Disclaimer

Disclaimer. After nearly 40 years managing money for some of the largest life offices and investment managers in the world, I think I have something to offer. These days I'm retired, and I can't by law give you advice. I do make mistakes, but I try hard to do my analysis thoroughly, and to make sure my data are correct. Remember: the unexpected sometimes happens. The expected does too, but all too often it takes longer than you thought it would.

The Goddess of Markets punishes (eventually) greed, folly, laziness and arrogance. No matter how many years you've served Her. Take care. Be humble. And don't blame me.

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Tuesday, March 10, 2009

Falling more slowly

There are some tentative signs that we are approaching a flexion point in the economy in the US. The descent in the economy has by no means ended, but the rate of decline appears to have slowed.

A good sign of how bad things are at any stage in the cycle is the extent to which new data releases are worse than the consensus of gurus' forecasts. From September onwards, this pattern held -- horrible numbers, consistently worse than expected. But in January and February, data have been a bit better than expected. In particular, the ISM averages have drifted up (they cannot be said to have bounced) from the late 2008 lows. The monthly personal consumption and income data surprised on the upside in January. Payrolls were no worse than expected, and seem to have levelled off at a loss of around 650 K jobs per month.

Alas, without some sort of stability in housing, you simply aren't going to see a sustained recovery. And until the US govt nationalizes the banks, I don't see that happening. Yet even here, there are some scintillas of light. The AR mortgage rate is finally starting to fall. Since cash is effectively zero, and the mortgage rate is just where it was when cash was 5.25, it's easy to see why monetary policy isn't working. But the spread between the both fixed rate and adjustable rate mortgages is pulling in. The global yield curve has steepened sharply.

Based on the Chinese manufacturing ISM, I suspect the Chinese IP numbers will surprise on the upside when they are released next week. We'll see.

There will be a recovery, and just as the gurus missed the steepest recession since 1937, so they will probably miss the quiet signals of the recovery.

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