Poor Economic Data Plus Poor Financial Stock Charts Raise the Question of Further Bond Rally

Please consider clicking to this linked chart of Bank of America (BAC).

This defines ugly.

Meanwhile the administration's Recovery Summer is panning out as follows.

Gallup reports U.S. Consumers' September Spending Matches 2010 Low:

Americans' self-reported spending in stores, restaurants, gas stations, and online averaged $59 per day during the first four weeks of September. Consumer spending is down from August ($63) and July ($68), and now matches its lowest level of 2010. Current spending is lower than that of a year ago and far below spending in September 2008, at the start of the financial collapse.

Click on graphic to enlarge.

Discretionary spending completely stinks. The country is getting poorer. These data are not adjusted for the obvious rise in consumer prices going back to early 2008. Thus they are worse than they appear, and they appear dismal.

Well, did small business participate in Recovery Summer?

Rasmussen on behalf of Discover(R) has an answer, having released its September survey data of small business, results of which include:

-Forty-six percent of small business owners report having cash flow issues this month, down from 53 percent in August; 50 percent said they do not have cash flow issues and 5 percent aren't sure.

-Despite this, a record 68 percent of small business owners rate the economy poor, up from 62 percent in August; 26 percent rate it fair, 4 percent rate it good and only 2 percent rate it excellent.

-In September, intentions for spending on business development in the next six months produced two record numbers. A record low 16 percent of small business owners plan to increase spending, down a percentage point from last month's then record low of 17 percent. Fifty-seven percent of small business owners report plans to decrease spending, the highest in the history of the Watch, while 24 percent report no changes to their spending plans and 3 percent aren't sure.

-55 percent of small business owners report economic conditions are getting worse for their businesses, equaling the record high percentage from last month; 23 percent expect them to stay the same and 20 percent see them getting better.

So, in addition to the widely reported U. of Michigan consumer confidence surveys, the ABC weekly confidence survey and so on, current data are ugly. This rich country is getting poorer.
Meanwhile the financial leaders at the Fed prattle on about the desirability of 2% price rises--for a country where money on deposit in the bank yields next to nothing, where except for giveaways from the government Social Security recipients receive no cost of living increases, and where the rate of price increases is systematically understated.

Almost everyone I know understands that the stock market is fully divorced from the economic reality of themselves and their friends and family. Thus, the lack of palpable economic progress and no major foreign policy successes all but ensure a major rebalancing swat on the nose to the Dems in the election.

The low expectations of the public of the Republicans they may well grant control of the nation's pursestrings to might just allow for upside surprises in the financial markets. Since the federal deficit has now moved to #1 in national concern in at least one recent poll, we might just see the pols here do the same sort of deficit reduction that the Brits achieved with their new coalition government this year. There is, after all, nothing so persuasive to a pol than a poll. Might the unthinkable happen, and the 10 year Treasury revisit its 2008 post-Lehman panic low around 2.10% in the next few months?

If anything can do that, the combination of troubles at BofA, as the chart suggests; further economic weakness (double dip or no almost does not matter) and deficit reduction measures could be a trifecta that accomplishes that while restoring some faith in and strength to the benighted U. S. dollar.

Copyright (C) Long Lake LLC 2010

Small Business Sentiment Worsens Dramatically: Discover

Sometimes the news just wants to make you jump in a hole and hide. Instead of a Summer of Recovery, or at least a "zero summer", Rasmussen polling on behalf of Discover(R) Small Business Watch shows Small Business Confidence Plummets. Here are some quotes:

Small business owners’ confidence in the economy soured significantly from July to August in the largest one-month decline since November 2009 . . .

In August, 62 percent of small business owners said the economy is getting worse and a record 55 percent of small business owners expect economic conditions for their businesses to be unfavorable in the next six months, up 10 percentage points from July. Those indicators led the drop in confidence from 83 on the index in July to 73 in August.

Confidence was at a record low among small business owners who sell directly to consumers. Those small businesses slid 17.4 points since last month to a record-low 65.5 points on the index, compared to business-to-business operators who marked 79 on the index in August, down only 2.2 points from July.. .

August marks the third straight monthly decline in the index, which is the lowest it has been in 18 months on the 4-year-old index. In July, the Watch reported that 75 percent of small business owners expected a second recession to occur before the country sees a full recovery.

The especially weak consumer spending environment would be even weaker were it not for large governmental transfer payments. The lack of real improvement in consumer spending is supported by Gallup's ongoing polling of consumer spending, which is mired in the roughly $65/day range it has been in since the post-Lehman collapse.

Many economic signs continue to point to the Japanese-Grecian ("Japanecian") scenario playing out in the U. S. It appears fair to say that with Federal interest payments pushing $200 B annually against revenues not much more than 10X that, matters are getting curiouser and curiouser. Will the Feds double their borrowing and have the Fed and the banking system buy enough government debt to halve the interest rates again?

There certainly is precedent for pricing in the earlier stages of a bubble to go much, much higher before the bubble bursts.

Copyright (C) Long Lake LLC 2010

Continued Bad News from Small Business

Rasmussen Reports reports that its Discover(R) Small Business Watch survey for July has been completed and is generally worse than June:

Small business confidence fell for the second month in July as a higher percentage of small business owners rated the current economy as poor and see it only getting worse, according to the Discover Small Business Watch. The index dropped to 83 in July from 86.1 in June. It has been below 83 only once since the beginning of 2010.. .

What I found most striking in the report was:

Record Number of Small Business Owners Taking Home Less Pay

•73 percent of small business owners surveyed also report current economic conditions have caused them to take home less money in July, up from 69 percent in July 2009 and 55 percent in February 2008, when the Watch first posed this question.

In order to finance foreign war(s), expand social spending, and fight for re-election, is the government tempted to print money, or shall I call it "money"?

In that vein, the decade-long trend toward historical norms of the Dow or S&P 500/gold ratio has had a significant rebalancing with the simultaneous moves in opposite directions of stocks vs. gold. Of course there are no guarantees that past is prologue, but when a major asset class goes into new high territory after a prolonged bear market/consolidation, there is strong support (buying interest) if the price falls toward to to the prior trading range, but there is generally limited selling interest if the price moves to the all-time high.

Both gold and Treasuries continue in their long-term bull market channels. Of the two, the Treasury bull is much older and with 2-year Treasuries and below at record low yields despite positive price inflation data (see the Rasmussen/Discover survey linked to above, for example), I believe that the Treasury market is more likely closer to the end of its bull than gold.

Meanwhile, economic activity will bounce around, but such factors as foreign military action, increased government involvement in the economy, and demographics continue to act as depressants to the level of productive activity.

Copyright (C) Long Lake LLC 2010

Yes, But . . .

It's getting a bit boring to report the same old stuff, but here we go again.

Discover(R) says that Small Business Confidence Continues to Rise in May. Really, it's another case of bad but less bad. So a better headline would be, "Small Business Continues Its Misery". An ugly fact from this survey (conducted by Rasmussen Reports):

35 percent of small businesses surveyed said they believe the economy is getting better, up from 31 percent in April; 51 percent say the economy is getting worse, down a point from the previous month; and 12 percent see the economy as the same, down from 14 percent in April.

The percentage of small business owners rating the current economy as good or excellent was 12 percent in May, compared to 13 percent in April. The April and May ratings on the current state of the economy are the highest since June 2008. Thirty-two percent rate the economy as fair in May, while 56 percent still think it's poor. . .

28 percent of small business owners say economic conditions for their businesses are getting better, down from 30 percent in April; 44 percent said conditions are getting worse in May, down from 48 percent in April; and 24 percent said things are staying the same, up from 19 percent in April.

25 percent of small business owners indicated they were increasing business spending in May, up from 23 percent in April, while 46 percent said they were reducing spending this month, compared with 43 percent in April, and 31 percent said they are spending the same, up from 25 percent in May.

If you have absorbed the above, you would find a different headline than Discover found.

No wonder stocks are going down. Abu Dhabi's problems gave way to the problem's of the larger country north of it (Greece), which are giving way in the headlines to the problems of a much more substantial economy (Spain), and if you think it ends at Spain, you are an optimist. And at home, small business continues to be the canary that eternally "dies" warning of poison gases inside the mine. Just as Greece's problems are not new as of 6 months ago, America's economic non-recovery absent governmental and Fed machinations is not new.

The bear market that accelerated so rapidly to the downside in late August 2008 when Fannie and Freddie went into conservatorship and then imploded with the Lehman/AIG/Sunday evening announcements/etc. is back. That's the meaning of the topping out around the "Lehman gap". The drip-drip downtrend that was happening off the fall 2007 top was hidden by the huge moves down and up.

It's back. Yes, there was a true bull move in a secular bear market; but, till proven otherwise, it was nothing more than that. Small business doesn't lie.

Copyright (C) Long Lake LLC 2010

Small Business: Bad But Less Bad

Discover Small Business Watch reports on April polling:

April results show a surge in the number of small business owners who say economic conditions for their own businesses are getting better: 30 percent of them say the climate will get better in the next six months, compared to only 20 percent who answered that way in March. Of the remaining respondents; 48 percent say the climate is getting worse, but that number is down from 53 percent in March.

When asked about their intentions to invest in their businesses, 23 percent say they would increase spending, up from 18 percent in March, while 43 percent still plan to decrease spending, which is down from 52 percent in March; 31 percent say they will make no changes.

Small business owners who say the current economy is good or excellent was 13 percent in April, up from 7 percent in March and the highest it has been in 20 months; 29 percent rate the economy as fair, and 57 percent think it's poor.

The outlook for the direction of the economy improved: 31 percent say it is getting better, up from 22 percent in March; while 52 percent say it's getting worse, down from 58 percent the prior month; and 14 percent aren't sure.

The trend is your friend. Small business is following big business. Money printing plus cyclical factors are working, for now.

The implications for stock prices are more mixed, given extreme valuations by several fundamental measures.

Copyright (C) Long Lake LLC 2010

Small Business Not Feeling the Love in March Either

Discover(R) is discovering that small business confidence declined in March, from 84.9 to 75.7, in Economic Confidence Tumbles in March. Here are some lowlights:

The March results were marked by a surge in the number of small business owners who say economic conditions for their own businesses are deteriorating:53 percent of them say the climate will get worse in the next six months, compared to only 37 percent who answered that way in February. Of the remaining respondents, 20 percent said things are getting better, 20 percent said things are the same, and 6 percent are unsure.

When asked about their intentions to invest in their businesses, 52 percent said they would decrease spending, up from 43 percent in February, while 27 percent said they would make no changes, and 18 percent said they plan to increase spending.

Much of the profits gain that is powering the stock market higher is from nothing other than large companies with ultra-high gross profit margins laying workers off. Small business works with thinner margins and also has less access to cheap capital.

Evidence is accumulating to support the concept that this economic "recovery" is hollow. Might it take real economic innovation, or a massive change in taxing/spending governmental priorities, to reverse this trend?

Copyright (C) Long Lake LLC 2010

Discover(R)-ing March Worse than February for Small Business Owners

On behalf of Discover(R), Rasmussen Reports finds that Economic Confidence Tumbles in March.

The Discover Small Business Watch plunged to 75.7, down a whopping 9.2 points from February.

Let's call it a spotty "recovery" at best. Here are some highlights (? lowlights):

The March results were marked by a surge in the number of small business owners who say economic conditions for their own businesses are deteriorating: 53 percent of them say the climate will get worse in the next six months, compared to only 37 percent who answered that way in February. Of the remaining respondents, 20 percent said things are getting better, 20 percent said things are the same, and 6 percent are unsure.

When asked about their intentions to invest in their businesses, 52 percent said they would decrease spending, up from 43 percent in February, while 27 percent said they would make no changes, and 18 percent said they plan to increase spending.

Little faith was expressed for the direction of the larger economy, as 58 percent said it is getting worse, up from 44 percent in February; while 22 percent think it is getting better, down from 31 percent the prior month; and 16 percent said it's staying the same, versus 24 percent last month.

This data comports with the information I receive from two non-blighted areas, one on the east coast and one on the west coast.

Life may be good for now for senior execs in dominant companies with very high gross margins and no need for financing, but it is not that way in the "real world".

Copyright (C) Long Lake LLC 2010

Small Business Not Feeling the Love In February for the Nth Month in a Row

In a poll conducted by Rasmussen Reports, the Discover(R) Small Business Watch for February is out. The results remain disappointing. Here are a few snippets from the press release:

25 percent of small business owners see conditions for their own businesses getting better in the next six months, down from 29 percent in January; 37 percent see conditions getting worse, down from 43 percent in January; 34 percent expect things to stay the same, up from 23 percent in January; and 4 percent aren't sure. . .

4 percent rate the economy as good or excellent, down from 8 percent in January; 36 percent rate the current economy as fair, and 57 percent rate it as poor. . .

70 percent of owners say that federal stimulus efforts have had no impact on their businesses, while 17 percent say it has actually hurt their businesses. Only 10 percent reported being helped by federal efforts.

Small business owners confidence in the federal government to help them out continues to decline: 76 percent of small business owners are "not very confident" or "not at all confident" that the federal government and Congress can address the needs of America's small business owners, up from 62 percent in February 2009. Only 7 percent are "very confident" that the federal government can address their needs, down from 12 percent last year, and 15 percent are "somewhat confident," down from 24 percent last year.

It's quite something when more small business owners believe that the Federal government's efforts to stimulate the economy have been harmful than helpful.

Meanwhile, short-term money remains cheap and thus the stock market and gold rose over 2% in February.

When (if?) business finally starts improving in small business-world, will that be a sign to sell stocks?

Copyright (C) Long Lake LLC 2010

Size Matters: Small Business Worsened in November

The Discover Small Business Watch index plummeted in November:

Economic confidence among America's small business owners plummeted in November, as more owners cited serious concerns about cash flow and saw economic conditions for their own businesses getting worse. The Discover Small Business Watch index fell 12 points in November to 76.5 from 88.5 in October.

"Fading confidence among small business owners could be tied to their low expectations for the upcoming holiday season, as 46 percent are forecasting decreased sales and 39 percent are expecting to hold the line," said Ryan Scully, director of Discover's business credit card. "However, we saw drops in optimism across the board, so it's hardly just one factor causing the concern."

The mood of small business owners generally has soured in November for three straight years, as economic confidence dropped from October to November in 2007 and 2008. The November 2008 index of 67.5 is the low point for the Watch since it started in August 2006.

Here are the highlights (?lowlights):

November Highlights

52 percent of owners say they have experienced cash flow issues in the past 90 days, up from 44 percent in October. Forty-one percent of owners say they have not experienced cash flow issues, which is the lowest response in this category since the Watch began. The remaining 6 percent said they weren't sure.

53 percent of small business owners see conditions getting worse in the next six months, up from 43 percent in October; while 19 percent report that conditions are improving, a sharp decline from 29 percent in October; 23 percent see conditions as the same, and 5 percent weren't sure.
62 percent of small business owners rate the economy as poor, an increase from 55 percent in October; 30 percent rate it as fair, and 8 percent say it is good or excellent.

53 percent of small business owners think the overall economy is getting worse, up from 44 percent in October but still significantly lower than the 69 percent of owners who felt that way in February 2009, the last time the Watch index was this low. For November; 28 percent say the economy is getting better, down from 35 percent in October; 16 percent see it staying the same, and 3 percent are not sure.

Only 11 percent of Small Businesses Expecting Increased Sales This Year

Small business owners have a glum outlook on the holiday season: Only 11 percent expect to see more business this year over last, while 46 percent of them are expecting less business than last year, an increase over the 40 percent who said the same in November 2008; 39 percent anticipate 2009 sales will be about the same as last year, and 4 percent weren't sure.

Meanwhile, larger companies are stabilizing employment (courtesy Calculated Risk):


On the Challenger job-cut report from Bloomberg: U.S. November Job Cuts Fall 72% From Year Ago, Challenger Says

Planned firings fell 72 percent in November to 50,349 from 181,671 during the same month last year, Chicago-based placement firm Challenger, Gray & Christmas Inc. said today. Announcements were down 9.6 percent from October. ... The level of announced job cuts was the lowest since December 2007, Challenger said.

CR also has a post titled The Impact of Stimulus on GDP, which repeats the as-yet unknowable belief that the "recession" has ended yet sort of contradicts that belief:

The CBO released a new report today: Estimated Impact of the American Recovery and Reinvestment Act on Employment and Economic Output as of September 2009. Here is their estimate of the impact on GDP:

(QUOTING FROM CBO): [The] CBO estimates that in the third quarter of calendar year 2009 ... real (inflation-adjusted) gross domestic product (GDP) was 1.2 percent to 3.2 percent higher, than would have been the case in the absence of ARRA. Those ranges are intended to reflect the uncertainty of such estimates and to encompass most economists’ views on the effects of fiscal stimulus.

(BACK TO CR): At both extremes of the range, the economy would still be in recession without the stimulus (note: the BEA reported that GDP grew "at an annual rate of 2.8 percent in the third quarter of 2009" or about 0.7% for the quarter).

This is significant looking forward. The stimulus probably had the peak impact on GDP growth in Q3, and the positive contribution will diminish over the next few quarters. Without a pickup in end demand, the economy could slide back into recession next year.

By now, most readers know that there is no rule that a recession has to have declining GDP for any specific duration. In fact, from December 2007 for at least 6 months, GDP was fairly stable (though decelerating), yet the NBER dated the recession as having begun in December 2007:

The committee noted that the behavior of the quarterly estimates of aggregate production was not inconsistent with a peak in late 2007. The income-side estimate of output reached its peak in the third quarter of 2007. The product-side estimate reached a temporary peak in the same quarter, but rose to a higher level in the second quarter of 2008. (Click HERE for link.)

. If stimulus and only stimulus (including Fed money-printing) caused a couple of quarters of a move up in GDP but with continued rising unemployment, and the economy peaked early in 2010, yours truly (a certified non-economist) would doubt that the depression/recession/banana really ended in 2009.

We are apparently seeing something similar to the 1930s, in which Big Business and Big Labor did fairly well (from 1933 on) relative to Small Business and Small Labor.

Thus, small businesses can rot away while multinationals can do well enough to keep the stock averages rising. It does beat everything rotting away, but it's not a sign of a healthy situation.

Copyright (C) Long Lake LLC 2009