For the fourth straight month the leading economic indicators are pointing up. Now two regional manufacturing surveys show manufacturing activity is rising. And July home sales surged for the second consecutive month. All this positive news pushed the market to new highs last Friday August 21st, preventing the much expect market correction, for now.
Five More Positive Economic Indicators Denied Perm-Bears Satisfaction.
Since the March 9th market bottom, we have been witness to the greatest American stock market advance since the 1930's. Those brave investors who dared jump into the eye of the hurricane or stayed the course are to be congradulated for having faith in the long-run. But this is no time to party-hardy or dump a ton of new money into a market that has soared 52% in just 165 days. This is a time of thanksgiving and reflection. Now is also the time to question how likely is this good news to continue without some bad news and market pull-backs.
1. The Conference Board said its index of leading economic indicators rose for a fourth straight month in July. The index, intended to forecast economic activity over the next three to six months, suggests the recession has bottomed and the economy will soon start growing again. Six of the 10 indicators that make up the index rose in July.
2. A survey of manufacturers in the mid-Atlantic region on Thursday showed that factory activity rose in August for the first time in nearly a year. The report by the Federal Reserve Bank in Philadelphia followed a similar survey reported Monday by the New York Fed that also found an increase in manufacturing activity after months of negative results. The rise in both surveys indicates manufacturing is growing even in areas without significant auto-related production, economists said. The auto industry has enjoyed a big boost from the government's Cash for Clunkers programs.
3. July had the fewest job losses in almost a year. The government said companies cut 247,000 jobs in July, a large amount but still the smallest loss since last year. Yes, this is one of those less worse is good news. One can see the inverse correlation of declining new unemployment claims which peaked in February and have been falling for five months. Bears point out the last two weeks have seen claims rise.
4. The official unemployment rate drop unexpectedly to 9.4% in July its first drop in 15 months. Yes, many private economists and the Federal Reserve still think rates could top 10 percent by next year. Yet, this was a positive surprise as an increase was expected. And as any Economist will tell you unemployment rates are a lagging indicator.
5. Home sales in the Midwest surged 8.5 percent in July, the second straight annual increase, as new home buyers snapped up properties to take advantage of a temporary federal tax credit. Nationally, home resales rose 5.6 percent in July, the first annual increase since November 2005. Affordability is driving sales -- the median sale price fell 15 percent to $178,400.
"Looks like the recession ended in June," Tim Quinlan, economic analyst for Wells Fargo Securities, wrote in a research note. The National Bureau of Economic Research, which officially declares the start and end of economic cycles, has in the past set an end-date to recessions after two to three straight months of gains in the leading indicators, Quinlan said.
Now For The Bad News
The Mortgage Bankers Association, said more than 13 percent of American homeowners with a mortgage are either behind on their loan payments or in foreclosure — a record tally as the recession leaves more people unemployed. About a third of new foreclosures between April and June were prime fixed-rate loans, up from one in five a year earlier.
Markets are always forward looking. And it's ditto for this market too. Yet, this doesn't mean the market has ESP to foresee the 2010 economy. No, it just means it expects to see an improved second half of 2009. Remember the 2001 brief recession? It was declared officially started in March and ended around November 2001. The market after a climatic September sell-off after 9/11 turned and climbed into March 2002. The Market then tumbled all year long reaching new lows in anticipation of a disappointing weak recovery.
One of the real big economic worries is the need to create new jobs (not just maintain jobs). Scott A. Heintzelman, CPA, CMA, CFE a Partner with McKonly & Asbury, LLP has dug deep into the Bureau of Labor Statistics report to uncover their measure of labor underutilization a.k.a. Real Unemployment. The Real Unemployment Rate is 16.8%.
Market Results: The Biggest Advance Since The 30's - Thank you, I'm leaving the party early.
This has been the strongest market advance since the 1930's. The perm-bears have missed the greatest six month advance in their lifetime. Still, it's hard to image another 10% advance without more than a 5% pull back. But it's possible. In August 1981 the market rose for 12 straight months with only a few 5% pull-backs.
I'm thankfull for the last 1,000 point gift driven by so many green shoots. But I'm cashing in most of my general market chips (S&P Index Funds) before the party ends and the market disappointments arrive. I'll be happy to jump back onto the bandwagon after a pull-back.
Let's take a closer look at some of the "green shoots" of late:
ReplyDeleteBank Profits: In a 2 trillion dollar Generational Ponzi Scheme, the banks get their bad paper protected, and then proceed to pick the pocket of the suffering American people with unprecedented late fees and overdraft charges.
2. Lower Unemployment: July's "dip" of a tenth of a percent was completely despair-driven. It's not that more people were working, 247,000 LESS people were working, just that far more than that have exhausted UI benefits and stopped looking and thus have been dropped from the calculation. This is a "green shoot" ripped right out of the hide of the American people.
3. Sales of Existing Homes: The market is glutted with so many foreclosures, fatcat investors are snapping up poor people's dreams for pennies on the dollar. This is not fueled by the Joneses buying their dream house, it's fueled by the Joneses losing their dream house and having it snatched up by an investor at an auction.
4. Rising Stock Market: The nice way of saying it, is that it is liquidity driven. Which means the banks, flush with your kid's IOUs, are laundering your kid;s dollars into the back door of the market. It's funny-money fueling a phony baloney run-up. There is no genuine economic activity behind it, and PEs are way out of whack. It's fatcats shell-gaming the people's money, so when they withdraw their profits, they'll siphon yet another trillion in Ma and Pa's 401k money along with it.
The consumer is tapped out and down for the count. We've had 3 broad phases of growth after WWII:
1) An economy fueled by consumers spending money they saved during WWII.
2) An economy fueled by consumers spending money they were earning at the time.
3) An economy fueled by consumers spending money they hadn't earned yet (1985 - 2007).
The cleanup from #3 will take 10 years. No matter how hard one tries to force up green shoots.
Glen, excellent counter points
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