Economy and Markets: Improving, Declining, or Adapting?

While the dark economic storm clouds of 2008 may have passed, the economic outlook and landscape remain decidedly mixed as evidenced by the recently released Federal Reserve Beige Book. The key takeaways in this report include:

1. slower pace of overall economic decline

2. expectations of a moderate recovery in manufacturing in 6-12 months

3. extended soft labor market

4. sluggish retail sales

5. commercial real estate weakened in most regions

6. some pockets of strength in technology and health care

7. credit conditions remained extremely tight. Loan demand experienced a downturn, particularly from the household sector. Credit standards continue to tighten as delinquency rates are steady to higher.

8. a pickup in used car sales (don’t think this is a positive)

Bloomberg reports Fed Says Most Districts Report Slower Pace Decline:

The Beige Book provided few signs of outright growth. Retail demand was “sluggish” in most areas, with “mixed” auto sales. Non-financial services were “largely negative” with “a few bright spots,” and manufacturing was “subdued” yet “slightly more positive” than in the previous report, the Fed said.

Lending in most regions “was stable or weakened further” in most loan categories, and banks tightened credit standards in seven districts, the report said.

While most economists and market analysts are looking at statistics and data to determine whether the economy and consumers are improving or rolling over, my take is different. I view the economy and consumers as adapting to the new dynamic at work in our country. The color about consumers purchasing more used vehicles is a perfect case in point.

Automotive companies aren’t going to prosper with consumers purchasing more used vehicles, but consumers will continually look for means to save money and keep expenses down.

In regard to market news, this morning I addressed concerns in a post, “What is China Saying? Sustainability and Indirect Bidding,” regarding the level of indirect bidders in our Treasury auctions. I wrote of yesterday’s 2 yr note:

While Chinese officials made these strong statements regarding our deficit, the U.S. Treasury auctioned $42 billion in 2 yr notes. How were these notes received? Not very well. In fact, the indirect bidders only purchased 33% versus close to 69% a month ago.

Today’s $39 billion 5 yr note was not well received, either. Indirect bidders purchased 37% versus approximately 50% a month ago.

As we continue to navigate our economic landscape, I remain convinced that those who are able to most effectively adapt to the dynamic changes will be in the best position to thrive as we move forward.

What do I mean by adapting? Continue to work to keep expenses down, be judicious and disciplined in your investments, and be voracious in terms of absorbing data on the economy, markets, and companies.

About Larry Doyle 522 Articles

Larry Doyle embarked on his Wall Street career in 1983 as a mortgage-backed securities trader for The First Boston Corporation. He was involved in the growth and development of the secondary mortgage market from its near infancy.

After close to 7 years at First Boston, Larry joined Bear Stearns in early 1990 as a mortgage trader. In 1993, Larry was named a Senior Managing Director at the firm. He left Bear to join Union Bank of Switzerland in late 1996 as Head of Mortgage Trading.

In 1998, after 15 years of trading and precipitated by Swiss Bank’s takeover of UBS, Larry moved from trading to sales as a senior salesperson at Bank of America. His move into sales led him to the role as National Sales Manager for Securitized Products at JP Morgan Chase in 2000. He was integrally involved in developing the department, hiring 40 salespeople, and generating $300 million in sales revenue. He left JP Morgan in 2006.

Throughout his career, Larry eagerly engaged clients and colleagues. He has mentored dozens of junior colleagues, recruited at a number of colleges and universities, and interviewed hundreds. He has also had extensive public speaking experience. Additionally, Larry served as Chair of the Mortgage Trading Committee for the Public Securities Association (PSA) in the mid-90s.

Larry graduated Cum Laude, Phi Beta Kappa in 1983 from the College of the Holy Cross.

Visit: Sense On Cents

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