Wade & Dan et al,
Wade, I'm also bearish on the economy looking out 6 months to a year. Epstein wrote the Economic Beat Column in Barron's this past week and he is as bullish on the economy as ever. On the other hand, Abelson observed that all in not what it seems and he is relatively bearish. One of the best missives on the economy and games played to make it look good was in the Online version:
"Juiced Data
by Maxim Group
405 Lexington Ave., New York, N.Y. 10174
August 2: We have been watching, with no small degree of skepticism, a stream of improving macroeconomic data. Color us unconvinced. Many of the key releases have been fraught with misleading headlines obscuring much weaker data beneath, and last month was no different. From inflation to the federal deficit to unemployment rates to industrial output to recent gross domestic product (and its revisions), nearly every data point comes with an asterisk. When we look back at this period of economic home runs, we will recall it as the season of steroids. Like Major Leaguers, the data is on the juice.
Take the leading economic indicators (and revisions) from the Conference Board. The changes to the LEI now register a flattening yield curve as a positive for future economic activity. Only in the alternative universe where the Conference Board lives is this considered a positive. The CB now requires the yield curve to actually invert before it bodes negatively for future economic growth.
The Board was apparently not pleased that eight of the 10 past LEIs were negative. Hey, if you don't like what the indicators are suggesting, why not just change the model? That's what happened. Taking a page from the Bureau of Labor Statistics handbook (birth-death adjustment, anyone?), the Conference Board reduced the utility of LEIs for investors. Their work now falls into the category of economic cheerleading. Kindly return your pom poms to the gymnasium at semester's end.
Don't care much for that? Then consider what BLS hath wrought. Their GDP revisions for 2005's 1Q border on the absurd. In order to crank GDP from its disappointing initial reading of 3.1% to the more vigorous final 3.8%, the BLS had to make some sketchy adjustments. Primary amongst their changes was (I am not making this up!) an actual decrease in home prices for Q1. Thus, by somehow emphasizing unit sales (versus price appreciation), courtesy of the price deflator, GDP became higher in the final read. Torture the data long enough, and it will confess to whatever you want it to...When the charade finally ends -- probably after the last of the bears capitulates -- the finale will be ugly."
I didn't see anything in Barron's the past couple of weeks concerning PMs and lease rates remain low and aren't tell me anything; so I will get on with the GMI data for this and last week.
The GMI/POG ratio:
On 7/28, the Barron's GMI was 631.26 down from the previous week's 644.93. With the POG also up at 429.00 (7/29), the ratio was down at 1.47.
On 8/04, the Barron's GMI was 664.15 up significantly from the previous week's 631.26. With the POG also up at 438.25 (8/05), the ratio was up at 1.52.
The ratio has been holding in the middle range for several months where it doesn't suggest strongly a rise or drop in the POG or stocks. It is clear that there is little speculation behind the price of stocks at this time.
The ratio a year ago was 1.38
Larry |
