The Big Picture - Macro Perspective on the Capital Markets, Economy, Technology, and Digital Media

The Economist Marketing Forum, San Francisco, CA
03.17.09

Speakers:
Martin Giles,
Ward Hanson,
Michael Lehmann

54 minutes

Summary
A panel of professors discuss how to spot an upturn in the current economic landscape at the Seventh Annual Marketing Forum hosted by The Economist in San Francisco. Speakers include: Ward Hanson, Policy Forum Director, Stanford Institute for Economic Policy Research; and Michael Lehmann, Emeritus Professor of Economics, University of San Francisco.

Moderated by Martin Giles, Senior Business Correspondent, The Economist.

Dilbert, 2 days in a row:

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Dan Greenhaus is at the Equity Strategy Group at Miller Tabak + Co. where he covers markets and portfolio theory. He has contributed several chapters to Investing From the Top Down: A Macro Approach to Capital Markets (by Anthony Crescenzi).

This is his most recent commentary:

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As we pullback a bit from the intraday high, the attached chart shows the rallies the market has undergone during this bear market. At an intraday high of 832.27 or so, the market had rallied 24.79% or so from its intraday low of 667ish. While we have pulled back from that high, it is worth noting that such a rally would make this the strongest rally of the entire bear market, surpassing the 24.225 rally we saw off the November low.

To repeat, we have seen previous bear markets end with rallies of unusual strength (relatively speaking). While this may or may not end up being the strongest rally of the current bear, it doesn’t change the fact that the rallies are getting stronger and while we can still move lower from here, Im beginning to believe that the bulk of the declines is behind us….for now. I still believe we will have a double dip recession but for now but in the meantime, a retest and hold of the lows will be encouraging.

Disclaimer: There was a retest and hold of the November lows in mid January that amounted to absolutely nothing other than the decline off of which we just bounced.

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Dan Greenhaus
Equity Strategy Group
Miller Tabak + Co

As you can imagine, most of these have been jumbo losers:

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Chart via Jake at Econompic
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Marketbeat:

Share repurchases by components of the Standard & Poor’s 500-stock index fell to lowest level in the fourth quarter of 2008 since the third quarter of 2004, according to S&P, as companies retreated into a hole, preserving cash as the market tanked.

According to the Federal Reserve’s flow of funds data, released quarterly, the biggest buyers of shares in the 2005-2007 period were U.S. corporations, coming at a time when households and mutual funds were net sellers of U.S. equities. The frenzy hit a peak in the third quarter of 2007, according to Standard & Poor’s, when $171.95 billion in repurchases took place – dovetailing neatly with the market’s peak.

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Source:
If Corporations Don’t Buy Stocks, Who Will?
David Gaffen
WSJ MarketBeat March 26, 2009, 12:08 PM ET

http://blogs.wsj.com/marketbeat/2009/03/26/if-corporations-dont-buy-stocks-who-will/

Nice interactive graphic via Russell.com:

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Graph via Russell Investments
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Hat tip Flowing Data

Laughable:

Higher Prices May Follow Home Sales

WSJ: Sales of new homes rose in February for the first time in seven months, the Commerce Department reported Wednesday, another sign that the housing market is thawing

Bloomberg: Purchases of new homes in the U.S. unexpectedly rose in February from a record low as plummeting prices and cheaper mortgage rates lured some buyers. Sales increased 4.7 percent to an annual pace of 337,000 . . .

Marketwatch: The U.S. housing sector continues to see signs of improvement. The latest government data showed new home sales climbed in February for the first time in seven months, sending shares of home-building companies soaring.

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A parade of the mathematically innumerate business writers (and even worse headline writers!) continue to misread data. The latest evidence? New Home Sales.

After incorrectly reporting the Existing Home Sales, the mainstream media misread the Census department report of New Homes.

No, New Home Sales data did not improve. In fact, they were not only not positive, they were actually horrific. The year over year number was a terrible down 41%.  Sales from this same period a year ago have nearly been halved.

Why did the media report this as positive? If you only read the headline number, you saw a positive datapoint: February was plus 4.7% over January.

To get the the facts, you need to read below the headline. In the present case, it wasn’t the seasonality factor that was confusing, it was the “90-percent confidence intervals” — or as it is more commonly known, the margin of error.

From the Census Bureau:

Sales of new one-family houses in February 2009 were at a seasonally adjusted annual rate of 337,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 4.7 percent (±18.3%)* above the revised January rate of 322,000, but is 41.1 percent (±7.9%) below the February 2008 estimate of 572,000.

The median sales price of new houses sold in February 2009 was $200,900; the average sales price was $251,000. The seasonally adjusted estimate of new houses for sale at the end of February was 330,000. This represents a supply of 12.2 months at the current sales rate.

Note that the month over month data at 4.7% — plus or minus 18.3% — is statistically insignificant. (i.e., meaningless). The reported data does not inform us if sales improved month-over-month or not. It is a range, from down -13.6% to plus 23%. Since “zero” is part of that range, we can draw no conclusion. As the Census Department itself notes, “the change is not statistically significant; that is, it is uncertain whether there was an increase or decrease.”

The data does however, tell us that the year-over-year sales fell 41.1% plus or minus 7.9% gives us a range of -49% to -33.2%. The entire range is negative, therefore we can conclude sales fell year-over-year.

These are facts. This is data. This is how you interpret it. Most of the MSM reports (WSJ, Marketwatch, Bloomberg) were simply wrong.

Not nuanced, not shaded, but 2+2=5 wrong.

Let me remind that many of these folks incorrectly misinformed you that Housing wasn’t getting worse in 2006, 2007 and 2008 — just as Home sales and prices went into an historic freefall. Now, these same folks are misinforming you that Housing has turned around and is improving. That is simply unsupported by the data.

(And don’t even ask about television — they simply read the wrong news. Here is a life lesson for you: Never believe news people who read teleprompters. They have no idea what they are doing, they are reading what someone else wrote. When it comes to data interpretation, they are quite literally clueless. Rely on news readers to your personal financial detriment).

The bottom line: Learn to interpret data correctly. Avoid using the people who cannot do so as primary news sources.

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New Home Sales Annual Sales Rate, Seasonal Adjusted

Chart via Census Department

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Previously:
A Closer Look at New Home Sales Data (October 2006)

http://www.ritholtz.com/blog/2006/10/a-closer-look-at-new-home-sales-data/

April New Home Sales – Revisited (November 2005)

http://www.ritholtz.com/blog/2005/11/new-home-sales-data-dont-rely-on-it-either/

New Home Sales Fall 42% (May 2008)

http://www.ritholtz.com/blog/2008/05/new-home-sales-fall-42/

Read the rest of this entry »

Fed Pres Lockhart in a speech a few hours ago in Paris is summing up well what is the growing angst in the markets that the Fed is sowing the seeds for big inflation with their aggressive steps by saying, “there’s reasonable concern related to the growth of the balance sheet of the central bank in response to the economic difficulties we’re having, that this could over the long term fuel inflation if the monetary aggregates are not managed well and if the Fed doesn’t react at the right time to remove some of the stimulus.” We are thus relying on a Fed that thought subprime was contained at a loss of maybe $150b in 2007 to somehow reverse their massively aggressive initiatives at the exact right time.

The implied inflation rate in 10 yr TIPS today is at 1.40%, up 40 bps in the past two weeks and at the highest level since early Oct. Hopes of a bottom in the global downturn is lifting Asian stocks sharply. Claims data is out at 8:30.

Update: Data

Initial Jobless Claims totaled 652k, about in line with forecasts and up from 644k last week. Continuing Claims continued its march higher, totaling 5.56mm, 85k more than expected and at a new high.

The Labor Dept made some changes to their seasonal adjustments going back 5 years but they said it didn’t have much of an impact on the data. While initial claims have flat lined at a high level over the past few months, the continued rise in continuing claims is evidence of a still deteriorating labor market.

When the economy does improve, whenever that might be, the labor market will lag and therefore should not be looked at as a leading indicator.

Q4 GDP was revised for a final time at -6.3%, .3% better than expected but with just a week left in Q1 the data is old news.