bp.blogspot.com/_4jIlyJ10uJU/SbBcg1bg_7I/AAAAAAAABns/J9Xa4jduTfQ/s400/Chart+of+SPY.gif
On the daily chart notice that prices are hugging the lower trend line of the downward sloping channel.
Posted by bonddad at 3/05/2009 05:00:00 PM
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Fed Sees A Damaged Economy
From the most recent Beige Book:
Consumer spending remained sluggish on net, although many Districts noted some improvement in January and February compared with a dismal holiday spending season. Travel and tourist activity fell noticeably in key destinations, as did activity for a wide range of nonfinancial services, with substantial job cuts noted in many instances. Reports on manufacturing activity suggested steep declines in activity in some sectors and pronounced declines overall. Conditions weakened somewhat for agricultural producers and substantially for extractors of natural resources, with reduced global demand cited as an underlying determinant in both cases. Markets for residential real estate remained largely stagnant, with only minimal and scattered signs of stabilization emerging in some areas, while demand for commercial real estate weakened significantly. Reports from banks and other financial institutions indicated further drops in business loan demand, a slight deterioration in credit quality for businesses and households, and continued tight credit availability.
Upward price pressures continued to ease across a broad spectrum of final goods and services. This was largely associated with lower prices for energy and assorted raw materials compared with earlier periods, but also with weak final demand more generally, which spurred price discounting for items other than energy and food. With rising layoffs and hiring freezes, unemployment has risen in all areas, reducing or eliminating upward wage pressures. A number of reports pointed to outright reductions in hourly compensation costs, through wage reductions and reduction or elimination of some employment benefits.
None of this should be news to anybody. I wrote an article on 4th quarter GDP which has some relevant charts and graphs.
Posted by bonddad at 3/05/2009 11:30:00 AM
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Anecdotal Job Market Information
Mr$. Bonddad is the HR director and an architectural firm in Houston.
1.) Last Friday she went to a recruiter event at an architectural school. Last year there were 26 firms; this year there were 6. And none of them were hiring.
2.) Her firm recently placed an advertisement from an administrative assistance. Last year she would have received between 50 and 100 resumes. This year she received 700.
This is one person's experience in a large city. But......
Posted by bonddad at 3/05/2009 09:30:00 AM
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Thursday Oil Market Round-Up
Click on all charts for a larger image
http://4.bp.blogspot.com/_4jIlyJ10uJU/Sa_II6VnFDI/AAAAAAAABnc/7zdETYlQEmk/s400/oil+w.png
On the weekly chart notice that prices have been in a triangle consolidation pattern for the last three months. Also note the MACD is rising and has given a clear buy signal. Also note the RSI is rising. Prices are above the 10 week SMA. There are two more areas of upside resistance that could keep prices from moving higher -- the upper line of the triangle and the 20 week SMA.
http://3.bp.blogspot.com/_4jIlyJ10uJU/Sa_IJPkd68I/AAAAAAAABnk/kXb2v9fIc7A/s400/oil+d.png
There's been a huge divergence between prices and the MACD over the last three months. Also note the RSI was hovering between 30 and 50 for most of that time but has posted some gains over the last fewweeks. From a price perspective, notice that prices were rebuffed at the 45 level recently but have since rebounded and are trying to move through the level again.
Bottom line: this chart is looking pretty good from a bullish perspective.
Posted by bonddad at 3/05/2009 06:27:00 AM
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Labels: oil
Wednesday, March 4, 2009Today's Markets
Click on all for larger images
http://3.bp.blogspot.com/_4jIlyJ10uJU/Sa8HidRoLbI/AAAAAAAABnU/2qiYz2bikks/s400/Chart+of+SPYd.gif
Today the market opened higher but then moved down to the 50 day SMA. The market repeated this several times throughout the trading day. Note the market sold-off at the end on a volume spike, indicating traders did not want to hold a position overnight.
http://1.bp.blogspot.com/_4jIlyJ10uJU/Sa8HiGaTQUI/AAAAAAAABnM/d7IUgRdvN6c/s400/Chart+of+SPY.gif
On the daily chart, notice we're still in a downward sloping channel. In other words -- we're not out of the woods by a long shot.
Posted by bonddad at 3/04/2009 04:57:00 PM
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Are We Going to 600 on the S&P?
Tim Knight makes a strong case that it's possible. Watch the first half of this video.
Posted by bonddad at 3/04/2009 01:30:00 PM
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More Signs of Credit Thawing
From Bernanke's testimony yesterday:
The measures taken since September by the Federal Reserve, other U.S. government entities, and foreign governments have helped improve conditions in some financial markets. In particular, strains in short-term funding markets have eased notably since last fall, and London interbank offered rates, or Libor--which influence the interest rates faced by many U.S. households and businesses--have decreased sharply. Conditions in the commercial paper market also have improved, even for lower-rated borrowers, and the sharp outflows from money market mutual funds in September have been replaced by modest inflows. In the market for conforming mortgages, interest rates have fallen nearly 1 percentage point since the announcement of our intention to purchase agency debt and agency mortgage-backed securities. Corporate risk spreads have also declined somewhat from extraordinarily high levels, although bond spreads remain elevated by historical standards. Likely spurred by the improvements in pricing and liquidity, issuance of investment-grade corporate bonds has been strong, and speculative-grade issuance, which was near zero in the fourth quarter, has picked up somewhat more recently. Nevertheless, significant stresses persist in many markets. For example, most securitization markets remain closed, and some financial institutions remain under pressure.
Let's look at some charts to see how this is playing out
http://2.bp.blogspot.com/_4jIlyJ10uJU/Sa57w8xa7cI/AAAAAAAABm0/wVFLkpDXRtQ/s400/yieldhistory.gifRate on 30 day commercial paper spiked at the end of last year but have since come down
http://4.bp.blogspot.com/_4jIlyJ10uJU/Sa57w0OU3gI/AAAAAAAABms/5A8Y5R6_OQs/s400/outstanding.gif
Issuance from the non-financial sector is good, but asset-backed and financial issuance is still weak.
http://1.bp.blogspot.com/_4jIlyJ10uJU/Sa57wnlChQI/AAAAAAAABmk/RhhMST2bYOU/s400/a2p2spread.gifAnd spreads have definitely come down.
All the Libor rates have dropped considerably. In addition, the same link shows a drop in mortgage rates.
In addition,
Companies with risky credit ratings are lining up to tap the speculative-grade, or "junk," bond market for funds as they fear the window of opportunity could soon close.
The recent turmoil in the stock market and continuing problems at large financial institutions including Citigroup and American International Group have heightened fears that those suffering big losses will be forced to sell debt securities to raise precious capital.
Such selling could crowd out new debt sales, as had been the case last autumn.
.....
Still, it isn't cheap to issue debt in the high-yield market with interest rates for risky companies raising new debt coming in near 10% -- and that is after selling the bonds at a discount. But the incentive is there to get in while the water's still warm. It could always get worse.
"There really doesn't seem to be any floor for how low things can go," said Scott Grzankowski, a former hedge-fund trader and now an analyst at KDP Advisor. "So if you have funding needs you might as well tap the capital markets now in case they seize up like they did three months ago."
Posted by bonddad at 3/04/2009 11:30:00 AM
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20% of Homes Are Underwater
From the WSJ:
Twenty percent of all U.S. residential properties that had a mortgage on them were underwater at the end of December, with mortgage debt greater than what the homes were worth, according to a report released Wednesday by First American CoreLogic. That's more than 8.3 million mortgages that were upside down at the end of the year, compared with 7.6 million three months earlier. It's a problem that is expected to get worse as home prices continue to fall.
"The accelerating share of negative equity, combined with deteriorating economic conditions, means that mortgage risk will continue to increase until home prices and the economy begin to stabilize," said Mark Fleming, chief economist of First American CoreLogic, in a news release. First American CoreLogic is a Santa Ana, Calif.-based provider of real estate data and mortgage analytics.
"The worrisome issue is not just the severity of negative equity in the 'sand' states, but the geographic broadening of negative equity that is expected to occur throughout the year," he added. "Sand" states include California, Nevada, Arizona and Florida.
Repeat after me: we're nowhere near a bottom in housing
Posted by bonddad at 3/04/2009 09:30:00 AM
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Labels: housing
Wednesday Commodity Round-Up
http://1.bp.blogspot.com/_4jIlyJ10uJU/Sa314GrBXfI/AAAAAAAABmc/Lt7cxyFtR9I/s400/copper.pngThe main issue with copper is prices are near their lowest levels in three years. However, also note the 20 and 50 day SMAs are moving lower. However, the 10 day SMA has turned neutral. In addition, prices and the SMAs are tied-up, indicating a lack of overall direction.
http://4.bp.blogspot.com/_4jIlyJ10uJU/Sa313-7l3gI/AAAAAAAABmU/ZjhBXiqqKjI/s400/aluminum.png
Aluminum is in a classic bear market pattern. Prices are below all the SMAs, the shorter SMAs are below the longer SMAs and all the SMAs are moving lower. In addition, prices have been in a downtrend since last summer.
http://3.bp.blogspot.com/_4jIlyJ10uJU/Sa313oUJyoI/AAAAAAAABmM/40mmlbwNYOI/s400/silver.png
Silver benefitted from the recent rally in gold. Prices fell starting last summer but bottomed in the first part of the fourth quarter and have since been moving higher. However, notice that prices have run into resistance at the 50 day SMA recently.
Posted by bonddad at 3/04/2009 05:00:00 AM
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Labels: commodities
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Tuesday, March 3, 2009Today's Markets
http://1.bp.blogspot.com/_4jIlyJ10uJU/Sa2mlxwCasI/AAAAAAAABmE/r_DpcGeKo0A/s400/Chart+of+SPY2.gif
Although prices gapped up at the beginning of the day, they made three moves lower. Note that each successive move was higher -- which is good thing. That tells us there is buying interest 69.80/70 level.
http://3.bp.blogspot.com/_4jIlyJ10uJU/Sa2mlif5ZXI/AAAAAAAABl0/be0GBQ-L6qM/s400/Chart+of+SPY.gif
Notice the clear down/up/down movement over the last 10 days.
http://3.bp.blogspot.com/_4jIlyJ10uJU/Sa2ml3roXQI/AAAAAAAABl8/-1J8GAtDz7A/s400/Chart+of+SPYd.gif
The daily chart shows that prices are below key levels. The good news is they haven't moved any lower. The bad news they haven't moved higher yet and are still just hanging there.
Posted by bonddad at 3/03/2009 03:51:00 PM
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You Are Here
Click for a much larger image
http://4.bp.blogspot.com/_4jIlyJ10uJU/Sa0snhh6B4I/AAAAAAAABls/JpP1cCei_ws/s400/Chart+of+DIA.gif
Posted by bonddad at 3/03/2009 11:30:00 AM
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The Bad Asset Plan
http://3.bp.blogspot.com/_4jIlyJ10uJU/Sa0nB0fc2EI/AAAAAAAABlk/OzqRIReJO0M/s400/NA-AW247_BADBAN_NS_20090302195948.gif
From the WSJ:
The Obama team announced its intention to partner with the private sector to buy $500 billion to $1 trillion of distressed assets as part of its revamping of the $700 billion bank bailout last month. It's central to the administration's efforts to unglue credit markets, alongside a Federal Reserve program aimed at spurring consumer lending in areas such as credit cards and home loans that will be officially launched Tuesday.
.....
These private investment managers would run the funds, deciding which assets to buy and what prices to pay. The government would contribute money from the $700 billion bailout, with additional financing likely coming from the Federal Reserve and by selling government-backed debt. Other investors, such as pension funds, could also participate. To encourage participation, the government would try to minimize risk for private investors, possibly by offering non-recourse loans.
I've had issues with nationalization -- primarily because no one has effectively dealt with the issue of preventing the type of corruption that led to the financial sector's problems from happening again.
Over the last several weeks I endorsed a plan (and yes, I know that so many people are lining up for a Bonddad endorsement that it means so much) where the government would essentially create a "super-bank". I liked this idea because it only involved one bank -- meaning, there was only one institution to monitor. That made sense.
However, this idea is interesting. The government and the private sector form a partnership with the government putting up money along with the private sector. In addition, the private sector would run the fund. The main problem is the fact that banks would have to sell their bad assets at some price -- which they have so far been unwilling to do. However, if we can get some savvy investment people to run these funds, it could be the start of a semi-private RTC that has intriguing potential.
Posted by bonddad at 3/03/2009 09:30:00 AM
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Treasury Tuesday
http://1.bp.blogspot.com/_4jIlyJ10uJU/Saxgabz9plI/AAAAAAAABlc/n0IxTgSEEuk/s400/Chart+of+SHY.gif
Despite hitting a high at the end of last year, the short term end of the Treasury market has been falling since. Prices are now in a downward sloping trend channel. Also note all the SMAs are moving lower. Prices have been running into upside resistance at the 20 day SMA.
http://3.bp.blogspot.com/_4jIlyJ10uJU/SaxgZ_UND1I/AAAAAAAABlU/epj9xOvQdCo/s400/Chart+of+IEF.gif
Prices dropped from a high at the end of last year and have been dropping since. But note that prices have been consolidating for the last 2-3 weeks in a triangle consolidation pattern. The main reason is prices have been caught between convergent market trends. On the bearish side, Treasuries were very overbought at the end of last year and needed to fall. In addition, there is tremendous downside pressure from the massive supply coming on the market. However, Treasuries are still the safe haven option which helps to stabilize the downside moves.
Posted by bonddad at 3/03/2009 05:00:00 AM
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Monday, March 2, 2009Today's Markets
Click on all images for a larger picture.
Wow -- what a bloodbath. Let's see what the charts say:
http://2.bp.blogspot.com/_4jIlyJ10uJU/Saxbf3hszxI/AAAAAAAABlE/EuZst0atUP8/s400/Chart+of+SPY.gif
The SPYs broke though lower resistance and the downward sloping bottom of a trading channel. Also notice that prices are below all the SMAs, the SMAs are moving lower and the shorter SMAs are below the longer SMAs
http://4.bp.blogspot.com/_4jIlyJ10uJU/SaxbfkGfzXI/AAAAAAAABk0/0zUmyrmORq8/s400/Chart+of+IWM.gif
On the IWMs (Russell 2000), notice that over the last few weeks we've had three gaps moving lower. Bottom line -- prices are in free fall right now.
http://2.bp.blogspot.com/_4jIlyJ10uJU/Saxbft9Vm1I/AAAAAAAABks/RMm4XPTvkrw/s400/Chart+of+DIA.gif
On the DIA notice that we've had four gaps down since the first of the year. Notice that today's action was an extreme downside move -- big time.
All of these charts are bearish. Hell, all of these charts show a market in panic selling mode. There is nothing good here. Nothing at all.
For a really interesting post, see this post from Corey over at Afraid to Trade.
Posted by bonddad at 3/02/2009 03:53:00 PM
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Some Happy News
From New Deal Democrat over at Economist Populist:
The DJIA fell to 6825 this morning. That means that the Oct. 2007 - present bear market is the 2nd worst in 138 years.
The second worst, until today, was the loss of 51.51% from the market's 1937 high of 194.14 to 94.13. When the DJIA fell below 6833, we surpassed that percentage loss.
The worst, obviously, was the 1929-32 contraction of almost 90%.
And the hits just keep coming....
Posted by bonddad at 3/02/2009 12:34:00 PM
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Fourth Quarter GDP Looks Terrible
Click on all images for a larger image
There are four components of GDP: personal consumption expenditures, gross private domestic investment, new exports and government spending. Let's look at each of these areas with graphs to see what they look like over the course of the last expansion which started in the fourth quarter of 2007.
http://3.bp.blogspot.com/_4jIlyJ10uJU/SavbwA4lkVI/AAAAAAAABjU/81NQB-2yAOY/s400/PCE.JPG
Personal consumption expenditures fell out of bed for the last two quarters, dropping 3.8% and 4.3% respectively. Also note the preceding three quarters (4Q07 - 2Q08) were weak as well, with growth of 1%, .9% and 1.2% respectively. And the two quarters before that (2Q07 and 3Q07) came in at 2%. In other words, PCEs have been weakening for one and a half years.
Let's look at this from two more angles.
http://4.bp.blogspot.com/_4jIlyJ10uJU/SavdGYMhjxI/AAAAAAAABjk/VMlaNP-14ZU/s400/PCE+Chart.png
The above chart is the chart for the raw total of PCEs. Notice the latest drop-off is the largest in over 45 years. In and of itself, that should raise concern.
http://3.bp.blogspot.com/_4jIlyJ10uJU/SavdG92qYtI/AAAAAAAABjs/LERfojCQSa4/s400/PCE+yoy.png
But also notice the steep drop-off in the year over year numbers. That's also the largest drop-off we've seen in the last 45 years.
Gross private domestic investment is made-up of three sub-categories: residential and non-residential structures and equipment and software investment. First, here's the total of all real gross private domestic investment:
http://4.bp.blogspot.com/_4jIlyJ10uJU/SaveEhfUY0I/AAAAAAAABj0/CKBuVK8sYos/s400/Domestic+Investment.JPG
The macro-number has been weak for 8 of the last 11 quarters. And one of the three positive quarters (3Q08) had a .4% growth rate. In other words, it wasn't anything to write home about.
Let's take a look at the sub-components.
http://1.bp.blogspot.com/_4jIlyJ10uJU/SavkU--ouBI/AAAAAAAABj8/Aqi_5yUWTfA/s400/real+private+residential.png
Real private residential fixed investment has fallen off a cliff for the last few years. The reason are clear: residential real estate construction is also falling off a cliff.
http://3.bp.blogspot.com/_4jIlyJ10uJU/SavkVImZe5I/AAAAAAAABkE/8CNT1Q0aiJg/s400/real+private+residential+yoy.png
It's interesting that on the year over year level we've seen rates of decline at similar levels.
http://1.bp.blogspot.com/_4jIlyJ10uJU/SawArJkyzmI/AAAAAAAABkU/akbkoJvnq9w/s400/real+private+nonresidential+fixed+investment.png
Real private non-residential fixed investment is also dropping, but it is nowhere near the levels of the residential sector. However, also note it has only been dropping since the actual beginning of the current recession (December 2007). As a result
http://1.bp.blogspot.com/_4jIlyJ10uJU/SawAq2kbfpI/AAAAAAAABkM/53M2T3L9h3Y/s400/real+privatre+nonresidential+yoy.png
The year over year rate of decline is dropping but isn't at previous levels yet either. However -- I think the operative word there is "yet".
http://2.bp.blogspot.com/_4jIlyJ10uJU/SawBPZ6O0CI/AAAAAAAABkc/c9M8yJBRXGg/s400/equipment+and+software.png
Equipment and software investment has been dropping, both on a quarter over quarter basis and
http://3.bp.blogspot.com/_4jIlyJ10uJU/SawBPiPiUDI/AAAAAAAABkk/XbKjVC30FcU/s400/equipment+and+software+yoy.png
year over year basis.
So -- the problems in investment started in the residential area, but have since moved to all major subgroups. In addition, at the macro level, the drop in residential investment has been strong enough to make 8 of the last 11 quarters negative. In other words -- it's been bad for sometime.
http://3.bp.blogspot.com/_4jIlyJ10uJU/Savbv8O-iLI/AAAAAAAABjM/W364EyTw9MU/s400/Exports+and+Imports.JPG
Exports were the one solid performer -- until last quarter when they dropped over 20%. Imports dropped as well due to the lack of consumer demand.
The bottom line is simple: there is no area of the economy looking good right now.
Posted by bonddad at 3/02/2009 11:45:00 AM
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Labels: GDP
Posted by bonddad at 3/02/2009 09:30:00 AM
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Market Mondays
http://1.bp.blogspot.com/_4jIlyJ10uJU/SaswHIOPAQI/AAAAAAAABjE/2ApGufBUeB8/s400/Chart+of+SPY+1+uear.gif
On the SPY chart, notice the following:
-- Prices have been declining for the last year. They hit a low point in November, bounced a bit higher but have been moving lower since the beginning of the year.
-- All the SMAs are moving lower
-- The shorter SMAs are below the longer SMAs
-- Prices are below all the SMAs
http://2.bp.blogspot.com/_4jIlyJ10uJU/Sasv6v1udkI/AAAAAAAABi0/fu3BZY1mONI/s400/Chart+of+DIA.gif
Notice the following on the DIA chart:
-- Prices are near their lowest point in a year
-- All the SMAs are moving lower
-- The shorter SMAs are below the longer SMAs
-- Prices are below all the SMAs
http://3.bp.blogspot.com/_4jIlyJ10uJU/Sasv6a1EM7I/AAAAAAAABis/L5N4soUzTIE/s400/Chart+of+QQQQ.gif
Notice the following on the QQQQ chart:
-- Prices broke through key support over the last few weeks.
-- All the SMAs are moving lower
-- Prices are below all the SMAs
Bottom line: these are incredibly bearish charts. Period.
Posted by bonddad at 3/02/2009 05:00:00 AM
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Labels: market analysis
Friday, February 27, 2009Weekend Weimer and Beagle
It's time to not think about the markets or economics. So, to that end, here is a picture of the kids below. I will be back bright and early on Monday.
http://i17.photobucket.com/albums/b84/bonddad/Picture1118-1.jpg
Posted by bonddad at 2/27/2009 02:51:00 PM
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GDP Contracts 6.2%
From Marketwatch:
The U.S. economy was hitting on virtually no cylinders in the fourth quarter, as gross domestic product fell at the fastest pace since 1982 on sharp declines in consumer spending, investment and exports, the government said Friday.
GDP fell at a 6.2% seasonally adjusted annualized pace in the final three months of 2008, revised from the initial estimate of a 3.8% drop, the Commerce Department reported. It was the worst decline in GDP since a 6.4% decrease in the first quarter of 1982.
"Economic developments in recent months have been consistently worse than the worst-case scenarios," noted Stephen Stanley, chief economist for RBS Greenwich Capital.
Posted by bonddad at 2/27/2009 11:45:00 AM
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Labels: GDP
The Banking Industry Is In Critical Condition
From the FDIC:
Expenses associated with rising loan losses and declining asset values overwhelmed revenues in the fourth quarter of 2008, producing a net loss of $26.2 billion at insured commercial banks and savings institutions. This is the first time since the fourth quarter of 1990 that the industry has posted an aggregate net loss for a quarter. The ?0.77 percent quarterly return on assets (ROA) is the worst since the ?1.10 percent in the second quarter of 1987. A year ago, the industry reported $575 million in profits and an ROA of 0.02 percent. High expenses for loan-loss provisions, sizable losses in trading accounts, and large writedowns of goodwill and other assets all contributed to the industry's net loss. A few very large losses were reported during the quarter-four institutions accounted for half of the total industry loss-but earnings problems were widespread. Almost one out of every three institutions (32 percent) reported a net loss in the fourth quarter. Only 36 percent of institutions reported year-over-year increases in quarterly earnings, and only 34 percent reported higher quarterly ROAs.
This is the first time since the fourth quarter of 1990 that the industry has posted an aggregate net loss for a quarter. It's been 17 years since we've seen the banking industry this sick. In addition, return on assets hasn't been this low in 20 years. What caused the the last set of problems? The savings and loan crisis.
High expenses for loan-loss provisions, sizable losses in trading accounts, and large writedowns of goodwill and other assets all contributed to the industry's net loss. This represents a double whammy for banks. Not only are their assets decreasing in value, so are their loans. That means they're getting hit from both ends.
Regarding the "A few very large losses were reported during the quarter-four institutions accounted for half of the total industry loss." Yes, there are some money center banks that are in deep trouble. These are the institutions referred to as "Zombie Banks". But note the remainder of that statement. "but problems were widespread." In other words, if we take care of two of three big banks, we'll still have big problems. Consider the following statement from the summary: "Almost one out of every three institutions (32 percent) reported a net loss in the fourth quarter. Only 36 percent of institutions reported year-over-year increases in quarterly earnings, and only 34 percent reported higher quarterly ROAs." Bottom line -- those are terrible numbers.
In addition, consider the following statements from the report:
Insured banks and thrifts set aside $69.3 billion in provisions for loan and lease losses during the fourth quarter, more than twice the $32.1 billion that they set aside in the fourth quarter of 2007. Loss provisions represented 50.2 percent of the industry's net operating revenue (net interest income plus total noninterest income), the highest proportion since the second quarter of 1987 when provisions absorbed 53.2 percent of net operating revenue
.....
Net income for all of 2008 was $16.1 billion, a decline of $83.9 billion (83.9 percent) from the $100 billion the industry earned in 2007. This is the lowest annual earnings total since 1990, when the industry earned $11.3 billion. The ROA for the year was 0.12 percent, the lowest since 1987, when the industry reported a net loss. Almost one in four institutions (23.4 percent) was unprofitable in 2008, and almost two out of every three institutions (62.5 percent) reported lower full-year earnings than in 2007.
.....
Net loan and lease charge-offs totaled $37.9 billion in the fourth quarter, an increase of $21.6 billion (132.2 percent) from the fourth quarter of 2007. The annualized quarterly net charge-off rate was 1.91 percent, equaling the highest level in the 25 years that institutions have reported quarterly net charge-offs (the only other time the charge-off rate reached this level was in the fourth quarter of 1989).
.....
The amount of loans and leases that were noncurrent rose sharply in the fourth quarter, increasing by $44.1 billion (23.7 percent). Noncurrent loans totaled $230.7 billion at year-end, up from $186.6 billion at the end of the third quarter. More than two-thirds of the increase during the quarter (69.3 percent) came from loans secured by real estate. Noncurrent closed-end 1-4 family residential mortgages increased by $18.5 billion (24.1 percent) during the quarter, while noncurrent C&I loans rose by $7.6 billion (43.0 percent). Noncurrent home equity loans increased by $3.0 billion (39.0 percent), and noncurrent loans secured by nonfarm nonresidential real estate increased by $2.9 billion (20.2 percent). In the 12 months ended December 31, total noncurrent loans at insured institutions increased by $118.8 billion (107.2 percent). At the end of the year, the percentage of loans and leases that were noncurrent stood at 2.93 percent, the highest level since the end of 1992. Real estate construction loans had the highest noncurrent rate of any major loan category at year-end, at 8.51 percent, up from 7.30 percent at the end of the third quarter.
Here are charts that accompany the report. Frankly, they tell the whole story:
http://1.bp.blogspot.com/_4jIlyJ10uJU/SafipQ8qTbI/AAAAAAAABik/tlam6ZIE5OI/s400/quarterly+chargeoffs.gif
http://4.bp.blogspot.com/_4jIlyJ10uJU/SafipC5qHMI/AAAAAAAABic/57dXZ4SvRrs/s400/QNTLNL2.gif
http://3.bp.blogspot.com/_4jIlyJ10uJU/Safio8sa8tI/AAAAAAAABiU/zXFI66VSgUE/s400/QNTCBKQB.gif
http://2.bp.blogspot.com/_4jIlyJ10uJU/SafikCwYDDI/AAAAAAAABiM/d5V6EGy88Vk/s400/QNCRES.gif
http://3.bp.blogspot.com/_4jIlyJ10uJU/SafijxmSVtI/AAAAAAAABiE/ZY8gxmqBCxs/s400/QLNLSR.gif
http://2.bp.blogspot.com/_4jIlyJ10uJU/Safij3mxYRI/AAAAAAAABh8/1LZpC96KDxg/s400/QLGSM2.gif
http://2.bp.blogspot.com/_4jIlyJ10uJU/Safij-vF8jI/AAAAAAAABh0/B1lrBmHUodo/s400/QLGSM1.gif
http://3.bp.blogspot.com/_4jIlyJ10uJU/Safijdn4tAI/AAAAAAAABhs/WS1grOBwWjc/s400/QCRLOSS.gif
Posted by bonddad at 2/27/2009 09:30:00 AM
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Forex Fridays
Click on all images for a larger image.
http://4.bp.blogspot.com/_4jIlyJ10uJU/SafgErUs8PI/AAAAAAAABhk/ekpB3xQOpyQ/s400/dollar+w.png
On the weekly chart, notice we're clearly forming a double top now. Also note the RSI is increasing and the MACD is about to have a bullish crossover. All the SMAs are moving higher, although the 20 week SMA is about the 10, and prices are above all the SMAs as well.
http://3.bp.blogspot.com/_4jIlyJ10uJU/Saff9GXNtSI/AAAAAAAABhc/8jMSVVFVigo/s400/dollar+d.png
On the daily chart, notice we're in a clear uptrend that started in mid-December. Also note that prices are above all the SMAs, the shorter SMAs are above the longer SMAs and all the SMAs are rising. The MACD is rising and the RSI shows increased price strength. The main issue now is will prices move above the previous high?
Posted by bonddad at 2/27/2009 06:42:00 AM
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Labels: dollar
Thursday, February 26, 2009Today's Markets
http://3.bp.blogspot.com/_4jIlyJ10uJU/SacnRifL86I/AAAAAAAABhE/e-4BA7EAjYQ/s400/Chart+of+SPYd.gif
Notice on the 10 day chart that prices have moved through key support of the upward trending line that started a few days ago.
http://4.bp.blogspot.com/_4jIlyJ10uJU/SacnRo0I7GI/AAAAAAAABg8/or0LT8RIZHc/s400/Chart+of+SPYdd.gif
On today's chart, notice that prices mved higher until about 10 AM and them moved lower for the rest of the day. Also notice that prices ended the day near their low point on a volume spike.
http://3.bp.blogspot.com/_4jIlyJ10uJU/SacoBUVMgOI/AAAAAAAABhM/OZPapyWi5uk/s400/Chart+of+SPY.gif
On the daily chart, notice that prices moved through the 10 day SMA but could not maintain their upward momentum today. That's bearish going forward.
Posted by bonddad at 2/26/2009 05:35:00 PM
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We're Nowhere Near a Bottom in Housing, Pt. II
From CNBC:
The Commerce Department reported Thursday that sales fell 10.2 percent to a seasonally adjusted annual rate of 309,000, the worst showing on records going back to 1963.
It was a weaker showing than the pace of 330,000 that economists expected, and shattered the previous all-time monthly low set in September 1981. Only the Northeast saw sales rise in January from the previous month.
With nationwide sales sagging, an inventory barometer also ballooned to a record high. The government said it would take 13.3 months at the current sales pace to exhaust supply. That puts even more downward pressure on prices.
The median sales price fell to $201,100 in January, a record 9.9 percent drop from the previous month. The median price is the midpoint, where half sell for more and half for less.
Remember -- what's important from an "end of the cycle" perspective is for the rate of change in price to slow down. Considering the latest month over month rate of change and massive amount of inventory we're nowhere near that point right now.
Posted by bonddad at 2/26/2009 11:32:00 AM
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We're Nowhere Near a Bottom in Housing
First -- let's deal with this:
Home resales fell 5.3% to an annual rate of 4.49 million, the National Association of Realtors said Wednesday, noting that buyers were restrained by negotiations in Washington over President Barack Obama's economic-aid package. The plan, as signed last week by Mr. Obama, includes an $8,000 tax credit for first-time home buyers.
"Given so much stimulus-package discussion in January, some would-be buyers simply sat out for clarity and certainty on the nature of the housing stimulus," NAR economist Lawrence Yun said.
No. People stayed away from the housing market because 1.) job losses are mounting, 2.) house prices have already dropped considerably, and 3.) equity prices have dropped. Combine points 2 and 3 and you have the lowest consumer confidence level in several decades. This is not an environment where people buy durable goods. Here's the chart to price it:
http://2.bp.blogspot.com/_4jIlyJ10uJU/SaaVE71qTDI/AAAAAAAABg0/8OxphHtHy0g/s400/pced.png
Click for a larger image
So -- this has squat to do with the housing credit in the bill.
And so long as this is happening:
...the median home price dropped 14.8% in January to $170,300 from the year-earlier level. The year-over-year drop in December was 15.2%.
We're nowhere near a bottom in prices. When we start to see y/o/y drops of 3%-5% we'll know we're near the bottom. But until we see those kind of numbers in the y/o/y figures we're nowhere near done with the housing mess.
Oh -- that that won't be happening anytime soon:
A bloated supply of unsold homes is contributing to sharp price drops. Inventories of previously owned homes fell 2.7% at the end of January to 3.6 million available for sale. That represented a 9.6-month supply at the current sales pace.
"Unfortunately, it's still so high, at just under 10 months, that it guarantees further price falls," said Ian Shepherdson, an analyst at High Frequency Economics. Economists say a normal supply level is about five months.
Posted by bonddad at 2/26/2009 09:30:00 AM
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Thursday Oil Market Round-Up
Has the oil market bottomed? Let me add -- it's usually completely futile to attempt to call a bottom in any market. The economy loves to make any bottom caller look like a jackass (it has done that of me many times). However .....
I'm going to use the USO -- the ETF that tracks the oil market -- for today's writeup.
http://2.bp.blogspot.com/_4jIlyJ10uJU/SaaOzjcHjzI/AAAAAAAABgk/L4lvyq9tr48/s400/Chart+of+USOd.gif
Click for a larger image
The oil market has been dropping at a strong pace for 8 months now. Notice all the SMAs are moving lower with the shorter SMAs below the longer SMAs. Also notice there have been 6 bear market rallies where prices attempted to move higher but ran into upside resistance at an SMAs. Finally, notice the divergence of prices and the MACD over the last 4 mopnths.
http://2.bp.blogspot.com/_4jIlyJ10uJU/SaaOz5RKv3I/AAAAAAAABgs/r3C_E5bSjUg/s400/Chart+of+USO.gif
On the daily chart, prices gapped down big a week ago on Tuesday. Since then prices have been trading in a fairly narrow range. Then yesterday we say price sbreak out on strong gasoline demand.
At some point markets stop moving lower. Oil is now incredibly cheap. However, price is usualy the worst measure of when to buy something. That is -- pure valuation is one of the worst timing mechanisms in trading. But that doesn't take away from the fact that oil is, well, cheap as hell at these levels.
Posted by bonddad at 2/26/2009 06:40:00 AM
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Labels: oil
Wednesday, February 25, 2009Today's Markets
http://2.bp.blogspot.com/_4jIlyJ10uJU/SaXRJkwcfjI/AAAAAAAABgU/XRvN6C7PdPE/s400/Chart+of+SPY.gif
On the daily chart, notice that prices have remained in a roughly three point range for the last 4 days. Also note the bars are getting smaller over the last three days. However, all the EMAs are moving lower and the shorter EMAs are below the longer EMAs.
http://1.bp.blogspot.com/_4jIlyJ10uJU/SaXRJegwrKI/AAAAAAAABgM/uaTdiMd9Ki8/s400/Chart+of+SPYd.gif
The question on the 5 minute chart is has this chart reversed? Prices broke through the downward sloping trend line that started over a week ago. In addition, prices have moved through the 200 minute SMA. But coordinating this chart with the daily chart tells us we haven't fully reversed yet -- and won't until we move through the lower SMAs on the daily chart.
Posted by bonddad at 2/25/2009 05:15:00 PM
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Will The Consumer Ever Come Back?
http://1.bp.blogspot.com/_4jIlyJ10uJU/SaVkwzm2moI/AAAAAAAABgE/_v5cQbgidBQ/s400/savings.png
Click for a larger image
Above is a chart of the US savings rate. Notice its been declining for the last 20 years or so until it eventually started hovering around 0% and that it has recently spiked up. There are some people who are now arguing the consumer is retrenching completely; meaning, the consumer will no longer be the engine of growth. There are two strong fundamental reasons that support this conclusion.
1.) First, the best reading of job growth during the last expansion is for a total of approximately 8.2 million. In other words, job growth was extremely weak. In addition, we've seen fast rates of job loss over the last year along with real estate and stock market collapses. In other words, the macro environment is such that consumers may be paying a lot of attention to their bottom line and thinking, "I don't need to buy that right now."
2.) Total household debt outstanding has increased from 47% of GDP in 1981 to 96% of GDP in the third quarter of 2008. While there is no bright line in economics that says "above this level the household debt/GDP ratio is bad" I feel fairly certain in saying that when there is almost as much household debt as there is GDP in an economy there are serious problems. The point is the possibility that we are at a saturation level with household debt is pretty high. This leads to the conclusion that the consumer will start to pay his debt down leading to lower consumer spending.
Posted by bonddad at 2/25/2009 11:30:00 AM
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Labels: consumer spending
Don't Expect Consumer Spending to Rebound Soon
From Reuters:
The Conference Board, an industry group, said its consumer confidence index fell to 25.0 in February, the lowest since the index began in 1967, from 34.7 in January.
Consumers' gloomy outlook showed no sign of turning around, according to the report, boding ill for the consumer spending that drives some two-thirds of the U.S. economy.
The data "suggests, unfortunately, that we still haven't found the bottom for the economy," said Zach Pandl, economist at Nomura Securities International in New York.
There are a lot of reasons for this drop.
1.) The job market is terrible. In January 2007 there were 138,080,000 total non-farm jobs in the US compared with 134,580,000 in January 2008 for a total loss of 3.5 million jobs in a 12 month period. 1.77 million have occurred since the October numbers. In other words, job losses are accelerating.
2.) There are two sources of wealth for Americans: stocks and real estate. Stocks are in a bear market. Home prices continue to drop:
The day's U.S. housing data also offered little reason for optimism. Prices of U.S. single-family homes fell 18.5 percent in December from a year earlier, with the pace of decline speeding up, according to the S&P/Case Shiller home price index.
That was the biggest drop since the data series began 21 years ago and suggested prices will probably continue falling in the months ahead, extending a 13-month-old recession.
The S&P/Case Shiller composite index of home prices in 20 metropolitan areas fell 2.5 percent after dipping 2.3 percent in November.
"There are very few, if any, pockets of turnaround that one can see in the data," said David Blitzer, chairman of S&P's index committee. "Most of the nation appears to remain on a downward path."
A separate report from the Federal Housing Finance Agency said single-family home prices fell a record 4.5 percent in the last three months of 2008 compared with a year earlier, though the pace of decline slowed.
Housing will not be anywhere near a bottom until we see the rate of year over year price declines slow. As a result, we can expect to see a continued drop in housing prices over the new 6 months (and probably longer).
As a result of the drop in housing real estate prices, household net worth has dropped 11% since the third quarter of 2007. In short, between real estate and the stock market, people are feeling poorer. That's leading to lower consumer spending:
http://2.bp.blogspot.com/_4jIlyJ10uJU/SaVCpKcuaSI/AAAAAAAABf8/IcnD2-mbdw8/s400/pce.png
Overall personal consumption expenditures are dropping at fast rates on a year over year basis.
http://2.bp.blogspot.com/_4jIlyJ10uJU/SaVComIsKhI/AAAAAAAABf0/Xta4opu81PQ/s400/pced.png
A big reason for this a a drop in durable goods purchases (cars and houses).
http://4.bp.blogspot.com/_4jIlyJ10uJU/SaVCoYCPUeI/AAAAAAAABfs/54P0lGB5gl8/s400/pcen.png
But non-durable rates are dropping as well.
To reverse this swoon in spending we need a stronger jobs market and a stable stock and real estate market. Neither is going to happen anytime soon.
However, even when that happens, there are serious questions about whether or not consumer spending will return to pre-meltdown levels. I'll touch on that in the next post.
Posted by bonddad at 2/25/2009 09:30:00 AM
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Wednesday, February 25, 2009Wednesday Commodities Round-Up
http://3.bp.blogspot.com/_4jIlyJ10uJU/SaU7CHynYCI/AAAAAAAABfk/jb7PakO6tRc/s400/Chart+of+GLD.gif
On the yearly chart for gold, notice that gold broke through upside technical resistance in the early part of this year and has continued higher ever since. Prices have run up against highs established in July of last year on strong volume.
http://3.bp.blogspot.com/_4jIlyJ10uJU/SaU7CAWjZQI/AAAAAAAABfc/p3aDG-Xs2HE/s400/Chart+of+GLDmacd.gif
The MACD states prices are moving higher. However, note the MACD is at its highest point of the last year. Also remember the chart above which shows prices are running into upside resistance at levels established last summer.
http://2.bp.blogspot.com/_4jIlyJ10uJU/SaU7B7DXT-I/AAAAAAAABfU/6Id7wqSlOMI/s400/3.gif
On the three months chart, notice the following:
-- Prices are above all the SMAs
-- The shorter SMAs are above the longer SMAs
-- All the SMAs are moving higher
-- The horizontal line at current price levels is the price level from last July.
Posted by bonddad at 2/25/2009 06:32:00 AM
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Labels: gold
Tuesday, February 24, 2009Today's Markets
Click for a larger image
http://1.bp.blogspot.com/_4jIlyJ10uJU/SaRiVi6YJEI/AAAAAAAABfE/FueC3QZ4EM0/s400/Chart+of+SPY.gif
Let's look at a longer chart to put today's action in perspective.
-- The current downtrend started with a big gap down last Tuesday.
-- Prices levels out for a few days.
-- But prices started to move lower on Thursday, Friday and Monday continually moving through old lows
-- Today, prices moved through previous resistance and are now on top of all the SMAs. Prices are are above the 200 day SMA.
However:
http://4.bp.blogspot.com/_4jIlyJ10uJU/SaRj7NnF6aI/AAAAAAAABfM/1PUVW65LFqk/s400/Chart+of+SPY.gif
On the daily chart, notice that prices have some room to move higher before they hit resistance (namely, the 10 day SMA). If prices hit this and then continue to move higher, we'll be in a trend reversal. However, until that happens, we're still in a downtrend.
Posted by bonddad at 2/24/2009 03:10:00 PM
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The Treasury Market In A Nutshell
From IBD:
In the very near term, Treasuries are faced with a lot of supply, which suggests a concession will have to be built into the market, but demand for safer securities is likely to remain high as we move toward the end of the month," said Robert Tipp, chief investment strategist at Prudential Investment Management's public fixed-income group.
Posted by bonddad at 2/24/2009 01:30:00 PM
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It's All About Housing
From the WSJ:
The Obama administration has launched a multipronged effort to arrest the economic downturn, but its success likely depends on how quickly the banking sector regains its footing. Despite its $787 billion stimulus package, any fiscal boost would be temporary if credit markets remain dysfunctional. The government is already largely standing behind much of the banking sector, insuring unprecedented levels of deposits and even guaranteeing new debt issued by many banks.
A weakened banking industry makes it harder and costlier for businesses and consumers to get loans. But restoring confidence in the banking sector is proving one of the trickiest parts of the economic plan. Banks are still heavily exposed to the housing market, and rising foreclosures combined with falling house prices are putting enormous strain on banks and making it hard to determine how much money they have.
Regulators are bracing for dozens of additional bank failures. Federal Deposit Insurance Corp. officials are pushing Congress to raise the amount of money the agency can borrow from Treasury to $100 billion, more than triple its current limit, with talks intensifying in recent days, say people familiar with the discussions.
And housing isn't coming back anytime soon.
Posted by bonddad at 2/24/2009 11:30:00 AM
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A Long-Term Look At the Markets
From the WSJ:
A slide in small-capitalization health-care and energy stocks pushed the Russell 2000 index below 400 for the first time since the bear-market lows of November.
For the session, the Russell 2000 index of small-capitalization stocks lost 16.38 points, or 4%, to 394.58. The Russell has fallen six days in a row. The last time the Russell closed below 400 was Nov. 20, when it ended at 385.31.
Because the Russell 2000 is composed of smaller companies that rely on growth instead of an existing client base, the index is a great proxy for risk. And right now people are running from risk in a big way. Here is a long-term chart of the IWM -- the ETF that tracks the index.
http://1.bp.blogspot.com/_4jIlyJ10uJU/SaPtTt1FTZI/AAAAAAAABe8/4gCayABCg2w/s400/Chart+of+IWM.gif
The chart uses monthly bars. Notice that prices are currently in the same price range as the 2003 - 2003 market bottom. In other words, we're essentially back to where we started. The only good thing on the chart is the decrease in volume over the last 4 months. This tells us that few people are dumping shares.
http://4.bp.blogspot.com/_4jIlyJ10uJU/SaPtTkawI3I/AAAAAAAABe0/ufd8M7vGktU/s400/Chart+of+SPY.gif
Notice the SPYs have formed a double top with the first top occurring in 2000 and the second occurring in 2007. Also notice that price wise we're now moving below the 2003-2003 price levels. Like the IWMs, the one good thing with this chart is volume is dropping off over the last few months indicating fewer people are selling.
From the WSJ:
Financial markets shuddered Monday with the Dow Jones Industrial Average falling 3.4% to 7114.78 -- or nearly half the peak it hit just 16 months ago -- even as the Obama administration tried to quell fears about the viability of major U.S. banks. The decline in the stock market was unusually broad and went well beyond the jittery financial sector, with technology and other economically sensitive categories driving major indexes to their lowest closing levels in more than 11 years.
http://1.bp.blogspot.com/_4jIlyJ10uJU/SaPtTUJ-8yI/AAAAAAAABes/_3ItOe2EsVY/s400/Chart+of+DIA.gif
Notice the Dow is at it's lowest levels in over 10 years. But like the other charts, notice that volume is down over the last few months again indicating a declining number of sellers.
Posted by bonddad at 2/24/2009 09:30:00 AM
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Labels: market analysis
Treasury Tuesdays
Click for a larger image
http://2.bp.blogspot.com/_4jIlyJ10uJU/SaMd462NFEI/AAAAAAAABek/LQLeMmiuuA8/s400/Chart+of+IEF.gif
Notice the following on the IEF chart:
-- Prices are consolidating after a move down from 100
-- Prices are still making lower lows and lower highs
-- The 20 day SMA is moving lower, while the 10 day SMA is about to move through the 20 day SMA.
-- The 50 day SMA is neutral
Bottom line: this chart looks to be consolidating. From a fundamental perspective, I'm guess there is a balance between the new debt coming on the market and concern about the stock market. In other words, new supply is getting trumped by "the sky is falling".
Posted by bonddad at 2/24/2009 05:00:00 AM
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Monday, February 23, 2009Today's Markets
http://2.bp.blogspot.com/_4jIlyJ10uJU/SaMYAmxKloI/AAAAAAAABeU/nOqvOObnA_4/s400/Chart+of+SPY.gif
Click for a larger image
Notice the strength of this downward swing today. First, prices spent the vast majority of the day underneath the SMAs. Also note the SMAs were all moving lower for most of the day. Also notice several bear market formations -- the pennants and triangles. Also note that prices continually ran into upside resistance from the SMAs. Finally, note that prices end at a low point on increasing volume. Bottom line: this is a damn ugly chart.
http://2.bp.blogspot.com/_4jIlyJ10uJU/SaMZaTE_1MI/AAAAAAAABec/mMt7Plblhek/s400/Chart+of+SPY.gif
On the daily chart, notice that prices are still moving lower. Also note that today's bar was really big. About the only good thing is today's volume was wearer than Friday's price action.
Posted by bonddad at 2/23/2009 03:41:00 PM
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Posted by bonddad at 2/23/2009 03:41:00 PM
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More Problems From the Transportation Sector
I still love the simplicity of Dow theory. In a nutshell -- when the economy is doing well we need to ship more and more stuff. Therefore, we need more transportation services. This increases transportation company earnings which should increase the transportation sector. Simply reverse the process in a downturn. In other words, the Transportation average should confirm the broader market movements. The above video tells us we're nowhere near that point in the market.
Posted by bonddad at 2/23/2009 11:30:00 AM
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This is the Way to Deal With the Banks
From the WSJ:
Given the limited scope U.S. authorities have for increasing the public debt burden without adverse asset market responses, it is best to forget about tax cuts or public spending increases. Instead, the available fiscal resources should be focused on restoring the flow of credit to nonfinancial enterprises and, to a lesser extent, to households (most of which are already over-indebted and should not be encouraged to spend more).
Rather than wasting the $1.4 trillion of public funds it would take to restore (according to NYU economist Nouriel Roubini's estimate) the capitalization of the U.S. banking sector to its fall 2008 level, it would be better to use public money to capitalize new banks that don't suffer from an overhang of past bad investments and loans -- and to guarantee new borrowing or new loans and investment by these banks. This "good bank" model achieves this by identifying the systemically important banks that are kept afloat only by past, present and anticipated future public financial support ("bad banks") and taking their banking licenses away.
The "stress test" proposed by Mr. Geithner for major banks (assets in excess of $100 billion) could be used to gather the necessary information to identify the bad banks. New banks, capitalized by the government (possibly with private co-financing) would take the deposits of the bad banks and purchase the good assets from the bad banks. Future government support, through guarantees or other means, would be focused exclusively on new lending and new borrowing by the new good banks and those old banks that passed the stress test.
The legacy bad banks would not be allowed to make new investments or new loans and would simply manage the inherited stocks of assets in the interest of their owners. They sink or swim on their own. If they fail, their unsecured creditors can figure out what to do with the bad assets
I have several issues with nationalization: who do you nationalize, how do you do it to minimize market disruption and how do you prevent political corruption from entering into the picture after you do it. The above plan comes much closer to addressing my concerns.
First, I always liked the stress test idea. The Treasury has to go into all of the big banks and take a look at all their books in detail. And no party involved can pull any punches. In addition, the more a party tries to obfuscate the truth, the more trouble they are in. I've always thought this was the best way to figure out who gets help. In other words -- we know how to find out who.
How is a big issue. The markets are already reeling from the threat of nationalization. Every time it gets brought up, the markets tank. This was cited as a primary reason for last week's market instability. In other words, the actual process of shifting from private to public ownership is an issue.
Now enter the above plan. I would personally use the remaining TARP money to make one big bank. Then I would stress test all the money center banks at the same time and come out with a report on all of them at the same time. Force them to sell their good assets to the one good bank and let the dregs remain in the old banks. If you do this over a short time period -- say 2-4 weeks -- you can end this problem pretty quickly.
The main reason I like the idea of one big bank is there is only one bank to monitor. That's been a huge issue for me with the idea of nationalizing the banks -- the idea that we would still have all of these banks to perform oversight on. With one big bank we just have one bank to monitor which is a much easier task. For me, it makes much more sense.
Posted by bonddad at 2/23/2009 09:30:00 AM
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Monday Market Wrap
Click on all images for a larger image
http://2.bp.blogspot.com/_4jIlyJ10uJU/SaKXOoAXRfI/AAAAAAAABd8/vTD6LSfaH24/s400/Chart+of+SPY.gif
Last week the market fell out of bed. Prices dropped below the lower trend line of a consolidation pattern that has been forming for about two months. Once prices fell below this line they went for broke with downside momentum. Assuming the chart is in the middle of a "measured move" -- meaning the distance it traveled before the consolidation pattern will equal the distance it will travel after the consolidation pattern -- we've got more downside running to do. Also note the price/SMA relationship is now extremely bearish: prices are below all the SMAs. all the SMAs are moving lower, and the shorter SMAs are below the longer SMAs.
http://3.bp.blogspot.com/_4jIlyJ10uJU/SaKXOoc0nqI/AAAAAAAABeM/1y1ewhPfjWE/s400/Chart+of+SPYema.gif
On the EMA chart, notice the EMA picture has been extremely bearish for some time.
http://3.bp.blogspot.com/_4jIlyJ10uJU/SaKXOqg4zHI/AAAAAAAABeE/vDWxpAgJxbU/s400/Chart+of+SPYmacd.gif
Notice that on the MACD may indicate the market has a lot further to drop.
Bottom line: this is a bearish chart that does not bode well for the future.
Posted by bonddad at 2/23/2009 06:30:00 AM
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Friday, February 20, 2009Industrial Production Drops
From the Federal Reserve:
Industrial production fell 1.8 percent in January. At 101.3 percent of its 2002 average, output in January was 10.0 percent below its year-earlier level. Production in the manufacturing sector dropped 2.5 percent with broad-based declines among its components. A plunge in motor vehicle and parts production that resulted from extended plant shutdowns subtracted more than 1.0 percentage point from the change in manufacturing production. The output of mines moved down 1.3 percent. A swing to below-average temperatures contributed to an increase of 2.7 percent in the output of utilities. The capacity utilization rate for total industry fell to 72.0 percent, a rate 8.9 percentage points below its average from 1972 to 2008.
.....
In January, manufacturing output fell 2.5 percent and was 12.9 percent below its year-earlier level. The factory operating rate moved down 1.7 percentage points, to 68.0 percent, the lowest rate of utilization since this series began in 1948. The index for durable goods dropped 4.8 percent. The output of motor vehicles and parts decreased at a monthly rate of 23.4 percent in January, after having contracted at an annual rate of more than 37 percent in the fourth quarter. All of the remaining major indexes fell sharply in January with the exception of miscellaneous manufacturing, which moved up 0.3 percent. The production of nondurable goods decreased 0.5 percent. The output of food, beverage, and tobacco products rose 0.6 percent after having fallen more than 2 percent in December, but declines were recorded in all the other major nondurable goods industries.
The index for the other manufacturing category, which consists of publishing and logging, decreased 1.5 percent.
There is no good news in this report. Period.
Posted by bonddad at 2/20/2009 11:30:00 AM
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Import, Producer and Consumer Price Round-Up
From the BLS:
Import prices fell 1.1 percent in January and 23.4 percent over the past six months. For the sixth consecutive month, petroleum prices and nonpetroleum prices decreased, falling 2.4 percent and 0.8 percent, respectively, in January. However, prices for both overall imports and petroleum decreased at a smaller rate in January than in each of the previous five months since prices last rose in July. Petroleum prices fell 69.1 percent over the past six months and 55.0 percent over the past year, the largest 12-month decline since the index was first published in June 1982. Overall, import prices fell 12.5 percent for the year ended in January, the largest 12-month decline since the index was first published in September 1982. Nonpetroleum prices decreased 5.7 percent over the past six months and 0.6 percent over the past year.
The 0.8 percent January decrease in nonpetroleum prices was led by a 4.8 percent drop in the price index for nonpetroleum industrial supplies and materials. Falling prices for chemicals and natural gas were the largest contributors to the decline. Nonpetroleum industrial supplies and materials prices decreased 7.6 percent over the past year, led primarily by declining unfinished metals prices.
In contrast, prices for automotive vehicles increased in January, rising 0.2 percent after decreasing the previous two months. For the year ended in January, the index increased 0.7 percent.
The price indexes for consumer goods, capital goods, and foods, feeds, and beverages were unchanged in January. Over the past year, consumer goods prices increased 1.5 percent, capital goods prices advanced 0.9 percent, and prices for foods, feeds, and beverages rose 3.3 percent.
Looking at the BLS' end use tables we see drops in industrial supplies and goods but increases in capital goods, autos and consumer goods. However, all imports excluding fuels and all imports excluding petroleum have been decreasing for the last four months.
Non-manufactured articles dropped 45.9% year over year.
Manufactured articles dropped 3.7% year over year.
Here's the chart from Econoday:
http://3.bp.blogspot.com/_4jIlyJ10uJU/SZ6tTO8CFEI/AAAAAAAABc0/u77nNjkhGFw/s400/showimage.asp.gif
From the BLS:
The Producer Price Index for Finished Goods rose 0.8 percent in January, seasonally adjusted, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. This increase followed declines of 1.9 percent in December and 2.5 percent in November. At the earlier stages of processing, the decrease in prices for intermediate materials slowed to 0.7 percent from 4.2 percent in the prior month, and the index for crude materials declined 2.9 percent after dropping 5.3 percent in December.
What makes this news less scary is that core PPI has been increasing for the last five months when we've been seeing large decreases in the overall PPI. However, core prices of intermediate goods have been decreasing for the last four months and core prices of crude goods decreased throughout the fourth quarter of 2008 while ticking up slightly last month. In other words, there could be downward pressure on prices over the next few months.
Here are the relevant charts from Econoday:
http://3.bp.blogspot.com/_4jIlyJ10uJU/SZ6w3WkNG7I/AAAAAAAABdE/8nCxk9dxQwk/s400/ppi1.gif
http://2.bp.blogspot.com/_4jIlyJ10uJU/SZ6w3IRBBXI/AAAAAAAABc8/9aXLm_kcn-U/s400/ppi.gif
From the BLS:
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4 percent in January, before seasonal adjustment, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The January level of 211.143 (1982-84=100) was virtually unchanged from January 2008.
The good news here is core prices are still positive for the last 8 months. This tells us that price drops are occurring in the food/energy area rather than overall. A big reason for the drop in CPI over the last half of 2008 was transportation costs. Here is a chart of gas prices from that period:
http://3.bp.blogspot.com/_4jIlyJ10uJU/SZ6zsM9yiPI/AAAAAAAABdM/BO05CqnNo2U/s400/gcprrets.gif
In addition, although agricultural prices have dropped over the same period:
http://4.bp.blogspot.com/_4jIlyJ10uJU/SZ6z_aDC3rI/AAAAAAAABdU/rD0FS0RYoww/s400/ag.png
They have remained positive in the CPI numbers over the last half of 2008.
Posted by bonddad at 2/20/2009 09:30:00 AM
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Labels: CPI, import prices, PPI
Forex Fridays
Click on all images for a larger picture.
http://3.bp.blogspot.com/_4jIlyJ10uJU/SZ6k8ogIN1I/AAAAAAAABcs/4rykMKarHKI/s400/dw.png
On the weekly chart, the dollar has moved above the triangle consolidation of the last month and is approaching the previous highs established in the fourth quarter of last year. Prices are still above all the SMAs. All the SMAs are also moving higher, although the 10 week SMA is below the 20 week SMA. Also note the MACD is about to give a buy signal with the cross over and the RSI is rising indicating prices are getting stronger. On this chart the main issue going forward is whether or not prices will moved beyond the highs established in the fourth quarter.
http://3.bp.blogspot.com/_4jIlyJ10uJU/SZ6k8jmEPoI/AAAAAAAABck/kg5yAfAB3p4/s400/dd.png
The daily chart shows prices have been in an uptrend for two months. They consolidated in a triangle formation for the last few weeks but are once again moving higher. Also note the MACD is rising as is the RSI. The main issue for this chart -- as with the weekly chart -- is whether the dollar will successfully move through the previous high.
Posted by bonddad at 2/20/2009 06:40:00 AM
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Thursday, February 19, 2009Today's Markets
Click for a larger image
http://3.bp.blogspot.com/_4jIlyJ10uJU/SZ3daYei_fI/AAAAAAAABcU/E5XsZR5-tDs/s400/Chart+of+SPY.gif
On the daily chart, simply notice that prices are below all the relevant trend lines from the two month consolidation pattern of the last two months. Also note that today's volume total is pretty weak compared to the past few days.
http://2.bp.blogspot.com/_4jIlyJ10uJU/SZ3eBA223LI/AAAAAAAABcc/Deqx1TBc2NI/s400/Chart+of+SPY1.gif
On the 5 minute chart, notice the following:
-- Prices have been in a fairly narrow range for the last three days. However
-- Prices gapped higher at the open only to fall throughout the day. Also note that prices closed near session lows on increasing volume, indicating the selling momentum was increasing throughout the trading day.
Posted by bonddad at 2/19/2009 04:29:00 PM
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Posted by bonddad at 2/19/2009 04:29:00 PM
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Translating "Fed-Speak"
Yesterday the Fed released the minutes of its latest meeting. I love these types of reports because they show us what the Federal Reserve is seeing. Therefore, it gives us an idea for what they are thinking.
This will be a long post.
Employment continued to contract. Private nonfarm payrolls fell sharply in December, with substantial losses over a wide range of industries. Indicators of job vacancies and hiring declined further, and layoffs continued to mount. The unemployment rate increased to 7.2 percent in December, the share of individuals working part time for economic reasons surged, and the labor force participation rate edged down for a second consecutive month.
http://3.bp.blogspot.com/_4jIlyJ10uJU/SZ1dQJs_neI/AAAAAAAABak/c1wRWLfkfeM/s400/employment.png
Above is a chart of the year over year percentage change in total payrolls. Notice the latest percent change is now lower than the 1990s and 2001 recession. We're in 1982 territory -- a particularly nasty recession. I wrote a longer article on the jobs market after the latest BLS report which has a longer list of data points.
In December, industrial production posted a sharp decline after falling substantially in November; the contraction was broad-based. The decrease in production of consumer goods reflected cutbacks in motor vehicle assemblies as well as in the output of consumer durable goods such as appliances, furniture, and carpeting. Output in high-tech sectors contracted in the fourth quarter, reflecting reduced production of semiconductors, communications equipment, and computers. The production of aircraft and parts recorded an increase in December after being held down in the autumn by a strike and by problems with some outsourced components. Available forward-looking indicators pointed to a further contraction in manufacturing output in coming months.
http://4.bp.blogspot.com/_4jIlyJ10uJU/SZ1f4sHyfyI/AAAAAAAABa8/K4XeiMnzIq0/s400/cap+ut.png
Capacity utilization -- the amount of our industrial capabilities that we use -- is near the lows of the 1982 recession. Also note it
http://3.bp.blogspot.com/_4jIlyJ10uJU/SZ1f4pytWDI/AAAAAAAABa0/NkgMj3QqKjc/s400/durable+man.png
Durable manufacturing is falling off a cliff as well. It's rate of decline is that of the mid-1970s contraction.
http://1.bp.blogspot.com/_4jIlyJ10uJU/SZ1f4ZjMJGI/AAAAAAAABas/35YYBs4q4g8/s400/non+durable.png
The rate of decline of non-durable manufacturing is also are mid-1970s levels.
Real consumer spending appeared to decline sharply again in the fourth quarter, likely reflecting the combined effects of decreases in house and equity prices, a weakening labor market, and tight credit conditions. Real spending on goods excluding motor vehicles was estimated to have fallen noticeably in December, more than reversing an increase in November. Outlays on motor vehicles edged down in November and December following a sharper decline in October. Early indicators of spending in January pointed to continued soft demand. Readings on consumer sentiment remained at very low levels by historical standards through the end of 2008 and showed little improvement in early January.
http://1.bp.blogspot.com/_4jIlyJ10uJU/SZ1iizYWghI/AAAAAAAABbE/zNwNWXCK7iU/s400/real+PCE.png
Real (inflation-adjusted) expenditures are near record lows for the year over year percentage change as well. This figure includes retail sales, which are also abysmal
http://2.bp.blogspot.com/_4jIlyJ10uJU/SZ2Bo18_aeI/AAAAAAAABbM/CcDsun9BCOA/s400/retail.png
Single-family housing starts dropped at a much faster rate in those months than they had in the first 10 months of the year. Multifamily starts also fell in those months, as did permit issuance for both categories. Housing demand remained very weak and, although the stock of unsold new single-family homes continued to move down in November, inventories of unsold homes remained elevated relative to the pace of sales. Sales of existing single-family homes dropped less than sales of new homes in November and turned up in December, but the relative strength in sales of existing homes appeared to be at least partly attributable to increases in foreclosure-related and other distressed sales. Although the interest rate on conforming 30-year fixed-rate mortgages declined markedly over the intermeeting period, the Senior Loan Officer Opinion Survey on Bank Lending Practices that was conducted in January indicated that banks had tightened lending standards on prime mortgage loans over the preceding three months. The market for nonconforming loans remained severely impaired. Several indexes indicated that house prices continued to decline rapidly.
The housing market is still a mess (thanks to Calculated Risk for the images)
http://2.bp.blogspot.com/_4jIlyJ10uJU/SZ2DVEj-OZI/AAAAAAAABbU/l0s_l_RCEtc/s400/EHSmonthsDec2008.jpg
The months of supply at the existing sales pace is still high. Again, the drop is probably temporary for the reasons cited above.
http://3.bp.blogspot.com/_4jIlyJ10uJU/SZ2EFoR9juI/AAAAAAAABb8/0uH0Yff6lSY/s400/NHADec2008.jpg
New home sales continue to drop -- there has been no attempt on the graph to slow the fall.
http://2.bp.blogspot.com/_4jIlyJ10uJU/SZ2EFfA1MII/AAAAAAAABb0/IaEgwDe330Q/s400/NHSDec2009Inventory.jpg
While the total inventory has been dropping (which is good)
http://2.bp.blogspot.com/_4jIlyJ10uJU/SZ2EFfBVfaI/AAAAAAAABbs/YehHi_xjvgQ/s400/NHSDec2008Months.jpg
The months of available inventory is still increasing because of the continual drop in sales.
As a result of all this:
http://4.bp.blogspot.com/_4jIlyJ10uJU/SZ2EijCqG0I/AAAAAAAABcE/QUWGrn7lZFo/s400/CSNovember2008.jpg
Prices are still dropping. Note how far about the standard median of the 1990s prices still are. In other words, we probably have a long way to go.
In the business sector, investment in equipment and software appeared to contract noticeably in the fourth quarter, with decreases registered in all major spending categories. In December, business purchases of autos and trucks moved down. Spending on high-tech capital goods appeared to decline in the fourth quarter. Orders and shipments for many types of equipment declined in October and November, and imports of capital goods dropped back in those months. Forward-looking indicators of investment in equipment and software pointed to likely further declines. Construction spending related to petroleum refining and power generation and distribution continued to increase briskly in the second half of 2008, responding to the surge in energy prices in the first half of that year, but real investment for many types of buildings stagnated or declined. Vacancy rates for office, retail, and industrial properties continued to move up in the fourth quarter, and the results of the January Senior Loan Officer Opinion Survey indicated that financing for new projects had become even more difficult to acquire.
http://i17.photobucket.com/albums/b84/bonddad/Investment.jpg
Net investment has decreased in 8 o the last 11 quarters. In addition, note that investment barely increased in one of those quarters.
Here's the bottom line: it's terrible out there.
Posted by bonddad at 2/19/2009 07:15:00 AM
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Thursday Oil Market Roundup
Click on all pictures for a larger image
http://2.bp.blogspot.com/_4jIlyJ10uJU/SZ1Q2-WPpUI/AAAAAAAABaM/ip84fXJEszs/s400/oil+w.png
The weekly chart hasn't changed in some time. Prices are still consolidating in a triangle, while the MACD is oversold and the RSI indicates prices are weak. The price/SMA picture is still bearish: the shorter SMAs are below the longer SMAs, all the SMAs are moving lower and prices are using th 10 week SMA as upside technical resistance.
http://1.bp.blogspot.com/_4jIlyJ10uJU/SZ1Q3MC5L2I/AAAAAAAABaU/nPUOs_dzdOw/s400/oil+d.png
The daily chart points to consolidation. Prices have been in a triablge consolidation pattern for the last few months and prices and the SMAs are in a tight range. However, note the MACD is is maxed out -- meaning, it hasn't moved higher in some time. This implies there is a possibility of prices moving lower right now.
Bottom line: the technical picture is one of an oversold market. But the fundamental backdrop is driving prices right now: the economy is weak implying demand will be low for some time and inventories are still increasing:
http://4.bp.blogspot.com/_4jIlyJ10uJU/SZ1SFbPT2II/AAAAAAAABac/r2VCV-KKfAs/s400/crstuss.gif
Posted by bonddad at 2/19/2009 06:23:00 AM
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Wednesday, February 18, 2009Today's Markets
http://1.bp.blogspot.com/_4jIlyJ10uJU/SZyO9CN-dyI/AAAAAAAABaE/kRnQALlUt9I/s400/Chart+of+SPY1.gif
The good news is the market didn't fall farther today -- that's about it. Notice prices are still below whichever trend line you use.
http://2.bp.blogspot.com/_4jIlyJ10uJU/SZyO9H0r3cI/AAAAAAAABZ8/dcr80NN7LtE/s400/Chart+of+SPY.gif
On the 5 minute chart, today was a day when we moved a bit here and there but when there wasn't much of a move anywhere. I would call it a consolidation day.
Posted by bonddad at 2/18/2009 04:42:00 PM
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Wherein I May Eat Crow
The Issue on nationalizing the banks is once again on the front page as Greenespan (of all people) is backing limited nationalization:
The US government may have to nationalise some banks on a temporary basis to fix the financial system and restore the flow of credit, Alan Greenspan, the former Federal Reserve chairman, has told the Financial Times.
In an interview, Mr Greenspan, who for decades was regarded as the high priest of laisser-faire capitalism, said nationalisation could be the least bad option left for policymakers.
”It may be necessary to temporarily nationalise some banks in order to facilitate a swift and orderly restructuring,” he said. “I understand that once in a hundred years this is what you do.”
Mr Greenspan’s comments capped a frenetic day in which policymakers across the political spectrum appeared to be moving towards accepting some form of bank nationalisation.
“We should be focusing on what works,” Lindsey Graham, a Republican senator from South Carolina, told the FT. “We cannot keep pouring good money after bad.” He added, “If nationalisation is what works, then we should do it.”
Speaking to the FT ahead of a speech to the Economic Club of New York on Tuesday, Mr Greenspan said that “in some cases, the least bad solution is for the government to take temporary control” of troubled banks either through the Federal Deposit Insurance Corporation or some other mechanism.
The former Fed chairman said temporary government ownership would ”allow the government to transfer toxic assets to a bad bank without the problem of how to price them.”
I originally came out against nationalization. I wrote about the problems in detail in this article. However, here is the central thrust of my concerns:
In addition, we now have the same problem involved with all processes involving politicians -- undue influence. Within five years I am betting all of the following will happen:
1.) A person in government (elected or not) leans on a bank to make a sweetheart loan to someone/an entity/a group not qualified to take out the loan
2.) A major campaign contributor gets a sweetheart "consulting" contract to service a financial institution.
3.) A major campaign contributor gets a special loan package
4.) The issue of patronage enters the picture: campaign workers/politically connected people who are unqualified to work in the financial field or are minimally qualified get jobs in the financial field
5.) A bank that shouldn't have qualified for government assistance gets government assistance. Actually - that's already happened:
Troubled OneUnited Bank in Boston didn't look much like a candidate for aid from the Treasury Department's bank bailout fund last fall.
The Treasury had said it would give money only to healthy banks, to jump-start lending. But OneUnited had seen most of its capital evaporate.
Moreover, it was under attack from its regulators for allegations of poor lending practices and executive-pay abuses, including owning a Porsche for its executives' use.
Nonetheless, in December OneUnited got a $12 million injection from the Treasury's Troubled Asset Relief Program, or TARP. One apparent factor: the intercession of Rep. Barney Frank, the powerful head of the House Financial Services Committee.
Mr. Frank, by his own account, wrote into the TARP bill a provision specifically aimed at helping this particular home-state bank. And later, he acknowledges, he spoke to regulators urging thatOneUnited be considered for a cash injection.
.....
On Dec. 3, Rep. Spencer Bachus (R., Ala.) forwarded a Dec. 2 letter from Alabama bank regulators complaining about the complexities of applying for federal funds. Alabama banks later received billions in funds.
6.) Less than 50% of the banks return to profitability.
7.) Of the remaining 50%, none of them achieve better than 80% of the previous institutional high of ROE. In other words -- the previous management made more money for shareholders
8.) Lending does not increase to pre-meltdown levels -- or to acceptable levels.
In short, my concerns were primarily that we would trade one form of stupidity, ignorance and gross incompetence for another form of stupidity, ignorance and gross incompetence.
However, I am left with a dilemma: what in the hell are we going to do to solve the problem? Simply put, I cannot find any answer that I like to any of these questions. Which leaves nationalization on the table. That does not mean I like the idea. In addition, I am still deeply concerned about the possibility of all the above scenarios happening in some way. And -- I should add -- I am not saying we need to nationalize (largely because I am an incredibly stubborn pain about such things). But I am also thinking it's back on the table if for no other option then there aren't many other options out there.
Posted by bonddad at 2/18/2009 11:30:00 AM
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OECD Economies Shrink Most on Record
From Bloomberg:
The economy of the member states of the Organization for Economic Cooperation and Development contracted the most on record in the fourth quarter as the global crisis hit investments and consumption.
Gross domestic product in the OECD area fell 1.5 percent from the previous three months, the largest decline since the series began in 1960, the Paris-based organization said in an e- mailed statement today. GDP contracted 0.2 percent in the third quarter from the second.
With consumers and companies unable to secure credit for purchases and investments, sales of cars and machinery are declining, forcing producers across the globe to reduce their workforces.
Posted by bonddad at 2/18/2009 09:30:00 AM
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Wednesday Commodities Round-Up
Click on all images for a larger image
http://3.bp.blogspot.com/_4jIlyJ10uJU/SZwBR7-hX7I/AAAAAAAABZ0/kMDLZQs-V0w/s400/soy+bean.png
Soybeans have tumbled in a big way. Notice that from their highs of last summer prices have dropped by about half. Also note the declining RSI indicating prices are continually weaker and the declining MACD indicating declining momentum. The SMA picture is weak as well. The 20 and 50 week SMAs are both moving lower. While the 10 week SMA has recently moved through the 20 week SMA, prices have dropped below all the SMAs indicating further weakness is ahead.
http://3.bp.blogspot.com/_4jIlyJ10uJU/SZwBRxf5y2I/AAAAAAAABZs/dWRuGAwzGbE/s400/gold.png
Gold has re-attained its safe have nluster. Note on the price chart that prices broke through the upper trend line of a consolidation pattern. This indicates buyer enthusiasm. Also note the rising MACD and RSI, indicating stronger moemntum and stronger prices. The SMA picture is interesting. First -- prices are above all the SMAs indicating all the SMAs will continue to move higher. The 10 week SMA just crossed the 50 week SMA while the 20 week SMA is still below the 50. In other words, we've got a ways to go before the SMAs line up into an extremely bullish alignment. Given the global uncertainty right now, gold may be the primary bull market going forward.
Posted by bonddad at 2/18/2009 06:36:00 AM
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