Friday, December 4, 2009
Thursday, December 3, 2009
from Mish Shedlock:
Inquiring minds are reading the November 2009 Non-Manufacturing ISM Report
Economic activity in the non-manufacturing sector contracted in November after two consecutive months of expansion, say the nation's purchasing and supply executives in the latest Non-Manufacturing ISM Report On Business®.Is This A Recovery?
What Respondents Are Saying ...
- "Capital markets remain very tight; lenders are not releasing funds for development projects, limiting expansion." (Accommodation & Food Services)
- "Fourth quarter still looking grim, but potential upturn for Q1 2010." (Professional, Scientific & Technical Services)
- "No one trusts that the recovery is real. Seems everything and everyone is in a holding pattern." (Public Administration)
- "Business is still flat." (Wholesale Trade)
- "U.S. business remains better than 2007 levels, although it's been through personnel and cost reductions that we are now profitable. Business continues to be about 8 percent below 2008 levels." (Real Estate, Rental & Leasing)
Non-Manufacturing ISM History
Take good look at the chart immediately above. After sloshing around $trillions in bailouts and stimulus packages the NMI could barely get above break-even and topped in September.
New orders are up, but much of that is front-loaded government stimulus efforts. With government spending and reflation efforts by central bankers worldwide, it should not be surprising to see prices rising. Yet, employment is not confirming the pickup in business activity.
Double Dip Recession Warning
Paul Krugman is waking up to a possibility that I think is nearly a given. Please consider Double Dip Warning.
I’ve never been fully committed to the notion that we’re going to have a “double dip” — that the economy will slide back into recession. But it has been clear for a while that it’s a serious possibility, for two reasons. First, a large part of the growth we’ve had has been driven by the stimulus — but the stimulus has already had its maximum impact on the growth of GDP, will hit its maximum impact on the level of GDP in the middle of next year, and then will begin to fade out. Second, the rise in manufacturing production is to a large extent an inventory bounce — and this, too, will fade out in the quarters ahead.Stimulus Fades
I’d be more sanguine about all of this if there were any indications that private, final demand is taking off — consumers, business investment, whatever. But I haven’t seen anything suggesting that sort of thing.
The chances of a relapse into recession seem to be rising.
Krugman mentioned a couple of articles that show the fading effects of fiscal stimulus. Please consider Job Cuts Loom as Stimulus Fades
Highway-construction companies around the country, having completed the mostly small projects paid for by the federal economic-stimulus package, are starting to see their business run aground, an ominous sign for the nation's weak employment picture.No Economic Fairies
Tim Word, vice president of Dean Word Co., a heavy-construction company in New Braunfels, Texas, said his income is now coming mostly from projects that are winding up. He said that in normal times he has about $100 million of signed contracts in hand. But that number has fallen to $30 million, and the pipeline is empty. In the past two years, his work force has shrunk nearly 40% to 260 from 420.
"Having something to bid on is the lifeblood of the industry, and it's running out," said Mr. Word. He isn't sure what will happen next year without new projects. "There's no pavement fairy that's going to help."
Not only are there no pavement fairies, there are no fairies of any kind. The idea that Keynesian work projects can stimulate the economy back to a lasting recovery is loony. Japan proved that for two decades, but Keynesian clowns still insist it's just a matter of throwing more money around until something good happens.
Nothing good happened in Japan from Quantitative Easing or Keynesian stimulus efforts and nothing good will happen in the US from them either. The problem is debt and the cure is paying off that debt, not going deeper into it.
In the meantime prepare for the double-dip or an economic flatline at best because that is how the signs are pointing.
"The best way to destroy the capitalist system is to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens." -- John Maynard KeynesI wrote last week that one of the mysteries is the markets' continued and inexplicable optimism surrounding the monetary and fiscal policy, which has contributed to rising gold prices and a plunging U.S. dollar. Apparently, some in China might agree and appear to be growing concerned about the speculative frenzy in gold prices. Gold is now clearly overbought now and is trading at nearly 35% above its 350-day moving average ($916 per ounce), but, as I have remarked, shorting everyone's favorite long is a dangerous proposition considering the commodity's remarkable price momentum
According to the lynx-eyed Bill King, the price of gold failed after rising 40% above its 350-day moving average in May 2006 and again in March 2008. After hitting the 40% gap in 2006, gold fell from $720 per ounce to $542 per ounce in only four weeks, and it fell from $1,032 per ounce to $682 per ounce within seven months of advancing 40% above its moving average two years later. By comparison, Bill writes that the Nasdaq peaked at 75% above its one-year moving average in 2000 and oil peaked at 60% above its moving average in 2008.
It is possible that the gains in the price of gold will fall imminently or that history could repeat itself and the price of gold will fall as the price approaches the 40% gap above its one-year moving average. Maybe gold prices could even advance in a continued parabolic manner, ultimately resembling the chart of Cisco Systems' (CSCO Quote) shares in 2000 (when they peaked at over $80 a share) or that of Pulte Homes' (PHM Quote) shares in 2005 (when its shares topped out at almost $50).
"We stand today at a crossroads: One path leads to despair and utter hopelessness; the other leads to total extinction. Let us hope we have the wisdom to make the right choice." -- Woody AllenAgain, reread financial history. What it shows is that if you owe your bank a hundred dollars, you have a problem. But if you owe your bank a million dollars, the bank has problems.
The same can be said for our country.
Contrary to growing belief embraced by some in the trading community (many of whom couldn't define purchasing power parity and others who couldn't tell the difference between a Norwegian krone and a Nigerian naira) that a lower U.S. dollar is healthy, a plunging currency is not stock-market-friendly in the long run. It does not sow the seeds of a sustainable market and economic advance -- for if our country owes central banks trillions of dollars, everyone has a problem.
Somewhere, over the rainbow, bluebirds fly.Like the other two or three people in the investment world, I have missed the move in gold. While the yellow brick road is today paved with gold, there may not be a rainbow at the end of the road, just a man behind the curtain.
Birds fly over the rainbow.
Why then, oh, why can't I?
If happy little bluebirds fly beyond the rainbow,
Why, oh, why can't I? -- "Somewhere Over the Rainbow," The Wizard of Oz
Economic conditions in the U.S. may be stabilizing, but the grim reality is that jobless claims are still high, unemployment is in the double digits, foreclosures for August 2009 were 18% higher than a year ago, and credit markets are still tight. This, of course, translates to weak holiday sales. Nielsen reports that 42% of U.S. consumers plan to spend less on holiday gifts in 2009—up from 35% last year.
Deals, deals and more deals
Consumers plan to use a wide array of tactics to save money this year—deal seeking is the predominant course of action:
- 53% of consumers will wait for sales
- 46% will buy lower priced gifts
- 42% will bargain hunt more extensively this year
- 39% plan to use coupons
- 37% plan to shop at less expensive retailers and more online
- 23% will give homemade gifts
- 22% will make fewer shopping trips
For the first time since 1999, when the U.S. Commerce Department started tracking online sales, 2008 and 2009 reported quarter-to-quarter and year-to-year retail e-commerce sales decline. Additionally, a Nielsen survey reports that the online shopping population may shrink this year. In 2008, 71% people of people planned to do holiday shopping online. This year, that number drops to 63%.
The Internet may have lost its cache as a value channel. While consumers still shop online for money-saving reasons, the top two motivations for shopping online focus on convenience. Almost 70% of consumers enjoy the all day/all night benefit of shopping, whenever they like and 57% shop online to avoid holiday crowds in stores.
However, most product categories are expected to see lower levels of spending compared to 2008. Gift cards/certificates and movies are the only categories expected to grow this year. Movies are benefitting from the trend towards in-home entertainment and the dropping prices of Blu-ray technology. The growth of gift cards is likely attributed to the recession—gift givers are aware that needs, as opposed to wants, will be greater this season. In addition, more people (55%) would rather receive a gift card rather than a purchased gift.
While convenience and money savings factors are clear benefits to shopping online, the fact is, less than 4% of all purchases are made online. A Nielsen survey found shipping and handling charges are a major deterrent, with 53% of consumers stating they will not buy all their gifts online to avoid this fee. More than half (51%) of consumers cited that they need to see or touch the product. Consumers reported many of the physical benefits of in-store shopping—ease of return, instant gratification, access to sales people—as reasons they will not shop online for holiday gifts.
While the majority of purchases are made offline, the Internet is playing an important role in purchasing behavior. Deal-seeking activities—like comparing prices and finding coupons—drive consumers to go online first before ultimately making an in-store purchase. Deal-oriented websites attract a sizeable and varied audience—not just those with lower household incomes. In general, online deal-seekers tend to be female between the ages of 25–50 years old coming from a wide range of income levels.
Social media has changed the way consumers seek and share online and offline holiday deals. Frugal shoppers actively rely on these sites to learn about where to find the best deals, product recommendations, gift ideas and money saving tips. Retailers have an opportunity to go beyond traditional TV and printed circulars and use social media outlets to get shoppers excited about their holiday deals. Shoppers enjoy being the first to find out about a deal and share it with their network. Many retailers are using social media to drive traffic on Black Friday.
There’s still time
While Internet sales will not be the salvation for most multi-channel retailers this year, online announcements of deals through retailer websites and social media networks can improve share for their brick and mortar stores. Multi-channel retailers must use their websites and physical locations as differentiation, helping shoppers find the right product effectively, ensuring a simple purchase fulfillment and return policy and providing excellent follow-up support. The Internet may not be seen as a value channel, but it is seen as a value media.
Tuesday, December 1, 2009
from Dr. Brett:
I want to thank Abnormal Returns for passing along this excellent New York Times article on the role of habits in learning and creativity.
The article highlighted a few ideas that I think are very relevant to the development of trading expertise:
1) Much of performance learning is the cultivation of positive habit patterns - If you have to make efforts to follow trading rules, that is effort not devoted to tracking markets. The key to success is turning rules into habits, so that they can be followed without effort, preserving mental capital for analysis and decision-making.
2) The development of new habits opens the door to fresh ways of thinking and behaving - I've long noticed that successful traders periodically remake themselves and their trading, adapting to changing market conditions. They cultivate new habits, which aids them in developing new skills and ways of making money.
3) We will learn and perform best by making maximum use of our learning strengths - This is an extension of the notion of operating within a trading niche. If we're engaged in a concerted program of learning and development, it makes sense to ground our efforts in learning competencies.
4) Performance improvement often occurs in small, continuous steps forward - This is an idea central to quality and performance improvement among manufacturing firms. The successful trader may set a single goal each trading session and track progress faithfully. Over the course of a year, that is hundreds of opportunities missed by the trader who lacks such goals. Take a look at this excellent New Yorker article on Toyota and the notion of kaizen. The path of kaizen is difficult to follow, but it's a sure path to excellence.
Trading Psychology Observations
from Dr. Brett:
An interesting question that arose during the Chicago trading seminar today was: What is the value of trading beyond making money?
It's a question that arises for many traders. So many occupations derive their nobility from contributing to the welfare of others in direct ways. Where is the nobility in trading?
In my reply, echoing Ayn Rand, I challenged the notion that nobility is solely or primarily a function of assisting others.
In mastering risk and uncertainty; in learning to pursue opportunity in effortful ways; in making ourselves better as decision makers; in becoming more disciplined actors; we improve ourselves as human beings. That carries over to many areas of life, so that we can become better business partners, spouses, parents, and friends.
Indeed, this might be the most important distinction between trading well and trading poorly: When we trade well, we make ourselves stronger, better; we tap into the best within us. When we trade poorly, we succumb to our lowest common denominators.
The value of trading is the value of any competitive performance activity: in its mastery, we become just a bit closer to our ideals--and that ripples throughout our lives.
RELEVANT POST: Achieving Greatness Through Trading
from Dr. Brett:
Is trading a useful activity? A thoughtful reader writes:
"I am unable to reconcile as to how traders are providing any value to the society by what they are doing. I accept that we may be called providers of liquidity (which I really doubt we are) or guys who determine correct asset price helping bring market efficiency, but it still does not make trading relevant from a social perspective...I sometimes feel that as a trader we are pretty selfish guys concerned with our own well being. When we make profits, we do not regard the losses someone else made and trading seems like a zero sum game to me."
I addressed this issue in the post on the value of trading. See also the post on the dual road to trading success.
The real issue here is the assumption that one's value--and the value of one's activities--is a function of help to others.
The great scientific discoveries, for the most part, have reflected the very selfish concerns of investigators who become consumed with finding the answers to challenging questions. Doing what they love and following their passion does indeed bring benefit to others: that is the happy synthesis. In starting a business and seeking success, an entrepreneur brings jobs and needed goods and services to the world. In creating a great work of art, a painter absorbs herself in her medium and brings something of beauty to others.
When you make the most of yourself, you become a greater value to the world.
Like all performance disciplines, from sports to games of skill, successful trading requires self-development. In developing ourselves and mastering our own thought processes and behaviors, we have the opportunity to not just become better traders, but to also become better human beings. And, yes, that brings benefit to those with whom we interact: from the role modeling we provide to younger people to the fruits of self-mastery that aid our roles as parents and spouses.
Please review the post on the value of trading, particularly the last paragraphs. Trading is a useful activity to the degree that it pushes us to become more than we are: to enact the best within us, not just in markets but throughout life.
from Nancy Coppock at American Thinker:
Using borrowed money for a band-aid bailout of the economy should seem backwards to most people. However, it likely is a planned strategy to promote radical change. Those naively believing that President Obama is simply rewarding his far-left base, and will then move to the political center, must wise up.
The assumption that Obama will need the nation to prosper in order to protect the 2010 mid-term election incorrectly assumes that he esteems free market capitalism. He does not. Rather than win through superior ideas and policies, the Democrat plan for success in the mid-term elections is to win by destroying political opposition.
Obama adheres to the Saul Alinksy Rules for Radicals method of politics, which teaches the dark art of destroying political adversaries. However, that text reveals only one front in the radical left's war against America. The Cloward/Piven Strategy is another method employed by the radical Left to create and manage crisis. This strategy explains Rahm Emanuel's ominous statement, "You never want a serious crisis to go to waste."
Rather than placating the poor with government hand-outs, wrote Cloward and Piven, activists should work to sabotage and destroy the welfare system; the collapse of the welfare state would ignite a political and financial crisis that would rock the nation... [Emphasis added.]
from Washington Times:
There is plenty blame to go around for the financial crash. Yet, there is a distinct odor of the shadowy Cloward-Piven strategy as the taproot of abusive practices that triggered the crisis. The strategy's goal is to bring about the fall of capitalism by overloading and undermining government bureaucracy.
Its supporting tactics include flooding government with impossible demands until it slowly cranks to a stop; overloading electoral systems with successive tidal waves of new voters, many of them bogus; shaking down banks, politicians in Congress, and the Department of Housing and Urban Development for affirmative-action borrowing; and, now, pulling down the national financial system by demanding exotic, subprime mortgages for low-income Americans with little hope of repaying their loans. These toxic mortgages are an important source of the foul smell engulfing the entire financial bailout.
Developed in the mid-1960s by two Columbia University sociologists, Andrew Cloward and Frances Fox Piven, much of their strategy was drawn from Saul Alinsky, Chicago's notorious revolutionary Marxist community organizer. The Association of Community Organizations for Reform Now (ACORN) succeeded the National Welfare Rights Organization in the execution of the Cloward-Piven grand tactics of using the poor as cannon fodder to tear down the capitalist system. It was low-income, mostly black and Hispanic people, who were used by ACORN guerrillas to take subprime toxic mortgages.
An Obama campaign dispatch on October 6 had the right perspective in observing that "the backward economic philosophy and culture of corruption that helped create the current crisis are looking more and more like any other major financial crisis of our time." True enough.
The root causes for the 2008 financial panic were sown some 40 years ago when the Institute for Policy Studies, the notorious "Think Tank of the Left," held socialist seminars geared toward undermining the American capitalist system. Beginning in 1964 and continuing to the present day, the Institute for Policy Studies has used seminars especially scoped to influence congressmen and their assistants to support the "progressive," that is to say "socialist," viewpoint. A 1969 "Housing and Property" seminar, hosted by the Institute for Policy Studies, for example, treated Capitol Hill denizens to mind-stretching leftism. Bringing together speakers from big-city tenants councils, neighborhood legal services, FHA insurance, savings-and-loans entities, and the Shannon and Luchs Realty Company, the Institute for Policy Studies "plinked" the first domino that led to the current crisis.
At about the same time that the Institute for Policy Studies was holding the 1969 "Housing and Property" seminars, it was also conducting "Experimental Education" seminars in January-April 1969, for federal legislators and their aides that included Bill Ayers, an Obama confidant and Weatherman terrorist, as a guest speaker. According to the Senate Subcommittee on Investigation, 4,330 bombings occurred in the United States, about nine a day, from January 1969 to April 1970.
The socialist test case for using society's poor and disadvantaged people as sacrificial "shock troops," in accordance with the Cloward-Piven strategy, was demonstrated in 1975, when new prospective welfare recipients flooded New York City with payment demands, bankrupting the government. As a consequence, New York state also teetered on the edge of financial collapse when the federal government stepped in with a bailout rescue.
The 2008 financial crisis has all of the earmarks of a Cloward-Piven strategy assault against the capitalist system. Stanley Kurtz of the Ethics and Public Policy Center recently explained that "community organizers" (1) "intimidate banks into making high risk loans to customers with poor credit," (2) "occupy private offices, chant inside bank lobbies, and confront executives at their homes," and, through these thuggish tactics, (3) compel "financial institutions to direct hundreds of millions dollars in mortgages to low-credit customers." "In other words," Mr. Kurtz explained during a presentation at the Hudson Institute's Bradley Center for Philanthropy and Civic Renewal, "community organizers help to undermine America's economy by pushing the banking system into a sink-hole of bad loans."
A key element of the contemporary crisis certainly reflects many years of a "backward economic philosophy and culture of corruption" cited by the Obama camp. But much of the associated backwardness and deception were secretly peddled by the Institute for Policy Studies. Its war against the financial system used improvised non-ethical devices (INEDs) designed to destroy capitalism and support Mr. Obama. One of those roadside INEDs was the Cloward-Piven strategy.
Robert Chandler is a retired Air Force colonel and former strategist for the White House, the Departments of State, Defense, Energy and Justice, and the CIA.