Economic Charts

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Saturday, October 9, 2010

Weekly KWN Interviews

This week King World News interviews Ben Davis (part II), James Turk, Michael Pento, Rick Santelli & Art Cashin.  Each guest has great information on what is currently happening in the markets.

Ben Davis - Discusses the Japanese markets, Gold moves and volatility in the market.
James Turk - Discusses gold, silver and  fiat money concerns
Michael Pento - Discusses inflation, the Fed policies and how they effect inflation and our lives.  He also talks about monetization of debt and currency devaluation.
Rick Santelli - Discusses the Fed and what changes in power that has been afforded to the Fed.
Art Cashin - Discusses the foreclosure mess that we are in and may force banks to revalue assets (like they did a few years ago).  He also talks about grain prices, corn and other agriculture commodities and how we are moving into scarcity of these commodities which may force prices up or rationing.

Some of these individuals represent gold.   I have no problem with it, as they have great information, but you have to keep in perspective that some individuals representing gold/silver are going to give information that puts that asset into a better light.  I think the information these individuals put foreword is pretty thorough (first thing I always look for).  I just believe that you should always know what a persons interests are, keep your skeptics hat on and keep fear to a minimum (if your prepared and informed you have less to fear) to help you make better decisions.

Currency Wars, Trade Sanctions and its Impact on You

All the major exporting countries are in a race to devalue their currency to ensure their exports stay in demand globally.  If a country can improve exports then GDP and jobs improve, showing growth as a nation.  As reported in an earlier post, the Bank of Japan interceded a few weeks ago in the currency market devaluating their currency in one swift action (which has been totally retraced and then some already).  This action was an attempt to ensure their exports (as Japan is totally dependent on exports as a country) continue to grow or do not slow.  Europe wants to make sure there currency isn't too strong because they want to continue to enjoy abundance in exports.  Meanwhile, China has been purchasing more Yen and Euro strengthening them stating that they are trying to diversify their portfolio.  The U.S. is printing money like it was going out of style in an effort to pump the economy, stock market and the TBTF banks wallets, which is further devaluating the U.S. Currency (see dollar index below).
If you look at the major currencies the dollar has devaluated against every major currency.  Remember the first part of the currency pair (pair like EUR/USD) is the currency that your going long and the 2nd in the pair your going short.  So if you look at the EUR/USD chart below it is going up and to the right, which means that the EUR is gaining strength vs. the USD.  In the USD/JPY below, it is going down and to the right, which means the USD is losing strength vs. the JPY (or Japenese Yen).
The IMF is now getting in the picture warning all nations to stop this currency war as it is doing nothing but hurting an already fragile global economy.  In an article in the Huffington Post entitled "IMF Chief Warns Against 'Currency War' " IMF managing Director Strauss Kahn says:
"We are gathering at a pivotal moment facing a very uncertain future.  Growth is coming back but we all know that it is fragile and uneven."
Strauss-Kahn said he saw a particular threat to the recovery from a breakdown in cooperation among nations, emphasized by growing talk of currency wars.
Canadian Finance Minister James Flaherty told reporters that the global economy would be the loser if nations followed "beggar-thy-neighbor" currency policies where one country tries to get an advantage over another by lowering its currency, making its exports cheaper.
Now the U.S. is looking to sign a bill that would impose a tariff on all imports from China to offset this currency imbalance.  Now, before you go thinking this is a great idea, read on to see how it impacts you.

Impact of import tariffs on you: In a prior article, I said that this was the wrong time to impose import tariffs, as we have no real agricultural and manufacturing base to sustain ourselves as a country.  I suggested that we put stimulus money (if you must spend to stimulate the economy) into building new factories, infrastructure and funding farmers to grow food for human consumption again, so this nation can employ and feed ourselves.  We are at an important juncture in our countries life, in which the US people are the major consumers in the world and we are also the major importers to those countries that are thriving off our imports.  Before we decided to take action, lets make ourselves self-reliant again.  I was listening to a podcast by Jack Spirko (Survival Podcast, about self-reliance not living in a cave) and he points out that if import tariffs are imposed on China ( our main importer of food and cheap stuff i.e. everything in Walmart) that the U.S. consumer will be the ones that pay, not China.  I'll add to that and say that maybe this is the plan anyway.  This could be another method of siphoning off money from the U.S. consumer into the government, giving them more money to spend.  See for China's currency to actually be equal in value to the U.S. it would have appreciate by 40%.  Using an example from Jack Spirko, if you get a product that normally costs $50 and then you add transportation, handling and markup for the stores lets say it is now $100.  Well the tariff would only apply to the $50, so a tariff of $20 would be added now making that product cost $120.  Seems like a great plan to tax the U.S. consumers further without actually calling it a tax.  As you can see this in no way impacts China as they aren't paying it.  Long term China would be effected as U.S. consumers try to  find new ways to get those basic living products (that could be a long and painful process).

Jon Stewart on Foreclosure Crisis

Jon Stewart always has a humorous way of putting spins on things.  This time Jon jests about the handling of the mortgage crisis and how the banks didn't read the documents before signing off on them. Even though this video has a humorous side, he brings up some pretty important issues that we all need to be aware of (especially toward the end of the video).
The Daily Show With Jon StewartMon - Thurs 11p / 10c
Foreclosure Crisis
Daily Show Full EpisodesPolitical HumorRally to Restore Sanity

Friday, October 8, 2010

Dylan Ratigan on the Markets and Fed

Dylan Ratigan discusses the movie Inside Job, which outlines corrupt practices in the U.S. financial system that they say Americans are paying for.

Dylan Ratigans discussion on the FED in April 2010.  Dylan talks about what he believes is a con on America by the FED and the TBTF (To Big To Fail) banks.  Dylans guests are Congressman Grayson and Bill Fleckenstein of Fleckenstein Capital.  
Part 1

Part 2

Monthly Non-Farm Payrolls

Septembers Non-Farm Payrolls Unemployment report is the change in the number of employed people during the previous month, excluding the farming industry.  This number is an important economic indicator of consumer spending, which accounts for our overall economic activity.  The number was forecast to come in at 1,000, but the actual headline number disappointed by coming in at -95,000.  The headline number was worse than the revised number of -57,000 from the prior month.

Unemployment Rate

The unemployment rate number was released today, which stated that the unemployment rate stayed the same at 9.6% beating forecasts of 9.7%. This seems like great news, unfortunately this was the reported rate (or U3), the real unemployment rate or U6 actually increased from a prior 18.5% to 19.0%. That is a pretty big hike in unemployment. The markets regained most of its losses from pre-market after the release of the U3 number, but if they really peal back the report and look at U6 (which most don't), they will see this as a much worse problem).
The problem with U3 is that it only takes the reported labor force / unemployed, it does not consider the following; Marginally attached, Discouraged and part time for economic reasons workers. They all have to be included in the unemployment number as that truly reflects our unemployment number. The number of Marginally attached workers increased by 78,000, the number of workers that are part time for economic reasons expanded 612,000 and the number of discouraged workers increased 99,000 from the prior month.  That is huge and is not a victory by any stretch of the imagination.
The graph above represents the changes in Marginally Attached, Discouraged and Part Time for economic reasons month to month.

Fed Funds Rate Decrease

The Fed Funds Rate decreased last night to 0.18% from 0.19%. This change occurs by trading government securities, the NY FED affects the Fed Funds Rate (thus effecting the rate at which we borrow money).  The FEDs target rate is between 0.0 and 0.25.

Professor William Black on Mortgage Fraud

Foreclosure Mess

The foreclosure situation has gotten worse over the past few weeks, with banks not having clear title to mortgages and not even knowing which mortgages they have.  In one case a man was foreclosed on and his property was sold even though he had no mortgage (he paid cash for his house).  Now mortgage foreclosures in a growing number of states (23 so far) are getting frozen until the end of the year, to give the banks the chance to straighten out those records (don't know if they actually will).   This freeze will have rippling effects into other markets, like the $2.8 Trillion MBS (mortgage backed securities) market.  An article by the WSJ makes  a few points:
If a foreclosure is delayed, the servicer must typically keep advancing payments that will go to all bondholders, including the junior debt holders, even though the home loan itself is producing no revenue stream. 
Normally the foreclosure would go through and the holders of the riskiest debt ( junior debt holders) would take the loss.  Now this investment instrument seems toxic, as it pays on an asset that is became a liability, paying to a debt holder that would normally be liquidated from the position and creating a drain on the asset on the Senior debt holders ( less risky debt holders).
The latest events thus set up an odd circumstance where junior bondholders—typically at the bottom of the credit structure—could actually end up better off than they expected. Senior bondholders, typically at the top, could end up worse off.
This impacts whomever made investments in these type of assets, be it pensions, mortgage based mutual funds and etc ( ultimately you and I ).  The sellers of these instruments (investment banks typically) have 90 days to correct the problem or they have to buy back the loan.  The Assoc of Mortgage investors is trying to hold the sellers accountable for these bad practices by demanding an audit and enforcement of the 90 day period.

The banks actions on foreclosures has wider reaching implications, like impacts to our rights (whether your foreclosed on or not, as some that are not in default are mistakenly being foreclosed on as well).  How do we ensure houses aren't broken into by the banks foreclosure arm without proper notice (maybe a sign should be posted in the yard for 2 or 3 weeks, so that person knows they are being foreclosed on)?  Here is a video on the Dylan Ratigan show of one persons experience.

Thursday, October 7, 2010

Monthly Consumer Credit

The consumer credit m/m (does not include real estate) is a measurement of change in the total value of outstanding consumer credit that requires installment payments.  It's considered to be correlated with consumer spending and confidence.  A rising debt levels are a sign that lenders feel comfortable issuing loans and consumers are comfortable spending money. The forecast was for a -2.9 Billion reduction in consumer credit, but actually decreased by -3.3 Billion which was down less than the previous month of a revised -4.1 Billion.  This was interpreted as negative to the economy, as consumer credit reduced more than expected.  This means that consumers are not spending as much as they were, a problem for a spend more economy.  Revolving credit reduced by 0.6% and non-revolving credit increased 0.1%.

Congress Inaction in Tax Policy

Where'd the Money Go?

Fed Funds Rate Update

Last night the Feds funds rate was reduced from a 0.20% to a 0.19%.  This change occurs by trading government securities, the NY FED affects the Fed Funds Rate (thus effecting the rate at which we borrow money).  The FEDs target rate is between 0.0 and 0.25.

Weekly Initial Unemployment Claims

The weekly Initial Unemployment Claims were released today.  Initial claims are the number of people filing for unemployment insurance for the first time during the past week.  The forecasted number called for 545k and the actual headline number was 445k, beating the previous weeks revised number of 456k.  This means the number of people filing for unemployment insurance dropped by 11k.  This is the 2nd week in a row that initial claims has dropped from the revised number.

The delta in revisions decreased slightly which is good but still to high.  We need to continue tracking revisions to see what the real trend in Unemployment is.

Wednesday, October 6, 2010

Kyle Bass on the Economy and QE2

Kyle Bass talks about the out of control spending and QE2 which is coming in November.  QE2 was rumored to be 1 - 2 Trillion dollars, now Kyle brings up that 7 trillion has been floated.  Kyle also discusses ZIRP (Zero Interest Rate Policy) and how this tool is really effective anymore which means the FED can only print and monetize (hence QE2), thus debasing the currency further.
Part 1
In the second video Alan Fournier joins Kyle to talk about global growth and sovereign debt.  Alan also talks about the debt markets (or bonds) and how people are getting exuberant.  Alan differs with Kyle on his views of equities, but not a lot behind why.  Kyle continues about debt and the amount of interest that will mount if we move into inflation.
Part 2
In the final video Alan discusses housing and how important it is to our economy.  Kyle discusses how household debt has dropped considerably, but most of that is due to foreclosures.  Kyle says we need to dramatically cut Government spending to start our economy moving in a better direction over time.
Part 3

Weekly Fund Flows

Another bad week for domestic funds as an additional $4.15 billion was removed.  Foreign funds saw an increase in activity as $1.127 billion flowed into foreign funds.  The bond market bubble continues to blow up with an additional $5.421 billion invested this past week.
A total of $35.739 billion has been removed from the stock market since July 28th 2010.  That is a lot of money coming out of the equity markets, no wonder the Fed had to start up POMO purchases again to get the markets moving again.  The FED has, through its Primary Dealers (AKA Plunge Protection Team) pumped $43.7 billion into the markets since August 17th 2010, to keep the market gears a movin.  Wow that is a lot of money holding up our markets.
As you can see above, another week of funds flowing to foreign stock with a grand total of $1.944 billion flowing into foreign stocks since July 28th 2010 (that is the sum of inflows+outflows in foreign stocks).  The money flowing out of domestic stocks year to date is approx. $57.673 billion, with a majority of that coming out since May 2010.  
Bonds continue higher with a grand total of $68.151 billion flowing into bonds (Taxable + Municipal) since July 28th 2010.  The money flowing into bonds year to date is approx. $241.941 billion. 

POMO Purchase Update

The Fed performed another POMO (Permanent Open Market Operations) purchase today.  The Federal Reserve purchases treasuries from the primary dealers infusing cash into the primary dealers (TBTF banks) to pump into the stock market.  It will be interesting to see how the market closes today on the heals of a worse than expected ADP report, the market seems to be holding up quite well so far.  Since August 17th 2010 the Fed has purchased $43.7 billion in U.S. Treasuries.  Per Zerohedge this makes the FED the 2nd largest holder of U.S. treasuries in the world, with a total of $819 billion.  Japan is the largest holder with $821 billion in July of 2010.

Operation 1 - RESULTS
Operation Date:   10/06/2010
Operation Type:   Outright Coupon Purchase
Release Time:   10:15 AM
Close Time:   11:00 AM
Settlement Date:   10/07/2010
Maturity/Call Date Range:   03/15/2013 - 08/31/2014
Total Par Amt Accepted (mlns) : $2,069
Total Par Amt Submitted (mlns) : $25,157
Primary dealers as of Jun of 2009:

Zerohedge expands on this activity to sum up and do additional comparisons of the FED POMO purchases, you can view this by clicking here.

ADP Non-Farm Employment Change

The ADP Non-Farm Employment number is an estimated number of employed people during the previous month, excluding the farming industry and government.  ADP is a private company that provides payroll services to many companies throughout the U.S. and therefore can estimate overall employment or unemployment.  Obviously we all know the impact of unemployment, the more people that are employed the more willing people will be to spend and as we live in a spend/growth economy that is what is needed. The forecasted number for the ADP employment change was 23k, but the actual number came in at -39k, the previous number was 10k.  This means that private sector jobs decreased by 39,000 from August to September.  The previous report from July to August of -10k was revised up to 10k, so we'll have to watch for revisions of this months report next month.  This is  much worse than was anticipated, but is a reflection of what is really occurring in our economy.
ADP reported job losses were suffered by all major sectors and all payroll sizes.  To view the report click here.

Tuesday, October 5, 2010

Meredith Whitney on Issues With the States

Meredith Whitney discusses here report entitled "The Tragedy of the Commons" where she outlines states that will incur financial problems in the next 12 months.  Also linked to the report are failures of banks in the states.

Jim Rogers on Commodities

In this interview Jim Rogers talks about getting into commodities that have been depressed and discusses how farming/Agriculture will do well for the next 5 to 15 years, as there is a shortage of farmers in most countries.  Jim also talks about the pessimism in the dollar and possible long term printing, plus failures in FED policy.

POMO Update

Today was another POMO (Permanent Open Market Operations) purchasing day.  Today the Fed bought $5.19 Billion worth of Treasuries.

Operation 1 - RESULTS
Operation Date:   10/05/2010
Operation Type:   Outright Coupon Purchase
Release Time:   10:15 AM
Close Time:   11:00 AM
Settlement Date:   10/06/2010
Maturity/Call Date Range:   09/30/2016 - 08/15/2020

Total Par Amt Accepted (mlns) : $5,190
Total Par Amt Submitted (mlns) : $23,621

The two graphs below show the correlation between POMO and the DOW performance.  The picture for the S&P mapped over is very much the same.  It sure looks like the money in POMO had something to do with todays lift in the major indices.
Though it is said that the stock market rally was due to the Japanese Central Bank rate cut to between 0.0 and 0.1 percent, as well as a better than expected ISM number.  Though these may be the reasons, but POMO Purchases may had a little to dow with it as well (or will into the coming trading day).

Monthly ISM Non-Manufacturing NMI

The September ISM Non-Manufacturing NMI was release this morning.  ISM NMI measures the diffusion of index based on 400 surveyed purchasing managers, excluding the manufacturing industry.  The survey collects information on inventories, new orders, backlog orders, prices for material and such.  This is considered a leading indicator of economic health as rising orders means that business is growing and hiring may follow.  The forecasted number was for an index reading of 52.1 and the actual headline number came in at 53.2, beating forecasts and Augusts number.
Now we need to peel back the numbers to see where the increase in the broad index comes from.   We see that New Orders, Employment, Supplier deliveries and Export New Orders rose, while Business Activity and backlog orders decreased.  New orders and Export New orders is a great sign to see those numbers moving higher again.  
Inventories also decreased which is a good sign, prices were basically flat to slightly down and imports increased.  Decreasing inventories means that they are filling orders again and using inventory to do so, this is a positive sign.
Overall this seemed like a good report.  We need to see this trend continue for a few months to declare it a trend vs. an outlier.  

Monday, October 4, 2010

Gerri Willis on Health Care Reform

Gerri Willis discusses how Health Care reform has undermined quality care.  There have been a few articles hitting the papers on how McDonalds is looking to get rid of their mini-med program for employees and the principle financial group said it was going to stop selling health insurance all together.  Gerri also highlights other impacts to the medical industry.

Monthly Pending Home Sales

Pending Home Sales is the change in the number of homes under contract to be sold, but still awaiting the closing transaction (excluding new construction).  The report is released 35 days after the month it is reported on, hence this report reflects Augusts data.  It is supposed to be a leading indicator of economic health because it has some ripple effects in the economy (possible renovations on unfinished rooms, new furniture, financial transactions & etc).  This is a measure of month over month change.  The forecast called for a 2.8% increase and the actual headline number came in at 4.3%.  This is a second consecutive month of positive growth.  The number of pending homes that actually close is probably something that needs to be tracked, as in our changed reality not all of the closing transactions actually close.

State Tax Hikes

Monthly Factory Orders

Factory orders are a monthly measurement of the change in total value of new purchase orders placed with manufacturers.  It is considered to be a leading indicator of production.  Rising factory orders signals that manufacturers will increase activity to fill the new orders.  This creates/sustains jobs and has a chain of other economic events associated with it (like ordering more materials, shipping and a host of others).  This months forecasted number was to be -0.3% but the actual headline number came in worse than expected at -0.5% (down from the previous months revised 0.5%) showing decreasing demand/growth.  This is something to be concerned about and may impact GDP if this is demand for exported (as we saw in the ISM report demand for exports were down).
New orders for manufactured durable goods decreased $2.5 billion to $191.2 billion (a 1.3% decrease).  Excluding transportation (vehicles/parts, non-defense aircraft/parts) new orders would have increased 2.0%, so it looks like transportation demand is down (keep an eye out in the auto industry).  Excluding defense, new orders decreased -1.2%, meaning that defense spending is holding up our factory orders (which is fine, just need to be aware of what it looks like without).

Fed Funds Rate Increased

The Fed Funds Rate was increased from 0.15% to 0.20% dated to 10/1/2010.  Gold and Silver has dropped in value since last week, not sure if their is a direct correlation more of an observation.

Sunday, October 3, 2010

Rumors of TARP's Death Are Exaggerated

In an article by Rep. Jeb Hensarling written in the Investors Business Daily titled "Rumors of TARP's Death Are Exaggerated" Rep. Hensarling points out that TARP did not save the tax payers $20 billion as reported by Treasury Secretary Timothy Geithner, but actually cost tax payers $66 billion dollars instead.  Rep. Hensarling says TARP can not make new committments as of Oct 3 2010, but continues to fork out outlays of existing contracts previously committed to. 
Treasury has committed $460 billion in signed contracts and only $199 billion of the $386 billion actually paid out has been repaid. There's no obligation that the outstanding money be repaid to taxpayers in a timely manner.
[ Read more ... ]

FED Official Says Stimulus More Likely

William Dudley, the president of the Federal Reserve bank of NY, said economic growth has been disapointing and worries that if the economy doesn't strengthen then widespread deflation will occur. 
The Fed is considering buying more government debt to force down rates on mortgages and other loans to entice Americans to spend more. Doing so would bolster the economy.
The problem with this line of thinking is that we already have rates extremely low and it has not "enticed" Americans so far, so why now?  This should be good for Gold/Silver and will be destructive to the US dollar.  The fact that they feel economic stimulus is needed shows that the economies health is not as good as the main media says. 
Some Fed officials have clashed over how much help would come from buying more government debt, the Fed's next likely step.
It looks like QE2 is not off the table and seems more likely, further devaluating the US dollar and bolstering Gold/Silver, as confidence in fiat currencies wane. 
Despite the divisions, many economists predict the Fed will move ahead and buy more government securities — perhaps as soon as its next meeting on Nov. 2-3. The Fed is weighing that option because its traditional interest-rate lever to help the economy is already at a record low near zero and can't be cut further. 
This is why QE2 is much more likley, the Fed Funds Rate is already at 0.15% and really going to 0.0% isn't going to do much as money is essentially free already, but nobody wants it.  The problem is that we have to spend endlessly for our economy to survive, but we have hit a brick wall of debt.
A $500 billion purchase of securities would provide about as much stimulus as a half-point to three-quarters point cut in the Fed's main interest-rate lever 
Half a trillion dollars in securities purchases, will this become the new norm to continue getting a half-point cut of stimulus and how much is enough?
He argued that lower rates would help bolster the values of homes and stocks, which would support Americans' wealth and could make them feel better about spending more.
Mortgage failures are excellerating currenlty because homeowners are already in mortgages they can''t afford. Short sales and foreclosures will continue to affect home prices unless all homeowner's principle were dropped enabling them to refinance with the lower rate (mortgages at risk of default or in default are currently underwater).  How is increased QE and reduced interest rates going to make Americans more wealthy as it decreases the value of the US dollar makeing Americans poorer as their cheaper dollar buys fewer goods unless deflation follows (but isn't that what they say they are fighting here).   The stock market may go up in the short term (depending on how much money continues to flow out of Mutual funds and ETF's).  With American families and small businesses reducing tolerance for taking on more debt this doesn't seem like it will really benefit the country.  [ Read more ... ]

Economic Weekly Wrap for October 3rd 2010

This is Economicgrasps first weekly wrap-up video.  It will expand going forward to add more content on the weekly events and observations of the weeks activity.  This weeks is relatively brief and to the point.

Weekly KWN Interviews

King World News had great interviews again this week.  This weeks interview participants were Ben Davies, Robin Griffiths, Bill Fleckenstein, Hugh Hendry, Bill Fleckenstein and Art Cashin.

Ben Davies discusses his blog piece entitled "World Monetary Earthquake", monetary theory and the Bretton Woods II as the primary cause of the financial crisis.

Robin Griffiths discusses the market in general covering bonds and equities and his thoughts of a sharp downturn back to the levels of March 2009.  He also discusses the Mutual funds and how money has dried up in Mutual Funds and that Mutual fund money is all in at this point, so not much to push the market up.

Hugh Hendry discusses the Japanese credit markets, currency, the possible bond bubble and recent gold/silver movements.

Bill Fleckenstein discusses inflation/deflation, economic policies, the Fed/monetary policy and currencies.

Art Cashin who does the weekly stock market wrap-up.  Art talks about the Euro, action in the bond market,  redemptions in the stock market and quantitative easing.

Great information to keep you on top of the markets and what could possibly happen in the future.