Sunday Night Economic Assessment

The US Industrial economy strengthened last week (if pipeline scheduling is correct), consumer spending surged higher, and gas-flows surprised late-week and exhibited a very pronounced positive reaction to the Federal Reserves announced discount rate hike.

The Production Index (In terms of its 28-day moving average of gas-flow scheduling into US industrial facilities) broke a string of two down weeks in a row, rising to 111.3 from the prior weeks 110.8. In its dailies (as per the "Part 7" industrial daily posts on the IV-CWEI site) the week started somewhat firm, softened mid week, then firmed on Friday.

The paperboard-based Consumption Index also rose (for its third week-in-a-row), rising to 140.4 from the previous weeks 132.5. In its dailies the week started soft early, firmed somewhat midweek, then took off on Friday.

The Inventories measure (the cumulative weekly difference between the Production Index and the Consumption Index) again continued it's never-ending story of down, down, down.

Overall, maintained firmness in consumer spending, the deficit of the Production Index to the Consumption Index, and the deep and continuing decline of the Inventories Measure... all continue to underpin the economy, though flows still exhibit a stagnant-look which is worrisome. The continuing lag in the Production vs Consumption Index continues to hint to a shallowness in the productive end of the US economy... which is a continuing drag on employment and job-creation.

A big surprise was the Federal Reserves Thursday-night discount rate hike. With unemployment hovering near 10% my own initial reaction was they had to be crazy, but in looking at the gas-flows I was wrong. It appeared as if the rate-hike challenged some of the economic bearishness, perhaps catching some off-guard on the notion that the Fed was doing a reversal and they were leaning the wrong way.

Now the gas-flows have long hinted (at least ever since I started studying their economic side) that recessions and recoveries are highly emotional beasts- rising and falling on heard-like behaviors of consumers, growing and receding on risk-appetites of industrial producers.

Question is (with unemployment near 10%) was the Fed's move a gambit on just that... a calculated, risky end-run around emotion? Or was the Fed simply being the Fed... starting the tightening process early on the perceived risks of over-expansion of money supply?

Another angle to the Fed's move is the gap between consumption and industrial production, and the void in the political leadership that seeks to represent and balance them. A lot of folks see the political climate in the US as outright hostile toward business and investment, and the gas flows strongly suggest that sector of society to be deeply entrenched and dug in against a liquidity-sapping onslaught... avoiding risk-taking activities such as new-hiring, expansion, etc. Could the Fed be looking at starting to counter imbalance by raising rates to redirect stimulus away from interest-payers (consumers) to interest-receivers (investors)?

Government would do well to address that void of political leadership. One good place to start would be the Presidents upcoming "Summit" on the dying health-care reform moves in congress (I know I keep harping on the health-care bill, but it has become the poster-child of political ineptness lately, and seeing friends and church-members in this wretched state of mine (Michigan) who are in miserable circumstances because `neither they nor their employers can afford $15,000 a year health insurance... it is high on my list).

I would love to see our President, in the midst of that health-care summit, take copies of those two house/senate bills, and rip them up in the presence of the congressional leadership! Tell them to start over, leave the power-brokers, lobbyists, and handlers out of negotiations... turn their backs on their mega-contributors, PAC's and special interests... turn their loyalties back to their voters... and produce a plan that is actually intelligent- containing the best ideas of both parties, and devoid of the self-seeking interests that have more-and-more come to dominate both parties.

Wouldn't it be nice to see a president who actually presides, for a change?




-Robry825

Sunday Night Economic Assessment

The US Industrial economy dipped again last week (if pipeline scheduling is correct), while brisk consumer spending perked up a bit in the midst of a storm-tossed week (weather-wise).

The Production Index (In terms of its 28-day moving average of gas-flow scheduling into US industrial facilities) edged lower vs the previous week (second down week-in-a-row), falling to 110.8 from the prior weeks 111.8. In its dailies (as per the "Part 7" industrial daily posts on the IV-CWEI site) the week was somewhat soft throughout.

On a sector-by-sector basis... Paperboard, LNG, Auto, and Metals (including the Copper & Steel subgroups) all started January strong... while refining, Minerals & Mining, and Lumber started a bit weak to December

The paperboard-based Consumption Index conversely rose for its second week-in-a-row, rising to 132.5 from the previous weeks 131.0. In its dailies the week was somewhat soft, though the index itself (in terms of its 28-day moving average) benefited slightly as a softer week dropped off the other end.

The Inventories measure (the cumulative weekly difference between the Production Index and the Consumption Index) continued it's seemingly never-ending decline, remaining well-below pre-recessionary levels.

The weather added to the general malaise of the week, as blizzard-conditions appeared to hamper some markets in the industrial northeast.

Overall, maintained firmness in consumer spending, the deficit of the Production Index to the Consumption Index, and the deep and continuing decline of the Inventories Measure... all continue to underpin the economy, though flows still exhibit a stagnant-look which is worrisome. The continuing lag in the Production vs Consumption Index continues to hint to a shallowness in the productive end of the US economy... which is a continuing drag on employment and job-creation.



-Robry825

Sunday Night Economic Assessment

The US Industrial economy meandered lower last week (if pipeline scheduling is correct), while brisk consumer spending slightly ticked up.

The Production Index (In terms of its 28-day moving average of gas-flow scheduling into US industrial facilities) eased off of the previous week, fading to 111.8 from the prior weeks all-time high of 112.3. In its dailies (as per the "Part 7" industrial daily posts on the IV-CWEI site) the week started off sharply but eased as the week progressed.

On a sector-by-sector basis... Paperboard, LNG, Auto, and Metals (including the Copper & Steel subgroups) all started January strong... while refining, Minerals & Mining, and Lumber started a bit weak to December

The paperboard-based Consumption Index broke a string of four soft weeks (as a nervous US public coped with a decline in equities), rising to 131.0 from the previous weeks 129.5. In its dailies the week was somewhat stronger early then moderated a bit.

The Inventories measure (the cumulative weekly difference between the Production Index and the Consumption Index) continued it's "ever-lower" habits, remaining well-below pre-recessionary levels.

Overall (at least short-term), the gas-flows are starting to exhibit a slowing, stalling, meandering look... (no doubt reflecting at least in part the malaise in the markets, the malaise in government, and the malaise in employment), leaving one to wonder what comes next.

As recoveries (and recessions) feed upon themselves, a loss of momentum opens the door to unpredictability... where a single news story... a single political gaff... a single down-day in the markets... even a single meteorological event (such as a crippling snowstorm) can impact consumers in such a way as to get a ball rolling that will quickly become difficult to stop.

The danger is not so much on the Industrial/Business side of the economy (though businesses will and do react, compounding problems) but on the consumption side of the economy... where consumers (at a single bad news story) will cut back spending... "just in case".

In my own opinion... every recession starts out by "just in case".

Now in theory, I am convicted to the theory that if one person wants to provide and sell goods & services to a second person, and if that second person wants to buy those goods & services, then a transaction should occur. A government (for the good of all) should provide a benevolent economic climate that by its nature would accommodate that transaction. It should be the right of all citizens to conduct business and make transactions.

A central bank (such as the US federal reserve) should not be playing games with its money supply to either restrict liquidity to the point where people don't have the cash to buy (thereby killing the economy). And it shouldn't flood consumers with money to the point where it empties store shelves then degrades the value of money (thereby killing savings, retirement funds, college funds, etc). A central bank should act rationally, in the best interests of a nations economy, and not necessarily in the best interests of private banks and lenders (which might selfishly prefer that money be tight so that consumers are encouraged to borrow and not have the liquidity to repay).

The same call for rationality goes to government. It should neither tax away the means to purchase goods (killing consumption), nor tax away the means to produce goods (killing production). It should neither favor consumption at the expense of production, nor favor production at the expense of consumption. It rather should lean towards a vibrant economy in the best interests of both consumer and producer.

I have a problem! I am a stock trader. I neither make products that consumers can use, nor do I sell services by which consumers can benefit. If not careful, I could (like a leach) suck out profits from trades through cleverness... and consume that to which I do not contribute.

I do not trade futures for that reason... futures are a two-sided contract where for every winner, there is an equal but opposite looser. That looser would most likely be either commercial buy-side (passing the loss on to "grandma" when she gets her monthly utility bill), or commercial sell-side (taking money away from next years drilling budget... leading to slightly lower supply... leading to slightly higher prices for "grandma" when she gets her monthly utility bill).

Rather, I try to limit my trading to more medium-term equities that would encourage (in the long-haul) more equity to companies which would (hopefully) in a modest sense encourage just a bit more energy production into the economy.

I also try to "give back" through these posts which I very much hope will be at least an encouragement (if not help) to others who invest more into the economy than I (both financially and through expertise).

Having said that (with my own weaknesses in mind) there are other occupations (besides trading) which have the potential to drain from (not add to) the collective productivity of a nation.

On to health care. As a kid, I can remember my father taking me to a doctor in a very modest, small office... no receptionist... no nurse... no records manager... no fancy lobby... and paying for EVERYTHING with a $5 dollar bill. With my kids today... can't get in the door for less that $200.

Our last insurance payment (Michigan Blue Cross)... $1,205.84... For one month! For my family, we can afford this. But for many, it is not going to happen. Either they do not have the insurance, they will have to drop it, their employers will have to drop it, or the government will have to "socialistically" force money into the economy to pay for it. And Blue Cross tells us its going up another 30% shortly!

As mentioned before, I believe that if one person (or hundreds of thousands of health professionals) wants to provide and sell goods & services to a second person (or hundreds of millions of citizens), and if that second person (or hundreds of millions of citizens) wants to buy those goods & services, then all those transactions should occur. A government (for the good of all) should provide a benevolent economic climate that by its nature would accommodate all those transactions. It should be the right of all citizens to conduct business and make such transactions.

Now a problem might be that too many hands (outside of health care) are getting their hands into the pot, driving up costs. Insurance salesmen, trail lawyers, defense-attorneys, loss-prevention specialists, and the like certainly neither add to health care nor reduce its costs. Their costs, their facilities costs, court costs, along with lottery-sized awards, extra spending done to fight off those awards (extra tests, fancier offices and lobbies to "look" more competent, fancier records management to "look" less incompetent, and more-extravagant buildings to "look" more professional) might all add much more costs to the pot. Perhaps Democrats need to give on tort-reform to encourage Republicans to give on insurance-reform.

But beside that point, People need health care. If their kid gets sick they will take their kid to the doctor. They will mortgage their house if they have to. They will sell their car if they have to. They will cut back and cut back if they have to, and kill the economy in the process. Somewhere the government is going to have to accommodate for (or bring into control) all of this in some form. If they don't, the markets (and the economy) will, and it will be brutal.



-Robry825

Sunday Night Economic Assessment

The US Industrial economy strengthened last week (if pipeline scheduling is correct), while brisk consumer spending eased just a bit more off of its late-2009 strength.

The Production Index (In terms of its 28-day moving average of gas-flow scheduling into US industrial facilities) advanced to its 3rd all-time high in four weeks, rising to 112.3 from the prior weeks 111.9. In its dailies (as per the "Part 7" industrial daily posts on the IV-CWEI site) the week started off moderately then strengthened sharply mid to late week.

The paperboard-based Consumption Index was off slightly (fourth soft week in a row), as the US public coped with a decline in their ultimate money supply measure.. the stock market. The measure declined to 129.5 from the previous weeks 130.9. In its dailies the week was soft early but showed signs of reversing it's 4-week decline.

The Inventories measure (the cumulative weekly difference between the Production Index and the Consumption Index) continued ever-lower, remaining well-below pre-recessionary levels.

Key to the US economy in the short term remains the consumer... if consumer spending can carry last weeks attempted bottom, a fifth up leg should be nearly upon us as the economy is already supported by the existing deficit of the Production Index to the Consumption Index, as well as the deep and continuing decline of the Inventories Measure.

Of concern in the intermediate term will be the possibility of modest inflationary pressures as industrial production pushes further above the old 2007 highs (in terms of the Production Index) and the strongest sectors of the US industrial economy push towards 100% capacity utilization.

Of great concern will continue to be business confidence. High unemployment in the face of record scheduling of natgas into US industrial facilities, the seemingly never-ending drag in the Production Index (to the Consumption Index), and the continual decline in the Inventories measure all are highly indicative of a "Circle the wagons" defensiveness in the business & investment end of US society.

So far, the champions of the consumer (the Democrats) appear to have done a good job at championing the consumer. They have also done a good job at locking out the champions of industry and investors (the Republicans) out of the inner workings of government (witness health care reform & climate negotiations). The gas flows highly reflect all this... as does the US economy.

If we are to get those industry & investment "wagons" rolling again it is going to take two rational political parties to do so. As the old saying goes... "A house divided against itself cannot stand".



-Robry825