It is important to distinguish the ‘back end’ from the ‘front end’ of the economy or else all you end up with hype emanating from the financial sphere every time an economic data release comes out. For example, I was critical of Martin Armstrong’s post, Is the recession Starting? in a rebuttal post, Armstrong 3+ Decades Late on Manufacturing because Marty’s post not only brought back some jaw droppingly old fashioned concepts about US manufacturing (JiT and automation replacing labor) but it focused only on the ‘front end’ of the economy, affirming the “ECM” in a short info-blurb.
While we caught the downturn in manufacturing ahead of time (July) and also have been on the sharp deceleration in Semiconductor bookings and billings (a two month trend now), these Canaries in the Economic Coal Mine are just front end clues. Meanwhile, as we have been noting for months in NFTRH, the back end, with a strong US dollar at its back, has been doing just fine.
As you may know, certain things get stuck in my craw from time to time because I came from industry, not from the abstract world of stock markets, finance and Keynesian economics. In short, I made stuff and sold stuff. The pressure was always there to get better, more efficient, more employee friendly, more modern. We did well in those regards, starting in the early 80’s.
Along comes a post by Martin Armstrong, the detailed merits of whom I will not debate because I don’t study him closely enough. Suffice it to say that I do not care for the cult-like following that seems to hold he and his computer, Socrates aloft in much the same way I did not care for the cult-like following (of “Comrades in Golden Arms”) that held aloft James Sinclair, by way of whom many people came to know Mr. Armstrong.
Indeed, too many smart people seem to put great weight on Martin Armstrong for the non-guru likes of me to criticize him in general. But I will go by what I read when the material is on a subject that I know about. US Manufacturing is a subject that I know about intimately; politics and associated biases are not. Yesterday, from Armstrong in response to another poor ISM release…
I see analysis out there discussing the Semiconductor sector as a whole as being under valued relative to other stock market sectors. This seems to be based on the fact that the SOX chart has not made nearly the catch up move that for example, the NDX has in its post 2000 recovery.
While charts can provide many helpful views to probabilities, they cannot get inside an industry and divine the importance of a sub-sector (Semi Equipment; AMAT, LRCX, etc.) within a sector as a whole. The equipment companies (which I am short) are the Canary’s Canary, with the Semi sector in general being an economic Canary in a Coal Mine.
When Nixon took us off the gold standard, it represented the high water mark for the Middle Class. Basically this is when the government and the banks lost all restrictions on money creation. Well we see the results. Deflation is good for the people, inflation for TPTB. Now you know why we have 2% inflation targets.
It is no secret that US credit markets have been increasingly stressed lately. Junk bonds are tanking and junk’s ratios to the relative quality of Investment Grade and Treasury have as well.
Contributed by Stephan Davied
The world seems to be in the throngs of something very strange. Are we in a recession or are we in a depression or are we in a 10 year period of just super low growth? The world has never coined a term to describe years and years of low growth, probably because it does not happen much.
Generally countries, businesses, schools and even humans go through cycles. The human normally sleeps at night and is awake during the day. This cycle is critical to our survival as we need the proper amount of down time to support our up time. Businesses go through cycles. Retailers are super busy during the holiday season and other times they are less busy. This is a retailers yearly cycle. Bigger than that are economic cycles. During times of robust business activity business struggle to keep up with demand so in turn they invest For example in times of robust growth a concrete company who can’t meet the demand of its customers might build another concrete plant.
I can already tell NFTRH 368 is going to be a flowing thing because there is a lot of on-point material to talk about. So the usual standard charts will be minimized in favor of trying to get a good read on what is in process in the markets, in policy and in the economy.
Specifically, given the October Payrolls data, its effect on interest rates and the US dollar we seem to be back to a point similar to where we were 1 year ago when we used a strong USD (and corresponding weak Yen and Euro) to plot bullish trade possibilities in Japan and Europe, and a bearish environment for US exporters.
But first, with the help of the highly recommended Floatingpath.com let’s continue to break down the particulars of the Payrolls report (we reviewed monthly ‘jobs’ growth by industry in a post at nftrh.com): Inside Jobs.