Yet, according to the U.S. Government, the U.S. economy has only contracted 6% or so - from peak to trough.
Hmmmm......
The era of massive, sustained contraction is probably over (at least until energy becomes the issue, but that ain't for a couple of years, as I will get to shortly). That does not mean that the Federal or State governments' tax revenues will recover any time soon, nor will the sales of the S&P 500.
But the guys that measure our GDP growth might say that we are back to 2% growth, perhaps even in Q3 or Q4 2009.
Now let's go to the video tape:
U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 5.1 million barrels from the previous week. At 347.8 million barrels, U.S. crude oil inventories are above the upper boundary of the average range for this time of year. Total motor gasoline inventories decreased by 2.3 million barrels last week, and are in the upper half of the average range. Both finished gasoline inventories and gasoline blending components decreased last week. Distillate fuel inventories increased by 2.1
million barrels, and are above the upper boundary of the average range for this time of year. Propane/propylene inventories increased by 2.0 million
barrels last week and are above the upper limit of the average range. Total commercial petroleum inventories increased by 5.5 million barrels last week, and are above the upper limit of the average range for this time of year.
Oil AND Natural Gas inventories continue to grow... while at the same time total products supplied via imports and domestic production declines. And the rate of change does not support the argument that the economy has begun growing - or even ceased contracting.
The U.S. economy runs on Oil, Natural Gas, and Coal (The data for Coal data production and consumption is not completely up to date - with the exception of "railroad cars loaded", and that is down 3% year over year).
None of the data that I consider the MOST telling leads me to believe that the U.S. economy has ceased contracting. I realize that market's tell us what it thinks the future brings, but it would seem to me that I should see what the market appears to be seeing in the energy data - and I just don't.
Just take a look at the Railfax data on total rail car cargo transports. Year over year it is down 18.8% and the most recent 4 week rolling average is down 18.6%. Besides the obvious question (how does the government calculate a 6% decline in GDP with goods transport down 18.8%?), while this might argue for a bottoming in the rate of decline, it DOES NOT ARGUE for growth, green shoots, mustard seeds, or any other silly sh*t coming out the media's and government's microphones.
I have supplied the links, if anybody has anything to add, or if I missed something, well... I am all ears.
In the mean time... until the data changes, I would use the rally to sell equity positions, especially if you are near retirement age (50+) (I will be the first to admit that I did not get an invite to the "wedding", so I will pass on the funeral.) As the Mad Scientist pointed out to me, if you subtract the program trading from the volume, what you end up with is some pretty anemic trading volume. You will likely be better off with mid term, high quality corporate debt as well as Treasury notes than you would be with equities at this point and at these prices.
Again, if anyone can show me anything in the energy or transportation data that gives ANY hint of a turn around, I would appreciate it.
Libertariananimal (at) gmail (d0t) com
11 comments:
Well, since the economy has only contracted 6% and the tax receipts have dropped 25%, someone must be hiding the rest. The only thing left for the government to do is raise taxes to recapture that 19%. Sigh.
The stock market rally has been continuing only because the stock market wants to rally. People are infernal optimists, and they figure 20 months of recession is enough. Wishing it to end makes it come true!! The fundamentals are still horrible (we still have the debt problem, etc.). I've noticed a bigger flight to dividend-paying stocks due to non-existent CD rates (my favorite TEG has gone from a 10% yield to an 8% yield, dammit! I can't buy more yet!) I'll get back to you on the oil and natural gas levels, but I think the EIA data shows that inventories have been more or less flat for the last 60+ years. I'll get some numbers though later.
Hey Greg is it possible that the fund managers handling billions of dollars have the resources to create a complex economic model and are seeing some kind of a turn around down the road? I would imagine us small folks would be the last to know of a turn around which can explain the weak volume to the upside, since it is probably the “smart” money moving in. I know people are complaining about the volume but the only thing that matters is price.
What I learned from my macro economic classes is that population growth and technological progress is what fuels growth in an economy. Last time I checked, our population is growing and computers/software are still being improved upon. I may be too optimistic since I’m still in my early twenties, hah.
To Anonymous; "is it possible that the fund managers handling billions of dollars have the resources to create a complex economic model and are seeing some kind of a turn around down the road?"
Are these the same expert fund managers that saw the recession coming? And made sensible decisions to hedge their positions?
Or are they the experts who created the problem in the first place, and have everything to gain by talking up the market?
And if your macro-economic classes didn't tell you that energy is the basis of all growth, then you should sack the lecturer and sign up for remedial classes!
Greg; I agree absolutely with you, this is why I'd be rubbish at trading! I just couldn't sleep at night if I had ANY money at risk on the markets; I'd be lying awake waiting for the next hammerblow!
I see NOTHING but negatives in the markets at the moment, everything points and deep and continued contraction with, I think, years to play out.
This is the summer, when markets are quiet, summer driving is optional and there are no heating bills; what happens in November?
What happens when State and council spending cuts feed through into job losses, and subsequent defaults?
And what happens when commercial loans reset and default in a big way?
For this year companies can cut their labour costs and cut the inventory and maybe close a few premises, and so still turn in profits. But then they then have to go back to trading for profits in a smaller, poorer marketplace with fewer staff. This year's results may look OK, but next year's???
Donal:
I LOVE to trade... but only when I win...
Anyway, I think the rail data shows that the rate of decline has slowed dramatically, but that makes sense... after all, if rail volume contracted by another 18% that would mean food shortages, and that has not occurred.
But their has been no turn UP in energy consumption. I would think that that would have to happen contemporaneously with any uptick in production.
IAE, I was hoping someone WOULD disagree after taking a hard look at those links.
Tweel:
To be fair to the government's data collecting sleuths... there is a difference between profits and production. Certainly the S&P could have ZERO profits, and plenty of economic output.
I was getting at WHY the contraction feels so bad... we subsist on production, but we LIVE LARGE on profits.
OK Greg, just for you:
I think those links show that the USA has become more efficient in its use of energy in production - so production will rise quickly now even though energy use may appear to decline.
Furthermore Americans are becoming more environmentally conscious and are cutting unnecessary journeys,for example going on walking holidays,and trucking companies are suggesting to customers ways of reducing miles travelled for deliveries.
The worst is over, and everyone can see that Green Shoots are just around the corner.
Now is the time to buy, buy, buy, get into equities quick and grab yourself a bargain!!
Fingers crossed! (as i was when I wrote that crap)
Feel better now?
The EIA charts say that:
Crude oil stocks (oil in storage in the U.S.) have been pretty much around 300,000,000 barrels since 1932
and
Gasoline stocks (gasoline in storage in the U.S.) have been pretty much around 200,000,000 since 1957
When we are down to half those numbers, we will then have something to talk about. :)
Sorry ... 200,000,000 BARRELS
Bureaucrat:
The absolute number matters little. What matter are DOS, or Days of Supply.
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