Inflation expectations in the bond market

While gold continues powering upwards the US Treasury market is not confirming similiar concerns about inflation.  (If gold is climbing due to uncertainty regarding the entire paper fractional banking monetary system is another matter)  Looking at the comparative yields of nominal versus inflation protected bonds (called TIPS) issued by the US treasury is illuminating. 

As you can see inflation expectations in this market are actually lower now than before this crisis erupted in 2008.  If the bond market was truely concerned with inflation you would see the implied breakeven inflation rate go up, not down. 

US Inventories

Excess inventories in America are being worked off rather quickly as you can see.  It will be interesting to watch this ratio over time and see what industrial production looks like after the ratio stabilizes.  Also note how the ratio has dropped over time.  America has become more efficient in lowering the inventory of 'stuff' needed per unit of sales.

Consumer credit continues falling

In my previous post I discussed all consumer loans outstanding.  The data is produced quarterly so there is a bit of a lag.  (Another possible post, the desire for high frequency data and how it can sometimes trip you up.)  Consumer credit (all debt but mortgage debt) is reported monthly so we can get a feel of whats coming down the pike.  As the chart shows it continues to fall.

The chart is only of recent history but the US has not experienced this since WW II.   Unfortunately the rate of decline continues to accelerate. 

I would personally feel more confident in this recovery if consumer debt at least stopped cliff diving.  Whether credit is falling due to less demand or bank restrictions doesn't matter at this point.  Until the consumer starts borrowing any recovery will be very tepid and most likely artificial.

Total consumer debt outstanding falling, not just revolving credit

After some rummaging around I finally found the data series showing total consumer debt outstanding. This series includes both home and non home debt.  I have blogged before (2009 October 7) about the year over year decline in non-home-debt outstanding but thought it would be prudent to chase down the TOTAL consumer debt outstanding to see if it is falling as well.

Yup, it is.  The data shows the same trend as the subset previously mentioned.  Like all the other credit/loan/debt outstanding I have recently presented the year over year numbers are negative, show no signs of stabilizing, and are unprecedented in their decline.

I usually dislike the term 'It's different this time' but this time, it really is!

Don't bother shopping at drugstore.com

Our family recently made a purchase from drugstore.com online.  No problems with the actual purchase, but somehow we didn't unlick some box during electronic checkout and we were signed up for a $12 monthly recurring bill for a service called 'Complete Savings'.   We didn't want anything from 'Complete Savings' and didn't even know they existed until a bill showed up on our credit card.

After a few minutes on the phone today with our bank and then finally Complete Savings the charges will supposedly be reversed and our 'account' with Complete Savings closed.  I found it ironic how quickly and easily they removed the service. There was even an option on the primary phone menu to remove yourself.  I surmise they get a LOT of requests for removal.   I suggest you not do business with either completesavings.com or drugstore.com.

Some of you may say I should just read the terms of service and be more careful when shopping online, but I'm calling bullsh*t on that.  One should not have to be concerned with accidentally being charged for extraneous external services.  If your company chooses not to act in a respectful manner, so be it, but don't complain when I tell others not to shop at your company.  I only want to watch Ferengi on TV, not interact with them in real life.

If you google 'complete savings scam' you will see other companies have been caught in this scam of tricking their own customers in a desperate attempt for more revenue.

Some contrary copper talk

There really isn't a commodity that hasn't gone up dramatically this year [edit: ok, I forgot about natural gas, it has dropped like a rock]  as a counter response to the dramatic fall in prices last year, a flood of central bank liquidity, and hopes for a strong worldwide rebound.  Copper has not disappointed.  At $3.00 / pound it is nearly back up to the $4 highs of 2008. 

Is this dramatic run up in copper prices justified? I'm beginning to wonder.  I began examining copper in an attempt to see if the inventory increases in oil were consistent with other raw materials.  Like oil, copper's inventories continue to rise worldwide.  As you can see from the graphs below inventories are steadily marching upwards worlwide. 

The graphs only go back 5 years but futher back inventories peaked (for COMEX + LME) at around 1,250,000 metric tons in 2002.  Copper was also around a buck a pound back then. Today the world is at at less than half that inventory figure.

What then is keeping copper prices so elevated? In the short term a serious equipment failure at BHP's Olympic Dam mine gave boost to copper and uranium prices.

I see two major longer term factors giving a lift to prices, the dollar and a mindframe of a recovering global economy.   The trend is also upwards and this market seems to be very much driven by technical trading more than anything else right now.  If the world economy does not rebound and the dollar stops dropping I think copper prices could rapidly reverse.

Right now I'm not really long or short copper or any copper producers, but I'm investigating further.  If copper inventories keep rising the bulls are going to have a harder time justifying prices at their current levels.

Simon Hunt has been extremely bearish on copper recently.

My skeptical view of the copper rally has also put me at odds with the Chinese pig farmer trading community. 

Many thanks to Sober Look for his assistance in acquiring some of this data.

Source:

Bloomberg - Chinese copper inventories

Kitco metals

Housing starts -- looking through the noise

Much has been said regarding the nascent recovery in housing and home prices due to rebounding prices and activity.   Unfortunately I think the popular media is only looking at the very seasonal activity and extrapolating the data incorrectly.  The Big Picture blog (2009, October 25)  astutely shows the details of this seasonality.  As you can see from their graph, it is much better to look at the 12 month moving average of housing starts to extract the true trend.  The average continues to drop, although the rate of decline is slowing. 

In short, don't go hopping up and down like a bunny on one month's housing data, you need to look at the 12 month average to divine what is really happening.