I’d love to think our economy could survive just on selling houses and cars to each other, or waiting tables and taking care of the sick and injured. But that’s simply not the case.
Market Roundup
Manufacturing, transporting and exporting goods are still big industries in this country, even as the service sector has accounted for a larger slice of the economic pie over time. And that’s a key reason why I’m increasingly worried about the outlook for growth here.
We just got the latest ISM manufacturing data for the U.S. this morning. The headline index fell to 50.2 in September from 51.1 in August. Not only was that weaker than economists expected, but it was also the lowest reading going back 28 months.
The internals don’t look any better. Production, employment and pricing all weakened. An index that tracks new orders fell to the lowest level since November 2012, while order backlogs tanked.
Customer inventories also piled up at a faster rate – a sign that production will need to slow further to bring them back down. That fits with the outlook I shared on inventories in my Sept. 16 Money and Markets column.
If you look at the big picture, you can see we’re now dangerously close to the “low water” mark for the economy recovery:
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| Worrisome signs … |
If we breach the 48.9 level from November 2012, it would demonstrate that manufacturers are suffering the most since the end of the Great Recession. And I don’t see how you spin that as bullish for stocks.
After all, the last time the ISM index was as low as it was this September, the Dow Jones Industrial Average was trading for around 15,000. The last time the ISM index was lower than that crucial 48.9 level, the Dow was going for … gulp … 9,000.
I can’t stress enough how there are a lot of other factors that go into stock pricing than one indicator. So none of these comparisons guarantee we’re going to fall off a cliff. But they sure as heck should make you concerned … and they underscore why I keep saying you need to raise cash, hedge against downside risk and take other precautionary measures.
| “You need to raise cash, hedge against downside and take precautionary measures.” |
Still, you’d be amazed how much money you can make in down markets if you know what specialized investments to buy, as well as how and when to buy them, as I’ve been helping my subscribers do in my Interest Rate Speculator service.
Any thoughts floating around in your head about the outlook for manufacturing? The state of the economy? Whether or not these lousy economic reports suggest we have a lot more downside to come in stocks? Then let me hear them over at the Money and Markets website.
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Meanwhile, yesterday’s piece on the state of the job market and domestic economy got your chins wagging over at the website – with many of you skeptical that conditions are as rosy as the government has been claiming.
Reader Tibi said: “All these favorable and often rosy write ups about our economy written by supposedly educated people make me wonder why they write them. Who do they think the readers are? How can we have a healthy economy in this country when there is so much outsourcing?
“All the people who lost jobs can’t pay taxes and can’t be healthy consumers of goods. And where are all the goods manufactured? Not in this country.”
Reader Ray said: “I add to all this the uncertainty of if anything can or will get done in Congress. We desperately need an infrastructure bill passed, some sort of progress on the budget done, and tax reform accomplished. Instead, we are still hearing the same nonsense regarding people’s personal lives.”
Reader Chuck B. added: “QEs may have some short-term effect, but they can never work in the longer term. They will always create an expectation of further easing, and that can never keep happening without destroying the value of any fiat currency and resulting in runaway inflation. I think even the Fed members must understand this.”
Lastly, Reader Billy said: “First of all, nobody should ever take these job reports, especially from the BLS, and to a lesser extent, ADP, seriously. You have to reverse engineer them to get to the truth and factor out economic hedonics.
“Having said that, you are right on to say this is the best jobs report to come out for a long time. We are facing an off-the-chart, deflationary storm that is in progress and likely to be the worst since the Great Depression. Most people have no idea how bad this situation is going to get.”
Thanks for sharing those observations. I think the economy was trying to find its footing for a while there. But the rebound was supported by even more of the same drug that got us in trouble in the first place – too much easy money. Now even that modest bounce is fading as a weaker global economy is reverberating back on our shores.
Long story short: It doesn’t matter much what the Federal Reserve, the European Central Bank, or Bank of Japan say anymore, at least for more than a few minutes, hours, or days. Markets are rolling over anyway because investors are realizing the underlying economic and earnings picture is worsening at an increasing rate. That’s bad for all risk assets, from junk bonds to stocks.
But if you think I’m off base, please do hit up the website and let me know. This link will get you pointed in the right direction.
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Add ConAgra (CAG) to the list of companies announcing layoffs. The food company said it would cut 1,500 jobs, costing it $345 million, and relocate its corporate headquarters from Omaha to Chicago. Initial jobless claims filings rose 10,000 to 277,000 in the most recent week, incidentally.
A probe into whether confidential details of internal Federal Reserve discussions were leaked to an advisory firm called Medley Global Advisors is intensifying, according to the Wall Street Journal. The firm reportedly gave its clients information about Fed plans to purchase more mortgage backed securities before those plans were announced in 2012. It’s unclear whether any charges will come out of the long-running investigation.
The quagmire in Syria continues to get worse, with Russian air forces now reportedly bombing anti-government groups that are nominally allied with the U.S. in the fight against ISIS. While it’s tough to know for sure what is happening on the ground, given all the split loyalties, it’s clear Russia is thumbing its nose at us and guarding its own interests in the Middle East nation. U.S. government protests have so far fallen on deaf ears.
A key Chinese manufacturing index remained mired in contraction territory, coming in at 49.8 in September after a reading of 49.7 in August. A separate private survey of factory activity that was released a few days ago looked even worse.
Hurricane Joaquin strengthened overnight into a Category 3 storm with winds of 120 miles per hour. Forecasters believe it will turn north soon, and potentially take aim at the U.S. East coast – though it could also go out to sea. We’ll see how the computer forecast models settle out on this one.
Alleged insider trading involving the Fed? More U.S.-Russia tensions over Syria? Lousy Chinese economic data? If you have thoughts on these stories that you’d like to share, head on over to the website.
Until next time,
Mike Larson
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
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As long as the Greenspan “PUT” is alive and well, the bubbles will expand.
The talking heads today were so excited about the record high vehicle sales- never once
mentioning the subprime auto loan debacle. The ISM data is not encouraging however
where I live in Illinois it’s gang buster residential -commercial and municipality
growth. OOPS! not good to use the word gangbusters in the Chicago land area.
Here is the product missing in the investment advice area -for the working class
A 401K -IRA etc letter ..Especially now that corporate America has dumped the responsibility of retirement savings onto the worker bee.
Nobody believes government statistics for good reason, now confirmed. Industry sees no visibility in the future and no confidence. Result, apprehension about moving in any direction so no movement. This is the KISS version and seems about as good as any of the long winded tomes from the “experts”.
Really isn’t difficult: Put America and American Citizens first……Put a big tariff on all goods shipped into the United States… Remove the laws that allowed American companies from moving their headquarters offshore, reinstate Glass-Steagall to law, make it illegal for American citizens to hide their assets offshore, return to the draft, return the tax rates to where they were before the Reagan tax cuts, begin a jobs program to rebuild our infrastructure, make it illegal to employ any person in the U.S. that isn’t a U.S. Citizens and remove Citizens United from law for a start… Oh wait, the Republicans are against ALL those measures…… Gee, it sounds like a car insurance ad, doesn’t it? So why are we electing those people?
Because I despise Democrats! Their disconnect from reality is amply displayed in their support for idiots like Bernie Sanders and Crazy Uncle Joe Biden. Biden can’t run until he gets his foot out of his mouth. We won’t even talk about what a warm, personable, trustworthy candidate you have in Hillary Clinton. I still do not comprehend how you can see flaws in Republicans and ignore the same in Democrats. Jim
Jim. agree with you about the idiots who are running for the highest office on the Democrat side, but the Republicans are little better, when it comes tight down to it. Both parties have come under control of the radical elements of their positions. Their politicians are supposed to represent the PEOPLE of this nation, but they represent mostly their own personal interests, or those of the people paying them off. That is why I say, “Get rid of all of them”! NEVER elect a politician more than once, even if they seem to do a decent job the first time!
Jim,
The majority in this country grew up modestly or dirt poor… All of the legislation that allows those that are willing to work hard, to get ahead, came from those Democrats you so despise… Perhaps you were born comfortably and see those unions as an increased price of running a company…. Those “Living Wages” that the Unions fought for, allowed our economy to flourish… Now few have the money to live better lives and, in turn, the economy is in the tank as the already wealthy grow even more wealthy… That will soon change again, just as it did in the 1930’s and from 1981 forward… Study the writings about Income Inequity if you don’t believe me… Might be enlightening…
“make it illegal to employ any person in the U.S. that isn’t a U.S. Citizen”? Mike S., I’m sure you had ancestors who weren’t U.S. citizens, at least when they first immigrated. You would have denied them the right to earn a living while waiting to become citizens? Alas, we would never have gotten to hear your opinions on this site, I suppose. LOL!
We are never going to find a solution until we become United again. People in Washington put personal interest before national interest. Mike S. can point to history but none of the candidates from Washington can help us. You can’t get unity by trying to tell other people what to do or how to take risks with their assets. We need a smart fresh face in 2016 with a chance to clean this mess up. While one side battles with the other the only winner will be a politician who will just keep us divided. .
Gee Mike, I was thinking how for once you were on the right track with your comments….until you laid into Republicans again. You need to get some professional help.
The whole middle east is sinking into the swamp bottom of quicksand. Too many people who should stay and say enough is enough are instead sticking their tails between their legs and dropping on all fours and running. The places they are running to are the places where the people stood up and did say enough is enough and fixed what they saw as wrong. And don’t tell it was easy and didn’t cost a lot of blood.
With all the layoffs we keep reading about from the major companies, where is the BLS finding all these jobs they claim people are filling? Is it possible that smaller, newer companies are taking up the slack? We can hope so, but other figures say small businesses are failing at a higher rate than they have in years. Something doesn’t jell.
As usual, i will play devil’s advocate. If I want to buy a house, I look for the best neighborhood. Is that in city C(nina), city E(U), city S(outh)A(merica) or U(SA). Of course, it’s the USA. Same for the stock market. Even the worse house in the U(SA) is better than the best house in the other neighborhoods. Up goes the DOW and S&P. Comments??
Did you ever hear of a guy named Charles Ponzi? American politicians have learned much from him. You can fool some of the people some of the time but not all of the people all of the time. Empires come and go do not be found waiting at the station when the US’s turn comes.
Hey Oscarr, What’s the word ?
The word is LAYOFFS, the Global Trend. In the UNITED STATES-Cabela -Cenovus Energy -Baker Hughes Dickinson-ConAgra -Carter Fuel Systems -Whole Foods – Chesapeake Energy -Halliburton -Amplify Education -Hudson’s Bay Co -ALCOA -Imation Corp -Caterpillar Inc – In CHINA all you need is one with their unskilled labor force.-Longmay Group ( Chinese Coal Co. ) – 100,000 layoffs. I wonder if President XI would like to retract his statement on 7% growth(GDP) for China.
Have you noticed, that, while the Dollar is holding up fine against other major currencies, it has not formed a higher peak since March. The pattern shows bottoms about even, but tops slowly declining. Inevitably, it will have to break one of those lines, and is likely to move either a good bit higher, or a good bit lower. I don’t know which would be worse.
The answer is obvious if it moves higher things collapse.
Manufacturing (wealth creation) is the wage earner for the nation, Service sector is the cost of maintaining the nation. When the Service Sector exceeds manufacturing plus income from oversees investment we are on our way to bankruptcy.
Hi Mike
Let’s say that China only pulls in a 6% figure while it is adjusting an export driven economy to more of a domestic focused economy. Any western economy would love to have 6% annual growth. For China this is on top of their wonderful numbers in recent times. I wonder what they are doing that we might learn from?
Your argument is ignoring the facts, China’s economy is only ~25 years old and their percentage growth rate, while maybe true, is not accurate. If you have 0 dollars and I give you $1 you just gained 100%. So are you going to tell all your friends your investment gained by 100%? No. The same here where the United States on the other hand is ~235 years old. It is mature, it has strangulation of regulations upon it, high taxes, a currency which is high and not artifically devalued by its government (well, maybe yes due to its money printing – but not like China does it). You could move to China, but good luck with freedom.
Big recession coming–Now should sell on up days (cash out) or buy some puts..Junk bonds esp. vulnerable..I would accumulate cash –Have maybe one or two months..
You are right about the crunch commencing 7th October. But it goes much further and deeper than stock, bonds and other financial considerations. Where I might disagree are various devices(“hedges”) you recommend to keep afloat or even make money. What is the use of such tricks if the money you have made is worthless, or if the gold and silver you have amassed cannot buy food?
So my first small tip: Look for a European collapse with famine and starvation in the Mediterranean states. That is just the beginning. What it may hold for the northern European states, the Arab Mediterranean, Russia and finally onto the U of the S of the A is a matter of conjecture but will soon become obvious. I still haven’t factored in the Chinese and Japanese failures (Read your own articles about nation debt/GDP!).
It has been suggested that Chinma will weather the storm. Also how soon will Russia feel the problem with more rapid market decay?
If the fed does something silly and moves on interest rates, not to mention the nasty effect a strengthening dollar will have, a near certain rush out of bonds will leave a wall of money with nowhere to go but into commodities, which I doubt, but rather back into stocks.
Not to worry guys, history has shown us that when Income inequity gets only so high, the voters refuse to believe the lies they are being fed by the Ultra Wealthy and vote to the left and those laws that come after reduce Income Inequity and the economy improves…. Don’t expect you to believe me, but on the other hand, you might consider what I’ve said, so you won’t be surprised, aye?
Chuck, I became Naturalized in the Army…. They have a one day class that “you will pass”… Took that class with a lot of people who had escaped the Iron Curtain… Quickest way to become a citizen is to risk your life for the country… Some of our best fighters in today’s Army are those who have figured that out… Far to many getting a “Free Ride” these days, who have no idea, how lucky they are…
Again, if a candidate won’t look out for the average citizen (You) over the Rich and Famous, why would you vote for them?
Interesting that no one commented about the return of the draft… Do you think we would have gotten hoodwinked into Iraq if many of the Sons of the Rich and Famous would have been put in harms way?
Third try to reply, Mike. Congratulations on naturalization and becoming a good citizen, Mike. I think every able bodied citizen, male or female, should either enlist or be drafted for at least a year in one of the services. If disabled, or with moral objections, there should be national service of some kind. Otherwise they lose citizenship rights, but not deported if born here. No one serves in high government office without prior military service. Maybe that would help them look out for ordinary people.
Could not agree more! Well Said!… :) What is the old saying: “Freedom Is Not Free”…. We now have “Equal Rights” which, in my book, means “Equal Obligations”! Besides women have better motor skills, which makes then better “shooters”… The IDF found that out in the 1950’s… :) Active duty or government domestic duty for all would go a long way towards helping more of our population realize how incredibly good we have it in this country…. Best place in the whole world… Those of us that have “been there and done that” can attest….. Aye Airman? Heck, I don’t know if you were an officer or NCO? I finished E-7, then was offered OCS when I finished college…. By then I had far too many years and far too many miles!… :( Still was nice to get the “invitation”… :)
You are so right on about political office… Something changes people when they stand that duty time… More likely to be more ethical and not roll over for the Rich and Powerful, most of whom have NEVER served… :(
Let’s get together and sue to stop the Federal Reserve from inflating the United States economy. Their “2%” inflation target is nothing more than a tax. (It has nothing to do with the supply of money). The Federal Reserve does not have the statutory or constitutional power to tax. I’ll commit $100,000 to start things – if everyone chipped in we could fund a very powerful federal lawsuit against the Federal Reserve. We owe it to our country, our families, to ourselves. All we’re doing is talking about things, take real action.
Hi Pete,I agree ,in case you lose,could you put that amount into my account please Ill give you my acc.No. in the next letter.
Americans have brought on the present crisis on their own. Had they been patriotic and only bought everything that they need, provided it is MADE IN AMERICA, then there would be full employment and money circulating and most of the current problems there would not exist. So long as they keep buying the cheap imported crap at Walmart et al that is imported from China Korea the Philippines etc. while they get more obese by the day, we will never get out of our economic problems. Just say “no” to buying foreign poorly made rubbish will help. Buying non-American first class quality products should continue.
The libertarian Harry Browne believed that his rights to buy cheap imported goods were more important than the rights of the majority for employment. What followed – the so-called “free trade†policies, NAFTA, and all the rest – proved to be extremely costly, not free! The cockeyed notions of “free†trade should be replaced with balanced trade. No trade imbalances, period. This would have satisfied the (phony) arguments surrounding Smoot-Hawley and tariffs in general.
This great country was not built by the Libertarians…Study 1932-1981..That period of the greatest economic success in the history of America was built by policies from the Left with the Democrats leading the charge forcing Income Inequity down and living wages up….. America is the consumptive engine of the world and we must do everything to support the workers of this country that have brought us that prosperity… The robber barons of the Ultra Wealthy would have us believe otherwise, but their song of slow destruction has been written from 1981-2007 with the Middle getting crushed and another repeat of 1929 at the hands of their lackeys… That period of destruction has passed in 2009, just like it did in 1932…
The key ingredient to our current economic success is not the manufacturing or the service sectors it is the U.S. Government’s Ponzi scheme Fiscal Policy and its GAAP basis Deficit Spending that has produced nearly $98.6 Trillion of Unfunded Liabilities according to usdebtclock.org. see usaponzi.com
Most government agencies have been politicized under Hussein Obama, just like NASA doing outreach to the Muslims. I would not buy a used car from the guy, cause the wheels would probably fall off, just like the economy, and the guy has no clue. He reminds me of the late Howard Hughes, who retreated to his suite in Vegas. The guy only comes out to bash Republicans, surely not the Russians ! Passive/Agressives use roundabout ways to defy others….Josh Earnest is the guy carrying the water, most of the time MHO
OCT 7, 2015. “the day all hell breaks. loose” according to the prophet. Larry Edelson. It is “100 percent guaranteed”. If it doesnot happen, Larry”s charts canbe bought as toilet paper.
No Mike, you are right on the money. I don’t see anything anywhere that keeps us from a steady economic downturn. Who knows how deep and how long? I don’t, nevertheless we still need to make the best with what we have to work with! You know, however Americans have always been good at that!! Take Heart My Friend! Richard
I doubt anything will happen on the OCT 7 but he reckons it will be the date you are garenteed there is no return