The Week in Review

US – Well, son-of-a-gun, it appears that Mar jobs creation did not meet our expectations.

One thing’s for certain - last Friday was the day the majority of prophets have been looking for, and for months.  Now finally they can say, “I told you so.”  And so it goes with this bunch.

Despite our best efforts, we’ll miss a few.

Let’s take a look at last week’s Mar NFP.  We predicted that earnings would finally do well.  Hourly earnings cooperated but the workweek retracted, so weekly earnings followed suit, shedding 0.1%.  And the headline print was nothing to cheer about, although a quick look showed that unusually warm weather the prior three months and then more seasonal weather in March produced the payback. That is, the dry weather especially in Jan and Feb did allow some seasonal industries to keep workers on through the winter, reducing the need to hire in the spring.

Interesting thing about weather is it not?  It is not a secret to observers when they make their estimate. Most simply ignore it as it usually trips them up.

And then there was that Unemployment print of 8.2%.  That rate only fell because the labor force shrank by 164M. But then it is pleasing that the augmented unemployment rate fell too from 14.9 to 14.5% (discouraged, marginally attached and part-time). And private-sector employment increased for the 25^th straight month, an average of 162M per month; not bad at all given we have an administration which has done everything it could to inhibit jobs growth, this sector.

All in, job creation has accelerated over the past three months - a 212M average vs 164M average the prior three months. Our view is it will continue to accelerate the balance of 2012.

Finally, the disappointing Payroll result made Bernanke out to be a prophet. He lucked out. He went out on a limb with his NABE speech as Lacker, Fisher and others beat him severally about the head and shoulders.

E-Z – Results last week were an exact fit with our desk anchor as evidence continues to build that the E-Z is headed for the dumpster, and quickly. Others are coming to understand that which our clients understood early Q1. We have known for some time this sector would “disappoint” and why, and that included Germany. Indeed, as one news source put it last week, “An unexpectedly sharp slump in German industrial output in February fuelled concern that the economy…is on the brink of a recession…”   Better to anticipate than react. And the notion that the there is some sort of consumer “boom” in Germany is pure fantasy.

UK – We are also pleased with results for this credit.  Naturally things are slow, but our task is to determine where, if anywhere, a flaw may exist.  We have known that observers continue to just miss activity ahead – their collective bias is to underestimate.  Sure enough, following a surprise acceleration in manuf growth in March, we see that the construction sector PMI flattened estimates, rising in Mar to a 21 month high, orders at the fastest rate in 4 ½ years.

Thus, repeating from our last post, look for the US to continue to distance the E-Z; look for the UK to widen the gap to the E-Z.   This folks represents reality over the intermediate term.

Robert Craven

Week in Review

The collective market view is that we are experiencing a moderate slowing: in China, due to Bk of China braking; in Japan, as expected, due to the tragedy; in the UK, sideways but with the threat of a lift over its head; in the EU, the reality of the periphery disassembling, only Germany and France packing the load; and finally, in the US, with manufacturing slowing, with signs of employment doing the same and with the reality of gasoline and Fed policy (lower $) smacking the consumer where it hurts.

We are not in a sweet spot at the moment; we cannot detect just where there may be a major flaw in consensus, just where resides the next opportunity for our clients. We’ve got a long weekend ahead, so plenty of time for thought.


Robert Craven

The Japan Factor

We noted just a few days after the tsunami that its net impact on US activity would be minimal, perhaps a wash, that supply shortages to US industry, especially vehicle assembly, would be at least partly met by Japanese competitors, and at any rate, this negative would be offset by Japanese demand for concrete and other building materials later in the year. Today’s April Durables release indicated that vehicle production was off considerably, especially - no surprise - by those facilities owned by Japanese, due to component shortages. We may have under-estimated this factor, and it’s too early to judge if we’re right on demand from rebuilding.

Robert Craven

A Recap - The Week in Review

We saw this week that the US factory sector took a breather in April, from the explosive pace of Feb and March, meaning new orders and shipments grew more slowly. We’re not sure how to explain this yet, or if it is trend.

We saw this week that US housing remains in the tank, and to no one’s surprise.

We saw this week through the Claims release some further improvement in the US employment market.

We saw this week that price pressures are building in the EU and UK and that both central banks are now more likely brake. The EU can handle it (German, French vigor) but the prospect represents a nightmare for the UK.

We saw that the EU continues to experience problems with the periphery, an old story. Today there is speculation of Greece defaulting on their debt. We recall when Russia defaulted on their debt. That was a game changer for markets in the US.  This is not.

Finally, we saw today that the Bk of Japan is pleased with the pace of resuscitation and so plans no special support plan. Japan’s Q1 GDP was off 0.9% vs Q4, to no one’s surprise (it captured two weeks of tsunami impact). Days after the crisis we predicted a positive Q3. The Bk of Japan, and now most world observers agree.


Robert Craven

Japan

Just four days after the tragedy, in the midst of world panic, we told out clients to relax, that this tragedy would have short-lived economic implications, that for example equity markets would recover quickly. As we wrote these words, world equity markets were swooning, not sure of what to expect. We advised further that the pace of resuscitation would far exceed expectations.

This morning’s (Japan time) release of March Factory Orders blew through expectations, up 2.9% mo/mo from February for goodness sake.

Wonder any longer where the Japanese economy is going over the near term?

Robert Craven

JAPAN REVISITED - Our Feet To The Fire

Most of us old folk remember Paul Samuelson; his Economics 1-A text was popular for years, maybe still is. But Samuelson said something once about the risks that went with the territory - “to be published is to be found it.”

This plagues the profession to be sure but we have no intent of acquiring Samuelson’s paranoia. In an earlier piece we referred to a track record or Scorecard. It’s easy to fill in the blanks with success and hope clients forget the rest.

In that spirit, we must revisit our work on the Mar/10 Japan earthquake and economic repercussions.

We noted Mar/14 - Having the advantage of working closely with Japanese institutions, past years, we can confidently advise our clients to look for more rapid resuscitation than is now priced in. We then stated on Mar/15 that in the world-wide market sell off, the market crowd had over reacted. We predicted markets would recover, and noted again that it was best for clients to expect more resiliency in recovery, not less and that this is to serve as an anchor as this event continues to unfold. This was the correct appraisal. Observers expect Q2 Japanese GDP to slip but for Q3 GDP to be positive.

However, we predicted Mar/16 the high risk of repatriation - Japan selling US assets in a panic, taking the money home and tanking our bond and stock markets in the process. It did not happen, at least not to any appreciable degree. Next, we predicted Apr/1 that Japan will issue bonds and that, although the Bank of Japan denies it, we expect them to at least partially finance this effort. As of today the Japanese government says they hope to avoid issuing new bonds, and, if they do, the Bank of Japan still denies that they will buy any of them! Finally, we predicted this event was either a wash or modest spark for the US economy. We don’t have that answer yet.


Robert Craven

But For The Few of Us

It is easy now to sense US vigor. It wasn’t early October, 2010.

It’s easy now to understand that higher crude will cut into US GDP. It wasn’t late February.

It’s easy now to understand the Japanese will sculpt a recovery, and quickly, and that their stock market, after collapsing 14% at one point, Mar/15, was a buy. Any fool knows that. Any fool didn’t, Mar/15.

For the few of us who can set an anchor in the midst of a storm, those few of us can provide value to our clients.

And that is exactly what we do.


Robert Craven

Much Higher Crude

Understanding crude prices today is not the domain of the economist, nor he who has knowledge of reserves, tankage or inventory levels. It is the domain of the social scientist.

Most have come to acknowledge what is now termed the Arab Spring but they may not have adjusted to the further risk of violence which will accompany that adjustment.

Our clients were warned late Feb, early March that the course-of-least resistance in crude would be higher over the intermediate term, with 120/125 WTI the high side risk.

That is, 1) higher over the intermediate term because of the dynamics of the region and 2) the high-side risk of 120/125 because of Iranian / Saudi tension.

We advised then that any improvement in crude prices (lower) was to be taken as a correction, not trend. That unfortunately has proven to be correct.

Today’s quake in Japan, better world economy, demand “outstripping supply,” the Libya shut down, all seem to conveniently play a part. Yet it is general unrest in the Mid East which will keep crude prices under pressure. It is the event of Iranian / Saudi armed conflict which will print our target.


Robert Craven

Track Record

We’ve made a point of accountability over the many years we’ve set strategy. We compile and publish a complete, ongoing track record.

In that spirit we must revisit our post of Mar/16 and our warning to clients of possible potent repatriation on the part of panicked Japanese institutions, and, our prediction that US interests would be hit.

We noted that by judging Yen strength that day, they (the Japanese) were doing so already, and with great determination. And we concluded as follows: “Thus, it is not the physical destruction that we fear. That if anything adds to US GDP by the way of US firms involved in reconstruction. It is not a long absence of Japanese demand that we fear, for we have already highlighted the reality of quick resuscitation. No, it is abrupt, short-term retrieval of offshore investments, an emergency fund for the Japanese when needed. Over the near term, US interests will suffer the consequences.”

The last sentence is not accurate. It seems most or all financing will be handled internally. Our job is to offer up calm during chaos. Seems we offered more chaos than calm on this one.


Robert Craven

Those Pesky Offshore Events - The Week in Review

The US economic engine - just when she’s on the way to sparking on 6 of 8, one of those dog gone pesky offshore events threatens to throw a wrench into her works. Let’s take a look.

But first, let’s review the US economy. Our clients received a major heads up Q4. Forecasters were looking in the wrong direction. We predicted that when they sobered up, they would suddenly revise their US GDP estimates, much higher. This was the result. That pattern is closed.

Now to the present. This week was packed with key releases. We predicted strength in jobs, factory activity and vehicle sales. Factory activity was little changed, jobs cooperated nicely; Mar vehicles sales have yet to come in, this writing. We also predicted on Mar/24 after that day’s better than expected Claims print that the number of unemployment claimants would head even lower. Thursday’s number did just that.

Looking ahead , vigor will continue (aside from pesky offshore events) but key for our clients - most forecasters have finally caught on, depriving us of that major leg up which comes with early discovery.

Developments in the European Union appear to many to be a threat to the US economy but are not. A Special edition on this topic is in the works.

Developments in Japan have cooperated nicely with our anchor. Past a day or two of panic, markets there and in neighboring countries have recovered. There have been pipeline stoppages, delivery delays, but nothing not now priced in. A rescue package is near completion. Repatriation has so far been limited; Japan will instead issue bonds and although the Bank of Japan denies it, we expect them to at least partially finance this effort.

The yen is now at pre-quake levels vs the $. The horse is long gone from the barn. Even Warren Buffet agrees with us. It counted a great deal to understand this reality on Mar/14; it’s not worth much now. This pattern is closed.

Events tied to the tragedy will not throw a wrench in the works, will not act as a retardant on US GDP but will act as either a wash or modest spark. Eventually, observers will come to understand this reality.

Finally, we borrow copy from our Mar/4 post on the Mid East: During the weeks ahead we suggest investors and planners adhere to our anchor and acknowledge the glaring risk associated with this region. Course of least resistance for crude prices to remain higher over the intermediate term. It is foolish to believe otherwise.

Higher crude is not so much an inflation threat as a retardant and a powerful one if maintained through Q2. Clients can expect forecasters to begin to shave their US GDP forecasts, linked to this event. They just don’t know that yet.


Robert Craven

US Economy Has Its Legs But Heads Up For The Piano - The Week Ahead

Economic forecasters have been busy. We’ve got several key releases next week, among these Feb Personal Income on Monday, the Mar Chicago Purchasing Managers Index and Feb Factory Orders on Thursday, then Mar Vehicle Sales, Feb Construction Spending and the key Mar Employment report on Friday.

And what are we to make of this release stream? Just this: At the end of the week we will see that the labor market continues to improve, that factory activity is strong, that vehicle sales are robust.

Clients should prepare for that result.



Also next week we can expect the Japanese to make further progress in sculpting a rescue package. Production stoppage exists but is priced in. We can’t comment on renewed nuclear concerns aside from the caution to discount the headlines - for those in search of the truth, the media make poor bed mates.

Japan’s Nikkei average dropped 10% the week of Mar/13. On Mar/14 there was pure panic, world financial markets. On that day we provided an anchor, telling clients to look for resolve, resilience, a quick rescue package, this as the herd went off the cliff. We noted that economic contagion would be limited. The only real potential danger to US interests, we noted, was repatriation. So we advised clients to expect a quick turnaround. Sure enough, Asian stocks last week just showed the largest gain since November. Thank you very much.



So far, so good. In the most general sense then, clients can expect a continued firming in US equity prices and higher interest rates.

Unless:

The Mid East will continue as the principle potential retardant to US vigor.

All sorts of “rules-of-thumb” exist on the Street - $10 higher in crude triggers such and such % reduction in US GDP. We don’t use “rules-of-thumb” around this shop. We know that conditions for price discovery rarely repeat. Let the kids resort to gimmicks.

It’s enough to know that course-of-least resistance for crude will remain higher over the intermediate term. Witness unrest in even Jordan for goodness sake. Still doubt contagion?

We printed 106.69 on May WTI, Thursday, closing Friday at 105.52. Prices in this range will discourage spending. A Saudi / Iranian conflict would print our 120 high-side target in a jiffy. An Israeli strike would do the same. This is dangerous stuff here folks. It is not as Bernanke implied, a blip. Take it seriously.

Robert Craven

Home Sales Tank / Mid Eastern Craziness - The Week In Review

We do not recommend trades in this report, not equity, fixed income nor foreign exchange. Our job is to identify near - to- intermediate term change in the economy, those events which are not yet priced in. We isolate these for our clients and they take it from there.

All of us know now that the US economic engine is accelerating. This was not as obvious months ago when we highlighted this prospect for clients. Sure, it has not all fed down quite yet, we haven’t all felt it, but it’s there and on the way (short of the potential Mid East retardant). This, in spite of the administration’s bungling. So this is a good thing.

Yet how can we say this when this very week we saw figures related to housing which were in the tank? Well, it is known this sector is going nowhere; it’s priced in. That is why New Home sales Wed at a record low did not stir the markets. And one reason for that it that banks are more immune to this reality, having raised $300 bln in new equity in the last two years.

Of course homeowners are not immune, which is why forecasters figured last year that massive imbalances in housing would dampen spending ahead. This, along with their lack of appreciation of traction to be secured by Nov/2, led to their forecasting mega miss. We advised our clients that homeowners would spend anyway, which they did.

Let us move to offshore.

Fiscal events in Japan have concluded quickly this week. A rescue package is gaining critical mass, the currency has stabilized.

US firms have very little equity exposure to Japanese companies, a good thing. Next, there will be disruptions in supply lines for sure, but these are already priced in. There will be internal argument over funding for resuscitation also. We predict the Bank of Japan will support the effort but they adamantly deny it at the moment. For the US the event will amount to either a wash or modest spark.

Finally, we know the Mid East, not EU considerations provides the primary potential retardant to US growth. To restate the obvious, it is foolish at the moment to be constructive on energy prices. Events this week simply support our view for an expanding transformation, one painful and destructive in its youth yet constructive for all of us as it approaches middle age.

Robert Craven

The Week Ahead

Events offshore will muscle our markets this week, perhaps eclipsing domestic considerations. The Mid East was reviewed earlier. We take a look at Japan, following our guide to the week’s data.

We have Feb Existing Home sales on Mon (expected to be lower), Feb New Home sales on Wed (expected to be higher). We have Feb Durable Orders on Wed. This key number reflects orders placed with manuf’s for delivery of hard goods. The number is expected to be up 1.5% but the risk is for something more. The unemployment Claims release on Thus is also key. The risk is that this release will cheer the market, falling below expectations. The third revision for Q4 ‘10 GDP is on Friday - ancient history. Also on Fri we have the Mar Univ of Mich sentiment figure, something to be ignored by planners and traders as it carries few leading characteristics.

Now to Japan. Anyone who bets against Japan does so at their peril.

True to the anchor set earlier we can expect the nuclear emergency to continue to diminish, we can expect the gov’t to rapidly set machinery in place for resuscitation, a process that will flatten St estimates. GDP may take a hit near term (maybe 1%) aggravated by a temporary national power shortage, but can be expected to surge, Q4. A major rescue package is nearing completion, including tax breaks. We expect the Bk of Japan to monetize the deficits needed to fund construction (although they currently deny such a step) and with that, pressure the yen lower, also a plus.

Production constraints associated with the crisis will be concentrated in Asia. Observers have highlighted supply considerations for US manufacturers; there will be little impact on our economy in this regard as Japan’s competitors move quickly to fill the gap. Look for headlines this week to cooperate with that view. This tragedy will provide an immediate spark to US industry. There will be some added pressure to energy prices as Japan will rely more on natural gas for power generation, at least for the near term. There will also be added pressure to materials prices - cement and re-bar come to mind.

We likely over-estimated the US price risk associated with repatriation but we do know accompanying yen strength would have retarded the Japanese recovery. Japan requested and received G-7 assistance in this regard. That potential crisis has passed. Look for further weakening, this currency.

Longer term implications for the US will be determined by the extent the growth of nuclear projects worldwide is impaired. From the Telegraph, we understand that the world has 442 reactors, with 65 under construction. “They generate 372 GW, covering 13.8pc of global electricity. The share is higher in the rich world: France 75pc, Belgium 52pc, Ukraine 47pc, Korea 35pc, Japan 29pc, the US 20pc, and the UK 18pc. In China it is just 2pc.” In the most general sense, output was expected to double over the next twenty years. A set back obviously translates back to conventional energy prices. Our view is that after some examination, nuclear will recover.

Robert Carven

Week in Review

It is our exercise to absorb the inflow of economic data, discard the chaff and then present the rest to our clients in distilled form. Thus, one Week in Review will generally suffice. Two are required for this week: yesterday’s summary of key data and how that may fit client anchors, and, today’s summary of impact, the myriad of events offshore.

Turmoil in the Mid East remains the key potential retardant to US growth. That consideration took a back seat this week given the tragedy in Japan.

The press continues to sensationalize, embellish and distort Japan's crisis. Reality remains that which we highlighted at the onset: 1) Japan will recover more quickly than most expect (despite excessive debt), 2) the nuclear situation and contagion will be limited and 3) influence on the US economy will be a wash, perhaps even positive. We also highlighted a wild card, a potential retardant tagged to this situation - Japanese repatriation and the selling of US assets. With that goes Yen strength, which if maintained over the inter term would retard the Japanese recovery. Today’s stunning G-7 activity reduces that possibility.

So back to the Mid East. A complete stoppage of crude deliveries from Libya was priced in at around 102 - 104. Thus, many look for a long term improvement in energy prices past this event and today’s “cease fire.” No. We have noted in several past posts why this time is different (see rt column). Contagion will continue to sweep the region, and with that, turmoil and threat of violence. On the plate is growing tension between Iran and Saudi Arabia. The potential of stoppage, or blockage of trade routes will remain a significant one. Eventually we know the spawning of consensual gov’t in this region is a plus, we’ll simply be a while in getting there.

We reminded our clients that when Bernanke implied that higher energy costs are a blip he was dead wrong, that when the IEA states that higher prices are here to stay, they are also wrong. But there is now a new potential element which may impact energy; that would be the demise of nuclear and the resultant increase in the demand for fossil products. We don’t think that will happen, but it’s now part of the equation.


Robert Craven

Japan, repatriation and pain here at home. An Alert

We noted this am that Japanese repatriation was a major risk but that we could not provide guidance or a risk-of-result. Well, today it became the piano, falling from the 10th floor.

The Japanese are pulling their money back home just as they do after every crisis, and, judging by Yen strength today, doing so with great determination. The Yen printed 77.48 / $, passing the old post WWII high of 79.75 (Apr/95). That is, investments which swapped Yen for some other currency, are being unwound. They want their money back; they’re a tad nervous. Now the other currency is being sold, and all of them buying Yen like crazy.

So when Japanese folk liquidate global assets, including not just those of lesser credits such as Brazil, but debt and commodity investments in the EU and UK for example, and yes, equity investments in the US (closed down 242 did we not?), what happens? We get hurt.

Thus, it is not the physical destruction that we fear. That if anything adds to US GDP by the way of US firms involved in reconstruction. It is not a long absence of Japanese demand that we fear, for we have already highlighted the reality of quick resuscitation. No, it is abrupt, short-term retrieval of offshore investments, an emergency fund for the Japanese when needed. Over the near term, US interests will suffer the consequences.


Robert Craven

Anchors

Anchors are key these days. Let’s review.


Japan - Visited in the past two blogs, we stated that the mkt crowd has over-reacted to this crisis, underestimating Japanese powers of resuscitation. Sure enough, the Nikkei recovered about half its Tues losses today. The major unknown right now is the extent of repatriation, what one observer called the “snap back in capital flows,” in Japanese offshore wealth, this being a sort of bank or fund for such a crisis. We can’t judge that factor. In isolation of that factor, the situation in the Mid East, not Japan, provides the key potential retardant to US growth.

Mid East - Nothing has changed. Turmoil will continue, likely accelerate. We are going to a place that means more manageable energy for the West but it will be no fun in getting there. These folk embody the meaning of intolerance but we’re stuck with them. Simply witness the Christian / Muslim conflict in Egypt, the current Sunni / Shiite conflict in Bahrain. Still, a gradual move to consensual gov’t represents reality for this region, and this in spite of Obama’s voting “present.”

US - The US economy can be expected to continue to accelerate into Q4. This will be lead by job creation and expanded domestic spending. Any impact from slower Japanese demand will be small. And of course, crude prices will remain a threat Q2 and Q3. And if the event in Japan means the end of the nuclear renaissance, we must factor this in too.

Fed cheerleaders - Bernanke & Co. said yesterday that inflation effects of increased commodity costs, “will be transitory.” How “transitory”? Witness today’s Feb PPI, the headline number double expectations, the largest jump in two years. Sure, it is true that companies don’t have much pricing power to pass these costs along, just yet. But if the Mid East situation extends in Q4 and higher crude with it, this will either dampen growth, of spark inflation, or more likely - both. So why “transitory”? The truth is, the Fed is without a clue, slippery as ever.


Robert Craven

Japan - A Special

We noted in yesterday’s sketch that it is best for clients to expect more resiliency in recovery, not less, highlighting the Kobe disaster and response, as an example. No one agrees with us, not even the Japanese, the Nikkei off nearly 11% today. Still, if we are to error in our judgement, let it be in this direction. This is the course-of-least resistance, our view. This is to serve as an anchor for clients as the event continues to unfold. Best to anticipate these headlines as they surprise the rest.

We have already seen projected recovery-cost figures, something on the order of 1% of Japan’s GDP, perhaps to go to 1 ½ %. The Telegraph put this figure in context this am, noting such a package is less than a third, by scale, of the US fiscal stimulus plan. The two are also differentiated by impact - the US plan was a wash, a waste, a tragedy; Japan’s plan will impact immediately.

Resources for recovery will come from savings, both individual and now especially, corporate. The gov’t can spend like crazy because almost all its borrows comes from within Japan, from domestic savers, not from offshore. That’s how they will get away with it.

Next, the Bk of Japan’s response to the crisis was/is a perfect one, flooding the mkts with cash with no hesitation. They want to keep the yen down too so as not to discourage exports (a mistake made after the Kobe crisis - they waited too long).

Finally, to nuclear. The media cannot disguise their glee in reporting on this issue. Best to distance oneself from these lepers, tossing out the headlines.

The nuclear experts we have spoken to or listened to agree that the nuclear portion of this crisis is in the end likely to be more similar to Three Mile Island than to Chernobyl, Chernobyl being the equivalent of 1 million Three Mile Islands. Toxicity in the worst case would be contained in Japan (risk is “quite low” according to the World Health Org) and according to Columbia’s David Brenner even in that worst case - complete meltdown of the core(s) - exposure on the west coast of the US would be next to nothing.


Robert Craven

The Week Ahead

This week we have two key price numbers: Feb PPI on Wed and Feb CPI on Thursday. Also on Thursday we have Claims, Feb Ind Production and the Mar Philadelphia Fed manuf outlook survey. There are other releases but only these five carry potential mkt-moving hrsp. As we approach these numbers we will review each in more detail but all in, they are likely to indicate more vigor ahead, and building price pressures.


The tragedy in Japan remains a key near-term consideration. We suggest objectivity, which requires a distancing from the headlines.

Having the advantage of working closely with Japanese institutions, past years, we can confidently advise our clients to look for more rapid resuscitation than is now priced in.

Recall the Kobe quake of Jan/95 which killed 6400 people and caused damage observers put at 2% of GDP. Kobe is a key container port. Recovery was so fast that, according to Alan Wheatley of Real Clear World although Japan’s Ind Production fell 2.6% in Jan it rose 2.2% in Feb and again in Mar. GDP rose 3.4%, Q1 ‘95.

The “experts” put the Kobe recovery at a decade. But as we are reminded by the late George Horwich of Purdue, Kobe’s manufacturing was at 98% of pre-disaster levels in 15 months.

Japan not only has abundant resources, physical and human capital but the social and economic infrastructure to utilized resources in a hurry, including those contributed by the US and others. And - KEY - the current disaster is in a region far less populated and far less an economic factor than Kobe.

Finally, the word “meltdown” is a gift from heaven for the world press, very useful for bottom line purposes. It’s application is made by the media not only to single power units, but to the world industry. We must be cautious in this regard. Conventional wisdom has it that the renaissance in nuclear power is now finished. Perhaps not. The plants in question are very old.

We spoke this weekend with a nuclear engineer assigned to PGE’s Diablo Canyon nuclear plant. He advises that new back up systems likely would not have suffered the same fate - loss of power. He adds that the key now is to observe success +/- in Japan’s shut down process..

Caution is in order before leaping to oil and coal sectors; don’t write the obituary for nuclear just yet.


Robert Craven

Security - Hard to Come by These Days - Weekly Review

The last two day’s mkt violence blamed first on Spain’s unfortunate encounter with Moodys, then EU contagion as spreads for the likes of Ireland, Portugal and Greece jumped. Next to blame, China’s less-than-thrilling trade result; then it was the US claims result. Finally it was the Saudi cops shooting their own folk. No, none of that; it’s the charts said the techies. Now it’s the tsunami and shock treatment for a country - Japan - just emerging from slumber.

It’s been a great week for selling headlines, each tagging price change to a single event. None were accurate, and then again, perhaps they all were. That is, no mortal or any collection of mortals can gather up every single factor affecting price change in the world auction market. Factors impacting price discovery are too complex and too numerous to isolate.


What can we do? It is our practice to establish anchors along the way, counting on these to provide some shelter from the storm .

The first of these is that notwithstanding perceived or real weakness in China, notwithstanding EU contagion or the soon-to-be applied ECB brake, notwithstanding the upcoming end to Fed generosity, the trend in improvement, US economy, will remain with us. Particularly, we can expect employment and spending to exceed forecasts, near term. This week’s releases pretty much support out view with the exception of claims which were a tad higher. This is not trend, our view, and we follow up on that The rest - imports surging, better domestic spending, even for discretionary items, fit nicely. We also saw today that Jan inventories are lean in relation to sales, this to fire factory production in the coming months.


Robert Craven

Perspective

Things have been a tad hectic, past days. Let’s step back.

The US economy is performing much better than most expected it would. We know now that manufacturing is especially vibrant by the way of new orders, order backlogs, jobs, exports, production; manuf’s have longer delivery times and their input prices are at the highest level since Jul/08 (when oil was surging).

Employment continues to lag a tad. Obama’s statist agenda has meant every new employee carries a larger liability than before. This means that employers have either permanently eliminated positions (productivity up) or put off that decision. Still, employment will gather strength in the months ahead as more of Obama’s policy is rejected.

Consumer activity (about 70% of GDP), after blowing off the charts has slowed at tad, Q1. We predicted more, so it would be easy to blame this all on weather. Some is weather but some is a deliberate pause on the part of the consumer. Nothing unhealthy about this. We have seen this pattern the many years we have followed this sector. Sure enough, pause over, we learn today that Feb vehicle sales rose to their highest level in more than 2 years.

If we were considering a longer-term prospective we would be compelled to examine Obama’s budget, which Newsweek’s Evan Thomas (whose past fawning towards Obama was better seen before dinner) described as a “profile in cowardice.”



The UK economy is hitting on 5 of 8; housing prices are better, construction activity has bounced back and manuf has shown a record start to the year. Germany? Germany is vibrant. And the entire Euro zone has seen manuf grow at the fastest pace in 10 years. Only some of the periphery credits are making little to no contribution. The whole 17-member Euro Zone may grow near 1.7% this year, with the likes of German, twice that.

China is braking a tad, still healthy. Japan, in a slumber for a decade, is showing signs of life with better exports and better industrial production.

Everybody is seeing price pressures. But then we knew that, didn’t we?



Eclipsing all of this is renewal in the Middle East. To appreciate this situation is to know that it’s not just about a despot here, a tyrant there. It is about a people who want what we have and have collectively gathered the courage to get there.

This presents a down side risk for the US economy over the intermediate term because of higher crude prices. We put that gain earlier at 30% which means about 120 +/- on WTI.

Hopefully we won’t get there at all but any investor or planner would be plain nuts to listen to authority figures who assure us that what we see is merely a blip.

Robert Craven