Tuesday, March 20, 2012
Pretty Good At Reading Tea Leaves
Treasury stats don't lie. New residential construction report is out for February, and it is not particularly strong. Under construction is up over the year, but only about 5%, which is only marginally statistically significant. I think there is about a 4% minimum real increase, but we needed a tad more. The Jan/Feb total of starts is up 25% over the previous year, but what about the pace of building? On a seasonally adjusted basis, we are not showing gains from November-December. The authorized but not yet started total is not statistically different from last February's. The south has been the strongest growth region and winter weather has the least effect there, so the spring trajectory may be disappointing.
Concern is growing over Chinese growth. It turns out that the ore/steel axis is showing some weakening. No kidding - is this really news? Oh, gee, now concerns over lower profit margins suddenly emerge? Australia is going to see some headwinds from this, so they responded by passing a big tax increase on iron and coal. The brilliance of this move cannot be exaggerated. I guess it's time to bail out of the Aussie dollar. Others think so too.
India is still struggling with its fiscal problems, especially the current-account deficit. Thus the gold tax moves there have caused a strong push-back.
There's no doubt that many commodities are set up for a steep fall. High inventories are not a new problem - when the mood changes suddenly traders start looking at what's in the warehouses. The world is not going to see strong international trade growth when consumers in China and India are looking to buy gold.
Singapore is hanging in at "equivocal". February looks better - I'm waiting for February industrial production. The timing of the Chinese New Year may have distorted January totals.
An earlier Easter in the US will probably make March retail look somewhat decent, but retail growth is slowing considerably on mostly gas prices.
Don't expect this all to make energy prices go down much if at all. Energy prices are now being controlled by monetary flows, which will increase for months, not decrease, as the amount of cash on deposit at ECB is slowly withdrawn and recirculated back out via Eurobanks repaying loans.
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