Friday, July 23, 2010


(As usual, please forgive the weird spacing issues on this site - The Blogger Editor is up to its old tricks again!  I've tried to fix the spacing issues by placing dots and bullet points to make the site readable.
We did recover right?

The ECRI released its weekly data from 7/16/2010 yesterday and it is now showing a drop or growth decline of -10.5%.
Declines of this magnitude are absolutely indicative of a recession.  Now as I've mentioned, officially the NBER has not called the recession over, (I guess they have mental images of President Bush on the aircraft carrier), however by any stretch of the imagination economists should have declared the recession over with the managed recovery we've had.  Of course little things like employment and housing that have not recovered shouldn't stop a few economists and administration officials from stating the obvious right?

IF they did declare the recession over, this data would tell us that we were going to double dip with all doubt removed.  However, now that our friends have held off from declaring victory we may have the fabled L shaped non-recovery.



  • RAILS -
Other indicators of slowing are showing up.  I will not post the data here, but rail tonnage is slowing and with carriers are even seeing declines versus last year.  Can you say WHAT?  I thought last year things were terrible and everything this year was all better?  I thought the US consumer was back and commodities were on a tear?  Me too.  Last week almost all categories of shipments were down when compared to 2009's easy levels and this week a few of the categories remain slow again (coal, autos, and food), that is slower than 2009 levels and much lower than 2008 levels.  KSU's shipping declined significantly and so did KSU in Mexico. 

European Stress Tests were released today and the US markets caught another surge higher.  The uncertainty is gone for now, but the weekend will give traders and portfolio managers time to examine the sparse details and released information provided in the sham tests.  Are we going to feel better about the solvency of the banks when they really didn't stress them and didn't analyze the cost of default of sovereign debt on their balance sheet?  The potential of country debt defaults is exactly what exposes these banks to their very death!  If Greece, Portugal, Spain, or Italy don't have debt problems then these banks don't have problems (don't even mention mortgage assets - that is so 2009, even though it hasn't been addressed, but don't let reality stop a rant!)  Isn't it ridiculous to think that the regulators ran this test and show the results like they've accomplished something?  Isn't it funny to think that 7 banks in Europe failed anyway?  Isn't it funnier to think our markets rallied on this news?

  • LIBOR -
No matter what, the real test for the veracity of this exercise will be the cost of funding between banks on Monday. If we see declines in funding rates, then we must believe that the farce had at least some meaning between other bankers. If we see Libor move out more, this will be the tip off that this wasn't the magic elixir that the regulators had hoped it would be. I'll be watching this chart and I'll have a post on Monday.  We've seen a decline of 6 bps over the last several weeks as stress levels have declined. We'll want to see this come down even more to verify that banks trust each other.  (LIBOR)


I'll leave you with the optimistic quote of the day from someone on CNBC right after the release.
"It's not that the banks are failing, it is that the banks have failed a level of stress, and they are taking steps to improve it".
Yes, I guess that is one way to look at it. To test how this view works with other applications, let's run it through the British Petroleum version of the stress test.
Say this with me ------"It is not that BP is failing to be a good company and manage the environment effectively, it just failed a level of stress, and they are taking steps to improve it". Feel better about the Gulf of Mexico don't you? I thought you might! Perhaps I'll begin to look at all failures with this view! It's not that they have failed, it is simply that there is a failure to communicate!

Have a great weekend!


  1. "IF they did declare the recession over, this data would tell us that we were going to double dip with all doubt removed."

    All over the place you have so-called contrarians these days: if it's obvious we're slowing down/double dipping that means we don't; if the market is selling is time to buy; if we have a golf natural disaster it means we don't, I buy BP because all suckers are selling (and I'm smart), etc. etc.

    All the blogs out there I read, traders & the likes are contrarians. I believe these contrarians will be served a lesson rather soon...

  2. Dacian,
    Yep, you nailed it. No one really knows what is going to happen in the short run, and frankly, the long run actual events are difficult to predict. In fact, a lot of bloggers and traders just add to the noise.
    I think what I'm hoping to do with this blog is document what is going on and try to make some clarity of what might happen if A or B come about. This tool (blog) has been great because it helps crystallize my thoughts, but also reveals where I miss things over time. I have also noticed how I might have some ideas of how things might play out, but those things actually are counter to each other.
    This on-going rant of mine has been humbling and also been a re-inforcer to me that what I'm doing is helpful and on track.
    Ultimately so many of us hear the message that we are to invest and buy and hold and not question what is going on around us. I obviously question what is going on, but also question what I am saying and what I'm assuming, cause I've been wrong before and will probably be wrong again. The key in this environment is to be defensive, preserve capital, and try to capture gains on longer term trades that we can guess might be correct.
    The simplest of these seems to be a bet on emerging countries with low to no debt and a growing middle class. That is the longer term theme while the slowdown in the US is the back drop that I center on to highlight why that strategy over the next 10 years will be really valuable to readers.

    Dacian, thanks for stopping in as always.



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