Monthly Archives: April 2008

2008-04-14 US Economic Releases

Posted on by

2008-04-14 Advance Retail Sales

Advance Retail Sales (Mar)

Survey 0.0%
Actual 0.2%
Prior -0.6%
Revised -0.4%

2008-04-14 Retail Sales Less Autos

Retail Sales Less Autos (Mar)

Survey 0.1%
Actual 0.1%
Prior -0.2%
Revised -0.1%

2008-04-14 Retail Sales YoY

Retail Sales YoY

Survey n/a
Actual 2.0%
Prior 2.9%
Revised n/a

Down, but not yet at ‘traditional’ recession levels, particularly with exports as strong as they are.

2008-04-14 Retail Sales TABLE

Retail Sales TABLE

From Karim:

Recent trend intact and in line with confidence surveys:

Nominal gwth zero for Q1 consumer spending

  • March retail sales +0.2%, +0.1% ex-autos, 0.0% ex-gas, and +0.2% for control group (autos, gas, and building materials)

  • Building materials down 1.6% shows housing decline continues to exert impact

  • Following items also negative: electronics -0.4%, furniture -0.3%, clothing -0.5%. Food +0.4% and gas +1.1%, lead the way.

  • Despite minor upward revision to February, 3mth annualized rate of change 0.0% for overall retail sales and -2.2% for retail sales ex-gas.

2008-04-14 Business Inventories

Business Inventories (Feb)

Survey 0.6%
Actual 0.6%
Prior 0.8%
Revised 0.9%

2008-04-14 Manufacturing & Trade Inventories YoY

Business Inventories YoY

Survey n/a
Actual 5.2
Prior 4.9
Revised n/a

Inventories still very low for a recession, if we are in one.

Share

Re: Comments on G7 Statement on FX

Posted on by

(an email)

>
>   On Sun, Apr 13, 2008 at 11:41 PM, Craig wrote:
>
>   Ok. So then it seems to me that it’d be a big change
>   for foreigners to panic on USD assets. Not saying it
>   couldn’t happen, but it’d need a big catalyst. In the
>   mean time, I suppose foreigners will peck away,
>   the dollar will do what it does and purchasing power
>   parity will provide some elastic limits on downside.
>
>   True?
>
>   Craig
>
>

Ironically, the ‘fundamentals’ of the $ are pretty good – purchasing power parity is good, the govt deficit is relatively small, and the relatively difficulty of getting $US credit helps as well.

But the technicals remain extremely negative (we’ve cut off the traditional buyers) CBs, monetary authorities, and chunks of our own pension funds.

So it’s not so much as concern about ‘foreigners’ in general, but specifically CBs and monetary authorities no longer accumulating perhaps $50 billion a month, and no one else stepping in to replace them, so instead the $ goes to a level where the trade gap goes away.

And that level of the $ can be anywhere, as while the correction process is ‘using’ the level of the $ to get the trade gap to 0, the trade gap is not that strong/precise a function of the level of the dollar.

It’s an example of a ‘cold turkey’ adjustment (the sudden cut off of all the $ accumulators at once) with no prior thought to the subsequent adjustment process, apart from the limited understanding that it would somehow drive exports, and the mistaken notion that exports are a ‘good thing.’

I do think the rest of the G7 thinks the ‘answer’ for the G7 is to convince the Fed to stop cutting rates.

As I mentioned a while back, the Fed has become an international ‘outlaw’ seemingly prodding the world to follow it in an international race to the bottom regarding inflation. It started the game ‘who inflates the most wins’ with their ‘beggar they neighbor’/mercantilist weak/$ policy to ‘steal’ (or maybe in the way the Fed sees it ‘reclaim’) world agg demand and support US gdp with US exports at the expense of foreign gdp.

Now it seems this policy is backfiring. The weak $ has seemingly raised food/energy prices for the US consumer, weakening the financial sector as less income is available for debt service as well as other consumption, and while exports have helped it’s only been enough to muddle through. And US inflation is sprinting ahead as well.

So the Fed rate cuts have not been seen to have helped the financial sector, the consumer, nor the US economy in general.

The Fed is being seen as destabilizing the world’s economy, weakening the US financial sector, depressing US consumer demand, depressing foreign domestic demand, and driving US to dangerous levels.

Once again it seems it’s being demonstrated that weakening your currency and inflating your way out of debt is not a road to prosperity.

And world markets are pricing in further US rate cuts.

Good morning!

Warren

Share

Money (USD)

Posted on by

My take on the USD:

It was at a level based on foreigners wanting to accumulate $70 billion per month which also = the US trade gap (accounting identity).

Most of that desire to accumulate came from foreign CBs trying to support their exporters, oil producers accumulating USD financial assets, and foreign portfolios allocating some percentage of assets to USD assets.

Paulson cut off the CBs calling the currency manipulators and outlaws.

Bush cut off the oil producers by being perceived to be conducting a holy war.

Bernanke scared off the portfolio managers with what looks to them like an ‘inflate your way out of debt’ policy.

And US pension funds are diversifying out of USD into passive commodities and foreign securities.  Looks to me like the desire to accumulate USD overseas is falling towards zero rapidly.

This means they sell us less and buy more of our goods, services, and our real assets.

Volumes’ of non oil imports are falling and of oil imports are flat.

The dollar has gotten low enough for the trade gap to fall from over $70 billion to under $60 billion per month (February was an aberration IMHO).

The dollar will ‘adjust’ until it corresponds with a trade gap that = desired foreign accumulation of USD financial assets.

I see no reason to think the trade gap should not go to zero.

The USD probably has not traded down enough to reflect the zero desire to accumulate USD abroad.

The ECB has serious ideological issues regarding buying of USD.  Not the least of which they don’t want to give the impression that the USD is ‘backing’ the euro, which would be the appearance if they collected USD reserves.

The ECB has an inflation problem, and they believe the strong euro has kept it from being much worse.

The policy ‘shift’ might be the process of ending of US rate cuts at the next meeting by cutting less than expected.

This might first mean only a 25 basis point cut when the market prices in 50 basis points, followed by no cut when markets price in 25 basis points, for example.

This would firm the USD and soften the commodities near term, as after the last 75 basis point cut when markets were pricing 100 basis points.

But this does not change the foreign desires to accumulate USD as direct intervention by the ECB would, for example.

So the adjustment process that gets us to a zero trade gap will continue.

And it will continue to drive up headline CPI with core not far behind.

And US GDP will muddle through in the 0% to +2% range with weak private sector consumption being supported by exports, US government consumption, and moderate investment.

Share

Food

Posted on by

On the current food shortages and protests created by biofuels (as feared):

The mainstream ‘Malthusian’ world is one where the population grows to the size of the food supply.

Now we have a new twist on that theme.

The monetary system burns up the food supply as fuel to the point where the marginal agent facing starvation has sufficient political influence to stop this process.

The first phase is happening as politicians around the world are allocating more funds to people who can’t afford to eat.

This only drives up the price further as markets continue to allocate by price, with no sign of a sufficient supply response to keep many from starvation.

In fact, newly emerging nations are producing income distributions that allow their higher income groups to reduce the aggregate food supply by both consuming more fuel and also by increasing meat consumption.

I expect a lot worse before it gets better.

Share

2008-04-11 US Economic Releases

Posted on by

2008-04-11 Import Price Index MoM

Import Price Index MoM (Mar)

Survey 2.0%
Actual 2.8%
Prior 0.2%
Revised n/a

2008-04-11 Import Price Index YoY

Import Price Index YoY (Mar)

Survey 13.7%
Actual 14.8%
Prior 13.6%
Revised 13.4%

This is a very strong inflation channel.

2008-04-11 U. of Michigan Survey

U. of Michigan Confidence (Apr P)

Survey 69.0
Actual 63.2
Prior 69.5
Revised n/a

From Karim:

  • Michigan survey takes out low from 1990-91 recession; prior lowest point was March 1982. Decline was from 69.5 to 63.2

2008-04-11 U. of Michigan Survey since 1980

U. of Michigan Survey since 1980

Interesting how low ‘confidence’ is in light of how much better GDP and employment is doing now vs then.

Part of it is the rising influence of the media, and part are the factors behind the export boom that are causing us to consume less and instead export more of our own output.

The channel this time around is rising costs for food and energy take away the purchasing power power needed to buy the rest of our output, and foreigners get to consume it instead via US exports.

  • 5-10yr inflation expectations move to higher end of recent range

2008-04-11 U. of Michigan 5yr Ahead Inflation Expectations

5yr Ahead Inflation Expectations

Yes, it’s part of the equation, as above, and the FOMC ‘knows’ it can’t allow inflation expectations to elevate.

While the Fed gives the 5 year more weight, it also watches the one year, particularly when it spikes.

2008-04-11 1yr Inflation Expectations

1 yr Inflation Expectations

In today’s report the one year survey hit 4.8%, they highest since one 4.8% reading in 1990. The only time it’s been higher was during the ‘great inflation’ of the 70’s- early 80’s.

  • Worsening confidence also visible in job leavers component of employment report-% of workers who voluntarily leave their jobs (chart 3). Tends to rise when times are good and vice-versa. When declining, tends to be associated with lower wage growth and core CPI (an important piece of the output gap argument).

Other comments from Michigan survey make from grim reading:

  • There have only been a dozen other surveys that have recorded a lower level of consumer sentiment in the more than fifty-year history of the survey.

  • Consumers expected gains in their nominal incomes of just 1.0% in April, the smallest gain expected in three decades.

  • Three-in-four consumers expected bad times financially in the overall economy during the year ahead, the largest proportion recorded since 1980, and the fourth highest proportion in more than fifty years.

  • A record 41% of all home owners reported that their home had lost value during the past year

  • Just 5% of all consumers expected the unemployment rate to decrease in the year ahead, the smallest proportion ever recorded.

  • Uncertainty about future income and job prospects has had a devastating impact on buying plans, with consumers citing these uncertainties three times as frequently as they did a year ago. Purchase plans for furniture, appliances, home electronics, and similar goods fell to their lowest level since the 1990 recession, with one-third of all consumers specifically mentioning their uncertainty about jobs and incomes as their primary reason. Vehicle buying plans also fell to their lowest level since the 1990 recession, with one-third of all consumers citing uncertainty about jobs and incomes as well as the future price of gasoline.

That’s the Bernanke vision as per his latest congressional testimony- less consumption and more exports and investment. Looks good, feels bad.

Share

AP: Budget deficit up due to spending increases

Posted on by

While revenue growth is slowing, it is still positive.

Might be the suspected 2007 spending that was moved forward to 2008 that is helping spending increase so much and support GDP into the election. And the new fiscal package kicks in soon as well.

Government spending, this year, should top $3 trillion – still a modest percent of GDP by world standards.

Federal budget deficit at all-time high for first half

by Martin Crutsinger

The federal deficit through the first half of this budget year is at an all-time high, underscoring the pressure the budget is coming under as the overall economy slumps.

The Treasury Department reported Thursday that the deficit through the first six months of the budget year totaled $311.4 billion (euro196.2 billion), up 20.5 percent from the same period a year ago. That was the largest deficit for the first half of a budget year on record, surpassing the old six-month mark of $302 billion set in 2006.

The Bush administration, when it sent its budget proposal to Congress in February, estimated that the deficit for the whole year will total $410 billion (euro258.3 billion), putting it very close to the all-time high in dollar terms of $413 billion (euro260.2 billion).

However, private economists are forecasting a much bigger deficit, reflecting the U.S.’s current economic problems and a $168 billion (euro105.83 billion) stimulus package that Congress has passed in an effort to jump-start growth. Rebate checks will be mailed to 130 million households starting next month in an effort to boost consumer spending and make sure that any downturn is short-lived and mild.

The Treasury’s monthly budget report showed that revenues for the first six months of the budget year, which began on Oct. 1, totaled $1.146 trillion (euro720 billion), up 2.2 percent from last year. However, government spending was up by a much faster 5.7 percent, rising to $1.457 trillion (euro920 billion). Both the spending and the revenues were records for the first six months of a budget year.

The difference between revenues and spending left a deficit of $311.4 billion (euro196 billion), compared to a deficit for the same period in the 2007 budget year of $258.4 billion.

Share

Market update

Posted on by

Inflation ripping:
Oil up, grains and commodities up, and dollar down, as continued US demand at higher prices for energy transfers more $US to foreigners who don’t want to accumulate them.

Weakness continues:
Stocks down and credit spreads looking wider, and claims lower but have nonetheless worked their way higher since year end and only rising exports keep GDP at ‘muddling through’ levels.

Interest rates down:
As markets continue to believe Fed won’t even begin to act vs inflation, and will do ‘whatever it takes’ to narrow the output gap to zero, in total contrast to mainstream economic theory.

Share

Re: Pension fund passive commodity strategies

Posted on by

(an interoffice email)

>
>   On Wed, Apr 9, 2008 at 4:05 PM, Pat wrote:
>
>   What about the continued allocation increases from non-end
>   users of commodities? From what I’ve read allocations by
>   pensions have gone higher even with the rising prices as well
>   as a whole host of new entrants (ETFs, HF’s, etc…) Are these
>   compounding the problem or are they the root of the
>   commodity price inflation?
>
>

passive commodities are part of the landscape for sure:

  1. put upward pressure on competitive commodity spot prices
  2. put downward pressure on the $
  3. add to gdp
  4. in general, help ‘monetize’ saudi crude price hikes
  5. put upward pressure on crude futures
  6. serves no public purpose
Share