This page has been archived and commenting is disabled.
The Best Indicator Of Economic Health?
Courtesy of Nic Lenoir, ICAP
Traditionally, many people in the industry view the ISM as the best stock market predictor. With a GDP being calculated as the total production of the country I guess it makes sense. But the ISM completely ignores the financial health of the country. That's why, as some only found out recently, having 4% growth on borrowed money for 4 or 5 years doesn't do you any good when comes the time to repay your debt. This is one example of how short-sighted economic reporting can be sometimes. Granted, if you start adjusting growth for population growth, inflation, and debt creation, you will not necessarily get much, especially these days. But even if that led to a darker picture, wouldn't it be a more coherent fundamental assessment of economic progress.
ABC consumer confidence has been lagging any sort of recovery we are currently having. All economists are unanimous though, the business cycle is in full effect and we are headed for 3% to 4% Q4 growth. Numbers don't lie, activity has picked up. However there is a slight problem, consumer credit is shrinking, wages are certainly not higher, and confidence is low. Last time we fueled growth using credit, consumer confidence picked up but modestly only, and we are now seeing lows not seen since the recession in 1991. A look at the attached chart of consumer comfort against ISM and GDP makes it very clear, and we also see that ISM is usually a leading indicator, maybe explaining why consumer comfort is currently trailing green shoots. Interestingly it seems the cycles in consumer satisfaction correspond with 8-year presidential cycles. I am only observing, as I don't have enough data to go more than two preseidents (Clinton and Bush II) on the chart, so this is in no way an expression of my political opinion. But will the pick up in ISM this time again lead to a pick up in consumer comfort and prosperity? It's difficult to assess. My inclination is that we have many secular problems to deal with and credit infused prosperity at the individual level is not really a possibility.
To go around the difficulty of the consumer's balance sheet, already rotten with debt, the government has made it its mission to restart the economy using sovereign debt. In essence whether it's the Fed or the government, this is what always happens anyways, and that is precisely why production always leads consumer confidence. But this time we have a real problem, because we are trying to restart an economy with a level of debt never encountered before. What I find trully fascinating is that we are already claiming victory. This recession is over, and even though growth will be subpar, we are led to believe all is well. The stock market certainly says so. Is the stock market a good indicator of economic prosperity? I don't know but it's not the point. The point of all this is to show that economic activity always front-runs consumer prosperity because governments somehow spur activity, whether it's through the private sector or themselves, everytime the economy is in decline. So in a sense, the government uses the ISM or the stock market (both move in sync historically anyways) to assess its performance, and that is where it is dangerous, because as we discussed earlier ISM is only one component of economic prosperity. It is certainly necessary to have a strong production to have an economy that functions well, but at what cost?
By no means is government intervention an American problem. My original inclination was to blame democracy, as elected representatives will do anything for a short-term boost in outlook to scure their re-election or legacy. But it is very interesting to see that every government around the world is doing the exact same, whether that government is elected or not. The US government bails its banks and its economy using taxpayer money, just like European governments or even the Chinese government. What's completely absurd is that by nature of ideology, capitalist countries should let failed institution sink and care for the fiscal health of the country, socialist countries should prop the economy using public money but let stocks go bust and takeover failed institutions or businesses to punish failure of capitalist enterprise, and China... well a communist country with a stock market and a currency that one can't trade is absurd in the first place. It's not banks that are too big to fail, it's our economy that can't tolerate shrinking for a few quarters. One thing is for sure propping the economy up because we can't tolerate volatility, whether it's in the GDP numbers or the stck market, is a very bad idea in the long term, and we have been doing it for a very long time. If it works this time it will be worst the next. By trying to fight volatility we are guarantying explosions of volatility far more painful than what would occure otherwise.
The best indicator of health would be a GDP declining to reflect we have moved our manufacturing overseas, we have too much debt, and unfunded pensions are a ticking time bomb that makes the housing market a pleasure to deal with.
»
- 11816 reads
- Printer-friendly version
- Send to friend
- advertisements -
i see what you are saying, i.e. quite a few "dollar" stores don't sell for a dollar. I understand now. I did check out the DG link and there is no way that they are selling those brands for a buck! My eye first caught 'Tide', a PG product that is very expensive (my wife insists the quality of Tide is worth the extra money). I guess I am fortunate that I have successfully managed to avoid my wife when she wants to go on those errands, lol!
while on the retail matter, we have visited a walmart supercenter quite a few times in the past 1.5 yrs (since we were both laid off). I must admit that we have been impressed with their pricing. I do the $10 90 day prescription thingee there which is a fabulous deal for meds and their formulary is pretty extensive.
When the U.S. economy falls apart, there will be a lot of collateral damage:
Obama: toast
Democrat party: toast
Big federal government: toast
American universities: toast
Northeast/New York elites: toast
Banks: toast
Big money medical industry: toast
Big money legal system: toast
To name a few.
There are a lot of people with a lot of skin in this game. They are like hamsters on treadmills right now, spinning, spinning, spinning confidence in every way possible, by fair means or foul, trying to get the game to work again. But the day will come when the wheels will still be spinning, but no confidence will come out. Then the hamsters will all be toast.
When that happens they'll make damn sure we all go down with them , unless we can get rid of them before
The problem is WE are the hamsters and THEY are spinning the wheels , when we can run no more they'll get new hamsters
Ummm ... toast. Whole wheat and buttered please. With jam. Strawberry jam.
The end of this age is nigh. I hope homo sapiens survive to witness a new new age.
I hope toast survives too. With jam.
We;re the Hamsters here so don't get excited.
Excellent list and very accurate.
Props versus volatility tolerance. Brilliant, Tyler.
It can only end badly, that's for sure. The props are now in on so many sectors, it's hard to identify a free floating market system.
Personally, I have an off-the-wall opinion on props, accounting style. The suspension of MTM in April was the King of all Bank props. The false creation of massive "wealth" ( that could include mega bonuses ) without the aid of Ben's printing press.
For timing freaks, the market made its steady bull trip immediately following the April 3 approval on MTM suspension by FASB.
Even a graduate in accounting from a C-school always remembers one thing in cost accounting til he's dead. Mark-to-market is the anchor for asset valuation and proper balance sheet presentation. It is a rule of accounting that is as sacred as the supply/demand function in economics. It principally defines " EARNINGS " !!
FASB approved this outrage. IASB followed. Both with gubmint-issued AK-47s to their heads. Now they all realize what they've done. Eventually, they will revise to a double-booking system.....illegal for you and I to do, by the way. Books on Earth will carry all the distressed assets properly valued ( small type )and Books from the Galaxy will carry all the deliriously valued shit ( BIG TYPE ).
And P-Es will be calculated from the books with the BIG TYPE. Bonuses too. Our investment masters will see to that.
I think the bean counters are nervous about firm liability down the road a piece. They should be worried if they ain't. Investor lawsuits are the only valid growth industry left for Wall Street.
In a year full of cons, MTM suspension was the biggest of them all.
All I remember is Assets = Liabilities + Owners Equity
But then again, I did loves me some herbal cigarettes back then...
FASB should have their nuts branded & coated in hot molasses for the MTM capitulation.
"I think the bean counters are nervous about firm liability down the road a piece"
Actually, my recollection is that the amendments to FASB FAS 157 provide greater protection for accounting firms by shifting the heat from the cpa to the company and its marking (modeling) approach.
FASB 157 suspension
Misratings by rating agencies for money
Pick-a-pay, option ARM, Alt-A, subprime, reachdown financing: 125%+ LTV loans, seconds & HELOCs
Downstream risk securitization
complex math models used only to obscure risk
regulator complicity in fraud
lack of enforcement by SEC, OTS
Fed easy money policies
Offshoring of manufacturing
Dissipation of capital concentration
ALL EXTREME CASES OF MORAL HAZARD
Made necessary by USURY and the demand of exponentially rising interest payments and ceaseless growth with Keynesian deficit spending
The entire system has passed beyond the realm of Moral Hazard and has become purely INIQUITOUS. Complete distortion of the virtuous reward cycle.
Trees that yield bitter fruit must be hewn down and cast into the furnace. They no longer have any redeemable quality except as fuel for fire.
I learned a new word today.
Cut down that iniquitous tree!
Save the seed though. The Constitution is one hell of a document.
Excellent article, spot on analysis w/o the rabid language in other posts. The author says that he doesn't know if it will work this time but says that if it does, it will be worse next time - that is the way I see it. The jury is out on whether it is working this time or not.
My own research (looking at income growth and debt fueled binge from '03 to '07) says it is unlikely to work even this time, but even Ray Dalio said recently the one thing that could turn the negative thesis on its head is reflexivity i.e. consumers beginning to feel better with all the positive news in markets -> beginning to spend more. And according to BofA's consumer study, top 10% of consumers who spend 40%, are relatively Ok and could end up spending. So, could this work again? Possibly....ZH readers shouldn't rule it out.
But the government borrowing and monetary inflation WILL lead to a worse catastrophe down the line. But then again, Obama's job is to get the Dems elected in 2010 and himself in 2012 - so don't count on a catastrophe unless even the government can't control it!
All depends on whether the consumer will spend again (not a lot but just spend sufficiently to get to growth) and based on August retail sales coming in only -2.1%, perhaps they will spend enough. Add international spending growing, you could see a slow sustainable growth story. Take very low interest rates, PE multiples CAN be higher.
This will end badly, but it took 4 years for the mortgage debt fueled binge to come to an end. I don't know how long this will take, but in the meantime, be aware that there could be an upside case. Diatribe aside, be careful of shorting markets when there is a semblance of an upside case and there is low interest rates and a collapsing $.
First, the " upside case " must be properly defined.
Second, UPSIDE might mean there must be a rush to the Layaway Counter... the likes of which we have never, ever seen before.
Mark Faber was just on bloomberg radio for about half an hour at 630pm est. If anyone can find a replay of it, its definitely worth listening to. He completely breaks down the 'recovery' meme.
Fuck the debt limit petition, let's get a petition rolling to demand that Al Qaeda double up and finally come through with that next big attack they've been threatening. Then this silly game can end and I can retire to count my gold full time.
I am Chumbawamba.
you've been reported to whitehouse.gov ;-)
Thanks! I hope you spelt my name correctly.
I am Chumbawamba.
All we need are your latitude and longitude and we'll get right on the attack you so desire.
Mohammed
"let's get a petition rolling to demand that Al Qaeda double up and finally come through with that next big attack they've been threatening"
Yes, pony up those coordinates Chumbawamba... you can be their practice target...
Egads, I'm usually a fan of your postings...this is in poor taste though, good sir.
I want a giant enema for all the $hit that's built up in this cesspool...but I don't want innocents to be the cost of that enema.
Now...if we could only get Al Qaeda to go after a certain cadre of vampire squids...
Silly anonymous, don't you know Al Qaeda = US Black Ops?
I, Chumbawamba, am only the messenger.
For fuck's sake
Al Qaeda, minus the sorry fuckers, (confirmed Al Qaeda, not just some poor dumb bastards thrown to the wolves by those rotten southwest asian sonsabitches) myself and my joes personally had the pleasure of zapping, are laughing in some fucking cave right now. They lit the spark and then sat back and watched as we destroyed ourselves. I've been saying for a while we've been fighting the wrong enemy. Motherfuck a bailout, jail sentences or vigilante justice for those that brought this ruin to our country
And there you have the truth in all its simplicity. Thanks, Veteran.
http://antiwar.com
I am Chumbawamba.
test
"The Best Indicator Of Economic Health?
The Price of Gold (POG).
Guns and Gold
Guns and Gold
Good for the body
Good for the Soul
Get yourself some and live to grow old.
you need bulletts? you got something to trade for them?
It's like a negative feedback loop of pessimism. You'd never know that USA is #1 in manufacturing output by a wide margin from this drivel...
There are many immense structural problems with the US economy, but to just bemoan our imminent doom and hoard canned goods is lame. Honestly...
Actually, the best indicator of economic health is the 14 day EMA of the rates for hookers on Craigslist.
OSR, where per chance could I find that metric? :)
-Michael
TER
A little more humility and a little less bombast would be welcome around here. As opposed to glorifying our egos, as ZH's manifesto suggests, lets keep looking for the truth in any situation. And despite the market being a zero sum game, the universe is expansive, abundance sometimes appearing in curious ways.
Any one measure can be and is gamed. It should be a combination of factors linked into a formula that represents the interests of productive members of society.
Some combination of protecting the interests of the general public:
Employees:Median income per capita 2-3% growth, private sector GDP growth 2-3% per year, unemployment under 5%, rates consistent with population growth.
Investors: Low inflation (1% per year target), Gold price in local currency 1% growth, a balanced budgets, low taxes, a fair capital allocation methodology (not friends of the printing press)
Higher growth rates should be discouraged (since it will only steal from future generations and cause a future recession/depression)
Some nights this bar is pretty rowdy. Go throw a quarter in the jukebox.
This should calm people down
http://www.youtube.com/watch?v=psbs_8kkWqg
Mel Gibson?
OK. Back to reality with the market. I have a dream
that one day i will build a cabin in the woods. Yep I do.
I want to try to live like John Adams in a cabin with
no amenities - like our fore father, just for a few months or
a year. Yes there would be an outhouse.
I have puts in SRS and SKF - calls really cause of the inverse relationship.
The best indicator of economic health?
The willingness of Bernanke and Geithner to use other peoples money (mine and yours) to bail out everyone in the world. We're sick, the PTB are counting their money.
They bailed out the banks and faux BHC's. They bailed out AIG. They bailed out GE. They bailed out the autos. They bailed out the Eurotrash banks via AIG CDS' payouts.
Next bailout recipient? Chinese SOE's which are reneging on Hedges Gone Wild. Of course this will be done indirectly, by making the banks who were counterparties to the SOE's whole again (GS, JPM, MS, etc.).
Interesting how quickly the Chinese SOE's have embraced the idea of moral hazard, that is, winnings are yours to keep but losers are somebody else's problem.
We’re all part of the same compost heap.
As a proud Space Monkey, I stand ready to be sacrificed for the greater good.
His name is Robert Paulson…his name is Robert Paulson…
“Ahmadinejad has extensively used Imam Hussein’s teachings and the concept of martyrdom to prepare the Iranian population to confront the West, especially in the current struggle over the nuclear program. But of all his convictions, he believes in the arrival of the Mahdi most fervently. Imam Hussein may be martyred and in paradise forever, but the Mahdi is going to return one day and Ahmadinejad will do what he can to make sure that happens, even if it means creating a crisis. Soon after becoming president, Ahmadinejad met with the foreign minister of an Islamic nation, who suggested that Iran seemed to be heading towards a crisis. Ahmadinejad replied that the crisis would prepare for the arrival of the Mahdi, which would take place in a few years. He later made the timetable more specific, saying the Mahdi would reappear in 2007…
Ahmadinejad’s belief that the Mahdi will reappear sometime in 2007 is a source of concern to many inside and outside Iran. With Iran now able to enrich uranium, it could become nuclear in 2007. If that happens, Iran’s nuclear arsenal might give the regime the confidence it needs to start a war, which could then become the ‘platform’ that Ahmadinejad has said he wants to create for the reappearance of the Mahdi.
Even if Iran is not a nuclear power, Ahmadinejad might be willing to engage the West in a war because a conflict with America could precipitate the Mahdi’s reappearance. A deadlock in the nuclear negotiations may lead to an attack against Iran’s nuclear facilities by Western powers, probably the United States, or Israel. If the former attacks Iran, Tehran will undoubtedly unleash its Shiite allies against U.S. forces in Iraq, since messianic extremists in Iran see the U.S. occupation in Iraq as an attempt to prevent the Mahdi from reappearing there. As far as Ahmadinejad and his fellow ideologues are concerned, fighting and expelling U.S. forces from Iraq will set stage for the Mahdi’s return in the land of his birth.”
The Nuclear Sphinx of Tehran, pg.56, Melman and Javedanfar
“The export of ‘Islamic’ rule is written into the Iranian regime’s constitution, and the religious zealots and military commanders who rule Iran have never been more serious about achieving it. Most world leaders have not taken Iran’s religious imperatives seriously, but we can no longer afford to ignore this ideology. When Ahmadinejad rants about religious government as the only answer to the world’s problems, he is dead serious. He speaks for every mullah in power, including, of course, the Supreme Leader Ali Khamenei, who has the first and last word on every decision in Iran.”
“At a speech for a group of athletes in the IRGC Bassij forces, Ahmadinejad described the victory of the Islamic revolution and the Iran-Iraq War as ‘two great miracles’ that had been accomplished by Iran’s youth, and stated that the ‘ third and greater miracle’ will be the establishment of the ‘global Islamic government.’”
“’The Iranian nation has a great duty,’ he said just before the candidate registration period, ‘and we must form a strong and advanced Islamic country which is a precursor for the formation of the global Islamic government.’”
“the rallying cry of ‘nuclear rights’ is Ahmadinejad’s justification for creating an atmosphere of global turmoil to signify that the Mahdi will come soon..’”
The Iran Threat, pg x, introduction , 22,27,31, Jafarzadeh
Growth will surprise to the upside and the ratio of ISM New orders to inventories is surging, suggesting that Q3 & Q4 will see some growth.
not sure if already mentioned; ISM production is a bit lame to use in an emerging knowledge based economy supported by service providers. in other words, we dont make as much as we did during the more productive post WWII years. productivity now needs to be measured according to service and knowledge effectiveness, results therefrom, and good use of time. all of which are tough to measure and execute; especially when we are multitasking across facebook and other crap like that.
stocks suck, and the corporate capital structure exhibits this in so many ways. today's post about the correlation btw QE and SPY, is just another indicator that tells us why the tape is where it is at, the story of econ growth was simply hatched to divert and distract.
bankers, y'all can hope your assets rise back to break even, it's ok, most investors have a hard time getting rid of their crappy assets, its a self preservation thing, and i enjoy making a living from this and the other notions of the tape that have not changed, with or without the machines. selling cannot be manipulated only buying can.