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

On Sunday, I mentioned the Association of American Railroads “Rail Time Indicators.” It was not showing any green shoots.

That post, plus yesterday’s rant on the NAR (More NAR Nonsense), led to Doug Smith, Executive Director of The Sulzberger Leadership Program at Columbia School of Journalism, asking the following question: “Which of these associations are credible versus those that are NAR-like?”

The best way to determine that is to look at the data they release, juxtaposed against any quotes from their spokesman/economist. Are they spinning, sugarcoating or otherwise “prettying up” the news release? Once you get through that review, take a closer look at their disclosed methodologies. Are they defendable approaches that produce negative as well s positive outcomes? Or are they biased, and unlikely to ever say a bad word about their respective industry or economic sectors?

My favorite example of worthless data comes from the NAR — specifically, their Housing Affordability Index.  During the entire housing boom and credit bubble, they NAR HAI showed only one single month when houses were considered “less than affordable.” That is simply a pathetic joke making that index worthless.

Other trade groups seem less biased and more reliable.  The AAR seems like a legitimate group. As another example, let’s also take a look at the American Trucking Associations’ data. Specifically, the monthly advanced seasonally adjusted (SA) For-Hire Truck Tonnage Index, released late yesterday afternoon. Following May’s 3.2% jump (seasonally adjusted of course) it fell 2.4% in June. This dropped the index to 99.8 (2000=100). The change in tonnage hauled by fleets before any seasonal adjustment was up 5.2% in June from May. Compare this with June 2008, when tonnage fell 13.6%. So far, the June 08 contraction was the largest year-over-year decrease of the current cycle, exceeding the 13.2 percent drop in April.

Now consider the “no-spin” statement from the ATA’s Chief Economist, Bob Costello that accompanied this data release:

“While I am hopeful that the worst is behind us, I just don’t see anything on the economic horizon that suggests freight tonnage is about to rise significantly or consistently. The consumer is still facing too many headwinds, including employment losses, tight credit, and falling home values, to name a few, that will make it very difficult for household spending to jump in the near term. As a result, this is likely to be the first time in memory that truck tonnage doesn’t lead the macro economy out of a recession. Today, many new product orders can be fulfilled with current inventories, not new production, thus suppressing truck tonnage.”

That seems to me to be straight talk — no spin, no wishful thinking — just the straight shit. You gotta respect any economist who doesn’t mince words and simply gives you his views, straight up, no chaser.

What are the better industry trade groups? Which non government, non-academic associations produce reliable, spin free data?

chart via ATA

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Previously:
NAR Housing Affordability Index is Worthless (August 13th, 2008)

http://www.ritholtz.com/blog/tag/the-nar-housing-affordability-index-ignores-things-like/

Source:
ATA Truck Tonnage Index Fell 2.4 Percent in June
AMERICAN TRUCKING ASSOCIATIONS, July 27, 2009 4:45 PM

http://www.truckline.com/pages/article.aspx?id=567%2F{8E1C7279-ED27-4C03-B189-CEEEE26BBB12}

See also:
Tracking NAR Spin (April 23rd, 2008)

http://www.ritholtz.com/blog/2008/04/tracking-nar-spin/

Worst. Forecasters. Ever?
The cockeyed optimists of the National Association of Realtors.
Daniel Gross
Slate, Monday, Dec. 10, 2007

http://www.slate.com/id/2179605/

NAR and Housing Forecasts (June 7th, 2007)

http://www.ritholtz.com/blog/2007/06/nar-and-housing-forecasts/

It appears that Bank Failures are accelerating, at least according to this chart from Ron Griess of The Chart Store:

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Fun user generated stuff:

Good Evening: As they have so many times in recent weeks, U.S. stocks were able to overcome some early bumpiness to finish higher on the day. Some earnings disappointments were responsible for this morning’s profit taking, but stronger sales of new homes powered the home building and financial sectors enough to lift the averages into positive territory. It’s hard to give much weight to today’s action, since volume was so light, but the S&P 500 continues to trade as if it has a rendezvous with the 1000 level. The fundamental analysts, the technicians, and the cheerleaders on CNBC are all telling investors to get in now before the markets go even higher, so perhaps it makes sense to check back in with Jeremy Grantham to gain some perspective.

Stocks around the world were in the plus column heading into Monday morning’s trading in New York. Some lighter than expected earnings from the likes of Aetna and Corning, and, to a lesser extent, Verizon and Honeywell, worked to subvert the early upticks, however, and stocks opened on the shady side of unchanged. The averages went from red to green as soon as some surprisingly good new homes data were released 30 minutes into the day (see below). That rally faded when the incentives needed to achieve those sales were revealed, and stocks hit their lows for the day (down approximately 0.5%) some 45 minutes later.

But the housing news helped enough homebuilding and financial stocks to lift the tape back toward unchanged just before lunch, and the averages drifted slowly and unevenly higher from there. Trading was on the dull side throughout the session, though I will say breadth was firmly positive. By day’s end, the Dow Transports were up 1% to lead the way, while the NASDAQ lagged with only fractional gains. More than the housing data, it was in preparing for an onslaught of new supply that hurt Treasurys today. Yields were up between 4 and 9 basis points ahead of $115 billion worth of new paper this week. For its part, the dollar was weaker against all but the yen, but it wasn’t enough to ramp up the commodity pits. Helped by advances in both the grains and the metals, the CRB index squeezed out a gain of 0.2%.

Judging by the rest of the articles you see below, the bullish consensus is becoming more crowded by the day. On the fundamental side, equity analysts have been busily upping their earnings estimates for 2010, causing Bloomberg to posit that the S&P could rally another 26% from here. Since these are the same analysts who had to take erasers to their 2008/2009 estimates, let’s see if the technical analysts have anything to add to the outlook. Lo and behold, they’re bullish, too, saying the S&P 500 is now in “breakout” mode. This is the same crowd that missed the long term double top in the S&P back in October of 2007, and many of them also thought the October/November lows in 2008 were “THE bottom”. Still, with the fundamental and technical analysts both giving investors the “all clear” sign, seeing the last set of headlines on Bloomberg today made it seem as if even the bears had turned bullish.

Jeremy Grantham is commonly thought of as a pessimist, but it is a moniker that is better suited to headlines and Twitter than it is to the man himself. If Bloomberg is vying to become a sort of “Cliff’s Notes” for investors, then what they served up to readers about Mr. Grantham’s latest views does not pass muster. In reality, as well as in the piece you see attached, Mr. Grantham is not the Blue Chip bull the article suggests. He does have nice things to say about “U.S. Blue Chip stocks”, but his views are far more nuanced that a simple “up or down, bullish or bearish” connotation could ever hope to capture.

Mr. Grantham cares about value, first and foremost, and then relative value among sectors and asset classes. In such an uncertain world, Mr. Grantham maintains that the closest thing to certainty that can be found when investing is to take the other side of bubbles. In the late 1990′s, he shunned the zany prices for tech and telecom names, paying the price with some underperformance and some lost clients. A few years ago, he avoided exposure to real estate and finance, but GMO’s performance was helped by an overweight in emerging markets. When the averages were circling the drain back in March, Mr. Grantham gritted his teeth, bought stocks, and then wrote (virtually in real time) how hard it was to do so. Jeremy Grantham does not lack courage, even when he harbors doubts.

So what does this well regarded, long term value investor have to say about the choices arrayed before him in July of 2009? After a nearly 50% run in the indexes, Mr. Grantham bemoans the paucity of easy choices. He knows a broken bubbles in credit and real estate mean the economy is unlikely to roar back, but he is also mindful of the power of all the policy intervention by governments and central banks. He sees “the market” as being close to fairly priced, and he thinks a quick run to 1000 or higher in the S&P 500 is an even money proposition. If the S&P does pop another 5% to 10%, Mr. Grantham will once again batten down the hatches and await better opportunities. And while he likes “high quality” (low debt, P/E, and P/B ratios) blue chip stocks, he is not blindly wedded to the large cap Dow. He likes to emphasize quality and value, especially on a relative basis to lower quality names.

He also (still) favors emerging markets, though he is trying to reconcile his ardor for fast growing overseas economies with what he sees are growing imbalances in China. As an aside on market sentiment, Mr. Grantham notes that at a recent conference he attended, managers who were more concerned about underexposure in a rally outnumbered those worried about overexposure to a renewed decline by 10 to 1. All in all, he finds a “Boring Fair Price” type of market a tough environment in which to deliver outperformance to his clients. I agree. I also think that if silly labels must be affixed to money managers during the information age, maybe next time Bloomberg will be a little more precise when describing Jeremy Grantham to its readers. Rather than “blue chip bull”, they should call him a thoughtful contrarian.

– Jack McHugh

U.S. Stocks Rise as Gain in Home Sales Sends Banks, Builders Up
U.S. New-Home Sales Climb 11%, Most in Eight Years
Surging Profit Estimates Signal 26% Rally for S&P 500
S&P 500’s ‘Solid Breakout’ Points to Gains: Technical Analysis
Grantham Says U.S. ‘Blue Chips’ Are Cheapest Stocks
jeremy-granthams-quarterly-letter-july-2009

Niall Ferguson, the Laurence A. Tisch Professor of History at Harvard University, and The Atlantic’s James Fallows discuss the financial relationship between the United States and China as part of the 2009 Aspen Ideas Festival.

The event was moderated by Scott Stossel.

Awesome:

“National New Home Sales, on a monthly basis, don’t even add up to half of the total foreclosure activity in California alone in a single month.”

-Mark M Hanson

Here’s the PDF of the letter, with text below. Signers are Alan Grayson, Ron Paul, Walter Jones, Brad Miller, Dan Lipinski, Elijah Cummings, Tom Perriello, Maxine Waters, Jackie Speier, and Maurice Hinchey.

Federal Reserve letter on GS is here.

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Monday linkage — some things from off the beaten path:

• Jeremy Grantham calls markets at a Boring Fair Price!, and he is Waiting for Markets to be Silly Again;  Since early March, the market has had the type of strong speculative rally that often follows extreme declines.

• After calling for a generational bottom in early March, Doug Kass now likes Cash (TheStreet.com)

• Tenacious G: Inside Goldman Sachs, America’s most successful, cynical, envied, despised, and (in its view, anyway) misunderstood engine of capitalism (NY Mag)

• 10 Members Send Letter to Federal Reserve on Goldman Sachs Gambling with Government Money

• Subprime Sequel: Mortgage fraud has doubled since 2007, according to the FBI—and the fraudsters include everyone from individuals fudging loan forms to thieves who steal millions from lenders and victims alike. The danger is with Mortgage fraud skyrocketing, the housing market won’t rebound if it’s tainted by sleaze. (Reader’s Digest)

• UBS Bans Leveraged, Inverse ETFs (ETF Database)

• Fear, Falling Demand Keep Loans: The total amount of loans held by 15 large U.S. banks shrank by 2.8% in the second quarter, and more than half of the loan volume in April and May came from refinancing mortgages and renewing credit to businesses, not new loans, an analysis by The Wall Street Journal shows. (MarketBeat)

• Three months EHS in a row means what? Are EHS Improvement stretching three months something special? Was it in 2006 or 2007?  (The Mess That Greenspan Made)

• The despicable Ben Stein (Felix Salmon)

• Earnings game: Don’t take the spin Because it’s let’s-play-beat-the-number season (i.e., when corporate earnings are reported), let’s look at what a game it is (Bill Fleckenstein)

• Real Yields Highest Since 1994 Aid Record Debt Sales: Treasuries are the cheapest relative to inflation since 1994 after consumer prices fell 1.4 percent in June from a year earlier. (Bloomberg)

• Get ready for banking’s next headache: Though housing markets remain weak, analysts expect credit problems over the next year to center on $1.8 trillion worth of commercial real estate — mortgages on office and apartment buildings and shopping malls, as well as construction, development and industrial loans. (Fortune)

• Distressing Gap: Ratio of Existing to New Home Sales: In many areas,  home builders cannot compete with distressed and REO sales, and this has pushed down New Home Sales (Calculated Risk)

• Why Counting Money Can Make You Happier (Time)

• Funny stuff:  The Associated Press discovers the Web

Anything else clickworthy?

The 20 year TIPS auction was mixed as the yield was almost 2 bps above where it was trading just prior but the bid to cover at 2.27 was the highest since this product was introduced in July ’04. The average has been around 1.80. The level of indirect bidders totaled 47.8% vs the average seen since ’04 at 54.5% but the comparison is now apples to oranges as the Treasury has altered the methodology of calculating the number of indirect bidders. The backdrop of this auction was implied inflation expectations that have ticked up over the past few weeks to the highest level since mid June, with the rally in stocks and also the US$ index trending near the lowest level since Dec. As long as the Fed is running both ZIRP and QE policies, there will be good demand for inflation protection. The other key auction of the week will be Thursday’s 7 year as the others are shorter term in nature that should not present a problem in selling.

Earlier this year, I had the privilege of participating in a discussion at American Institute for Economic Research on CDS with Martin Mayer, Walker Todd, David Michaels, Chief Financial Officer, AIER; Arthur Kimball-Stanley, a student at Boston College School of Law known for his research on CDS and insurance; Patricia McCoy of the University of Connecticut School of Law, and a number of other colleagues.

Below are Martin’s notes for the event where he makes some telling points about CDS, the nature of markets and life in general, which we published today with his permission.   You may read our comment on CDS, “White Swans and Credit Default Swaps,” in today’s issue of The Institutional Risk Analyst by clicking here.

On Credit Default Swaps: Comments at AIER, June 25, 2009

By Martin Mayer

Let me open with a large thought you can carry with you when you leave. Note how we are no longer being told that the chairman of the Federal Reserve is the second most powerful man in America. Why do you think that is true?

One of the truly awful moments of my time in this business was the early evening of December 9, 1982, an incident not in any of the histories but highly revelatory. What happened that evening was that Banco do Brasil failed at CHIPS (the Clearing House Interbank Payments System). Neither National City Bank nor Chemical, which represented Banco d Brasil in New York, was willing to pony up the $300-plus million the Brazilians couldn’t find. So they kept the window open until midnight, while the Fed worked its necromancy on its member banks and the money was found.

Subsequent examination revealed that after the Mexican collapse the previous summer, Banco do Brasil had found it increasingly difficult to roll over its loans, and had steadily switched a higher and higher share of its borrowings out of the conventional lending and borrowing market and into the overnight infrastructure market. For more than six months, the Brazilians had increased the size of its overnight position, until somebody at National City noticed and said, No more. Read the rest of this entry »