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Another terrific set of charts from the Time’s Floyd Norris:

“The economic recovery that has followed the end of the 2007-9 recession may be properly named the private enterprise bounce. While the overall recovery is comparable to recoveries after the two previous recessions, this one has been pushed higher by rising private investment and hiring, and held back by cuts in government spending and hiring.”

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click for larger chart

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Source:
A Recovery With Business Stepping Out in Front
FLOYD NORRIS
NYT, February 10, 2012
http://www.nytimes.com/2012/02/11/business/economy/a-recovery-with-business-out-front.html

The folks at ISI are suggesting that the economic and policy data is beginning to become overwhelmingly positive. I am less sanguine then they are, and I disagree with a few of the bullet points (#1 especially).

However, it is a pretty long list of things that seem to be improving — or at least not getting worse:

• Housing starting to recover
• Labor market improving
• Credit expansion unfolding
• Low dollar
• Low rates
• Pent-up demand
• US mfg renaissance
• US energy sector booming
• Double-dip fears minimal so far this year
• Inflation receding around the world
• Europe financial strains have eased
• Liquidity is building in the world economy, eg, corporate cash
• There’ve been 83 stimulative policy initiatives announced around
the world over the past 5 months, eg, Indonesia cut rates
• The Fed has rates on hold at zero and is doing Operation Twist
• ECB is scheduled to further expand its balance sheet on Feb 29
by as much as + €1t
• There are no particular problems at the moment such as Japan
disasters, Thailand floods, supply-chain disruptions, gasoline
price spikes, and debt ceiling crises

What do you think? Is the data objectively getting better, or is this merely a selective list of positives?

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What say ye?

Dow Theory — a study of the relationship between the Industrials and the Transports — are suggesting a potential inflection point is nearing.

A move above 12,900 in the Dow Industrials would surpass the April 2011 highs, and the bulls would like to see that confirmed by the Trannies getting over 5630.

As we see from the indices via The Chart Store below, both the Industrials & Trannies are on the verge of that breakout. Just note that Classic Technical analysis requires you wait for the breakout/breakdown confirmation, rather than anticipate it.

Caveat: I am not a Dow Theorist, and this is a grossly oversimplified explanation. For more details, Wikipedia has an excellent primer on the major tenets of Dow Theory. Or check out Richard Russell’s The History of the Dow Theory.

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Click to enlarge:

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Source: The Chart Store

Click interactive chart to see which sectors have lost or gained the most jobs cumulatively since the recovery started:

Source: WSJ, January 4, 2012

Floyd Norris explains why the picture for Global Growth has been disappointing:

“United States economy has been growing at its slowest rate since the Great Depression. Most other major developed countries have also experienced unusually slow growth over the last 10 years.

The American economy’s reported 2.8 percent growth in the fourth quarter, at an annual rate, was seen as mildly encouraging. But it meant that over the previous 10 years, the economy had grown at a compound annual rate of just 1.7 percent. Until the current cycle, there had been no similar prolonged period of slow growth since the Depression.”

Charts below reflect the IMF forecasts of 1.8% real growth in 2012 and 2.2% in 2013. For the US, the past decade will have fallen to 1.5%. This is well below trend for any prior 10-year American period — but still above the 0.9 percent compound growth rate in the decade from 1929, the year the Depression began, to 1939.

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Source:
A Bleak Outlook for Long-Term Growth
FLOYD NORRIS
NYT, February 3, 2012   
http://www.nytimes.com/2012/02/04/business/a-long-term-slide-in-growth-for-industrialized-economies.html

Tomorrow is (yet again) NFP day. While everyone is worrying about whether the December numbers were merely seasonal, we should also consider some of the longer term trends in Unemployment. These have major repercussions for Retail Sales and the ongoing Housing Weakness.

Fortunately, Pew Trusts gave us a full overview:

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How Long Have the Unemployed Been Jobless?

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Where are the Long-Term Unemployed?
Total and Long-Term Unemployment by Census Division, Quarter 4, 2011

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More charts after the jump

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Yesterday morning (January 31, 2012), I recorded this video with Yahoo Daily Ticker:

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Source: Barry Ritholtz: Yes, The Economy’s Lousy, But Stocks Still Look Good

Friday’s release of GDP prompted me to get back to the keyboard. I confess that between my day job and musing about economic issues for TBP and @TBPinvictus, I have been time challenged. I’ve been leaning toward the one that pays the bills.

Back to Friday’s GDP data: 2.8% was weaker than expectations, and the guts were weaker still. Dean Baker does a very nice job explaining the weakness here.

A few simple charts show the magnitude of the hole we’re still struggling to dig out of. All three involve Real GDP and Potential GDP; we’re just getting three distinct views.

At this point, Real GDP and Real Potential GDP are running roughly parallel to each other — we’ll obviously never close the gap with that being the case:>

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We still have a “hole” of almost $1 trillion dollars of slack in our economy:

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That $1 trillion of slack represents a deficit of about 7% off our potential.

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A few noteworthy comments on GDP:

Via Catherine Rampell’s Twitter stream I learned that “2011 overall was the slowest non-recessionary year of GDP growth since 1947, says Neal Soss of Credit-Suisse.”

And from Stephanie Pomboy, via Alan Abelson in Barron’s, we learned that:

“Fully 1.94 percentage points of the 2.8% GDP number came from an inventory build (just the kind of hefty involuntary rise, we might add, that often is followed by a contraction as companies trim their excessive stocks of goods). That means, Stephanie says, that real final sales were up a feeble 0.8%. And that figure benefited significantly from a big jump in auto purchases that all by itself chipped in 0.3 percentage point to GDP.”

To quantify Mr. Abelson’s parenthetical comment:  Historically speaking, there appears to be about a 68 percent probability we’ll see an inventory contraction for the first quarter.  In the past 52 years — 208 quarters — inventories contributed more than 1.75% 40 times (a 1-in-5 occurrence).  Of those 40 times, the following quarter showed contraction in inventories 27 times.

Among our ongoing trouble spots, of course, is the housing market, which at this point seems to be bouncing along what we all hope will be the bottom.  One category measuring activity in that sector is Private Residential Fixed Investment (PRFI), which peaked in early 2006 at $813 billion (SAAR).  It is now about 42% of that level — at $346 billion (SAAR), and has been running at roughly 60 percent of the level it was at when we slipped into recession (i.e. the economic peak) in the fourth quarter of 2007.  Below is a chart demonstrating exactly how weak housing is relative to other recessions:

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Visit msnbc.com for breaking news, world news, and news about the economy

January 23, 2012

Transcript after the jump

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For the 2nd consecutive month, FDI into China declined (by -12.7%) in December to US$12.2bn YoY. FDI was down by -9.8% in November, the 1st decline since 2009. However, 2011 FDI came in at a record US$116bn. As I keep banging on, FDI into China should decline materially in the current year, which, in my humble view, will result in a flat (possibly even a lower Yuan) against the US$ – outflows of speculative money, combined with capital outflows generally, will negatively impact the currency;

Chinese authorities concern about a declining equity market has resulted in relaxation of restrictions by foreign investors and, inter alia, buying by state funds. Personally, I believe these measures represent the significant concern of the Chinese authorities and I for one will not be a buyer;

The Chinese Securities Journal reports that there will be no cut in interest rates in the 1st Q 2012 and any adjustment will be made through reducing RRR’s. Another Chinese publication suggests that RRR’s will be cut by 50bps this month;

Chinese new home prices rose in just 2 out of 70 cities in December. They were up +1.8% on the year, down from +2.4% in November YoY. Chinese authorities are of the opinion that they can “manage” residential home prices lower – they will learn. Bloomberg reports that the Chinese are moving away from property and the stock markets and are buying Gold. By some accounts, China has been buying more gold than even India;

Euro Zone December inflation came in at +0.3% MoM or +2.7% YoY, lower than expectations of +0.4% and +2.8% respectively;

German consumer confidence rose by a record in January. The ZEW index rose to -21.6 from -53.8 in December, much better than forecasts of -49.4. The ZEW gauge of current conditions rose to 28.4, from 26.8. Domestic demand is expected to keep the German economy ticking over. In addition, the recent 3 year LTRO’s and expectations that the ECB will cut its benchmark interest rate further were the main reasons for the improvement as were expectations that the worst of the Euro Zone crisis was over !!!!!. German newspapers report that the Government is forecasting GDP growth of +0.75% for the current year – pretty optimistic in my view – the problem is that the Germans seriously believe that they will be immnune from a sharply declining Europe and a global slowdown – complete rubbish;

Fitch stated that Greece will default on its E14.5bn bond, which matures on 20th March. None of the traditional “may” or “possibly” or …. Pretty definitive statement – personally, I think that Greece will reach an agreement with private bondholders on PSI. However, its residual debt load will remain unaffordable. As a result, I, like Fitch, believe that Greece will default, but its unlikely to be as a result of the E14.5bn bond, maturing on the 20th March;

Mario Draghi’s comments are getting more and more strident – getting concerned do you think?

UK December CPI was up by 0.4% MoM or +4.2% YoY, well below November’s annual rate of +4.8% and in line with forecasts. The YoY decline from November was the largest slowdown in inflation since April 2009. Inflation, which peaked at +5.2% last September is expected to decline much further due, to a large part, to base effects. Annual inflation measured by the retail price index fell to +4.8% in December, from +5.2% in November. Core annual inflation slowed to +3.0% in December, from +3.2% in November. The decline in inflation will support the BoE’s policy and, in addition, will enable the BoE to increase its QE programme, from the current Sterling 275bn in either February or March – the BoE forecasts that inflation will decline to below 2.0% by the year end;

The World bank has cut its forecast for 2012 global GDP to +2.5% from +3.6% last June. They suggest that the Euro Zone may contract by -0.3%, from a previous estimate of growth of +1.8%. Their US GDP forecast was reduced to +2.2%, from +2.9% previously. China is forecast to grow by +8.4% and India by +6.5%, both optimistic, in my humble view. In particular, the World Bank warns EM’s that their economies will be hit in particular if there is a serious crisis in Europe ie NO DECOUPLING. Mr O’Neill of GS however, keeps banging on about EM’s and China, in particular – does anyone still take him seriously !!!!;

The material reduction in short term rates of, for example, Spanish and Italian bonds is likely to force these countries to issue shorter term debt to avoid excessive interest rates on longer term maturities. However, the average maturity profile will clearly decline, representing a problem for the future. Clearly the ECB’s 3 year LTRO has had a material impact – if only to stop mass selling;

Summary

The euphoria surrounding better than expected Chinese 4th Q data did not convince US markets and, as a result, European markets drifted off their highs on the lack of US follow through. The Euro rallied yesterday – just keep shorting in my view, though watch out for Japanese buying. Brent is hovering just below US$112.

Numerous and conflicting reports re the Greek PSI negotiations circulate – personally, I believe a deal will be done, but Greece will default some time thereafter.

Asian markets are mixed with the Nikkei the star performer on technical buying. Looks like it will be a lower European opening.