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Wednesday, April 23, 2008


dramatic slowing in economy

calculated risk has been noting what appears to have been a severe change in economic trends beginning in march showing up in the reporting from a number of companies. shipping giant UPS is just the latest but perhaps the most explicit. the takeaway:

These results reflected a noticeable tradedown in service levels from express to saver, saver to deferred, and deferred to ground. As customers worked hard to reduce their costs. Tradedown was evident across all customer sectors but was most prevalent in retail. This is a tell tale sign of a progressively worsening economic environment.

it seems to be getting clearer that the united states, on the cusp of recession a few months ago, has since slowed considerably and is currently in a deepening recession. whether it becomes the kind of recession that joseph stiglitz and nouriel roubini are calling for is another question, of course.

but yves smith notes the disconcerting results of the TAF is causing anxiety even in traditionally optimistic corners. risk aversion, if mildly improved, still remains quite high with markets not responding the central bank initiatives in the manner which was hoped -- and this is driving economic contraction.

We offer this final note. Various measure of spread based risk premiums have been at extraordinary levels since last June when the turmoil started. These widened spreads are taking an economic toll. We expect that the Fed will persist until it gets them to narrow.

If the Fed fails, we will have a difficult and protracted deflationary recession. If the Fed succeeds, the slowdown will be shorter and shallower....But we must admit that when we see a TAF auction result like we just saw, we become just a little more worried.

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