CPI & the Soft Landing
Jim Cramer states:
"The consumer price index comes in just right for a soft landing. Now where are all of those hard-landing folks who kept weighing in -- and on us? Where are the fearmongers today? Or do they only come out when we get a "bad" number that agrees with their thesis?" -Good CPI Dashes Hopes of Fearmongers
I don't think of myself as a fearmonger, but rather as a realist and anti-cheerleader. But since Jim threw down the gauntlet, let's address some recent data points:
• Core CPI was actually +0.2423%; (Rounding brings it down to +0.2%). That's 2.9% annualized;
• Industrial production, capacity utilization, utilities generation, and manufacturing output -- were all lower;
• July's Headline Retail Sales, originally reported as +1.4%
, was revised down to +0.2%; Various subsectors were revised down. Ex-Autos were originally 1.0%, revised down 40% to 0.6. Just about everything but Groceries and clothing had significant, downward revisions. Groceries was revised up in July, and then again in August. A friend asks: "Do you think we are eating more or paying more?"• August Retail Sales -- widely touted as surpringly strong -- were nothing of the sort. The Census Department includes unit sales of used cars, boats, RVs, parts, etc. We already Daimler's warning, and we saw the sales data from everyone else. That pretty much leaves used cars as your source of gains;
• In the past 16 Federal Reserve tightening cycles, there has been one true soft landing in 1994. I continue to look at that not as impossible, but as a low probability event;
My largest present concern is Oil and other commodity prices. Its no coincidence that gas, oil, gold, aluminum and copper all have dropped at the same time. I read that as signs of a global slowing in demand.
By the way, this is consistent with what I have previously discussed about Nasdaq and Oil doubling in response to low rates and global expansion. I detailed much of this yesterday in Inconsistent on Oil: heads we win, tails you lose . . .
Friday, September 15, 2006 | 10:31 AM | Permalink
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hello from germany,
i´m happy that you put things in the right perspektive.
i feel way too often that the whole markets are reacting just to the propaganda that wall street is presenting them.
i have to admit that they do a very good job in masking the facts.
here is something more on the "rotten core"
http://immobilienblasen.blogspot.com/2006/09/rotten-core-rate-inflation.html
http://immobilienblasen.blogspot.com/
Posted by: jmf | Sep 15, 2006 10:50:49 AM
Apparently the people moving the markets don't agree with you. At present, the DOW is heading toward all time highs. In the meantime, I'm sitting in an online bank account while waiting for the sky to fall. Keep waiting for DOW 6800. Looks like the S&P and the NAZ will get there before the DOW does. So the DOW has 3 more months to lose almost half it's value. Can't see it anymore.
~~~
BR Steve,
If you can't see it, then you should get long.
Posted by: steve | Sep 15, 2006 10:54:29 AM
Here here for that dose of reality, Barry. Thanks.
Cramer is usually a good indicator for sentiment since he reaches both extremes. His "kick my ass, shorts" comment pretty much shows how late we are in the rally and how much the market has priced in.
But the reality also is that we are in buy-the-market-its-a-goldilocks-economy mode.
We just need a little more soft landing chatter and hearing a few more new market high target price points, and then the sentiment will be all stoked to mark the top of this range.
We are close if not already there. Heck, I'm starting to want to buy crude futures now that everyone things it is down for good.
Posted by: Michael C. | Sep 15, 2006 10:56:07 AM
With all the tail chasing happening on the run up, I just hope that the same does not occur on the way down...if so current bottom estimates may be a little optimistic.
Posted by: KP | Sep 15, 2006 11:03:51 AM
I am sure many of you follow John Mauldin. He posted a very interesting "Outside the Box" letter a few days ago highlighting a speech by Dallas Fed President, Richard Fisher, regarding their way of measuring inflation. Here is the link to the letter.
http://us.f315.mail.yahoo.com/ym/ShowLetter?MsgId=7610_6310464_4115
_1414_12560_0_47016_29667_2295788763&Idx=19&YY=8948&y5beta=
yes&y5beta=yes&inc=100&order=down&sort=date&pos=0&view=a&head=b&box=Inbox
Enjoy.
Posted by: Chris | Sep 15, 2006 11:06:47 AM
No disrespect meant from my earlier post. I just think that sometimes you might feel like maybe your forecast won't pan out as much as you thought. Nobody is right all the time. Just waiting to see if you will ever change your mind. I guess it's just sour grapes on my part for missing most of the lastest rally. I'm too close to retirement to take too many chances so I guess I was too safe with my assets. I will still read your website and Real Money columns nonetheless. Thanks.
Posted by: steve | Sep 15, 2006 11:08:26 AM
For the first 8 months of this year, the CPI is running 3.935% higher than the first 8 months of 2005.
Through July it was 3.875% higher than the comparable period in 2005.
As far as the headline CPI is concerned, inflation continues accelerating and the CPI is on track to come in at a 3.9% increase year-over-year unless it decreases rapidly in the last third of the year.
Consumer Price Index
2004 - 3.3%
2005 - 3.4%
2006 - 3.9% (estimate)
Data Sources:
ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt
http://www.bls.gov/news.release/cpi.nr0.htm
Posted by: Craig H | Sep 15, 2006 11:13:03 AM
BR: Whoa Nellie! This post is in baaad need of a follow up. Answer his question! Who has been the most prolific fearmonger? Where is he now?
Easiest way I can think of to answer that question is to check out Cramer's own words during the better part of the summer right up until verrrry recently! It'll only take about 30 seconds because there is so much material to choose from.
Witness:
Today:
"Where are the fearmongers today? Or do they only come out when we get a "bad" number that agrees with their thesis?"
Monday:
(via his video commentary) "let things come in, wait until we get oversold, then pick among the rubble.... to buy right here I think is a mistake."
Go back further and he was flat out saying sell into the summer rally, buy defensive names, oil's not done, etc., etc.
Posted by: financialrx | Sep 15, 2006 11:13:41 AM
Lets see Ford is cutting many jobs, Daimler Chrysler says things are bad, the homebuilders say its a disaster and things are getting worst. Commodities retreat for apparently no given reason and that is a reason to take up the retailers....must mean everything is perfect and companies are about to report blow out numbers.
Has anyone looked at the VIX index..... COMPLACENCY. This is rather pathetic to think that people believe that things are so good that the market should be at its highs,or maybe its the hedgies instead deciding that since they ran over each other in the spring....its time to take the market up on good or bad news no matter what. Fundamentals don't matter in this market.... which is probably why foreign investors have run for the hills.....
Posted by: Andrew.w | Sep 15, 2006 11:13:48 AM
"DOW has 3 more months to lose almost half it's value"
Steve, it's been done before. Look for it in November when October's inflation numbers are reported along with the even softer economic figures, and the auto & housing slowdown are more realized.
Posted by: Josh | Sep 15, 2006 11:15:58 AM
I understand all the contrarian arguments and the unliklihood of a soft landing based on statistics, but it's awfully sad to miss this rally sitting in cash.
What happened to "don't fight the tape/trend" rule? Is this trend telling us something? Is the volume today an indication of a high volume rally that BR has discussed?
~~~
BR: Who said anything about missing it? The Trader call on June 13 and August 9th was to buy em. The investor call in September was to raise cash and tighten stops, but not to short yet.
You cannot expect to top tick the markets . . .
Posted by: grodge | Sep 15, 2006 11:21:06 AM
Doesn't seem like a huge rally to me. S&P 500 is up what, 5-6% for the year? Riskless money markets have yielded about 4-5%. So it's not like the people with large positions in cash have missed out so far.
Posted by: Royce | Sep 15, 2006 11:37:04 AM
I think the re is a confusion that "hard landing" with have an iflation rate of 0.3 or even 0.4 per month.
No, hard landing is when inflation is "-0.3%" or even "-0.4%".
What I see at the horizon is a dramatic decline of prices and wages, i.e. deflation.
Real estate will fall 4-5% every year. Plumbers and construction workers will compete for your business and drop rates. The proportion of used cars will increase, thus driving car prices down. And so one.
Posted by: bob | Sep 15, 2006 11:41:59 AM
>>>What happened to "don't fight the tape/trend" rule? Is this trend telling us something? Is the volume today an indication of a high volume rally that BR has discussed?<<<
A look at the charts SPX, NDX, RUT basically shows that the market is back to where it was 4 months ago. There has been no "trend" unless you are talking about a short period of 2 weeks. Most people probably just got whipped around good and shaken at the tops and bottoms in the last 4 months.
As far as volume. I would say it has been light lately. More importantly, when you compare - down volume has been much greater than up volume.
This week has a lot to do with options expiration. It skewed price and volume. If this is true, we should see on Mon & Tues the market give up a good portion of its "artificial" gains from options exp.
Posted by: Michael C. | Sep 15, 2006 11:43:57 AM
Grodge - Bolume kind of goes out the window today. Regardless of price action we are going to have high volume today due to expiration.
Posted by: BigBill | Sep 15, 2006 11:47:23 AM
People will buy more groceries in a downturn. A two-income family losing a job and becoming a one-income family should stop going out to eat and have the stay-at-home person cook more often (and from more basic ingredients). So people may be buying more groceries, but if they are it is almost certainly not a good sign for the economy.
Today's volume has to be adjusted for options/futures expiration. It may still be high, but comparing it to volume from earlier this month would be meaningless.
Posted by: jkw | Sep 15, 2006 11:49:06 AM
The put/call ratio, which is the best down indicator, still shows a lot of fear in the market but that it is declining slightly.
Posted by: Ryan | Sep 15, 2006 12:00:45 PM
Total retail sales in July did not suffer a big downward revision. Indeed, sales are still reported to have increased 1.4%. Sales in August grew 0.2%.
~~~
BR: I corrected that . . . Thanks!
Posted by: randy moore | Sep 15, 2006 12:01:45 PM
Interesting.
This is the first time I've noticed on this bb that several posters are really disappointed in missing this rally.
It feels awful not to be long.
But then again -- there's a reason for the run-up and a reason it will die. Goldman Sachs huge Alpha hedge fund lost 10% in Aug. I thought they were supposed to be smart money.
There is a lot of chasing performance out there and they will bail as soon as their technical indicators show sell.
I think this is how the markets work now with fast money -- they did the same thing in gold. Remember gold? 720 ???!!!!
I think I will keep this in mind -- the markets will run fast and furious -- in gold / oil / tech. And when the fast money bails -- they will run hard the other way.
I wouldn't expect anymore kind of gradual movement anymore...
My prediction, based on sentiment here: This IS the top.
Barry's blog is NOT about investing, really. It's about reality. The market moves according to a different sort of reality that is almost always disconnected from real reality.
Posted by: ari5000 | Sep 15, 2006 12:03:35 PM
i am a subscriber to Cramer but am thinking of cancelling. i think he has lost all credibility. a case in point is on oil. he has pounded the table for a long time that you must buy oil. now he is saying the exact opposite. of course things change and so he can change his opinions. however, it is interesting that he is contradicting himself. he has been saying for a long time that oil couldnt go down a lot because OPEC didnt have any spare production. now he is saying that oil is going to go down a lot because OPEC is going to pump more. cramer puts on a good show. just dont buy his selections.
Posted by: GerryL | Sep 15, 2006 12:07:46 PM
>>>i am a subscriber to Cramer but am thinking of cancelling.<<<
Don't think, just do it. The farther you get away from that hooligan, the better off your life will be.
It's my firm belief that any longtime subscribers of his are merely victoms of Stockholm Syndrome.
Posted by: Michael C. | Sep 15, 2006 12:25:38 PM
You could argue 2001 was a "soft landing".
Posted by: Cherry | Sep 15, 2006 12:28:26 PM
Thanks Royce. Hey Steve, on a risk adjusted basis you are outperforming by a ton. Cash has been king this year, right? Be careful out there. As for Mr. Cramer, I caught his act a few weeks ago and he was booyahing that you "have to own oil stocks!" Right around the tip top tick in that sector. Ouch. No gurus. Do your own homework and take responsibility and credit for the results.
Posted by: lurker | Sep 15, 2006 12:28:33 PM
A little over a year ago we saw the 'soft landing' for homebuilders argument from Bob Marcin. Look where it got those who listened. Down 50% and not near a bottom. I wish the very few RealMoney columnists including Barry that are still worth reading would migrate to Minyanville or some other (perhaps new) location, because Cramer is so irresponsible and irrelevant that I would very much like to disassociate with anything having to do with him.
Posted by: Bob A | Sep 15, 2006 12:29:33 PM
So, is oil declining because of the "soft economy," or because of end of summer driving season and declining hurricane premium? Oh, and declining Middle East tensions with Iran and between Lebanon-Israel?
Some have suggested that when oil was near $80 a barrel, it was fueled by fear and speculation. Because supplies have been good for awhile now. If fear and speculation are removed, what is the fair price for energy?
The comment above about sentiment? I use sentiment, but it's a lower-tier thing because sentiment can be bullish or bearish for long periods of time and be correct. The crowd is usually right for the bulk of the trend after all. They just miss the turning points.
And cash rates are good right now...
Posted by: muckdog | Sep 15, 2006 1:15:33 PM
