Good Taxable Morning To All of You in the USA.
Tax day -- render unto Caesar what is is Caesar's.
New at 11:17 AM PDT
QUOTATION OF THE DAY
"Smaller companies face greater headwinds. Is it G.E. or Caterpillar who will be hurt? Of course not. It's Joe's Deli."
IAN SHEPHERDSON, chief economist at Pantheon Macroeconomic Advisors, on the effects of the government's austerity measures. (From the NY Times)
Monday Opening VUE - 4/12/2013
- New York Manufacturing is down, and it is down across the board. You will not hear much positive "spin: on this today.
- More impactful is the economic reports from China overnight. The economy missed expectations on GDP and industrial production for March.
- There are many quarterly reports coming out this week for important companies in the US (and Europe). THe National Association of Home builders report is due out at 10:00 AM EDT.
- This is April Options Expiration Week. During this week (especially toward the end) the price ranges expand. Sometimes there is fireworks as April Options expire.
- Before the opening the stock market's fair value is way below 60. (This is listed as -8.50). This is a good indication that the market will be down substantially as it opens. Where it goes from there may depend a good deal on the Home Builders Report.
- Gold is way down this morning, and even more concerning is the drop in commodity prices across the board. Copper is down over 3% as of this moment (6:30 AM). Look for the materials sector of the stock market to be the largest loser today.
- More to come as the markets get into full swing,.
Big Picture
The stock market opened down, and continues in that direction at 6:49 AM PDT. The S&P 500 surged during the first quarter. I suppose that means that investors (funds) had positive expectations for the Global Economy. No matter how many warning signs (very negative warning signs) from Europe, they were discounted.
I've maintained to my newsletter readers that it was about all the fiat currency floating around. That money had to go somewhere, and there were less and less non-risky assets to park it that could take that kind of money. The places that they could put the money was in the large cap USA/Europe stocks, sovereign bonds, and so-on. As the stock markets went up, the retail investor stepped in - particularly in March. Oh my, if they would just have read this blog. Of course, I looked wrong for a good portion, but the main piece of advice was to take out insurance. If you don't know how to trade options to cover your risk in the stock market, then you need to study and study and study.
MIXED MESSAGES:
The S&P (and the DOW) were giving mixed signals. All during the first quarter for short-term and intermediate term traders, this was a risk-on market (meaning take more risk than buying USA bonds to return better yields.) DOW Theory (something debunked by the best Universities), suggests that market action did not fit with the "MARKETING" message from the investment houses.
- Counter cyclical sectors like health care and consumer staples scored the biggest gains
- We heard over and over money was flowing out of notes and bonds, but that was a misrepresentation at best.
- Inventories (all businesses) were rising across the board.
- Transportation was a leading market index, and as DOW Theory would have it, if we are in a true economic recovery, Transportations should lead the way.
- Unemployment claims trend is the lowest in the past 4 years -- note claims is not the subject to the same manipulation as the BLS (BS data) about unemployed.
- Stock market volatility collapsed (signalling no fear)...
- Cyclical consumer discretionary, financial, energy and industrial sectors all outperformed the general market.
It is then easy to observe that the market's signals were MIXED.
Production Metal However:
However, the most mixed up part of reading the ECONOMIC Tea Leaves are the PRODUCTION METALS - Copper, Nickle, Tin, Aluminum, Zinc an Lead.
If there was a global economic recovery, we should be able to observe Copper leading the way. Underperfomance is an underlying issues with rising inventories. We can look into the London Metal Exchange (LME) for the prices of metals globally priced in US $. http://www.lme.com/en-gb/metals/non-ferrous/copper/ (The copper prices, invetnory and charts). Why copper has several ETFs, things like Lead and Zinc's liquidity is limited. What is informative is the futures markets in these products. Using data from LME we can create a perf chart which:
source LME
Source LMEThese factors are going to cause concern among investors over the "big picture" of the Global economy. Base metals have not recovered as expected following the Chinese New Year celebration. (more to follow)
Nominal GDP
The US government (and China) along with most of the developed economies report GDP without adjusting for inflation. Nominal GDP is reported adjusted for inflation. (You get to study this stuff if you take economics, which no USA students seem to want to take.) Here is what cliff notes has to say : "Nominal GDP is GDP evaluated at current market prices. Therefore, nominal GDP will include all of the changes in market prices that have occurred during the current year due to inflation or deflation. Inflation is defined as a rise in the overall price level, and deflation is defined as a fall in the overall price level." Of course that sounds like goobbledy goop. How do you evaluate GDP at current market prices? And therein lies a whole discussion on government reporting.
www.shawdowstats.com provides information on Nominal GDP.
http://www.shadowstats.com/imgs/sgs-gdp.gif?hl=ad&t=
Source Shawdowstats
In January, the government printed a negative GDP (just normal). Analysts everywhere discounted any possibility of recession. THe blamed defense spending and inventory drawdowns, but as I've just shown, inventory drawdowns in base metals was a myth. If one observes the nominal GDP for the fourth quarter, the year-over-year real GDP growth dropped to 1.6%.
Such a year-over-year drop is rarely (if ever) seen outside a recession. And readers, this comes after trillions of $$$ in money printing by all central banks world wide.
Here is something for your trivia questions at dinner over a good glass of (whatever you are enjoying). Since the 1980's what occurs when nominal GDP growth is below 3.7%? 100% of the time there is a recession, and if the USA government ever gets around to admitting it, the recession probably started in 2012.
I would only conclude from all of this that the USA economy is only able to keep its nose above water with huge stupendous injections of money into the economy through the Federal Reserve, and as long as QEternity continues, the USA economy will remain at "stall speed". Here is what Citigroup (ugg) has to say:
The evidence presented in this essay points to a “stall speed” for U.S. real GDP growth. Specifically, when U.S. growth has cut below 1½ percent on a rolling four-quarter basis, it has tended to fall by nearly 3 percentage points over the following four quarters, and the economy has typically entered recession.
http://www.aei-ideas.org/2012/09/study-u-s-economy-hovering-just-above-stall-speed-vulnerable-to-new-recession/
There is a useful article published in 2011 by the Federal Reserve defining the usefulness of "stall" speed: Forecasting Recessions Using Stall Speeds Jeremy J. Nalewaik 4/14/2011. http://www.federalreserve.gov/pubs/feds/2011/201124/201124pap.pdf
Of course Truman had this to say about that:
"Give me a one-handed economist! All my economists say, On the one hand on the other." Truman, Harry S
But then Mr. Truman did not have access to the now famous law for disclaimers in investing: "Past history does not predict success in the future."
There are too many moving parts that are in conflicting positions with historic data. Weaker-than-expected data from the US and now CHina have ignited concerns that economic growth in the coming months will not meet the high-high expectations of the 1st quarter's investors.
Commodities with emphasis on base metals along with continued weakness in economic indicators, looks like trouble on the horizon.
www.shawdowstats.com provides information on Nominal GDP.
http://www.shadowstats.com/imgs/sgs-gdp.gif?hl=ad&t=
Source ShawdowstatsIn January, the government printed a negative GDP (just normal). Analysts everywhere discounted any possibility of recession. THe blamed defense spending and inventory drawdowns, but as I've just shown, inventory drawdowns in base metals was a myth. If one observes the nominal GDP for the fourth quarter, the year-over-year real GDP growth dropped to 1.6%.
Such a year-over-year drop is rarely (if ever) seen outside a recession. And readers, this comes after trillions of $$$ in money printing by all central banks world wide.
Here is something for your trivia questions at dinner over a good glass of (whatever you are enjoying). Since the 1980's what occurs when nominal GDP growth is below 3.7%? 100% of the time there is a recession, and if the USA government ever gets around to admitting it, the recession probably started in 2012.
I would only conclude from all of this that the USA economy is only able to keep its nose above water with huge stupendous injections of money into the economy through the Federal Reserve, and as long as QEternity continues, the USA economy will remain at "stall speed". Here is what Citigroup (ugg) has to say:
The evidence presented in this essay points to a “stall speed” for U.S. real GDP growth. Specifically, when U.S. growth has cut below 1½ percent on a rolling four-quarter basis, it has tended to fall by nearly 3 percentage points over the following four quarters, and the economy has typically entered recession.
http://www.aei-ideas.org/2012/09/study-u-s-economy-hovering-just-above-stall-speed-vulnerable-to-new-recession/
There is a useful article published in 2011 by the Federal Reserve defining the usefulness of "stall" speed: Forecasting Recessions Using Stall Speeds Jeremy J. Nalewaik 4/14/2011. http://www.federalreserve.gov/pubs/feds/2011/201124/201124pap.pdf
Of course Truman had this to say about that:
"Give me a one-handed economist! All my economists say, On the one hand on the other." Truman, Harry S
But then Mr. Truman did not have access to the now famous law for disclaimers in investing: "Past history does not predict success in the future."
There are too many moving parts that are in conflicting positions with historic data. Weaker-than-expected data from the US and now CHina have ignited concerns that economic growth in the coming months will not meet the high-high expectations of the 1st quarter's investors.
Commodities with emphasis on base metals along with continued weakness in economic indicators, looks like trouble on the horizon.
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