The Fed reads the papers too–and this week’s plunge in home sales scares Bernanke and Co.
The numbers released on August 24 on sales of existing homes may even scarier than they look.
Scarier than a 27% drop in July to an annual sales rate of just 3.83 million? Scarier than the lowest annual sales rate in the 15 years this number has been recorded?
Well, yes. Because this figure suggests that all our worst fears about the housing market and the U.S. economy may be absolutely correct. And I think that interpretation of the housing numbers is a major reason that on August 27 Federal Reserve chairman Ben Bernanke just about promised the Fed would go back to its policy of buying Treasuries and mortgage-backed securities to support the economy.
The fears start with the possibility that this huge drop shows that the government’s recently ended tax credit of $8,000 to home buyers didn’t do a thing to actually stimulate the housing industry. Instead, today’s huge plunge seems to indicate that any gain in sales during the stimulus came from borrowing future sales.
Here’s how the tide is running in earnings season–and some ways to profit from the flow
We’re just a little bit more than a week into earnings season and already some themes have started to emerge from the numbers.
Nothing definite. Call them “tendencies.” But I’m finding connections among the results—and the investor reaction to the results that will be worth investing in whenever anything is worth investing in. (For when that might be see my post http://jubakpicks.com/2010/07/12/the-fuel-is-there-but-where-and-when-is-the-match/ )
No big theoretical drum roll. No grand theory of everything. Just some exploitable trends as I see them that are emerging from the second quarter earnings numbers.
What one indicator is saying about the global economy
A bottom with no near-term upside catalyst.
I’m afraid that fits the global economy, the U.S. stock market, and the Baltic Dry Index.
The Baltic Dry Index, a widely followed, but very volatile, indicator of global economic activity, is showing signs that it bottomed last week. On Friday, Oppenheimer reports, the index moved up for the first time since late May.
The index tracks the daily prices for shipping cargoes of raw materials such as rice, coal, grain, and iron ore on 26 routes using a weighting that accounts for ship size and the percentage of dry bulk traffic that class of ship represents. Since shipping costs move up and down in anticipation of the shipping needs of commodity producers ad consumers, the index gives an indicator of the volume of global trade and thus of the state of the global economy.
The index had been in a strong rally off the bottom–set in the days when the global economy seemed to be shrinking by the moment. But that rally peaked on May 26 at 4209. Since then the index had dropped daily to close at 1700 on July 15. That’s a drop of 60% from May 26. (I said this index was volatile, didn’t I?)
The losing streak that ended on July 15 was the longest in almost 15 years.
The index actually climbed on July 16, however, and while one day and one 1.2% gain in the index, doesn’t make a trend, I think we’re likely to see the index stabilize here. Iron ore prices, for example, have dropped for three consecutive months on worries about falling Chinese demand.
The big news from Alcoa isn’t earnings but a forecast of faster global growth
The big news—the news that’s fueling today’s across the board rally in stocks—isn’t the extra two cents that Alcoa (AA) reported in second quarter earnings last night. The company reported earnings of 13 cents a share, two cents a share above Wall Street forecasts. Much of that, however, seems to have come from more aggressive than expected cost-cutting at the company.
No, the big news was the company’s increase in guidance for the next quarter and the rest of 2010. The company said that it was raising its forecast for global aluminum demand to 12% growth this year from its previous forecast of 10% growth.
That raised hopes on global stock markets that economic growth this year might actually be higher than expected. In this earnings season it’s guidance that counts, I’d argue.
The increased demand comes from lots of markets and in lots of industries.
Economic growth will be higher than projected, the IMF says, unless, of course, it’s not
Janus, the Roman god of beginnings, transitions, and doorways whose two-faced imaged looked both forward and back, would be proud of the IMF (International Monetary Fund) today.
The IMF raised its forecast for global growth this year to 4.6% from the previous 4.2% forecast in April. (The IMF left its forecast for 2011 at 4.3%)
But the IMF also warned that continued turmoil in the financial markets has increased the risk that the global economy will stall.
In other words, things will be pretty good—unless, of course, they aren’t.
