December Data Calendar

The Lehmann Letter (SM) The stock market retained record ground when it opened this morning: Dow                16,000+ Nasdaq              4,000+ S&P                   1,800+ All the more reason to keep a close eye on the data. Here’s the December calendar for some key releases. The shutdown continues to play havoc with some dates (we’ve done our best to obtain accuracy), but normalcy has returned for the most part. ECONOMIC INDICATOR PUBLICATION SCHEDULE December 2013  Source (* below)……Series Description……Day & Date  Quarterly Data  BEA……….GDP & Profits…..……Thu, 5th BLS…. Productivity & Costs….Mon, 16th BEA…US International Transacs…Tue, 17th Monthly Data ISM..Purchasing managers’ index…Mon, 2nd BLS………….Employment…………   Fri, Continue reading

Housing and Confidence

The Lehmann Letter (SM) Yesterday’s letter reviewed recent reports on slowing existing-home sales and stated that today’s letter would report on today’s scheduled release of housing-start statistics. Unfortunately that report was a victim of the government shutdown. The data are now scheduled for release on December 18: http://www.census.gov/construction/nrc/pdf/newresconst.pdf But the report did say that building permits were up sharply. Let’s hope those permits lead to housing starts and defy the weakness in existing-home sales. We’ll turn again to the construction numbers on December 18. Meanwhile The Conference Board reported weaker consumer confidence in November: https://www.conference-board.org/press/pressdetail.cfm?pressid=5020 The Board’s index fell to Continue reading

Residential Real Estate Cooling Off

The Lehmann Letter (SM) The real estate market has benefited from speculative buying, especially cash purchases by well-heeled investors, during the trough of the cycle. Sales and prices have risen, although they have not achieved previous peaks. That phase of the recovery may be nearing an end. On November 20 The National Association of Realtors reported a decline in existing-home sales: http://www.realtor.org/news-releases/2013/11/october-existing-home-sales-cool-but-low-inventory-drives-prices On November 23 The Economist and The Wall Street Journal carried articles on a cooling residential real estate market. The Economist focused on Phoenix: “Home truths: The recovery in housing is looking surprisingly shaky” http://www.economist.com/news/united-states/21590367-recovery-housing-looking-surprisingly-shaky-home-truths The article drew Continue reading

Good News Carries a Warning

The Lehmann Letter (SM) There was good news in the Money and Investing section of today’s Wall Street Journal. An article by Alexandra Scaggs, Serena Ng and Kate Linebaugh commemorated the Dow’s surge past 16,000: “Fed, Profits Push the Dow to 16000” http://online.wsj.com/news/articles/SB10001424052702303755504579206353296273072?mod=ITP_moneyandinvesting_0 It also contained a warning: “….But lately, profit growth has been slowing. “In each of the three quarters this year, profits for S&P 500 companies rose less than 6% from the previous year, down from double-digit increases following the financial crisis…..” A word to the wise is sufficient. It never hurts to be cautious, especially as we Continue reading

What the Fed Said

The Lehmann Letter (SM) The stock market fell sharply at the end of trading yesterday but has bounced back this morning. Some expressed the view that the release of the Fed’s most-recent minutes prompted yesterday’s retreat. So what did the Fed say? Here is a key paragraph from the minutes of the October 29-30 meeting of the Federal Open Market Committee: http://www.federalreserve.gov/monetarypolicy/files/fomcminutes20131030.pdf “To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and Continue reading

Janet Yellen, Ben Bernanke and Consumer Prices

The Lehmann Letter (SM) On November 15 this letter discussed Janet Yellen’s bias toward an expansionary monetary policy. Ben Bernanke concurs. Here’s an excerpt from Mr. Bernanke’s speech yesterday at the National Economists Club Annual Dinner in Washington DC: http://www.federalreserve.gov/newsevents/speech/bernanke20131119a.htm Mr. Bernanke said: “….I agree with the sentiment, expressed by my colleague Janet Yellen at her testimony last week, that the surest path to a more normal approach to monetary policy is to do all we can today to promote a more robust recovery….” What could be clearer? An immediate surge in inflation without a reduction in unemployment might be Continue reading

Stocks, Earnings and Interest Rates

The Lehmann Letter (SM) Yesterday’s letter observed that the S&P’s P/E ratio is nearing 20 on a trailing basis. That’s a caution light with respect to earnings and interest rates. If the former stop rising and the latter start rising, the stock market may have reached a cyclical peak. Yesterday’s editions of The New York Times and The Wall Street Journal carried interesting commentary on these matters. Nobel laureate Paul Krugman, writing in the Times, asked: “A Permanent Slump?”  http://www.nytimes.com/2013/11/18/opinion/krugman-a-permanent-slump.html?ref=paulkrugman&_r=0 Here is a snapshot of his Q and A: “But what if the world we’ve been living in for the Continue reading

The Dow Near 16,000

The Lehmann Letter (SM) The Dow flirted with 16,000 today before retreating near the close. The S&P 500 also came near 1,800. The S&P’s actual earnings for the latest available year ending June 30, 2013 are $90.95. Multiply that by 20 and you have 1,819. This means the S&P is closing in on a P/E of 20/1. That’s a conventional warning sign that stocks are outstripping earnings and that the market is nearing a peak. A P/E of 20/1 may be made palatable by today’s record low interest rates and the prospect that rates will remain low for the near Continue reading

Janet Yellen’s Top Priority: Employment Not Inflation

The Lehmann Letter (SM) For the first time in 30 years we will have a Fed chairman whose principal concern is employment rather than inflation. There is little doubt that Janet Yellen will be the Federal Reserve’s next chair. Here is an opportunity to read her brief (11 paragraphs) opening statement before yesterday’s meeting of the Senate Banking Committee: http://www.federalreserve.gov/newsevents/testimony/yellen20131114a.htm The key paragraphs are: “…We have made good progress, but we have farther to go to regain the ground lost in the crisis and the recession. Unemployment is down from a peak of 10 percent, but at 7.3 percent in Continue reading

Profit Margins Have Reached a Plateau

The Lehmann Letter  (SM) This morning the Bureau of Labor Statistics released productivity estimates for the third quarter: http://stats.bls.gov/news.release/prod2.t02.htm Productivity was up 1.9% and unit labor costs fell by 0.6%. But the ratio of the implicit price deflator to unit labor costs for the business sector has reached a plateau. This ratio compares the price business receives for its product to the costs it must pay. It is a proxy for profit margins. And, as you can see from the chart, profit margins are no longer rising. Profit Margins (Recessions shaded) Profit margins have had a remarkable run, but it’s Continue reading