Today's Market Observation  08.20.2009  Mon  Tue  Wed  Thu  Fri  Panzner Archive

Gotta Wonder

BY MICHAEL PANZNER | august 20, 2009

This morning, the Conference Board reported that its index of U.S. leading indicators rose in July for a fourth straight month. Although the measure came in slightly short of estimates, optimists were quick to hail the recent trend as proof that “government efforts to stem the financial crisis and revive the economy are paying off,” according to Bloomberg. Being the cynic that I am, the first question that popped into my mind is which “government efforts” are they referring to? Do they mean the trillions in taxpayer funds being spent to bail out their friends on Wall Street (and elsewhere)? Or are they talking about the spinning and propagandizing that has been going on since the crisis began? Then again, maybe they are referring to something else -- like playing games with the numbers and the markets? How else, for instance, can one explain the mind-boggling divergence between current conditions and the outlook for the months ahead highlighted in the following graph?

Of course, some data points seem far less suspect than others. It should come as no surprise that the latest quarterly National Delinquency Survey from the Mortgage Bankers Association contains grim news on the state of the mortgage market. According to the MBA, “the percentages of loans 90 days or more past due and loans in foreclosure both set new record highs, breaking records set last quarter.” The trade group added that the “combined percentage of loans in foreclosure and at least one payment past due was 13.16% on a non-seasonally adjusted basis, the highest ever recorded” -- and more than twice as high as the long-term median. So much for signs of life in the housing market.

Speaking of dubious recoveries, while stocks managed to repeat the trick of the past few months of rallying on unsupportive news, other aspects of this curious rebound have also remained somewhat consistent, including the ongoing divergence between price and turnover. If you look at what has been happening to average daily volumes for the most active ETFs, including everybody’s new favorite friend, the financials, the most consistent feature seems to be a growing lack of interest as prices work their way higher. While this doesn’t necessarily mean that the rally must end soon, history suggests that when the end finally arrives, it could be swift and violent.

For those with an even more skeptical bend, the U.S. equity market’s intraday trading pattern since this last leg up began in July also seems rather interesting. To be sure, it is not unusual to see activity at the beginning and end of a trading session outpace that which occurs in the middle. However, I wonder if the same thing applies when it comes to a tendency for prices to move higher? Admittedly, it’s hard to draw any definitive conclusions from the data I’ve summarized below -- among other things, I haven’t gone very far and this sort of thing may be typical during bull runs. That said, it’s hard not to wonder whether those who might like to see the market send a message that all is well are concentrating their efforts during the times of the day when it might matter most.

And finally, for those who would like a blow-by-blow description of what happens when a government decides to print a lot more currency than anybody needs or wants, I present the following (scary) table from a recent report by Steve H. Hanke and Alex K. F. Kwok, entitled “On the Measurement of Zimbabwe’s Inflation”:

(Source: “On the Measurement of Zimbabwe’s Inflation,” http://www.cato.org/pubs/journal/cj29n2/cj29n2-8.pdf)

Stocks ended higher, aided by a rally in financials after American International Group said it expects to repay the government (?!), as well as strength in technology, industrial, and housing-related stocks.

At the close, the Dow Jones Industrial Average was up 70.89, or 0.8%, to 9,350.05. The S&P 500 Index gained 10.91, or 1.1%, to 1007.37. The Nasdaq Composite Index added 19.98, or 1.0%, to 1,989.22.

December gold futures slipped 3.10 to $941.70/oz., while the U.S. Dollar index ended mixed Ten-year Treasury yields eased 2 basis points to 3.43% and August WTI crude oil futures finished more-or-less unchanged at $72.54/bbl.

Michael Panzner
Author, When Giants Fall and Financial Armageddon

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