Friday, November 20, 2020

Macro Update: A Little Something for Everybody

I've been hinting that many of what we deem to be pertinent data points have been flashing threatening signals of late. However, per this week's analysis, not yet to the point that has us lowering their scores.

In fact, thanks to an uptick in mortgage purchase applications (our only needle-mover this week), our overall score moved yet another notch closer to the green; this week we're at -4.08.

That said, i.e., that nearly positive overall score notwithstanding, the distribution of results across our index says we've quite a ways yet to go before sounding an optimistic tune: 24% of the data we track score positive, 29% negative and 47% score neutral...

Here's that mortgage apps chart:

Speaking of mortgages, clearly, housing's a bright spot in our macro analysis...

Housing Starts remain on the rise:

Housing Permits still in an uptrend, although they did pause last month, which will reflect in future starts:

And homebuilder confidence is nearly off the chart:

A little detail from the latest homebuilder survey: The survey's overall score rose 5 points to 90, with nearly all of the gain coming from the "present situation" component. They of course credit low mortgage rates and an "ongoing suburban shift." They, however, expressed concerns over the availability of materials, and, hence, rising construction costs. They also anticipate higher mortgage rates to pose a headwind next year as the covid situation improves.

My take: Absolutely, record low mortgage rates and the big city exodus -- not to mention low inventory, etc. -- are huge factors in this housing phenomenon. We should also be cognizant of the fact that this is occurring against a backdrop of still 20 million folks receiving unemployment assistance. We can comment on the socioeconomic makeup of that cohort at large, but, regardless, whether or not they be homeowners/buyers, whether many of them are taking advantage of eviction moratoriums and/or forbearance, when millions of folks (while a great number will return to work post vaccine, a few million worked for companies that are never coming back) have to ultimately respond to the reality of their circumstances, well, we have to wonder how the economies of those responsible for the momentum in housing will ultimately hold up...

A couple other bright spots worth mentioning...

Copper: The metal has been on a tear of late, clearly reflecting a pickup in activity in Asia -- China in particular. Although, for sure, there are mining capacity issues in play, as well as optimism over recent covid vaccine news:

Speaking of activity in Asia, it's the one area of the world where Caterpillar is now seeing positive sales growth:

As for that threatening data that have our attention, here are a few examples:

The stock/bond performance ratio. The line falls when long-term treasury bonds outperform stocks. Not your sign of a healthy economic setup:

Here's why that ratio has historical significance (red-shaded areas denote recessions):

Commercial and Industrial Loans... Here's a snippet from last night's rant:
"Respondent's said that "on balance, they tightened their standards on Commercial and Industrial Loans on firms of all sizes", plus they reported weaker demand from their customers for the same. They also reported tighter standards and weaker demand for all major categories of commercial real estate loans."

Jobless Claims: Also from last night's post:
"Today's weekly jobless claims number was the first in 5 weeks that actually saw an increase by a not-small 41k. The previous week's number was revised up as well. In our past couple of macro updates I've pointed to data points whose graphs were showing ominous signs of rolling back over. All of this suggests that indeed the next few weeks are likely to be tough ones."

Consumer Confidence. The Conference Board's survey was flat month-on-month, The University of Michigan's is rolling over, and Bloomberg's weekly survey looks toppy at a notably low level:

Auto Sales: Nice rebound off the low, but not yet back to their 3-year downtrend line (and rolling over a bit as of last month):

Retail Sales. The high-frequency data (2nd panel) continues to roll over:

And a repeat from last week's note, The Chemical Activity Barometer
"...this is way too soon for comfort to see the CAB begin to rollover.

Representing the most ubiquitous input to the across the board manufacturing process (there's chemicals in virtually all manufactured goods), the CAB is one of the best forward-looking indicators of overall health in the economy."

Well, folks, in closing, there's a little something for everybody in the present macro setup. The doomsayers are -- record stock prices notwithstanding -- yet justified in, well, saying their doom. The bleary-eyed optimist, on the other hand, can absolutely point to areas of improvement and legitimately look forward to a not-too-distant future of vaccines and daily life getting -- to a decent degree -- back to normal. 

As for us, well, we dig deep below the surface of general conditions, while strenuously resisting any biases our personalities might inflict upon our real-world assessment. 

In this week's main message we touched specifically on let's call it the balance-sheet reality that keeps us appropriately concerned, and has us diversifying, and hedging, client portfolios accordingly. Please be sure and read it if you haven't already.

Have a wonderful weekend!

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