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Thursday, August 16, 2012

Blah, Blah, Blah

Sentiment is pretty good on WS, but Main Street still seems to be lagging. Rail traffic shows the consumer slowdown pretty clearly. It's August, but container (usually foreign shipments) traffic is only up 4.6% YoY and 5.7% YTD. As of July 12th it was up 7.3%. June 14th was 6.1%.  August is usually a huge port traffic month with holiday selling season goods rolling into those ports, destined for transport to stores and warehouses. It's going to be subdued this year.

I suppose consumers could suddenly start buying, and all this could turn around. It's relatively unlikely for 65th percentile and down in view of the higher food and gas prices. People who budget are going to be feeling the squeeze.

Philly Fed Survey is out, and there was nothing encouraging in it. The sustained downturn has naturally led to increasing cuts in employees and average workweek. Unfilled orders dropped 16.2 this month in comparison to last month's 9.5 drop. Shipments dropped 11.3 compared to the prior month's drop of 8.6. It is too soon to say that this is close to turning around. But it is only one manufacturing survey. Prices paid rose 11.2 compared to the prior month's +3.2. That indicates that conservatism is likely to continue.

A lot of chatter about decreasing foreign investment in China. Not a surprise. Consumer prices took a tiny uptick in July in China, but the trend change was very steep at + 0.7, basically on food. As to FDI, this release might hold some clues:

New residential construction is out. Permits are rising, starts fell a tad, and completions are up 7.4% YTD and 5.4% YoY. Under construction is up 17% YoY. The real contribution is in the activity, so peg it at 10%? However housing construction is at such a low rate by historic terms that it doesn't offer us that much hope:

Another way to look at this is that in a growing economy, this helps. But it is not enough, relatively, to keep us out of a contraction.

Initial claims remain right in line. School systems are beginning to start up, and that will help to get more money flowing through the economy. Insured unemployment continuing claims are not mounting, which is a big asset. 

One of the more interesting stories currently is Brazil's new stimulus attempt. They are selling development rights for transport arteries, and raising the retirement age. If the bidding is good and foreign entities buy the rights and build out the infrastructure, it could prove to be a very effective stimulus. It would be paid for in later years by lower growth, because of course those companies will want to make a profit.  But on the other hand, the government doesn't have to spend any money, so it could be something of an offset. I'd be worried, though. I'd be afraid that public pressure would prevent getting the profit off the investment at some future date.

Comments:
MOM,

If you are right, and we are already in recession, when will the S7P 500 figure it out?
 
"Blah, Blah, Blah"

August 16, 2012
Port Traffic Stagnation Continues

Stagnation.
Stagnation.
Stagnation.
Stagnation.
 
We are not in a contraction yet.

On another subject:

Bond yields have sharply risen in the last 15 days. See $TNX, $TYX on stockcharts.com. There has been quite a divergence between stocks rising and bond yields declining previously. Most people say bonds are always right and the stock market will catch up to low bond yields. Nothing is always right. And, it always depends on your time frame.

 

I'd guess that rising bond yields and rising equities (along with a wobbly dollar) share a common cause. Traders are anticipating QE3.

I think the markets would have to go down more before the Fed feels comfortable cranking up the presses, but I expect they'll do it eventually.

 
Americans eating their trash?

http://imgur.com/K6oDP
 
Hello....re Squire's 2nd comment....

There's talk that larger corporations have increased (or are hedging in anticipation of) debt issuance with those proceeds being used for "share positive" operations (think share buybacks, etc.). I agree, I don't think we're in a contraction. But I think a meaningful rise in yields will put a hurt on forward earnings multiples.

Anon PA
 
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