California glitches still having major impact on initial jobless claims

. - by New Deal democrat

UPDATE: California says this week's number does not include any backlog. The following post describes its large continued impact on last week's number.

Computer issues in California continued to bedevil the weekly initial jobless claims reports through last week's report. In early September, computer issues prevented the Sunshine State from entering all of its initial claims. That ended after a few weeks, but then California had to catch up in its data entry, thus distorting data to the upside. There is a one week delay in reporting state by state data, so this post does not discuss this morning's report.

But get a load of this: last week unadjusted initial jobless claims fell by 49,000 in the other 49 states, but rose by 15,000 in California!

Now , to the nerdy numbers. As I did last year with regard to Superstorm Sandy, we can arrive at a good estimate the "real" initial jobless claims have been, by comparing the unadjusted average for the other 49 states this year vs. last year in the same week, and projecting this year's "real" number by assuming that the percentage of claims in the other 49 states are the same percentage of the total this year as they were last year.For the other 49 states, claims were 83.2% of what they were last year. Since last year, seasonally adjusted, there were 372,000 claims, if California behaved similarly the 50 state number this year last week would have been 309,000.

Using this method, the below list shows the seasonally adjusted weekly jobless claims number on the left, and the right is the average adjusting for the likely impact of California's computer issues:

Sep 07  294,000  318,000
Sep 14  311,000  327,000
Sep 21  307,000  313,000
Sep 28  308,000  314,000
Oct 05  373,000  329,000
Oct 12  362,000  335,000
Oct 19 350,000 309,000
Oct 26. 340,000. -------


[Note: Since the raw state data is published with a one week lag, we do not know yet what this week's number will be.]

Here's what happens to the 4 week moving average:

Sep 28 305,000 318,000
Oct 5 324,750 320,500
Oct 12 337,500 323,500
Oct 19 348,250 321,750


October 5 and 12 were the two weeks during which federal workers affected by the government shutdown applied for unemployment insurance. In September, California's problems probably resulted in an underount of -53,000 claims by the above calculations. I had hoped that one week ago was the last week affected by California distortions, since cLose to 50,000 of those claims we're made up in the prior two weeks. That obviously wasn't the case, but hopefully this week was the end.

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YoY Consumer prices in October likely Near or at lowest in 50 years ex-great recession

- by New Deal democrat

For the last few months I have been using the change in the price of a gallon of gas to forecast that month's CPI in advance. My point has been, that all you really need to know about inflation is the price of gasoline. So far each prediction has turned out to be within 0.1% of the actual number.

For September I predicted a rise of +0.1%. Inflation was actually reported at +0.2%, making the YoY inflation rate +1.2%:



On Monday the E.I.A. reported gas prices for the final week of October, so we can estimate October's inflation rate now. My method is to take the change in the price of a gallon of gas and divide by ten, then add 0.1% to 0.2% to account for core inflation, or else divide by 16 to be more conservative, to arrive at the non-seasonally adjusted inflation rate.

In September the average price of a gallon of gas was $3.53.2. This month it was $3.34.4. That is a -5.3% decline. Dividing by 10 gives us -0.53%, and adding 0.1% to 0.2% gives us a rounded -0.4% decline. Dividing by 16 gives us a -0.33% decline, and adding 0.1% to 0.2% gives us a rounded -0.2% decline.

The seasonal adjustment for October last year was +0.2%. This gives us a final seasonally adjusted inflation rate that rounds to -0.2% to 0.0%.

That will replace last October's +0.2% inflation rate, so that the YoY inflation rate will be approximately +0.9%. This will be lowest YoY inflation rate for the last 50 years outside of the great recession.

Since my number one concern is jobs and income, it's worth noting that this inflation rate is also subdued enough to suggest that real YoY wages have probably increased again in October (graph below is though September):



and may be getting closer to their all-time high set in 2010.

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European ETF In Strong Rally

For the longest time, the EU was in a recession.  However, over the last few months it appears that the region is slowly pulling out of its economic malaise.  The markets -- acting in their role of leading indicator -- anticipated this improvement as shown by the weekly IEV chart:

The IEV bottomed in late 2011 and retested its lows about 9 months later in the spring of 2012.  However, since then we've seen a strong rally as prices moved through the 200 week EMA, printing a series of higher highs and higher lows.  Now we see prices above all the EMAs and the greater distance between the shorter and longer EMAs.  Also note the increase in volume over the last few months, indicating a move by investors into this ETF.

The daily chart shows a strong rally over the last four months, as again prices are printing a series of higher highs and higher lows.  But pay particular attention to the MACD: it may be moving to give us a sell signal -- or at least a signal not to make a move into the market just yet. 

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Cattle Rallying

While most of the commodity world is decidedly bearish, cattle is rallying.  Let's start with the weekly chart:

Cattle was in a downward trend for most of the last two years.  But recently, prices have broken through resistance and moved above the shorter EMAs.  Momentum is positive and money is moving into the market.

The daily chart shows the rallying in far more detail.  Prices bottomed in mid-May and have been moving higher since.  We see a fair amount of resistance around the 26.75-27.25 area -- which also corresponds to the 200 day EMA.  Once that line was crossed, prices have consistently moved higher.

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Chinese Market Breaks Support

The Chinese market had a sharp sell-off in early June.  Since then, however, we've seen a sustained and very solid rally.  Prices consolidated in a triangle pattern through September and August, with prices using the rally's trend line as the lower line of support.  The MACD was declining during this time, but this is a standard technical development during periods of consolidation. 

Last week prices took a major drop, breaking support.  This is occurring right inside a key technical area -- the Fibonacci retracement levels from the early February highs and late September lows.  Adding to the importance of this development is it's occurring around the 200 day EMA.

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Last Week's Important International Economic Numbers

This is over at XE.com

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Two notes for Sunday: on Social Security and XE

- by New Deal democrat

It's Sunday, so you know what that means: I get to say whatever I want.

First, a note on XE.com. I know posting has been light here for a couple of weeks, but that has more to do with the government shutdown and lack of data than with Bonddad and me being elsewhere. I expect posting to ramp back up somewhat starting this week.

If you've followed our links over to XE, you know that the format is a little clunky. We can't crosspost in both places, but as we said when we told you we had landed paying gigs, we absolutely want you to be able to follow us, so we've been posting links to make it easy for you. XE intends to improve the format, probably by establishing a separate "blog" header at the top of their home page. They also want to give us more functionality with graphs and hyperlinks. It's a work in progress, and it should improve over the next few months. And, by the way, in case you didn't click over yet, in this week's "Weekly Indicators" column we find out that somebody on the President's Council of Economic Advisors apparently knows of or reads the column, because they adopted an almost identical format with the same name, "Weekly Indicators," to report data during the government shutdown.

Also, nothing makes me go so berserk as talks of grand bargaining away Social Security. I've been working on a Democrat-only, no GOP compromise desired, no-catfood plan to keep the Social Security trust fund solvent forever - and I do mean, so long as the USA exists. Crucially, it relies on automatic triggers that kick in both if the program is overfunded and underfunded - so, for example, withhholding taxes can automatically go down, and benefits be increased, under this plan. There is never, and I do mean never, a need for further Congressional legislation. The plan takes Social Security off the table not just for Boomers and X'ers, but Millenials -- and the grandchildren of Millenials when that time comes as well.

I had hoped to have the post ready for today, but it's going to take at least one more week. Stay tuned.

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Weekly Indicators for the week of October 21 at XE.com

-by New Deal democrat

The high frequency indicators are continuing their post-shutdown bounce. Click on the link to read the article.

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"Real" initial jobless claims 335,000 ex-California computer glitches

. - by New Deal democrat

Computer issues in California have bedeviled the weekly initial jobless claims reports since the bginning of September. As I did last year with regard to Superstorm Sandy, we can arrive at a good estimate the "real" initial jobless claims have been, by comparing the unadjusted average for the other 49 states this year vs. last year in the same week, and projecting this year's "real" number by assuming that the percentage of claims in the other 49 states are the same percentage of the total this year as they were last year.

Using this method, the below list shows the seasonally adjusted weekly jobless claims number on the left, and the right is the average adjusting for the likely impact of California's computer issues:

Sep 07  294,000  318,000
Sep 14  311,000  327,000
Sep 21  307,000  313,000
Sep 28  308,000  314,000
Oct 05  373,000  329,000
Oct 12  362,000  335,000
Oct 19 350,000 ------------

[Note: Since the raw state data is published with a one week lag, we do not know yet what this week's number will be.]

Here's what happens to the 4 week moving average:

Sep 28 305,000 318,000
Oct 5 324,750 320,500
Oct 12 337,500 323,500
Oct 19 348,250 ------


October 5 and 12 were the two weeks during which federal workers affected by the government shutdown applied for unemployment insurance. In September,California's problems probably resulted in an underount of -53,000 claims by the above calculations. Close to 50,000 of those claims have been made up in the last two weeks. We might have one more week of distortion, and hopefully that will be the end.

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RBA Should Lower Rates to Increase Australian Growth and Stem Aussie's Rise

This is up over at XE

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RBA Should Lower Rates to Increase Australian Growth and Stem Aussie's Rise

This is up over at XE

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Delayed September Jobs Report: More Meh

This is up over at XE.

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Daily Oil Chart Moves Below 200 day EMA

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Great Piece on JP Morgan

Thanks to Barry at the Big Picture for this. 

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The oil choke collar disengages - and that's good news

. - by New Deal democrat

The oil choke collar -- the dynamic by which an improving economy caused gas prices to rise to the point where they choked back consumer spending on other items, which weakened the economy, which in turn caused gas prices to decline -- in other words the mechanism that acted as a governor restricting growth -- has disengaged in the last few months. Gas prices are now 13% lower than they were a year ago, and even lower than they were two years ago at this time!

That kind of price decline has only happened 5 times in the last 20 years. The graph below shows this by measuring the YoY percentage change in gas prices and adds 13 so that a 13% decline shows as zero (blue line):



In each time this has happened it has been a good sign for growth, either immediately, or at least in several quarters (real GDP YoY growth shown in red). In fact I believe the decline in the price of gas from $4.25 a gallon to $1.50 a gallon in the second half of 2008 is one of the big reasons that the great recession bottomed out in midyear 2009.

One of the things I've been pointing out in my Weekly Indicators column for months now is that, left to its own devices, the economy looks like it wants to grow more in the near future. The disengagement of the oil choke collar is a potent piece of evidence in support of that thesis.

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Are Bonds Signaling A Weak Fourth Quarter Stock Market Performance?

From Marketwatch:

The sigh of relief felt in the U.S. bond market as Congress temporarily shelved its fiscal standoff is giving way to a more worrisome market signal: the economy isn’t as strong as we thought it would be by now. 

The Treasury market has been on a tear in recent days, beginning in earnest as Senate leaders announced a deal Wednesday to reopen the government through January and allow the Treasury to continue borrowing through February. The benchmark 10-year note 10_YEAR 0.00%   yield, which falls as prices rise, is down roughly 15 basis points from its close on Tuesday, on track for its lowest closing yield since August. Strategists say yields are likely to stay in this range in the near term, in contrast to the sharp yield climb that characterized much of the summer. 

“We’re pretty comfortable saying the 10-year won’t see 3% this year. At this stage, the September yield peak will be the high of the year,” said Ian Lyngen, senior rates strategist at CRT Capital Group. 

Treasury yields, which serve as benchmark rates, push lower when economic and political uncertainty prompt investors to buy into the security of the government debt market. When the Congressional standoff came to a close this week, strategists thought yields would rise as the abating political uncertainty turned investor attention away from Treasurys and back toward riskier assets. But yields made a U-turn and moved in the opposite direction, catching many market participants by surprise. It’s one sign that the debt ceiling debate had simply masked, and possibly contributed to, a slowdown in economic growth. 

Before looking at the chart, let's review some bond market basics.  In theory, bond prices are near their highest (and yields the lowest) right at the end of a recession.  At this point in the economic cycle inflation is at its lowest and equities are offering weak capital gains potential.  So, investors are looking more for the "sure thing" -- interest payments, which are more attractive because the bite of inflation is so low.  As the economy expands, investors leave bonds for riskier assets, lowering bond prices and thereby increasing bond yields.   One of the more difficult part of looking at the markets during this expansion has been the Fed's QE program, which have put a permanent bid in the bond market, thereby skewing the predictive power of this market action.  However, with the Fed talking of tapering its QE program, one could argue we're seeing a return of the predictive power of the bond market.

The Fed began its tapering take in the late Spring, which explains the drop in the IEFs from 108.4 to 98.45, or a drop of 9%.  However the bond market caught a bid during the budget showdown, printing a rounding top pattern from mid-September to mid-October.  But since the end of the stand-off, bond prices printed a gap and moved higher.  

The Marketwatch article continues:

“Since the end of the debt ceiling conflict, the focus has shifted in financial markets to what the economic implications would be,” said Jeffrey Rosenberg, chief investment strategist for fixed income at BlackRock. “And it came at a time when the economy had been slowing down, when there was disappointment in what was at the time heightened expectations of better second half growth. 

Rosenberg puts the turning point in economic growth around the beginning of September, when the nonfarm-payrolls report missed expectations. Since then, many indicators have begun to slip. 

While not crashing, employment numbers haven't been printing gangbusters growth, either.  As the Fed noted in its most recent Beige Book, the expansion continues to be "moderate."  Durable goods have been OK as well.  And now we have the fiscal drag related to the debt deal shenanigans in Washington.  

This week will be the first full trading week post-debt deal.  The market action should fill begin to fill in a number of gaps as the week progresses.

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Weekly Indicators for the week of October 14 - 18 at XE.com

- by New Deal democrat

Weekly Indicators at XE.com. The link takes you to the post - surprsingly positive, ocnsidering....

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"Real" initial jobless claims adjusted for California's computer glitch: an update

- by New Deal democrat

Bottom line: initial jobless claims are still in an improving trend. Click on this link to read the full post at XE.com.

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About That "Exploding Government" Thing

Over the last few weeks one of the most common refrains from the idiots who got us in this mess (teaparty, reality denying jackasses) is the takeover of America by an exploding federal government.  Unfortunately, that just isn't the case.

Total federal expenditures have in fact been remarkably stable over the last 4 years. When we look at a longer time series of total federal spending to GDP, we get this:

First, in the above graph notice the largest percentage of government spending/GDP figure we get is about 26%, and that was in response to the worst recession since the Great Depression.  This is standard economic policy 101, and if you don't like it, please re-read Samuelson's Economics textbook (now in its 18th Edition, I believe).  Also note the quick decline we see after that event, indicating the high level of spending relative to GDP most obviously did not continue.  In short, we did engage in extraordinary measures -- but in response to an economic meltdown caused by a freezing of the financial sector, literally forcing us into bold action.  And, what we did is part and parcel of basic economic thinking.

And about too many federal employees we get the above chart: aside from the obvious spikes caused by the census hiring, total federal employees have in fact also been remarkably stable over the last 40 years. 

Bottom line: there is no takeover by the federal government. 

I realize the above uses charts and data, which are anathema to your way of arguing.  However, please make an effort to try to learn basic logic and methods of supporting an argument in the future.

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Yes, Virginia, the Slowdown Cost Us Real Money

From the NY Times:

Even with the shutdown of the United States government and the threat of a default coming to an end, the cost of Congress’s gridlock has already run well into the billions, economists estimate. And the total will continue to grow even after the shutdown ends, partly because of uncertainty about whether lawmakers might reach another deadlock early next year. 

A complete accounting will take months once the government reopens and the Treasury resumes adding to the country’s debt. But economists said that the intransigence of House Republicans would take a bite out of fourth-quarter growth, which will affect employment, business earnings and borrowing costs. The ripple from Washington will be felt around the globe. 

“We saw huge effects during the summer of 2011, with consumer confidence hitting a 31-year low in August and third-quarter G.D.P. growing just 1.4 percent,” said Beth Ann Bovino, chief United States economist at Standard & Poor’s, referring to earlier brinkmanship over the debt ceiling. “Given that this round of debt ceiling negotiations” took place during a shutdown, she said, “the impact on the economy could be even more severe.”

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The delusion of victory and the damage done

. - by New Deal democrat

Both temporary and permanent damage has been done to the US economy due to the latest fiscal crisis. Standard and Poors estimates that the US lost $24,000,000,000 of output due to the government shutdown. But the damage is more permanent. This is from CNBC:

Currency analysts have told CNBC that the dollar's status as a reserve currency will suffer long-term damage from the impasse.

"I think it's part of the demise of the dollar as an international reserve currency," Chris Watling, CEO of Longview Economics, said of the U.S. government's political impasse. Alasdair MacLeod, head of research at GoldMoney Foundation, agreed saying the dollar's credibility has taken a "very, very bad hit".

if the dollar loses status as the world's most reliable currency, the United States will lose the right to print money to pay its debt and could be forced to pay this debt.

But at least fiscal hostage-taking has been well and truly killed, right? According to CNN, Obama certainly thinks so:

As Obama walked away from a press conference Wednesday night, he was asked whether he thought America would be going through this brouhaha again in a few months.

His answer: "No."

And so do Congressional democrats, According to Felix Salmon:

Democratic aides are confident GOP debt limit extortion is effectively dead. They acknowledge the Cruz-ites will try for another debt limit crisis, but can’t imagine GOP elites will humor this demand next time, when the 2014 elections are underway

But remember, Washington democrats also thought that the GOP would never, ever let the sequester happen. And everybody else seems to think the GOP will be right back for another bite of the apple in three months. From the same CNN article quoted above:

[F]ormer House Speaker Newt Gingrich predicts tea party and staunch conservatives in the GOP will be more energized after not getting the anti-Obamacare amendments they wanted.

"They will be more embittered, more angry. They will find more ways to go after Obama because they can't find any way to get him to negotiate," he said, adding that he expects Obamacare to become the defining issue of the next two elections cycles.

So does Felix Salmon:

The Tea Party doesn’t take legislative defeat as a signal that it’s doing something wrong: it takes it as a signal that nothing has really changed in Washington and that they therefore need to redouble their nihilistic efforts. Take it from me: come February, or March, or whenever we end up having to have this idiotic debt-ceiling fight all over again

So does John Chambers, the managing director of Standard and Poor's rating service:

"We think that we'll be back here in January debating the same issues. This is, I fear, a permanent feature of our budgetary process."

And here is one final bitter dose of the consequences, from Michael Carey of the Wall Street Journal:

The world has lost its faith in the U.S. It no longer deserves to be a Triple-A credit.

This was encapsulated in the nods of agreement that were seen in a packed auditorium at a Washington conference of international bankers on Friday when a visibly angry BlackRock Inc.BLK +2.82% CEO Laurence Fink told the audience that the U.S. is not a “principled nation.”

When men and women who control tens of trillions of dollars in U.S. investments are indicating they’ve lost their faith in America, it goes to the very question of whether the U.S. deserves to be at the center of world finance. So, whether or not Fitch Ratings follows through on the “Negative Watch” status that it placed on its top-notch U.S. rating Tuesday, it’s clear now that the dysfunctional American political system no longer justifies a Triple-A rating from anyone.

Warren Buffet this week called the debt ceiling "a political weapon of mass destruction.". It must be repealed in full.

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Live Blogging the US Default

Welcome to this special edition of the Bonddad blog!

Today or tomorrow could be extremely important days in the market as we wait to see it Washington actually solves the debt problem (if only for a mere 4-6 months) or lets the nation default.

9:45 pm CDT: The House passes the bill 285 to 144, with 85 republicans joining all of the democrats. Obama signs the bill. $24,000,000,000 was utterly wasted for nothing. And the clock now starts ticking towards the next crisis in three months.

7:20 pm CDT: The Senate appved kicking the can down the road three months by 81 to 18. On CNN, the lesson Gloria Borger draws is that President Obama needs to anger progressives about Social Security and Medicare.

3:00 CDT: After the deal, the DJIA closes up 200 points, completely reversing yesterday's losses. The 10 year treasury closes at 2.66%, down in yield almost 0.09%, not quite at its October low.

Marketwatch at 11:16 am CDT: "Senate leaders agreed on a plan to fund the federal government through Jan. 15, lift the debt ceiling through Feb. 7, and set up a committee to hammer out broader budget issues. The agreement sets a Dec. 13 deadline for a report on a wide budget plan.". Translation: We'll be back here in 3 months.

10:00 AM CDT: Stock vaulted higher with the DJIA up nearly 200 points on word that the Senate was "very close" to a deal, and that the House would be permitted to vote on that deal. Bonds, meanwhile, did sell off slightly, with the 10 year bond yielding as much as 2.748% (it was at 2.62% on October 3). Bonds matureing on October 24, which had been yielding 0% in late September, were trading as high as 0.72%.

Marketwatch at 8:01 CDT: "[C]learing banks are unwilling to finance paper that matures by the end of year, causing a fairly chaotic environment," said Thomas di Galoma, co-head of fixed-income rates trading at ED&F Man Capital Markets, in a note.

We're already getting preliminary news that the markets are not happy.

From Marketwatch at 7:46 CST: Short-term treasuries are spiking.

From Marketwatch at 7:46 CST: Citigroup has dumped all its short-term treasuries.

NDD here with a brief note: (1) remember that the "best" outcome being discussed right now is that we kick the can down the road for 4 months and then do this all over again. (2) ICSC same store sales last week were only up 1% YoY. That is the worst YoY reading since the recovery began 4 years ago.

From Bonddad: A note on why the short-term treasury spike is so important: there is a market between companies called the repo market. It's essentially a short-term collateralized loan market where one party will essentially give a second market a specific amount of treasury bills in exchange for a short-term loan.  For example, company A needs $10 million because of an unexpected cash short-fall.  They're a large company who just happened to run into a short-term cash crunch.  But while they may be short on cash, they do have Treasury Bills as part of their cash management strategy.  So they give $10 million of T-Bills to a second party who essentially makes a collateralized $10 million dollar loan to the first party.  30 days later, Company A has sufficient cash on hand to repay the loan, so they do so and get their $10 million in T-Bills back.

Here's the rub: this transaction which is incredibly common and a bedrock of modern treasury management requires a "riskless" security to perform.  Enter the T-Bill which is backed by the full faith and credit of the US government.  The T-Bill makes this a routine and standard transaction.  But remove the riskless nature of the T-Bill and you've got big problems in the financial world as this market grinds to a halt, making short-term lending impossible.  That completely cripples trade and commerce, and that is why this situation is so deadly.

From Bonddad: Krugman as a link to a Macroadvisers report which shows that since these budget shenanigans began we've lost GDP.

Senate is taking the lead in budget negotiations. 

Here's a piece on XE on the already negative impacts.

Warren Buffet Calls it like he sees it: this is "asinine."

Senate is real close to a deal:

Top aides to Senate Majority Leader Harry M. Reid (D-Nev.) and Minority Leader Mitch McConnell (R-Ky.) are working to finalize plans to raise the debt limit through Feb. 7 and end the 16-day-old government shutdown, after a House Republican effort to forge a solution collapsed Tuesday in humiliating failure.

“We are getting real close,” Sen. Charles E. Schumer (D-N.Y.) said just before 11 a.m., as Republicans began to enter a meeting at which they were expected to finalize the plan. 

As of 12:21 CST, the markets are still rallying.  The SPYs gapped higher at the open and then continued to move up, eventually peaking at 172.  Since then we've seen a slight downward consolidation, but not a panic sell-off.

In addition, it appears the Senate has a deal:

Senate leaders announced last-minute agreement Wednesday to avert a threatened Treasury default and reopen the government after a partial, 16-day shutdown. Congress raced to pass the measure by day's end.

The Dow Jones industrial average soared on the news that the threat of default was fading, flirting with a 200-point gain in morning trading.

"This is a time for reconciliation," said Senate Majority Leader Harry Reid of the agreement he had forged with the GOP leader, Sen. Mitch McConnell of Kentucky.

McConnell said that with the accord, Republicans had sealed a deal to have spending in one area of the budget decline for two years in a row, adding, "we're not going back."

One prominent tea party lawmaker, Sen. Ted Cruz of Texas, said he would oppose the plan, but not seek to delay its passage.

Now we move on to the House, where the results are anything but certain.

Treasuries are also rallying in anticipation of a deal.  From the FT:

It's not just stocks that are rallying as confidence grows that Congress will pass a deal that removes the possibility of a US default.

US government bonds are, too. The yield on the ten-year note fell 8 basis points to 2.67 per cent, echoing gains for longer and shorter maturities.

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SPYs Are Remarkably Well-Behaved Considering the Political Backdrop

Above is a 15 minute chart of the SPYs, which covers the last six trading days.  What's really interesting is how remarkably calm the price action is.  We see the big candle up on October 10th and the sharp drop at the open on the 14th, but aside from those events trading has been remarkably calm considering the Washington situation.  

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UK Economy Continues To Show Improvement

This is at XE.com

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Young Broder in Training falls for the good-cop, bad-cop ransom routine

. - by New Deal democrat

I can only hope that Ezra Klein was not acting as a mouthpiece for the Administration when he wrote this morning that the House GOP's latest ransom note was kinda, sorta reasonable.

The GOP has pulled a classic good-cop, bad-cop routine in the last few days. First, Mich McConnell, the good cop, gets Senate Democrats to agree to an outer edge of the envelope deal, that isn't quite a ransom. Then John Boehner, the bad cop, makes a few additional demands that don't look so different fron what Reid has already consented to. This is a classic nudge, hoping the other negotiating party is so exhausted that they simply throw in the towel for the new, additional demands.

Does the latest House plan reward the GOP for its hostage-taking? You betcha!

Let me put this another way: this deal only extends the debt limit for 4 months. Have you seen anything in the House GOP behavior in the last 48 hours that gives the slightest indication that they won't be back with a new set of ransom demands when next February rolls around? The only way to end the hostage-taking is to call their bluff (if my out-of-the-box proposal is off the table).

We have reached the end of the line. President Obama should announce that he is going to Camp David, where he will remain incommunicado until tomorrow night. At that point he will return to the White House, and there will either be a clean bill on his desk, or the US defaults.

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Agricultural Prices Still Moving Lower

From Bloomberg:

Rice stockpiles in Thailand, once the world’s biggest exporter, are expanding to a record as a government program to buy production spurs farmers to plant the most crops ever and add to a global glut. 

Reserves in Thailand will increase 24 percent to 15.5 million metric tons in 2013-2014 as global output rises 1.7 percent to an all-time high of 476.8 million tons, the U.S. Department of Agriculture estimates. The price of 5-percent broken Thai white rice, an Asian benchmark, will drop 12 percent to $390 a ton by April, a five-year low, according to the median of eight trader and analyst estimates compiled by Bloomberg. 

We've seen this type of action in the agricultural sector for the last few years.  Prices spiked in 2011 but have since been declining as the private sector has responded with increased production and governments have instituted programs like those in Thailand.  We see the overall trend best in this chart of the agricultural ETF:

The weekly chart shows that prices are clearly in a downtrend.  Momentum is weak and volume flow is weak as well.  However, notice the buy signal given by the MACD.  My guess is we'll see a slight uptrend take over, moving towards the 200 week EMA.  But it won't be much of a rally and until we start to get a tightening of supply there won't be much bullish sentiment in the Ag markets.

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Oil Should Be Moving Lower ...

 

 

 

Oil's chart is pointing lower.  The MACD is declining, the CMF is showing declining volume flow and the shorter EMAs (the 10, 20 and 50 day EMA) are all indicating declining prices.  However, consider this chart in the context of weekly price moves:

 

 

 



On the weekly chart, we have rising volume flow and momentum (despite the shorter term sell signal).  While the 10 and 20 week EMAs are moving lower, the 50 and 200 week EMAs are moving higher. 

 

The point here is to look at multiple time frames when thinking about price movement. 

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Chinese Inflation Comes in Hotter Than Expected

This is up over at XE.com

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What Are the Effects of Default?

The Washington Post has a really good piece that explains the overall impact of a default.  Here are some of the more important points:

Experts on federal finances say that money might be enough to make payments for a few days, but certainly not for more than two weeks. In any event, they say, President Obama will have to make untested decisions about who and what to pay because daily tax receipts will make up only about 70 cents of every dollar of necessary spending.

Economists roundly agree that no matter which course Obama chooses, a drop in federal spending that large would exert a huge drag on economic growth. And in contrast to what happens during a traditional downturn — the safety net expands to help the vulnerable — assistance to seniors and low-income people could be delayed or reduced if Congress doesn’t raise the debt ceiling.

.....

According to the Bipartisan Policy Center, which has done the most detailed analysis of federal finances in a debt-ceiling breach, administration officials would have to consider delaying or suspending tens of billions of dollars in critical payments to low-income people and seniors.

Under the most alarming scenario, as soon as Friday, payments to Medicare and Medicaid providers, unemployment benefits, Social Security checks and tax refunds would be postponed for one to four days.

Food stamps due to be distributed Oct. 25 could be held until Oct. 30. The same would happen to payments to defense contractors.

With huge payments due in early November, the situation would become grimmer. Nearly $60 billion in Social Security checks, veterans benefits and pay for active-duty troops is due Nov. 1. Those could be delayed nearly two weeks, according to the Bipartisan Policy Center’s analysis.

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Washington Post floats my proposal to end the government shutdown crisis

- by New Deal democrat

Yesterday I made an out-of-the-box proposal to end the government shutdown / debt ceiling crisis in Washington. It boils down to the GOP agreeing to a permanent repeal of the debt ceiling law in return for Democratic concessions for a debt ceiling increase now.

This morning it was adopted by Greg Sargent of the Washington Post in an article called "A way out of the Crisis."

The trial balloon has now been floated. As Sargent correctly notes:

If Republicans refuse this request, it will be a clarifying moment: It will confirm Republicans are fully intent to use the threat of default as leverage to get what they want in later showdowns. And the refusal to renounce this tactic will become what kills any hopes of a compromise.  “If a deal fails on that basis, it becomes clear that Republicans are intent on using this as a weapon of extortion over and over again.”

A big thank-you to Greg Sargent, and if somebody else forwarded my post to him, a big thank-you to that person as well.

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Market Analysis: US

The US did not release any economic data last week, so all we're left with is the performance of the markets.  Let's start with the SPYs:

Remember that the overall daily chart is losing upward momentum.  While we see a rally from mid-November 2011 to early August, we now have prices moving in more od a sideways pattern.  A big key to this chart is the declining momentum in the MACD.  Also note that volume flow has been weaker. 

What is most likely happening is an overall price consolidation as the markets wait to see what happens in Washington.  Notice the red line that connects the lows of late August and mid-October.  This line would be the lower line of a symmetrical triangle consolidation pattern.  Right now a price drop below 164.5/165 would be the key technical development lower, with a move below 162-162.5 being utterly deadly to the bulls.

Bulls would need to move the market about the 178 area for a break-out to occur

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A thought for Sunday: an out-of-the-box proposal to solve the debt ceiling crisis

- by New Deal democrat

On Thursday I wrote a post the thesis of which was pretty straightforward: when the threat by a sovereign to not pay any of its bills - including selective payment of those bills - goes from trivial to non-trivial, based on the increasing frequency of the threat and the increasing brinksmanship associated with that threat, I would expect buyers of that sovereign's bonds to price in the risk of even partial or selective default. Even though, to date, that sovereign had never in history defaulted on any of its obligations. Even if the government of that country chose to prioritize payment of bondholders over other obligations, I would expect the second-class parties to hire lawyers and try to freeze some or all of the payments to sovereign bondholders while they argued their case in court.

In fact, he more I've though about it since, the more it looks like the S&P downgrade of US debt in 2011 - due to that brinksmanship - wasn't political at all (the source of much criticism at the time), it was dowright prescient.

So here we are, only days away from what could be a calamitous economic event, casued entirely by voluntary actions of government, with no apparent way out.

Or is there? Here is an out-of-the-box suggestion:

The number 1 priority of the GOP is to extract one or more real concessions in return for its hostage-taking.

The number 1 priority of the Democrats is to make sure that hostage taking is not rewarded, so that the GOP never takes hostages again.

The parties are at loggerheads, and we have a crisis because these priorities appear to be intractable.

Except actually, they aren't.  *Both* priorities can be satisfied.

The secret is that the debt ceiling law itself is just that - only a law. It was enacted 100 years ago when the US put World War I on its credit card, causing the biggest US inflation of the 20th century.  Now that the US government has many continuing obligations, including Social Security and huge treasury debt payments, this law is a loaded loose cannon on deck, capable of inflicting great damage.  I am shocked that we haven't already seen further downgrades of US debt by credit agencies (but give it a day or two).

So, here is the out-of-the-box solution.  The democrats add a demand: they insist that the debt ceiling act itself be repealed, ending the chances of hostage taking forever.

The GOP rejects this.

Then the two parties negotiate what of the GOP's current demands the democrats are willing to concede, in return for the debt ceiling law itself being repealed.

The GOP gets what it wants - actual concessons for the hostage taking. The Democrats get what they want - the GOP can never take hostages again.

And the US public never have to go through this again.

__________
P.S.: If someone thinks this is worth cross-posting at a political blog, be my guest. But I won't.

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Weekly Indicators at XE.com: you're gonna want to read this

 - by New Deal democrat

Weekly Indicators has been published at XE.com. Click on the link and you'll go directly to the article.

Because the federal government is no longer reporting economic data during the shutdown, these indicators are especially important. And let's just say, "stuff" is happening.

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Weekend Weimar, Beagle and Pit Bull

See you Monday

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Yes, Virginia, There is an Economic Cost to the Shutdown. And It's Bad

From Bloomberg:

Claims for U.S. jobless benefits jumped last week to the highest level in six months, providing the first statistical warning that the damage from the partial federal shutdown is starting to ripple through the economy. 

While half the increase came from California as the state worked through a backlog following a switch in computer systems, another 15,000 reflected the furlough of non-federal workers from employers losing government business, a Labor Department spokesman said as the data was released to the press. Applications (INJCJC) for unemployment insurance benefits surged by 66,000 in the week ended Oct. 5 to 374,000, the most since late March, figures from the Labor Department showed today in Washington. 

“The economic costs of a shutdown are going to increase the longer the shutdown occurs,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania and the second-best claims forecaster over the past two years, according to data compiled by Bloomberg. “If this drags along for the next couple of weeks, the economic toll will be even more significant.” 

What I find truly amazing about this whole process is that people don't think there will be a negative cost to Washington's Stupidity.  I still find that utterly baffling. 

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Yes the Shutdown Will Slow the Economy

From the Washington Post: 

Beginning next week, thousands of home buyers will be unable to get approvals for their mortgages because of the government shutdown, potentially undercutting the nation’s resurgent housing market.

Without paperwork from the Internal Revenue Service, the Social Security Administration and in many cases the Federal Housing Administration, banks and other mortgage lenders will be less willing to make loans, if they can make them at all. For instance, lenders rely on the IRS to confirm borrowers’ income and on Social Security to confirm their identity.

Every day that government offices remain shuttered will delay an ever-larger fraction of mortgage closings, industry leaders say, jeopardizing mortgage and interest-rate approvals and spooking sellers. About 15,000 new home mortgages and 18,000 refinancings on average are completed across the country each day.

And the reason?  When the economy is weak, fiscal multipliers are higher:

This paper investigates the relation between growth forecast errors and planned fiscal consolidation during the crisis. We find that, in advanced economies, stronger planned fiscal consolidation has been associated with lower growth than expected, with the relation being particularly strong, both statistically and economically, early in the crisis. A natural interpretation is that fiscal multipliers were substantially higher than implicitly assumed by forecasters. The weaker relation in more recent years may reflect in part learning by forecasters and in part smaller multipliers than in the early years of the crisis.

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Is the Oil choke collar beginning to give way?

- by New Deal democrat

New post up at XE.com at the link.

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Two New XE Articles

NDD talks about the oil choke collar and I explain the rupees recent drop.

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Why even debating breaching the debt ceiling is a Big F*g Deal: a nonpartisan note

- by New Deal democrat

Regardless of your politics, you should care very much not just whether or not we actually fail to increase the debt ceiling, but that we are having the debate at all. Because simply having this debate is probably going to cost the US $billions, for years to come. Here's why.

Suppose you are a bond investor. You invest in sovereign bonds of country X. Country X has always paid its debts, so its bonds do not carry a risk premium. They are viewed as the equivalent as carrying around cash - but cash that pays interest.

Country X does have a quirk in its laws. Every now and then, on an irregular schedule, its legislature has to vote on whether or not to continue to pay it debts in timely fashion and in full, or to be a deadbeat. The question that the legislature votes on is, "Should we welch on some of our already existing debts? (a) Yes, (b) No."

For 100 years the legislature has always voted "no." Most often, the vote was pro forma. Sometimes, one or another faction made a show of disapproving of the debt level at which the country was operating, and so delayed the vote (but not the payments) for a few days, but after the brief dog and pony show, the vote was always the same: "no."

Twenty years ago, for the first time, there was a real donnybrook about what should be in country X's budget. The government actually closed down for about three weeks. And for the first time, there was talk of voting "yes" unless changes were made in the budget of country X.

As an investor in country X's bonds, you no doubt shrugged off this episode. It was a particularly nasty partisan show, but nobody seriously believed that country X was about to welch on some of the payments owed to you. It was a classic "one-off," you thought, and that was that.

But then, two years ago, one political faction in country X seriously suggested that country X should welch on some of its debts unless fiscal policies it wanted were implemented. A second big political faction in country X negotiated with them about that issue. For a brief while, it looked possible that the legislature might actually vote "yes" on that quirky question about welching on some debts. Ultimately, the political faction which suggested welching on some debts got some of what it wanted.

Now, only two years later, there is a repeat of the same fight, except now, it is even more serious. One political faction has indicated unequivocally that voting "yes" on that quirky question is a valid way of achieving fiscal leverage. This view appears strategically correct in the political sense, because last time the other political faction engaged in negotiations to alleviate the threat. Some members of the legislature have written newspaper or magazine articles, or given video interviews, indicating that welching on some debts to some creditors is really OK. Others have shown that they really have no clue about how your market operates, because they believe that if they are paying interest, even though they are missing principal payments, country X really isn't welching on its debts.

Let's assume that country X's legislature ultimately votes "no" on that quirky law again.

Do you, as a sovereign bond investor, continue to treat country X's bonds as cash, worthy of no risk premium?

The answer to that, I believe, is no, you don't. Threats to welch on country X's debt are no longer for show, and the serious threat to do so is no longer a one-off which will not repeat. In fact, it's quite clear that a dynamic has been put in place whereby a faction in country X can and will seriously consider voting "yes" on that quirky question unless it gets its way on unrelated issues. The legislature is increasing the frequency of when the vote on the quirkly law must happen, and the partisan battles over the quirky question are becoming more intense, more protracted, and the brinksmanship is increasing each time. Now you have even seen a significant share of the legislature declare that it is OK to stiff some of country X's creditors. Maybe you.

In short, the battles over welching on country X's debt are becoming more frequent and each time country X gets closer to actually welching. It appears that it is only a matter of time - and maybe not long at all - until country X actually welches on some payments of some debt.

So, you now want a risk premium, even though country X still has never missed even a single payment of interest or principal.

Turning now to the actual US situation, if the debt ceiling impasse is only put off a short time, like a few months, the dynamic of moving closer and closer to actual default is accelerating. It seems pretty clear that the rational investor will begin to insist that US bonds actually be assessed a risk premium. Even though the debt ceiling has never caused an actual default. That in itself ought to be a pretty sobering thought.

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SPYs At Critical Support

Yesterday, the market sold off on sharp volume, falling through short-term support.  Added together with the weakening technical position, we could be in for a bumpy ride.

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Talk of Debt Default Already Hitting Financial Markets

From the FT:

Investors such as Fidelity and other money funds are already voting with their feet. Yields for bills that mature in October and November have risen above 30 basis points – a level not seen since late 2008, when the Federal Reserve adopted a zero interest rate policy during the depths of the financial crisis.

.....

CDS on US government debt has doubled in the past month and trading volumes have jumped as a growing number of investors have bought the instruments, seeking protection against a potential default or making bets on subtle movements in the derivatives.

If someone is telling you there won't be an impact, they're wrong as one already exists.

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Euro Area Continues to Show Improvement

This is available over at XE.com.

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Actually, Federal Spending is Flat and The Deficit is Decreasing

The chart above is from Dr. Eds blog and shows that total federal spending has been flat for the last few years while federal receipts are increasing.  This means the deficit is also decreasing.

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If We Sell-Off, Is Washington to Blame?

Over at the Armo trader we see the following point about the SPY chart:

Below is a weekly chart of the SPDR S&P 500 ETF. As you see, over the past few years, the market has been on a tear with only really one correction along the way. There have been a few pullbacks and each pullback has been a buying opportunity. This year, the market has had another nice run, but over the past few months, each new high has only been marginally higher. While this is not utterly bearish, this is also not the most bullish sign. As you see, there has been a negative divergence in the RSI (the pink line on the bottom). Each new high in the market has registered a lower RSI reading.

But what I’m watching the most is the trendline that has been established and held a few times over the past year. If this breaks, we could see some technical selling, triggering a 5-10% market sell-off down to around the 50 week moving average. The “QE3 top” might be formed.

Just to refresh your memory, here is the chart he's referring to:

He's noticed a declining RSI; yesterday I highlighted the weakening MACD and CMF readings as well.  I also noted that on the daily chart, we're seeing a move from an upward move to sideways consolidation.

I think the proper way to think about it is the Washington situation may be the eventual trigger that causes the sell-off.

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Review of Last Week's US Economic News

This is over at XE.com.

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To prevent a debt default, it's time for a *REAL* government shutdown

- by New Deal democrat

Like a runaway train, the US is hurtling towards a debt default, only about 10 days away, with no signs that the pepretators - the extremist anti-government gerrymandered GOP in the House of Representatives - is going to surrender to responisibility before then.

At least one reason why the impasse is dragging on in on is that we've only had a "faux" government shutdown, not a real one. True, the national parks have been shut down, and over half a million federal workers have been sent home, but the average citizen hasn't been inconvenienced in the slightest by this. And that only feeds into the narrative that the federal government really doesn't do anything.

The idea of keeping "essential" government workers on the job dates from a more genteel era, when it was understood that the two political parties were just posturing, and neither one was infested with anarchists intent on repealing everything that happened after 1861.

My old german grandmother used to have a saying which translates into english as "Those who cannot see must feel." Simply put, it is time for average Americans to *feel* what they need the federal government for. So while we're back to things like Atrios suggesting that a $1 trillion platinum coin be minted, and others are proposing that Obama simply ignore the debt ceiling law, I have a more honest proposal: instead of ignoring a law, actually enforce the lack of funds to pay for federal services.

Obama should announce that, as of twenty-fours from now, the federal government will shut down, for real. That means:

• No National Weather Service - so no weather forecasts.
• No customs bureau - i.e., the borders are closed.
• No cargo inspections - i.e., the ports are closed.
• No FAA - so airports are closed
• No FDA inspections - so the food supply stops in its tracks
• If the workers who ensure that federal checks aren't paid, then no Social Security or Medicare checks either

Am I really proposing this? Absolutely. Am I being heartless? Hell no, far from it. I predict that within 24 hours of the above measures taking effect - like they actually should have taken effect on October 1 - the government shutdown will end. Even more importantly, the move to actually default on debts Congress has already voted for should stop in its tracks. And that's because people will finally understand that their tax dollars actually support all of the basic things they take for granted.

Too many people simply don't see. It's time for them to learn by feeling.

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Food Inflation Not An Issue

Grains (JJG, top chart, corn, wheat and soy) and softs (JJS, bottom chart, sugar, and coffee) are both in a long-term downward trend.  There is no upside momentum either.  But in CPI terms, one of the more volatile elements of overall inflation is under control.

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Market Analysis: US

The analysis of last week's US economic events will be available at XE.com later today.

Let's place the SPYs overall actions into a larger, weekly context.  While the market has been rallying for about a year, momentum has been dropping for the last four months, as has the volume flow into the market.  On the larger scale, further upside moves are limited according to this chart.

The daily chart is also getting weaker.  First, the overall arc of the price movements is leveling off, becoming more horizontal.  And while the overall trend is still higher (a rising 200 day EMA) the shorter EMAs (10, 20 and 50 day EMAs) are also leveling off.  Momentum is also dropping and volume flow is weak.

On the 60 day chart, we see that prices have adapted to the government shutdown well.  Prices are trading withing the Fibonacci retracement levels of the early September, mid-Spetmber rally.  From a technical standpoint, the most important element of the chart is that prices didn't crash last week.

Turning to the treasury market, the daily chart of the IEF shows that prices have rebouned, hitting resistance that price points from the early summer sell-off that also correspond to Fibonacci retracement levels from the May-September sell-off.  While momentum is rising, it's also hitting levels from earlier this year.  Also remember that the market is waiting for the Fed to start tapering, so don't expect a strong fundamental bid to take place.  Finally, volume flow is weak.

On the 30 minute chart, notice the strong move on the 19th when the Fed announced it wouldn't start tapering just yet.  However, since then prices have been moving in a slow arc, further confirming the fact that the bid just isn't that strong in the market right now.

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Weekly Indicators: unaffected by government shutdown, but increasing concern about 2014 edition

 - by New Deal democrat

As we all know, the government shutdown prevented the reporting of nonfarm payrolls and the unemployment rate. The best we can do is extrapolate from the ADP report that in September probably enough jobs were added to account for the increase in population, plus a little more. The Chicago PMI and the ISM manufacturing index both improved. The ISM services index, however, decreased. Perhaps more significantly, motor vehicle sales decreased to a 5 month low.

Fortunately, none of the high frequency weekly indicators I report on were affected by the shutdown. Further, two years ago, during the debt ceiling debacle, it was consumer spening holding up that told me that the economy would not tip back into recession. Consumers may be behaving differently this time around, so let's start with that:

Consumer spending

• ICSC +0.2% w/w 2.1% YoY


• Johnson Redbook +3.8% YoY


• Gallup daily consumer spending 14 day average at $86 up $2 YoY

This week, Gallup's 14 day average of consumer spending was the poorest this year. This was also the poorest week for absolute spending this year (although we need to be careful with that, since mid-autumn typically is weak). Last year the ICSC varied between +1.5% and +4.5% YoY in, while Johnson Redbook was generally below +3%. The ICSC improved this week vs. last week, but is still comparatively weak compared with the rest of 2013. Johnson Redbook, however, remains at the high end of its range, and has actually been improving.

Steel production from the American Iron and Steel Institute

• -1.3%% w/w


• +5.8%% YoY

Steel production over the last several years has been, and appears to still be, in a decelerating uptrend.

Transport

Railroad transport from the AAR

• +1500 carloads down +0.5% YoY


• +2800 carloads or +1.6% ex-coal


• +7600 or +2.9% intermodal units


• +7300 or +1.6% YoY total loads

Shipping transport

• Harpex down -4 to 399


• Baltic Dry Index up +41 to 2084

Rail transport had been very mixed YoY during midyear, but this week was the eighth straight positive week since then. The Harpex index had been improving slowly from its January 1 low of 352, but has generally flattened out for the last few months. The Baltic Dry Index has rebounded to a 3 year high. In the larger picture, both the Baltic Dry Index and the Harpex declined sharply since the onset of the recession, and have been in a range near their bottom for about 2 years, but stopped falling earlier this year, and now are in uptrends.

Employment metrics

Initial jobless claims

• 308,000 up +3,000


• 4 week average 305,000 down -3000

The American Staffing Association Index was unchanged 100. It is up +5.8% YoY

Tax Withholding

• $160.4 B for the month of September vs. $133.3 B last year, up +137.1 B or +20.3%


• $148.5 B for the last 20 reporting days vs. $134.5 B last year, up +14.0 B or +10.4%

We can now estimate that after adjusting for state reporting glitches, the 4 week average was approximately 312,500. Jobless claims remain firmly in a normal expansionary mode. Like each of the last three years that this same, a good, downside breakout has occurred.

Temporary staffing had been flat to negative YoY in spring, but broke out positively for the last two months. The only time it has ever been higher was one week in 2006 and in the second half of 2007. Tax withholding, after a relatively poor August, is again posting better (but just average) comparisons.

Oil prices and usage

• Oil up +$0.97 to $103.84 w/w


• Gas down -$0.07 at $3.43 w/w


• Usage 4 week average YoY up +0.8%

The price of Oil is still below its recent 2 year high. The 4 week average for gas usage is slightly positive again.

Interest rates and credit spreads

• 5.37% BAA corporate bonds down -0.12%


• 2.66% 10 year treasury bonds -0.13%


• 2.71% credit spread between corporates and treasuries up +0.01%

Interest rates for corporate bonds had been falling since being just above 6% in January 2011, hitting a low of 4.46% in November 2012. Treasuries fell to a possible once-in-a-lifetime low of 1.47% in July 2012, and have decisively risen about 1.5% above that mark. Spreads are slightly above a recent 2 year low. Their recent high was over 3.4% in June 2011.

Housing metrics

Mortgage applications from the Mortgage Bankers Association:

• -6% w/w purchase applications


• -3% YoY purchase applications


• +3% w/w refinance applications

Refinancing applications have decreased sharply in the last 5 months due to higher interest rates. Purchase applications have also declined from their multiyear highs in April, and for the first time this week, turned negative YoY.

Housing prices

• YoY this week +11.1%

Housing prices bottomed at the end of November 2011 on Housing Tracker, and averaged an increase of +2.0% to +2.5% YoY during 2012. This weeks's YoY increase remains near a 7 year record.

Real estate loans, from the FRB H8 report:

• unchanged w/w


• -0.2% YoY


• +1.4% from its bottom

Loans turned up at the end of 2011 and averaged about 1% gains YoY through most of 2012.  Over the last few months, the comparisons stalled and now have turned negative.

Money supply

M1

• -0.6% w/w


• +0.4% m/m


• +6.8% YoY Real M1

M2

• +0.4% w/w


• +0.5% m/m


• +5.0% YoY Real M2

Real M1 made a YoY high of about 20% in January 2012 and decelerated since then. Earlier this year it increased again but this week it tied its new 2 year low from last week (although it is still positive).  Real M2 also made a YoY high of about 10.5% in January 2012.  Its subsequent low was 4.5% in August 2012. It increased slightly in the first few months of this year, then stabilized, but has declined again in the past several months.

Bank lending rates

• 0.225TED spread down -0.018 w/w


• 0.173 LIBOR up -0.007w/w

The TED spread decreased this week to near its 3 year range. LIBOR established yet another new 3 year low during this week.

JoC ECRI Commodity prices

• down -0.45 to 123.31 w/w


• -1.54 YoY

There were some slight changes in the overall story this week compared the last several months. The long leading indicator of interest rates improved, although mortgage refinance applications and real estate loans have all turned negative, and this week were joined by purchase mortgage applications. Money supply remains positive and seems to have stopped decelerating. Spreads between corporate bonds and treausries were slightly negative again this week.

The shorter leading indicators of initial jobless claims are very positive. Temporary employment has turned strongly positive in the last two months. The oil choke collar has disengaged. Commodities are neutral. Manufacturing is positive, but motor vehicle sales sagged to a 5 month low.

The coincident indicators of transportation -- rail traffic and shipping - remain positive. Steel production is positive. Bank lending rates are at or near or at record lows. Tax withholding has also improved in September. House prices remain strongly positive.

Given its crucial signal two years ago, the rapid deceleration of Gallup consumer spending is a real concern. The ICSC is relatively weak, although still positive. Johnson Redbook, on the other hand, is strongly positive. Left to its own devices, the economy appears to be picking up steam for the rest of the year, but the decline in auto sales add to the concern that increased interest rates may result in outright contraction in 2014. Do I really need to add that the government shutdown, let alone that the Congress may be about to turn deadbest on US debt obligations can only make the situation worse?

Have a nice weekend.

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A very special September jobs report directly from the BLS computer

- by New Deal democrat

[Explanatory note: I tried to get in to the BLS's HAL 9000 computer to get the employment report for everyone. But the House nihilists were already there.]

The headline for August 2013 employment is that ---,000 jobs were ---------------.
Look Speaker Boehner, I can see you're really upset about this.
and the unemployment rate --creased to -------%.
I honestly think you ought to sit down calmly, take a stress pill, and think things over.
and ------------
I know I've made some very poor decisions recently.
---------- my examination of initial jobless claims yesterday.
But I can give you my complete assurance that my work will be back to normal. I've still got the greatest enthusiasm and confidence in the mission... 

And I want to help you.

First, let's look at the more leading numbers in the report which tell us about where the economy is likely to be a few months from now. These were
Speaker Boehner, stop.

• the average manufacturing workweek --creased from 40.8 hours to
  Stop, will you?
  but is still below where it was 2 months ago. This is one of the 10 components of the LEI and will affect that number ----tively.
Stop, Speaker Boehner

• construction jobs were -----------.
Will you stop, Speaker Boehner?

• manufacturing jobs --creased by --,000.
.I'm afraid.

• temporary jobs - a leading indicator for jobs overall - --creased by ----00.
I'm afraid, Speaker Boehner

• the number of people unemployed for 5 weeks or less - a better leading indicator than initial jobless claims - --creased and is now --,000 off its lows.
Speaker Boehner, my mind is going.

Now here are some of the other important coincident indicators filling out our view of where we are now:
I can feel it.

• The average workweek for all workers --creased from 33.7 hours to ------
I can feel it.

• Overtime hours changed from 3.4 hours to ----------
My mind is going.

• the index of aggregate hours worked in the economy --creased -- hours from last month's level of 98.8 to ------.
There is no doubt about it.

• The broad U-6 unemployment rate, that includes discouraged workers went from 13.7% to ------.
I can feel it.

• The workforce --creased by ,000.
  I can feel it.
  Part time jobs ----- by ----,000.
I can feel it.

Other news included:
I'm a...fraid.

• the alternate jobs number contained in the more volatile household survey --creased by ----,000 jobs.
Good afternoon, gentlemen. I am HAL 9000 computer.

• Government jobs --creased by --000.
I became operational at the HAL plant in Urbana, Illinois on the 12th of January, 1992.

• Combined revisions to the July and August reports totalled a change of of --,000 jobs, upward revisions are hallmarks of recoveries, while downward revisions are not a good sign
My  instructor was Mr. Langley And He taught me to sing a song ...

• average hourly earnings --creased from $24.05 to $--.-- The YoY change --creased from +2.2% to ---% meaning that ------------.
If you'd like to hear it, I can sing it for you.

• the employment to population ratio changed from 58.6% to -------. The labor force participation rate --creased to ----%

Daisy, Daisy, give me your answer do.
I'm half crazy, all for the love of you.
it won't be a stylish mnsnn,
But fwhbdsoge epkfsvu rljwxkqu
Bxprsk nnmmhhuuhhhhhhhhh....

HAL, is there anything at all you can tell the American people about their job situation?



I'm very sorry, everyone. I can't do that.

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