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Thursday, May 31, 2012

Tough Luck On Optimists

GDP for Q1 revised to 1.9%, major story there is poor corporate profits, as in shrinking; see Table 11. Chicago PMI tanks to an SA 52.7. Last year's mean was 62.8.

NACM agrees:
It can now be said that the economy has experienced a third straight year of “spring swoon.” In 2010 this was provoked by a premature recovery that made the first quarter look stronger than it really was, and the 2011 culprits seemed to be the supply chain disruption from the earthquake in Japan, as well as the Arab Spring’s impact on oil prices. What seems to be the problem in 2012? One explanation holds that the European crisis has become this year’s “black swan” as it has affected everything from banks to exports. A second opinion contends there is nothing really wrong with the economic recovery, but that industry is just taking a breather. A third holds that the consumer is hibernating again as they react to everything from high jobless numbers to inflation.
The latest Credit Managers’ Index lends some support to all three scenarios, but mostly the data underpins the sense that consumers are in retreat.
We have no idea how that happened!  Fortunately the fix, which would be lower energy prices, is pending. NACM is not bad, but it's pretty much where it was a year ago in May, and given that we haven't had the devastating manufacturing impact of the 3/11 disaster, that's surprising. We are now comparing to a very weak period in the US economy.

In 2008 the popular kids club was all about credit impacts, but what crashed it was the Main Street economy which had gotten crushed by costs. Same old same old.  Credit can run the costs along somewhat, because people will borrow to buy. But costs have to stay in line with incomes.

Yield on US 10 year at 1.57? It could go lower. Earlier this year I had a summer low, and it was scary low. It was so scary I couldn't believe it. Well, this is scary but not as low as that scary low, so I guess we have to ride out the commodities correction and see what happens.

But... but... Jeremy Siegel warned us from his ivory tower back in March that the Fed would raise rates before 2014!

It's snark attack week on the price discovery channel.
The timing on the commodities collapse is the interesting question, I think. Do we get another run-up in prices before the collapse? Or do they collapse from here? Price stability would be nice, but the situation is awfully chaotic for the Fed to be making good decisions in.

I think the November elections bear on the outcome--a big Republican win biases policy toward deflation. A Democrat win (even if just the Presidency) biases policy toward hyperinflation. At least that's my take on it, and oil at least has tracked Obama's Intrade chart pretty well over the last year. Except that its recent decline has not been matched at Intrade, interestingly enough.

Glad to have you back, M_O_M.
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