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Economy and Markets: Improving, Declining, or Adapting?

Posted by Larry Doyle on July 29, 2009 3:35 PM |

While the dark economic storm clouds of 2008 may have passed, the economic outlook and landscape remain decidedly mixed as evidenced by the recently released Federal Reserve Beige Book. The key takeaways in this report include:

>> slower pace of overall economic decline

>> expectations of a moderate recovery in manufacturing in 6-12 months

>> extended soft labor market

>> sluggish retail sales

>> commercial real estate weakened in most regions

>> some pockets of strength in technology and health care

>> credit conditions remained extremely tight. Loan demand experienced a downturn, particularly from the household sector. Credit standards continue to tighten as delinquency rates are steady to higher.

>> a pickup in used car sales (don’t think this is a positive)

Bloomberg reports Fed Says Most Districts Report Slower Pace Decline:

The Beige Book provided few signs of outright growth. Retail demand was “sluggish” in most areas, with “mixed” auto sales. Non-financial services were “largely negative” with “a few bright spots,” and manufacturing was “subdued” yet “slightly more positive” than in the previous report, the Fed said.

Lending in most regions “was stable or weakened further” in most loan categories, and banks tightened credit standards in seven districts, the report said.

While most economists and market analysts are looking at statistics and data to determine whether the economy and consumers are improving or rolling over, my take is different. I view the economy and consumers as adapting to the new dynamic at work in our country. The color about consumers purchasing more used vehicles is a perfect case in point.

Automotive companies aren’t going to prosper with consumers purchasing more used vehicles, but consumers will continually look for means to save money and keep expenses down.

In regard to market news, this morning I addressed concerns in a post,  “What is China Saying? Sustainability and Indirect Bidding,” regarding the level of indirect bidders in our Treasury auctions. I wrote of yesterday’s 2 yr note:

While Chinese officials made these strong statements regarding our deficit, the U.S. Treasury auctioned $42 billion in 2 yr notes. How were these notes received? Not very well. In fact, the indirect bidders only purchased 33% versus close to 69% a month ago.

Today’s $39 billion 5 yr note was not well received, either. Indirect bidders purchased 37% versus 63% a month ago.

As we continue to navigate our economic landscape, I remain convinced that those who are able to most effectively adapt to the dynamic changes will be in the best position to thrive as we move forward.

What do I mean by adapting? Continue to work to keep expenses down, be judicious and disciplined in your investments, and be voracious in terms of absorbing data on the economy, markets, and companies.

It goes without saying a healthy dose of Sense on Cents as part of your daily diet is also strongly recommended!!


  • kbdabear

    >> slower pace of overall economic decline

    Well, the Titanic eventually stopped sinking too.

  • kbdabear

    Treasurys got some support Wednesday from more purchases by the Federal Reserve, which bought up $3 billion of long-term Treasury debt. The Fed has been buying large amounts of Treasurys this year in an effort to offset the influx of supply.

    Larry, the Fed looks to be the biggest buyer of T-Bills and the lender of first resort for the stock market. Big Ben says don’t worry about inflation though, because he has a plan.

    Printing money to prop up our own stock market AND buy our own debt? Just my amateur hunch, but this can’t end well.

  • Larry Doyle

    kbdabear….I would make two comments. It does strike me that the Fed is playing the role of dealer in a massive shell game.

    However, one of the prominnet rules of trading on Wall street is ‘Don’t Fight the Fed’. That rule has always been utilized when the fed is in an easing or tightening mode. As hard as it may be for market participants, myself included, the rule now must be adapted to having the Fed as a market participant not strictly a market regulator.

    Brave New World!! You constantly inspire me. Thanks.

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