The US Consumer, The Analyst and The Cliff

In today’s Q1 GDP revision, consumer activity was revised lower. We all now know that consumer activity was hit by higher food costs, but especially by higher gasoline prices.

Early Q4 the Street/financial media had the consumer going nowhere. We advised instead (a crowd of one) that the consumer would come alive into 2011. Sure enough. Thus by mid Q1, the Street/ financial media had the consumer at full stream ahead. We advised instead (a crowd of one) that consumer activity would be slowed substantially by higher gasoline prices. We predicted then that most economists would eventually catch on. They did. In a few weeks they cut their GDP estimates by an average of about 1 ½%, having been twice snakebit in five month's time.

Herein lies a lesson in observation. It is this: Market observers, almost without fail, overreact, tearing off in one direction, willfully blind until they go off the cliff. Scratching their way back up, off they go in the other direction, to soon again be converted to crow bait.

And so it was with analysts and the consumer. Missing the turn just ahead in early Q4 and not wanting to be burned again, economists wholly embraced the consumer, jettisoning all caution at the same time. Heedless of the osprey overhead, like trout, they keyed in, failing to account for gasoline just as the frenzied trout fails to account for the osprey. Again analysts were flattened.

This cycle will repeat, always. To understand this dynamic is to be well armed.


Robert Craven

Releases Tomorrow

We’ll have the second estimate for Q1 GDP. Though this is history, such revisions can deliver market impact. Don’t look for much this time.

Jobless Claims however packs a potential punch. Market view is now for a slowing in the one-time paladin of recovery - manufacturing. This leaves employment. The entire free world’s taken its fingernails down to the quick monitoring the US labor market. Recall that last week’s Claims release was very encouraging - claimants far below expectations. The same can be said for April Payroll (May/6) - encouraging. Thus, if tomorrow’s release is below expectations, it will be taken as a confirmation. There will be a modest market reaction. If the release if far through expectations - more claimants - it will be seen as a turning point, and greatly worry equities, sparking bonds (lower yields). These are the dynamics as we approach this event.


Robert Craven

The Week in Review

Key releases this week were on net, a disappointment, one reason the 10 yr Treasury yield fell from a 3.37% Monday to a 3.30%, Friday.

Of course there are always many factors impacting Treasury prices, including both fiscal and Fed policy, and the occasional flight to quality from folks panicked about one event or another. But the major influence, ongoing, is just plain old real sector developments. Nothing fancy here whatsoever.

For example, Oct/7/2010 the 10 yr was at 2.40%. Nearly everyone looked for dismal economic performance ahead - lousy key releases that is. End of October we advised our clients to look for just the opposite. Sure enough, Dec/8 the10yr printed 3.33%, being a witness to "surprising" vigor. Then the market crowd really got behind the growth mantra, the 10 yr printing 3.53%, Mar/7. About this time we reversed course, warning our clients that there was a piano directly overhead. Yet exuberance continued into early April, the 10 yr printing 3.60% on Apr/8. The trout were still keyed in to the fly long departed. But finally, folks began to catch on. Last print - 3.30%. A interesting little journey.



The equity market went the other way this week, celebrating, but then it’s had a life of its own for some time now.

Key economic data presented nothing to cheer about. Q1 GDP came in under expectations, and key - as we had predicted they would be, those expectations had been shaved substantially from a month earlier. Next, Jobless Claims were up 25M vs market expectations for a decline. Nothing to cheer about there. Both Personal and Disposable Income grew moderately in March. OK, not bad. But Real Consumer Spending was up only 0.2%, not a stick in the eye maybe, but no spark either, suggesting that spending slowed at the end of Q1.

If there’s one primary player which has thrown the ‘ol engine a curve ball, it is oil. We got downright personal with folks several weeks ago and stated that it’s foolish to be constructive (lower prices) on crude. If you are, don’t let your friends know it. Why commit social suicide?


Robert Craven

Q1 GDP - Lesson Provided - An Alert

Today’s US Q1 GDP release, +1.8%, completes a recent exercise for our clients, and, provides a lesson in market observation.

We predicted Mar/23 that forecasters would cut their estimates for GDP substantially. After a few weeks, all had done so. Today’s result was even below that new consensus.

We’re not seers, no brighter than the next guy. Key is that, as trout are slow to recognize, then slow to give up on a certain insect (see our Apr/3 post - Observations at Stream Side) so the market crowd are always 1) slow to adopt a new reality and 2) slow to let it go, willfully blind to what a few independent observers can easily understand to be reality.

This is a great little guide in one’s voyage through the market maze, and it’s every bit about crowd behavior.

Finally, to today’s discouraging Jobless Claims release (429 vs 390, consensus). We predicted Apr/25 in Potential For Worry, the Week Ahead that both today’s GDP and Jobless Claims releases carried more potential to worry the market than to cheer it. That was the result.

Robert Craven

Potential For Worry - The Week Ahead

We’ve got a full week of economic indicators and the first ever post-meeting press conference given by a Fed president.

Indicators are important if they carry market-moving muscle. We’d rather our clients be armed up front, than not.

We have several housing related numbers this week (beginning with today’s March New Home Sales) but none of these carry much muscle.

March Durable Orders (new orders for hard goods) on Wednesday however carries plenty of muscle, and the greater potential to worry the market than to cheer it. This key number was off 0.9% in February when it was expected to be up 1.2%. A component of this release is so-called Non-Defense Capital Goods Shipments, something which is really a proxy for capital spending so it’s important. That February component was better by 1.1%. Thus, the February release was mixed but another decline in the headline number for March combined with a decline in the Shipments component will greatly worry the markets, indicating a stall.

Thursday’s Q1 GDP advance report is also key. Q4 was up 3.1%. Estimates for Q1 have been significantly reduced due to higher energy prices. Consensus is now + 2%. But even a number through expectations won’t cheer much because the market crowd is becoming a believer in our piano just overhead. Also key on Thursday is the Jobless Claims report. Recall that this number disappointed last week (higher than expected). An improvement is expected (390 vs 403). Both of these releases then carry more muscle to worry the market than to cheer it.

Wednesday we will have Bernanke’s testimony. The FOMC meets for two days this week (Tues, Wed). The policy statement will be released early (12:30 pm ET) then Bernanke’s press conference at 2:15. World markets will hang on every word. We’ll have a special issue prepping our clients for this event.


Robert Craven

Oil Revisited or Why You’re Not Traveling This Easter

We predicted earlier that higher crude would cause forecasters to shave US GDP estimates. They have done so.

From late February we’ve had WTI (near contract then 99) at 120 but that was/is the first stop tied to Middle Eastern conflict, particularly the threat of, or an actual Iranian / Saudi shootout.

This is the reason we cautioned clients late February that it was simply foolish to be constructive (lower prices) on oil and to most certainly treat any price drop as a correction, not trend. We didn’t foresee a trashed dollar, nor change in demand, nor slim inventories.

Today analysts who apparently know a whole lot more about oil than we do, tag this strength to, sure enough, 1) a trashed dollar, 2) more demand and 3) slim inventories.

I don’t know, I guess the younger guys have passed us by. They’ve got all kinds of models showing this and that. And then one bullish analyst said today that if we get a couple of hurricanes, crude is going to the moon. Well sure, acts of God come in handy when you’re on record. But further Middle Eastern conflict and threat of blockage or interruption is not an act of the God we know; it’s instead a near certainty.

Let the dollar strengthen, let inventories bloat, let June WTI trade at 108 tomorrow (last, 112). Nothing has changed.

It remains foolish to be constructive on crude.


Robert Craven

US Economy Ahead

We will conclude our last exercise. Clients were alerted up front that forecasters (who were all looking in the other direction) would in fact trim their US GDP estimates, tagged to oil. That has occurred. Thank you very much.

Better not to linger, but get on to the next.

The next exercise is to again isolate any major flaw in consensus regarding the US economy ahead. When we can do that our clients have a leg up as to market change over the near to intermediate term. We don’t provide the Holy Grail, but with a sense of the landscape ahead, our clients are better prepared than most. It’s then up to them.


Robert Craven

Better to Anticipate Than Be Bush Wacked

Earlier today we reviewed our method. In this piece, we highlight a very satisfactory result.

Late February we predicted that the risk was for at least a 1 ½% cut in US GDP tagged to oil; mid March we predicted that forecasters would catch on and would lower their US GDP forecasts in the near term.

Forecasters have cooperated very nicely. From today’s Reuters “At the start of 2011, growth looked solid. The U.S. unemployment rate was finally dropping, consumers were in a spending mood, and economists were busily upgrading first-quarter growth projections to the range of 4 percent.

Those forecasts are falling fast. Many economists now think the U.S. economy grew at a sluggish 1.5 percent to 2 percent pace over the first three months of the year, and one forecaster even raised the possibility of a negative reading.”

The lesson here folks is a simple one: It is far better to anticipate major economic news events, than it is to react, far better to understand economic reality, price change ahead than be bush wacked.


Robert Craven.

Retail Sales! Inflation! Oil! And Crowd Behavior At Its Best - The Week in Review

Witness two news headers, Friday pm: Reuters, referring to headline CPI - “US Inflation Contained.” Five minutes earlier, the AP, referring to the real world - “Consumers feel the pinch of pricier gas and food.”

The Fed can call the tail a leg all it wants. Some of us know it’s still a tail.

So instead of 35 pages of graphs and prose, let’s see if we can distill things a bit, capturing the recent journey.


First, very early Q4, forecasters had the US economy for H1 going nowhere. We felt otherwise. Forecasters later came to agree. By mid-Q1 they were, at first reluctantly, and then in a burst, flying in a new direction (crowd behavior at its best).

Next, mid-Q1 the same crowd, willfully blind as always (crowd behavior at its best) missed the next turn, not acknowledging 1) that Middle East unrest was not a blip but a revolution and 2) that higher crude prices would prove corrosive to growth. Why? For the single reason that an authority figure (always demanded by a crowd), in this case Bernanke, told them to relax.

Now, once again the same crowd of forecasters are slow to let go (crowd behavior at it best) but, like our trout about to “key in,” are beginning to embrace a new theory - that gasoline prices just might prove corrosive. Thus, they will continue to shave their US GDP estimates, something we predicted earlier that they would do.



So today we have countervailing forces. The US engine wants to burn on 7 of 8 and would, but for the impact of higher oil.

We intend to understand the outcome of this contest early on, to continue to spotlight economic reality for our clients before it becomes news.


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

Time To Sober Up - The Week In Review

The Street have come to understand that the US economy is at escape speed, all now looking in that direction. Sure enough, events this week illustrated that unemployment is still improving (Claims), that consumers are visiting department stores like crazy.

Mark Twain reminded us, “Whatever new thing a consensus coppers (colloquial for ‘bets against’) bet your money on that very card and do not be afraid.” Well, it’s not quite that easy, but you get the idea.

We were cheerleaders for the US economy when there was no one else in the stadium. Now the stadium is near capacity.

But those fans have yet to appreciate the impact of a new game rule - Mid Eastern tension and impact on US GDP by the way of crude prices.

Consider this week’s so-called Chain Store Sales result (which represent perhaps 10% of all retail sales but provides a pretty good litmus test). Results are reported Yr to Yr. Yesterday’s numbers seemed encouraging, folks buying like crazy. Now can any reasonable observer believe that results like these will continue with $5 gasoline? No.

The situation in the mid east will prove to be corrosive. This should not be a surprise. The surprise will be the extent of damage. Gas prices are heading higher than most even now appreciate.

Federal Reserve officials warn us that higher oil will not spark inflation. Thank you very much. That was never the real risk.

We have the worst, top-side impact of higher energy at 1% of GDP.


Robert Craven

The Governor

No, not Moon Beam.

Instead, remember those old steam engines, lawn mowers and tractors? They had a “governor." If the engine spun too fast, little gizmos were thrown out, a trigger activated, and the engine prevented from further gain. Webster: “An attachment to a machine designed to afford automatic ...limitation of speed or power...such an attachment activated by the centrifugal force of whirling weights opposed by gravity or by springs.”


Well folks, we’ve got our very own governor in the form of Iranian / Saudi tension.

It’s not news any longer that the US economy is at escape speed. Our clients were aware before most others.

Now the market crowd are all believers. Encouraged by forecasters and by evidence, the market crowd, after a 180, are rushing past even us, charging to the surface, ignoring the osprey’s shadow.

This bunch dismissed turmoil in the Mid East as a blip, encouraged to do so by authority figures (which a crowd can never do without). One of these was Bernanke.


Background: The market consensus is set by a few dozen major US firms. Investors and traders don’t make it up - it’s fed to them. And it is this consensus of future economic reality which is priced in at any given moment (equity, fixed income). All we have to do is to identify the flaw, if any to this consensus, and we become the owners of the knowledge of future price change. Simple and effective.


Forecasters went to 3% for US GDP and were about to go to 3.50% or higher. This is what they were thinking in February and most of March. And all of this bunch had dismissed crude as a retardant because their formulas and idols told them to do so.

Their formulas did not account for the Middle Eastern quest for human dignity.

Now, forecasters are beginning to worry. They saw yesterday what an all time high for Brent (in Sterling terms) did to UK consumer psychology. As Grandma Craven used to say, “It knocked it a winding.”

On Mar/23 we predicted that forecasters will begin to reduce their estimates for 2011 GDP in the near term, preparing our clients for this reality up front. Look for headlines to support this anchor in the days ahead.

Robert Craven

Balancing Act

We’ve got the equivalent of an economic ledger, the debits and credits, and everybody wanting to own the identity of the bottom line before the next guy.

Our purpose is to discard the overflow of information, distill what is pertinent and present that to the client. We don’t offer graphs, charts or long-winded explanations, leaving these adornments to others.

The US economy is stronger than most expected it to be a few months ago. Clients were prepared for that fact, having the understanding of reality ahead of the market crowd. Then as recently as mid-Mar we predicted employment results which would again exceed estimates. That has been the result.

Now the crowd has accepted our premise. Once they do that they are slow to let go. While they were adjusting, we identified a threat or potential debit, something corrosive to our own view for vigor - that would be crude as tied to the Mid Easter revolution. That will detract from US GDP.

So we have this situation: We have more vigor than others expected and we have a potential threat that even now most have yet to acknowledge. That’s our ledger.

The average estimate for 2011 US GDP is now 3% and was set to go to maybe 3.75% by mid Q2 (although forecasters didn’t know that). IF that is, all is equal. All is not equal. Crude prices are to erase perhaps 1% from GDP, our worst case. That’s our balancing act.


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

Today's key releases, a mixed bag - An Alert

Today’s Feb Durables number came in less than expected, -0.9% vs + 1.2%, consensus. We noted (incorrectly) in the Week Ahead that the risk was for the release to exceed expectations.  However, it is known that this number can be volatile, so we suspect this result will be ignored.

Note as we are on the subject that there is a component of this release called Non-Defense Capital Goods Shipments, a good proxy for capital spending. This measure is just a bit above its Q4 level, suggesting capital spending rose only modestly in Q1.

Today’s key Claims number was a tad stronger than expected (fewer claimants); this as predicted. Over the near term the number of claimants will head even lower, our view.

We know the economy is hitting on 6 of 8, and heading, or was heading to 7. We know that two key areas felt to be destined for the dumpster a few months ago - jobs and spending - were gaining momentum.

A new element was inserted into the equation in Feb - our friends in the Mid East. This is why we warned clients yesterday to look for forecasters to shave their forecasts for 2011 GDP.

It wasn’t fun to write those lines; hopefully we are wrong, but this is the risk.

Robert Craven

Estimates for 2011 GDP to head lower, near term.

Forecasters will begin to reduce their estimates for 2011 GDP in the near term, eventually by perhaps 1%. Clients to prepare for this reality up front.

Background: Mid Q4 we predicted that the economy would perform far in excess of estimates, and the reasons why. We predicted that forecasters would revise their estimates for 2011 GDP much higher. That was the result. Mid December, PIMCO, Goldman and others revised their forecast from 2%, to 3 or 3.5%. Key - since consensus drives price change, clients were provided with a leg up in making their planning or investment decisions.

That bring us to Q1 and eruption in the Mid East. Few observers have yet to appreciate the implications of this event. The very real risk is for much higher crude into Q3, perhaps beyond. Even today’s 105 print (May contract, WTI) is corrosive if maintained for any time. That’s the best case.


We understand from Gordon Wood in Revolutionary Characters that the founders Jefferson, Madison and Paine envisioned, “A world held together by the natural interests of commerce.” They understood that, “In both the national and international spheres monarchy (or despots) and their intrusive institutions were what prevented a...harmonious flow of people’s feelings and interests.” That is - democracies get along.

This is the eventual destination, Mid East. It’ll just be a heck of a ride getting there.

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

Data Week in Review

The beginning of each week we review that week’s scheduled eco data releases, highlighting those with mkt-moving hrsp, then predicting result vs consensus. Sometimes there are other influences which may interfere, the mkt crowd otherwise occupied (a temporary state of mind). Nevertheless, ongoing, this exercise is key to value provided by this service.

Mon (Mar/14) we predicted that releases this week would indicate more vigor ahead and building price pressures. This fits our long-held view that forecasters have yet to catch up.

Headline Feb PPI on Wed rose by double the consensus, the headline at consensus. The headline and core Feb CPI results today were both slightly higher than expected. Also today Claims for unemployment benefits confirmed the improving trend in the labor mkts, falling 16M to 385M. So far, so good.

Feb Ind Production today did not cooperate, printing -0.1% when +0.5% was expected. What happened? Manuf which makes up 75% of the total and was up nicely but utility activity tanked. It’s a mystery to us. It’s also a blip. Expect stronger readings ahead.

Finally, the key Philly Fed business outlook survey has been, over the many years we have monitored it, a reliable lead for US manuf sector trends. The Mar read today blew through expectations, making crow bait of St forecasts. The read also indicated that price pressures - “prices paid” - are rising rapidly. This of course cooperates very nicely with client anchors set earlier.


Robert Craven