Economic Charts

All economic charts are at the bottom of the page.

Saturday, October 2, 2010

Mortgage Foreclosure Fraud

With an increasing number of large banking institutions freezing foreclosures because they don't have clear title to the property, Congressman Grayson points out that mortgage foreclosure fraud is running rampant and seems to be big business.  Bank of America has now announced freezes on its foreclosures adding to an ever growing list of banks now announcing foreclosure freezes.  What a mess this mortgage situation is, most banks don't even know what they own the property or if they can foreclose on it.

Updated Problem Bank List

The problem bank list grew to 877 this week with 2 removals from the list and 6 additions.  The removals were Shoreline Bank (which was on the FDIC failure list this week) and Sterling Savings Bank.  Among the additions to the problem bank list was Alaska Pacific Bank, which is the first Alaskan banking institution to make the problem bank list.  The Unofficial Problem Bank list now has assets worth $416.1 Billion compared to last weeks 872 institutions with assets of $422.4 Billion.  Assets fell due to the removal of the publicly traded bank Sterling Savings Bank.  (Summary Credit goes to CalculatedRisk).

Link to the Unofficial Problem Bank List is here.

Link to Calculated Risk Quarterly Bank Transitions Matrix is here.

Weekly Bank Failures for 2010

We lost 2 more banks this week, bringing the total losses to 129 year-to-date.  The losses came to the states of Washington and Florida.  Washington lost Shoreline Bank located in Shoreline, WA and Florida lost Wakulla Bank located in Crawfordsville, FL.  As you can see the graph Florida leads all states in the number of failed banks.
2009 had a total of 140 banks failed, we are now 11 banks away from reaching 2009's number.  To get an idea of the number we lose week over week, the following graph shows failures per week and a 4 week Moving Average (MA) for trending reference.

Monthly Personal Spending and Income

The Personal Spending and Income numbers were released yesterday showing an increase in income and disposable income, but spending remains flat MoM (Month-over-Month).  I am moving to this new graph (Figure 1) to keep up with revisions and to show possible reductions in disposable income as tax increases come into play in 2011.
Figure 1
Figures 2 and 3 will continue to reflect headline numbers (forecast & actual) to show wins or losses in actual vs. forecast numbers, but will not reflect revisions.  Generally speaking when actual beats forecasts the market rallies (as long as no other negative news is released) and vise-versa for when actual fails to beat forecasts.
Figure 2

Figure 3
Figure 4 shows Personal Savings which increased slightly from the prior month, but lower than Junes high for the 2010.
Figure 4
Personal savings is the hardest to track as revisions seem to be never ending.  Figure 5 shows the revisions that have taken place in the BEA (Bureau of Economic Analysis).  The columns reflect the date the report was derived from (i.e. Augusts data in the August10 column,  was derived from the August report reflecting on the entire years data revised).   As you can see as we progress month to month (rows) revisions are constantly performed until you get to the green highlighted area where it stabilized months later.  This seems like a lot of revisions.
Figure 5

Friday, October 1, 2010

Monthly ISM Report

The monthly ISM report came out this morning.  The ISM PMI Index is a level of diffusion index based on surveyed purchasing managers in the manufacturing industry.  The forecasted ISM number called for 54.6, but the actual headline number was 54.4, which was lower than the prior months 56.3.
Figure 1

The ISM PMI index is composed of the following subcategories; New Orders, Production, Employment, Inventories, Prices, Backlog Orders, Exports and Imports.  Some of the indicators need to be rising and some should be decreasing to be healthy.  The subindexes that should be rising month to month are; New orders, Production, Supplier Deliveries, Employment, Backlog Orders and Exports.  Figure 2 shows those subcategories and are all pointing down showing slowing growth.

Figure 2

What are Supplier Deliveries and why are they important?  Supplier Deliveries tracks the change in delivery times from suppliers.  If the value is increasing (above 50), then Purchasing Agents are waiting longer to get material they ordered due to high demand for that material.  Overall the higher demand shows that other areas of the economy are healthy as well.  We see in Figure 2 that Supplier Deliveries are actually slowing, which is another clue that the economy is slowing and is not healthy.  Figure 3 shows the subindexes that should be decreasing; Inventories, Prices and Imports.  Figure 3 shows inventories and prices rising and imports stagnant.  This is also a sign of slow growth.
Figure 3

The general trend in figure 3, since may is trending down showing a slowing since May10.  Figure 1 shows the trend on the 4 week moving average also pointing down.  We will have to continue to monitor these trends over the next few months.

Fed Funds Rate Decreases

The Fed Funds Rate reduced from .18% to .15%. Gold moved up approximately at the same time frame.

Thursday, September 30, 2010

Currency Crisis and the World Economy

Pomo Purchase

The Fed initiated another POMO (Permanent Open Market Operation) purchase.  This where the Fed purchases treasuries from its primary dealers infusing them with cash.  Today, the Fed purchased $2.2 Billion.

Operation 1 - RESULTS
Operation Date:   09/30/2010
Operation Type:   Outright Coupon Purchase
Release Time:   10:15 AM
Close Time:   11:00 AM
Settlement Date:   10/01/2010
Maturity/Call Date Range:   02/15/2021 - 08/15/2040
Total Par Amt Accepted (mlns) : $2,200
Total Par Amt Submitted (mlns) : $11,499

This brings the total POMO purchase for the month of Sep10 to $27.527 Billion dollars and Aug10 to $8.925 Billion for a grand total in 2 months of this year (as they started POMO back up in Aug10) to $36.452 Billion.

Quarterly GDP Final

The final GDP Q/Q numbers were out today with a headline number of 1.7% beating forecasts of 1.6% and the prior months number of 1.6%.  This also beat Augusts preliminary numbers of 1.6%.  As I dive deeper into the GDP report, I will publish where the improvements came from, as we need to peel back the numbers and see where the growth came from.

Weekly Initial Unemployment Claims

The weekly Initial Unemployment Claims came out today.  Initial Claims is the number of people that filed for unemployment benefits for the first time in the prior week.  The forecast was for 458K and the actual headline number of 453k.  The prior weeks number of 465k was revised to 469k (a 4k increase over the headline number), making this weeks number a 16k improvement (but we'll know for sure once this weeks revisions are in).  With more layoffs in the financial industry ahead, it should be interesting what happens over the next few months with initial claims.

The delta between actual and revised continues to be wide, a phenomena that seems to be specific to 2009 and 2010 (prior years delta was less and numbers more accurate, go figure).  

Wednesday, September 29, 2010

Is This the Start of a Trade War with China?

Our friends at ZeroHedge posted that the House passed legislation to somehow revalue the Chinese Yuan. It allows the commerce department to impose duties on imports from countries with undervalued currencies.  This passed the House by a vote of 348 to 70.  I agree that the currency manipulation has to stop and we need to level the playing field so the US can become a bigger player, but honestly is this the right time to start this?  We have a consumer that is about to get hit with higher taxes and fees in 2011 (cause they most likely aren't extending those cuts, if they do it won't be long and fees will most likely take their place in the interim), so now we are going to strap the US consumer with higher food prices because it is mostly imported from countries that manipulate currency.  These days that is everybody.  Ouch, maybe we should have created a better plan of re-invigorating food production and manufacturing for US consumer staples in our country (you know Agriculture and production) before we floated this beauty.  Another thing, who is going to fund QE?  As it was pointed out China may deem QE as currency manipulation and decide not to fund us.

I think something needed to be done, but maybe our timing was slightly off (by a long shot).  Lets become producers again (you know create jobs in our country and become self sustainable) and then take more strategic action.  [ Read more ... ]

Monthly ETF Money Flows

Augusts ETF money flows report was out which showed money leaving the ETF market as a whole.  This is consistent with what is occurring in the mutual fund market, but the Mutual Fund market getting hit with outflows in the billions month over month (refer to Weekly Fund Flows Update), which adds to the story that the main thing feeding this monster seems to be the FED and its Primary Dealers (also referred to as the Plunge Protection Team).

A breakdown of what type of ETF is experiencing the largest outflow reveals large cap stocks are seeing the largest exodus.  Overall Large Cap, Mid Cap and Small Cap ETFs are experiencing negative money flows (i.e. money is being taken out).  Other ETF types experiencing negative flows were; Consumer, financial, health, Natural Resources and technology.  The big winner seemed to be Emerging Markets and corporate Bonds (no surprise there), with bonds experiencing a positive flow of money across the board.
This seems very concerning for the markets and we will have to continue to monitor the trend in ETF money flows.

Doug Kass on the Markets

Doug Kass discusses the technicals and fundamentals of the market, as well as QE2.  Doug notices that volume in the market is very low while stocks rise.  Also, discusses the amount of money coming out of the mutual funds (refer to Money Flows).   Doug points out that short term a devaluated currency will help exporters, but long term is going to bite us.

JPMorgan Foreclosure Problems

Now JPMorgan is having to stop/slow down foreclosures due to not properly reviewing foreclosure documents ensuring it went through the proper channels and that they had clear title to actually foreclose.  This even occurred last week with GMAC Mortgage as well, in which they halted foreclosures to review their foreclosure documents ensuring they have clear title.  Diana Olick points out that this is only adding more pain to an already ailing mortgage market.

Weekly Fund Flows Update

The weekly fund flows report was out this week showing continuing outflows out of Domestic Mutual funds and small/medium flows into foreign stocks.  $1.907 Billion dollars came out of Domestic Mutual funds and $616 Million into Foreign Mutual Funds (shown in Figure 1 below).
Figure 1

Bonds saw large inflows again this week.  A total of $6.913 Billion poured into Bond funds with $6.295 Billion of that number going into taxable bonds and $619 Million flowing into Municipal funds (shown in Figure 2 below).
Figure 2

Figure 3 shows the total Mutual fund flows (Domestic + Foreign) vs. Total Bond flows (Taxable + Municipal).   Again we see a flight from the stock market and into the bond market.
Figure 3

Between the constant flows out of Domestic Funds and POMO actions, you can see how the stock market is being supported by government funds.  How long can this continue?  This is not a healthy trend and is increasing the bill that Americans are going to have to pay later.

Fears over World Currency Battle

Global currency wars occurring as all countries attempt to devalue their fiat currencies to bolster exports.

Europe's Central Banks Halt Gold Sales

The Financial Times put out an article on September 26th discussing how the European Central Banks have reduced the sale of their gold supply by 96% this year.  Only 6.2 tonnes were sold vs a high of 497 tonnes in prior years and an average of 388 tonnes per year.  European Central banks are pulling back on gold sales due to the global financial crisis and the European Sovereign Debt Crisis.  This impacts gold price as a significant source of gold has now been withdrawn from the market, which will help hold recent rises in gold up (always a pullback in any run up though).

Why do I highlight this event in gold?  Well I find it significant to the current financial/economic situation we are in.  A while back there was an agreement called the Central Bank Gold Agreement which restricted the amount of gold a central bank could sell, because Central Bankers were selling so much gold that it depressed prices.  The CBGA put a cap on how much gold a central bank could sell in a given timeframe.  This agreement expired on Sunday.  Normally, this would have opened the floodgates to sell more and depress the prices further.  Even if it didn't expire, you can see by the reduction in sales that central banks have changed their thinking and have started to hold gold instead of sell it for fiat currencies (a big sing of our times).

Courtesy of Financial Times
It also attests to recent changes in foreign countries where gold is now being used as an alternate currency to fiat currencies and increasing rhetoric on backing fiat currencies with gold.  The currency war and gold continues.  [ Original source ...

Reflection on Tepper Interviews

I want to make it clear that the Tepper interviews, that were posted yesterday, was really pointed toward traders (that have their head in the news and a feed to the FED) as another way of making decisions (a tool if you will).  I think Mr. Tepper ignores the long term problem of debt, currency debasement and global changes around currency far too much for the long term.  I see him as a short term trader that follows FED speak and has learned to profit from it (not that it cannot change in a minute).  On the surface I agree with his short term views if I were a trader and give him credit for out of the box thinking that others clearly did not execute.  We still have big issues to face long term that, regardless of any hype in the markets to get people buying again, will have to be dealt with at some point.

Tuesday, September 28, 2010

Niall Ferguson Comments on the U.S and Debt

Niall discusses how the U.S. is consuming so much debt and that the interest on the debt will overcome the amount of revenues coming in from taxes.  Our ability to service the debt may be overcome in the next decade than it spends on defense.  Niall comments on how China is moving away from U.S. debt subtly as to not gain attention.  He talks about gold investing and and hyperinflation on the full program.

Are the States Primed for a Big Bailout?

Meredith Whitney has studied the states financial condition over the past 2 years and has come up with a rating for various states.  She took state spending, debt, ability to increase taxes, pension status and other items to rate the states.  She sees a double dip in housing and will cause these states to require a bailout by the federal government increasing the national debt by a trillion dollars or more.  She also discusses major job cuts in the financial industry in the 4th quarter and big trouble in the financial institutions and believes this has not been priced into the market at this time.  This will increase the unemployment rate in the 4th quarter or going into the 4th quarter.

Tepper Interview Part II

Tepper seems to be a great trader and where to find opportunity through federal actions, but doesn't seem to address the fundamentals very well (as far as long term outlook). Dollar diving, Housing prices going down, unemployment going up and such. Sees the FED getting involved as a money making opportunity, as I see it the more the Fed gets involved with more money the poorer our nation is becoming as we are becoming more and more debt laden. He needs to have a better view of what is occurring in currencies, reserve status and other big issues on the forefront.  I think for a short term active trader, he is spot on.  Long term, he may find himself facing much bigger headwinds.

Monthly Conference Board Consumer Confidence

CB Consumer Confidence is the Level of a composite index based on surveyed households. It is a leading indicator of consumer spending. It is a survey of about 5,000 households which asks respondents to rate the relative level of current and future economic conditions including labor availability, business conditions, and overall economic situation.  The forecast was for a measure of 52.5, but the actual headline number came in below at a 48.5, Augusts actual number was 53.2.
Obviously consumers are feeling the squeeze being put on them and are tightening their belts.  This is definitely not a desired reaction by the government as our economy is spend based.

Fed Funds Rate Sinks

The Federal Reserve Funds Rate is the interest rate at which depository institutions lend to each other overnight.  The Fed Funds Rate is effected by the New York Feds trading of government security.  This reduction in the Fed Funds Rate will also make it cheaper to lend, but also punish savers, as your money will earn less interest.  Obviously the FED is trying to bolster lending and spending to get our economy jump started.  Unfortunately, those that want the money, most likely can't qualify anymore and those that don't need the money aren't looking to take on more debt if they can survive without it.  This is an attempt to get banks lending again as it is putting banks in a bind for revenue when they cannot lend.

POMO Completed for 550 Million Dollars

Another POMO (Permanent Open Market Operation) purchase was performed today for $550 Million.  Again, POMO is where the FBNY( Federal Reserver Bank of NY) purchases Treasury securities from the Primary Dealers, thus infusing the primary dealers with cash (or the Par Amt Accepted).   This is tax payer money as the primary dealers never had this cash to begin with and becomes the tax payers bill in the end.  Of course we don't know what that bill is as nobody we cannot see the FEDs balance sheet.  ZeroHedge reports that AMZN, AAPL and NFLX were injected with the money, by the primary dealers, to hold up the market.  Here is the POMO graph since August:
POMO Operation:
Operation 1 - RESULTS
Operation Date:   09/28/2010 Operation Type:   Outright TIPS Purchase  
Release Time:   10:15 AM  
Close Time:   11:00 AM  
Settlement Date:   09/29/2010  
Maturity/Call Date Range:   01/15/2011 - 02/15/2040
Total Par Amt Accepted (mlns) : $550  
Total Par Amt Submitted (mlns) : $6,821  

Does QE Create Opportunity in the Markets?

David Tepper believes that their is opportunity in the government intervention in the markets.  He took advantage of the FED TBTF bank bailouts and made a bundle.  He believes that the FED tells you what you should do when it puts statements in writing (when in writing the FED cannot legally not do it).  He also states that QE will be the governments attempt, in the short run, to pump up the markets further, which will create opportunity.  Is this an environment to go in for the long haul, I don't think so and neither does he.  If you have the stomach for it and keep up with written FED statements and possible turning points, then you may do pretty well, if not you may lose a bundle when it turns.  For those not interested in this ride, just be aware of where the money is coming from that is bolstering the stock market.

POMO and the Markets

Remember POMO is the Permanent Open Market Operations that the Fed performs to purchase and sell treasuries to primary dealers.  Primary dealers are the 18 TBTF (To Big To Fail) investment banks (also called the Plunge Protection Team).  For those of you that thought that the stock market represents the economy, please think again.  The stock market is being artificially inflated so the general public believes we are in recovery.  You have to ask yourself, if the stock market = economy then why do we need to inject another 1 to 2 Trillion dollars into it with QE2?  Here is a list of the primary dealers as of Jun 2009:


Monday, September 27, 2010

Bond Bubbles, USD Devaluation and Inflation

Richard Volpe of RBS seems to have it down on rates and where the dollar is going.  I ignore the stocks and commodities discussions (it's their job to pump stocks) in this video, but more interested in Richards information on what the FED is doing through QE2.  Richard mentions that QE2 will be anywhere from 1 to 2 Trillion dollars, but re-iterates this is not going to be done all at once.  Seems like this number gets bigger each time I hear about it.  Another topic discussed is how low rates can go as 2 year treasury rates are hitting a record low (approx. 2.8%) after a $36 Billion auction.  Another point is that it should be concerning that the fed has to use over $1 Trillion dollars to revive the economy.  This really sends the message that these rally's in the market and pumps by main media are false.  A healthy market doesn't need such a big injection.

QE over 1 Trillion Confirmed

Zerohedge posted today that the FED's QE2 has been confirmed and will top 1 Trillion dollars.  This Post is a summary of an article by Jon Hilsenrath of the Wall Street Journal that described how QE2 will unfold.  The Fed cannot do 1 Trillion at once, as it would have massive impacts on the markets, so it will be done over 12 months.  [ Read more ... ]

Robert Prechter on the Market

For all you technical traders, Robert Prechter talks about the economy and bubbles.  He goes over the head and shoulders pattern that is forming in the market.  He also warns about the junk bond mania occurring today.

Bank Failures from 2008 to 2010

The WSJ has an interactive map of bank failures to date.  Since January of 2008 to September 2010 we have had a total of 291 bank failures.  Click on the map to get the interactive version.
Courtesy of the WSJ

Sunday, September 26, 2010

Market Discussions with the Pros

King World News had some pretty big hitters on its air this weekend.  They discuss the economy at length and what we are in for, with more issues in the banking industry.  Click on the following links to hear them:

Jim Rickards Part I - Discusses Basel III and capital requirements for European banks and how it falls short of what is needed, which will cause a longer term banking failure.
Jim Rickards Part II - Discusses talks about a Gold war and how China is being shutout of Gold, as well as tax cuts and preserving wealth.
Chris Whalen - Discusses the Banking Industry and potential problems down the road, as well as the damage the governments monetary policy is doing to the banking system.
Art Cashin - Weeks Market Wrap Up, covers gold and a story on mortgages that went viral this week.
John Williams - Founder discusses the real numbers for the deficit and hyperinflation.

This is great information that will enable you to make better decisions for your finances or give you great information to start discussing with you financial advisor so you both can make smart decisions on your money.

Update on Unofficial Problem Bank List

The Unofficial Problem Bank List increased by 18 banks, changes included 3 removals and 21 additions.  Two of the removals were due to the failures of  Haven Trust Bank Florida and  North County Bank and 1 removal from an unassisted merger Sunrise Bank of Atlanta.  The previous problem bank count was 854 with assets of $416 Billion and is now 872 Institutions with $422.6 Billion from last week. (Summary Credit to CalculatedRisk).  The link to the Unofficial Problem Bank List is here.

Is the Fed Priming the Stock Market?

With billions of dollars leaving the stock market and fleeing toward the bond market every week, I have been trying to find out where the growth in the Dow has been coming from.  Seems to me if you have billions leaving the market, the stock market would not be rising (not that I want it to fall, but for me to invest in a rally, I need to know where the money is coming from to assess if it is real or fake rally).
I became really interested in located the source of the money, as the stock market has had a tremendous run up since Mar09.  Then I heard of this thing called POMO (Permanent Open Market Operations) which is performed by the FRBNY (Federal Reserve Bank of NY).  POMO is the purchase or sale of Treasury Securities on an outright basis adds or drains reserves available in the banking system, the same banking system that can also be an investment house as well (like BOA, CITI, Goldman Sachs and etc). The funds actually went to the primary dealers who are the same as in the list above.

Now remember, when the government needs money, the Fed creates money out of thin air, which is given to the big Fed banks, these banks then use that money (really it is like they print it, just with permission) to purchase Treasuries (which they draw interest on).  In POMO, the Fed uses his balance sheet to purchase these Treasuries from the banks (in exchange for cash) for them to use for investments or whatever (loans really aren't bringing in the money these days, so stock investments bring a greater return and Oh by the way it pumps up the market.  Here is a drawing I am borrowing from Chris Martenson of with the year 2009 history of POMO and the DOW.
I noticed that this correlation was missing 2010 data, which has seen some turbulent times so I decided I would track it going forward.  We all know that since May10 the market has been going lower into Aug10, then Sep 1st we miraculously came back (same time big investment house managers come back from their summer vacations).  At first I thought that maybe this was the big money getting back in, but the big money uses investors money to do so (mutual funds, see the money flows chart above).   With so many withdrawing from the stock market and draining their 401k's to live on, I figured maybe POMO was a factor.

Apr10 the Dow clawed back to the 11,205 level, but then started to fall.  In July/Aug10 the main media started getting on-board with the idea of a double dip recession and August began to be an ugly month with chances of a double dip mounting(all economic indicators looked bad).

August 17 2010 was the first day of this year that the Fed started purchasing treasuries again since Sep09.  As you can see there are some POMO days at the end of the month of Aug10, but the money managers weren't back until September (but it did provide cash to the managers for their return).  As fate would have it, Sep 1st 2010 was when the run up in the Dow really took off, before that it was moving in a channel and in a downward direction.   A total of $33.702 Billion was pumped into the markets from POMO purchases from 8/17/2010 till 9/24/2010.  According to the fund flows since (approximately) the same time frame we have had $17.854 Billion come out of the stock market by investors.

Also of note, after the Fed stared purchasing securities, the main media started hyping the economic indicators (more of an observation from my standpoint) as being excellent news (even though when you peeled back the numbers they were actually bad).  The only economic number that I can see that has been positive lately was the Core Durable Goods number (which takes out transportation), the Non-Core Durable Goods number was actually bad.  

ZeroHedge had said that the primary dealers have been purchasing shares of AMZN and AAPL after POMO actions.  By the way, AMZN trades at an PE of 66.55 and AAPL trades at a PE of 22.  Of note there are 1284 stocks that trade in a PE range from 20 to 100 and 149 stocks that trade at a PE ratio between 100 and 2000 currently (and they say the market isn't overvalued). 

Judging by the run up in September 2010, it does have strong correlation.  In a related story, Saturday Sep 25th 2010, ZeroHedge published an Overview of the Feds interventions, which can be viewed here.