I would expect a correction to the market this year, as all these economic numbers represent reality, not hope. In the end, reality ALWAYS wins out.

This analysis has been sharply changing in the past several months SOLELY because the seasonality adjustment factors have been skewing the annual data all over the map, a fact that I first pointed out over the summer. This past week the numbers for November came out and the seasonal adjustments brought them more in line with where they should be – and where I predicted the year would end. The economic reporting in the press attributed the drop to the original provided end of the federal home purchase assistance program, but this is not the case. The numbers are simply in line with where they belonged ALL ALONG without the seasonal adjustments. As I have said, these adjustments do nothing now but mask actual data. The following is the table since 1963 on new homes construction, with a ratio to the number of people in the job markets – I do this for two reasons, 1. The number of people in the job market is the market for new home buyers, and 2. The construction of new homes provides jobs for a significant portion of the job market. Look at the data below, catch that 1982 was the previous low at .375, vs. the past TWO YEARS, .314 and now, .231. And more importantly, look at the ratios for the 9 year period from 1998 to 2006 and note that they well exceed the averages prior – a 9 year extended period above average means an overheated market that has years of cooling ahead of it! The average for all the years prior to that time period were .601 - in that time period, .701. This guarantees a further shrinkage as we not only have much higher than historic unemployment, but all that excess overbuilding to shed as well.
Year…..Ratio… New (1,000)..Emp (1,000)
1963 …. 0.780 …. 560 …. 71,833
1964 …. 0.773 …. 565 …. 73,091
1965 …. 0.772 …. 575 …. 74,455
1966 …. 0.608 …. 461 …. 75,770
1967 …. 0.631 …. 488 …. 77,347
1968 …. 0.622 …. 490 …. 78,737
1969 …. 0.556 …. 449 …. 80,734
1970 …. 0.587 …. 486 …. 82,771
1971 …. 0.779 …. 657 …. 84,382
1972 …. 0.822 …. 715 …. 87,034
1973 …. 0.708 …. 633 …. 89,429
1974 …. 0.564 …. 519 …. 91,949
1975 …. 0.587 …. 550 …. 93,774
1976 …. 0.673 …. 647 …. 96,158
1977 …. 0.828 …. 820 …. 99,008
1978 …. 0.800 …. 818 …. 102,250
1979 …. 0.675 …. 709 …. 104,962
1980 …. 0.510 …. 545 …. 106,940
1981 …. 0.401 …. 436 …. 108,670
1982 …. 0.375 …. 413 …. 110,204
1983 …. 0.558 …. 622 …. 111,550
1984 …. 0.563 …. 639 …. 113,544
1985 …. 0.596 …. 688 …. 115,461
1986 …. 0.635 …. 748 …. 117,834
1987 …. 0.561 …. 672 …. 119,865
1988 …. 0.555 …. 675 …. 121,669
1989 …. 0.525 …. 650 …. 123,869
1990 …. 0.425 …. 535 …. 125,840
1991 …. 0.401 …. 507 …. 126,346
1992 …. 0.475 …. 608 …. 128,105
1993 …. 0.515 …. 666 …. 129,200
1994 …. 0.511 …. 670 …. 131,056
1995 …. 0.503 …. 665 …. 132,304
1996 …. 0.566 …. 758 …. 133,943
1997 …. 0.591 …. 805 …. 136,297
1998 …. 0.643 …. 885 …. 137,673
1999 …. 0.632 …. 881 …. 139,368
2000 …. 0.615 …. 877 …. 142,583
2001 …. 0.632 …. 909 …. 143,734
2002 …. 0.671 …. 972 …. 144,863
2003 …. 0.743 …. 1,088 …. 146,510
2004 …. 0.816 …. 1,203 …. 147,401
2005 …. 0.859 …. 1,283 …. 149,320
2006 …. 0.695 …. 1,052 …. 151,428
2007 …. 0.507 …. 776 …. 153,124
2008 …. 0.314 …. 485 …. 154,287
2009 …. 0.231 …. 355 …. 153,975
The numbers for homes sold can be found at http://www.census.gov/const/newressales.pdf The number of people in the labor pool comes from the monthly Employment Situation report, found at http://www.bls.gov/news.release/empsit.nr0.htm
>>>>>>Treasury Statements
The treasury statements come out the 8th business day after the fiscal month close. Following is the performance of the treasury in income (tax and duty receipts, etc.) vs. expenses for the past several years - the current fiscal year began with October so this analysis is of spending for October and November only. Please note that last year the TARP funding drove the treasury expenses higher, giving us a significant deficit. There is no such excuse for this year - it is all about declining receipts, numbers that go back to 2002/2004 while spending is at record levels:
>>>>>>Federal Budget Performance YTD
Year ….. Rcpts (Millions) Outlays (Millions) Deficit (Millions) Deficit %
1999 YTD ….. 233,952 ….. 283,531 ….. 49,579 ….. 17.5%
2000 YTD ….. 242,410 ….. 296,712 ….. 54,302 ….. 18.3%
2001 YTD ….. 260,777 ….. 295,787 ….. 35,011 ….. 11.8%
2002 YTD ….. 278,396 ….. 342,048 ….. 63,652 ….. 18.6%
2003 YTD ….. 244,971 ….. 358,062 ….. 113,091 ….. 31.6%
2004 YTD ….. 254,047 ….. 366,564 ….. 112,517 ….. 30.7%
2005 YTD ….. 271,447 ….. 386,621 ….. 115,174 ….. 29.8%
2006 YTD ….. 288,328 ….. 418,617 ….. 130,290 ….. 31.1%
2007 YTD ….. 313,559 ….. 435,921 ….. 122,363 ….. 28.1%
2008 YTD ….. 329,230 ….. 483,025 ….. 153,795 ….. 31.8%
2009 YTD ….. 309,630 ….. 711,203 ….. 401,574 ….. 56.5% TARP $
2010 YTD ….. 268,916 ….. 565,569 ….. 296,653 ….. 52.5% No TARP $
Please note the percentage of spending that is deficit spending - far and away the worst in the history provided here. You can find the treasury statements and histories here: http://fms.treas.gov/mts/index.html
>>>>>>SNAP
The SNAP numbers (Supplementary Nutritional Assistance Program) can be found at this site: http://www.fns.usda.gov/pd/34SNAPmonthly.htm
This report runs a couple of months behind and does not seem to come out on a specific date - it always seems to be catch as catch can. The following is the past three years September data, September being the last month available for this year’s numbers as I write this.
Month .. People …………. Households .$/Total Month .. $/Person .. $/Household
Sep-07 .. 26,929,496 .. 12,029,068 .. $2,578,932,497 .. 95.77 .. 214.39
Sep-08 .. 31,586,923 .. 14,087,387 .. $3,365,488,472 .. 106.55 .. 238.90
Sep-09 .. 37,175,938 .. 16,890,668 .. $4,937,365,687 .. 132.81 .. 292.31
Note that not only is the number of people growing, up 38% or so, but the DEPTH of need is growing, showing less income for those on stamps in the first place - the budget has DOUBLED in two years, now to almost $5 billion per month! By depth, I mean that the amount allocated to each person has increased amongst the participants - the dollars distributed are based on need, and the need per person has obviously increased by 39% since 2007. Also of interest is the number of people in the program, 37 million, divided by the number of HOUSEHOLDS in the program, 16.9 million - this equals 2.2 people per household! It leads one to believe there is a significant issue in single parent households.
>>>>>>Durable Goods
This is supposed to be a measure of future economic growth, and the reports recently have been spun to be “growing” and heading in a “positive” direction. It is for this reason that you must ALWAYS look to the actual numbers and look BACK to strong economic times to see where we actually are - we need economic growth, not treading of water. That said, here is the YTD % growth durable numbers in snapshot over the past several years - the data can be found at http://www.census.gov/manufacturing/m3/
Durable Goods Shipments and New Orders YTD Comparisons
Year Category ….. Y/Y % Change
1993 Shipped ….. 0.0%
1994 Shipped ….. 9.9%
1995 Shipped ….. 8.1%
1996 Shipped ….. 4.0%
1997 Shipped ….. 8.4%
1998 Shipped ….. 4.0%
1999 Shipped ….. 4.4%
2000 Shipped ….. 2.4%
2001 Shipped ….. -8.2% Last acknowledged recession
2002 Shipped ….. -2.3% Ibid
2003 Shipped ….. 0.3%
2004 Shipped ….. 5.5%
2005 Shipped ….. 6.9%
2006 Shipped ….. 6.2%
2007 Shipped ….. 0.3%
2008 Shipped ….. -2.1%
2009 Shipped ….. -17.0%
1993 New ….. 0.0%
1994 New ….. 11.7%
1995 New ….. 7.3%
1996 New ….. 5.7%
1997 New ….. 7.3%
1998 New ….. 2.2%
1999 New ….. 4.9%
2000 New ….. 4.1%
2001 New ….. -10.7% Last acknowledged recession
2002 New ….. -3.2% Ibid
2003 New ….. 3.3%
2004 New ….. 5.7%
2005 New ….. 9.3%
2006 New ….. 6.9%
2007 New ….. 1.1%
2008 New ….. -4.3%
2009 New ….. -21.7%
Please note the PLUNGE in both shipments and sales this past year, well off historically. This past month’s data mimicked the numbers as well, showing no growth, but rather a continued descent.

Final segment:

>>>>>>Imports/Exports
A vibrant economy should show some expansion in imports and exports. One of the biggest concerns for the USA economy has been the ongoing deficit of exports to imports, a number that now totals $7.5 trillion since the passing of NAFTA legislation in the early 1990’s. This trend of exploding deficits has slowed in the past two years solely because the USA has reduced consumption considerably, thereby reducing the amount of imports. This however is not a good economic sign as the consumption has not been replaced by domestic goods, but rather has simply gone away due to reduction in household income and spending. This data can be found here http://www.census.gov/foreign-trade/balance/c0015.html#2009
Import/Export Analysis
Year ….. Imports ….. Exports ….. Deficit
2007 ….. 1,618,704 ….. 946,213 ….. -672,472
2008 ….. 1,818,362 ….. 1,101,870…..-716,492
2009 ….. 1,269,213 ….. 863,238 ….. -405,975
Percentage Change From Previous
2008 ….. 12.4% ….. 16.5% ….. 6.7%
2009 ….. -30.5% ….. -21.9% ….. -43.2%
Trade deficits by year since NAFTA, in millions of dollars.
1992 ….. -84,497.20 Year before NAFTA
1993 ….. -115,566.30
1994 ….. -150,626.70
1995 ….. -158,804.60
1996 ….. -170,213.30
1997 ….. -180,523.00
1998 ….. -229,758.20
1999 ….. -328,818.80
2000 ….. -436,104.60
2001 ….. -411,897.50
2002 ….. -468,265.00
2003 ….. -532,350.30
2004 ….. -654,830.30
2005 ….. -772,372.20
2006 ….. -827,970.50
2007 ….. -808,762.30
2008 ….. -816,198.70
2009 ….. -405,975.10 Through Oct - trending to -487,170.12
Total deficits since NAFTA ….. -7,469,037.40
As you can see, the only thing driving the drop in trade deficits is the drop in consumption. We are now down to levels of import in 2004, and exports in 2006.
>>>>>>Synopsis
The numbers all show an economy continuing to descend, not recover. The markets in the USA have disconnected from economic reality and continue to progress up based on some unknown factor, quite possibly being fed by low volume transactions supplied by 401k funds in part. It is always important to remember that the market “value” is based on the LAST transaction, and in a low volume market, a rise in market capitalization is always easier than in a volatile, high volume market. A good example of understanding how the market works is to know that if you launch a company with 1,000 shares at a sale price of $1, today your company is worth $1,000. If the next day ONE PERSON sells ONE share at $2, the entire value of the company on PAPER goes up to $2,000, as this is now the MARKET value of the shares, the market price has been established at $2 per share. If on the third day one other person sells their share for $1.50, the market value of the company will now be $1,500 and the market will show a “loss” of $500. Meanwhile, everyone is still ahead of the game, they have just lost a POTENTIAL $0.50 per share. When you hear people “lost” trillions of dollars in the market, remember, most lost the potential of the market. In my own case, a loss of 50% in 2007 would have basically dropped me down to what I had put into the market over the years, the “loss” would have been the unrealized gains in the holdings I had.

I would expect a correction to the market this year, as all these economic numbers represent reality, not hope. In the end, reality ALWAYS wins out.

- irishscot2

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