With respect to the late, great, Archie Campbell (video clip at the bottom)...
Q1 GDP increased at a rate of 3.2%
That’s good. The economy continues to grow and is growing at a rate slightly above average.
No, that’s bad. The economy usually snaps back much stronger when recovering from a deep recession.
Unemployment increased to 9.9% in April.
That’s bad. There are over 15 million people unemployed and the rate is approaching the psychologically depressing 10% mark.
No, that’s good. The unemployment rate increased despite the fact there was job growth of 290,000. This means the job market is improving and many “discouraged workers” have started looking for jobs again.
The housing market is showing signs of life
That’s good. Sales of new and existing houses are very strong and builder confidence is improving.
No, that’s bad. The housing market was being propped up by the tax credit that ended in April and action by the FED to support lower mortgage rates. There was a steep drop in building permits in March and inventories of new houses remains very high. This means future demand may not be as strong.
Gas prices are going down.
That’s good. Lower gas prices provide people with more disposable income which supports higher consumer spending.
No, that’s bad. Gas prices are an indicator of economic health. Prices are going down while crude is still spewing in the gulf. Something isn’t right.
Wal-Mart sales are up 6%
That’s good. Sales are recovering for many major retailers, indicating consumer spending is growing.
No, that’s bad. Wal-Mart’s U.S. sales are actually down 1.4%. Wal-Mart claims that many of its customers are so strapped for cash that they are making fewer shopping trips (due to gas expense) and using more food stamps.
Business inventories are increasing.
That’s good. Businesses are restocking in response to the severe inventory draw down and stronger consumer spending. The inventory build-up has boosted manufacturing activity and has been a strong contributor to GDP growth.
No, that’s bad. Inventories are approaching levels that are adequate for current spending amounts. This means the boost provided by inventory restocking is ending.
The government monetary and fiscal stimulus is working.
That’s good. The government’s efforts have stabilized the economy and have bought time for the economy to begin growing on its own.
No, that’s bad. The stimulus can only take us so far. As the stimulus begins to wear off, expect the economy to slow later in the year. The latest Leading Economic Index was negative for the first time in over a year.
The stock market went down over 300 points in one day last week.
That’s bad. The stock market rally has been the most positive economic news of the last year. The Greek freaks and slower economic growth could stop the rally.
No, that’s good. Several market analysts are predicting an ugly stock market crash. If the market is headed down, better that it happens in tolerable chunks instead of a frightening decent. Even if the stock market suffers a significant drop, it is critically important that consumer panic does not return.
A woman I saw at the supermarket was buying over 20 packages of frozen peas.
That’s good. If you have that much money to stock up on frozen peas, things can’t be that bad.
No, that’s just plain weird. I just hope her family is not surviving on only pea soup.
Check out the Archie Campbell clip: That's Good
Monday, May 24, 2010
Sunday, May 16, 2010
This Insanity Won’t Stop!
Now for some words of wisdom from that great financier Buffet…..
I took off for a weekend last month
Just to try and recall the whole year.
All of the faces and all of the places,
wonderin' where they all disappeared
It's these changes in latitudes, changes in attitudes
Nothing remains quite the same
With all of our running and all of our cunning
If we couldn't laugh we would all go insane
Things are getting better. Attitudes are improving. The great majority of experts believe that the worst is behind us and the recovery has begun.
Yes, the economy is recovering faster than many expected, but we still have a long way to go. Things are not quite as good as they seem. Some factors to consider:
- The "percentage change" bias factor: Most economic statistics for 2010 are quoted as a percentage change over 2009. Since 2009 was such a horrible year, the 2010 percentage increases look better than they really are. On many factors it is more enlightening to look at the statistics over time. Many economic indicators (and industries for that matter) won’t “recover” until 2011 or 2012.
- Several sectors (housing, auto, finance, etc.) are being propped up by the government. There could be issues when the total government stimulus effort wears off. Expect economic growth to slow in Q4.
- A recent article in Business Week concluded that the banks are not doing as well as it appears on paper (love those creative accountants!).
- There are still problems in the housing sector and experts are uncertain what happens when all the so called “shadow inventory” (vacant houses owned by banks and individuals that are not on the market yet) comes back into play.
- There is a structural unemployment problem. The number of long-termed unemployed continues to grow. There are many people who have been unemployed for over a year. The number of people in the job-seeker groups that I previously belonged to is not decreasing.
On the other hand, there are many positives:
- Wages and hours worked are increasing. This means business activity is growing and more companies will need more workers at some point.
- Industrial production and capacity utilization keeps increasing.
- Freight growth is up. Trucking and railroad freight is growing faster than forecasted. UPS recently increased its forecast. Businesses continue to replenish inventories to support future sales increases.
- Retail sales are up. Consumer confidence is growing stronger by the week. The people with jobs are spending more money. I even did my part by finally buying a new, very expensive, big-screen TV so I could watch the Cleveland Cavaliers win the NBA championship (not making this up!).
- Auto sales are much stronger than forecast.
The Model T Got This One Right
While the Model T has not been accurate recently as a stock market predictor (its intended purpose), it has been very accurate charting the economic recovery. Back in October (seven months ago!), The Model T predicted what I called the “UL” recovery. It wasn’t a “V” shaped, it wasn’t an “L” shaped, but it was weaker than a standard “U” and it wasn’t a “double dip”. Here is the graph from October, and this basically reflects where we are at seven months later. We may be doing a little better than the graph right now, but if the economy does slow down in Q4, it should just about balance out. (I will publish a new graph soon)
What About Stocks?
This will be an extended recovery due to the damage to the financial and housing sectors. Because the business cycle has been extended, the stock market fluctuations within the cycle may be more pronounced. There is still a concern that the market has priced in a “V” shaped recovery, but is actually getting a much weaker “UL”. If this is the case, get ready for another wild ride. Remember, if we all weren’t crazy, we would just go insane.
Reading departure signs in some big airport
Reminds me of the places I've been
Visions of good times that brought so much pleasure
Makes me want to go back again (not quite)
If it suddenly ended tomorrow
I could somehow adjust to the fall
Good times and riches and sons of a bitches
I've seen more than I can recall
I took off for a weekend last month
Just to try and recall the whole year.
All of the faces and all of the places,
wonderin' where they all disappeared
It's these changes in latitudes, changes in attitudes
Nothing remains quite the same
With all of our running and all of our cunning
If we couldn't laugh we would all go insane
Things are getting better. Attitudes are improving. The great majority of experts believe that the worst is behind us and the recovery has begun.
Yes, the economy is recovering faster than many expected, but we still have a long way to go. Things are not quite as good as they seem. Some factors to consider:
- The "percentage change" bias factor: Most economic statistics for 2010 are quoted as a percentage change over 2009. Since 2009 was such a horrible year, the 2010 percentage increases look better than they really are. On many factors it is more enlightening to look at the statistics over time. Many economic indicators (and industries for that matter) won’t “recover” until 2011 or 2012.
- Several sectors (housing, auto, finance, etc.) are being propped up by the government. There could be issues when the total government stimulus effort wears off. Expect economic growth to slow in Q4.
- A recent article in Business Week concluded that the banks are not doing as well as it appears on paper (love those creative accountants!).
- There are still problems in the housing sector and experts are uncertain what happens when all the so called “shadow inventory” (vacant houses owned by banks and individuals that are not on the market yet) comes back into play.
- There is a structural unemployment problem. The number of long-termed unemployed continues to grow. There are many people who have been unemployed for over a year. The number of people in the job-seeker groups that I previously belonged to is not decreasing.
On the other hand, there are many positives:
- Wages and hours worked are increasing. This means business activity is growing and more companies will need more workers at some point.
- Industrial production and capacity utilization keeps increasing.
- Freight growth is up. Trucking and railroad freight is growing faster than forecasted. UPS recently increased its forecast. Businesses continue to replenish inventories to support future sales increases.
- Retail sales are up. Consumer confidence is growing stronger by the week. The people with jobs are spending more money. I even did my part by finally buying a new, very expensive, big-screen TV so I could watch the Cleveland Cavaliers win the NBA championship (not making this up!).
- Auto sales are much stronger than forecast.
The Model T Got This One Right
While the Model T has not been accurate recently as a stock market predictor (its intended purpose), it has been very accurate charting the economic recovery. Back in October (seven months ago!), The Model T predicted what I called the “UL” recovery. It wasn’t a “V” shaped, it wasn’t an “L” shaped, but it was weaker than a standard “U” and it wasn’t a “double dip”. Here is the graph from October, and this basically reflects where we are at seven months later. We may be doing a little better than the graph right now, but if the economy does slow down in Q4, it should just about balance out. (I will publish a new graph soon)
What About Stocks?
This will be an extended recovery due to the damage to the financial and housing sectors. Because the business cycle has been extended, the stock market fluctuations within the cycle may be more pronounced. There is still a concern that the market has priced in a “V” shaped recovery, but is actually getting a much weaker “UL”. If this is the case, get ready for another wild ride. Remember, if we all weren’t crazy, we would just go insane.
Reading departure signs in some big airport
Reminds me of the places I've been
Visions of good times that brought so much pleasure
Makes me want to go back again (not quite)
If it suddenly ended tomorrow
I could somehow adjust to the fall
Good times and riches and sons of a bitches
I've seen more than I can recall
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