Wednesday, February 9, 2011


Rails continue their march higher in terms of their increases in shipments compared to 2010 and 2009, with the exception of food.  Interesting decrease here, but as with all economic statistics that underperform we'll just blame the weather.  I recall my days as a Financial Analyst doing budgets for a big company where I simply used "timing differences" as my excuse for variances I simply had no idea why they were off.  I think "weather" is just like a timing difference.
We saw a season dip over the last month and now we are back into the ramp up stage.  It is important to have seen that we didn't cross below the 2010 levels here.

Motor vehicle shipments continue to be of concern as we just are increasing the shipments like we should given the super recovery that we have been promised.  Ford's disappointing report over the last week was essentially tipped by watching the rail shipping data below.  It won't be hard to imagine that GM comes out with numbers that are quite as good either.  Have you noticed that GM hasn't been able to exceed that $39 mark we highlighted several weeks ago?

Scrap shipments continue to go along the trend line from last year.  Essentially the data here, with autos, and a few other items we'll review shows that this is a "recovery-less recovery" (yes, Goatmug owns the trademark on that!).

KSU - I've captured a few snapshots of individual rail tonnage for you.  All seem pretty similar, but the hope is to find the weak one of the bunch.  Let's see if we can find it.

Looks actually a bit better than KSU.

CANADIAN PACIFIC - Uh oh, one of these pledges is not like the others.  (Remember, stock performance is all about expectations.  I would contend that that dip below 2010 levels may not be a positive.  I have looked at CP's chart though and it is pretty impressive.)

Scrap prices were Alan Greenspan's favorite macro-indicator, but I'm wondering if all macro-indicators are worthless in this asset price melt up and dollar meltdown environment.  This beautiful chart just continues to go up and to the right.

December home prices were released and we continue to see real estate decline.  The effects of QE II have just begun to impact mortgage rates (in this data) and we can only assume that the home price slide will accelerate.

In my quest to add more indicators, my buddy Carrz suggested that we should use the Architecture Index.  Billings and Inquires are up based on their December survey.

The Moody's / MIT Transaction Index recorded another rise of .6% for the month of November (released last week of Jan).  Commercial real estate has been very solid here and has not declined further.  Has the the bottom been made and are we in the clear?

While real estate prices may be going higher, job prospects seem to be not getting better.  In fact, the job listing index has recorded another monthly decline.  Essentially records the number of online job listings that are available.  This is the fourth straight drop in this data.  Are all the positions taken?  Monster tried to spin this and state that this is a 7% increase from the previous year's level, but I don't see it that way.  January of 2010 was the edge of the cliff, are we really expecting to be way over this level?

Below is a graphic of the most recent food stamp data.  Almost 43.6 million, ok let's be exact 43,595,000 are obtaining food stamps at a cost of $5.8 billion!  Essentially each person is receiving $133 a month in government food assistance.

January's release of the PCI shows a slight decline from December's big gains.  Ultimately this can probably be blamed on weather if you can believe it (and I actually do believe it for this stat!).


Interbank lending rates continue to climb.  We haven't heard much about Europe over the last couple of days, but we should keep Greece in mind and not be eased into any complacency.  It is coming, it is just a matter of when, rather than if.

The US Financial Conditions Index not is solidly above zero which indicates that the economy is expanding.

The Baltic Dry Goods Index continues its free fall.  Spot shipping rates are simply off the cliff and it is anyone's guess as to when the drop will abate.

The USD Index is captured below.  One might expect a defense of these levels here,. but one might expect alot of things in this economy that don't happen.  If we do see some strength in the dollar, we would expect to see the commodities complex sell off and perhaps the equity market too.  If we see more declines in the dollar index, we should see Garth and Ben out yelling "Party On Wayne!"

Commodities like the softs (corn, wheat, etc) continue to rock.  Take a look at the graph for corn and note that we are right back at the levels of the summer of 2008 where President Bush happily signed the corn/ethanol subsidy bill and made life hard for Mexican families that choose to consume corn tortillas.  Isn't it great that we still subsidize corn based ethanol despite the fact that it is terribly wasteful and inefficient!  Wouldn't that corn be better placed in the stomachs of people rather than the fuel tanks of autos?

Here is a neat snapshot of all of the commodities for the last 1 year period.  As Ben Bernanke testified today, there is no inflation, but they are watching the increase in commodity prices closely.  Hopefully they are watching those price levels rather than the same screens as the folks at the SEC.  (Remember this awesome revelation from April 2010?)

I want to wrap up and I'm forced to take a deep sigh.  We really have a mixed bag still where some portions of the economy look have begun their recovery and other parts are simply mired in a funk. 

Rail shipping looks to be improving or at least remaining at higher levels.
Commercial real estate seems poised to move higher.
Employment could go either way, but I'm leaning to the side of a slowing of hiring as opportunities are gone (filled or simply the job was removed).
Housing stinks and is essentially a lost asset at this point, especially with the specter of higher interest rates.
Commodities will soon hit the level where they inhibit any recovery in the global economy so I think there is limited upside.
Credit concerns have not abated and we are seeing discussions of haircuts in Greece and CDS blowing out to all time highs for Portugal.

With all of these negatives and a few positives it is just amazing to me to see many of the indices trading at or near July 2007 highs (and near almost all-time highs of Oct 2007).  I've struggled with how to characterize this economic and stock price move and I think the best way to capture it is to say that this has been a "RECOVERY IN ASSET PRICE ONLY".  In other words, the economy comeback we've seen is only in the levels of stock indices rather than in the basic fundamentals in the real economy.

Emerging markets continue to be of great concern for me thus today's FXI update and I still remain bullish on energy here as described in the 2011 outlook.  We have made it through January without the correction that I've been looking for, I don't know if it is merely delayed or just not coming.  My thesis that we'll see strength domestically through the first 4 or 5 months of the year still looks good but that is no reason to not remain vigilant.



Just a quick follow up on the China trade (FXI) I outlined last week. In the post titled, China - Great Big Loveable Panda or Blood Thirsty Bear I noted that the etf was close to breaking critical support at $42.00. As often is the case, I have been short that trade since the post and have slowly been bled to death by the daily POMO that makes markets go one direction despite the fundamentals that suggest the price action should be the opposite.

As of this writing at 9AM Eastern, FXI is trading at $41.79 pre-market. If we open here, this should be cause for a doubling of my short position, with a target on the downside of at least $39.00 and a lower target of $36.00
China raised one year interest rates yesterday by a quarter of a point to 6.06% as they attempt to cool off their overheating economy. Please see the following Bloomberg article on the topic -

What does this mean for other emerging countries? The serious answer is I don't know. If we look at charts like EEM, I don't see anything there that is a big tell as to direction, although it is really just floating out in space and could easily drop back to support around $43.75. I think a better target might be found in a chart like the one below EWS (Singapore), it looks like a pretty good short with an easy stop above $14.00.

I will have the monthly macro update done this evening. Please continue to check in at . Until then, be careful!