Economic comments, week ending Feb. 25

By John W. Davidson | Feb 28, 2011
Source: Bloomberg LP This past week releases of the U.S. Housing and Employment had somewhat mixed results.  These two segments have yet to fully participate in the recovery and expansion of the U.S. Economy.  The first is the weekly report of Initial and Continued Jobless Claims.  In the chart below the four week average of Initial Jobless Claims (blue) dropped 16,500 to 402,000 in the week of Februar 18th.  Reported on a one week lag, Continued Claims (red) dropped 0.145 million to 3.79 million.

 

The releases this past week suggested that the economy remained in the expansion zone even though U.S. Employment and Housing has yet to participate in a meaningful way.

The markets paid little attention to economic reports, but were focused on the riots and violence in the Middle East. The participants in the capital markets are concerned that the unrest could lead to a disruption in the supply of oil; this could lead higher energy prices and higher inflation, which could act to thwart the recovery.

West Texas Intermediate Oil (WTI) rose $8 this week to close just below $98/barrels, having topped $100 earlier in the week before the Saudis' promised to offset shortfalls with increased production; ICE Brent rose $10 to close just over $112. Gold rose $22 to close over $1410/oz. Bankrate.com's 30-year mortgage rates dropped 9 bps to 4.86 percent.

Earnings surprises continued, but the percentage of positive surprises slipped for the second week in a row, falling to 69 percent; negative surprises rose to just above 24 percent with 96 percent of the S&P 500 having reported. Corporate bond spreads widened on the week in response to the uncertainty stemming from the events in the Mideast. Equity markets experienced the worst weekly decline in three months. Government Bond markets were higher on the week as investors sought refuge from the fragility of the economic expansion. The U.S. Dollar declined on the week, but the Pound slipped more on the downward revised fourth quarter UK GDP report.

 

Perspective

I belong to an informal investment club in Camden. We always ask ourselves if the small individual investor can beat the professionals with staffs of analysts, quantitative tools, and access to street research. Having been on both side of that discussion, I have some personal opinions on the matter.

Yet, this weekend I got some insights while attending the U.S. National Squash Championships at Harvard. The matches were intense; every shot looked to me like a winner, but the opponents managed to keep the ball in play. In the end, small liberal arts Trinity College beat the big Ivy League University, Yale, in a nail-biting finals that came down to a close match between the number four players on each team. In fact, this was Trinity's 13th straight title and they were the top seated team. The decisions that the college made and why they made them are well covered in a New York Times magazine article which can be found at NY Times article on Trinity Squash.

Maybe there is a lesson for investors, as well? How can a small liberal arts college regularly beat the big Ivy League teams? As I consider the success of this well-coached and recruited Trinity squad, it is clear that Trinity found some thing that it could do well, focused on doing just that and applied all of the resources to accomplish their goal. Investors could learn from the Trinity experience, but the likelihood of 13 straight "national titles" in investing may be a stretch.

In interest of full disclosure, our Trinity-graduate daughter is dating one of the assistant squash coaches, who contributed to the national title streak as player, team captain, and assistant coach.

 

Economic Releases

 

This past week releases of the U.S. Housing and Employment had somewhat mixed results. These two segments have yet to fully participate in the recovery and expansion of the U.S. Economy. The first is the weekly report of Initial and Continued Jobless Claims. In the chart below the four-week average of Initial Jobless Claims (blue) dropped16,500 to 402,000 in the week of Feb. 18. Reported on a one week lag, Continued Claims (red) dropped 0.145 million to 3.79 million.



 

The second chart shows that New Home Sales (blue) dropped 41,000 to 284,000 while Existing Home Sales (red) increased by 140,000 to 5.36 million units. In other housing news the December Case/Shilling Home Price index of houses in 20-markets dropped -0.41 percent from the previous month and -2.38 percent from the previous year.

 

 

Source: Bloomberg LP

 

The headline US CPI in January was +0.4 percent, but ex-food and -energy January CPI was +0.2 percent. Producer Prices in the US rose +0.8 percent, but ex-food and energy PPI rose +0.5 percent. January CPI in the UK rose only +0.1 percent; the core YOY rate of inflation in the UK was 3.0 percent. January CPI in Canada rose +0.3 percent. Producer Prices in Germany rose 1.2 percent in January. China's YOY CPI was 4.9 percent.

 

 

Other Economic Releases

U.S. Durable Goods Orders rose 2.7 percent in January, but ex transportation, Orders fell -3.6 percent. The Conference Board's February US Consumer Confidence more than expected to 70.4; the University of Michigan's Confidence Index rose a couple of points to 77.5. On the softer side, the 4th quarter GDP was revised four ticks lower to 2.8 percent on the back of a 3 tick downward revision to 4.1 percent for Personal Consumption.

 

 

In France,the CPI fell -0.2 percent in January; Consumer Spending also fell -0.5 percent. Germany's IFO Indices for Business Climate, Current Assessment, and Expectations all rose in February; its fourth quarter GDP was confirmed at +0.4 percent over the previous quarter. In contrast, UK's 4th quarter GDP was revised a tick lower to -0.6 percent.

Brazil's Unemployment rate rose almost a point to 6.1percent in January.

 

 

Equities Markets

Equity markets declined across the globe in response to the unrest in the Mideast.


 

 

Bond Markets

Government bond markets rallied for a second weak in a row.


 

Currencies

The U.S. dollar slipped on the week, but the Pound slipped more.


 

Economic Sectors

Not surprisingly, Energy stocks rose the most on the back of rising oil prices and unrest in the Mid-east this week. Industrials, heavy users of energy, declined the most. Capitalization and size had very little differences as only 0.1 percent separated the best sector, Large Growth from the worst sector, Mid-cap.

 

Data Source: Bloomberg LP

 

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