As we have been noting for months now, we are in the back end of the economic expansion, where growth in consumption of services is driving the bus. Here is the breakdown of the most recent Payrolls report from FloatingPath by way of NFTRH 355.
For a country with a relatively strong currency and what it seems to view as a right, even a duty to consume, it makes sense.
In short, Goldilocks is in play with the world gripped in deflation. Goldilocks is usually a transitional thing. She tries 3 bowls of porridge, consumes one of them, takes a nap and then gets the hell out of there… or does she get eaten? I am hazy on my fairy tales.
Anyway, the GDP number is not surprising. So many parallels to the time period that led up to 2000’s climax are in play now, including this ‘strong dollar spurs consumption’ dynamic. Another interesting one is the ‘Asian Contagion, part 2’ that is in play. So we continue to manage the market with the view that this is a correction only (currently in a well-anticipated ‘bounce’ mode), with no need to define what comes next.
June was the for-sure liftoff point early in the year. That followed last year’s for-sure exit as March, April at the latest. Now more than a halfway through 2015 September is increasingly in doubt. They have to start somewhere even if they claim a methodical and slow pace to ensure as little disruption (in their twisted view). As I wrote yesterday, “’Intend to move slowly’ gets slower with each ‘dollar’ wave and that is the relevant motion of policy and economy quite against all the continued propaganda.
The first reaction from the Wall Street Journal is telling in that regard:
The Federal Reserve’s next policy meeting is four weeks away and officials show no clear sign of having settled on a decision about whether to raise short-term interest rates at that time.
That cannot be in light of all the certainty with which the recovery was given and not all that long ago. Last year was 5% GDP and full employment while this year stands as the gaining drip of “downside risks.” At the very least, it shows the FOMC knows nothing when it comes to this economy (and any other).
Gold is very different from all other commodities. This is due to physical characteristics that caused it to be money for thousands of years and led to its aboveground supply becoming orders of magnitude greater than its annual production*. However, despite the huge size of its existing above ground supply relative to the rate at which new supply is created, that is, despite its massive stocks-to-flow ratio, gold is still a commodity and its US$ price is still affected by the overall trend in commodity prices. In particular, a major decline in commodity prices will naturally put downward pressure on the gold price and a major advance in commodity prices will naturally put upward pressure on the gold price. That’s why gold’s performance can be most clearly ‘seen’ by comparing it to the performances of other commodities, with the most appropriate comparison being with ‘non-monetary’ metals**. Such a comparison reveals that gold has performed exactly as a safe haven should have performed given the economic and financial-market backdrops.
Productivity estimates were better in Q2 than certainly Q1, even revised, but that still doesn’t change the clear disassociation between the BLS’s version of the economy and the BEA’s. That disparity becomes even messier as the BEA’s last benchmark revision sawed off significant “output” dating back to the now-recognized 2012 slowdown. In tandem, the BLS only revised hours worked (back to 2010) down by the slightest, almost insignificant amount. They just do not want to show anything less than the Establishment Survey’s unconfirmed recovery.
Since productivity is, in the numbers anyway, a statistical bridge or fudge factor between output and labor activity the hardline approach by the BLS has led to, especially recently, some productivity numbers that just make no sense. Even with Q1 “output” revised up from -1.5% to +0.5% productivity is still negative and not really that much different than the advance or first estimate for Q1.
Can the US Economy Survive More of the Fed’s Monetary Support?
This post is a slightly-modified excerpt from a recent TSI commentary.
Everybody knows that the Fed will eventually hike its targeted interest rate. When it comes to rate hikes, the only unknowns involve timing. What hardly anybody knows is that the Fed’s interest-rate suppression has damaged the economy and that the longer it continues, the weaker the economy will get.
Based on the wording of last week’s FOMC statement it is still likely, but far from a certainty, that the first rate hike will happen in September. That is, the timing of the Fed’s first rate hike remains unknown. The bigger unknown, however, is the timing of the Fed’s second rate hike. The reason is that there could be a large gap between the first and second hikes as a jittery Fed takes its time assessing the effects of the first hike. It could also be a case of “one and done”.
Elliott Wave International’s Chief Market Analyst talks about the outlook for the U.S. housing market
A June 28 headline on CNBC reads, “Homeownership rate drops to 63.4%, lowest since 1967.” The report goes on to say “The number of occupied housing units grew, but all on the renter side.”
What does this change mean for the future of real estate in the U.S.? Will the recent rebound in mortgages and real estate prices continue?
Listen to this clip from Steve Hochberg’s recent presentation at the San Francisco MoneyShow to get Elliott Wave International’s unique perspective on the future of the U.S. real estate market (don’t miss the link at the bottom to watch 4 more clips from Steve’s presentation):
This article was syndicated by Elliott Wave International and was originally published under the headline Despite Low Rates, Housing Rebound is Weak. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.
With factory orders continuing to be much worse than they appear, it makes sense to try to measure the effect of over-optimism accounted by inventory. Recessions themselves were once almost exclusively set up by this one factor, as the difference between production and sales, caught up within the supply chain, eventually works out toward alignment. Companies are willing to hold inventory for shorter periods of time as the sales environment is more volatile, but there comes a point when that patience finds a limitation and production suddenly and rapidly dwindles.
That itself makes determining the inventory imbalance difficult, and is made more so by the imprecise manner in which it is measured. The Census Bureau gives us one account, as does the BEA within the GDP context. There are some discrepancies between them, but by and large the raw, generalized account of inventory through either method right now is extreme.
SOX-SPX is still down below the channel. While the book-to-bill data have been firm (through June), the Semi index is starting to act like it would like to be in line with 2013 bullish running mate PALL-Gold, which is now bearish.
As for former leader RUT, it is just too erratic now (vs. SPX) to do much good as a short-term indicator.
With reference to the first chart above, here’s it’s pal PALL-Gold on its ‘economic down’ signal. Again, we recall that it was quite some time before PALL-Gold seemed to mean anything to the majority of participants when it triggered up early in 2013. So what about the recent signal? Should we not have the same kind of patience, in reverse, as back then?
After all, mainstream financial professionals were cashed up and braced against the ‘Fiscal Cliff’ disaster in Q4 2012 and did not begin to recognize a new market phase until well into 2013. I know this for a fact, since I interacted with one who spoke for the ‘best and brightest’ fund managers back then. We also know our friends at the MSM were in full bear mode back then.
Maybe PALL-Gold means nothing this time and maybe the Semi divergence is going to repair itself. Then again, maybe not, which is why I think patience is kind of a big thing now.