Posts Tagged ‘consumer demand’

July 27, 2010 – Daily Growth Index Surpasses 3% Contraction Rate

July 27, 2010 – Daily Growth Index Surpasses 3% Contraction Rate

Courtesy of Rick at Consumer Metrics Institute

Since last week our Daily Growth Index has weakened further, surpassing a year-over-year contraction rate of 3%. This daily measurement of on-line consumer demand for discretionary durable goods has now dropped to the lowest level it has recorded since late November 2008:

Chart
(Click on chart for fuller resolution)

Our Daily Growth Index reflects the strength of consumer demand over the trailing 91-day ‘quarter’, weighted according to the contribution that goods involved in on-line transactions make to the GDP (per the BEA’s NIPA tables). It is designed to serve as a proxy for a ‘real-time’ GDP, and it slipped into net contraction on January 15th, 2010. To put this decline in perspective we offer the following observations:

1. The current contraction in consumer demand for discretionary durable goods has now extended for more than 6 months.

2. The day to day level of the year-over-year contraction is now worse than a similar reading of the ‘Great Recession’ of 2008 was after 6 months.

Chart
(Click on chart for fuller resolution)

  • The amount of damage done to an economy by an economic slowdown can by quantified by multiplying the event’s average rate of contraction times the duration of the event. By that measure the 2010 contraction has now inflicted 43% as much pain on the economy during its first 6 months as the ‘Great Recession’ did during the first 6 months of that slowdown.
  • Although this contraction has not yet reached the extreme contraction rates that were seen during 2008, after 6 months it has not yet formed a bottom. Furthermore, it is now likely to last longer than the 2008 event.
  • In an even broader perspective, the current level of the Daily Growth Index over the trailing 91-day ‘quarter’ would put it among the lowest 6% of all calendar quarters of GDP growth since 1947. Only roughly 1 in 17 quarters of GDP activity have been worse.
  • The duration of the current contraction event is becoming a real problem. Our trailing 183-day ‘two consecutive quarters’ growth index has dropped into the 5th percentile among similar two consecutive quarters of GDP ‘growth’ since 1947. This means that the trailing 6 months have been statistically worse than the trailing 3


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What do banking crises have to do with consumption?

What do banking crises have to do with consumption?

Courtesy of Michael Pettis, China Financial Markets 

Just three days after returning to Beijing from New York, I had to leave again, this time  to a series of conferences in Torino, Italy, so it is hard to do much writing for my blog, especially since I won’t spend my free time in the hotel when there is so damned much food out here that urgently needs sampling.  Still, I did want to write a hurried note about a topic of conversation that came up a lot while I was in the US and even more here in Italy.

For the next several years, as Keynes reminded us in the 1930s, savings is not going to be a virtue for the world economy.  It is more likely to be a vice.  In order to regain growth the world desperately needs less savings and more private consumption, but I think it is not going to get nearly enough to generate growth.  Why?  Because in all the major economies the banking systems are largely insolvent, or about to become so, and desperately need to rebuild capital.  For reasons I discuss below, this will have a large adverse impact on private consumption.

Let’s go through the major banking systems.  First, the crisis started in the US and, perhaps as a consequence, US banks have already identified a lot of their problem loans and have been the most diligent about rebuilding their capital bases.  They nonetheless still have a long ways to go, even though a large part of the bad loan problem was directly or indirectly transferred to the US government.  By the way, transferring bad loans to the government may be good for the banks but will have the same adverse impact on consumption.  I try to explain why below.

Second, in Japan, during the past twenty years the Japanese government and the beleaguered Japanese household have been tasked with keeping the banking system alive.  I don’t know whether or not the banking system has finally been cleaned up, but for the purpose of my calculations it doesn’t really matter.  The Japanese government has been saddled with a huge nominal debt burden, which is only bearable because interest rates are kept artificially low.  Forcing down the interest that depositors and bondholders receive means that borrowers are getting (albeit not visibly) substantial amounts…
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Consumer Demand Slowdown Gets Even Weirder

For more background information on why Rick collects his data and what he believes it reflects, please see my previous Interview with Rick Davis of the Consumer Metrics Institute, if you haven’t already. – Ilene 

Consumer Demand Slowdown Gets Even Weirder

Courtesy of Rick Davis at Consumer Metric Institute 

We have been commenting for some time that the profile of the current year-over-year contraction in consumer demand has been unique when compared to similar events in 2006 and 2008. The differences have only become more distinct as time has progressed:

Chart
(Click on chart for fuller resolution)

• The 2010 event has now gone on for nearly 150 days without forming a bottom. The 2006 event had already completely ended by the 110th day, while the much more severe 2008 event had at least formed a bottom by the 120th day. In contrast the downward slope of the 2010 event increased after passing the 140th day.

• The 2010 event has now passed the 2006 event in terms of maximum level of contraction. In 2006 our ‘Daily Growth Index’ bottomed at a year-over-year contraction rate of -2.28% on August 25th. On June 10th, 2010 our ‘Daily Growth Index’ dropped below that level for the first time during the current slowdown.

• The severity of contraction events is the product of the average negative ‘growth’ rate observed and the duration of the negative ‘growth’ period. This means that the two-dimensional ‘area under the curve’ is the best true indication of how much economic pain is associated with each event. In 2006 our ‘Daily Growth Index’ had a total of about 136 negative-percent-days of contraction over the 110 day event, and the BEA’s measurement of the GDP dropped to a barely positive .1% growth for the third quarter of 2006. During the current 2010 contraction event we have already accumulated over 210 negative-percent-days of contraction during the first 148 days, a figure that is more that 50% greater than in 2006 and still growing. (To keep these figures in perspective, however, the 2008 event reached 794 negative-percent-days of contraction over 223 days. This means that the current slowdown, although already 2/3 the length of the 2008 event, has to this date inflicted only about a quarter of the damage to the economy as experienced in 2008.) 

• What is troubling to our eyes is that the shape of the…
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Contraction Tracked by the Consumer Metrics Institute Traces Unique Pattern

Three women shoppers

This is fascinating data that Phil brought to my attention. Richard Davis, President of the Consumer Metrics Institute, measures real-time consumer transactions as an objective indicator of consumer demand and associated economic health.

As Richard explains,

We simply report what consumers have been doing on a day by day basis by mining on-line U.S. consumer tracking data for purchases of discretionary durable goods. We only look for discretionary durable goods transactions because we believe the discretionary durable goods segment of the consumer economy is the most volatile and stimulative portion of the economy. Consequently, we are not capturing grocery or gasoline purchases; but we are, for example, collecting automotive and housing purchases. We divide the captured transactions daily into the following sectors of the consumer economy: automotive, entertainment, financial, health, household, housing, recreation, retail, technology and travel.

Additionally, we are aware that our sampling process may have some biases built into it because it uses the internet as the collection tool. For that reason, our consumers may have a different socioeconomic profile than the average American consumer. We are also collecting only U.S. originated transactions conducted in English. That said, however, we feel that our data does fairly represent the most variable parts of the consumer economy.

Because conclusions are only as accurate as the data from which they are drawn (but may be far less accurate), this approach is particularly intriguing. It is refreshingly free of government processing and alterations, such as confusing seasonal adjustments. Richard also wrote, concerning what his data is saying to him now:

We are not professional doom-sayers. We were incredibly upbeat one year ago — when most economic indicators were preaching doom and gloom. Since August, however, consumers have been pulling in their spending, and our numbers have slowly turned upside down. From our perspective on the demand side of the economy, a contraction is already here, having started officially in the middle of January. The only question now is whether the 2010 contraction will revisit 2006 or 2008? Our daily updates will ultimately tell the story.

Coincidentally, Richard is going to be speaking with Larry Doyle from
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Competitive Currency Debasement – A Look at Rampant Monetary Expansion In China

Competitive Currency Debasement – A Look at Rampant Monetary Expansion In China

Courtesy of Mish

Given all the finger pointing at the US over monetary printing and the debasement of the US dollar, inquiring minds just might be asking "What is China doing?"

That’s a good question, so let’s look at monetary numbers translated from Chinese.

Chinese Money Supply in 100 Million Yuan

China money supply

click on any chart for sharper image

Link For Chinese Money Supply

Balance Sheet Of Depository Corporations – Assets

Balance Sheet Of Depository Corporations – Liabilities

 

Link For Chinese Balance Sheet of Other Depository Corporations

The Chinese central banks’ printing and respective Chinese bank lending make us look like amateurs. Chinese central bank assets and the money supply are up 25-26% annualized YTD. But this growth rate of money supply and bank lending is what is required to make up for the 8-10% net contraction in output from the collapse in exports and export-related production.

Meanwhile, back in the US, total bank credit is contracting while M2 is up 5% annualized YTD.

Total Bank Credit – Annualized Rate of Change

M2 – Annualized Rate of Change

 

M2 is actually down since May-August due to the decline in the rate of growth of bank lending over the summer.

If the May-June rate of deceleration were to persist, M2 could conceivably start start contracting by year end or early ’10.

How Will China Handle The Yuan?

To understand what is happening, please consider How Will China Handle The Yuan?

In spite of record worldwide stimulus, a global recession is everywhere you look except perhaps in China. The reason is simple. When the Chinese government "suggests" banks should lend, banks lend. This is how command economies "work", using the word "work" loosely. Yes, the US has massive problems, but let’s have an honest assessment of problems elsewhere.

Bottom line, China is busy ramping up production for consumers that don’t exist: Not here, not in the EU, and not in China (not yet). This love affair with China, a country that will not float its currency or offer freedom of speech, and hides bank solvency issues even more so than the US, is way overdone.

Remind me to reconsider decoupling when China allows freedom of speech and floats the RMB instead of pegging it.

Yet


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US Consumer Demand Off a Cliff as the Crisis Deepens

US Consumer Demand Off a Cliff as the Crisis Deepens

Courtesy of Jesse’s Café Américain

As we said, we would be taking a closer look behind the headline GDP numbers recently released. The advantage of procrastination is that eventually a capable person will chart up the data which you have been studying. So thank you to ContraryInvestor for his excellent charts. His site is among the best, and we read it regularly.

The big story is the collapse of the US consumer, unprecedented since WW II, and possibly the Great Depression. This is apparent in the numbers despite the epic restatement of GDP having just been done by the BLS in their benchmark revisions.

If the Fed and Treasury were not actively monetizing everything in sight, we would certainly be seeing a more pronounced deflation as prices fall WITH demand. And if they continue, we may very well feel a touch of the lash of that hyperinflation that John Williams is predicting. We still think a stiff stagflation is more likely, but are allowing that the Fed and Treasury may indeed be ‘just that dumb enough’ to trigger something less probable.

Until the consumer returns to some semblance of health, there will be no sustained recovery. It really is that simple.

The Fed will have to stop artificially draining credit supply by paying such a high rate of interest on reserves. They know this. It will stimulate lending, even to less worthy borrowers. But this is not a cure. It is one of the paths to more inflation, fresh asset bubbles, and the devaluation of the dollar. And ‘stimulus’ handouts are no better. Healthcare reform is a step in the right direction. The US consumer pays far too much for the same (or less) level of care in most of the developed nations. But that is not enough.

The cure will be to increase the median wage, and to stop the transfer of the national income to fewer and fewer hands. For that is how the system is set up today. It is not the result of ‘free markets’ but a sustained transfer of wealth through regulatory and tax policies, and a pernicious corruption of the nation most significantly starting in 1980, although a case has been made for 1913.

It is an ironic echo that our current over-his-head badly advised President seeks…
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Phil's Favorites

The most expensive stock on earth

 

The most expensive stock on earth

Courtesy of 

This weekend’s Barron’s looked at the phenomenon of technology companies with market capitalizations above $5 billion crushing the overall market this year, with names like DataDog, Fastly, Bill.com, DraftKings, Zscaler and Zoom Video all more than doubling year-to-date. Technology columnist Eric Savitz points out the most extreme performer of all, Shopify, which looks to me as though it’s now the most expensive stock on earth.

Shopify’s market cap now exceeds $120 billion and its stock price has zoomed above 1,000 per share. My chart below,...



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Zero Hedge

Google Joins Twitter, Facebook In Refusing To Cooperate With Hong Kong Nat Sec Law

Courtesy of ZeroHedge View original post here.

Update (1500ET): Google has just confirmed its intention not to cooperate with CCP officials or Hong Kong police regarding data requests under the new nat sec law.

  • GOOGLE STOPPED RESPONDING TO NEW HONG KONG DATA REQUESTS

That leaves Apple left...will Tim Cook dare to jeopardize Apple's access to Chinese markets just to show solidarity with Hong Kong?

* * *

Update (1220ET): Twitter has joined Facebook and Telegram in...



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ValueWalk

Bank OZK and John Wiley & Sons Reward Shareholders With Raises

By DIVIDEND GROWTH INVESTOR. Originally published at ValueWalk.

I review the list of dividend increases every week, in an effort to monitor existing holdings, and uncover hidden dividend gems for further research.

Q2 2020 hedge fund letters, conferences and more

I usually narrow my research to companies with a ten year history of annual dividend increases.

Bank Ozk Raises Its Dividends

Last week, there were two companies that raised dividends. The companies include:

Bank Ozk (NASDAQ:OZK) provides ...



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Kimble Charting Solutions

Shangai Index Soars Higher, Testing 11-Year Breakout Level!

Courtesy of Chris Kimble

Is the Shanghai Index (SSE) about to experience a long-term breakout and send the world a bullish message?

An 11-year breakout test is in play that will answer this question.

The Shanghai index trend continues to send a bullish message, as it has created a series of higher lows for the past 24-years above line (1).

This long-term support line was tested at the March lows at (2) and it held.

The rally off the lows has the index testing dual resistance at (3).

Will this important index succeed in breaking out? If it does at (3), it will send a very bu...



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Biotech/COVID-19

As U.S. buys up remdesivir, 'vaccine nationalism' threatens access to COVID-19 treatments

 

As U.S. buys up remdesivir, ‘vaccine nationalism’ threatens access to COVID-19 treatments

Are we really all in this together? ‘Vaccine nationalism’ must be addressed to ensure equitable distribution of a COVID-19 vaccine. (Pixabay)

Courtesy of Joel Lexchin, University of Toronto

At the end of June, the United States government announced that it had ...



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Chart School

Golds quick price move increases the odds of a correction

Courtesy of Read the Ticker

Every market corrects, maybe profit taking, maybe of allowing those who missed out, to get in!


The current open interest on the gold contract looks to high after a very fast price move, it looks like 2008 may be repeating. A quick flushing out of the weak hands open interest may take place before a real advance in price takes place. The correction may be on the back of a wider sell off of risk assets (either before of after US elections) as all assets suffer contagion selling (just like 2008).

This blog view is a gold price correction of 10% to 20% range is a buying opportunity. Of course we may see  a very minor price correction but a long time correction, a price or time is correction is expected, we shall watch and...

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The Technical Traders

Wild Volatility Continues As US Markets Attempt To Establish New Trend

Courtesy of Technical Traders

We’ve continued to attempt to warn investors of the risks ahead for the US and global markets by generating these research posts and by providing very clear data supporting our conclusions.  Throughout the entire months of May and June, we’ve seen various economic data points report very mixed results – and in some cases, surprise numbers as a result of the deep economic collapse related to the COVID-19 virus event.  This research post should help to clear things up going forward for most traders/investors.

As technical traders, we attempt to digest these economic data factors into technical and price analysis while determining where and what ...



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Lee's Free Thinking

These Charts Show COVID 19 Is Spreading in the US and Will Kill the Economy

 

These Charts Show COVID 19 Is Spreading in the US and Will Kill the Economy

Courtesy of  

The COVID 19 pandemic is, predictably, worsening again in much of the US. Only the Northeast, and to a lesser extent some Midwestern states, have been consistently improving. And that trend could also reverse as those states fully reopen.

The problem in the US seems to be widespread public resistance to recommended practices of social distancing and mask wearing. In countries where these practices have been practi...



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Digital Currencies

Blockchains can trace foods from farm to plate, but the industry is still behind the curve

 

Blockchains can trace foods from farm to plate, but the industry is still behind the curve

App-etising? LDprod

Courtesy of Michael Rogerson, University of Bath and Glenn Parry, University of Surrey

Food supply chains were vulnerable long before the coronavirus pandemic. Recent scandals have ranged from modern slavery ...



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Members' Corner

Coronavirus, 'Plandemic' and the seven traits of conspiratorial thinking

 

Coronavirus, 'Plandemic' and the seven traits of conspiratorial thinking

No matter the details of the plot, conspiracy theories follow common patterns of thought. Ranta Images/iStock/Getty Images Plus

Courtesy of John Cook, George Mason University; Sander van der Linden, University of Cambridge; Stephan Lewandowsky...



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Insider Scoop

Economic Data Scheduled For Friday

Courtesy of Benzinga

  • Data on nonfarm payrolls and unemployment rate for March will be released at 8:30 a.m. ET.
  • US Services Purchasing Managers' Index for March is scheduled for release at 9:45 a.m. ET.
  • The ISM's non-manufacturing index for March will be released at 10:00 a.m. ET.
  • The Baker Hughes North American rig count report for the latest week is scheduled for release at 1:00 p.m. ET.
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Promotions

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Feb. 26, 1pm EST

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Phil will discuss positions, COVID-19, market volatility -- the selloff -- and more! 

This week, we also have a special presentation from Mike Anton of TradeExchange.com. It's a new service that we're excited to be a part of! 

Mike will show off the TradeExchange's new platform which you can try for free.  

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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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