Category: Currency

Economics Update

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If anyone thinks that real estate can lead us out of of a recession, or even that we can, as Mssrs. Obama, Geithner, Summers, etc., think that we can reinflate the bubble, you need to look no further than the National Association of Realtors (NAR) Pending Home Sales index, which fell 16% in November well under the forecast of -2%, though it is still up year over year.

They are trying to reinflate a balloon with a hole in it.

In any case, the horrible housing numbers drove treasury prices up as investors fled to safety.

It does appear, however, that foreign investors were going elsewhere, with the dollar falling against the yen, and in energy .

Economics Update

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The Institute for Supply Management’s national factory index just rose to 55.9, the highest reading on factory activity since April 2006.

It’s good news, but but as Krugman notes, it may just be an inventory bounce:

Such blips are often, in part, statistical illusions. But even more important, they’re usually caused by an “inventory bounce.” When the economy slumps, companies typically find themselves with large stocks of unsold goods. To work off their excess inventories, they slash production; once the excess has been disposed of, they raise production again, which shows up as a burst of growth in G.D.P. Unfortunately, growth caused by an inventory bounce is a one-shot affair unless underlying sources of demand, such as consumer spending and long-term investment, pick up.

That being said, we are seeing increased demands for capital from small businesses, with a 37% year over year increase in the Small Business Administration’s 7(a) lending program, a total of $3.8 billion.

On the down side, construction spending fell for the 7th, falling 0.6%, and it has been reported that US bankruptcies are up 32% in 2008.

On the other side of the pond, new orders to factories slowed in the Euro zone.

In energy, low temperatures and a Russia-Belarus price dispute drove Oil above $80/bbl.

In currency, the US dollar fells on the good ISM factory report, as risk appetite improved.

Here’s a Surprise

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Nearly flat for 2 years

One of the things that I have occasionally remarked on is how data for M3, one of the broader measures of money supply is no longer collected by the Fed.

The claim is that it’s a conspiracy to conceal the reckless and inflationary expansion of the money supply, but as Tim Iacono shows, it hasn’t really happened.

Basically, the Fed may be printing money, but banks are not lending, so the money supply, at least the money supply as described by the M3, is basically flat, so we are not in an inflationary situation.

To my mind, this is a bad thing, since, as I have stated many times before, increasing inflation will have the effect of moving the price many assets above the amount of money owed on them.

A description of the various measures of money, cut-and-pasted from the Wiki, is below the fold:

  • M0: Notes and coins (currency) in circulation and in bank vaults. In some countries, such as the United Kingdom, M0 includes bank reserves, so M0 is referred to as the monetary base, or narrow money.
  • MB: Equals M0 + reserves which commercial banks hold in their accounts with the central bank (minimum reserves and excess reserves). MB is referred to as the monetary base or total currency. This is the base from which other forms of money (like checking deposits, listed below) are created and is traditionally the most liquid measure of the money supply.
  • M1: M1 includes funds that are readily accessible for spending. M1 consists of: (1) currency outside Federal Reserve Banks, and the vaults of depository institutions; (2) traveler’s checks of nonbank issuers; (3) demand deposits; and (4) other checkable deposits (OCDs), which consist primarily of negotiable order of withdrawal (NOW) accounts at depository institutions and credit union share draft accounts. Bank reserves are not included in M1.
  • M2: Equals M1 + savings deposits, time deposits less than $100,000 and money market deposit accounts for individuals. M2 represents money and “close substitutes” for money. M2 is a broader classification of money than M1. Economists use M2 when looking to quantify the amount of money in circulation and trying to explain different economic monetary conditions. M2 is a key economic indicator used to forecast inflation.
  • M3: Equals M2 + large time deposits, institutional money-market funds, short-term repurchase agreements, along with other larger liquid assets. M3 is no longer published or revealed to the public by the US central bank. However, it is estimated by the web site Shadow Government Statistics. It is also estimated on a weekly basis by the web site Now and the Future.
  • MZM: Money with zero maturity. This measure equals M2 plus all money market funds, minus time deposits. It measures the supply of financial assets redeemable at par on demand.

Economics Update

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New Home Sales Not Just Ugly, but Fugly!
h/t Calculated Risk

Yesterday, I noted the jump in existing home sales, and posited that this was almost entirely due to people rushing to get in under the wire on the new home buyer house credit, well today, we have the new home sales numbers, and they plunged by 11.3%, which validates my thesis.

Basically, existing home sales numbers are recorded at closing, while new home sales are recorded when the contract is signed, which means that the new home sales numbers lead existing home sales by 30-60 days, so we have a snapshot of what happens when people rushing to secure a tax credit stop rushing, and it ain’t pretty.

It also explains why home mortgage application volume fell.

As I’ve said before, real estate won’t lead us out of a recession, it will follow.

On the other hand, personal income and spending rose in November, which is a sign of improvement, and the latest CNN/Opinion Research and Reuters/University of Michigan surveys show an improvement in consumer sentiment, though of the “slightly less suckage” rather than the “going well” variety..

One interesting development in the 3rd quarter of this year was that central banks have cut purchases of dollars for reserves to a record low, “30 percent of new foreign-exchange reserves,” which implies a slow walk away from the dollar by central banks.

Even so, the dollar rose today, and Oil also rose on a surprise drop in inventories………Which raises the question, why are inventories always surprising folks?

Economics Update

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More bad news in real estate, with commercial real estate prices falling to a 7-year low, and the latest figures on home prices showing a year over year decline of 7.8%.

More generally, the Chicago Bank of the Federal Reserve’s economic index rose slightly in November, from -1.02 in October (indicating growth below the historical trend) to -0.32 (indicating growth below, but closer to the historical trend).

We also had good news in Japan, where exports rose sharply.

In treasurys, bond prices fell, as investors moved into US equities.

To move into those equities, foreign investors bought dollars, which drove the dollar, and the rising dollar drove oil down.

Economics Update

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h/t Calculated Risk

Yea, sure, the recession is over. That’s why initial jobless claims rose again this week, up 7000 to 480,000, and continuing claims rose as well, though the 4-week average fell.

I’m beginning to think that those “stunning” NFP payroll numbers in November were an artifact of a seasonal correction of some kind.

In any case, real estate is not looking so hot, with the 30-year fixed mortgage rate rising again, and the estimates for the “shadow inventory” in housing , basically homes that are being foreclosed on, or are being held off the market by the foreclosing institutions to keep from depressing prices too much was revised upward:

The number of homes that may be in the pipeline for a sale because of foreclosure and delinquency climbed about 55 percent to 1.7 million at the end of September, according to estimates by First American CoreLogic.

The “shadow inventory” rose from 1.1 million a year earlier. Such properties include those taken over by banks and mortgage companies and those where the loans are at least 90 days delinquent, the Santa Ana, California-based research firm said in a report today. The number of unsold homes listed for sale was 3.8 million in September, down from 4.7 million a year earlier, First American said.

So I think that any claim to a recovery in residential real estate has been, greatly exaggerated.

That being said, the Conference Board’s Index of Leading Economic Indicators, as well as the Philadelphia Federal Reserve Bank’s Business Outlook Survey both showed signs of growth, though, as Calculated Risk notes, the recovery is weaker than in earlier months, indicating, perhaps, the start of a “W” downturn.

In either case, the LEI and the Philly Fed report did not seem to have much of an effect on Treasuries, which rose, meaning that the yield dropped, largely on concerns about Greece.

This sentiment also drove the dollar up.

In energy, the strong dollar drove oil down, but natural gas rose, largely on the cold weather and smaller than expected inventory numbers.

Economics Update

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H/t Calculated Risk


H/t Calculated Risk


The 2006 spike is just before the new bankruptcy law
h/t Calculated Risk,

Well, we are in for a bumpy ride, with the Federal Reserve Bank of New York’s Empire State Manufacturing Survey falling 21 points in November. (top pic)

It’s still positive, barely, meaning that there is expansion, but it is a rather precipitous drop.

We also saw US industrial capacity utilization rise in November, (2nd pic down) so it appears that there is an upswing going on, albeit a slow one.

Even so, we are saw both homebuilder sentiment falling (3rd pic down), credit card chargeoffs rising (bottom pic), and the Architecture Billings Index falling in November on the other side of the ticket.

In energy, oil rose for its first time in 10 days, and in currency, the dollar was up, hitting an October high.

Well, This is One Way to Beat the System

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If you order large amounts of coinage via credit card, the US Mint sends it to you free of charge, which means that you can turn around and deposit the money in the bank, and, if you have a credit card with reward miles, you still get those miles, for buying money, which you use to pay off the bill:

Enthusiasts of frequent-flier mileage have all kinds of crazy strategies for racking up credits, but few have been as quick and easy as turning coins into miles.

At least several hundred mile-junkies discovered that a free shipping offer on presidential and Native American $1 coins, sold at face value by the U.S. Mint, amounted to printing free frequent-flier miles. Mileage lovers ordered more than $1 million in coins until the Mint started identifying them and cutting them off.

Coin buyers charged the purchases, sold in boxes of 250 coins, to a credit card that offers frequent-flier mile awards, then took the shipments straight to the bank. They then used the coins they deposited to pay their credit-card bills. Their only cost: the car trip to make the deposit.

Neat scam, and as always, the only problem is that I discover it too damn late.

Economics Update

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Bad news from the Euro Zone, with Eurozone employment falling by 0.5% in the 3rd quarter, and Euro zone industrial output fell by 0.6% in October, and by 11.1% year over year.(!)

We are also looking at a spike in food prices over the next year, leading to an increase in inflation that all the economists and the economic journalists ignore, because, after all, it’s not core, because it’s just food.

In currency, Abu Dhabi has agreed to bail out Dubai, which has made people feel more secure, so they are selling dollars, which pushes the currency down.

In energy, crude oil fell for the 9th straight day largely on demand concerns.

Economics Update

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Surprise! Geithner and Bernanke:
As popular as a case of the Clap.
H/t Calculated Risk


And ore Americans than ever are on food stamps, h/t Naked Capitalism

Well, we have a bunch of good news on the consumer front, with retail sales growing by 1.3% in November, more than the 0.6% forecast, and the Reuters/University of Michigan Consumer Sentiment Index rose to 73.4 in early December, up from 67.4 last month, and well above the forecast of 69.0, which is all very good, since the holiday season is a huge part of retail sales, but the Discover Financial Services survey is showing that consumers are looking to slash their spending by 15%.

Yeah, I’m confused too.

I would also note that the number of people collecting food stamps hit a record, 37.2 million, which raises the question if, “food stamps are the soup lines of this Great Depression?”

We are now seeing some rumblings of inflation on the other side of the pond, with UK factory input prices rising at fastest pace in a year, 4%:

Input prices gained by 4% last month from November 2008, and by 0.4% from October.

Output prices – the prices of goods leaving UK factories – rose 2.9% on the year, the fastest pace since February.

Output prices – the prices of goods leaving UK factories – rose 2.9% on the year, the fastest pace since February.

So we are likely going to have some of the central banks out there, most likely the ECB, panicking and jacking up rates at just the wrong time.

Still, the retail sales numbers drove the dollar rises to a 2-month high, though interestingly enough, oil fell for the 8th straight day, to $69.87/bbl, which is kind of odd, increased consumer sales implies increased demand, but a rising dollar may trump that in the mind of oil speculators.

Economics Update

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There is no wealth creation for ordinary folk, just bubble creation, h/t Calculated Risk


Crude prices, h/t OilEnergy

So, today is “Jobless Thursday, and initial unemployment claims spiked unexpectedly to 474,000.

Truth be told, it’s not a surprise. Non-farm payrolls need to rise at about 300,000 a month, so the “really good” NFP numbers in November, which had a -11,000 number indicates that things still really suck.

We have seen a drop in the U.S. trade deficit in November, which has been driven by export growth, though falling oil prices (see lower pic), and the fact that US consumers are still not in the mood to buy anything, including imports.

We have some good news on household net worth which grew by $2.7 trillion in the 3rd quarter, largely on the recent stock market bubble rally.

In real estate, the 30-year fixed mortgage rate rose this week, and
foreclosures fell in November, though, as the article notes, this may be a a pause more than anything else:

“They’re artificially low because of underlying causes,” said Rick Sharga, vice president of RealtyTrac.

He cites three reasons why foreclosures have dropped in certain states: The holiday season, when foreclosures typically slow down; the government’s mortgage modification program, which has created a slowdown in delinquent loans; and mandatory mediation in more states between homeowners and lenders before going into foreclosure.

In the world of central banks, the Bank of England left its benchmark rate unchanged at ½%, while maintaining its asset purchase (printing money) program.

Something interesting occurring in the world of US Treasurys though, the yield curve is the steepest since 1980.

The nickel tour is that when you buy a 2-year bond, you get less interest than if you buy a 30-year bond, because the risks of a 30-year bond are higher, not in terms of default, but because your money is locked up, and interest rates can go up, or you can need the money in a hurry, etc.

The difference is now 373 basis points (3.73%), with average over the past 5 years being 132 basis points.

It may be a market burp, or it may be inflationary concerns.

In currency, the dollar was essentially unchanged, while in energy, oil fell for the 7th day in a row on economic concerns.

Economics Update

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H/t New York Observer

We have another sign of “green shoots,” with wholesale inventories rising for the first time in 13 months.

I’m not sure if this is a trend, or if wholesale inventories are hitting a kind of “zero bound”, where it just cannot go any lower.

We also saw treasurys falling, and yields rising, after a weak auction of 10 year treasuries.

In real estate, mortgage applications hit a 2-month high, largely on people refinancing to lock in lower rates, but more significant is the fact that the best estimate of losses in home value in 2009 was $500 billion, which, surprisingly enough is a major improvement, as home values fell $3.6 trillion.

In currency, the dollar fell today, most likely on profit taking after 3 straight days of gains, and in energy, oil fell on more reports of strengthening inventories.

Economics Update

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Falling Consumer Credit, H/t Calculated Risk

So, consumer credit continues its decline, down $3.51 billion in October, a 1.7% annual rate, so the 70% of the economy that is consumer spending is still contracting in what exonomists call the “paradox of thrift.”

In energy, oil fell to less than $74/bbl, while in currency, the dollar hit a 5-week high, largely on the employment numbers from last week.

Economics Update (Yeah, Way Late)

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Unemployment h/t Calculated Risk


Unemployment over recessions h/t Calculated Risk


Back to where we started before Congress gave the credit card companies a big wet kiss.

I think that this is the first time that I’ve tot this since Thanksgiving. Sorry, it’s been hectic.

The lede, of course, it the unemployment numbers, and we now have the official numbers for November, and they are surprisingly not bad (using the phrase “good” for double digit unemployment is an absurdity): Non Farm Payroll fell by only 11,000 in November, and the Unemployment rate fell by 0.2% to 10.0%. (The ADP prediction from earlier this week was way off)

Initial unemployment claims fell by 5K, to 457,000, with the 4-week moving average falling 14,250 to 481,250, both of which are the lowest since the 3rd quarter of last year.

On the other hand, continuing claims rose by 28K to 5.47 million, and the number of people who were collecting extended (emergency) unemployment benefits the number of people collecting extended benefits under federal programs rose by 327K to 4.53 million for the week ending November 14, when the bill that Congress passed extending benefits kicked in, so there are more people collecting benefits now than there were last week….A lot more.

Seeing as how the US Economy needs to add roughly 150,000 jobs a month just to account for a growing workforce, at best we are in a “getting crappy less quickly” stage, and at worst, it could be a dead cat bounce.

In non-employment related metrics, we have the both the ISM Non-Manufacturing Index and the ISM Manufacturing Index falling, though the latter is still indicating expansion, just very slow expansion, though the November Chicago Purchasing Managers Index rose to a 15-month high, and the Fed’s Beige Book is showing improvement.

The reason that I am not optimistic, in addition to being bearish by temperament, is because retail sales fell below estimates for the start of the holiday season, and because personal bankruptcy filings are still horrific, (see pic) they were down in November from October, but still up 12% from Year over Year.

In real estate, 30-year fixed mortgages fell.

And in the world of central banks, the European Central Bank has kept its benchmark rate at 1%, though it gave indications that it would be walking away from its quantitative easing, which drove both oil and the dollar down.

Economics Update (Catching Up)

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H/t Calculated Risk

The lede here is that the corrected numbers for US GDP are out, and it’s way down, to +2.8%, down from the initial estimate of 3.5%.

Even more worrying is that the primary reason for the drop is that that consumer demand is way down, which does not bode well for the holiday season.

Some things to note on this:
GDP is still down year over year, and at this won’t be back to the pre-recession level until sometime in 2011.

Also, the credit card data has more evidence of consumer deleveraging, with late payments on credit cards falling in the 3rd quarter, though delinquencies were up in October.

The Conference Boards Consumer Confidence index roses in November, but still at levels indicating contraction, 49.5, where 90 is more or less neutral.

The Federal Reserve Bank of Chicago also released its National Activity Index, and it fell slightly (PDF), to -1.08, which indicates that things are still moving in a recessionary direction.

In real estate, the 3rd quarter numbers are in, and the S&P/Case-Shiller Home Price Index showed home prices increasing 3.1%, though it’s still down 9% year over year, and existing home sales rose an astounding 10% in October.

The timing here shows why this housing “recovery” is a mirage. Existing home sales rose in October because these were people scrambling to get in under the wire for the new home tax credit.

Some quick math shows that the median existing home prices in the US is $173,100, and $8000 is 4.62% of that, so the the degree to which the tax credit is driving price deltas is probably pretty significant.

Meanwhile, we are having some significant movement in the bond/central bank world, both nationally and internationally, with Fitch cutting its rating Mexico’s sovereign debt, the Bank of Israel yesterday raising its overnight lending rate by a 25 basis points (¼%), and Colombia’s central bank cutting its rate by 50 basis points (½%), because inflation is below expectations, and they want to give their economy a boost.

My guess is also that Columbia wants to push its currency down to help with its trade balance.

US Treasuries rose in their most recent auction, probably because investors are looking for safe havens following the downward GDP revision.

Certainly the GDP revision pushed oil down, though interestingly enough the dollar fell against both the Yen and Euro.

Economics Update

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The Number Needs to be Under 400,000
H/t Calculated Risk

The Index of Leading Economic Indicators rose for the 7th straight month, indicating that a recovery is underway, as does the Philadelphia Bank of the Federal Reserve’s survey of manufacturing hitting 16.7, the highest level since June, 2007.

Unemployment though, is not cooperating, with initial unemployment claims unchanged from last week, they are still 505,000, unemployed is still on a pace to increase.

Basically, if it is above 400K, it still sucks, and this applies to the 4 week moving average too, which fell to 514,000, down 6,500

The continuing claims numbers are better, down 39,000 to 5.61 million, but still pretty grim too.

I would note that the continuing claims number does not count people who have moved to extended benefits, and that jumped 119,000 to 4.16 million.

You do the math 39,000 on the up side, 119,000 on the down side, gives us 80,000 of ugly.

In any case, concerns about continued growth, which I think were driven by the lack of improvement in first time claims, has people fleeing to safety again, with yields on 3-month Treasury Bill maturing in January going negative for the first time since December of last year, because people are willing to pay to keep their money safe for the next month or so..

Additionally, we have the Bank of Japan sending out signals that it will be keeping rates low, because it is concerned about deflation.

These concerns have driven oil down and the dollar and yen up.

Economics Update (a Day Late)

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TIPS Spread


US Trade Deficit, h/t Calculated Risk

Notwithstanding all the chest pounding by folks claiming that the, “recession is over,” consumer sentiment is continuing to fall, with the Reuters/University of Michigan Surveys of Consumers falling to 66.0 in November, from 70.6 in October.

It also looks like real estate is in the same bind, with the US Home Purchase Index falling to a 9-year low last week, on concerns that the about what was going on with the new home buyer tax credit.

Basically, this is showing that the only thing keeping the home market from falling further, is massive government support.

We have some good news on inflation, unless you are like me, and see a period of sustained inflation as a way to monetize debts paralyzing our economy.

Paul Krugman has looked at the TIPS Spread, (top pic) basically the spread between the interest demanded by bond buyers on Treasury Inflation Protected Securities (TIPS), and regular Tressuries, and notes that recent widening of the gap between the two interest rates is because the rates for TIPS has fallen, as opposed to the rates for normal treasuries having gone up, which is kind of the opposite of what you would expect if the bond market was pricing in inflation.

In terms of international trade, we are seeing that the GDP of the Euro Zone has gone positive, and the US trade deficit jumped in September, (bottom pic) both of which indicate improvements in international commerce.

Basically, this news drove the dollar down, because traders were less interested in a safe haven, and oil fell to $76.35/bbl on Thursday’s strong inventory numbers.

Economics Update

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I’m not a gold bug, but Rolf Winkler’s graph pr0n is interesting. It could imply that gold has further up to go, or that the stock market is overvalued. Your call.

Slow news day today, with biggest news that the People’s Bank of China has modified the language it uses to describe its position on the Yuan, which implies that the currency will be allowed to appreciate over the near term.

In Australia employment increased by 24,500 in September, s not inconsiderable number for a country with a total population in the 22 million range.

Meanwhile, Japan appears to continue to be in a deflationary mode, with producer prices falling for the 10th month, down 6.7% year over year.

In currency, driven partly by the Bank of China statements, the dollar weakened to more than $1.50:€1.00, though it settled at $1.4961 when trading ended.

In either case, it appears that people are still betting on a recovering economy, as crude oil rose again today.

And for you gold bugs, as well as for the graph pr0n, gold hit a new record in trading today, $1,121.9/oz (troy).