Thursday, September 20, 2012

Ignorance is curable. Stupid is forever.©

How About a Little Economic Reality Check?

As we watch the markets struggle with the Fed action and economic data this week, we thought we’d offer a quick summary of what’s really happening out there…and it’s not good so watch your money!

The Fed opiate QE3 is fading a bit and some economic data are taking the lead causing our market “experts” a bit of bi-polar disorder.  Watching the market intraday charts shows a market that is looking for any excuse it can find to rise.  That’s not a safe or sustainable environment so keep the defense on the field.

We cannot emphasize this point enough.  At Blue World we make a very important distinction between “data” and “actionable intelligence.”  Data is what the market “experts” react to each day as each weekly, monthly or quarterly economic report hits the wires.  This is, simply, foolish.  That’s why “experts” are such slaves to data.  One data point is useless out of context.  Trends are what matter.

Actionable intelligence is what we glean when we look at the trends of each report and {this is the important part} compare them to the trends in all the other reports plus the trends in our industry plus the trends we see in our own business each and every day.

Below we are providing links to summaries of the economic data released this week (week of 9-17-2012).  Read the summaries if you’d like but what we want you to study are the graphs.  You’ll find that when you add them all together you’ll get a much more complete picture of what’s really going on in the economy than you will by reading the headlines or even the summary of any one week or month’s report.

Starting Monday of this week we got the Empire State Manufacturing Survey and it was dismal, joining the overall trend in manufacturing..

On Tuesday we got:

Goldman Same Store Sales The report showed a drop in sales for the month and that is predictable as the back-to-school rush passes.  Take a look at the graph, however, and you can see that if you imagine out the wild volatility you see a retail sales trend that is totally uninspiring.  Ok, so how does that stack up with other reports?

Redbook which is as likely as not to confirm the Goldman report agrees this week.  More important, look at the long term trend and it is remarkably similar to the Goldman chart.  Both are lackluster, at best.

Housing Market Index What do you think people who make a living building houses and are still in business are going to be inclined to say when asked “how do you feel about the home building industry?”   The chart says it’s on the rise! YIPPEE!  Wait! The anecdotal optimism survey of builders needs to be compared to other housing data.

Wednesday gave us some more figures to consider.

Mortgage Bankers Association New Mortgage Applications This report is considered a predictor of future activity in residential real estate because people need mortgages to buy a house.  See if this chart matches the builder’s optimism chart above.

Housing Starts Starts were up a little in 2011 and very shallow to flattening so far in 2012.   Compare the “recovery” period graph to the steepness of the drop in 2008-09.  This is not what a recovery looks like.

Existing Home Sales While up in each of the last two months, two months is certainly not enough to establish a trend especially as interest rates drop to generational lows and values have plummeted causing a predictable blip. This plus the MBA Applications plus the Existing Home Sales data does not demonstrate a robust real estate recovery underway.

You know it’s Thursday when the unemployment insurance claims from the prior week are revised up!

Jobless Insurance Claims Last week’s numbers were, of course, revised higher and the moving average is up.  Regardless, this report has proven to be a relatively unreliable predicator of the official monthly unemployment report so we regard the weekly knee-jerk reaction to this report as utter silliness.

Consumer Comfort In the summary they used the word “brightening.”  Just have a look at the graph that is not only depressingly low but, also, making lower highs and lower lows, then let us know how “bright” you think consumer comfort really is!

Philly Fed Survey There was a huge one month bump in new orders (headline)…and it makes the index less negative. (not in headline) That’s the best that can be said based on this one report especially in the face of the Fed reports from last month (there is usually one that is better than the others) and the Empire report from just three days ago.

If you used today’s headlines to make decisions you’d be purchasing more inventories, hiring more employees and looking for a bigger facility.  Bad idea!

You don’t have to be an economist (“expert”) to figure this out.  As a matter of fact we have lots of evidence that not being an economist is a huge advantage in understanding reality!   You can read more about this in our posts:

 “The Confusion Suffered by ‘Experts’”

and

“The Confusion Suffered by ‘Experts’ II”

We can get a reasonably reliable picture of what’s really happening in the economy if we ignore the daily headlines and take a look at the economic data in total within the context of the short, medium and long term trends.  That is how we convert data into actionable intelligence.  That is how we non “experts” plan, predict and make decisions.

Every effort is made to ensure accuracy of data transcription but accuracy cannot be guaranteed.  Referenced sources should be reviewed.  Any analysis represents the opinion of Blue World Asset Managers, Ltd. who does not warrant or guarantee predictions based on its analysis.

©Blue World Asset Managers, LTD Thursday, September 20, 2012