Transcript John Bott It`s the Economy Stupid 13-05-09

1
IT’S THE
ECONOMY
STUPID
By John P. Bott, II
2
• Full service Houston-based brokerage firm founded in
1986
• Fixed income specialists
• Success is built upon long-standing client relationships
based on trust, honesty, and quality service
3
John P. Bott, II
• Chairman of Tri-Star Financial
• GP of Parallax Investments,
• GP& CIO of Parallax Capital
Partners, LP Hedge fund and
Portfolio Manager of Parallax
Investments
4
Dow Jones Industrial Average
5
S&P 500
6
NASDAQ Composite
7
Average Hourly Earnings YoY % Change
What It Is
The average hourly earning of nonsupervisory workers
on private non-farm payrolls.
Why It Matters
Payrolls can give good indication of strength of
the economy and potential inflation. If average
hourly earnings are rising sharply it indicates
overtime is being paid and higher wages are
happening. Chart indicates economy still weak.
Obama care impact 25 hr weeks etc
8
Average Hourly Earnings YoY % Change
9
US Auto Sales Total Annualized
What It Is
The seasonally adjusted annual sales of total light
vehicles sold in the U.S., in millions.
Why It Matters
Auto sales are a huge measure of current
consumer health. Cars are replaced every 7 to 10
years. The earlier the cycle occurs the healthier
the economy.
10
US Auto Sales Total Annualized
11
US Job Openings By Industry Total
What It Is
The number and rate of job openings, hires and
separations for the nation, by industry and geographic
region.
Why It Matters
This number tells you, not only how many job
openings are out there, but where they are located
in the country.
12
US Job Openings By Industry Total
13
Unemployment Rate
What It Is
Represents the number of unemployed persons as a
percent of the labor force.
Why It Matters
Higher unemployment
Lower retail sales lower auto sales lower
lower housing sales lower manufacturing lower
inflation lower job openings lower consumer
confidence
14
Unemployment Rate
15
Underemployment Rate (U6)
What It Is
Total unemployed, plus all marginally attached workers,
plus total employed part time for economic reasons, as a
percent of the civilian labor
Why It Matters
This is the “real unemployment rate” this number is
better than the “total number of employed”
because of volatility of population growth.
16
Underemployment Rate (U6)
17
Conference Board Consumer Confidence
What It Is
An average of responses to a series of five questions
covering business conditions, employment conditions,
and total family income.
Why It Matters
The question is going forward will consumers likely
spend more or less? Very simple but asked to a lot
of people.
18
Conference Board Consumer Confidence
19
Federal Funds Target Rate
What It Is
The interest rate charged by one depository institution on
an overnight sale of valances at the Federal Reserve to
another depository institution, as determined by the
Federal Open Market Committee.
Why It Matters
• Although not the best tool in the Federal Reserves tool
chest, it is the most acceptable. When the Fed is
tightening it moves the bar for overheating businesses but
also for struggling businesses.
20
Federal Funds Target Rate
21
ISM Manufacturing Purchasing Managers
Index
What It Is
An indicator of the economic health of the manufacturing
sector.
Why It Matters
This number establishes for manufacturers the
relative strength of all manufacturing in the
economy. Below 50 is contraction above 50 is
expansion.
22
ISM Manufacturing PMI
23
ISM Prices Paid
What It Is
Represents business sentiment regarding future inflation,
where a higher figure indicates stronger expectations of
inflation.
Why It Matters
Along with strength of the economy this number is
an inflation prediction number
24
ISM Prices Paid
25
S&P/Case-Shiller Composite-20 Home
Price Index
What It Is
Home price changes within all 20 metropolitan markets
for which MacroMarkets LLC and S&P have an index.
Why It Matters
This number is very accurate and pertinent to the
actual health of housing. Many other factors can
be in play with overall indexes which include small
towns and farming communities. Large urban has
standardized impact on just urban areas.
26
S&P/Case-Shiller Composite-20 Home
Price Index
27
Personal Consumption Expenditure Core
Price Index YoY
What It Is
Personal consumption expenditures by major type of
product.
Why It Matters
Fed Res indicator of inflation. Much better than
the CPI or PPI or Import Price Index
28
Personal Consumption Expenditure Core
Price Index YoY
29
US New One Family Houses Sold Annual
Total
What It Is
Number of new one family houses sold annually.
Why It Matters
Covers all price range of housing as well as city,
small town and country housing.
30
US New One Family Houses Sold Annual
Total
31
US Existing Home Sales SAAR
What It Is
Total existing homes sales based on closings. Includes
single family, townhomes, condominiums, co-ops.
Foreclosed homes are only counted in the inventory if the
bank is working with a realtor.
Why It Matters
• Shows real volumes of housing sales.
• New house construction is very important to the strength
of the economy.
32
US Existing Home Sales SAAR
33
Consumer Pricing Index YoY % Change
What It Is
Represents changes in prices of all goods and services
purchased for consumption by urban households.
Why It Matters
Tells price change for all urban households not
good for telling middle class impact versus rich
and poor.
34
Consumer Pricing Index YoY % Change
35
Advanced Retail Sales
What It Is
Advanced estimates of U.S retail and food services
sales, adjusted for seasonal variation and holiday
trading-day differences, but not for price changes.
Why It Matters
Inflation can distort this number as well as internet
sales.
36
Advanced Retail Sales
37
Initial Jobless Claims
What It Is
The number of people who have filed for Unemployment
benefits for the first time.
Why It Matters
More claims mean worse economy. Considered a very
early warning system for health of the economy
38
Initial Jobless Claims
39
Producer Price Index YoY % Change
What It Is
Measures average changes in prices received by
domestic producers of commodities in all stages of
processing.
Why It Matters
Can be a very early indicator of inflation in the rest
of the economy. Tends to catch commodity spikes,
and labor spikes which will be passed on to the
consumer.
40
Producer Price Index YoY % Change
41
Import Price Index YoY % Change
What It Is
Measures changes in the prices of imports of
merchandise into the country.
Why It Matters
When dollar strength of weakness is creating
inflation or disinflation. It will show up here first.
42
Import Price Index YoY % Change
43
Export Price Index YoY % Change
What It Is
Measures changes in the prices of exports of
merchandise out of the country.
Why It Matters
Flip side of import price. If export prices are rising
it could imply that price pressure is coming to
internal economy.
44
Export Price Index YoY % Change
45
Capacity Utilization
What It Is
Measures the rate at which potential output levels are
getting met or used.
Why It Matters
Especially big number right now shows excess
capacity which is unused and available to increase
production in the short term.
46
Capacity Utilization
47
Mortgage Delinquencies As % Of Total
Loans
What It Is
The total number of residential loans 30-, 60-, and 90days past due.
Why It Matters
When mortgage delinquencies are high it is
unlikely that consumer spending will be strong.
48
Mortgage Delinquencies As % Of Total
Loans
49
Mortgage Foreclosures As % Of Total
Loans
What It Is
Total foreclosures at the end of the quarter, started during
the quarter and seriously delinquent.
Why It Matters
Can predict up turns and down turns coming in
the economy.
50
Mortgage Foreclosures As % Of Total
Loans
51
NFIB Small Business Optimism Index
What It Is
An index that is compiled from a survey conducted each
month by the National Federation of Independent
Business of its members.
Why It Matters
My favorite indicator of middle class participation
and health in the economy
52
NFIB Small Business Optimism Index
53
Disclaimer
 The preceding presentation has been prepared for informational
purposes only. It does not constitute an offer, recommendation, or
solicitation to buy or sell, nor is it an official confirmation of terms.
The above is based on information generally available to the public
from sources reasonably believed to be reliable. Note that for any
collateralized mortgage product, (CMO), the yield and average life
will fluctuate depending on the actual rate at which mortgage
holders prepay the mortgages underlying the CMO and changes in
the current interest rates. Past performance is not indicative of
future returns. Tri-Star Financial makes no representations or
warranties, express or implied as to the accuracy or completeness
of the above information or that any returns indicated will be
achieved.