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US Retail Sales – A New All-Time High

November 17, 2011 Leave a comment

Some simple facts:

  • October US Retail sales rose +0.5% m/m (+7.2% y/y) vs. expected +0.3% m/m
    • Retail ex-autos rose +0.6% m/m (+7.3% y/y) vs. expected +0.2% m/m
    • Retail ex-autos & gas rose +0.7% m/m (+6.1% y/y) vs. expected +0.2% m/m

We’re way into this expansion—long enough that we’ve had a full on (and typical) mid-cycle slowdown—and real US GDP along with US retail sales are at all-time highs. The recent retail sales gains are broad-based: increased electronics store sales (+3.7% m/m), internet retail (non-store retail +1.5% m/m), sporting goods, hobby, book & music stores also posted a strong gain (+1.3% m/m). All of this led to an acceleration of core (ex-autos & gas) retail and a solid reading for headline growth following a sharp jump from an auto rebound in September.

We’re past the point where economists can easily claim the unemployment rate will “one day” sink the economy. These things are sometimes slow to move, but indications so far are that the world is moving on to new highs.

 

US Retail Sales graphic presented by Fisher Investments

US Retail Sales reach new high - graphic presented by Fisher Investments

 

 

Fisher Investments’ Latest Stock Market Outlook

November 11, 2011 Leave a comment

For a cogent synopsis on the current market environment, check out Fisher Investments’ newest Stock Market Outlook. Click here.

Stocks and GDP Aren’t the Same

November 8, 2011 Leave a comment

 

Remember, stock investors should care greatly about the overall direction of the economy. But economic growth as measured by GDP is different than investing in the future profits of a company.

 

 

This blog has made this point often, but it can’t be repeated enough.


 

Stop Thinking of Ben as Grandaddy of the Economy

October 28, 2011 Leave a comment

We can argue forever about how the Fed should do its job. And we can also argue forever about whether governments should control the money supply: If Not Ben, Who? If Not the Fed, What?

I find the latter most tedious because—debate it however much you like—that system ain’t changing anytime soon.

How about, instead, we stop thinking that the Fed has much or any ability to control the economy at all? Particularly in a globally interconnected system like now, why on earth do folks believe an institution like the Fed—ostensibly created to oversee and control commercial banking—would have the tools or ability to direct the larger economy? Because, if you do think that, then you have to ask yourself what kinds of tools the Fed actually has at its disposal to make the economy do what it wants. QE? Low short-term interest rates? Paying for deposits on reserve? These are great tools to control the fractional banking system, which admittedly plays a large role in the economy. But such things at best only obliquely address the wider economy.

We constantly read “is the Fed out of bullets?” It’s the wrong question—the Fed doesn’t even have the right kind of ammo in the first place and never has.

I’ve long argued in this space, on MarketMinder, and in my books, that markets and economies are CEAS (complex emergent adaptive systems). The recognition of this fact over and above the reductive mathematics of modern economics means also realizing the best way over time to create a stable, prosperous system is to allow it to form of its own volition. The Fed and its very small set of tools, and it’s very narrow mandate (stable prices and employment) are a poor place to look for savior or oracle. Certainly, metrics like the yield curve—its steepness and overall level—matter greatly to the economy. But I’ve always considered those things a function of whether the Fed was making a mistake in monetary policy rather than “making the economy grow”. The Fed can’t make the economy do anything, it can only set a few fairly narrow conditions (same is more or less true for the government). The rest is up to the economy itself (read: individuals acting of their own self interest).

But it’s also true that, though folks think of the Fed as an “institution”, and therefore generally unchanging and stodgy, it’s been one of the most dynamic and evolutionary financial entities of the last century. Particularly in the last 30 years, the Fed went from barely noted to holding press conferences on the economy and having its chairman show up on 60 Minutes (as noted here: Bernanke: Ready for His Close Up on 4/27.)

So, the public at large will keep looking to the Fed for messianic solutions, and the Fed will continue to evolve, particularly as a political entity. But don’t let that hype confuse you about what the Fed truly can and can’t do.

This Time is Different…Now for Pessimists!

October 14, 2011 Leave a comment

One of the things I’ve always found interesting is that, when folks attempt to describe investing history, they describe the “this time it’s different” investors as a priori, dyed in the wool optimists. That is, so much speculative folly resides in convincing oneself asset prices can’t go down for some newfangled reason.

That’s true! Investors do this in cycles pretty often. But few figure to ever contemplate the other side: pessimists constantly proclaim “this time is different” too—figuring out ways to convince themselves that valuations can’t go higher, it’s a new world of flat and falling prices, forever and ever, amen.

Right now, the pessimist “this timers” are prevalent: This Time, Our Economy Really Is Different

 

Don’t Revere or Fear the Twist

September 23, 2011 Leave a comment

The Fed’s plan to “twist” its balance sheet toward longer maturity bonds is, to be sure, ill advised. To effectively flatten the yield curve in the name of keeping (ostensibly) mortgage rates low is bizarre. That’s because it’s more important to have a steep yield curve for general economic growth featuring at least somewhat non-distorted interest rates than it is to artificially try and prop up mortgages, as if that were the end all of the economy (it’s not).

Fortunately though, the twist isn’t the kind of negative that should derail the economy or the stock market. Much like QE2, the twist probably won’t have much effect, isn’t necessary, and raises the risk of problems like inflation down the road. But outside that, it should also prove similarly ineffectual as a negative. Those who view the Fed as Messiah will be disappointed, as will those who want to see this as necessarily bearish. One thing the twist might signal, though, is that the Fed is no longer willing to take huge new measures to be more accommodative—its balance sheet won’t grow, just shift, this time around.

Why Worry? The Obama Tax Plan Is DOA Anyway

September 22, 2011 Leave a comment

Wow! Check these out:

This is just from yesterday morning’s press. There is clearly a lot of bluster about the newest Obama plan. But forget your ideology for a moment and think like a rational investor who cares less about who’s in office and more about asset prices. On that basis, there’s not much reason to fret about the Obama plan—it is probably a lifeless corpse on arrival. Maybe some small pieces will make it into the final deficit cutting commission’s plan come November, but otherwise the plan will likely get zero support in the chambers of Congress. The part that’s hard to figure is Obama’s current political gambit—it doesn’t seem this plan (even its mere proposal) is likely to win him many centrist voters in battleground swing states. Then again, the election is still more than a year away, and much can happen in between.

Yergin’s Take: Peak Oil Myths

September 21, 2011 Leave a comment

For those interested in global energy, Daniel Yergin is a perpetual must read. His books have won numerous awards (with a new one due soon), and his latest essay from the weekend’s WSJ is also a worthwhile read.

There Will Be Oil

For decades, advocates of ‘peak oil’ have been predicting a crisis in energy supplies. They’ve been wrong at every turn

Everyone’s a Reflexologist Now

September 9, 2011 Leave a comment

According to the indisputable Wikipedia:

Reflexivity refers to circular relationships between cause and effect. A reflexive relationship is bidirectional with both the cause and the effect affecting one another in a situation that does not render both functions causes and effects. In sociology, reflexivity therefore comes to mean an act of self-reference where examination or action “bends back on”, refers to, and affects the entity instigating the action or examination. In this sense, it usually refers to the capacity of an individual agent to recognize forces of socialization and alter her or his place in the social structure.

This has long been George Soros’s way of viewing capital markets: a reflexive relationship between prices set on markets and the economy. He details all of this in his 1987 book—now considered a classic—the Alchemy of Finance. And, let me tell you, reflexologists seem to be everywhere now:

And this is just a smattering of what’s out there in the financial press currently. This is fine insofar as it goes: it’s logical and natural that both markets and the broader economy look to each other for signals. And it’s even a useful way of thinking about how certain trends can go on longer than most folks believe they should. But like all fine theoretical ideas, they can become overwrought.

The stretched out end logic of the reflexivity idea is what’s being bandied about today: that market signals are going to lead the economy into an inevitable, inexorable, death spiral.

Not only is this not true, it never has been. The stock market has pretty much always been a leading indicator for the economy, and basically never vice versa. Moreover, at some point or another every correction and every bull or bear market have reversed course, with the bulls winning over time in magnitude—that is, the death spiral notion is simply a figment of hyper-pessimistic views about the world right now.

Irene Is a “Teaching Moment” for Economists

September 1, 2011 Leave a comment

I’ve always believed meteorology has been a good way to think about economic forecasting models. Simply, economists can, via statistical analysis, have some visibility on what might happen next, but the system (be it ecological or economical) is so vast and complex we just don’t have the models to know with precision what will happen, even in the immediate future. So, after the Irene panic over the weekend, we instead get headlines like ‘People assume we can predict everything’…NYT: Experts Misjudged Structure and Next Move…IRENE: A PERFECT STORM OF HYPE…, and so on. It’s not that the meteorologists did a bad job—they’re just limited in what they can do, and in a situation where lives are on the line they will err on the side of caution.

This is basically—almost precisely—how to think about economic forecasts. Are we headed for another recession? Maybe. My sense is probably not. But recent weak economic data don’t guarantee anything either way. Quarterly and monthly data especially is lumpy, and never moves in a straight line. So, you get a headline like this that surprised a lot of folks this week:

Consumer Spending in U.S. Climbs More Than Forecast on Purchases of Autos — Bloomberg

Statistical economic analysis in forecasting, even just a month ahead, is at this point a lot like meteorology—the system is too complex to predict with perfect accuracy.

 

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