Next meeting of the Shadow Open Market Committee scheduled for September 30, 2009

The second semiannual meeting of the revamped Shadow Open Market Committee (SOMC) is now scheduled for Wednesday afternoon, September 30, 2009 at the Cato Institute in Washington, D.C. The focus for this meeting will be "Exit Policies for Sound Central Banking." In other words, how and when should the Federal Reserve unwind all of the current monetary stimulus that it has pumped into the financial system. The symposium will run from 12:30 p.m. to 5:15 p.m. with a reception to follow. Registration and check in is at noon. Advance registration is advised since space is limited, but you can watch the event live from the symposium page.

The quick summary of the symposium is:

The SOMC would like to invite you to a September 30, 2009, symposium on appropriate exit policies for the Federal Reserve, European Central Bank' and other leading central banks. This meeting will begin with a panel discussion on pressing issues facing global monetary policies, featuring Donald Kohn, vice chairman of the Federal Reserve and Athanasios Orphanides, Member of the Governing Council of the European Central Bank. A guest lecture will be presented by former SOMC member William Poole. Position papers will be presented by SOMC members Charles Calomiris, Michael Bordo, Bennett McCallum, Marvin Goodfriend, Gregory Hess, Mickey Levy and Anna Schwartz. The audience will be encouraged to participate in the discussions.

The papers to be presented by the committee members are:

Michael Bordo, The Fed's Monetary Policy during the 1930s: A Critical Evaluation

Charles Calomiris, Reassessing the Role of the Fed: Grappling with the Dual Mandate and More?

Marvin Goodfriend and Bennett McCallum, Exiting Credit Policy to Preserve Sound Monetary Policy

Gregory Hess, Fannie and Freddie: The Houseguests that Just Won't Leave

Mickey Levy, Macroeconomic Policies and the Economy

Anna Schwartz, Restoring Monetary Sensibility

Bill Poole's lecture is entitled "Exit Policies from the Financial Crisis -- To What?". Currently a senior fellow at Cato, Bill was president of the Federal Reserve Bank of St. Louis. Before that as a Professor of Economics at Brown University he had been a member of the original Shadow Open Market Committee.

"The Shadow" is a small group of economists who meet periodically to present papers on and discuss various aspects of the economy and monetary policy that are relevant to the Federal Reserve in general and the Federal Open Market Committee in particular.

The goal of the SOMC, as stated on their old web site, was that:

The Committee's deliberations are intended to improve policy discussions among policy makers, journalists and the general public with the hope that wiser policy decisions will result.

The web site has not been updated since May 2006, so the SOMC "charter" may have changed, but I suspect not.

As the old web site says, "The SOMC is an independent organization whose members are drawn from academic institutions and private organizations." The SOMC is mostly academic, and certainly nobody currently in the government, although members of the SOMC have gone on to join the Federal Reserve and former Federal Reserve officials and employees have joined the SOMC after leaving government employment.

Previous members continuing on the "new" SOMC are Professor Gregory Hess of Claremont McKenna College, Mickey Levy of Bank of America, Professor Bennett McCallum of Carnegie Mellon University, and Anna Schwartz of NBER.

The new SOMC members are Professor Michael Bordo of Rutgers University, Professor Charles Calomiris of Columbia University, and Professor Marvin Goodfriend of Carnegie Mellon University.

There is a new web page for the committee at Claremont McKenna College, but it has not yet been updated for the upcoming meeting. The papers from the April meeting are still there for download.

I have been attending the SOMC as an observer since... longer than I can remember... since about 2000.

The first SOMC meeting was back in September 1973. The SOMC was founded by Prof. Karl Brunner of the University of Rochester and Prof. Allan Meltzer of Carnegie-Mellon University.

For those of us into economics, finance, monetary policy, and fiscal policy, it will be an exciting afternoon.

It is always interesting to listen to the form of questions asked by "the media."

See the Cato web site for details on attending.

-- Jack Krupansky

ECRI Weekly Leading Index falls moderately but still indicates an imminent economic recovery

The Weekly Leading Index (WLI) from the Economic Cycle Research Institute (ECRI) fell moderately by -0.43% vs. +0.44% last week, but its annualized growth rate rose very sharply from +17.5 to +19.6 and has "surged to a 38-year high that suggests chances of a double-dip recession are slim", and its distinct upturn strongly suggests that recovery is on the way.

This was the tenth consecutive positive reading for the WLI growth rate.

The WLI has risen for 21 of the past 24 weeks.

The WLI has now recovered to its level in mid-September 2008. That is a major recovery, but also highlights that the economy has a long far to go to get back to "normal."

According to ECRI, "With WLI growth continuing to surge through late summer, a double dip back into recession in the fourth quarter is simply out of the question."

My personal outlook is that: The recession of the U.S. economy that started in December 2007 and sharply accelerated in August 2008 finally looks as if recovery will be firmly underway within the next few months.

Although a double-dip recession or "W" recovery cannot be discounted, it is becoming quite clear that the overall U.S. economy is on the verge of positive growth of spending and output, even if unemployment is still problematic.

I did watch a recent video in which ECRI insisted that a double-dip was definitely not in the cards based on the strength of the bounce in the leading indicators.

Although quite a few, but not all, of the current economic reports continue to show significant weakness, there is also a vast amount of potential stimulus (especially from the Federal Reserve) in the pipeline that could kick-start the economy within the next couple of months. Please keep in mind that we could continue to see further employment losses or gains in unemployment even as recovery is underway.

-- Jack Krupansky

Stock market in a "sell into any rally" trading range

The stock market can be lethargic and volatile in the lazy days of summer when a lot of people are on vacation. Without any significant inflow of "real" money, such as from mutual fund managers, traders and short-term speculators will try to work the market back and forth to maximize their potential for trading off volatility and the brokers will collect transaction fees on all of these trades. Ka-ching! The mentality of traders and short-term speculators is to "sell into any rally" when stocks move above or up near "resistance". That is what we have been seeing lately. Sure, sometimes they sell too much and then we see sharp rallies based on short squeezes, but more commonly we see the market open higher and then we see those early "trading gains" dissipate as traders and short-term speculators sell or short into the early rally. This kind of give and take lethargy continues until eventually some "real" money, such as from mutual fund managers, comes into the market and manages to overwhelm the amount of money that the traders and short-termspeculators are throwing at the market on a daily basis.

What does this mean for "real" investors? Not much, really. Simply ignore it all and focus on economic and business fundamentals. These daily fluctuations are rarely reliable signals about economic and business fundamentals.

-- Jack Krupansky

OMB issues mid-session review for federal budget and economic outlook

The Office of Management and the Budget (OMB) just issued its Mid-Session Review (MSR) of the economic outlook and the federal budget (actual MSR dcoument). As the OMB web site says, the MSR "contains revised estimates of budget receipts, outlays, and budget authority for fiscal years 2009 through 2019 and other summary information."

OMB is forecasting real GDP to decline by -2.8% this year but to rise by +2.0% next year.

They forecast that the unemployment rate will "peak at a rate above 10.0 percent on a monthly basis before beginning to decline in the middle of 2010."

After next year, they are forecasting that the economy will be growing back to something resembling normal: "Thereafter, the Administration expects a relatively long economic expansion, which will proceed most rapidly in 2011-2014 and eventually lower the unemployment rate to below 6 percent."

On the budget front, OMB says that "the budget deficit is projected to fall in 2010, to $1,502 billion, or 10.4 percent of GDP."

Total federal debt held by the public was $5.8 trillion in 2008, $7.9 trillion in 2009, forecast to be $9.6 trillion in 2010, and $17.5 trillion in 2019. The cumulative deficit for years 2010 to 2019 amounts to $9.05 trillion. Even out in 2019 the annual deficit is $917 billion. Scary numbers.

There are a lot of bug numbers here, but our economy is very big as well. GDP will be about $14.1 trillion in 2009 and $22.9 trillion in 2019.

Personally, none of this particularly worries me. These are conservative forecasts. It may take awhile for our economy to fully bounce back, but then we are more likely to see very strong growth. Not this year or maybe next, but a few years from now the current angst will just be a distant memory.

Also, I do have faith the President Obama will be taking a rather aggressive stance towards the budget deficit in the coming years.

-- Jack Krupansky

ECRI Weekly Leading Index rises moderately and indicates an imminent economic recovery

The Weekly Leading Index (WLI) from the Economic Cycle Research Institute (ECRI) rose moderately by +0.48% vs. +1.67% last week, and its annualized growth rate rose very sharply from +14.3 to +17.5, rising "to a fresh 26-year high", and its distinct upturn strongly suggests that recovery is on the way.

This was the ninth consecutive positive reading for the WLI growth rate since August 10, 2007, two years ago.

The WLI growth rate has risen for 21 of the past 23 weeks.

The WLI has now recovered to its level in mid-September 2008. That is a major recovery, but also highlights that the economy has a long far to go to get back to "normal."

According to ECRI, "It is high time to break from the herd of pessimistic analysts, who will continue to bemoan economic weakness long after the Great Recession is history." The Reuters article says that ECRI is "suggesting a strong recovery is already in motion."

My personal outlook is that: The recession of the U.S. economy that started in December 2007 and sharply accelerated in August 2008 finally looks as if recovery will be firmly underway within the next few months.

Although a double-dip recession or "W" recovery cannot be discounted, it is becoming quite clear that the overall U.S. economy is on the verge of positive growth of spending and output, even if unemployment is still problematic.

I did watch a recent video in which ECRI insisted that a double-dip was definitely not in the cards based on the strength of the bounce in the leading indicators.

Although quite a few, but not all, of the current economic reports continue to show significant weakness, there is also a vast amount of potential stimulus (especially from the Federal Reserve) in the pipeline that could kick-start the economy within the next couple of months. Please keep in mind that we could continue to see further employment losses or gains in unemployment even as recovery is underway.

-- Jack Krupansky

Mortgage applications show that housing market beginning to recover

The weekly mortgage application report from the Mortgage Bankers Association (MBA) showed a modest rise in applications to purchase, a third consecutive gain, as well as a modest rise in the 4-week moving average of applications to purchase. This is clear evidence that the housing market is beginning to recover.

Call this a green shoot.

In my own limited personal experience, I noticed that a sale finally occurred in the mobile home park where my mother's mobile home is down in Manahawkin, New Jersey. It sold for an 18% discount to the listed price and had been listed for five and a half months. It was the cheapest unit in the park. That isn't much progress, but it is finally some progress. Call that a green shoot as well.

-- Jack Krupansky

Is the stock market about to crash?

I see headlines and stories suggesting that maybe the stock market is about to crash or have a "sharp decline", but they are quite misleading. As I have said many times before, traders and short-term speculators make their money on any market moves. So, if the market is trading in a relatively narrow range, sometimes these folks actually engineer a sharp decline by cherrypicking some news stories and then concocting their own story (e.g., weak consumer spending) and then conning everybody else into buying that story and dumping stocks. It is a tried and true tested strategy. And it works. At least for awhile. Eventually, after a few hours or days or maybe a few weeks their story and engineered decline runs out of steam and the market recovers. That looks exactly what is happening right now.

Will this be a buyable dip? Probably, maybe. After all, virtually nobody of note believes that the economy is not in the early stages of a recovery of some sort. The big unknown is what market level will present to optimum entry price for the dip. That I could not say since I have no idea how many people will buy into the cockamamie trader story and misguidedly dump stocks.

To be crystal clear, everybody of note already knows that consumer spending is relatively weak and will continue to be so until later in the recovery. Consumer spending won't pick up dramatically until after employment stops declining and that will not happen until after business investment picks up. To be even more clear, look for business investment to pick up, then employment picks up, then consumer spending picks up.

Also, I see a lot of headlines and stories about consumer confidence, but consumer confidence is primarily a lagging economic indicator, or at best a coincident or maybe even a very short-term leading indicator, but not a longer-term leading indicator for the economy. Consumer confidence will remain relatively weak until employment picks up. Everybody of note already knows that. A lot of traders and short-term speculators do know that as well, but they also know that there are plenty of gullible "investors" out there who do not know it and can easily be suckered into buying the trader story that weak consumer confidence right now will lead to longer-term stock market declines.

The real bottom line here is that the stock market remains in a trading range and that traders and short-term speculators are just trying to "do their thing" and force the market to head back down towards the lower end of the trading range. Whether they will succeed or how far they can manipulate the market to fall is anybody's guess. In any case, this is simply a short-term move and not an indication of the longer-term market trend.

If you are a true, longer-term investor simply ignore this kind of market chatter and focus on the longer-term. Or, maybe even consider buying on the dip if prices look attractive enough.

-- Jack Krupansky

FDIC makes it official that BB&T taking over deposits of Colonial Bank

The FDIC just emailed the announcement that BB&T would be assuming all deposits of Colonial Bank. The closing of Colonial  Bank of Montgomery, Alabama had been leaked and reported in the financial media earlier today.

If you are a depositor at Colonial, you are completely protected by the FDIC since all deposits (about $20 billion) were assumed by BB&T.

BB&T is also purchasing about $22 billion of Colonial's $25 billion in assets.

The cost to the FDIC Deposit Insurance Fund (DIF) will be about $2.8 billion.

The decision to close the bank was made by the Alabama State Banking Department, which then appointed the FDIC as the receiver to tidy up the remains.

-- Jack Krupansky

Monthly GDP for June fell by -0.1% (-0.7% annualized), Q3 tracking for a +2.8% annualized gain

Monthly real GDP, one of the five primary economic indicators that the NBER Business Cycle Dating Committee (NBER BCDC) uses to judge recession start and end dates, fell slightly in June by -0.1% or -0.7% annualized, after no change in May (revised up from -0.2%), and real Q3 GDP is forecast to rise by +2.8% annualized, according to Macroeconomic Advisers (MA). The government does not publish GDP data at a monthly level, but the NBER Business Cycle Dating Committee says that they refer to sources such as Macroeconomic Advisers (MA) and their MGDP data series. As Macroeconomic Advisers summarized GDP for June:

Monthly GDP declined 0.1% in June following roughly no change in May, which was revised lower from last month's initial reading of a 0.3% increase.  The slight decline in June reflected small and nearly offsetting changes in nonfarm inventory investment (a small decline) and final sales (a small increase).  The small increase in final sales was primarily accounted for by an increase in net exports.  The level of monthly GDP in June was 0.2% below the second-quarter average at an annual rate.  Average monthly increases of 0.4% per month would support our latest tracking forecast of a 2.8% increase in GDP in the third quarter.

(The MA web site has a report title that says that they have a revised tracking forecast for +2.7% real GDP growth in Q3.)

This report does not necessarily herald the return of happy days, but at least it is not indicating a worsening of the trend.

Real GDP in June was at the same level as in February 2006, which is 4.72% below the peak GDP in June 2008 and 4.07% below GDP at the start of the recession in December 2007.

If the NBER BCDC is the definitive expert on marking of recessions, MA is the definitive expert on calculating real GDP at the monthly level with their MGDP data series.

-- Jack Krupansky

Industrial production finally bounces back

It has been a long time coming, but the monthly Federal Reserve report on Industrial Production finally showed a bounce in July. One month is certainly not enough to mark a true trend change, but other than a one-month blip in October 2008 due to recovery from a hurricane, this is the first gain in industrial production since December 2007, which marked the beginning of the recession. The July gain only erased the June loss, but that is still much better than a steady decline. Even excluding motor vehicles and parts, manufacturing production edged up 0.2%. Capacity utilization also edge up, another sign of a possible recovery.

In short, we are by no means out of the woods and have a lot of lost ground to recover, but this was definitely a very green shoot.

-- Jack Krupansky

ECRI Weekly Leading Index rises very sharply and indicates an imminent economic recovery

The Weekly Leading Index (WLI) from the Economic Cycle Research Institute (ECRI) rose very sharply by +1.77% vs. +1.82% last week, and its annualized growth rate rose very sharply from +10.4 to +13.4, "surged to a 26-year high", and its distinct upturn strongly suggests that recovery is on the way.

This was the eighth consecutive positive reading for the WLI growth rate since August 10, 2007, two years ago.

The WLI growth rate has risen for 20 of the past 22 weeks.

The WLI has now recovered to its level in mid-September 2008. That is a major recovery, but also highlights that the economy has a long far to go to get back to "normal."

According to ECRI, "With WLI growth surging, the odds are rising that the early stage of this economic recovery will be stronger than any since the early 1980s. Next year, looking back you'll see that GDP, industrial production, sales, and even non-manufacturing jobs growth -- where 91 percent of Americans work -- began rising as recovery took hold."

My personal outlook is that: The recession of the U.S. economy that started in December 2007 and sharply accelerated in August 2008 finally looks as if recovery will be firmly underway within the next few months.

Although a double-dip recession or "W" recovery cannot be discounted, it is becoming quite clear that the overall U.S. economy is on the verge of positive growth of spending and output, even if unemployment is still problematic.

Although the current economic reports continue to show significant weakness, there is also a vast amount of potential stimulus (especially from the Federal Reserve) in the pipeline that could kick-start the economy within the next couple of months. Please keep in mind that we could continue to see further employment losses or gains in unemployment even as recovery is underway.

-- Jack Krupansky

Unemployment insurance claims takes a step backward, a wilting of the green shoot

Despite all the chattering that the recession may be over, the jobs front is still a source of despair. The rate of job loss has declined recently, but is still not anywhere near healthy. Unemployment insurance claims were mixed last week, with initial claims taking a step backwards, while continuing claims fell.

The 4-week moving average of initial claims rose slightly to 565,000, which is still well above the 300,000 level we would expect to see in a healthy economy. Although this one week of data is in the wrong direction, one week does not mark a trend change.

The 4-week moving average of continuing claims is down to 6,202,000, but that is well above the 2.5 million level we might see in a healthy economy. It is unknown how many continuing claims exhausted their benefits and are no longer counted, but "count" as a decline in continuing claims.

In short, the unemployment picture is gloomy, but trending in the direction of recovery. This trend remains a semi-healthy if slightly wilted green shoot.

-- Jack Krupansky

Great idea: Require all Wall Street bonuses to be paid with "toxic" assets

Various people are complaining about Wall Street bonuses and how "banks" are still carrying so much in "toxic" assets on their books at uncertain valuations, so I have the solution to all of these problems:

For the foreseeable future, until the value of these toxic assets goes to zero, require all Wall Street bonuses to be paid in the form of these toxic assets that are on the firm's books.

Give these bozos a taste of their own medicine. Yeah!!

The beauty of this approach is that lets management balance discounting of the value of the toxic assets on the one hand and the willingness of the bozos to accept such assets on the other hand.

In truth, a lot of sharp financial gurus would in fact accept a lot of these assets if only the discount was steep enough.

Of course banks don't want a steep discount because that decimates their capital. Somewhere in the middle is a balance that both sides can accept. The bozos certainly won't get as steep a discount as they would want, but that is probably okay with the American people, the taxpayers, the people who bailed out these bozos.

So, what do you think? Great idea, or am I being too unkind to the bozos on Wall Street?

I really think this could work.

-- Jack Krupansky

ECRI Weekly Leading Index rises very sharply and indicates an imminent economic recovery

The Weekly Leading Index (WLI) from the Economic Cycle Research Institute (ECRI) rose very sharply by +1.86% vs. +1.06% last week, and its annualized growth rate rose very sharply from +8.8 to +10.5, hitting "a fresh five-year high" and well above its record low for its 60-year history of data of -29.7 for the week ended December 5, 2008, and its distinct upturn strongly suggests that recovery is on the way.

This was the seventh consecutive positive reading for the WLI growth rate since August 10, 2007, two years ago.

The WLI growth rate has risen for 19 of the past 21 weeks.

The WLI has now recovered to its level in Early October 2008. That is a major recovery, but also highlights that the economy has a long far to go to get back to "normal."

According to ECRI, "With WLI growth soaring into the double-digit range, prospects for U.S. economic growth have brightened significantly." Last week ECRI said that "Not only is the U.S. recession set to end this summer, but the recovery is apt to be stronger than many expect."

My personal outlook is that: The recession of the U.S. economy that started in December 2007 and sharply accelerated in August 2008 finally looks as if recovery may be firmly underway within the next few months.

Although a double-dip recession or "W" recovery cannot be discounted, it is becoming quite clear that the overall U.S. economy is on the verge of positive growth of spending and output, even if unemployment is still problematic.

Although the current economic reports continue to show significant weakness, there is also a vast amount of potential stimulus (especially from the Federal Reserve) in the pipeline that could kick-start the economy within the next couple of months. Please keep in mind that we could continue to see further employment losses or gains in unemployment even as recovery is underway.

-- Jack Krupansky

Employment report shows shallowing of the gloom

The was no hint of any outright sunshine in the monthly employment report for July that came out this morning, but the gloom was in fact a bit less gloomy. The decline in payroll employment was the smallest since a year ago. The unemployment rate actually did get slightly better.

The U-6 unemployment indicator actually improved with a decline from 16.5% to 16.3%, lower than both June and May. U-6 includes workers who wanted full-time work but could only find part-time work. Technically it is: "total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers." The report says:

Marginally attached workers are persons who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the recent past. Discouraged workers, a subset of the marginally attached, have given a job-market related reason for not looking currently for a job. Persons employed part time for economic reasons are those who want and are available for full-time work but have had to settle for a part-time schedule.

Temporary help continued to decline, suggesting that gains in employment are still not quite imminent.

This report will offer little solace to lose who are unemployed or maybe even on the verge of losing their jobs in the coming months, but it is in fact a green shoot showing that the economy is beginning to recover.

-- Jack Krupansky

Stock market back to range trading

Sure, NASDAQ broke above the magical psychological level of 2,000 and the S&P 500 above the magical psychological level of 2,000 a few days ago, but as I noted on Monday all of that is merely psychological and not fundamental. I also noted that:

Left to their own devices and desires, traders love range trading. Up, down, up, down... Traders love anything that moves. Movement means transactions, transactions mean fees, fees mean big paychecks and big bonuses. Traders would be happy if the market continued moving up strongly, but if buying volume peters out, traders will reverse on a dime and bet on a reversal and a decline back towards the lower end of the trading range. And then start all over again.

Sure enough, that is exactly what we have seen this week. With little remaining buying volume after breaking above those psychological levels, traders and short-term speculators reversed and bet on the downside.

We have also seen another trader and short-term speculator favorite: selling into strength. The market opens strong and then tanks. It does that because Traders manage to psyche each other into covering short positions at the open and meanwhile other traders and speculators are opening new short positions at those higher price levels. It is a game of chicken, but can be quite profitable.

From here, traders and short-term speculators could continue their negative bias. Especially as some hedge fund managers talk up their pet story about the spring rally being a "bear market rally" and that "another leg down" is coming. That incites a lot of naive traders and short-term speculators to bet on a steeper decline.

But... if no such steep decline materializes soon enough, they begin to lose patience.

At some point, after a big enough point decline and enough loss of patience, the lower end of the trading range is encountered. Unless there is heavy selling volume, traders and short-term speculators will begin to reverse and start betting on the upside. Meanwhile many of those naive speculators who believed that a new down-leg was imminent get burned and a dramatic short-squeeze occurs. This accelerates a new bull up-leg towards the high end of the trading range.

Once again, none of this is about economic or business fundamentals. News headlines can moderate or accelerate the bias of the process for the day, but the underlying process is about range trading.

Eventually, there is either enough mutual fund buying at the upper end of the range or mutual fund selling at the lower end of the range for the market to break out (up) or break (down.) But, right now, we are experiencing range trading with no clear net bias by mutual fund managers.

The monthly employment report for July that comes out Friday morning could incite either a break further towards the lower end of the trading range or supply the catalyst for marking the lower end of the trading range, or could be a non-event. The actual economic fundamentals will not matter so much as how traders and short-term speculators have themselves pre-positioned and whether the "smart" money piles on for a further decline or buys to kick off a short-squeeze.

A sharp move, up or down, occurs when the "smart" money detects that the bulk of traders and speculators are "leaning too far in the same direction." Give the rug a swift tug and they all go scrambling to close and reverse their positions, further accelerating the change of trend, relative to the direction "the herd" was leaning.

-- Jack Krupansky

Unemployment insurance claims modestly improved, an ongoing green shoot

Employment and unemployment will be ongoing problems for the foreseeable future - until business investment picks up substantially. Meanwhile, unemployment insure claims continue to incrementally improve. Initial claims are trending down and continued to do so last week. Continuing claims remain quite elevated and even rose modestly last week, but the trend is down.

The 4-week moving average of initial claims is now down to 555,250, but that is still well above the 300,000 level we would expect to see in a healthy economy.

The 4-week moving average of continuing claims is down to 6,278,750, but that is well above the 2.5 million level we might see in a healthy economy. Although seasonally adjusted claims were up last week, unadjusted claims were actually down and below 6 million.

In short, the unemployment picture is gloomy, but trending in the direction of recovery. This trend remains a healthy green shoot.

-- Jack Krupansky

ISM Non-manufacturing report a rather brown shoot

I tried, but there was simply no way to find any good news in the ISM Non-manufacturing (services) Report on Business for July today. Overall it... sucked. The closest thing to good news is that although it declined from June, it was still better than the level in May. Also, there was only a very modest decline from June.

It isn't that the report itself was so bad, but that it was 180 from the improvement we saw on Monday in the ISM Manufacturing ROB.

The overall NMI (Non-Manufacturing Index) was down very modestly, but the BusinessActivity Index was down moderately since June. New Orders wer down modestly. Employment contracted at a faster pace. New Export Orders began contracting again after an expansion in June, but still above the May level.

The other way of looking at this report is that we did see three consecutive months of improvement since March, so one down report does not yet constitute a true change in trend, yet.

Anyway, for now, this was unforunately a brown shoot.

But I will let it slide, for now.

-- Jack Krupansky

My 7th Lending Club investment loan payment completed posting

The 7th (of eight) of my Lending Club investment loans had its first payment from last week (7/28) complete posting with all fields updated today. This one has a rate of 16.00%. My Net Annualized Return is now reported as 12.90%. Everything is fine.

That leaves only my 8th investment loan, which will have its first payment due on Sunday, August 9th.

And then I have a second payment for my first investment loan due on August 12th.

So far, I have gotten $4.00 of my initial $200 principal back and available for reinvestment. And I have received $1.82 in interest and then there is another $1.17 in accrued interest. So, I have $5.75 in cash kicked off after only one month of payments (with one payment still remaining.) This is simply a very modest experiment. The numbers scale for a more realistic size investment.

All is fine, so far. The experiment has been successful so far, but I have more observations and experiments to complete.

I am actually itching to do another round of investment, probably using the LendingMatch feature. I will try to be disciplined and wait until September.

I also want to take a look at the trading platform to get a sense of what the secondary market for these loans is like, not that I intend to sell any of them in the foreseeable future.

-- Jack Krupansky

What does it mean that NASDAQ finally closed above 2,000?

Whoops! How did that happen? We weren't looking and suddenly NASDAQ bursts above the magical psychological level of 2,000, closing at 2,009, the first close above 2,000 since October 1, 2008. What does it mean? Not a whole lot.

There is absolutely nothing fundamental about NASDAQ closing above 2,000 as opposed to 1,975 or 2,025. Nothing. Zilch. Zip.

Nothing fundamental. Rather it is all psychological, a mythology or story in the heads of short-term traders, as well as the media. Traders do like to make up stories to pitch to each other and to build "trades" around those stories. Psychological thresholds are just as good as fundamentals when it comes to the short-term behavior of traders, and the media.

Left to their own devices and desires, traders love range trading. Up, down, up, down... Traders love anything that moves. Movement means transactions, transactions mean fees, fees mean big paychecks and big bonuses. Traders would be happy if the market continued moving up strongly, but if buying volume peters out, traders will reverse on a dime and bet on a reversal and a decline back towards the lower end of the trading range. And then start all over again.

The fundamental bottom line is that the stock market tends to rise as the economic outlook improves and that no level is fundamentally different than a penny above or below that level.

That said, the media and a lot of naive investors will in fact take the psychological "bait" and at least try to make a big deal about it. But, traders frequently do trade against the media and "retail" investors. So, the big question is whether euphoria on the part of retail investors can overwhelm the bearish cynicism of traders.

Personally, I am content to be a buy and hold investor. No trading. No short-term speculation.

-- Jack Krupansky

Taking my idle cash out of Lending Club

Everything is going fine with my Lending Club investment loans. I am still in the experimental stage and now waiting and watching to see how the first couple of months play out with my initial batch of investment loans. I actually made a mistake by putting much more cash into the the account than I planned to initially invest. The problem is that idle cash in my Lending Club account earns... 0% interest, which is a little less than desirable. So, since I am not expecting to invest more before September, I decided to withdraw the excess cash and place it in a bank account online savings account, SmartyPig.com, where I can get a decent return on idle cash (2.75% APY.) This is also an experiment to see how long a withdrawal really takes.

My current plan is to invest about twice as much as I currently have invested in the third week of September after I have gotten the third month of payments for half of my current investment loans. This time I will experiment using the LendingMatch tool. Then I expect to invest a similar amount in October. These are all still very small amounts of money. Any deeper investment will have to wait until I line up work in the fall.

-- Jack Krupansky

ISM Manufacturing report shows strengthening of the economy

The ISM Manufacturing Report On Business for July showed only a modest contraction of the manufacturing sector in July and enough of an improvement to suggest a strengthening of the overall U.S. economy. The overall manufacturing index came in at 48.9, only modestly below the 50.0 breakeven level. This is the best reading since last August. New Orders just went positive. Production was positive for a second consecutive month. Backlog of Orders is now flat rather than contracting. Exports are growing again. The only real negative was that (manufacturing) employment continues to contract, although at a much slower pace.

This one report does not definitively tell us that we are completely out of the woods by any stretch of the imagination, but it is a very green shoot.

The real bottom line here is that this report indicates that the overall economy is growing again:

The past relationship between the PMI and the overall economy indicates that the average PMI for January through July (40.6 percent) corresponds to a 0.2 percent decrease in real gross domestic product (GDP). However, if the PMI for July (48.9 percent) is annualized, it corresponds to a 2.4 percent increase in real GDP annually.

There is always the risk of a double-dip recession, but for now we are on track for +2.4% annualized GDP growth.

-- Jack Krupansky

U.S. Mint 2009 Ultra High Relief Double Eagle Gold Coin (UH1) only $1,289, available for shipping 8/7

I had seen this info before, but I just spotted a Web ad on a Paul Krugman Op-Ed in The New York Times advertising the U.S. Mint 2009 Ultra High Relief Double Eagle Gold Coin (UH1) only $1,289, available for shipping 8/7/2009 (that's Friday.) It is a full ounce of 24-karat gold. It is also technically legal tender, albeit with a face value of only $20 (talk about inflation!).

If I had lots of extra cash to burn I might get one, but as it is this "coin" would have little value for me.

The U.S. Mint says:

The coin, is a digitally reproduced version of Saint-Gaudens' original ultra high relief 1907 Double Eagle gold piece, which was never released into circulation.

If you are into "hard money", this is it, albeit with a very hefty premium. I'll stick with the paper stuff. Actually, I'll stick with the electronic version of the paper stuff. Call it virtual money. Still, it would be nice to have at least a tiny amount of the "hard stuff." Somewhere I have a 1/10-ounce platinum eagle that I bought over 10 years ago. I think I paid about $45 for it. I also bought a little 1/10-ounce gold "bar" for about $35 back then. That is a complete inventory of my hard money assets.

-- Jack Krupansky

Made my Kiva micro-loan for the month of August

I made a new micro-loan through Kiva for the month of August. My intention is to make a new micro-loan every month, if possible, from repayments for past micro-loans. Repayments in July were more than enough to fund this latest micro-loan (and one for September as well.)

This one was for a young married man, with children, in Palestine who cleans carpets. It is a 20-month micro-loan for a total of $1,500, of which I lent $25. The money is to be used to buy cleaning supplies.  The micro-loan was already disbursed to the micro-entrepreneur on July 16, 2009 by the local partner. Kiva is raising funds to essentially buy that loan from the local partner.

Two of my micro-loans are delinquent. One is actually just due to the field partner experiencing difficulty with transferring the money back to Kiva due to some new local government requirement. I suspect that the other is also experiencing some local problem and is already 75% repaid. Both are in central Africa.

Here is my Kiva public lender page: http://www.kiva.org/lender/JackKrupansky

Note: This is all real and good, but these micro-loans do not net any interest to us micro-lenders. Kiva's fine print:

Lending to the working poor through Kiva involves risk of principal loss.
Kiva does not guarantee repayment nor do we offer a financial return on your loan.

Still, at least we know our money is really helping somebody better their lives in a visible way rather than put the money in a bank account or money market fund where who knows what it helps to pay for or what good it does and for only a few pennies of profit in our pockets.

-- Jack Krupansky