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Despite the lack of a fiscal cliff deal, stocks are holding up remarkably well.  Meanwhile, we got a ton of great economic data.

First the scoreboard:

Dow: 13,311, +59.7, +0.4 percent
S&P 500: 1,443, +7.8, +0.5 percent
NASDAQ: 3,050, +6.0, +0.2 percent

And now the top stories:

  • Q3 GDP was revised way up to 3.1 percent, which was much higher than the 2.8 percent economists were looking for.  Personal consumption was up 1.6 percent, versus the expectation fro 1.4 percent.
  • Weekly initial jobless claims came in line with expectations, climbing to 361k.  This was a tad higher than the 360k expected.
  • The closely followed Philly Fed Business Outlook Survey crushed expectations, surging to 8.1 from last month’s reading of -10.7.  Economists were only expecting a reading of -3.0.  This is a welcome development following  a slew of disappointing regional manufacturing surveys in recent weeks.  The idea that fiscal cliff uncertainty is stopping business activity appears to be reversing.
  • Existing home sales jumped 5.9 percent to 5.04 million in November.  This to was higher than the expectations, which were at 4.90 million. “Momentum continues to build in the housing market from growing jobs and a bursting out of household formation,” said NAR chief economist Lawrence Yun. “With lower rental vacancy rates and rising rents, combined with still historically favorable affordability conditions, more people are buying homes.”
  • Gold prices got slammed again today, falling below $1,650 per ounce.  Commodities guru Jim Rogers thinks prices could fall even further from here.  With U.S. economic data coming out bullish, there’s growing speculation that the Federal Reserve will be able to tighten monetary policy sooner than later.  Currently, the Fed expects to keep monetary policy easy through 2015.
  • Meanwhile, shares of Herbalife got pummeled again today as hedge fund giant Bill Ackman presented a devastating 342-slide presentation slamming the company. “This is a pyramid scheme,” said Ackman.
  • Don’t Miss: Wall Street’s Biggest Geniuses Reveal Their Favorite Charts Of 2012 >

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The Latest Economic Data Have Been Good, But They Don’t Tell Us Much About The What’s Really Going On

Just after Hurricane Sandy made landfall I wrote:

“While the recent impact of Hurricane Sandy is yet to be assessed this could boost economic output in the very short term by roughly 0.5% which could push a recession in the U.S. out to the 2nd or 3rd quarter of 2013.”

As expected, the economy is seeing a short term bounce in economic activity as the Northeast comes back to life.  There was a large loss of automobiles due to storm related flooding while much of the industrial production was shut in.  The restart of activity shown in this month’s reports, as expected, showed sharp gains for November.  Econoday summed it up well:

“Industrial production rebounded in November with notable help from recovering from Hurricane Sandy and a boost in auto assemblies. Industrial production rebounded 1.1 percent, following a decline of 0.7 percent in October (originally down 0.4 percent). The market consensus was for a 0.3 percent gain.

In November, the manufacturing component increased 1.1 percent after dropping 1.0 percent in October. Analysts expected a 0.4 percent boost. According to the Fed, nearly all the decline in factory output in October is estimated to have been related to Hurricane Sandy, and the increase in November reflects a post-hurricane rebound in production as well as the solid advance in the output of motor vehicles and parts. Within manufacturing, increases were widespread in November across both durable and nondurable goods industries.

Capacity utilization for total industry rose to 78.4 percent from 77.7 percent in October. The market forecast was for 78.0 percent.”

While manufacturing has seen very volatile swings over the last two months due to effects of Hurricane Sandy the overall trend of the data still remains very negative.  The chart below shows the year over year change in both capacity utilization and industrial production.

industrial production

As stated above the biggest contributor to the surge in the November report came from motor vehicle manufacturing as dealer inventories were restocked in the damaged areas.  This is not a sustainable boost to production, or utilization rates, and will fade over the next reporting period.

Furthermore, October’s rate was revised down from a previously reported -0.4 to -0.7.  While the media immediately dismissed this downward revision due to Hurricane Sandy; it is important to remember that said storm did not impact the U.S. until the last five days of the month.  Therefore, while there was some impact to the production and utilization rates it was not entirely due to the storm.  The storm excuse also does not account for the decline in the data from its peak in July as shown in the chart below.

industrial production

While the pick up in production and utilization is encouraging this data is subject to heavy backward revisions which will be released in March of next year.  From Zero Hedge:

“The Federal Reserve Board plans to issue its annual revision to the index of industrial production (IP) and the related measures of capacity utilization at the end of March 2013. The revised IP indexes will incorporate detailed data from the 2011 Annual Survey of Manufactures, conducted by the U.S. Census Bureau. Annual data from the U.S. Geological Survey regarding metallic and nonmetallic minerals (except fuels) for 2011 will also be incorporated. The update will include revisions to the monthly indicator (either product data or input data) and to seasonal factors for each industry. In addition, the estimation methods for some series may be changed. Any modifications to the methods for estimating the output of an industry will affect the index from 1972 to the present.”

Based on the underlying trends of the manufacturing reports in recent months (see here) it is highly likely that said revisions will be fairly negative.  This is the problem that many of the economists, and analysts, are going to run into when pointing to the most recent data point as evidence that there is “no recession”  in sight.  As I stated earlier this month:

“Are we in a recession now?  The answer is ‘no’ but evidence continues to mount.  In all likelihood we will not know for certain until after the fact as we must wait for the economic data to be revised in the months ahead.  Regardless, the trend of the data is clearly weakening at a rate which most likely puts the economy at risk within the next year.  More importantly, it is the impact of slower economic growth on corporate earnings, and outlooks, which should be of the greatest concern to investors as that is what truly drives returns.  

With any ‘deal’ on the fiscal cliff, and upcoming debt ceiling debate, leading to increased taxes, and reduced government spending, the headwind towards economic growth will continue to increase.  So, while we are not currently in a recession – the market will react to the expectations of the event well before the media acknowledges it.  Complacency is a dangerous thing when it comes to investment portfolios.”

While today’s report is certainly better than a “sharp stick in the eye” it really tells us very little about the real trends of the overall economy.  The next couple of months will be much more telling as actual data on retail sales, and “post-Sandy effect” data on production and employment, is made available. 

In the meantime, market participants remain tied to the flow of the newscycle from Washington in regards to the “fiscal cliff.”  My best guess is that regardless of what “deal” is struck the majority of the people, and most likely the market, are going to be disappointed.

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3 Of The 4 Official Recession Indicators Are Looking Up

Note from dshort: This commentary has been revised to include today’s release of Industrial Production and yesterday’s Retail Sales adjusted with today’s release of the Consumer Price Index.

Official recession calls are the responsibility of the NBER Business Cycle Dating Committee, which is understandably vague about the specific indicators on which they base their decisions. This committee statement is about as close as they get to identifying their method.

There is, however, a general belief that there are four big indicators that the committee weighs heavily in their cycle identification process. They are:

  • Industrial Production
  • Real Personal Income
        (excluding transfer payments)
  • Employment
  • Real Retail SalesClick to View

The weight of these four in the decision process is sufficient rationale for the St. Louis FRED repository to feature a chart four-pack of these indicators along with the statement that “the charts plot four main economic indicators tracked by the NBER dating committee.”

Here are the four as identified in the Federal Reserve Economic Data repository. See the data specifics in the linked PDF file with details on the calculation of two of the indicators.

The FRED charts are excellent. They show us the behavior of the big four indicators currently (the green line) as compared to their best, worst and average behavior across all the recessions in history for the four indicators (which have start dates). Their snapshots extend from 12 months before the June 2009 recession trough to the present.

The Latest Indicator Data: Industrial Production and Real Retail Sales

This morning I’ve added two more of the Big Four for November: Industrial Production from the Federal Reserve, the purple line in the chart below and Real Retail Sales, the green line.

The Fed update on IP lead with the following observation:

Industrial production increased 1.1 percent in November after having fallen 0.7 percent in October. The gain in November is estimated to have largely resulted from a recovery in production for industries that had been negatively affected by Hurricane Sandy, which hit the Northeast region in late October. In November, manufacturing output increased 1.1 percent after having decreased 1.0 percent in October; in addition to the storm-related rebound, a sizable rise in the production of motor vehicles and parts boosted factory output in November.   [Link]

For a detailed overview of the latest Retail Sales, see my latest update, which I’ve revised to include today’s release of the November CPI.

Current Assessment and Outlook

At this point, the average of the Big Four (the gray line in the chart above) shows us that economic expansion since the last recession had been hovering around a flat line for the past several months. But the November data for Employment, Industrial Production and Real Retail Sales have shown improvement.

As for the recent data, of course they are subject to revision, so we must view these numbers accordingly.

The behavior of all four of these indicators will be critical as move from the fourth quarter to the new year. Superstorm Sandy has not been traumatic to the economy, and we will see some positive effects from rebuilding in the impacted areas. Holiday season sales will be something to watch in the next Retail Sales release.

On the negative side, the continuing weakness in Real Personal Income Less Transfer Payments is a looming threat, and we may see evidence of it in the final tally of holiday spending. Finally, of course, the outcome of Fiscal Cliff negotiations remains a near-term worrisome wild card in the economic hand.

Background Analysis: The Big Four Indicators and Recessions

The charts above don’t show us the individual behavior of the Big Four leading up to the 2007 recession. To achieve that goal, I’ve plotted the same data using a “percent off high” technique. In other words, I show successive new highs as zero and the cumulative percent declines of months that aren’t new highs. The advantage of this approach is that it helps us visualize declines more clearly and to compare the depth of declines for each indicator and across time (e.g., the short 2001 recession versus the Great Recession). Here is my own four-pack showing the indicators with this technique.

Now let’s examine the behavior of these indicators across time. The first chart below graphs the period from 2000 to the present, thereby showing us the behavior of the four indicators before and after the two most recent recessions. Rather than having four separate charts, I’ve created an overlay to help us evaluate the relative behavior of the indicators at the cycle peaks and troughs. (See my note below on recession boundaries).



The chart above is an excellent starting point for evaluating the relevance of the four indicators in the context of two very different recessions. In both cases, the bounce in Industrial Production matches the NBER trough while Employment and Personal Incomes lagged in their respective reversals.

As for the start of these two 21st century recessions, the indicator declines are less uniform in their behavior. We can see, however, that Employment and Personal Income were laggards in the declines.

Now let’s look at the 1972-1985 period, which included three recessions — the savage 16-month Oil Embargo recession of 1973-1975 and the double dip of 1980 and 1981-1982 (6-months and 16-months, respectively).



And finally, for sharp-eyed readers who can don’t mind squinting at a lot of data, here’s a cluttered chart from 1959 to the present. That is the earliest date for which all four indicators are available. The main lesson of this chart is the diverse patterns and volatility across time for these indicators. For example, retail sales and industrial production are far more volatile than employment and income.



History tells us the brief periods of contraction are not uncommon, as we can see in this big picture since 1959, the same chart as the one above, but showing the average of the four rather than the individual indicators.



The chart clearly illustrates the savagery of the last recession. It was much deeper than the closest contender in this timeframe, the 1973-1975 Oil Embargo recession. While we’ve yet to set new highs, the trend has collectively been upward. But a closer look at the average shows a clear slowing of the trend in 2012.





Appendix: Chart Gallery with Notes

Each of the four major indicators discussed in this article are illustrated below in three different data manipulations:

  1. A log scale plotting of the data series to ensure that distances on the vertical axis reflect true relative growth. This adjustment is particularly important for data series that have changed significantly over time.
  2. A year-over-year representation to help, among other things, identify broader trends over the years.
  3. A percent-off-high manipulation, which is particularly useful for identifying trend behavior and secular volatility.

Industrial Production

The US Industrial Production Index (INDPRO) is the oldest of the four indicators, stretching back to 1919. The log scale of the first chart is particularly useful in showing the correlation between this indicator and early 20th century recessions.







Real Personal Income Less Transfer Payments

This data series is computed as by taking Personal Income (PI) less Personal Current Transfer Receipts (PCTR) and deflated using the Personal Consumption Expenditure Price Index (PCEPI). I’ve chained the data to the latest price index value.

The “Tax Planning Strategies” annotation refers to shifting income into the current year to avoid a real or expected tax increase.







Total Nonfarm Employees

There are many ways to plot employment. The one referenced by the Federal Reserve researchers as one of the NBER indicators is Total Nonfarm Employees (PAYEMS).







Real Retail Sales

This indicator is a splicing of the discontinued retail sales series (RETAIL, discontinued in April 2001) spliced with the Retail and Food Services Sales (RSAFS) and deflated by the Consumer Price Index (CPIAUCSL). I used a splice point of January 1995 because that was date mentioned in the FRED notes. My experiments with other splice techniques (e.g., 1992, 2001 or using an average of the overlapping years) didn’t make a meaningful difference in the behavior of the indicator in proximity to recessions. I’ve chained the data to the latest CPI value.







Real Manufacturing and Trade Sales

This indicator is a splice of two seasonally adjusted series tracked by the BEA. The 1967-1996 component is SIC (Standard Industrial Classification) based and the 1997-present is NAICS (North American Industry Classification System) based. The data are available from the BEA website. See Section 0 – Real Inventories and Sales and look for Tables 2AU and 2BU. The FRED economists use the Real Retail Sales above for their four-pack. However, ECRI appears to use this series as their key indicator for sales. Note that the Manufacturing and Trade Sales data is updated monthly with the BEA’s Personal Consumption and Expenditures release, but the numbers lag by one month from the other PCE data.







Note: I represent recessions as the peak month through the month preceding the trough to highlight the recessions in the charts above. For example, the NBER dates the last cycle peak as December 2007, the trough as June 2009 and the duration as 18 months. The “Peak through the Period preceding the Trough” series is the one FRED uses in its monthly charts, as explained in the FRED FAQs illustrated in this Industrial Production chart.

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STOCKS FALL: Here’s What You Need To Know (DIA, SPY, QQQ, AAPL)

sail sunset

Markets closed lower today.

First the scoreboard:

Dow: 13,129, -41.7, -0.3 percent
S&P 500: 1,413, -6.0, -0.4 percent
NASDAQ: 2,966, -25.6, -0.8 percent

And now the top stories:

  • A gunman killed at least 27 people, including at least 18 children during a shooting at Sandy Hook Elementary school in Newtown, Connecticut. Follow our ongoing coverage here >
  • Today’s sad news overshadowed some positive economic data.  We learned that industrial production jumped 1.1 percent in November, which was much higher than the 0.3 percent growth expected by economists.
  • The US Flash PMI report unexpectedly jumped to 54.2 in December, up from 52.4 last month.  Economists were expecting the measure to fall to 51.8.  This was welcome news.  For weeks, much of the economic data has reflected corporate reluctance to spend ahead of any fiscal cliff deal.
  • The November reading of the consumer price index (CPI) came in a bit cooler than expected.  CPI fell by 0.3 percent.  Excluding food and energy, CPI climbed by just 0.1 percent.  On Wednesday, the Federal Reserve said that it would keep interest rates exceptionally low as long as the inflation rate stayed below 2.5 percent and the unemployment rate was above 6.5 percent.  Today’s low CPI report will confirms that the Fed still has flexibility to stay on its easy monetary policy path.
  • Among the notable losers today was Apple. UBS analyst Steve Milunovich cut his price target on the iPhone-maker to $700 from $780.  Milunovich cited supply chain sources who suggested that iPhone sales would be weaker than expected.
  • Don’t Miss: GOLDMAN: Here Are Our Top 7 Trades For 2013 >

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That Federal Reserve May Have Finally Found The Limits Of Its Effectiveness

The Federal Reserve meeting for December came with few real surprises.  The two important actions that were eyed by the financial markets were the pledge to continue artificially suppressing interest rates and the extension of monetary actions.  Both of these goals were met. 

While the Fed had already entered into a third Large Scale Asset Purchase program (QE 3) in September, which purchases $40 billion each month in mortgage related securities, they also announced of an additional program (QE 4) to replace the expiring “Operation Twist.”  Unlike “Operation Twist” which used maturing securities to purchase new holdings – the new program will be an outright monetization program of $45 billion each month of Treasury bond purchases.  This will bring the total purchases of fixed income securities by the Fed each month to $85 billion. 

However, the Fed did make a very significant change in its policy stance in December by implementing the “Evans Rule” and linking their monetary policy actions to specific economic targets.  From the Fed’s release:

“To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. The Committee views these thresholds as consistent with its earlier date-based guidance. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.”

The problem, of course, with setting specific targets for employment and inflation, in terms of monetary policy actions, is that reported levels of employment and inflation can be materially different than real employment levels and inflation.

However, what was overlooked by much of the media was the release of the Fed’s economic outlook and forecasts. In past articles I have discussed the problems with these forecasts (see here and here) and why they are not an accurate prediction of what the Fed really thinks. To wit:

“The problem for the Federal Reserve is that they face a severe challenge, when communicating to financial markets and media, which is the creation of a self-fulfilling prophecy. Imagine that following an FOMC meeting Bernanke stated: “The policies and actions that we have implemented to date have done little to curb economic weakness. The economy is in much worse shape that we have previously communicated as the transmission system of Fed policy through the economy, and the financial markets, is obviously broken.”

The immediate reaction to such a statement would be a complete meltdown of the financial markets. Such a decline in the financial markets would negatively impact consumer confidence which would subsequently throw the economy into a recession. Therefore, communication from the Federal Reserve must be very guided in its approach – not too hot or cold.  This “goldilocks” approach works to create a “glide path” to the Fed’s destination while giving the financial markets and economy time to adjust to the incremental adjustments to forecasts.  Therefore, when the media reporters grab onto a sound byte that the ‘next year is going to very good’ it should be taken within the context of the trend of the economic data and what is driving it.”

The Fed has been slowly guiding economic forecasts lower since 2011. The reality is that the long range forecast of 2.6% economic growth is not a boon of economic prosperity, corporate profitability, increasing incomes or a secular bull market.”

With the most recent meeting of the Federal Reserve came the quarterly release of the Fed’s economic projections we can update our tables and charts.


When it comes to the economy the Fed has consistently overstated economic strength.   Take a look at the chart and table.  In January of 2011 the Fed was predicting GDP growth for 2011 at 3.7%.  Actual real GDP (inflation adjusted) was 1.6% or a negative 56% difference. The estimate at that time for 2012 was almost 4% versus 1.8% currently.

GDP Projections

We have been stating repeatedly over the last 2 years that we are in for a low growth economy due to the debt deleveraging, deficits and continued fiscal and monetary policies that are retardants for economic prosperity.
The simple fact is that when an economy requires nearly $5 of debt to provide $1 of economic growth the engine of prosperity is broken.

As of the latest Fed meeting the forecast for 2013 and 2014 economic growth has been revised down as the realization of a slow-growth economy has been recognized.  However, the current annualized trend of GDP suggests growth rates in the next two years that will roughly be half of the Fed’s current estimates of 2.6% and 3.4%.  As we have stated over the past year – a recession in 2013 remains a strong likelihood given the current annualized trend of economic growth since 2000.   A recession followed by a rebound in 2014 would leave economic growth running at annual rate close to 1%-1.5% versus the current estimate of 3.35%.  In other words, like with all other Fed forecasts, these numbers will be revised down.

What is very important is the long run outlook of 2.6% economic growth.  That rate of growth is not strong enough to achieve the “escape velocity” required to substantially improve the level of incomes and employment that were enjoyed in previous decades.  


With the Fed’s new goal of targeting a specific unemployment level to monetary policy could potentially put the Fed into a box.  Currently, the Fed sees 2014 unemployment falling to 6.75% and ultimately returning to a 5.5% “full employment” rate in the long run.  The issue with this full employment prediction really becomes what the definition of reality is.

Unemployment Projections
Today, average Americans have begun to question the credibility of the BLS employment reports.  Even Congress has made an inquiry into the data collection and analysis methods used to determine employment reports.  Since the end of the last recession employment has improved modestly but has mostly been centered around temporary and lower paying positions.  More importantly, where the Fed is concerned, has been the drop in unemployment rate due to a shrinkage of the labor pool rather than an increase in employment.

The problem that the Fed will eventually face, with respect to their monetary policy decisions, is that effectively the economy could be running at “full rates” of employment but with a very large pool of individuals excluded from the labor force.  The chart below shows three levels of unemployment.

Real Unemployment

The U-3 level of unemployment is what the BLS reports as the “official” unemployment rate.  The U-6 rate includes all those in the U-3 report plus those working part-time for economic reasons.  The “real unemployment” rate simply adds those that have been unemployed longer than 52-weeks to the U-6 rate.  This was originally considered the U-7 rate during the Clinton Administration before it was eliminated to improve the unemployment statistics for political reasons.

The problem for the Fed is that while the U-3 rate has fallen in recent months other unemployment measures have not.  This is shown in the 4-panel chart below:

Labor Force Issues

More importantly, this large and available labor pool will continue to compete for the available employment which will suppress wages, and ultimately, consumption.  The chart below shows the annual change in average hourly earnings which has shown no recovery since the end of the last recession unlike what was seen previously.

Change In Hourly Earnings

Importantly, while the Fed could very well achieve its goal of fostering a “full employment” rate of 6.5% – it certainly does not mean that 93.5% of working age Americans will be gainfully employed.  It could well be a victory in name only.


When it comes to inflation, and the Fed’s outlook, the debate comes down to what type of inflation are you actually talking about.  The table and chart below show the actual versus projected levels of inflation.

Inflation Revisions

The Fed significantly underestimated official rates of inflation in 2011.  However, in 2012 their projections and reality have come much more aligned. For the average American the inflation story is entirely different. Reported inflation has little meaning to the average consumer as the real cost of living has risen sharply in recent years.  Whether it has been the cost of health insurance, school tuition, food, gas or energy – these everyday costs have continued to rise substantially faster than their incomes.  This is why personal savings rates continue to fall as incomes remain stagnant or weaken.  It is the rising “cost of living” that is weighing on the American psyche.  The chart below shows the impact of rising food and energy costs as a percentage of disposable personal incomes on the consumer’s ability to save.


This is what the average American sees as inflation.  However, with current deflationary pressures pulling headline inflation down from 3%, at the beginning of this year, to 1.7% currently the Fed’s prediction appears to be fairly accurate.  The question, however, is how long can inflation remain suppressed at or below 2% which is the long run prediction of the Fed?  More importantly, where the consumer is really concerned, will it even matter?

The Diminishing Effects Of QE

With the Fed embarking on its fourth Large Scale Asset Purchase program (Quantitative Easing or Q.E.), and deploying specific performance targets, the question of effectiveness looms large.  Bernanke has been quite vocal in his testimonies over the last year that monetary stimulus is not a panacea.  It is up to Congress to enact fiscal programs to turn the economic “titanic” away from the iceberg of debt and back onto a safe course to economic stability.  That plea has fallen upon deaf ears.

With the Fed now fully engaged, and few if any policy tools left, the effectiveness of continued artificial stimulation is clearly waning.  Lower mortgages rates, interest rates and excess liquidity served well in priming the pumps of the real estate and financial markets when valuations were extremely depressed.  However, four years and four programs later, stock valuations are no longer low, earnings are no longer depressed and the majority of real estate related activity has likely been completed.

Fed Programs

It is for this reason that the returns from each subsequent program have diminished.  The reality is that Fed may have finally found the limits of their effectiveness as earnings growth slows, economic data weakens and real unemployment remains high. 

Reminiscent of the choices of Goldilocks – it is likely the Fed’s estimates for economic growth in 2013 is to hot, employment is too cold and inflation estimates may be just about right.  The real unspoken concern is the continued threat of deflation and the next recession.

One thing is for certain; the Fed faces an uphill battle from here.

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Stock futures rise with Wall Street set for rebound

Traders work on the floor of the New York Stock ExchangeNEW YORK (Reuters) – Stock futures rose on Friday, pointing to a modest rebound for Wall Street after Thursday's retreat, though investors remained concerned about a lack of progress by politicians in ongoing fiscal negotiations. Economic data out of China showed that manufacturing in the world's second-largest economy grew at its fastest pace in 14 months in December. That indicated China's economy was on the mend, encouraging news for its key trading partners such as the United States. …

Read more from source:“Yahoo”

Stock futures rise with Wall Street set for bounce back

Traders work on the floor of the New York Stock ExchangeNEW YORK (Reuters) – Stock futures rose on Friday, pointing to a bounce back for Wall Street after retreating Thursday, though investors remained concerned about a lack of progress by politicians in ongoing fiscal negotiations. Economic data out of China was encouraging, and showed that manufacturing in December in the world's second-largest economy grew at its fastest pace in 14 months, indicating the world economy may be on the mend. However, in Europe, the euro zone's manufacturing and services sectors showed only small signs of improvement and remained in contraction territory. …

Read more from source:“Yahoo”

Bank lending to UK property market hits post-Lehman low

A view of Canary Wharf on the River Thames in LondonLONDON (Reuters) – Bank lending to Britain's property market is at its tightest since the collapse of U.S. investment bank Lehman Brothers, a report showed on Friday. Though lending has picked up since Lehman collapsed in 2008, the protracted euro zone debt crisis and shaky domestic economic data has hit confidence among banks, making them more wary of offering new loans to property companies. The proportion of banks planning to increase lending on property was 42 percent at June 30, down from 57 percent in 2010 and 44 percent in 2011, a study from Leicester-based De Montfort University …

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ALBERT EDWARDS: The Fiscal Cliff And Hurricane Sandy Are Smokescreens For America’s Economic Problems

albert edwardsIn his latest note out today, Societe Generale strategist Albert Edwards reflects on Lakshman Achuthan of ECRI’s controversial call that the United States is already in recession.

According to Edwards, “the ECRI recession call should be listened to more closely,” even though it’s come under a lot of fire.

In fact, Edwards says that now that the fiscal cliff has taken over the headlines, everyone may be incorrectly attributing new weakness in the economic data to the cliff’s effects, when in fact, it’s just what one would expect before any typical recession.

The bearish SocGen strategist’s argument goes like this:

Certainly if the US has already slipped into recession, this would help explain why our preferred measure of whole economy profits declined, albeit marginally, in Q3. We have always monitored pre-tax, domestic, non-financial, whole economy profits particularly closely because this measure of the underlying profitability of the business sector is probably the best leading indicator of domestic business investment, and that has also been weak recently.

Many have attributed the weakness in investment to uncertainty about the fiscal cliff. But if underlying profits are under pressure, then so too will be investment. So although much of the S&P eps downgrading by analysts is being attributed to severe weakness abroad, what the latest whole economy profits data show is that the domestic business situation is also weak. The ECRI recession call should be listened to more closely.

Edwards continues, highlighting the frightening decline in NFIB Small Business Optimism last month (emphasis his):

“Something bad happened in November…and it wasn’t merely Hurricane Sandy”, the NFIB chief economist Bill Dunkelberg is quoted as saying – see chart below and link. Even scarier than the decline in the headline measure was the 37% slump to an all-time low in those firms who believe economic conditions will improve over the next six months. That 37% drop is twice the previous record 18% decline, which occurred in the immediate aftermath of the Lehman’s collapse…For those who might immediately retort that this is a sentiment indicator that should be used as a contrary indicator you are wrong. It is a good leading or at worst coincident indicator.

The chart below highlights the drop Edwards refers to:

NFIB Small Business Optimism

Edwards concludes, “I would say this datum is more than consistent with the recession that Lakshman Achuthan of the ECRI has been warning of, wouldn’t you?”

SEE ALSO: CLOCK IS TICKING: Here’s The Nightmare-Case Scenario For The Fiscal Cliff >

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10 Things You Need To Know Before The Opening Bell (DIA, SPY, QQQ, GOOG, AAPL)

spice girls

Good morning. Here’s what you need to know.

  • Asian markets were mixed in overnight trading, with the Nikkei rising 1.7 percent and the Shanghai Composite falling 1 percent. European markets are lower with the exception of Spain and Italy, both up 0.1 percent. In the United States, futures point to a slightly negative open.
  • European finance ministers agreed today to give the ECB sole regulatory power over banks in the euro area. EU Financial Services Commissioner Michael Barnier said the new supervisory mechanism should be ready for implementation by March 1, 2014. The agreement represents an important step toward further integration in the euro area.
  • Yields on 3-year Italian government bonds fell to 2.5 percent at today’s auction, marking the lowest borrowing costs for Italy since October 2010. Spain also completed a successful auction, selling the longest-dated debt it’s been able to issue in over a year.
  • The Swiss National Bank voted to leave rates on hold at 0 percent at today’s policy meeting and left the EUR/CHF floor at 1.20. SNB President Thomas Jordan said he could not rule out substantial interventions in the future to protect the price floor. Looking ahead, Deutsche Bank FX strategist George Saravelos writes, “the SNB will be important next year even by its absence. The central bank has been one of the largest active investors in global FX and fixed income markets this year.”
  • In its monthly bulletin, the ECB weighed in on the austerity debate in the euro area, writing, “well-designed consolidation leads to a permanent improvement in the structural balance, while the deterioration in growth, if any, is only temporary.” The bulletin also reiterated the view that financial fragmentation in the euro area is on the decline, according to recent indicators.
  • Google will make its map application for the Apple iPhone reports All Things D.  This comes after Apple’s proprietary mapping app was met with horrible reviews from iPhone users.
  • Advance retail sales figures for November are released at 8:30 AM ET in the United States. The consensus estimate is for a 0.4 percent rise in retail sales after the 0.3 percent drop registered in October. Retail sales less autos are expected to be flat, as they were in October.
  • Also out at 8:30 AM are weekly jobless claims data. Economists expect initial claims to stay flat at 370K, while continuing claims are expected to tick up slightly to 3210K from 3205K last week.
  • The U.S. producer price index will also be released at 8:30 AM, and is expected to have risen 1.8 percent from last year in November, down from October’s reading of a 2.3 percent rise year-over-year. The ex-food and energy measure is expected to have risen 2.2 percent year-over-year after a 2.1 percent rise the month before.
  • Business inventories round out the economic data in the U.S. at 10 AM ET. Economists project inventories to have risen 0.3 percent in October, after having risen 0.7 percent the month before. Follow all of today’s data releases LIVE on Money Game >
  • BONUS: The Spice Girls’ new musical opened to mostly negative reviews.

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Read more from source:“Business Insider”