Posts filed under “Think Tank”

September Payrolls

Sept Payrolls fell by 263k, exceeding expectations by 88k and the two prior mo’s were revised a net 13k down. The Unemployment rate rose .1% to 9.8% as expected as the household survey fell by a sharp 785k but the labor market shrunk by 571k. The U6 figure which is the most comprehensive measure of employment rose .2% to 17%. The average time of unemployment rose to 26.2 weeks from 24.9. Average weekly hours fell .1%, matching the lowest level since at least 1964 at 33 hrs. Average hourly earnings rose .1%, .1% less than expected but the prior month was revised up by .1%. Education/health was the only group that saw job gains. Temp losses only fell by 2k which is one small light in the data as it’s a precursor to permanent jobs. The government, at all levels (even federal), shed jobs. The Birth/Death model magically added 34k vs 16k in Sept ’08. Payrolls follow data over the past week that is a reality check in terms of the sluggishness of the economy and the bumpy road to recovery it will be.

Category: MacroNotes

King Report: Economic Data Turns South

> For the past two weeks we have been warning that economic data is turning lower. On Wednesday, US beancounters manufactured a better than expected GDP but private economic data appeared that was materially worse than expected. The ADP Employment change for September is -240k; -200k was expected. More importantly, the closely-watched Chgo PMI declined…Read More

Category: Think Tank

Pending Home Sales, get in before the door (maybe) closes

August Pending Home Sales (contract signings), rose 6.4% m/o/m, well above estimates of a gain of 1% with all 4 regions seeing gains led by the West (has seen most of the foreclosures). The chief economist of the NAR summed up the boost by saying “no doubt many first time buyers are rushing to beat…Read More

Category: MacroNotes

Welsh Investment letter – September 2009



Growing up in Chicago, I looked forward to every baseball season, and I cheered for both the White Sox and Cubs, since neither team won that much. I never saw the point in being choosey. The GO-Go White Sox went to the World Series in 1959, before winning it 46 years later in 2005, and 88 years after winning in 1917. The Cubs haven’t won a World Series since 1908, and that 100 year streak appears safe in 2009. Anyone following the San Diego Padres knows the season was effectively over by early June. But, what so often happened in Chicago as I was growing up, the home team has started playing much better near the end of the season, with a bunch of no-name young guys. For any diehard baseball fan that means there’s hope for next year! In fact, over the last 50 games the Padres have been playing .600 ball, so next year they could win 96 games and go to the play offs!! Thinking about next year is just the medicine needed to overlook the current reality. The Padres are still 15 games below .500, and 22 games out of first place.

The psychology of the diehard sports fan is very similar to the psychology that drives most institutional money managers, in relation to the economy and stock market. As the economic data points have gone from dreadful to lousy since March, institutional money managers have been looking forward to next season (the second half of 2009). As I have forecast since March, GDP was likely to be positive in the fourth quarter, and possibly in the third quarter. In the July letter, I explained why the recession probably ended in July. This week Federal Reserve Chairman Bernanke confirmed what should have already been obvious to most economists, when he said that “From a technical perspective the recession is very likely over at this point.” As noted in July, the end of the recession only marks the trough in economic activity, and tells us nothing about the strength and durability of the subsequent recovery.

The stock market bottomed in March, and it would appear the economy bottomed in July. The sequence of the stock market bottoming before the economy will perpetuate one of the great falsehoods on Wall Street, which says the stock market anticipates and discounts the future. In this case, the sages state that the rally off the March low is discounting the coming earnings rebound. Myths are maintained because there is just enough truth to convince the unsuspecting. The irony in this case is the unsuspecting are the same people spewing this nonsense. What the Wall Street sages will fail to mention is that the rallies off the lows of March 2008, July 2008, October 2008 and November 2008 were all heralded as signs the economy was about to turn for the better. They also won’t explain what wonders the NASDAQ was discounting when it traded above 5,000 in April of 2000, or when the DJIA reached 14,200 in October 2007.

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Category: Think Tank

ISM, up, up and away or just up?

ISM mfr’g fell to 52.6 from 52.9 in Aug and was below expectations of a gain to 54. It is however above 50 for a 2nd straight month but there was a cooling in New Orders which had jumped in the prior two months. They fell about 4 pts to 60.8 but remain well above…Read More

Category: MacroNotes


Aug Personal Income rose .2%, .1% more than expected and July was revised up by .2%. Spending rose 1.3%, .2% higher than forecasted and most of the gain in the durable goods category was due to the Clunker program. Durable goods purchases, which reflect auto’s, rose 5.3% vs a 1.3% gain in July. The headline…Read More

Category: MacroNotes

Wink, Wink, Nod, Nod

With benign neglect with the continued depreciation of the US$ the unofficial policy of US officials, it’s been left to our trading partners to verbally jawbone a reversal. Ahead of the G7 meeting this weekend, Trichet said “excess volatility” in the FX market may have “adverse implications.” This is code for “I don’t like the…Read More

Category: MacroNotes

Central Bank Exit Policies

Complete text of Vice Chairman Donald L. Kohn’s speech:

Central Bank Exit Policies
At the Cato Institute’s Shadow Open Market Committee Meeting, Washington, D.C.
September 30, 2009

I am pleased to be on this panel on exiting from the unusual policies the Federal Reserve and other central banks have put in place to ameliorate the effects of the financial turmoil of the past two years. Chairman Bernanke has made a concerted effort to explain the thinking of the Federal Reserve in this regard, because it is so important that the public understand we have the means to meet our objectives of fostering stable prices and high employment. I will briefly underline some aspects of the Federal Reserve’s framework for exiting that I believe to be especially critical to that understanding.1

Conditions for Exit
In its most important aspects, the decision about when to begin exiting from the unusual policies is not materially different from any decision to start tightening monetary policy. We will need to begin to remove the extraordinary degree of accommodation in its various dimensions when we judge that exiting from the current stance of policy will be necessary to preserve price stability as the economy returns to higher levels of resource utilization. Because it takes people time to adjust their spending and pricing decisions in response to a change in interest rates or other aspects of financial conditions, like other monetary policy decisions, that judgment will need to be based on a forecast of economic developments, not on current conditions. So we must begin to withdraw accommodation well before aggregate spending threatens to press against potential supply, and well before inflation as well as inflation expectations rise above levels consistent with price stability.

I cannot give you a small list of variables that will trigger an exit; as always, our forecasts will use all available sources of information. And I can’t predict how rapidly we will have to raise short-term interest rates from around zero or remove other forms of accommodation; that too depends on how the economy seems to be recovering and the outlook for inflation. Clearly, the present degree of accommodation–as gauged by nominal and real short-term interest rates and the size of our balance sheet–is extraordinary, and we will have to take account of how that is influencing spending and inflation expectations when deciding when and how fast to tighten.

Tools for Exit
We have the framework to exit from these policies when we need to do so. And the tools at our disposal will allow us to do so at the pace and in the sequence we judge will best meet our objectives.

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Category: Federal Reserve, Think Tank

The Fed’s Kohn on exit strategies/Does Vegas have odds?

Vice Chairman of the Fed Kohn in a speech titled ‘Central Bank Exit Policies,’ is laying out the ‘conditions for exit,’ ‘the tools for exit,’ and the ‘communication about exit.’ In contrast to comments from Warsh and Plosser about having to raise rates as quickly as they cut, Kohn is saying “I can’t predict how…Read More

Category: MacroNotes

Chicago PMI

The Sept Chicago PMI was much weaker than expected and back below 50 at 46.1. Expectations were 52 vs 50 in Aug. Maybe call it the Clunker hangover as New Orders fell 6 points to 46.3, a 3 month low and Order Backlogs fell 9 points to 36.7. Employment was little changed at 38.8. Inventories…Read More

Category: MacroNotes