Succinct summations of events for week ending August 28, 2015
Positive:
1) After a wicked sell off, markets recover nearly all of their losses for the past week, now up slightly (tho still below mid-august levels).
2) 2Q real GDP growth was revised upwards to 3.7% (Q/Q SAAR) in the second release, a substantial improvement over 3.2% previously.
3) Odds of a Fed rate increase fell somewhat in light of China-induced market turmoil.
4) Continued recovery in housing: Pending home sales added 0.5% M/M in July;
New home sales added 5.4% M/M in July, increasing to 507,000.5) Core capital goods orders increased 2.2% mom, and core capital goods shipments increased 0.6% mom in July. .
6) Conference Board Consumer Confidence Index jumped up to 101.5 in August from 91.0 in July (NOTE: This was Pre-market turmoil)
Negative:
1) China’s economy slows, reflecting the both the law of big numbersa nd a limitation on centrally planned economies.
2) China’s stock bubble deflates, after being up as much as 67% YTD, its now negative on the year.
3) Crude Oil falls below $40m, then recovers — the most in two days since 2009 — to rebound above $40;
4) Personal spending in USA was reported at 0.3% mom in July, below expectations. Core PCE added 1.2% yoy in July.
5) University of Michigan Sentiment Index declined to 91.9 in the final report for August from 92.9 in the preliminary report, softer than expected.
6) Home prices disappoint, even though annual price appreciation accelerated to 4.5% Y/Y in June, it was still below consensus.
7) Although the data on core capital goods orders and shipments were notably stronger than expected, inventories were disappointing, leaving 3Q GDP tracking unchanged.
8) Claims in line: Initial jobless claims were reported at 271,000 for the week ending August 22, down slightly from 277,000 in the prior week
USA Today doens’t like ETFs
“…That technicality led to the jump in ETF trading halts and wild price swings, experts said. If a stock in an ETF’s basket was halted, then it became impossible to price the ETF itself. This pressured market makers — such as broker-dealers that facilitate trades — to take a big step back, experts said…”
http://www.usatoday.com/story/money/markets/2015/08/28/downside-etfs-black-monday-china-halted-trades/71312286/
Impossible? And estimate for a small portion will suffice. Sounds like an opportunity to me.
Should odds of a Fed increase falling go in both neg. and pos.?
Odds of a Fed rate increase appear to be relatively unchanged viz
Hawkish Rumblings
Fedspeak from the Jackson Hole conference suggests that the more hawkish FOMC participants are sticking to their guns. …
Bottom Line: The Fed doesn’t want to take September off the table. Many officials had what they believed was a solid case for hiking rates at the next meeting, and they don’t want market turmoil to undermine that case. And that case is not complicated. It’s the Phillip curve combined with an estimate of full employment (an estimate of full employment that remains sticky despite the persistent downtrend in inflation). If they move in September, that’s the story they will run with. They don’t have another paradigm.
NB: This is a paradigm in the same sense as austerianism and gnomism ; i.e.,
Phase 1: Raise rates
Phase 2: ?
Phase 3: Confidence!
I disagree on two points:
1. If the Fed doesn’t raise rates in Sept., that’s a negative. With GDP @3.7%, and they’re still scared to raise rates?
2. Oil going back over $40 is anti-deflationary and a positive. The Saudis can handle $30 oil, we can’t.
You’ve hit one of my pet peeves here with your first point under the negatives where you refer to the “law of big numbers.”
Per Wikipedia:
“In probability theory, the law of large numbers (LLN) is a theorem that describes the result of performing the same experiment a large number of times. According to the law, the average of the results obtained from a large number of trials should be close to the expected value, and will tend to become closer as more trials are performed.”
For example, the more times you flip a coin the closer it will get to 50% heads and 50% tails.
In the last few years, commentator in the investment industry have been using the term “law of large (or big) numbers” in referring to a concept that a company or in this case a country’s growth must slow as it gets bigger. This is incorrect usage and just conflates the two ideas. It also shows a lack of understanding of the foundations of probability theory. Perhaps we need a new term that describes what you are trying to get across. Something like “the law of diminishing growth.”
Regression to the mean probably more appropriately describes what is going on.
https://en.wikipedia.org/wiki/Regression_toward_the_mean