Monday, October 31, 2011
Thursday, October 27, 2011
The U.S. economy grew in the third quarter at the fastest pace in a year as Americans reduced savings to boost purchases and companies stepped up investment in equipment and software.
Gross domestic product, the value of all goods and services produced, rose at a 2.5 percent annual rate, up from 1.3 percent in the prior three months, Commerce Department figures showed today in Washington. Household purchases, the biggest part of the economy, increased at a 2.4 percent pace, more than forecast by economists.
Money given by the government to its citizens.
- Everyone (specifically youth) with the same chance
- A needed shared service
- A positive return on investment (education, security, infrastructure, etc...)
Wednesday, October 26, 2011
Here is a fact that you might not have heard from the Occupy Wall Street crowd: The incomes at the top of the income distribution have fallen substantially over the past few years.That's right kids... in 2009, the top 1% of earners made only 13.2x more on average than the rest of the top 50% (i.e. by definition those that are themselves better off than the average), down from a peak of 16.3x in 2007. Ignore the fact that this is still almost twice the level seen in the early 1980's.
I should also point out that the title of his post is "The Rich Get Poorer", so before I sign off why don't we quickly take a look at the definition of poorer:
- Having little or no wealth and few or no possessions.
- Lacking in a specified resource or quality: an area poor in timber and coal.
- Not adequate in quality; inferior.
- Lacking in value; insufficient.
- Lacking fertility.
- Undernourished; lean.
- Eliciting or deserving pity; pitiable.
Tuesday, October 25, 2011
Monday, October 24, 2011
Here are the specifics of seasonality: Imagine we start with two $10,000 accounts, and use them to make investments in an S&P 500 Index fund. One account invests in one 6-month period, the other invests in the remaining 6-month period. Account A is invested from November 1st through April 30th each year, while Account B is invested from May 1st through October 31st.
Here are the numbers:
• Account A portfolio grew from $10,000 to over $438,967. That is a 42-fold increase.
• Account B portfolio barely doubled to $22,659.
Sunday, October 23, 2011
The WSJ details:
It looks as if, despite everything, gross domestic product picked up in the third quarter, easing fears that the U.S. was on the cusp of another recession. But that doesn’t mean the economy is anywhere near where it needs to be.As the last portion of the article outlines, experts quibble where potential GDP is these days. I (a non-expert) will outline an alternative way to project potential GDP... past performance. While past performance does not guarantee future performance for investments, it also does not guarantee where the economy should be today. That said, it does represent a growth rate that Americans and American systems (tax levels, spending, debt accumulation) were used to dealing with / expected.
Economists expect Thursday’s GDP report from the Commerce Department will show the economy grew at a 2.7% annual rate in the third quarter. That would still leave economic output 6.7% below what the Congressional Budget Office estimates its potential is. In other words, in a world where employment and economic activity were as high as they could be without the economy running into inflationary trouble, the U.S. would be producing about $900 billion more in goods and services a year than it is now.
Experts quibble about exactly where potential GDP is these days, and that’s especially true in light of all the damage the economy has suffered.
Below is a chart outlining just that... real GDP going back to mid-1971, along with what real GDP would look like today if it grew at the 3.1% pace of growth it saw on average between June 1971 and June 2007. In addition, the yellow line is the difference between the two.
In this case, the differences implies current GDP is 11% below potential.
Friday, October 21, 2011
Leading Economic Indicators
Employment Reports Mixed
Finance and Government... Such a Drag (On Jobs)
Manufacturing Expands in September
RIP Steve Jobs
And your video of the week. Sublime with Badfish.
My buddy Sami Mesrour (from Blackrock) had a write up earlier this month titled Follow What I Do, Not What I Say; Consumer Spending and Consumer Confidence that outlines the surprise rebound in retail sales (bold mine):
The US consumer is feeling down. Several indicators of confidence collapsed over the summer with the declines beginning in May as job growth slowed, and the bulk of the drop in sentiment occurring during August. It is likely that the intense focus on the country’s deficit problem and the attendant prospects of lower government spending going forward were the main drivers in the decline of consumer expectations. Forecasters are concerned over this development because of what it implies for the growth of consumer spending—historically sentiment has been a good reflection of sales in the US.
This time, however, something strange is going on: consumers are apparently saying one thing, but doing another
- Borrowed time (ability for the consumer to once again borrow to spend)
- Income distribution (the rich keep getting richer and are driving spending, while individuals struggling are driving the confidence surveys lower)
- Transfer payments (outlined at EconomPic here)
- Foreclosures (squatters and those moving home with their parents are effectively not paying rent, increasing their ability to spend on goods)
- Nominal goods (very closely aligned with retail sales)
- Nominal consumption (includes the less inflationary services sector)
- Real consumption (i.e. less inflation)
- Real per capita consumption
Thursday, October 20, 2011
The index of U.S. leading economic indicators increased in September at a pace that suggests a slower rate of growth in the coming months.
The Conference Board’s gauge of the outlook for the next three to six months climbed 0.2 percent after a 0.3 percent gain in August, the New York-based research group said today. The September increase, the lowest since a decline in April, matched economists’ projections, according to the median forecast in a Bloomberg News survey.
A Federal Reserve survey published yesterday said the economy maintained its expansion last month even as more companies reported more doubt about the strength of the recovery. An acceleration in growth is needed to support the job gains that drive household spending, the biggest part of the U.S. economy.
Monday, October 17, 2011
The WSJ reports:
U.S. industrial production grew in September but the gain was small, underscoring the economy's lack of vigor.
Production rose by 0.2%, with a modest gain in manufacturing and a sharp drop in utilities caused by moderating weather. The Federal Reserve report on Monday showed overall production was flat in August, revised down from a previously estimated 0.2% increase.
Manufacturers in the U.S. have been feeling the weight of a lackluster economy, hamstrung by high unemployment. While it is still growing, the factory sector has, with the overall economy, slowed.
Tuesday, October 11, 2011
Source: Barclays Capital / S&P
Monday, October 10, 2011
Along with taking a deeper look at macro trends / releases to try to figure out this whole economy thing (in these all-too-interesting times), I spend quite a bit of my time creating (long-term oriented) trading models. The goal? To better allocate my investments by taking away some of my emotion.
- If EM Equity Total Return index > 10-Month moving average, allocate to EM Equities
- If EM Equity Total Return index < 10-Month moving average, allocate to EM Fixed Income
Friday, October 7, 2011
According to the "establishment survey" of places that hire, the economy added more jobs than predicted: just over 100,000. More significantly, the last two months' numbers were revised upward by another 100,000 or so.
Yet when we turn to the "household survey" of actual people, the headline unemployment rate remains unchanged at 9.1 percent. How come?
The numbers suggest that the working-age population (16 and over) grew by 200,000 last month, and another 200,000 people rejoined the workforce - that is, are back looking for work. The household survey also shows that 400,000 more Americans were employed this month than last. So it's a wash.
Disturbingly, our U-7 number actually went UP. How so? Because -- and here's the bad news in this month's numbers -- the total number of workers toiling part-time, but looking for FULL-time work, jumped by 400,000, about 5 percent. Since "part-time for economic reasons" are included in our U-7, the number rose from 18.26 percent to 18.41 percent, the third highest month since we inaugurated U-7 back in December.
Thursday, October 6, 2011
Yesterday, I posted about China's Investment Conundrum (specifically, that China can't keep growing their investments at the torrid pace we've seen due to simple math). Below is a comparison of the composition of China's economy vs. that of the U.S., as well as growth in each component from 2001-2010.
Wednesday, October 5, 2011
What the chart shows is the remarkable growth across all the components, but the unreal growth in investment which now makes up almost 50% of China's economy (the fact that consumption grew by 75+% likely allowed for the other components to grow even faster as the citizens saw their lifestyles dramatically improve, allowing for the flexibility needed with central control by the government).
But, much like the exponential growth in China's currency holdings this investment growth is not sustainable, especially in a world that appears to have more than enough supply for the current (and waning) level of aggregate demand globally. So this begs the question... if there will be a rebalancing away from investment, will it happen due to the pace of Chinese consumption simply increasing (i.e. will China "save" the global economy) or will investment growth (and the Chinese economy) slow substantially?
The 5 iPods, 3 iPhones, iPad, and 2 Macs currently in my home attest to the fact that I believe Steve Jobs' was brilliant. And at times he was more than a "computer guy" and truly inspirational. The below video is one of those times (his now famous Stanford Commencement Speech).
Quarterly Job Cuts
U.S. employers announced the most job cuts in more than two years in September, led by planned reductions at Bank of America Corp. and in the military.
Announced firings jumped 212 percent, the largest increase since January 2009, to 115,730 last month from 37,151 in September 2010, according to Chicago-based Challenger, Gray & Christmas Inc. Cuts in government employment, led by the Army’s five-year troop reduction plan, and at Bank of America accounted for almost 70 percent of the announcements.
While the bulk of firings are not “directly related” to economic weakness, they “could definitely be a sign of more cuts to come,” John A. Challenger, chief executive officer of Challenger, Gray & Christmas, said in a statement. “Bank of America is not the only bank still struggling in the wake of the housing collapse, and the military cutbacks are probably just the tip of the iceberg when it comes to federal spending cuts.”
Source: Challenger Gray
Monday, October 3, 2011
What respondents are saying:
- "The economy continues to be a drag on our business outlook. We are trying to deal with new and additional FDA regulations which are costing significant dollars. It is hard to recoup any of these additional costs in our pricing levels without losing significant sales volumes." (Chemical Products)
- "Market is cautious, but still steady." (Electrical Equipment, Appliances & Components)
- "Global demand for semiconductors is down and maybe not yet 'bottomed out.' Inventory reduction activities are a priority." (Computer & Electronic Products)
- "Still strong automotive demand." (Fabricated Metal Products)
- "Orders remain consistent and steady — no sign of lower demand." (Paper Products)
- "Japan supply chain issues are over, but exchange rates and raw material prices are hurting our profit." (Transportation Equipment)
- "We sense a weakening in demand, but it is not extreme at this point." (Plastics & Rubber Products)
- "Overall, business is improving with a measurable uptick in orders this month. Part of that is due to pre-holiday season orders." (Miscellaneous Manufacturing)
- "Business continues to be sluggish." (Furniture & Related Products)