Tuesday, August 3, 2010

Continued Weaker Economic Data in U.S. Offset by Further "Leaking" of Federal Reserve QE2 Actions

More signs of weakness in the U.S. economic data - continuing the pattern seen in about 80% of the reports over the past 60 days.  But does it matter anymore?  Not if the Fed is intent on force feeding money into the system that there is little demand for.  Instead it will go into capital markets to manipulate asset prices upward.  So from here on out any dip buying can be justified with "but the Fed is behind the market and will bail me out like they did in 2009!"

Remember, we currently have a bunch of apples on the store shelve that no one is buying.  Solution to the problem?  Put more apples on the store shelves.  That's the logic (I use the word loosely) of an increasingly desperate Fed who as recently as the June FOMC meeting was not saying a word about Quantitative Easing 2, but now is flooding the airways with "papers" and leaks to the media.  Managing by the seat of your pants with no vision or plan?  Sure.  But if it makes shorts panic knowing Ben Bernanke is on the other side of the trade, it's all good.

The only positive today is the savings rate continues to go up - but that is a long term positive, not one in the near term in a new paradigm economy that is based on (over) consumption.

For today's leak from the Wall Street journal please visit:  Fed Mulls Symbolic Shift

The issue: Whether to use cash the Fed receives when its mortgage-bond holdings mature to buy new mortgage or Treasury bonds, instead of allowing its portfolio to shrink gradually, as it is expected to do in the months ahead. Any change—only four months after the Fed ended its massive bond-buying program—would signal deepening concern about the economic outlook.

And after the symbolic shift, and more importantly once the elections are out of the way can come the next 'shifts'.

Via AP:
  • Consumers did not boost their spending in June and their incomes failed to increase, further evidence that the economic recovery slowed in the spring. And Americans saved at the highest rate in nearly a year.
  • Personal spending was unchanged in June, the Commerce Department reported Tuesday. It was the third straight month of lackluster consumer demand. Incomes were also flat, the weakest showing in nine months.

None of the above is surprising... remember Americans with jobs hurt corporate profits.  Record profit margins demand less people working, hence to keep spending up record level of transfer payments need to be maintained or increased.  Or apples need to be shoved down people's throats.

  • The personal savings rate rose to 6.4% of after-tax incomes in June, the highest reading in nearly a year.

Factory orders were not much better:

  • Factory orders dropped 1.2% in June to a seasonally adjusted $406.4 billion, the Commerce Department said. It was the second consecutive decline after nine straight months of gains. Lower demand for steel, construction machinery and aircraft dragged down the figure.

Housing?  Don't worry about it - once we engineer the 3.5% 30 year mortgage nationally (hopefully married to a $20,000 tax credit to anyone with a heartbeat), the Cramer bottom in housing will be here.  Please note housing should always be looked at year over year since it is seasonal, and this latest measure is "only" down 19% versus a period in 2009 when things were at their worst in the economy. 

  • And the number of buyers who signed contracts to purchase homes fell in June. The National Association of Realtors says its seasonally adjusted index of sales agreements for previously occupied homes dipped 2.6% to a reading of 75.7. That was the lowest on records dating back to 2001 and down nearly 19% from the same month a year earlier.

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