Post by brosin on Aug 10, 2010 23:46:37 GMT -5
Caldaro::This market continues to trade between the 1107 and 1136 pivots, as it has since the beginning of the month. After yesterday's rally near uptrend highs it appeared the market was ready to move higher. Overnight selling, however, in most foreign markets set up a gap down opening in the US this morning. Again the SPX dropped to within the range of the OEW 1107 pivot before finding support, and then rallying back near the uptrend highs. It appears the SPX needs to clear the June high at 1131 before the uptrend can resume. The DOW has successfully exceeded its June high already. The two short term counts are now beginning to favor the DOW count.
Bespoke:
-It was close, but the S&P 500 has once again managed to hold its short-term uptrend line. 1,130 is now shaping up to be the line in the sand for the bulls and bears. Without a break above that level in the next day or two, the uptrend will be broken, giving the bears a victory. A break above 1,130, however, will keep the bulls in the drivers seat.
-The Russell 3,000 is up 0.91% year to date, but the average stock in the index is up 7.80%. There are currently 46 names in the index that are up more than 100% year to date, and all of them are listed below. The best performing stock at this point in 2010 is Wabash National (WNC) with a gain of 299.47%. Somaxon Pharma (SOMX) ranks second at 287%, and IDT Corp (IDT) ranks third with a gain of 285%. The average market cap of the 46 companies up more than 100% is $781 million. NetFlix (NFLX) is the biggest company currently in the 100% club with a market cap of just over $6.5 billion. Inhibitex (INHX) is the smallest company on the list at $117 million.
There may not be many recognizable names on the list below, but their recent returns will definitely catch your eye. If you have time, why not look through what each company does to see if anything sparks your interest. You may just find something you like.
Ritholtz
2 pieces (makes up for Cobra taking the afternoon off).
FOMC: QE1.5 Begins
Here is the key portions of the FOMC statement:
“Information received since the Federal Open Market Committee met in June indicates that the pace of recovery in output and employment has slowed in recent months.”
“The pace of economic recovery is likely to be more modest in the near term than had been anticipated.”
“Inflation is likely to be subdued for some time.”
“Exceptionally low levels of the federal funds rate for an extended period.”
“To help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve’s holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities.”1
Note that this is not quite QE2, so lets call it QE 1.5.
Also of interest: Hoenig voted against . . .
CPI, CRB Do Not Disprove Deflation Thesis
I try to find people to read who a) I disagree with 2) respect their methodology. It refines my arguments, and clarifies my thinking.
Doug Kass is one such thinker. So too are Jeff Saut of Raymond James, and Peter Boockvar of Miller Tabak (Peter publishes the very fine Macro Notes blog here on TBP). I am a big fan of both of them, so when Saut quotes Boockvar about the lack of deflation, it forces me to think carefully about my position.
Here’s Jeff channeling Peter:
“With Treasury bond yields at or near historically low levels on one hand but with commodity prices near 8 month highs, and with the personal feeling that outside of a home, a computer and a flat screen tv, the cost of living seems to only go higher on the other hand, here is another perspective on the inflation/deflation debate. Since June 1981 when Volker started to lower interest rates from 20% as high inflation rates started to fall, the absolute level of CPI rose 142% to the high in July ‘08 (90.5 to 217). Deflation is defined as a decrease in the general price level of goods and services but to quantify the current fall in prices, the CPI has fallen just 1% from its all time high.”
The Treasury rates certainly argue against inflation. But let’s look at two other factors, CRB and CPI.
The CRB is a measure of commodities, priced in dollars. Commodities rise in price primarily due to three factors. The classic inflationary reason is an increase in demand. Or, you can have a decrease in supply (or some combination of the two). But in any combination, too many buyers chasing too few goods = inflation.
But there is a third factor, based upon monetary considerations: Any decrease in the value of dollars. In the current circumstances, I believe that is what has driven the price of CRB over the past decade. From 2002 to 2007, the US Dollar fell 41% — and commodity prices soared.
Yes, prices have risen, but its not the surging demand / constricted supply we associate wit the 1970s type inflation. It can be cured by turning off BB’s printing presses.
Hence, the CRB might not be the best evidence of a lack of deflation during a period of slack demand. The cost of commodities priced in hours worked yields a somewhat different conclusion.
~~~
As to the CPI, well, it has built into it an inherent error: Owner’s Equivalency Rent (OER). This understated inflation during period of rising house price — think 2001 -2007. As we noted in this Fed report in 2005, during housing booms:
“Downward pressure on rental prices mainly resulted from an increase in demand for homeownership, which was spurred by historically low mortgage interest rates. As housing starts and home sales surged in the recent recession and recovery, the national rental vacancy rate jumped from 7.8 percent in the fourth quarter of 2000 to 10.2 percent in the fourth quarter of 2003. This effect was compounded by the way owner-occupied housing prices are measured in the CPI. The CPI uses a rental-equivalence approach, measuring the value of the shelter services an owner receives from his or her home. Price movements in owners’ equivalent rent reflect changes in prices of rental units that are comparable in characteristics to owner-occupied homes. Therefore, increased demand for homeownership put downward pressure not only on tenants’ rent but also on owners’ equivalent rent — the largest component in the CPI.”
-How Housing Lowers CPI
During the boom, renters became buyers. In the current environment, you must apply the opposite logic: People are reluctant to purchase a falling asset. Hence, traditional buyers become renters. This drives prices higher, and OER — anywhere from 23% to 30% of CPI — goes higher. This is true even as home prices tumbled in fact, its true because homes pries tumbled. Indeed, falling home prices appear cheap, when measured by Rentals — but that metric fails to consider the causal relationship between the two.
The bottom line to me is that neither the CPI nor the CRB Index gives an accurate read of what is gong on with price increases.
Deflation, not inflation, is present, but apparently not accounted for.
Bespoke:
-It was close, but the S&P 500 has once again managed to hold its short-term uptrend line. 1,130 is now shaping up to be the line in the sand for the bulls and bears. Without a break above that level in the next day or two, the uptrend will be broken, giving the bears a victory. A break above 1,130, however, will keep the bulls in the drivers seat.
-The Russell 3,000 is up 0.91% year to date, but the average stock in the index is up 7.80%. There are currently 46 names in the index that are up more than 100% year to date, and all of them are listed below. The best performing stock at this point in 2010 is Wabash National (WNC) with a gain of 299.47%. Somaxon Pharma (SOMX) ranks second at 287%, and IDT Corp (IDT) ranks third with a gain of 285%. The average market cap of the 46 companies up more than 100% is $781 million. NetFlix (NFLX) is the biggest company currently in the 100% club with a market cap of just over $6.5 billion. Inhibitex (INHX) is the smallest company on the list at $117 million.
There may not be many recognizable names on the list below, but their recent returns will definitely catch your eye. If you have time, why not look through what each company does to see if anything sparks your interest. You may just find something you like.
Ritholtz
2 pieces (makes up for Cobra taking the afternoon off).
FOMC: QE1.5 Begins
Here is the key portions of the FOMC statement:
“Information received since the Federal Open Market Committee met in June indicates that the pace of recovery in output and employment has slowed in recent months.”
“The pace of economic recovery is likely to be more modest in the near term than had been anticipated.”
“Inflation is likely to be subdued for some time.”
“Exceptionally low levels of the federal funds rate for an extended period.”
“To help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve’s holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities.”1
Note that this is not quite QE2, so lets call it QE 1.5.
Also of interest: Hoenig voted against . . .
CPI, CRB Do Not Disprove Deflation Thesis
I try to find people to read who a) I disagree with 2) respect their methodology. It refines my arguments, and clarifies my thinking.
Doug Kass is one such thinker. So too are Jeff Saut of Raymond James, and Peter Boockvar of Miller Tabak (Peter publishes the very fine Macro Notes blog here on TBP). I am a big fan of both of them, so when Saut quotes Boockvar about the lack of deflation, it forces me to think carefully about my position.
Here’s Jeff channeling Peter:
“With Treasury bond yields at or near historically low levels on one hand but with commodity prices near 8 month highs, and with the personal feeling that outside of a home, a computer and a flat screen tv, the cost of living seems to only go higher on the other hand, here is another perspective on the inflation/deflation debate. Since June 1981 when Volker started to lower interest rates from 20% as high inflation rates started to fall, the absolute level of CPI rose 142% to the high in July ‘08 (90.5 to 217). Deflation is defined as a decrease in the general price level of goods and services but to quantify the current fall in prices, the CPI has fallen just 1% from its all time high.”
The Treasury rates certainly argue against inflation. But let’s look at two other factors, CRB and CPI.
The CRB is a measure of commodities, priced in dollars. Commodities rise in price primarily due to three factors. The classic inflationary reason is an increase in demand. Or, you can have a decrease in supply (or some combination of the two). But in any combination, too many buyers chasing too few goods = inflation.
But there is a third factor, based upon monetary considerations: Any decrease in the value of dollars. In the current circumstances, I believe that is what has driven the price of CRB over the past decade. From 2002 to 2007, the US Dollar fell 41% — and commodity prices soared.
Yes, prices have risen, but its not the surging demand / constricted supply we associate wit the 1970s type inflation. It can be cured by turning off BB’s printing presses.
Hence, the CRB might not be the best evidence of a lack of deflation during a period of slack demand. The cost of commodities priced in hours worked yields a somewhat different conclusion.
~~~
As to the CPI, well, it has built into it an inherent error: Owner’s Equivalency Rent (OER). This understated inflation during period of rising house price — think 2001 -2007. As we noted in this Fed report in 2005, during housing booms:
“Downward pressure on rental prices mainly resulted from an increase in demand for homeownership, which was spurred by historically low mortgage interest rates. As housing starts and home sales surged in the recent recession and recovery, the national rental vacancy rate jumped from 7.8 percent in the fourth quarter of 2000 to 10.2 percent in the fourth quarter of 2003. This effect was compounded by the way owner-occupied housing prices are measured in the CPI. The CPI uses a rental-equivalence approach, measuring the value of the shelter services an owner receives from his or her home. Price movements in owners’ equivalent rent reflect changes in prices of rental units that are comparable in characteristics to owner-occupied homes. Therefore, increased demand for homeownership put downward pressure not only on tenants’ rent but also on owners’ equivalent rent — the largest component in the CPI.”
-How Housing Lowers CPI
During the boom, renters became buyers. In the current environment, you must apply the opposite logic: People are reluctant to purchase a falling asset. Hence, traditional buyers become renters. This drives prices higher, and OER — anywhere from 23% to 30% of CPI — goes higher. This is true even as home prices tumbled in fact, its true because homes pries tumbled. Indeed, falling home prices appear cheap, when measured by Rentals — but that metric fails to consider the causal relationship between the two.
The bottom line to me is that neither the CPI nor the CRB Index gives an accurate read of what is gong on with price increases.
Deflation, not inflation, is present, but apparently not accounted for.