Yesterday's Economic Reports - Nothing to See Here; Move Along

Thankfully facts mean nothing or else I'd be worried. Instead I think of pandas (and Obama) and all my ills go away. Before I get to the meat of this entry let me pass on some words from Alcoa (AA) - a commodity stock if there ever was one. As we watch commodity stocks fly upward on the coming global recovery (thesis) - it is very obvious that company executives (those who live, breathe the industry) simply are not bright enough to see what the stock market is seeing.

• Alcoa Inc (AA) said on Tuesday it would slash more than 15,000 jobs, halve capital spending and sell four businesses as it reduces aluminum production in the face of the global economic downturn.
• The largest U.S. aluminum producer said it imposed a global salary and hiring freeze as it seeks to cope with what Chief Executive Officer Klaus Kleinfeld called "extraordinary times."

Extraordinary times - as you dear reader know, lead to quick recoveries... led by government. Generally multi decade bubbles are fixed very easily (with cheap money)- ask Japan. As company after company fires people, and freezes wages/401k contributions on the remaining souls it generally leads to consumers who flock to malls, along with cars and homes flying off lots. "In 6 months". So say the punditry and hedge fund computers. The stock market is telling us this and telling Mr. Kleinfeld - you have no idea what you are talking about - we know better. (I remember the punditry and computers "saying" the exact same thing 9-12 months ago) You just have to look through the valley....

Back to our normally schedule post...

We said aside from the retail figures Thursday and employment report Friday the one other interesting economic report would be ISM Service.

Can Pandas whistle past graveyards? I know, I know - it's all priced in, the market is looking forward and 3M jobs will be created imminently. Stop looking backwards at... at... "data"! Facts are for backwards looking losers. We look ahead - to hope! If you were here one year ago I was typing the exact same things and the pundits were saying the exact same things. See, you never lose when you drink Kool Aid. Since the data is historical ... as you exit good times but before things get bad, you say "look at the data - it is not signaling bad things". Then when the data catches up to you... you say, "look ahead, that data is backwards looking". Then you can have your bamboo and eat it too.

ISM Service it came in at a whopping 40.6 (anything below 50 is considered recessionary; 40 normally would be considered horrific) but (all together now) it was "better than expected"

• In a better-than-expected reading, the Institute for Supply Management, a trade group of purchasing executives, said Tuesday that its services sector index rose to 40.6 in December from 37.3 in November. Wall Street economists surveyed by Thomson Reuters had expected the index to slip slightly to 37.0.
• A reading below 50 signals contraction, while a reading above 50 indicates growth.
• Improvements in the index's employment reading from November's "catastrophically weak level" are still consistent with massive job losses, said Ian Shepherdson, chief U.S. economist at High Frequency Economics, a private research firm in Valhalla, N.Y. "This is not an indicator of recovery," Shepherdson said. (shhh, better than expected - who cares if its massively contractionary - look ahead Ian!)
• The report is based on a survey of the institute's members in industries including hotels, retail, health care and mining. (i.e. the greater part of our "service" economy)

Government will fix this "in 6 months" - no problem

Onto two less followed reports from yesterday - factory orders first... this is part of the "old economy" we are trying to extinguish since solid wages for blue collar labor is something we cannot have in this country - where everyone should be in an office or working in a retail outlet. Ummm... wait, except when we need stimulus and then we need that "old economy" - but just for a while until hordes of financial, retail, and restaurant jobs bubble anew! Then: out with the steel toed shoes!

• ...orders to U.S. factories fell for a record fourth straight month in November, and analysts believe manufacturing will continue to suffer in coming months as the country slogs through a recession entering its second year. (not to worry, we don't need no stinkin' manufacturing - we are an elite society of intellectual workers)
• The back-to-back decline was the biggest since records began in 1992.
• The Commerce Department said orders declined by 4.6 percent in November, nearly double the 2.5 percent drop economists expected. (backwards looking, all upside from here) Orders have been falling since August, including a 6 percent plunge in October, the biggest setback in eight years.
• The weakness in November reflected a big drop in demand for commercial aircraft. Weakness also was seen in autos, primary metals such as steel, and defense communications equipment. (infrastructure spending by government will take care of the steel, and 0% 5 year loans to 621 FICO scores - provided by government - will take care of the car part - yep. Until they default. When the stock market gains 40% this year - provided by government - the rich will once again be buying aircraft - so all our problems will be solved in 6 months)
• Demand for heating and air conditioning products fell by 11.6 percent in November, reflecting in part the hard times the nation's homebuilders are enduring. (4% mortgages, or no appraisal refinancing - by government - will take care of this)
• The jump in the inventory-to-sales ratio “indicates excess inventories that will need to be worked off,” Steven Wood, president of Insight Economics LLC in Danville, California, wrote in a note to clients. “The manufacturing sector is mired in a deep recession that is unlikely to be quickly resolved.” (by "deep" I assume you mean, finished in 6 months - after all the stock market is a forward looking instrument and the rally on all bad news means it is forecasting the '2nd half recovery' we've been breathlessly waiting for)
  

Last, pending home sales

• Pending U.S. home sales fell to the lowest level on record in November, as the plummeting stock market and faltering economy gave more buyers cold feet (strange - I thought the "tax rebate" of $1.60 gas versus $4.00 in the summer would fix this? I mean when you save $22 a week on gas you usually think to yourself "time to buy a house". I know I do. I've bought 480 houses just in the past 5 months alone. This data does not match up with the pundits commentary - hmmmm - I can only assume the data is wrong)
• Typically there is a one- to two-month lag between a contract and a done deal. So November's decline foreshadows bleak results for December's existing home sales numbers, set to be release Jan. 26. (ummm... well let's recycle the backwards looking rationale for this one - I'm running out of excuses for this data set)
• "A real estate-focused stimulus plan is urgently needed," Lawrence Yun, the trade group's chief economist, said in a statement. (read: government)

In my 2009 Predictions I said rallies in 2009 would be based on data that was not as bad as the previous month - that is the crutch. They won't be good numbers - but simply "less bad than the previous month" will be enough to get bulls salivating. Other than ISM Service we are not even getting "less bad than the previous month" at this point - we are getting worse numbers. So not only are people peering around the corner for a recovery - they are peering over the hill, under the bridge, across the river... and then around the corner for the recovery. "In 6 months". And just about every rationale for recovery is "government, government, government, and government." Sounds like a winning plan.

If you are still reading me this summer, just remember these posts when we sit around and ask "umm.. that 2nd half recovery that was imminently starting?" Or feel free to stop by and tell me I was wrong on July 4th as unicorns, butterflies, and songbirds fill the sky across America. I did the same thing last year at this point in the calender when the punditry was screaming the EXACT same words "The Federal Reserve is pulling out all the stops - don't fight the Fed, Bush is working on a stimulus plan, and you have to look through the valley to the second half recovery". Sadly, they cannot even come up with original rationale - it's all the same except we trade the word Bush for Obama. I used Independence Day as a good marker for a reality check last year. We'll use it again this year. One of these years these pundits are going to nail it.

As always the stock market is not the economy - just as in 2008 people are jumping on the backs of each other to front run a "recovery" that no one sees, but everyone hopes for. And one hedge fund has to buy ahead of the next hedge fund - after all we have some huge high water marks to make up this year to stay in business. It let to tramping last year, and I'm afraid it's not coming "in 6 months" this time around either. People keep forgetting this is a consumer led recession - not a corporate led. We kept saying that in 2008 as well, but already the lesson appears forgotten. Can we at least get back to a 5% savings rate before the government insists we layer on more debt so the consumption bubble can reinflate? But for now, one can trade the whistling past graveyard rally. When stocks don't go down on bad news, you are best to let the Kool Aid play out and ride the train of hope. So when the retail and employment data comes out Thu/Fri just repeat whichever is the more appropriate pundit line (a) "better than expected" (b) "the market has already discounted it" or (c) "it can't get worse than this" - or feel free to use any 3 in combination. Most importantly, buy stocks - Uncle Sam will protect you.