Economy

I’m opening this thread up to discuss today’s market actions. There are plenty of cross-currents out there right now, and things are tricky to read, especially if one is trading.

The supposed reason for this downdraft is disappointment in the Fed’s actions…too cautious and stingy for a market that had priced in some more thin-air money.  Maybe a lot more.  Here are two quotes that capture this sentiment:

Economic cross-currents are confusing retail investors and central bank policy makers alike.  We lurch from recovery to double-dip as new evidence emerges, while policy makers grapple with fears of inflation in the presence of evidence of deflationary weakness.

Confusing matters all the more, the US and Europe are heading in different intellectual directions.

In the UK and Europe, the highest bankers of the land are setting the stage for both monetary and fiscal tightening.

One of the great things about government data is the entertainment value it provides.  Among the fuzziest of numbers are new home sales, which are subject to both sampling bias and opaque seasonal adjustment factors.

Perhaps a few other weaknesses are among them as well, such as counting contracts signed but never accounting for failed closings (which happens regularly).

With that said, let’s turn our attention to the government new homes sales announcement, as faithfully reproduced by the mainstream media, which sent the stock markets higher.

Recently, member dbworld posted this statement to the comments section of an Insider report:

I’m not happy when Chris’s blog becomes a daily market speculation site. I prefer the plan and prepare topics or to be made aware of alert conditions.  … stay on course .. keep focused on the important things/data. I know the news is spun in different directions and come here to get away from it!

I always appreciate feedback and thought I’d use this opportunity to revisit the reasons why I focus on the things I do.  Instead of re-writing these ideas, I will share a piece that I wrote on October 5, 2008 that does the trick and is worth revisiting. 

There’s not much in here that I would substantially change, so I’ll just re-post it “as is” so that you can assess my consistency and accuracy.

Stock futures took off last night a bit later the usual appointed hour, occurring, for the most part, at 4:30 a.m. instead of 3:00 a.m.

The S&P futures are now up 13.75 at 9:09 a.m.

As usual, the financial press is searching to make fundamental sense of this mess but failing at the task.

NEW YORK (MarketWatch) — Treasury prices stayed down and the dollar remained under heavy pressure against the euro on Thursday after the Labor Department said weekly jobless claims rose 37,000 to 464,000, higher than analysts expected.

Unexpected strength in the unemployment claims *should* have caused stock futures to go down, but they didn’t even wiggle at the news.  Further, the notion that Treasuries “stayed down” is a vast overstatement, as the ten-year yield is only 7 ticks off for the day and remains precisely where it was before, during, and after the release of the unemployment claims. 

Today I want to connect a few dots that I feel indicate that the US is perilously off course and slipping behind.

We begin with an interesting article In Minyanville (found by user Rickets) that I will be turning into a full report soon.  It makes the case that US debt service payments are negligible on the basis of GDP and that therefore we are not near any sort of funding crisis or limit.

The recently-released Federal Reserve minutes of the June 22/23 meeting revealed that the Fed is confused and concerned about the economic recovery.

Yes, there are glimmers of light in the reams of data, but there are also plenty of warning signs in equal, if not greater, measure.
 
As an aside, I happen to think it is a very good idea to read the entire Fed minutes from time to time, and not just the shorter press releases.  The longer minutes provide the important insight that Fed meetings consist of about 65 people, sitting around in a conference room listening to report after report about economic trends for two whole days.  By the end of it, they must be exhausted and a bit numb.

It’s earning season again, and ‘investors’ are going to be fueled by reports of strong earnings and earnings growth in the banking industry, especially among the giants.

Some of these gains will be real, and some will be due to accounting gimmicks that are quite difficult to assess by any but fully-dedicated analysts.  For example, massive swings in provisions for loan losses are now a normal part of the bank-earnings management cycle, which makes accurate comparisons between periods quite difficult.