Durable Goods Orders Failing Big-time

imageNot to ruin breakfast, but check out the latest not-so Durable Goods Order just released by Census:

New Orders  
   New orders for manufactured durable goods in December decreased $12.0 billion or 5.1 percent to $225.4 billion, the U.S. Census Bureau announced today.  This decrease, down four of the last five months, followed a 0.5 percent November decrease.  Excluding transportation, new orders decreased 1.2 percent.  Excluding defense, new orders decreased 2.9 percent.       Transportation equipment, also down four of the last five months, led the decrease, $10.1 billion or 12.4 percent to $71.3 billion.   

Shipments 
   Shipments of manufactured durable goods in December, down two of the last three months, decreased $5.4 billion, or 2.2 percent, to $235.8 billion. This followed a 0.6 percent November increase.  
   Transportation equipment, also down two of the last three months, led the decrease, $5.4 billion or 6.7 percent to $75.1 billion.      

Unfilled Orders  
   Unfilled orders for manufactured durable goods in December, down following two consecutive monthly increases, decreased $5.6 billion or 0.5 percent to $1,187.6 billion.  This followed a 0.1 percent November increase.  
  Transportation equipment, also down following two consecutive monthly increases, led the decrease, $3.8 billion or 0.5 percent to $795.2 billion.

Out here in fly-over country we’d call this an ass-whupping.

Meantime, futures are up a shade.

Out here in fly-over country we’d call that delusional.

The  Pragmatic Economist

We will get deeper into examples and cases in the “coping” section this morning, but a world or two about pragmatic investing may be in order.

The Fed statement Wednesday was not particularly pleasing to the markets.  We can assert this because when the market is happy, it goes up.  The prospects of profits have improved. 

When markets drop, as in Wednesday’s   223 Dow point decline, we can safely consider that the market may not be happy.

To the pragmatic investor, realizing that markets are always going up, or down, this is a minor bump in the road, not quite the End of the World (EoW).

Asia didn’t implode overnight, Eurabia formerly the EU is still there, with a blush of weakness, and the futures indicate something of a bounce today.

Pragmatically speaking, though, markets often do “double bottoms” which means before we really take-off to the upside, or down, we should see if the recent lows hold.

If you flip over to a one-month view of the S&P you can see a retest of 1,859 could happen, and maybe even below that.  On a one-year chart you can find 1,812 and change.

Still, we may be getting down in the coming week, or three, to where the market begins to look like an interesting place to salt away a few bucks. 

Not until we see if the 1860 area really holds though, and therein lies this morning’s epistle.

You saw something yesterday which I don’t remember seeing before:  The Fed statement accompanied via a link to their marching orders to the trading desk.  Called an implementation note, this is screaming to the world (*at high volume) “Here’s what we’re going to do!!!”  It comes down to this:

  • The Board of Governors of the Federal Reserve System left unchanged the interest rate paid on required and excess reserve balances at 0.50 percent.

  • As part of its policy decision, the Federal Open Market Committee voted to authorize and direct the Open Market Desk at the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the System Open Market Account in accordance with the following domestic policy directive:

    “Effective January 28, 2016, the Federal Open Market Committee directs the Desk to undertake open market operations as necessary to maintain the federal funds rate in a target range of 1/4 to 1/2 percent, including overnight reverse repurchase operations (and reverse repurchase operations with maturities of more than one day when necessary to accommodate weekend, holiday, or similar trading conventions) at an offering rate of 0.25 percent, in amounts limited only by the value of Treasury securities held outright in the System Open Market Account that are available for such operations and by a per-counterparty limit of $30 billion per day.

    The Committee directs the Desk to continue rolling over maturing Treasury securities at auction and to continue reinvesting principal payments on all agency debt and agency mortgage-backed securities in agency mortgage-backed securities. The Committee also directs the Desk to engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve’s agency mortgage-backed securities transactions.”

    More information regarding open market operations may be found on the Federal Reserve Bank of New York’s website.

  • The Board of Governors of the Federal Reserve System took no action to change the discount rate (the primary credit rate), which remains at 1.00 percent.

These implementation notes are a newish thing; Last October’s FOMC announcement, for example, didn’t contain such a link.  This began in late 2015.

OK, why?

Got a pet theory about this.  Goes something like this:  It may have to do with avoiding developing asymmetries in the market.  

If you NEVER read another economics paper, please go read a really landmark piece of work from Youssefmir, Huberman, and Hogg from 1994.  “Bubbles and Market Crashes.”  Skip the math.  Go directly to page 17 on the placement of an information event/news on bubble formation.  To me, this is the gold in the paper.

It was a modeling exercise about the shape of bubbles and how they are influenced by the temporal (timeline_) placement of news in the evolving of endogenous asymmetry. 

Which translate into English as???

Crashes tend to evolve, it seems, when news about the market is not evenly distributed among market participants.  There’s a kind of information topology that drives.  The Big, Inside players always have something of an edge over the small at-home daytraders.  The reason is outfits like J.P., Goldman, PIMCO, and others have people who specialize in particular kinds of news.  These are then orchestrated into efficient action.

You don’t need to have a grand market conspiracy.  Just a rock-solid management framework, specialists who work for and report only to you, and enough free cash laying around to make meaningful bets.

After that, the rest of the market tends to entrain, or synch-up with the newly revised point of view.

On to the Pet Theory du Jour, then:

I haven’t seen a lot of discussion about this, but I’m guessing that the implementation of a Fed FOMC meeting decision with the new added bonus of trading desk instructions is an effort by the Fed to even-out the market’s understanding of the Fed’s range of motion and this, in turn, actually reduces the odds of a Market Crash because there is less potential for asymmetry.

I haven’t see this discussed anywhere else, and I could be howling at the wrong point, as we sometimes do in our attempts to think outside the box.

But when I noticed the trend to shout the Fed’s plans, I thought to myself  “Was this something Ben Bernanke was alluding to in his many comments about transparency, or is this a Janetism?  Is the Fed proactively trying to make it clear to as many players as possible:  When you model ahead, all you big firm specialists, here’s our plan of action”?

Doing so – publicly bounding Fed action – could have a very interesting effect on Big Player trading:  If the Fed was more unknown in what they would do, an analyst might spot a potential asymmetry and run out a whole table of how much money a Big Firm could make.

If I were decision-making, I’d sure have a case where the Fed does this, and another where the Fed does something else  So when the Fed actually states what they are planning, and does so in advance, then it could be seen as limiting model bounds and (at the extremes) may take some of the potential profits off the table – which could then limit asymmetry and so reduce crash potential.

I’m not sure how to translate this into a simple example, but let’s try this:

Let’s say we are thinking about staging an auto accident to make a fortune on insurance.  However, we have two outcomes to consider.

If our insurance fraud is to make oodles of money in court in our pain and injury lawsuit, we don’t want the police to issue us a ticket for negligent driving or an illegal left turn.  If that happens, the risk of our scam being discovered increases.

What the Fed has now, in effect, said is:  “The Cop will write a ticket every time.”

In our example, we’d expect to see the number of fraudulent insurance claims drop.  And in the markets, we would expect a more even information topology as players adapt to the new police regimen.

The first FOMC minutes with the implementation link was the December 16 announcement.  Back then, the S&P was 190 points higher.  My SWAG is that these implementation notes are a way to keep expectations of modelers bounded.

At a minimum it means the self-talk between central banks is coming out into the public eye.

All of which will pose a difficult problem for conspiracy theorists on the net:  If global bankers are working more closely and publishing their plans (to one another), and assuming all bankers want to avoid crashes because everyone loses in a Crash, are we seeing another big step toward global (financial) governance?

And OK, let’s say we are:  As long as the bankers are working together to forestall a global Crash, is that a good thing, or bad?

You can spout nationalism and jingoism are day long.  But try to be pragmatic here:  Do you really want to go through a global depression, or is muddling through a viable alternative?

Whew!  Onto the rest of the headlines…with one thought echoing:  “Re-Test ho!”

The World Catching Up With Us

Yes.  The <Mainstream Media> is actually catching up with our thinking!  How refreshing.

We discussed the removal of the FBI Director over the Clinton email case if the Department of JustUs doesn’t prosecute Hillary Clinton for emailgate a couple of months back.

I refer to the question I raised with you on December 3, 2015: Will O Axe the FBI Boss? All Eyes on Comey Now

Well, here we are, almost two months later and we are reading about how the FBI Director might consider resigning to force JustUs to follow the case.

Not bad…only two months behind in core concept.

Gosh, that means in a week or two something is likely to happen.  Headlines tend to ramp before actual events, as you know.

Repeat after me:  Ramp.

Meantime, Chelsea Clinton is trying to follow in her mom’s footsteps, eyeing a run for the WH.  Her list of personal accomplishments is…um…just a wee on the light side, yah think?

Silly Time

The NY Times has a good read at What to Look for in a Republican Debate Without Donald Trump.

What debate?

Meantime, Bernie wants to know if Microsoft could jack the caucus process via software provided to the two parties.

Silly Bernie?  Bernie miss meds?   No:  Since voting machines can be hijacked, what’s the big about caucus-jacking?  (If that sounds a bit odd, I hear it causes blindness, repeated too often lol.)

There Goes Holland

New pet theory about the EU:  Maybe the megalomaniacs at the EU have figured out that because the EU government is driving their economy into the ground (true) that regular people will become so pissed that they will call the EU a massive fail.

But what IF enough foreigners could be brought in to swing the vote for the tired old line bureaucrats?

Another NYT must read this morning is The Latest: Dutch Working on Plan to Accept 250,000 Refugees.

A country of 16.8 million – 1.5% of the population will be added and changed.  That’s on top of about 5% already Muslim in country.  A 7% solution?

“I’m Not Guilty” Department

But quitting just in case?  Japan’s economy minister resigns over money scandal, denies bribery.

Today’s BIG WORRY

Go ahead, let’s see if we can explain away as man-caused this big increase in Cosmic Ray levels which is underway.  See chart here.

It has been known since 2014 that when the sun goes limp (weak output) here come more cosmic rays and oh, did we mention this is the weakest solar cycle in modern memory and that’s where your global warming went…

Pragmatically speaking, of course.

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Comments

Durable Goods Orders Failing Big-time — 8 Comments

  1. That’s pretty good: Caucus-jacking. There are a “few” OTHER things that might cause as well if done excessively.

  2. How do you like your tablet after a few weeks?

    Have a link so you get a kickback?

  3. Looks like the durable goods orders are finally confirming the record lows that the Baltic Dry Index is currently navigating. At 337 points it is down 49.4 %YoY and with no end in sight. With this early indicator, and todays weak durables numbers, if we conitinue to plunge 5% a month now, we should see a nice 50% decline YoY by next February in durables, and your greater depression arrives on time. While I agree that we may get a burner of a rally soon, I think it will be of the last gasp type as the elephants attempt to make up for losses in other areas. I also think any blip in oil will be an attempt to unwind long positions into strength by professionals. This will , in the long run further crush demand, and I think we will see a 2 handle on oil for several years as long as the threat of capped wells in the US remains in play (and still in the hands of domestic players). I dont think the temporary shortages engineered by exporting US thin oil will last very long, there is simply no place to store it, and no demand to draw it down. Of course the whole calculus changes if we get a trough war.

  4. Keep your eye on Ukraine “Deadly virus leaked from US laboratory in Donbass” 20 dead 200 sick so far.

  5. If DB is recognized as the next Lehman counter-party risk all of the marching orders to these desks and all the transparency won’t mean doodly-squat says Granny Hawkins