Wednesday, July 29, 2009

Durable Damaged Goods

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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The June Durable Goods Report was released this morning and the number fell 2.5%. The Bloomberg headline for the report was "U.S. Durable Goods Orders, Excluding Cars and Planes, Unexpectedly Advance". There you have it, once you remove the bad components of some report, it's actually bullish! Unfortunately, things are only bullish in Never Never Land and not in Reality Land where those of us who don't work in government agencies or for the mainstream media have to live. Attempts to mute the stock market reaction to the report obviously came directly from the Federal Reserve. Media articles stated that an unnamed top official (now who could that be) said the U.S. economy is likely to see moderate growth in the second half of 2009, as signs grow that the recent severe contraction is waning. If this happens, it will be one of the Fed's first accurate predictions in over two years.

Too much attention shouldn't be paid to one Durable Goods Report, the numbers are highly volatile and the government has little idea what they really are as is. A fall of 12.8% in transportation damaged the numbers. Surprisingly, car sales were down very little (you should be suspicious of that number). The star component was orders for primary metals, which rose 8.9%. The most important number was shipments, which fell 0.2% for a record eleventh straight monthly decline. Yeah, that certainly looks bullish.

There are still some shoes to drop for the economy with commercial real estate being at the top of the list. Fed Governor Janet Yellen admitted to this in a talk yesterday. She also said, "Concern that the massive federal budget deficit will cause inflation is misplaced, deficits don't cause inflation". But she did admit that they can cause higher interest rates, with the implication that this is somehow not related to higher inflation (it was not reported if the audience was doubled over with laughter by that point). Of course, the U.S. is printing money to pay for the deficits and this unquestionably causes inflation. Yellen didn't discuss that rather unpleasant topic and may have even denied that that was the case as well. She did mention she thought core inflation would under 2% for years to come. Yellen is quite possibly the dullest member of the Fed (the competition is strong, so this would be some honor).

News that just crossed the wires indicates that the Fed bought 2.99 billion in treasuries so far this morning. This is with printed money. By the end of the week, the amount is likely to be a lot higher. But, don't worry, this is not going to cause inflation - in Never Never Land that is, in Reality Land there's going to be a lot of problems.

NEXT: Oil Update - EIA, CFTC, and USD

Daryl Montgomery
Organizer,New York Investing meetup

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

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