A New Type of Death Cross

I have been waiting for this to occur. It is what I think of as a different kind of "death cross". In standard charting terminology, that is a cross of a short moving average from above to below a longer one. An example is a stock the 50 day moving average of which breaks below the 200 day moving average.

The accompany is from the Consumer Metrics website. Its "contraction watch" from today incorporates data through July 21.

They have identified growth contractions in 2006, 2008 and 2010 (green, red and blue lines respectively). As you see, the 2008 consumer recession as Consumer Metrics measures it (not the entire economy and not even the entire consumer economy) was receding at the duration at which their metrics are still declining.

You may visit their website for their parameters.

The first chart on their site suggests that their data leads the Bureau of Economic Analysis GDP data by a quarter or so. Whether any of this has predictive value for financial investing is unknown, but what my eye tells me looking at this chart is that there is a significant amount of economic weakness amongst the people of the United States, and that the "recovery" ended some time ago.

If only the powers that run up the bills in Washington would join the people in trying to delever rather than print and borrow money, as in the 1950s, a proper economic recovery would be more likely to occur.

Copyright (C) Long Lake LLC 2010

ECRI Follow-up, and Related Updates

In the post immediately below, I commented that there was no press release yesterday for some reason from ECRI related to the release of its Weekly Leading Index. In the past few hours, notice of a Reuters press release dated yesterday has now been added to the "News" section of ECRI's website. Here is the release:

(Reuters) - A measure of future U.S. economic growth was unchanged in the latest week, a research group said on Friday.

The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index stood at 120.6 for the week ended July 9, unchanged from the previous week, which was originally reported as 121.5.

The index was last below 120.6 in the week of July 24, 2009, when it measured 120.3, according to ECRI.

The index's annualized growth rate fell to minus 9.8 percent from minus 9.1 percent the previous week, originally reported as minus 8.3 percent.

So, ECRI was noncommittal re whether the worsening WLI growth rate in conjunction with the evolving proprietary data is pushing them toward a new recession call.

What I truly don't like in the data I am seeing is that Consumer Metrics has reported July 15 data. This was at 100 (average) on June 30 and now is 93. Its own 91-day growth index is low and dropping. At -2.7% it is the lowest since what that organization dates as a new consumer downturn began at the beginning of 2010.

It appears from the historical data on their website that all throughout the last "Great Recession", only 3 months had average readings below the current average of less than 96 for July (only half through this month, of course). So, leaving aside growth rates to focus on absolute levels of economic activity, the ECRI data, and the Consumer Metrics data are consistent with all sorts of other data such as Discover/Rasmussen's polling data of consumers and small businesses, Gallup.com's "main in the street" polling of elective spending and hiring/firing, and others that that the cyclical upturn has been weak and may already have peaked.

The investing conundrum is that the reflex is to buy Treasuries on economic weakness. But are consumer prices really falling? Is the supply of Treasuries rising or falling? Does the Federal Government have a plan to protect its financial position if (when?) the economy fails to have its hoped-for rendezvous with Rosie (Expectations, that is)?

If your answers are similar to mine, then fundamentally you are uncomfortable with Treasury debt either to generate real returns or to safely preserve capital. Think Greece and Spain, even though right now things are looking Japanese. What happens if and when there is a run on the bank that is the world's effective central bank, meaning the Federal Reserve Bank of New York and its ally at Treasury?

These are dangerous financial waters the ship of state is going through.

Copyright (C) Long Lake LLC 2010

Lyndon Jimmy Obama

From AFPAK Channel today:

The Pentagon is reportedly concerned that correspondents embedding only in the south of Afghanistan, where fighting is fiercest, is causing too much "downbeat" coverage of the war and "undercutting public sentiment before President Barack Obama's strategy even has a chance to work" (Reuters).

Welcome to Vietnam.

Meanwhile, I was surprised to read in David Rosenberg's Breakfast with Dave today that his firm, Gluskin Sheff, has been receiving predominantly bullish Emails from clients who want to buy the recent stock sell-off. He is more overtly bearish, though.

So the administration wants people to hear more happy talk about a floundering "surge", and David Rosenberg is hearing "buy the dip" from clients who have internalized happy thinking.

Hmmm . . .

Non-mainstream data such as that generated by the Consumer Metrics Institute shows that the American consumer is far from "back". This CMI data indicates that a growth slowdown began last year and has lasted longer even than their measurement of the 2008 disaster.

Let us not discuss the Deepwater spill, where somehow "they" keep "discovering" that the spill rate was greater than thought. How many people believe all these "discoveries" rather than that we were lied to all along?

Dare we say the word "malaise"? (And for younger readers, this blog title refers to a well-known speech of President Carter on the energy crisis in 1979.)

All this on the backdrop of updated calculations from Smithers & Co. using the latest Fed data that continue to show approximately a 50% level of overvaluation of stocks based both on analysis of net worth and cyclically-adjusted earnings.

Once the credit osos (bears) finish chewing on Spain, when will they turn their sights on larger prey? Grizzlies on the loose . . .

The Asian contagion crisis that began in 1997 ended with the unanticipated bankruptcy of a very large country, Russia. Credit default swaps on the United States are at risk of rising to record levels sooner rather than later.

This can occur in the absence of another recession. There was no recession during Jimmy Carter's presidency, but the U. S. was forced to issue "Carter bonds" denominated in other than U. S. dollars. What's past may be prologue.

Stay tuned.

Copyright (C) Long Lake LLC 2010

A Different Downbeat Economic Measure Heard From

Consumer Metrics Institute (http://www.consumerindexes.com/)

is reporting a steady, drip-drip-drip type of deterioration of the consumer economy, which their methodology indicates leads GDP. See the graph showing the last one-month's trend.

The site is an unconventional one and just might provide a competitive investment advantage to those who pay attention to it.

Its news is disheartening; let's see how correct it is. I am aware of nothing that contradicts its views. Here is a quote from its May 30 commentary:

Since we first reported that our 'trailing quarter' had slipped into contraction on January 15th, we have charted how the current 2010 version of the consumer contraction event compares with prior similar events in 2006 and 2008. The current event is significantly different; while it is not as severe as the 2008 contraction, it has already lasted longer without forming a clearly defined bottom. We know that if the GDP mirrors consumer activities (as at least 70% of it should, net of inventory adjustments), both the 2nd and 3rd quarters of 2010 should be contracting at a level of between 1% and 2%. If this isn't a classic 'W' shaped 'double dip', it is at least the downward glide of a plane with sputtering engines.

Copyright (C) Long Lake LLC 2010