Leading Indicators Down, Oil Near Record High; Chicago Fed Claims Economy Doing Well
The Conference Board's Index of Leading Economic Indicators comprises ten separate measures of forward-looking economic data. The latest composite index had nine of the ten components falling, with a notable contribution on the downside coming from bond yields, which in May and early June were continuing a trend of falling long-term rates and rising short-term rates, an early warning sign of impending economic slowdown. That trend of a flattening yield curve stalled last week, however, as yields on long-term government Treasury bonds started to rise, with the benchmark 10-year instrument pulling back above four percent.
In trading over the past few days, though, the long-term bonds have resumed their track south. The 10-year bond closed Tuesday just below four percent and finished Wednesday down further to 3.93 percent, around the yield level to which it had fallen before the short-lived lift in the long end of the yield curve, indicating investors are returning to their previous portfolio re-alignments that include more of the safety of long-term debt instruments.Dark Wraith CyberGloss
When investors purchase bonds, the prices of the bonds go up, and this pushes the yields on those bonds down.
In other news, oil prices hit record highs Monday, with U.S. light crude on the New York Merc hitting $59.52 a barrel intra-day before backing off just a bit to close up $0.90 for the day at $59.37, still a record closing price and perilously close to a loathsome and perhaps psychologically significant $60 per barrel.
Brent crude closed Monday at $58.32 per barrel, up $0.45 over the settle previous. It was just two weeks ago that oil was probing the downside of $50 per barrel, relieving many economists who had been concerned about the impact of high gasoline prices on consumer and business spending as more income had to go to energy costs, thereby making less money available for spending on other goods and services. The easing of energy costs in May even led to a reduction in both the producer and the consumer price indices, thus giving the appearance of an economy shaking off inflationary pressure that was building earlier in the year. The current upward spiral in oil may lead pro-government analysts to hold off sending out the let-the-good-times-roll party invitations, however, as the new round of price pressures begins to ripple through an economy still reeling from the drain on pocketbooks and profits from the last run-up in fuel costs. On Tuesday, crude prices backed off slightly on minor profit taking action working against broad concerns about oil supplies. U.S. light sweet closed Tuesday at $58.90 per barrel but found some room to the upside in early Wednesday trading before closing the day off at $58.09 per barrel. The heavier Brent crude, also down for the day yesterday, was slipped a bit further in Wednesday trading.Dark Wraith CyberGloss
Different types of crude settle at different prices because of factors like the quality of the product, which directly affects the cost of turning it into usable derivatives such as gasoline and home heating oil.
In other news, the Chicago Fed on Wednesday morning released its National Activity Index, a measure of how the national economy is faring. The reading for May rose to +0.10 from the weakly positive April reading of +0.05. Interestingly, the three month moving average of the index held at -0.01, indicating that the index is still below its long-term, historical level. The Activity Index for the latest period was boosted by strong surges in both industrial production and housing starts, with employment indicators being the only dark cloud. The picture being drawn by the Chicago Fed's latest index is of an economy where the manufacturing and housing sectors are still doing well, while at the same time the ability of the consumer sector to ultimately purchase what is being produced and built is not doing as well.
Anecdotally confirming this picture of an economy of some, but not all, businesses doing well while households struggle, supermarket giant Winn-Dixie (PK:WNDXQ.PK) announced yesterday that it was eliminating 22,000 jobs as a result of planned store closings to "firm up" profits. According to its filings with the Securities and Exchange Commission, Winn-Dixie has about a thousand stores in its chain, but many are losing money, causing the company as a whole to bleed red ink.Dark Wraith CyberGloss
Although the 12 Federal Reserve district offices are primarily concerned with economic activity in their own regions, several larger ones keep tabs on the national economy, too.
The company's earnings per share for the latest reporting period were a grim —$4.18. For these kinds of losses, investors have punished the company's stock unmercifully: as recently as a year ago, Winn-Dixie common stock was nearly eight dollars per share, and in 2001, the stock was well over $30 per share. Yesterday, the stock closed at $1.12. This morning, investors took mild notice of the company's downsizing announcement, pushing the stock price up to nearly a dollar-and-a-quarter in late morning trading; but by Wednesday close, the stock price had settled back to $1.16 per share. Winn-Dixie stock currently trades in the Pink Sheets.Dark Wraith CyberGloss
The "Pink Sheets" is an electronic trading system for stocks that do not meet minimum requirements to be listed on another exchange like the NYSE, the AMEX, or even the OTC.
Published 6/22/2005 11:32:00 AM
<< 39 Comments Total
You're confusing me, here, Dark Wraith. The consumer confidence is up, but the index had a slight slide. Do you think that's why the Consumer Confidence is high? Consumers get confused or get tired of trying to figure things out for themselves and just say "To hell with it, I'll just believe what they tell me"?
Record highs for the oil companies? Of course, if the oil companies are doing well, so are we........ha!
Good afternoon, Old White Lady.
Naw, there's no confusion. The Index of Leading Economic Indicators fell for the month of May, but consumer confidence as measured by both the Conference Board and the University of Michigan is way up.
Apparently, people are feeling downright giddy. It must have something to do with all those Winn-Dixie grocery stores closing up.
Okay, I shouldn't be quite that harsh. I think I know what happened with consumer confidence. Both of those indices were calculated on surveys taken right about the time when gas prices dropped quite a bit off those nose-bleed highs. I'm betting that a whole lot of that up-turn in confidence was what we used to call the "summer attic effect." Ever heard of it?
You see, Old White Lady, back in the Summer, where I lived, the outside temperature could get positively beastly. Now, we didn't have air conditioning back in those days, and about the only way a person could enjoy that convenience was to go to the local market or to the doctor's office. Having no excuse to walk to one of those places, and getting desperate for some relief from the heat, there was only one thing to do: climb into the attic above the house.
You see, the temperature up in the attic was so high it could melt paint. It was absolutely awful. Even breathing the dust would make your nose burn because the dust was so hot. Spending some time up there crawling around, looking at stuff was like being in Hell, itself. The only light was what peeked through a few cracks in the roof because a light bulb would pop right in the socket if you kept one in there in the Summertime.
About 15 minutes was all I could take before I'd start breathing funny and my eyes would get all bleery from sweat. That's when it was time to crawl back down the ladder and walk around outside where, even though it wasn't a bit cooler than it had been when I went upstairs, the air temperature felt like it was an early spring morning. Other people acting like it was roasting hot outdoors looked just plain silly. They didn't have any idea what hot was.
That's the summer attic effect, Old White Lady. And that, I think, is why people were so giddy about the economy when gas prices slipped back below two dollars a gallon.
The Dark Wraith has, once again, solved a mystery with a boring story.
So the "summer attic effect" could be the HIGH gas prices. When they lower a little bit, people get confident again, because they're paying just a tad less than what it had been. Sure hope it doesn't go back up. Of course, I realize it probably will raise, again, once vacation time kicks in for everyone.
A good time will be had by all, except by the folks having to shell out the gas bucks.
As far as the mystery being solved by a boring story - rest assured, I didn't fall asleep while reading, so it must not have been boring.
DW,
While you were in the attic, did it occur to you to check and see if you were a few shingles short of having a complete roof?
da da da DA da DA...CLANG!
It's worse than that, Peter of Lone Tree: the old-fashioned insulation had come loose everywhere.
Yes, Peter, my asbestos was hanging out.
The Dark Wraith checks his belfry for bats.
I had a sneaking suspicion the consumer confidence survey results were in relationship to the price of gas being slightly lower.
...the manufacturing and housing sectors are still doing well, while at the same time the ability of the consumer sector to ultimately purchase what is being produced and built is not doing as well.
Are consumers increasing their debt load to purchase these items? Seems to me that would be one of the variables needed to analyze the current economic status and give a clearer picture of what's really happening.
ps Are the companies mentioned above increasing their debt load to keep pumping out their products?
Good evening, Auntie Roo.
Use of debt—what we call "leverage" in finance—is as popular as ever at both the consumer and the corporate levels. At some point, I'm going to show everyone the phenomenal "gains to leverage" that make debt so attractive as a financing vehicle.
Suffice it to say that businesses and households are borrowing at a feverish pace. This is being fed by the fact that the long end of the yield curve is tipping downward, meaning that long-term debt is actually something of a bargain, relatively speaking, right now. That's what's feeding the housing market especially.
At the level of individual choice, this makes getting a home loan right now really exciting for people, particularly if they believe that interest rates are going to rise. This, by the way, is a classic question on a principles of microeconomics exam: what happens to demand for a product if consumers of it expect the price to rise? The answer is, of course, that demand shifts outward (i.e., demand "increases") immediately.
The problem comes later with those mortgages. As the economy slides into recession, household income drops, and it becomes more and more of a challenge for consumers to carry service on their debt loads. The provisions of the new Bankruptcy Act will play into this, as well, because the rational strategy for a household would be to continue servicing the asset-backed obligation and default on the short-term, unsecured credit exposures; but that won't work very well because the short-term credit providers will immediately seek attachments that will deprive the households of the funds needed to continue servicing the mortgage-backed debts. Thus, the households will end up defaulting on the most valuable assets in their portfolio, causing repossessed houses to enter the market in significant and growing numbers. As the supply of housing takes this shock wave, housing prices will begin to slip perilously in regions where job losses are substantial.
And that means... POP! goes the housing price bubble.
The Dark Wraith just loves rosy scenarios.
Good Morning Dark Wraith,
I was thinking about that the other day, when I came across this gem: US bubble set to burst .
It seems the Brits who forcasted the bursting of the British housing bubble have set the timing for ours.
So, hold 'em or fold 'em?? How many americans are gambling with their premier investment? If the brits are right, and the people wake up out of their long snooze, it may interfere with the repugs' reelection next fall.
One can only hope...
As the supply of housing takes this shock wave, housing prices will begin to slip perilously in regions where job losses are substantial.
This is one of those vicious cycles that is driven by more than just demand in a classic sense because of the motivation of two different types of sellers. Prices do not just drop due to the unwillingness of potential buyers to pay $250,000 for a house because they're being conservative about their personal finances. Prices are also forced downward because the bank just put the foreclosure next door on the market for $160,000 to dump it quickly.
Maybe those buyers would pay $210,000 for the $250,000 home if they thought the seller was desperate enough. Now along comes the "good deal" on the clone next door. Home owner turned seller is screwed.
Speaking of being screwed, this is just plain BS. A divided Supreme Court ruled Thursday that local governments may seize people's homes and businesses against their will for private development...
And in what strikes me as supremely odd, the liberals were in favor of letting local governments step on the property rights of individuals while the conservatives were voting against corporate development interests.
- oddjob
Good afternoon, Mr. Goat.
You've got that right. The lender needs to liquidate at the outstanding balance on the promissory note and has no incentive whatsoever to sell the house at a higher value.
Question for others: Why is this the case? Why doesn't the lender have any incentive to sell the house at the highest possible price?
Now, as far as I'm concerned, the Supreme Court today demonstrated that even elderly men and women smoke crack cocaine on occasion. The statist, imperialistic concept that the sovereign can work hand-in-hand with private interests against private property rights is just stunning; but it goes right to the heart of a point I make in business law, microeconomics, and finance classes about the myth of "ownership."
Such a quaint idea, ownership is, but one I make sure students understand has no meaning other than as some anachronistic way to describe a matrix of claims on real and intangible properties. Interestingly, the younger students are okay with having the myth buried. It's the older students who get fussy.
The Dark Wraith thinks that's kind of sweet.
Yes, OddJob, I was watching this case and noticing how the sides were forming on it. I wanted to take some liberal friends of mine and shake them until their eyes rattled. They seemed to think there was something hip and socialistic about property confiscations by a sovereign entity; but this gambit had everything to do with corporate interests pressing into service a power of the state to an end that they could not achieve with their own portfolio of legal and financial tools.
Absolute power in the service of absolute greed.
Not a good combination.
The Dark Wraith wonders what will come next.
What comes next? This and This, then they take your homes to build another refinery, or a retreat for the corporate hoggs, or another gulag, or...
My guess to the answer of your question is that the reason why is because the lending institution (usually a bank) is not usually in the business of property "ownership" (in its now-archaic sense), and not wishing to be a landlord, isn't interested in the property per se. The business of a lending institution is lending cash for the purpose of getting it back with interest. The more liquid assets they have, the more they can lend out for return on investment. That can't be done with a non-liquid asset.
Close, or completely off the mark?
- oddjob
Actually, OddJob, your answer is darned good, but it's not the main reason.
What you said is entirely correct, though, and this is a point I would make in a broader context in a business course.
The Dark Wraith is very impressed.
My guess is that any profit they get in excess of what they need to pay off the mortgage must be reimbursed to the homeowner who was forclosed upon.
It seems only fair to me.
My next guess is that as the holders of both the promissory note and also the asset against which the note is held that there's some kind of financial or legal conundrum there that is untenable, and so the note must be satisfied as rapidly as possible.
- oddjob
SB Gypsy gets the prize.
Actually, there isn't any prize, but it's the thought that counts.
The Dark Wraith should have brought doughnuts for the seminar.
My My, such pessimism here.
Everything is fine! Don't worry! There's plenty of cheap oil for everyone.
We are doing great in Iraq. The War is going great. People are happy. God Bless the USA.
Our economy is just fantastic...strongest in the world. Plenty of dough for Social Security too.
So just stop worrying and put on Bush's Rose Garden Optimism Goggles.
And then you will see that if you tell yourself over and over that everything is OK, and never leave your house, that hey, it really is ok!
I have to say that the lower gas =consumer confidence has to be it...or maybe all the help wanted signs I'm seeing at great employers like Hardees.
I'll also admit to using the attic sauna as a cooling technique myself-everyone thinks I'm rather strange. I used to wear a jacket in the cool of the morning in the summer before a jaunt to Philly, then listen to my family ask again and again if I wasn't hot...I'd declare it was coming off at 1PM. Guess when the day's high temp would generally hit? I'd feel comfortable most of the day, everyone else would be melting :). The difference between the confident consumers and myself is that I KNOW the temperature is broiling, despite purposely acclimating myself. They seem to live in a fantasy-land of wishful thinking....wait, they are simply emulating our leaders.
Good evening, Wild Clover.
I really do appreciate you confirming the old summer attic effect phenomenon. I'm not sure very many people these days know about those old-fashioned oddities, but I surely do.
I'll tell you something about consumer confidence, right now. It may be a mile wide, but I strongly suspect that it's as thin as an egg shell. I just have this sense that, right under the surface, a whole lot of people are coming to their boiling points about a number of issues.
For the past four years or so, I've felt a general sense of hostility in the student body concerning anything—and I mean anything—negative about this Administration in Washington. Recently, though, things have changed so much, and I've seen it escalating just these past few weeks. I swear, Wild Clover, it's like a sea change is happening.
I teach students of all ages, and I almost feel like they want me to cut loose on why the economic and other policies of the neo-cons is all wrong and how it's caused the problems people are seeing.
It's really weird. In class, I put a very objective face on every detail, giving all sides of policy debates and laying out economic errors made throughout modern times by the powers that be. But even at that, the discussions get profoundly animated when it comes to this Administration, and the former reticence of anyone to say anything negative is just gone: students young and old cut loose, and they have no fear of others disapproving of what they're saying, even though I can tell that there are a few in the classes who still believe in this President and everything he's doing.
I can't let this type of talk get out of hand, obviously, and I do my best to keep it channeled into solid applications of principles; but geez! it's different, now.
The scary part was tonight during the break. Three of my young, butch-haircut types were out in the smoking area, and they heard me talking about the price of crude oil and what that would mean for people out in the country in these parts when Winter comes and the heating oil bills are through the roof. The young men didn't have a thing to say in defense of Bush, which is what I would have heard even a couple of months ago. Instead, they were talking almost in terms of a survivalist mentality, as if they recognized bad times ahead and they were focusing their male self-image not into a wide program of how things were going to be okay, but rather how they would find a way to make it in a much, much more difficult world just around the corner.
As troubling as that way of thinking might seem, it's a far cry from the young men I described in the article "Fire and Seeds."
Times are changing, Wild Clover, and something new is afoot in the American psyche.
The Dark Wraith is both encouraged and worried about the future.
I just hope it stays ugly enough for long enough to make a difference in the '06 vote.
- oddjob
Hi Dark Wraith - I am pleased to read of the turn-around by the students regarding not being concerned about others disapproving their discussions about the current government. For quite some time, it was almost impossible to rant against the administration policies and their "conflict" in Iraq. It was almost as if someone overheard, they might turn the ranter's name into the FBI or Homeland Security.
Perhaps, all the lies have finally made an impression on many of these people.
Of course, the Internet has had a good deal to do with it, allowing people to talk amongst themselves via blogs and webpages, and to find out what is ACTUALLY happening. I know the hard copy newspapers have small items in them, but usually, one has to dig deeper to find out the whole story.
I find this new mentality refreshing. Living in fear is not a good way to live.
Good evening, Old White Lady.
The fear will stay, but the defiance will deepen.
Today was the day that the Internet became a very Puritan place because the Justice Department's new interpretation of law went into effect regarding images that involve nudity. It was pretty impressive how the entire Yahoo message board system shut down, as did many, many Websites, quite a few of which most folks would never have considered "porn" sites.
And all the Justice Department had to do was make a pronouncement.
That's pretty good.
Of course, that means my plan for The Men of The Dark Wraith Forums 2006 Calendar is shot. So, too, is that new photo I was planning to put up of myself in the sidebar.
The Dark Wraith is, of course, just kidding about that plan to put up a tawdry, new photo in the sidebar.
[Like I'd really do something that would scare the crap out of new visitors. The economics articles are bad enough!]
Wholly OT (apologies), but if I put it in the Open Forum I fear few (if any now) will notice:
You might get a kick out of this definition, DW:
From The Devil's Dictionary:
Pandemonium, n. Literally, the Place of All the Demons. Most of them have
escaped into politics and finance, and the place is now used as a lecture
hall by the Audible Reformer. When disturbed by his voice the ancient echoes
clamor appropriate responses most gratifying to his pride of distinction.
- oddjob
The Men of The Dark Wraith Forums 2006 Calendar is shot
NOOOOOOooooooo!
Good morning Dark Wraith,
Kind of on the subject, but did anyone see the John Stewart show the night he had for a visitor Matt Lauer who is hosting the Greatest American show?
There was a moment when the audience boooed the shrub, and Matt Lauer just looked around in AWE that anyone would dare to booo him. Matt Lauer was absoutely floored, you could see it in his face.
He was on the edge of his seat, looking around like everyone was crazy, and how do I get outa here...
...I just laughed & laughed
Good morning, OddJob.
That is excellent. It's giving me all kinds of inspiration for something I had planned to do some time ago.
The Dark Wraith will have to think about how to implement a literary idea he has
Good morning, SB Gypsy.
I am noticing among the hard-core Bush supporters an utter lack of grasp that the tide of public opinion is turning. One of the neo-cons at a school where I teach still yammers incessantly about all the great things the Bush Administration has done. Last month, he was doing this schtick by the copy machine, and there was a really uncomfortable silence among the three others in the small room. Nobody seemed to want to clue him in, but nobody seemed to want to be the first to leave, either. We were sort of trapped: we all had our copy orders queued from the network behind his job, and he had a job in the hopper that just kept cranking and cranking. I thought his copies would never finish printing.
Fortunately for me, someone had brought in a big box of doughnuts, so I had something to help me make it through that difficult little patch of time; but from now on, I'm going to check the network to see whose jobs are running before I put myself in a room that small with a neo-con that clueless.
The Dark Wraith will put up with only so much for a doughnut.
"The Men of The Dark Wraith Forums 2006 Calendar is shot"
I'm trying to decide if this announcement or the recent Supreme Court "eminent domain" decision is more devastating news.
How about Pussies of the Dark Wraith Forums instead? Here's mine.
The caption for this picture, taken early November 2004, is Oh Fvck! Not another four years.
Psst... Hey, Dark Wraith - you know the new photo you're not going to put on the sidebar, afterall?
Why don't you E-mail it to me. Believe me, I would appreciate it!
OT again (unless you regard this as a kind of leading indicator). I haven't read anything more than the article title, but somehow I think you may like it, DW (from today's Boston Globe):
Mass. Home Sales Down 11% In The Past Year Real Estate here can be quite expensive, so I'm not surprised condo. sales are still rising.
- oddjob
Good Evening Dark Wraith,
I know this is WAY off subject, but here it is:
The answer from the Christian community to the religious right is a new organization called
"Christian Alliance for Progress"
and their aim is to “reclaim” the Christian faith from the extreme religious right.
The brainchild of a businessman named Patrick Mrotek, they are bearding the lion in his den.
The Reverend Timothy F. Simpson, a Presbyterian minister and the group’s director of religious affairs, said in an interview .........
The Christian right, in the persons of Pat Robertson, Jerry Falwell, and James Dobson, has come to stand for bigotry, intolerance, and division. Simpson says that his organization will try to repair the damage done by the right’s insistence that the United States is a “Christian nation” that ought to be governed according to their narrow interpretation of Scripture.
I'm obviously behind in the news...what pronouncement about nudity? And was the calendar going to be on-line? Now, hubby was on -line on his adult chat site right before I got home, and I heard no bemoaning of lack of pictorials in the profiles or chat-rooms.
I'll probably hear the news somewhere in my wanderings before anyone responds, but just in case, I admit to some curiosity, as well as a strong pout coming on if the calendar won't happen. Of course, my own envisionment of it was that any cheesecake would be done with decorum and probably figleaves, since imagination is always better than reality, especially when it comes to the rather rediculous package(visually/esthetically) that is a man's fruit salad.
I ramble....
Well, it's obvious that I need to put up an Open Forum tomorrow. There's way too much going on in the world to keep any thread narrowly focused on one and only one topic.
Wild Clover, I am here to tell you that you have introduced me for the first time in my long and varied life to the simile of man-parts and a fruit salad. For God's sake, at least you stopped short of the recipe details.
The Dark Wraith is trying not to wonder how much banana goes into the bowl.
Good evening, OddJob.
I'm going to dig around some to see what's going on in regional housing markets. I've been hearing anecdotal evidence of distress in certain pockets along the Eastern Seaboard and the Midwest, but you sure couldn't tell it from that latest Beige Book the regional Fed banks just pumped out. Philadelphia did point to some stress factors; but if I recall, most of that analysis had to do with the manufacturing sector.
What really annoys me is how the Home Builders Association can't stop pushing out one happy-face report after another. Reading their releases is like reading propaganda rags for the Bush Administration. From the way the HBA and similar business groups tell it, I'd swear we've entered the Promised Land.
The Dark Wraith wonders just how close the handbasket has to get to its final destination before some of these folks take note of the smell of smoke.
Good evening, SB Gypsy. Thank you for that link. There have been a couple of posting on blogs about the new group, but it's well worth the while to keep this in the public's eye. The forces aligned on the other side seem to be able to make their voices heard at will, and it's about time some countervailing force came to bear on the Religious Right.
The terrifying part, though, is how much influence the Dominionists have within the Bush Administration. The last thing this country needs is a bunch of nutcases in government trying to lead us to Apocalypse.
The Dark Wraith thinks their incompetence, on its own merits, is enough to get us to that point.
Oh, and by the way, Wild Clover, Thursday was the day the United States Justice Department commenced enforcement of new provisions of law that require all Websites that "do business" in the United States to have proof that all of their models engaged in sexually explicit presentations are over the age of eighteen years.
That means it is not enough for models to certify that they're over eighteen. In practical terms, it means that every place that presents such pornographic material must have documentation such as birth certificate copies or something along that line to establish the veracity of claim that models are of the age of majority.
What that means is that such information is then available for the pickings, without warrant, to federal law enforcement officials who can now search based upon regulatory compliance rather than reasonable suspicion of criminal activity.
Many large sites shut down yesterday rather than defy or alternately interpret the new enforcement regime. Those that remained in business did so either because the site managers didn't know about the new law or because they were acting in defiance of it. The latter course is patently insane, in my judgment, because the Justice Department is going to have widespread support from both the public and the courts for its aggressive new posture in cracking down on the exploitation of minors in pornographic exhibition.
The Dark Wraith will leave it to the readers to decide if the war on something highly undesirable should, in the end, have been allowed to become the door left wide open to the religious fascists who now control our society... and the Internet.