Category: Currency

Economics Update

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Retail sales numbers courtesy of Calculated Risk

It’s Jobless Thursday, and initial claims rose by 4,000 to 558K, with the 4 Week moving average increasing to 565K from 556.5K, and continuing claims, falling by 141K to 6.2 million, though for the latter, I’m not sure how much is people exhausting claims and moving to extended benefits, and how much is people finding work.

My money is on a negative interpretation of the data, what with retail sales falling in July. (see graph pr0n)

In Europe, Germany’s and France’s GDP both rose at an annual rate of 0.3%, which has people shouting that they’ve left the recession, but a recession is more than raw GDP numbers, and industrial output in the EU tanked in June.

I’m a pessimist….I see it as a pause, not a reversal, we still have more down to go.

All in all, when one considers the that 35% increase in bankruptcy filings in the 2nd quarter , the abysmal foreclosure numbers, and the fact that video game sales are down for the 5th straight month, I just don’t basis for anything like a robust recovery.

In T-Bill news, I’m very confused.

First, the 3-year notes rose, then the 10 year notes fell, and today, 30 year Treasuries rose, and I cannot make any sense of that. (bonds rising=yields falling, and vise versa)

If Treasuries continue to rise though, it might reverse the reverse the rise in rates that has a depressed mortgage demand.

In any case, the economic news from Europe had the dollar tanking versus the Euro, to $1.4295:€1.0000, and it also pushed oil marginally higher.

Economics Update

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Trade Deficit Graphs Courtesy of Calculated Risk

The lede today is that the Federal Reserve Open Market Committee (FOMC) med and has issued its report.

Rates are staying where they are, but they are winding down their bond purchase program, and they seem to be seeing a light at the end of the recession tunnel.

You can read their full statement here.

Unsurprisingly, their upbeat attitude pushed the prices down, and hence the yields up, on 10 year US treasuries.

Me, I’m not the optimistic type, and with home prices declining 15.6% year over year, as foreclosures push down prices, and there is also tremendous amount of Shadow inventory out there, where banks are not listing houses on the MLS in order to support prices.

In any case, mortgage rates are on the rise again, which has depressed mortgage applications, particularly those for ReFis.

In addition, further indicators of what is going on in the real economy, specifically back to school sales and pay raises are both trending in the direction of awful.

On the trade deficit, there has been an increase in the US trade deficit, (see graphs) but this is not an artifact of increased demand for goods and services, but of rising oil prices, which, by the way, were up today.

We are also seeing a deflationary spiral in Japan, where wholesale prices fell by 8½% year over year in July.

Still, it appears that the Fed’s optimism has driven the dollar up today.

Economics Update

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We have some pieces of good news. The 1st is that non-farm productivity rose at a 6.4% annual rate, the highest rate since 2003, the 2nd is that wholesale inventories fell at more than twice the predicted rate, and the 3rd is that the Hotel Industry’s Pulse index (HIP) rose in July, for the first time in 19 months.

Both of these numbers are generally positive, though the numbers for productivity include a reduction in hours worked and worker pay, and a reduction in inventories is only a good thing to the degree to which we get to the end of that process.

On the less encouraging side of the spectrum, we have demand for US Treasuries increasing, which indicates a return to risk aversion, and the Baltic Dry Index has fallen for a 9th straight day, which indicates a big drop in international trade.

In energy, we have oil falling below $70/bbl, and in currency, the dollar fell, particularly against the Yen.

Economics Update (Yesterdays)

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Temporary Help Numbers, H/T The Big Picture

I was going to post, but thunder storms came through, and even with a surge protector, I shut down.

It was a big day for central bank news, with reports that the Federal Reserve sending signals that it will stop purchasing Treasuries, which means that while rate hikes are not on the horizon, that quantitative easing (printing money) will be ended over the next few months.

Meanwhile, the granddaddy of zero interest rate central banks, the Bank of Japan, has decided to keep its rate at 0.1% (basically 0%), as the Bank Governor, Masaaki Shirakawa, says that he does not see a strong recovery once stimulus measures fade, “I can’t be confident about the strength of final demand after inventory adjustments and policy measures run their course.”

The Bank of Korea is of the same mind, with it keeping its benchmark rate at 2%, an all time low for the institution.

In employment, the decline in temporary workers seems to be moderating a bit (see graph).

In real estate, it looks like commercial real estate (CRE)is on a path to crash more catastrophically than residential real estate, Fitch Ratings predicting that delinquencies could exceed 5% by year’s end.

Basically, CRE is in a worse place than residential, because they typically take out 5 year mortgages that they have to refinance at the end of the term. If real estate prices go down, they cannot refinance, while in residential real estate, once you have a mortgage, you have one until the loan is paid off.

In China, exports have declined for the 9th straight month, and new loans fell, indicating that they are not out of the woods yet.

Meanwhile, in currency, there has been a flight to safety, driving up the US dollar, and to an even larger degree, the Japanese Yen.

In energy, oil fell, though it is still above $70/bbl, and gasoline prices have spiked, up 15¢ in the past two weeks.

Economics Update

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Yes, it does appear as if things may be bottoming in this pic, H/t Calculated Risk

So, initial unemployment claims fell by 38,000 to 550,000 (seasonally adjusted), which is good, but continuing claims* rose by 69K to 6.31 million, and this number does not include folks who have exhausted benefits, and those who are getting extended benefits, and any number much above 400K is bad news anyway, so this week is just less bad than expected.

We’ve also now had a 5th straight month of pending home sales increases, which seems like good news, though the foreclosure rate seems to still be on the “getting worse” side of the trend, (more in another post) and this includes the fact that somewhere between 30% and 50% of current home sales are in some manner distressed sales.

It’s likely that the continued rise in bankruptcy filings (click on pic for bigger picture), has a lot to do with this.

BTW, this is one of the problem that I have with the Obama/Geithner/Summers “stimulus”: it has very little to do with ordinary people in pain, and a lot to do with keeping the banks healthy.

The fake economy is a higher priority than the real economy.

Which is why the Institute for Supply Management’s Non-Manufacturing Index and the Manufacturing Index both fell again in July, while in the UK, where the stimulus was, you know, stimulus, and not a half baked plan which included inefficient tax cuts, and genuflecting to conservatives in the name of “bipartisanship”, manufacturing rose for the first time in 16 Months.

We do have some good news in real estate, with June pending homes sales increased for the fifth straight month, though I’m still of the opinion that this is largely vulture investors looking for cheap bargains.

Additionally, mortgage rates fell, though one cannot be too certain about how long that will last, as the yields on the mortgage backed bonds hit a 2-month high.

In any case, the good initial claims numbers strengthened the US dollar, which in turn pushed oil down from yesterday’s 6 week high.

*Full disclosure, this includes me…..Any engineering openings in the greater Baltimore area would be very much appreciated.

Economics Update, One Day Late

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Normally, I don’t comment on stock market swings, but the Dow closing above 9000 for the first time since January allows me to invoke this Dragonball Z meme, sorry.*

Yes, I know that this should have been done yesterday, but once I got all the links together, we had heavy thunder storms, and so I shut down for the evening.

In any case, yesterday was unemployment claims Thursday, and new claims are up by 30K to 554K, but note that these numbers are all seasonally adjusted, which means that they really are not particularly valid, since the July shutdowns of GM and Chrysler happened in the spring of this year, so for this week, and to a lesser degree next week, we are flying blind on these statistics.

That being said, I think that the numbers on continuing claims are still valid, or at least more valid, and those numbers fell 88K to 6.225 million.

In any case, 550,000 weekly new unemployment claims, or for that matter anything over 400,000 new claims, is a grim picture, and so we are still well within the “grimness event horizon.”

I would also note that downward pressure on the continuing claims numbers is coming from people who are exhausting their unemployment benefits, and as Peter Boockvar at The Big Picture notes, the number of people on emergency unemployment benefits, which cut in after 26 weeks, are way up, but they are not counted in the continuing claims numbers.

So, I would not put a whole bunch of credence in the normally reported unemployment numbers until probably the August 7 numbers.

In terms of more general economic news, we have credit card charge offs rising again in June, hotel revenues down and vacancies up, and on a conference call, the CEO of UPS noted that he is not seeing any signs of recovery in his shipping business.

On the plus side, Canadian consumer confidence rose in July, and there was a surprise jump in U.K. retail sales, largely on increased purchases of clothing, which means that the Brits are poor, but not poorly dressed.

In real estate, existing home sales rose in June, but it should be noted that 1/3 of these are distressed sales, either foreclosures or short sales, and it should also be noted that prices are still falling off a cliff, down 15.4% year over year.

Mortgage rates are marginally lower, probably in reaction to Bernanke’s testimony before the Congress.

In the area of news that sounds important, but that I cannot for the life of me suss out what it means, it appears that Swiss banks are running out of vault space for gold bullion.

Finally, oil rose and the dollar fell yesterday.

*OK, I’m really not sorry, not one little bit.

Economics Update

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Well, it was a tough day for bonds, with prices falling, and yields rising, on US Treasuries, as investors look more to the downside of the economy.

Interestingly enough, we had a lot of mixed signals from real estate, with the
Federal Housing Finance Agency saying that single family home prices rose 0.9% in May, though they are down 5.6% year over year, the U.S. architecture billings index down again in June, which indicates a continued fall in construction, mortgage applications rose last week, though they remain very low, and Standard & Poor’s losses on subprime mortgage backed securities was revised higher.

In the world of real people, the PBGC took over struggling auto parts maker Delphi’s pension obligations, which should come as a surprise to no one.

We do seem to be seeing signs of “green shoots” in other countries though, with the
South Korean GDP growing at the fastest rate in 6 years in the last quarter, and the Central Bank of Brazil cutting its benchmark rate by the smallest amount since beginning of the year, indicating that they think that their recession is largely over.

In the old standbys of energy and currency, oil ended above $65/bbl on reports of tight inventories, and the dollar hit a 7 week low on increased optimism.

Economics Update

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It appears that Ben Bernanke has a mentioned a secret plan to win the war in Vietnam protect the US dollar from inflation,* which will prevent inflation when the economy recovers, and this has driven Treasuries higher, and their yields lower:

Fed officials said in a report submitted as part of Bernanke’s testimony that policy will be “tightened” when the labor market improves, an economic recovery takes hold and pressures holding down inflation “diminish.” The comments follow a rally in stocks and a rebound in corporate earnings that have stoked speculation the worst recession in half a century is ending.

I’m not an economist, but I still think that one way to get out of this mess is to inflate our way out of this, which will have the effect of devaluing the debt which is holding back our economy.

I understand that it can (*cough* Zimbabwe *cough*) get out of hand, but it seems to me that too many people are under water for any recovery now.

Considering the fact that Americans are paying down their debt at the fastest rate since 1952, I do not see an alternative.

IMHO, We are in a deflationary trap, and creating inflation is the way out of it.

In any case, Bernanke’s statements about inflation boosted the US dollar, and his statements about recovery boosted crude oil prices.

*It’s a “Tricky Dick” Nixon reference, OK?

Economics Update

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The obvious lede here is that the leading economic indicators have risen for the 3rd straight month.

3 straight months is supposed to indicate that that a recovery is likely.

I’m not sure just what the recovery is supposed to be, as in the nonsensically titled article, “Commercial property price drop may signal bottom,” which takes the position that a -7.6% price decline in May, which followed a -8.6% decline in April, (-16.2% in 2 months!!), a -29% year over year decline, and -34.8% decline from peak is not the next tsunami in real estate and banking.

The fact that commercial mortgage defaults have hit a20-year high would seem to mitigate against any recovery any time soon in the commercial real estate sector.

In any case, commercial lender CIT, not to be confused with Citi, managed to cut a deal which staved off bankruptcy, and this calmed investors, which increased their optimism and appetite for risk, which
pushed the dollar to a 6 week low, and drove oil prices up, though retail gasoline, which lags oil prices, fell to an 8 week low.

Economics Update

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Housing starts rose from May to June, but as Barry Ritholtz notes, “The year-over-year data is much clearer: New Starts down 46%, Permits down 52%.” (The graph to the right illustrates this pretty well)

In either case, the housing data was better than expected, which drove oil up, bonds down (and thus their yields rose), and increased the spread between the 2 and 10 year notes.

The dollar rose today, but both the dollar and Yen have fallen more this week than they have since May, indicating an increase appetite for risk.

Still, the number that worries me is the fact that June video game sales are at a 9 year low.

When gaming geeks are cutting back, everyone is cutting back.

Economics Update

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Yeah, it’s actually yesterday’s….What can I say.

Since Thursday is new jobless day, we lead with the fact that new claims for unemployment fell to a 6 month low, though it must noted that these are seasonally adjusted figures, and the still accounts for the spike from the July shutdowns of the GM and Chrysler, which happened earlier this year.

We have two other indices moving in opposite directions, with the Philadelphia Fed industrial index falling, and the NAHB builder confidence index rising, but I’m more inclined to go with the Philly Fed, it’s an index of activity, not sentiment, and also because RealtyTrac is reporting that foreclosure filings hit a new record for the first half of the year.

Mortgage rates stayed pretty much flat over the last week.

In energy, retail gasoline continues to fall, hitting a 2 month low, and crude oil fell on demand concerns.

The dollar fell as well, on increased optimism by investors, who have moved their money to more speculative ventures.

Economics Update

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Well, in the real economy, we have the Federal Reserve releasing yet more down numbers on industrial production and capacity utilization.

The most of the rest of today’s (and yesterday’s, I was not blogging yesterday) news today basically has to do with inflation, with increasing energy prices being responsible for increased retail and wholesale sales, producer prices rising 1.8% in June, and Consumer price rising 0.7% in June, though for the CPI, it was only 0.2% when the more volatile food and energy segments were taken out, and the CPI was down 1.4% year over year, the biggest drop since 1950.

We also have the yield curve slope hitting highs.

The yield curve slope is the difference in interest rates between 2-year and 10 year treasury bills, and is an indicator of market concerns about inflation, so it means that the bond market is seeing inflation out there in the medium term.

I’m not sure where this inflation would come from though, because this year’s back to school sales season is looking as anemic as the 2008 Christmas shopping season.

In any case, good corporate returns for Intel, and obscene returns for Goldman Sachs have left people optimistic, and so the US dollar fell, and, with the help of an anemic inventories report, oil rose above $61/bbl.

More Footsteps Toward the Exits

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Specifically, this regards the US dollar, and the leader of the Japanese opposition party, which is currently leading in the polls, is saying that, “the nation should consider shifting its $1 trillion of foreign reserves away from the dollar and buying International Monetary Fund bonds,” and we have increasing evidence that China is taking baby steps away from the US dollar too, increasingly moving toward bilateral trade deals in which the currencies in question are increasingly directly exchanged, as opposed to dollar denominated.

I think that there has always been a synergy between the US financial industry and the US dollars status as the world’s preeminent reserve currency, and what has shaken it lately is not the US deficits, but the spectacle of a dysfunctional and corrupt finance industry which has our government so in its thrall that it tarnishes both the industry and the currency.

Economics Update

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Interesting day. Not a whole bunch of news, but what I saw looks like it might mean more than it seems.

First, we have 10-year treasuries spiking, because bond investors believe that the economy will not be recovering this year.

We may also have S&P warning of a lending bubble in China, with the possibility of a “sharp deterioration in banks’ assets,” over the next few months as a result.

I think that if the bond market is right, and that is a big if, then the expansion of lending in China does have a real possibility of a significant hang-over in the next few months.

It does seem that pessimism is ruling energy and currency too, with retail gasoline having its biggest 2 week drop since the end of last year, and crude oil closing at a 2 month low.

Additionally, demand for a safe haven has driven the dollar higher.

Economics Update

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So, the Michigan swurvey of consumer sentiment is down. Perhaps the average person knows something that the “green shoots” folks don’t, or maybe it’s that average people pay more attention to the unemployment rate, which is a lagging indicator.

One interesting thing is that U.S. trade deficit in May fell to its lowest level in a decade, and it was falling imports, along with an increase in exports, that appears to have driven this.

The implication here, assuming that this is not a 1 month blip in the stats, is that the US is lagging the rest of the world in economic recovery, which is not what it has been historically.

It does seem that investors are heading for safety, which drove bond prices up, and bond yields down.

These concerns have led to the biggest weekly drop in oil prices in 6 months, and a strengthening of the Yen and dollar, as a result of demand and safety concern.

Economics Update

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Thursday is new jobless claims day, and new jobless claims fell by 52K, to 565K,, bringing the number down below 600K for the first time since late January of this year. (Full disclosure here, one of those 565,000 people was me, if anyone knows of mechanical engineering openings in the greater Baltimore, MD area, it would be greatly appreciated.)

The other shoe dropping is that continuing claims hit an all time high, rising by 159 to 6.88 million.

Also note that these numbers are the seasonally adjusted numbers, and actual claims increased by 17K to 577.5K, and the seasonal adjustment includes a correction for auto factory shutdowns for model changes, which occurred early this year for GM and Chrysler, because of the bankruptcies.

Ain’t statistics grand?

A slightly more realistic metric than the massaged jobs claim data is the fact that retail sales missed expectations in June.

The fact that retailers were selling less than expected led to wholesalers drawing their inventories to the lowest levels since August 2007.

The big news in central bank land is that the Bank of England neither cut its rates nor increased its bond purchases, which had the effect of driving treasuries down, and their yields up.

In any case, it appears that the bogus job numbers (see above) have halted the slide in crude oil prices, with prices settling at $60.41/bbl.

The Bank of England’s move not to cut rates or buy bonds (print money) any faster had the effect of weakening both the dollar and the Yen.

Economics Update

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Consumer borrowing has fallen for the 4th straight month, as households continue to deleverage.

The real question is whether this is a long term or a temporary change in consumer behavior.

In banking, interest rates are falling again, with yields on treasuriess falling as more people flock to their relative safety, and falling interest rates on mortgages have boosted mortgage applications.

In currency, concerns over unrest in China have driven both the Yen and the dollar up vs the Euro, though the dollar is has fallen to a 5 month low vs. the Yen.

I think that the currency traders are more sanguine about Japan than about the US.

In energy, increased inventories and concerns about future demand drove the priuce of oil down to near 60.

Economics Update

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So much for green shoots. We now know that delinquencies in loans and credit cards have hit an all time high, and records for this have been kept for 35 years.

We’re also machine orders in Japan falling for the 3rd straight month.

So, we are seeing a continuing pullback in both manufacturing and consumers, so perhaps the focus on reviving the banking incumbents was a bit short sighted.

In real estate, we have the pending home sales rising slightly, and mortgage rates falling, though it must be noted on all home sales reports that the percentage of distressed sales, foreclosures and short sales, has been increasing, so any increase in sales reflects this phenomenon.

In any case, fears of a continued recession have pushed up the dollar and the Yen, while depressing the price of crude oil.

Economics Update

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Slow news day on the economic front.

We are seeing a big drop in lending by the SBA to small businesses, largely because in the SBA guaranteed program are refusing to lend.

Additionally, we are seeing the Federal Reserve’s plan to purchase mortgage backed securities opening much smaller than originally stated, $20 billion, as opposed to more than $100 billion.

I think that a lot of this is because the relaxation of accounting rules make it easier for executives to write themselves big pay checks with all the crap remaining on their books priced as gold, or if not gold, at least copper.

In any case, the dismal job numbers, are driving concerns that the economy has not yet hit bottom, which drove the dollar up, and oil down.