10.9 People Unemployed per Job Opening

The BLS released their latest Job Openings data today and it was ugly.

The chart below shows the number of unemployed persons per job opening (higher still) and the number of broader unemployed persons (as detailed by the U-6 percent multiplied by the labor force).



Source: BLS

The Dangers of Non-Seasonal Data

I usually agree with the points that Ed Harrison makes on his great blog Credit Writedowns (if you've never read it, I highly recommend it). Thus, I was surprised that I disagreed so much with a recent post of his titled 'Why is Everyone Saying Consumer Credit is Falling? It is Not." For one, I am someone that has been saying it is falling.

Ed noticed that while the August release pointed to a decline in consumer credit on a seasonally adjusted basis, it increased on a non-seasonally adjusted basis during the month. Thus, the consumer was not necessarily develeraging. My response on his blog was:

Why disclude a seasonal adjustment? I am not positive as to why it would naturally jump in August, but back to school shopping seems like one obvious answer. I guess my question would be, would you want to ignore seasonal adjustments for toy sales in December too?

If you want to ignore those trends, then take the unadjusted data and look at year over year figures. August '09 was down 4.4% compared to down 4.1% in July '09 vs. July '08. In other words... consumer credit is falling.

While Ed did agree that the year over year Consumer Credit figure declined, he noted:

But looking at SA month-to-month data in isolation and saying the sky is falling completely ignores the fact that consumer credit just ticked up for the first time since December. One could explain this via cash for clunkers, but to overlook it doesn’t make sense to me.

But looking at the data, it appears that overlooking the adjustment is even worse. What do we see? August was the lowest month over month change from July going back at least 40 years. And this comes on top of a massive decline in Consumer Credit outstanding on seasonal or non-seasonal basis in July from June.



So do I think consumer credit is declining at a rapid pace even though it is up on a non-seasonal basis in August? Absolutely. But it appears that Ed may have already come to the same conclusion.

Source: Federal Reserve

Trade Balance Breakdown

Bloomberg details:

The U.S. trade deficit unexpectedly narrowed in August as exports climbed to the highest level of the year and oil imports plunged.

The gap fell 3.6 percent to $30.7 billion from a revised $31.9 billion in July, the Commerce Department said today in Washington. A rebound in auto making contributed to a jump in exports to Canada, while a drop in the number of barrels of petroleum bought abroad swamped an increase in fuel prices.

The chart below shows that "jump" in exports (i.e. no jump) during August.



More broadly, the following chart shows the improved trade budget deficit over the longer term. It looks like a case of the old "addition by the elimination of subtraction" (a greater subtraction of imports rather than improvement in exports).



Source: Census

Same Store Sales Rebound.... To 2005 Levels

NY Times reports:

The good news for retailers in September is that sales were the best they have been all year. The bad news is that sales in major retailing categories are merely at 2005 levels.

On Thursday morning, some of the nation’s biggest retail chains posted September sales that were better than previous months, though that was largely because the stores had easier year-over-year comparisons. For the first time this year, retailers were comparing their sales to the abysmal numbers they began posting last fall, when the markets collapsed. Stores also benefited from a calendar shift that pushed Labor Day, as well as the usual back-to-school shopping rush, later in September.

Is the Long Awaited Inventory Correction About to Explode?

Bloomberg details:

Inventories at U.S. wholesalers dropped in August for a 12th consecutive month, clearing the way for a pickup in orders as sales improve.

The 1.3 percent decrease in stockpiles was larger than anticipated and followed a revised 1.6 percent drop in July, figures from the Commerce Department showed today in Washington. Wholesale inventories have had the longest series of declines since records began in 1992. Sales climbed 1 percent, the biggest gain since June
2008.

Distributors will likely increase bookings after companies drew down inventories at a record pace in the first half of the year. The gains may give the world’s largest economy a boost in the early stages of a recovery as American factories rev up assembly lines to prevent stockpiles from dwindling even more.

“The degree of decline has been extreme and will likely slow in coming months,” said Guy LeBas, chief economist and fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia. “But, we’re not looking for a sharp uptick.”

It's good to see there has at least been plenty of booze stockpiled.

Source: Census

Consumer Credit Crumbles

CNN Money reports:

Consumer credit pulled back for the seventh straight month in August, led by a steep decline in credit card usage, a government report said Wednesday, as unemployment soared and cash-strapped consumers continued to limit spending.

The total amount of credit outstanding fell by $12 billion, or 5.8%, to $2.463 trillion in August, according to the Federal Reserve. Economists predicted total borrowing would dwindle by $10 billion in August, according to a consensus survey from Briefing.com.

"Credit is being squeezed on both sides," said economist Sean Maher of Moody's Economy.com, adding that lending standards at banks remain tight and consumers are pulling back on their debt.

The last time consumer credit contracted for seven months in a row was in 1991. It has never dropped eight months in a row since the Federal Reserve started tracking it in 1943.

Source: Federal Reserve

Hedge Funds: Up, Up, and Away

Source: Barclay Hedge

U.K. Production Slumps to 1992 Levels

More traveling (halfway through a three week world tour) this afternoon, BUT will try to post TODAY (not tomorrow) on the upcoming consumer credit and Treasury budget release. In the meanwhile, some "yesterday's news" that seemed to have been lost in yesterday's Aussie rate hike, dollar cliff dive, equity / commodity spike.

Things in the U.K. are not only NOT getting better, but they are still deteriorating (in some cases to 17 year lows). Bloomberg details:

U.K. manufacturing production unexpectedly slumped in August to the lowest level since 1992, a sign the economy is struggling to shake off the recession.

Factory output dropped 1.9 percent from the previous month, the Office for National Statistics said today in London. Economists predicted a 0.3 percent increase, according to the median of 26 forecasts in a Bloomberg News survey. The index of manufacturing fell to 87.8, the lowest in 17 years.

Bank of England policy makers have cautioned that the credit squeeze and weak demand at home and overseas may hamper the economy’s escape from the worst recession in at least a generation. The central bank will keep up its 175 billion-pound ($280 billion) asset-purchase plan this week as officials gauge the strength of the recovery, economists say.

The data are “shockingly bad,” said Alan Clarke, an economist at BNP Paribas SA in London. “This starts to concern us that we’re losing momentum a bit earlier than we’d feared. We’re out of recession but it’s far from good growth yet.”

But, who cares about the actual economy when equity and home prices are up? The result, expectations from the Nationwide survey show serious signs of optimism.



But, will this optimism be enough to lead the actual economy to those heights seen in financial / asset markets?

Source: Stats.Gov.UK

Aussie Miracle Results in Rate Hike

We've discuss the Aussie Miracle a few times here. Looks like that trend is continuing. FT Alphaville reports:

Australia on Tuesday became the first G20 nation to raise interest rates since the peak of the financial crisis, as its central bank increased the official cash rate from 3 per cent to 3.25 per cent. (Israel, for the record, became the first non-G20 developed country to raise borrowing costs in the period when it hiked rates in August).

As the FT reports, when raising rates from a 49-year low “emergency” rate, Glenn Stevens, governor of the Reserve Bank of Australia, said economic conditions in Australia had been “stronger than expected”, while measures of confidence had recovered.

Stephens, who cut Australia’s key rate by a record 4.25 percentage points between September 2008 and April, added that the economy is likely to expand “close to trend over the year ahead,” and predicted that inflation will remain near the bank’s target range of 2-3 per cent.

Source: RBA

TARP Turns One

CNN Money details:

Taxpayers stand to lose between $100 billion and $200 billion on TARP -- Treasury's $700 billion financial market bailout.

While that's nothing to sneeze at, many experts say that the Troubled Asset Relief Program helped rescue the economy from a second Great Depression.

But there are others who argue that the billions of dollars that taxpayers shelled out simply delayed an inevitable epic collapse of the financial sector.

A year ago, when the financial markets were in turmoil, the Bush administration and supporters in Congress said TARP would be used to buy banks' troubled assets, and would be an investment -- it could even turn a profit.

But TARP, which celebrates its first birthday on Oct. 3, has been used for many programs it was not initially intended for, like saving AIG, automakers and helping struggling homeowners.

Source: Ritholtz

ISM Services Show Signs of Expansion

Some more "yesterday's news" as I once again will be traveling all week... services showed signs of expansion for the first time in a year and although it wasn't unexpected, "the media" stated it was at least a partial cause for yesterday's market bounce. Per the ISM:

WHAT RESPONDENTS ARE SAYING ...

• "Sales are very steady and have risen some each month in the past six months. The bottom is now here." (Construction)
• "Economic recovery turnaround has begun in the financial services sector; however, cautious expense management is still practiced." (Finance & Insurance)
• "Lack of capital available for new project development." (Accommodation & Food Services)
• "Continue to see signs of slow recovery, but customers are still putting orders off until the beginning of 2010." (Professional, Scientific & Technical Services)
• "Inconsistent ... just when things seem to be settling a bit, a new set of pressures develops." (Retail Trade)
• "Improvements seen in prices available for natural gas and other fuels." (Educational Services)

Source: ISM

Labor Force Shrinkage

As described in last week's post Unemployment: Even Worse than the Headlines, has the labor force not decreased over the month, unemployment would have jumped to a level higher than 9.8%



But how uncommon is a shrinking labor force? This is the first year over year decline since the early 1960's.



And why wouldn't individuals stop looking for a job. As the chart shows below, the number of people who have been unemployed longer than half a year has spiked to record levels.



And the long-term implications via Alan Greenspan.

"People who are out of work for very protracted periods of time lose their skills eventually. What makes an economy great is a combination of the capital assets of the economy and the people who run it. And if you erode the human skills that are involved there, there is a real and, in one sense, an irretrievable loss."

Source: BLS

Wealthiest Americans Rebounding

Forbes details the 400 richest Americans. Venture Beat details the "struggles":

Warren Buffett’s wealth took a dive this past year, losing $10 billion in value on his shares in Berkshire Hathaway. At least he’s not alone. More than three-quarters of Forbes’s annual list of the 400 richest Americans lost wealth in the past year.

But it hasn't been all one direction. Since the stimulus / subsidized financing induced market bounce in March (a point in time which is detailed in March's report on wealthiest individuals on the planet), we see a bounce across the board.



Phew... watching Warren struggle was tough to take.

Source: Forbes

EconomPics of the Week - 10/02

Economic Data

U.S.
Unemployment: Even Worse than the Headlines
Hours Worked per Person Tailspin Continues
Broader Unemployment to 17%
Manufacturing Continues to Expand
Consumption Up in August, Expect a Decline in Sept...
Chicago PMI... New Order Bounceback, Bounces Back
Consumer Confidence Trends Down
Home Prices Stabilizing
Chicago Fed National Activity Index Pointing to More Muddle

Global
Japan's Odd Labor Report
IMF Sees Stronger Global Growth
Japanese Industrial Production
Deflationary Spiral in Japan?

Assets
It's All About the Yield
Full Circle... Treasuries vs. High Yield
Dow Breakdown
Emerging Market Bonds Roar

Other
Have We Learned Anything?
Lions Winning Streak at One

And for the video of the week, I present the baseball call of the millennium (and this includes Babe Ruth's called shot)... watch the whole thing:

Unemployment: Even Worse than the Headlines

FT Alphaville reports:

Employers cut more jobs than forecast in September, sending the unemployment rate to 9.8 per cent — the highest since 1983 — compared with 9.7 in August.

Data released on Friday by the Labor Department in Washington showed US payrolls fell by 260,000, while the numbers for August were revised to a decline of 201,000. The revisions subtracted 13,000 from payroll figures previously reported for August and July.

Economists polled by Bloomberg had forecast a drop of 175,000 in September after a 216,000 decline initially reported for August. Estimates ranged from decreases of 260,000 to 100,000, Bloomberg said. Economists polled by Reuters expected a loss of 183,500 jobs and an unemployment rate of 9.8 per cent.

Unfortunately, it was even worse than that. The chart below (and as Barry points out is also an optical illusion as the X-axis doesn't look horizontal) shows that the headline 9.8% unemployment figure would have been even worse had the number of those 'not in labor force' not spiked (the unemployment rate is a measure of unemployment / labor force).



And women which had been doing relatively better than men as they tend to be in the more stable servicing jobs? Not so much in September.

Source: BLS

Hours Worked per Person Tailspin Continues

Employment to population ratio (i.e. percent of the population working) cliff dive....



Multiplied by the number of hours worked per week cliff dive...



Equals the least amount of hours worked per population member since... well ever recorded (since 1964)...

Source: BLS

Broader Unemployment to 17%

Source: BLS

Japan's Odd Labor Report

Bloomberg reports:

Japan’s unemployment rate unexpectedly retreated in August from a postwar record.

The jobless rate fell to 5.5 percent from a record 5.7 percent in July, the statistics bureau said today in Tokyo. The median forecast of economists surveyed by Bloomberg was for an increase to 5.8 percent.

“It’s still too early” to say the worst is over for Japan’s workers, said Masamichi Adachi, senior economist at JPMorgan Chase & Co. in Tokyo. “Companies still have too many employees and too much capacity.”

While the unemployment rate did slide from 5.7% to 5.5% on a seasonally adjusted basis, it was flat on a non-seasonally adjusted basis at 5.4%. But it was an odd report and one should be skeptical of any single data point that is odd. Here is the oddness...

• The number of employed rose... fine
• The number of those unemployed rose... hmm
• They both rose? Because the labor force spiked
• But what did fall? The overall population

Is this just a case of more people taking part-time labor (and joining the labor force) or something else?

Source: Stat.Go.JP

Update:

Paul D's theory:

August is when college students graduate and join the workforce. That plus the passing away of elderly pensioners could easily explain the growth in the size of the workforce.

Update #2:

Is apparently wrong:

The hiring season in Japan is in March - April, not August.

Manufacturing Continues to Expand

Last piece of today's news... Per the ISM:

WHAT RESPONDENTS ARE SAYING ...

• "Purchasing remains a challenge as suppliers now seem to be trying to raise pricing at any sign of life in the economy." (Computer & Electronic Products)
• "Business is picking up — lots of opportunities." (Primary Metals)
• "Agricultural commodities continue to weaken, with the exception of the domestic and world sugar markets." (Food, Beverage & Tobacco Products)
• "Automotive demand continues to be strong even after 'cash for clunkers.'" (Fabricated Metal Products)
• "Business remains slow, with no sign of improvement again this month." (Nonmetallic Mineral Products)

Source: ISM

Consumption Up in August, Expect a Decline in September

Peter Boockvar (via The Big Picture) with the latest on personal consumption:

August Personal Income rose 0.2%, 0.1% more than expected and July was revised up by 0.2%. Spending rose 1.3%, 0.2% higher than forecast and most of the gain in the durable goods category was due to the Clunker program. Durable goods purchases, which reflect auto’s, rose 5.3% vs a 1.3% gain in July.

Those personal consumption figures were from August, when auto sales (make that foreign auto sales) snapped back due to the cash for clunkers. How about September? The WSJ answers that question:

Consumer jitters and vehicle shortages returned September U.S. auto sales to depressed levels, as the jolt from the government-run "Cash for Clunkers" subsidy program proved to be short lived.

The closely watched annualized selling rate fell to 9.22 million in September from last month's 14.1 million rate, according to Autodata, an industry consultant.

"I've never seen a rollercoaster ride like this," Ken Czubay, vice president of U.S. sales and marketing at Ford Motor Co. (F) said in a conference call.

Car makers attributed the decline to the overall weak economy and the after-effects of the clunkers program that ended Aug. 24, which allowed consumers to trade in old vehicles for newer more fuel efficient ones.

And the chart (remember that the huge slide began last September, thus the year over year decline is off of an already low base).



Source: BEA / Autoblog

It's All About the Yield

Here is an easy concept that a lot of people don't seem realize to realize (based upon the number of times I'm asked the question).

What kind of returns can one expect on a going forward basis from a bond portfolio consisting of securities that do not default? Over the life of those bonds the answer is simply the yield of the portfolio.



While volatile as there are a number of components that affect rolling returns (interest rates, spreads, etc...), the chart below gets rid of that noise (and clearly shows the relationship) by showing the three year average of the yield to worst of the Aggregate index and 12 month forward returns.



Simple? Yes. But, a point easily forgotten by investors seeing the most recent 9% 12 month return of the Barclays Aggregate index after the massive rally in interest rates, government purchase of mortgage bonds, and credit rally (all from a starting yield to worst of just 5.3%).

Source: Barclays

IMF Sees Stronger Global Growth

Bloomberg reports:

The International Monetary Fund raised its forecast for global growth next year as more than $2 trillion in stimulus packages and demand in Asia pull the world economy out of its worst recession since World War II.

The Washington-based IMF said the economy will expand 3.1 percent in 2010, more than a July forecast of 2.5 percent. China’s economy will grow 9 percent and India’s 6.4 percent. That compares with growth of 1.7 percent in Japan, 1.5 percent in the U.S. and 0.3 percent in the euro region.

“The global economy appears to be expanding again, pulled by the strong performance of Asian economies and stabilization or modest recovery elsewhere,” IMF said in its semi-annual World Economic Outlook. Still, the rebound will be “sluggish, credit constrained and, for quite some time, jobless.”

Source: IMF

Chicago PMI... New Order Bounceback, Bounces Back

One more day of travel for the "real job" so expect to see tomorrow's pertinent data points (ISM, Personal Income, Auto Sales, Construction Spending) a day late.

This morning's data point as detailed by Peter Boockvar (via The Big Picture):

The September Chicago PMI was much weaker than expected and back below 50 at 46.1. Expectations were 52 vs 50 in August.

Maybe call it the Clunker hangover as New Orders fell 6 points to 46.3, a 3 month low and Order Backlogs fell 9 points to 36.7. Employment was little changed at 38.8. Inventories got a lift, rising 11.4 points to 38.9 and it’s the highest since Nov ‘08 likely following an increase in auto production where plants went back online in July.

Bottom line, manufacturing will be a key contributor to the Q3 GDP rebound with the question always being sustainability but with final demand still sluggish, there is only so much of an improvement that we will see and today’s number highlights that risk.

Source: News.Briefing

Full Circle... Treasuries vs. High Yield

Last week EconomPic recapped the amazing returns high yield bonds have posted to date in 2009 after a tumultuous 2008. Below is a chart of that performance on a monthly basis vs. treasuries.



So, where does that leave high yield and treasury investors cumulatively from the beginning of 2008?

Unbelievably in exactly the same place.



Source: Barclays High Yield / Barclays Treasury Indices

Japanese Industrial Production

Bloomberg details:

Japanese manufacturers increased production for a sixth month in August, capping the longest stretch of gains in 12 years, as emergency spending by governments worldwide rekindled global trade.

Factory output rose 1.8 percent last month after climbing 2.1 percent in July, the Trade Ministry said today in Tokyo. Economists surveyed by Bloomberg forecast a 1.8 percent gain.

Output has rebounded since a record collapse in the first quarter of the year left half the nation’s factory capacity sitting idle. The gains in production since March have yet to generate employment, trigger capital investment or return companies like Toyota Motor Corp. to profit.

“We’re not going to fall back into recession, but these production increases don’t bring us back to where we started,” said Yoshiki Shinke, senior economist at Dai-Ichi Life Research Institute in Tokyo. “You’ve still got a lot of excess capacity.”

The good... industrial production is up 21% from its lows. The bad... it is still 24% below its peak.

Source: Meti.GO

Consumer Confidence Trends Down

Details of this morning's release (traveling) per Money.CNN:

The Conference Board, a New York-based business research group, said its Consumer Confidence Index fell to 53.1 in September from an upwardly revised 54.5 in August.

Economists were expecting a reading of 57, according to a Briefing.com consensus survey.

"Consumers remain quite apprehensive about the short-term outlook and their incomes," said Lynn Franco, director of the Conference Board Consumer Research Center. "With the holiday season quickly approaching, this is not very encouraging news."

The index component that measures consumers' assessment of the present situation fell to 22.7 from 25.4. The expectation index, which gauges consumers' outlook over the next few months, dropped to 73.3 from 73.8 last month.

Source: Consumer Board

Home Prices Stabilizing

Bloomberg details:

Home values in 20 U.S. metropolitan areas declined less than forecast in the year ended in July, a sign the housing slump that led to the worst recession in seven decades is abating.

The S&P/Case-Shiller home-price index fell 13.3 percent in July from a year earlier, the smallest drop in 17 months, the group said today in New York. Adjusted for seasonal variations, the gauge rose 1.2 percent from the prior month.

Foreclosure-driven price declines, low borrowing costs and government tax credits for first-time buyers have lifted home sales for much of this year, helping to slow the decline in prices.

Stability in real-estate values and rising stock prices may help set the stage for a recovery in the consumer spending that accounts for two thirds of the economy.

Source: S&P

Chicago Fed National Activity Index Pointing to More Muddle

Modern Distribution Management with the nice recap of yesterday's release (traveling all week so expect some untimely posts):

The Chicago Fed National Activity Index was -0.90 in August, down from -0.56 in July. Three of the four broad categories of indicators made negative contributions to the CFNAI in August; the production and income category made a positive contribution to the index for the second consecutive month.

The three-month moving average, CFNAI-MA3, improved for the seventh consecutive month. At -1.09 in August (up from -1.61 in the previous month), the CFNAI-MA3 suggests that growth in national economic activity was below its historical trend. With regard to inflation, the amount of economic slack reflected in the CFNAI-MA3 indicates low inflationary pressure from economic activity over the coming year.

The production-related indicators made a smaller positive contribution of 0.29 to the index in August compared with 0.45 in July. Industrial production increased 0.8 percent in August, down slightly from 1.0 percent in the previous month; and manufacturing production increased 0.6 percent in August after rising 1.4 percent in July. July and August marked the first consecutive increases in industrial production since November and December 2007.

For more on the linkage between the rolling three-month figure and GDP go here.

Source: Chicago Fed

Have We Learned Anything?

Lots of interesting information in the Office of the Comptroller of the Currency's Quarterly Report on Bank Trading and Derivatives Activities for the Second Quarter of 2009. Regarding Derivatives... risk is highly concentrated and banks are making a lot of money from them. In other words, not much has changed.

Most derivatives activity in the U.S. banking system continues to be dominated by a small group of large financial institutions. Five large commercial banks represent 97% of the total banking industry notional amounts and 88% of industry net current credit exposure.

The top five exposures (in order) are held at JP Morgan, Goldman Sachs, Bank of America, Citibank, and Wells Fargo. Looking at Table 4, we can compare the credit equivalent exposure of those banks' derivatives (equal to the netted current credit exposure and potential future exposure of those contracts) to the risk based capital of those banks (tier one plus tier two capital).



After the financial system blew up the global economy, the key question is why isn't the use and concentration by these large banks being reduced (we know how well the banks' controls worked out last year)?

I think this quote from Satyajit Das (hat tip Paul Kedrosky) sums it up nicely:

Warren Buffet once described bankers in the following terms: “Wall Street never voluntarily abandons a highly profitable field. Years ago… a fellow down on Wall Street…was talking about the evils of drugs…he ranted on for 15 or 20 minutes to a small crowd…then…he said: “Do you have any questions?” One bright investment banking type said to him: “yeah, who makes the needles?

Derivatives and debt are the needles of finance and bankers will continue to supply them to all the Dr. Jekyll’s and Mr. Hyde’s alike for the foreseeable future as long as there is a buck to be made in the trade.

Source: Treasury

Deflationary Spiral in Japan?

Bloomberg reports:

Japan’s consumer prices fell at a record pace in August, heightening the risk that prolonged deflation may hamper the country’s recovery from its deepest postwar recession.

Prices excluding fresh food slid 2.4 percent from a year earlier, topping the previous month’s 2.2 percent decline, the statistics bureau said today in Tokyo. The drop matched the median estimate of 28 economists surveyed by Bloomberg News.

Companies from Fast Retailing Co. to Sony Corp. are lowering prices to attract consumers who face record unemployment and plunging wages. A return to deflation that the economy only shook off in 2005 may weigh on growth as consumers and companies cut back spending in anticipation that prices will keep falling.

“We’ll soon start to see that there isn’t enough domestic demand to push up wages,” said Kyohei Morita, chief economist at Barclays Capital in Tokyo. “As households’ spending power falls, there’s concern that this deflation will lead to further deflation -- in other words, that we’ll enter into a deflationary spiral.”

Source: Stat.Go.JP

Dow Breakdown

Performance of the 30 companies that made up the Dow at the beginning of 2009.



Winners?
Financials not starting with "Citi" / technology

Losers?
Financials starting with "Citi", bankrupt autos, energy, and non-cyclicals that didn't sell off as much in 2008 (i.e. Verizon, McDonalds, Walmart)

Source: Dogs of the Dow

Emerging Market Bonds Roar

Last week we took a look at the stunning rally in corporate bonds. Now lets take a look at Emerging Market bonds. FT Alphaville reports the large flows coming into the asset class:

Investors poured $727m into emerging market bond funds during the week to September 23, the equivalent of 1.3 per cent of these funds’ total assets and the highest inflow since February 2006, EPFR data show.

Global and US bond funds posted their biggest inflows since early 2001, when EPFR first started tracking them.

Funds dedicated to emerging market equities attracted $2.1bn, a 39-week high, which brought the tally for 2009 to $18.2bn. Funds targeted at investments in Europe, the Middle East and Africa attracted $208m; LatAm funds drew $241m and funds targeted at Asia (excluding Japan) attracted $427m.

These flows have resulted in spreads coming in by more than 400 bps since the end of the year, propelling the asset class up more than 30% year to date.



Source: Barclays

Lions Winning Streak at One

ESPN details:

Matthew Stafford held his head down on the bench for the final snap.

Dominic Raiola couldn't watch, either, fearing a 20th loss in a row and 100th setback of his nine-season career.

When Detroit's leaders looked up and saw Washington was out of time, they saw what they were hoping to see Sunday.

Lions 19, Redskins 14.

Believe it.

Finally.

"We not only got the monkey off our back, we got King Kong off our back," said Lions owner William Clay Ford. "I'm hoping that this gets us over that hump and gives us a winning attitude."

Detroit (1-2) hadn't won since Dec. 23, 2007 and its 19-game skid matched the second longest in NFL history. The Lions no longer have to hear about Tampa Bay's record 26-game losing streak.

Source: Football.About

EconomPics of the Week (9/25/09)

Economic Data
New Home Sales Skew to Low-End
GDP Growth by Metro Area (2008)
Staycation Phenomenon
FHFA Home Price Index
Eurozone Industrials Continue to Bounce off Lows
Leading Indicators Show Continued Strength
Income for the Masses Not Keeping Up... For 40 Years
Durable Goods "Surprises" to Downside

Asset Prices
Corporate Bonds: From Cheap to Rich
Evaluating Equities
Crude Inventories Up, Price Down
En-Down-Ments
Market Down Big... Market Up Big... Market Typical Continues to Go Up

Other
Banker Pay Limits on the Way?

And with the video of the week, I present the best dancing baby in the world...

New Home Sales Skew to Low-End

Bloomberg detail:

Sales increased 0.7 percent to a 429,000 annual pace, less than anticipated, figures from the Commerce Department showed today in Washington. The worst
housing slump since the Great Depression may be drawing to a close as first-time buyers rush to take advantage of tax credits before a November deadline. Federal Reserve policy makers this week pledged to keep borrowing costs low to sustain the recovery past the time when the government stimulus measures wane.

“At least we continue to see an upward trend in place,” said Ellen Zentner, a senior economist at Bank of Tokyo- Mitsubishi UFJ Ltd. in New York. “New-home sales are battling existing-home sale prices, which are incredibly attractive with the foreclosure pricing.”

Below is a chart showing how the new home market has dramatically shifted to the lower end market (or is it just that the values have shifted there due to lack of demand?).



Source: Census

Durable Goods "Surprises" to Downside

We noted last month that the jump in July durable goods came from a spike in commercial plane purchases, thus no surprise here that durable goods came full circle. Thus our surprise that "real" reporters and/or "real" analysts were "surprised".

ABC news reports:

New orders for long-lasting U.S. manufactured goods fell unexpectedly in August, dropping by their biggest margin in seven months, following a plunge in commercial aircraft orders, the government reported on Friday.

The Commerce Department said durable goods orders tumbled 2.4 percent, the largest decline since January, after rising by a revised 4.8 percent in July.

Analysts polled by Reuters forecast orders rising 0.5 percent in August. Compared with the same period last year, new orders were down 24.9 percent.

Source: Census

Saddled with Debt

Ed from Credit Writedowns reminds us that national income alone does not provide a full snapshot on the well being of the economy.

GDP is an inadequate measure for understanding how healthy an economy is. Nobel Prize-winning economist Joseph Stiglitz brought this issue into the public domain last week when he spoke in Paris, calling the focus on GDP a ‘fetish’ and favoring a broader measure of economic health.

Stiglitz was responding to reporters after a study on alternative measures of economic growth commissioned by French president Nicholas Sarkozy was released. At the time, Bloomberg reported Stiglitz saying:

GDP has increasingly become used as a measure of societal well-being and changes in the structure of the economy and our society have made it increasingly poor one…

So many things that are important to individuals are not included in GDP. There needs to be an array of numbers but we need to understand the role of each number. We may not be able to aggregate everything together.

Stiglitz is talking about the social costs of growth here. Think about pollution, infant mortality rate, healthcare, life expectancy, or rates of obesity to name a few. And his views are echoed in an article which prompted this tirade from me called “Emphasis on Growth Is Called Misguided" by Peter Goodman in [the] New York Times. Read it.

However, in this (go here to read it) post, I want to focus on one narrow issue: debt.

Ignoring the massive spike in government related debt (Federal, State, AND Local) for the time being and focusing instead on household liabilities as a percent of the national income, we see mortgage debt is now at 70% of GDP (more than double the level seen in the 1980's and 50% more than that seen at the beginning of this decade) and consumer debt is now at 18% of GDP.



The importance of all this is of course that all that debt that has been added over the years has been a huge contributor to that GDP. The fear is that the debt has just pulled a lot of consumption forward rather than infrastructure or other long term investments that will provide future growth opportunities.

Source: BEA / Federal Reserve

Banker Pay Limits on the Way?

Bloomberg details:

World leaders are poised to crack down on banker pay and better coordinate economic policies as they seek to temper the excesses that helped trigger the worst financial crisis since the Great Depression.

President Barack Obama and other Group of 20 leaders meeting in Pittsburgh are uniting behind a plan to force banks to tie compensation more closely to risk and tighten capital requirements, U.S. officials said.

“There will be broad agreement around many elements of a compensation package,” Michael Froman, Obama’s liaison to the G-20, told Bloomberg Television today.

For those newer to EconomPic, let me dust off the old Investment Banking Bonus Matrix to show everyone how things currently work in the banking world.



As for the new limits... I will believe it when I see it.

Source: EconomPic

GDP Growth by Metro Area (2008)

BEA details:

In 2008, real GDP by metropolitan area declined in 111 of the 366 MSAs. Many metropolitan areas in the Sun Belt, which had previously experienced large growth in the housing market, were adversely affected by protracted housing declines. Much of the decline in the housing-related industries (construction and finance and insurance) can be attributed to metropolitan areas in Arizona, California, Florida, and Nevada.

In contrast, growth accelerated in 146 metropolitan areas, most notably in areas where natural resources and mining industries are concentrated such as Casper, WY and Grand Junction, CO. Grand Junction had the fastest real GDP growth (12.3 percent) of any metropolitan area in 2008 due largely to growth in natural resources and mining. The professional and business services industry group also showed strong growth in 2008, contributing the most to real GDP growth in 112 metropolitan areas.

What isn't mentioned is the horrendous turn of events for those metro areas within Indiana, devestated by the downturn in the RV business.



Source: BEA

Corporate Bonds: From Cheap to Rich

In March I loaded up on both investment grade and high yield bonds (see Are Corporate Bonds a Screaming Buy?) as a long term investment (the key I thought was long term).

Yet by July, I was already beginning to cash out of the positions as I thought they had rebounded too far, too fast. 5% more gains for the investment grade and 20% for the high yield universes gets us to a point where bonds went from CHEAP to what now seems RICH in just about 6 months. Bloomberg details the implications and relative value of bonds to equities:

Stocks offer greater value than bonds and are poised to “catch up” with a rally in corporate debt, according to Rod Smyth, chief investment strategist at Riverfront Investment Group LLC.

The CHART OF THE DAY shows that the difference in yield between corporates and 10-year Treasury notes has narrowed more quickly than the Standard & Poor’s 500 Index has risen since March. The yield comparison is based on a Moody’s Investors Service index of Baa-rated debt. Smyth and colleagues Bill Ryder and Ken Liu had a similar chart in a report yesterday.

Since December, the yield gap has fallen to 2.9 percentage points from a peak of 6.2 points, according to data compiled by Bloomberg. This spread is near its lowest level since January 2008, when the S&P 500 was about 22 percent higher.

“‘Animal spirits’ are returning to Wall Street even if they are still suppressed on Main Street,” the report said. Spreads have narrowed so much that stocks have more room to rise than bonds, especially as earnings increase, it added.

Smyth isn’t the only strategist whose focus has shifted to shares. “Equities no longer look expensive relative to corporate bonds,” Andrew Garthwaite, a global strategist at Credit Suisse AG, wrote in a Sept. 18 report. He downgraded credit, or bonds, based on relative value.

While I am much less than bullish (actually bearish) on equities than those quoted in the article, it is suspicious how far high yield has rebounded in 2009 as compared to equities. While those BBB bonds (as detailed in the article) are now up more than 20% YTD, high yield corporate bonds are now up almost 50%.



Source: Barclays

En-Down-Ments

NY Times details:

Steep investment losses have caused painful cutbacks at some of the nation’s best-known universities over the most recent fiscal year and have prompted questions about whether their endowments are taking too much risk.

But as the schools, one by one, disclose their numbers, the managers of these endowments are indicating their continued support for a diversified portfolio chock full of alternative investments like hedge funds, private equity and real estate — the very things that have caused so much trouble.

This portfolio strategy is sometimes called the Swensen model, after David F. Swensen, who heads the Yale endowment. On Tuesday, Yale disclosed the details of its year, reporting an investment loss of 24.6 percent, compared with an average drop of 17.2 percent for large funds, according to the Wilshire Trust Universe Comparison Service.

Mebane Faber (of World Beta) sums it up best, by not saying much at all:

Draw your own conclusions on endowment performance last year, fiscal year ending June 30th. Below are facts.

Here are those facts in chart form...



In their defense...

Preferring to emphasize their long-term results, the chiefs of many big endowments, including Harvard, Yale and M.I.T., have indicated they are sticking with their models. Notably, Mr. Swensen did not lay out Yale’s asset allocation for the coming year in his statement — something he has done in years past.

If they are perpetual, long term is what matters... but is there any entity that actually is perpetual?

Source: World Beta

Crude Inventories Up, Price Down

WSJ details:

Crude oil futures prices sold off sharply early Wednesday, dropping below $69 a barrel after U.S. weekly data showed rising inventories and a sharp drop in demand. Light, sweet crude oil for November delivery had been down about $1.25 a barrel ahead of the data release Wednesday, under pressure from strength in the dollar.

But crude dropped swiftly through the $70 and $69 levels after the Energy Information Administration reported a 2.8-million-barrel rise in crude oil inventories for the week ended Sept. 18. Analysts surveyed by Dow Jones Newswires had expected crude stocks to drop by 1.5 million barrels.

And the importance of stocks and the price (both figures below are YoY changes)...



Source: EIA