Jeff Sexton

Wednesday, June 09, 2010

This Week's Economic News

Buried machinery in barn lot in Dallas, South ...Image via Wikipedia

The Week of June 6th...

"For the first time in a year, unemployed workers in April outnumbered job openings in America by a ratio that was less than 5 to 1."

* * *

"Americans reported spending an average of $80 a day last week, the highest such weekly spending average in more than 17 months"

* * *

Wholesale inventories rose for a fourth straight month in April, sales rose for a 13th consecutive time.

* * *

"In testimony prepared for delivery to the U.S. House of Representatives Budget Committee, Bernanke said the economic recovery appeared to be on solid footing and that while a double-dip recession "can never be entirely ruled out," he expects the economy to continue growing."

* * *

Beige Book: "Economic activity continued to improve since the last report across all twelve Federal Reserve districts, although many districts described the pace of growth as 'modest,'" the central bank said

* * *

"The number of people receiving continuing claims -- a measure of long-term unemployment -- dropped to 4.46 million, the lowest figure since December 2008."

* * *

"Foreclosure filings were made on 322,920 U.S. properties in May, up less than 1% from a year earlier. Bank repossessions hit a record monthly high for the second month in a row, totaling 93,777--up 1% from April and 44% from last year. Meanwhile, default notices dropped 7% and 22%, respectively, while scheduled foreclosure auctions edged down from both periods."

* * *
"Sales at retailers unexpectedly fell in May for the first time since September following a record slump in purchases of building materials, adding to fears the economic recovery was losing some steam."

* * *
"Confidence among U.S. consumers rose in June to the highest level in more than two years, a private survey showed."

* * *

These statistics and reports are not here selectively. These are, I think, the major bits of economic data reported during the week.

In spite of these items being almost entirely good news, or at the very least solid and indisputable evidence of a recovery, traders continued the create extreme market volatility all week. Why? "Nervousness"? In what other jobs do professionals get to behave like this and attribute it to nervousness?

The only "bad" news in these reports is May retail data which were weaker than expected. They are also 7% better than the same period 12 months ago.

One percent swings in the Dow day after day are not normal.

Of course, yes, yes, everyone knows that short term market behaviors are not rational and should not be taken into consideration by long term investors. This is quite true. However we have just come off a 30-40% loss in the savings of the world. It has taken quite a lot of dollar cost averaging and bargain hunting to rebuilt only up to the levels of two years before. No one expects markets to be rational, but volatility is breaking records these days. This isn't just irrational, it's random.

Memo to traders: the United States is not headed into a Mad Max scenario in the third quarter. A poor economy in Greece will not trigger collapse of all the world's major governments before Christmas. China is not planning a fire sale on Euro bonds for next Wednesday. And Iran is not going to cause world wide nuclear Armageddon during your lunch break.

I just received the July issue of Harper's Magazine. There's an amusing list there of statements found in the transcripts of the Federal Open Market Committee meetings of 2004 that were noted to have provoke laughter. For example:

"He suggested that we do what those in the survey industry do - have focus groups and really experiment with traders. My reaction was that the only time I've ever thought about experimenting with traders it involved cattle prods!"
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