Thursday, July 15, 2010

PPI, Industrial Production, Deflation, and Hypothetical Bantar

Lower food costs unexpectedly weighed on producer prices with energy also helping. Overall PPI inflation fell 0.5 percent, following a 0.3 percent drop in May. The June decrease was larger than the market consensus forecast for a 0.1 percent decline. At the core level, the PPI eased to 0.1 percent from a 0.2 percent boost in May. Analysts projected a 0.1 percent rise.

For the overall PPI, the year-on-year rate decelerated to 2.7 percent from 5.1 percent in May (seasonally adjusted). The core rate eased to 1.0 percent from 1.3 percent the month before. On a not seasonally adjusted basis for June, the year-ago increase for the headline PPI was up 2.8 percent while the core was up 1.1 percent.

Industrial Production
After almost a year of strong gains, industrial production slowed in June. And it would have been negative without a surge in utilities output-likely weather related. Overall industrial production in June edged up 0.1 percent, following a 1.3 percent gain the prior month. The June increase was above the market forecast for a 0.2 percent drop.

However, manufacturing fell 0.4 percent in June, following a 1.0 percent jump in May. For other sectors in June, utilities output was up 2.7 percent while mining gained 0.4 percent.

Is deflation imminent in the near future? This question resides on the collective brain-power of the FOMC. In addition, Empire State Manufacturing released today reported a slow down in growth led by a decline in new factory orders and shipments. There are three things to do with this data:

1. Ignore it.
2. Wait and seek confirmation before acting.
3. Panic

The economic point of no return may come sooner than later in America. Rather, will the U.S. Gov. and Fed collaborate to pump up the economy with further stimulus checks and or/Quantitate Easing, or will Policy Makers put their feet in the sand and hold true to their proposed intentions of reducing the overwhelming fiscal/budget deficits? If our Politicians/Policy Makers have any desires to keep their respective words options number 1 and 2 will suffice, as reasonable rational responses. If option number 3 is the choice modus operandi expect obtuse action:

1. More stimulus
2. More QE
3. More government borrowing
4. More dovish talk from the Fed
5. A pop in Equities.

At present, sentiment driven trading is ubiquitous in the Global Equity Markets.
Rebuttal; "But good sir isn't equity trading more or less always sentiment driven, or all trading for that matter?"
Response: "In times like these I trust my gut instincts above all else, other traders will as well."
Rebuttal: "Why the bleak outlook, stimulus is a good thing for growth and prosperity, no?"
Response: "It depends on how long you plan on living."
Rebuttal: "I disagree, China will buy our debt forever, they need us to buy their products in order to support/sustain global growth."
Response: "Be that as it may, Japan may be the country worth worrying about. With political instability, deflation, and inconsistent budgetary reform policies simultaneously imminent, the Japanese Politicians my decide it is time to stop supporting the U.S., and sell Treasury holdings to supplant their own debt typhoon."
Rebuttal:"Don't pick on Japan. You have never been to the island, you don't know what it is like, you can't relate to Japanese culture."
Response: "I'll be in Tokyo on Monday, care to grab lunch?"

CPI data comes tomorrow morning. Good luck trading today!

Patrick M. Ambrus
Managing Partner
Analyze Capital LLC


  1. This is one of your best blog post yet! HAHA, awesome dialogue! love the tongue and cheek.

    However, China gonna buy our debt forever? Well possibly in our generation… but nothing last forever, once china believed there were the center of the universe… well look at them now?

    It seems we are all in between worlds.

    about the Fed…

    They are always late to the party and the media right behind fueling the blame game… I expect no different going forward. As they say err on the side of caution… these guys take that to heart even though their jobs may require different action.

  2. Thanks for the love. Fed is always late to the party. Unfashionably late. Unless you are in Europe for dinner of coarse.


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