Posts filed under “Think Tank”

July Consumer Credit

July Consumer Credit fell a much bigger than expected $21.6b vs the consensus of a drop of $4b to a total of $2.47t outstanding. June was also revised lower to a decline of $15.5b from the initial reading of a fall of $10.3b. Both revolving (mostly credit cards) and non revolving (mostly auto’s) credit balances were lower and the overall amount outstanding has now fallen 9 out of the past 10 months. Because the clunker auto program began in late July, this data likely doesn’t reflect the influence on non revolving credit outstanding. Rising unemployment, cut/reduced credit lines, consumer savings and less spending are all the influences on the consumer credit data and the reduction is a secular, long term trend which impacts economic activity in the short term but the extinguishment of debt is what our country desperately needs for the benefit of the long term.

Category: MacroNotes

3 year note auction/where are the risk takers?

The 3 year note auction was solid as the yield was a touch more than 1 bps lower than where it was trading in the when issued market and the bid to cover at 3.02 was the best since Nov ’08 and well above the average in ’09 of 2.57. The level of indirect bidders…Read More

Category: MacroNotes

$/gold/TIPs/conventional treasuries

In response to the move lower in the US$ and move higher in gold and other commodities, the implied inflation rate in the 5 yr TIPS has risen 1.4%, up 10 bps from Friday and at the highest level since Aug 11th. The implied inflation rate in the 10 yr TIPS is up to 1.86%,…Read More

Category: MacroNotes

A Conversation About Payroll Data That You Never Saw On CNBC

I am pleased to introduce Bob Bronson. For the past 42 years, Bob Bronson has applied a disciplined, analytical approach to understanding and forecasting capital markets and advising investment advisors. Through his rigorous analysis of capital markets and economic data and his background in mathematics and financial economics, he has developed a number of unique…Read More

Category: Think Tank

Gold and the S&P’s

There is nothing like a vacation to get some r&r, spend some time with loved ones, reflect on the past and think about the future. With gold now above $1000 again, about the same level of the S&P’s, the $ index just 8% from record lows and 4 more years of B52 Ben, lets reflect….Read More

Category: MacroNotes

Bankers and Beavers

Bankers and Beavers Labor Day, September 6, 2009 Drive north on US Route 1 about 2 miles from Princeton, Maine and turn right on Telephone Road. Five miles of gravel takes you to the edge of Tomah Stream, a serene, magical place on the edge of the Passamaquoddy Indian reservation. We turned onto Telephone Road….Read More

Category: Think Tank

The Elements of Deflation

As every school child knows, water is formed by the two elements of hydrogen and
oxygen in a very simple formula we all know as H2O. Today we start a series that
starts with the question, What are the elements that comprise deflation? Far
from being simple, the “equation” for deflation is as complex as that of DNA.
And sadly, while the genome project has helped us with great insights into how
DNA works, economic analysis is still back in the 1950s when it comes to
decoding deflation. Notwithstanding the paucity of understanding we can glean
from the dismal science, in this week’s letter we will start thinking about the
most fundamentally important question of the day: is inflation, or deflation,
in our future?

But quickly, I want to thank the many people who wrote very kind words about last
week’s letter. Many thought it was one of the better letters I have done in a
long time. If you did not read it, you can read it here. And of course, you can go there and sign up to get this letter sent to you each week for free. Why not become of my 1 million (plus and growing) closest friends?

The Failure of Economics

Among the economists and writers I regularly read, there are some who, if they agree
with me, I go back and check my assumptions – I must have been wrong. Paul Krugman is one of those thinkers. I admit to his brilliance, but his left-leaning philosophy does not particularly square with mine, and I find that most of the time I disagree.

That being said, I strongly encourage you to read his essay in the New York Times Magazine, which comes out this weekend. It is worth the high price of the Times to read it, if you can’t get it online. It is a very hard critique and analysis of the failure of current macro and financial economic
thought, which didn’t even come close to predicting the current financial
malaise. Indeed, as he points out, most schools of thought said the state we
are in could not happen. You can read at the essay if you are a member, or
register for free if you are not.

Krugman writes, as I have in repeated columns, that we have taught two generations of
economists and financial practitioners faulty theories. Even now, believers in
the Efficient Market Hypothesis and CAPM hold to their beliefs in the face of
clearly contrary evidence. It is a very thought-provoking piece and worthy of a
long weekend read. He names specific names and pulls no punches. This is as
close to starting a barroom brawl as you get in economic circles.

Read More

Category: Think Tank

What’s a Four Letter Word for Risk Aversion?

Good Evening: After giving ground in recent days, U.S. stocks found their footing on Thursday. The S&P 500 had been fidgeting around just below 1000 since Tuesday’s downdraft, but the widely watched index managed to finish above this psychological barrier today. Whether this rebound after the 4% pullback from last week’s high signals either a…Read More

Category: Markets, Think Tank

Global stock market performance roundup (thru 8.09)

Global stock market performance roundup (August 31, 2009)

The performance of a number of global stock markets is given in the table below in local currency terms for different measurement terms ended August 31. The numbers speak for themselves, but it is noteworthy that the MSCI World Index (+3.9%) and MSCI Emerging Markets Index (-0.2%) followed separate paths in August as China, Hong Kong and India underperformed.

Click here or on the table below for a larger image.


Top performers during August included Austria (+11.3%), Ireland (+10.9%) and Venezuela (+10.6%). At the bottom end of the performance rankings countries included China (-21.8%), Hong Kong (-4.1%) and India (0%).

The key moving-average levels are also given in the table above. With the exception of the Chinese Shanghai Composite Index, which fell below its 50-day moving average about two weeks ago, all the indices are trading above their respective 50- and 200-day moving averages. The 50-day lines are also above the 200-day lines in all instances.

The gains/declines mentioned above are all in local currency terms. However, converting the movements to US dollar gives a better picture, in general, for the non-dollar countries (see table below).

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Category: Markets, Think Tank



Investment letter – August 26, 2009


Over the last 3 years, most economists have fallen into one of two groups. The smaller group were those economists who saw the housing and credit crisis coming. Granted, most were a bit early and turned negative in 2006. Given subsequent events and the severity of the crisis, being early was certainly not a character flaw. The second and far larger group of economists failed to see almost any aspect of the credit crisis and severe recession coming. Many were still forecasting that there would be no recession as late as last July and August.

What I find fascinating is how these two groups believe the economy will perform in coming quarters. The first group, who correctly anticipated the crisis and recession, believe the economy will bounce and then dip again and form a W pattern. A few think the economy will remain in recession until 2010. For the most part, this group did not see the rally in the stock market coming, and now believe valuations are too high, especially in light of the coming second dip and its impact on corporate earnings.

After failing to see the deepest recession since the Depression coming, and a 50%+ decline in the stock market, the second group of economists are the most stringent supporters of the V-shaped recovery. This view is credible, since economic activity is giving signs of at least bottoming, and nascent signs of improvement. The rally in global stock markets and commodities like oil is based on the expectation of better economic growth. Strategists then cite the improvement in markets as proof of the recovery. This bit of circular logic is taken as an article of faith by those who believe markets ‘know’ something about the future, and are merely discounting better times. I’m not sure what better times the stock market was discounting in October 2007. But this inconvenient truth never fails to dissuade the ‘market discounts the future’ fools from advancing this bit of Wall Street ‘wisdom’.

Something each group of economists and strategists have in common is the omission of technical analysis as part of their analysis. It is a critical omission, and accounts for why each group missed either the significant turning points in October 2007, or March 2009.

Most of the economists who saw the housing crisis coming turned negative on the economy and stock market in 2006. Although housing was clearly rolling over, technical indicators of the stock market’s health uniformly showed that the up trend in the stock market was intact. Throughout 2006, the advance/decline line continued to make higher highs after every decline. As I noted numerous times throughout 2006, there was a very supportive supply/demand dynamic at work. Companies were buying enormous quantities of their own stock and private equity firms were using cheap credit to take over a record number of firms. In total, almost 5% of the supply of existing shares was absorbed thru buybacks and takeovers. This underlying demand was not met with much selling since the economy was in good shape. Had those crisis prescient economists incorporated technical analysis into their fundamental analysis, they would have remained more constructive on the stock market, without compromising their excellent fundamental work.

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Category: Technical Analysis, Think Tank