miercuri, 22 septembrie 2010

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

88% of Americans say "Now is a Bad Time to Find a Quality Job"

Posted: 22 Sep 2010 07:44 PM PDT

The vast majority of Americans think this is a bad time to find a quality job. It's been that way since early 2008 when the number first touched 70%.

Please consider Recession or Not, U.S. Job Market Woes Persist.
Even as Wall Street rallies on the National Bureau of Economic Research announcement that the recession ended in June 2009, Gallup finds -- more than a year later -- that 88% of Americans believe now is a bad time to find a quality job.

Here's the question: "Thinking about the job situation in America today, would you say now is a good time or a bad time to find a quality job?"



The percentage of Americans holding these views about finding a quality job is as high now as it was a year ago, and higher than it was at this time in 2008, when the recession was fully underway.

Unemployment Rate Increasing

The unemployment rate component of Gallup's underemployment measure continues to rise, with the latest 30-day average hitting 9.7% (not seasonally adjusted) on Tuesday, Sept. 20 -- up from 9.4% last week, 9.3% in August, and 8.9% at the end of July.



Underemployment was also up during this period, reaching 18.8% on Sept. 20 -- increasing from 18.6% readings last week and in August, and 18.4% at the end of July.
Flawed Binary Choices

Unfortunately we do not have a real measure of changes over time in regards to how hard it is to find a quality job because the question only offered a binary choice.

A far better question would have allowed a range of options such as ...

  • Very good time
  • Good time
  • Neither good nor bad time
  • Bad time
  • Very bad time

The flaw helps explains the virtual flatline starting in late 2008. Nonetheless, the answers are not encouraging and the overall response certainly does not suggest consumers are about to go on a spending spree.

Unemployment Ticks Higher

One reason Gallup's unemployment numbers vary from the BLS numbers is the latter seasonally adjusts numbers while Gallup does not. This is not a flaw, but it does make comparisons different. Another reason the numbers may differ is the BLS excludes those who want a job but has not looked for one. This is an arguable flaw in the reported BLS number.

Furthermore, it would be far more helpful if Gallup posted numbers from a year ago for comparison purposes. Nonetheless, rising numbers are consistent with the vast majority of economic headlines as well as the Fed's panic unemployment statement on jobs as translated in Reading Between The Lies.

I expect to see unemployment make news highs later this year or next. That's when panic statements are likely to translate into panic actions.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Reading Between The Lies

Posted: 22 Sep 2010 12:13 PM PDT

On August 27, 2010 in a much Ballyhooed Speech at Jackson Hole, Bernanke said
The Committee is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly.

The issue at this stage is not whether we have the tools to help support economic activity and guard against disinflation. We do. As I will discuss next, the issue is instead whether, at any given juncture, the benefits of each tool, in terms of additional stimulus, outweigh the associated costs or risks of using the tool.

The FOMC will strongly resist deviations from price stability in the downward direction. Falling into deflation is not a significant risk for the United States at this time, but that is true in part because the public understands that the Federal Reserve will be vigilant and proactive in addressing significant further disinflation. It is worthwhile to note that, if deflation risks were to increase, the benefit-cost tradeoffs of some of our policy tools could become significantly more favorable.

The Federal Reserve is already supporting the economic recovery by maintaining an extraordinarily accommodative monetary policy, using multiple tools. Should further action prove necessary, policy options are available to provide additional stimulus. Any deployment of these options requires a careful comparison of benefit and cost.
Really?!

In light of yesterday's FOMC Statement inquiring minds are asking four key questions.

1. Did the economic conditions "deteriorate significantly"?

2. Is deflation a significant risk?

3. Does the Fed "have the tools"?

4. Did the Fed do a "careful comparison of benefit and cost" for further quantitative easing?

Answers

1A. Of course they did. You can see it in the Philly Fed index, in Housing, and in numerous other indicators. The only outlier was last month's ISM. The problem is the Fed does not admit conditions have deteriorate significantly. Instead the Fed talks of a slowdown and uses words like "sluggish". The Fed always pretends conditions are better than they are so as not to alarm the markets. In response, people rightfully accuse the Fed of telling lies.

2A. Deflation is not a risk per se. We are in deflation as measured by credit. Deflation is the result of piss poor economic policies by the Greenspan Fed, the Bernanke Fed, numerous banks and lenders, and Congress. The threat is not deflation, a much needed event. The threat is further insane policy actions by the Fed and Congress hoping to stave off the inevitable credit collapse.

3A. Clearly the Fed does not have the tools. If they did, we would not be in this mess in the first place! It's hard to say if Bernanke's statement is an outright lie or if he is delusional enough to believe the nonsense he is spouting. The safe action here is to assume Bernanke is a delusional liar.

4A. Clearly the answer is no.

Jackson Hole vs. Tuesday's FOMC Statement

Let's compare the key points above with select highlights from yesterday's FOMC statement.

Supposedly

  • "Household spending is increasing gradually"
  • "Business spending on equipment and software is rising, though less rapidly than earlier in the year"
  • "Bank lending has continued to contract, but at a reduced rate in recent months"

That does not look like rapid deterioration. That looks like slow improvement.

However, we do see this new statement thrown in out of the blue "Measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability."

Skilled Translation of Blatant Lies

My friend "HB" is very skilled at reading between the lies. He offers this accurate Translation of the FOMC Announcement, September 21.
FOMC: "Information received since the Federal Open Market Committee met in August indicates that the pace of recovery in output and employment has slowed in recent months. Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, though less rapidly than earlier in the year, while investment in nonresidential structures continues to be weak. Employers remain reluctant to add to payrolls. Housing starts are at a depressed level. Bank lending has continued to contract, but at a reduced rate in recent months."

Translation: "As far as we can tell, the economy is still up sh*t creek without a paddle."

FOMC: "The Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be modest in the near term."

Translation: "We have no clue what is going to happen next."

FOMC: "The Committee will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate."

Translation: Translation: "We'll keep our eyes fastened on the rear-view mirror, and stand ready to inflate even more at the drop of a hat. We already said that, but want everyone to rest definitely assured on that point."

The mandate, the mandate…they're mentioning it again here. The Fed has of course an impossible mandate – to keep the value of the currency stable and to keep unemployment low at the same time, all by tweaking a short term interest rate – it is patently absurd.

In reality, it can do neither the one nor the other – not to mention the fact that 'price stability' is not even a worthwhile goal. The price stability policy has enabled the biggest credit bubble in all of human history which in turn nearly destroyed the economy. It is high time it was thoroughly reviewed.
Reading between the lies is a fine art.

Please see the article for more select quotes and their true meaning.

Gold Monthly

By the way, there is someone else very adept at leading between the lies. I just happen to have a select quote handy.



It seems to me that gold does not believe the horse hockey spewing from Bernanke's mouth anymore than I do.

Just yesterday I was asked

Mish, your comment about gold doing well in times of economic stress is exactly the opposite of Robert Prechter's view. One of you is right and the other is wrong.

"Gold tends to be strong as long as the economy is expanding, per the study in the March 2008 issue of the Elliott Wave Theorist" Sept. 17th Elliott Wave Theorist, also Dec. 2003 EWT.

What do you say?
My response was "Who does it look like is right?"

Note that gold fell from 850 to 250 over a 20 year period with inflation every step of the way. Prechter is simply wrong.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Curve Watcher's Anonymous Investigates the Question "Is the Bond Bull Dead?"

Posted: 22 Sep 2010 03:30 AM PDT

Curve Watcher's Anonymous is looking at various long-term and intraday charts of treasuries and the stock market following Tuesday's FOMC meeting.

$TNX: 10-Year Treasury Yield Intraday Chart



Click on any chart to see a sharper image.

Note the initial spike higher in yields right on the announcement. This headfake is very typical of FOMC announcements.

SPY: S&P 500 Index Shares Intraday Chart



As with treasuries, the S&P 500 had an initial spike that quickly reversed. Both charts show fat tails.

Ultimately the rally failed (which would be typical given the flight to safety trade in treasuries).

Every FOMC meeting it seems we get the same fake reaction: The first move is typically a false move. Sometimes there is a double fake, but only rarely does the initial move keep on going. I would be interested to see comments on this.

Given that I seldom concern myself with intraday or even short-term action however, the more serious question is "Where to from here?"

2-Year Treasuries vs. the S&P 500



The pattern may not continue, but for quite some time rising treasury yields have generally been directionally aligned with rising equities. In three instances (the first three red boxes), a drop in treasury yields preceded (led) a subsequent drop in equities. The fourth box (where we are now) is unresolved.

2-Year Treasuries - Monthly Chart



Two year treasury yields have fallen to a record low, yet stocks have been rising.

5-Year Treasuries - Monthly Chart



The all time low in 5-year treasury yields is but a stone's throw away.

10-Year Treasury Yields - Monthly Chart



New lows in 10-year treasury yields are in sight.

To help put things into perspective here is a weekly chart of $TYX 30-year treasuries, $TNX 10-year treasuries, $FVX 5-year treasuries, and $IRX the 3-month treasury discount rate. The other symbols are yields.

$TYX, $TNX, $FVX, $IRX Weekly Chart



The chart depicts weekly closing values.

Is the Bond Bull Over?

Judging from 2-year treasuries or 5-year treasuries, pronouncements of the "death of the bond bull" were certainly premature. Moreover, given how weak the economy is, I think it is odds-on the 10-year treasury note touches if not breaks the previous yield lows.

Only the 30-year long bond yield seems reluctant to drop. It may not make it.

Regardless, no matter how you look at things, the treasury bull is nearing its end. 30 years is a long run!

However, bull markets tend to end in love affairs. That's how tops are made. Currently, nearly everyone despises treasuries except the banks and foreign central banks.

As long as sentiment stays negative on treasuries, there is room for long-dated treasuries to rally. There will be a time to short treasuries, but now does not seem like it.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
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