Sunday, September 7, 2008

U.S Economic Update (Economic Data, US Indices, VIX Trend)

It looks like the Government is finally going subsidize the GSE's (Fannie Mae and Freddie Mac) and possibly lend $50B to GM. Local banking institutions keep going under and oil prices have been falling due to falling imports/demand, however the housing market could be stabilizing as housing inventories get worked off on a month to month basis. Still the August housing starts and permit data still shows weakness. The dollar has also improved. I believe currency traders are sensing a global slowdown, putting hard assets out of favor and putting a long bias into the USD. Also recently Fed officials believed the next rate move would be up. Things aren't looking that great for the consumer either with real personal spending and income not outpacing inflation and unemployment data reaching levels not seen for 5 years. Unexpectedly Q2 GDP was revised higher to 3.3% from the initial 1.9% reading, due to strong foreign exports utilizing the cheap US Dollar. The durable goods report in July increased 1.3%, which was higher than the 0.1% increase expected, due to foreign demand for commercial air crafts. However this could be a temporary phenomenon because a global slow down and a higher US dollar would lower exports. In the US increased unemployment and inflation data could affect real consumer spending further which would weaken retail sales data. Eventually the higher US Dollar and lower oil prices would lower inflation and lower the squeeze on the consumer's pockets.

The indices could revisit their old lows, or double bottom, if asset and debt liquidations continue and private institutions/overseas buyers fail to put an underlying bid on our country's distressed assets. I'm not sure how the market will respond if the GOV/U.S tax payers end up bailing everyone out (GM, Banks and GSE's). If the U.S tax payers buy all these distressed assets and hold on to them for years, the assets would eventually increase in value and the tax payers could receive a nice dividend check in the mail when the assets are sold back to the private enterprise at a profit! RIGHT?? So US tax payers are now a pooled distressed US investment fund putting a bid under the distressed assets, possibly saving the market and their home values. It's an automatic bottom with a short term cost. If the U.S Government would stop printing money and spending like crazy it could actually benefit us down the road. If that could only work.

News Flash:
Officials announce takeover of mortgage giants
Auto industry to press Congress for $50B in loans
U.S. unemployment rate hits 6.1%, highest level in five years
Oil hits 5-month low as demand shrinks
New-Home Sales in U.S. Increase From 17-Year Low
Durable goods post strong gains in June, July
Leading economic indicators fell sharply in July

Here's a look at charts, sourced from and, of the Dow Jones Industrials, S&P 500, and VIX (Volatility Index), with technical analysis for September 8, 2008. Also presented is the exchange traded funds SPY and DIA's short interest vs price activity, however it's data ending 8/15/08 which is about a month old. Short interest ending 9/1 could make a bounce. It looks like there's been short covering in recent months as well as a lower put/call open interest ratio, however according to Schaeffersresearch its still at 1.63 which is a heavily bearish bias.

S&P 500 3 Year Chart

Dow Jones Industrials 3 Year Chart

VIX Index Chart

SPY Short Interest vs. SPY

DIA Short Interest vs. DIA
Short Interest Charts from Schaeffers Research