Friday, October 30, 2009

10,000 Tops?

The Lehmann Letter ©

The stock market had a nasty setback today as it struggles to break clear of the 10,000-on-the-Dow benchmark.

It’s an important struggle for two reasons.

First, we made our initial visit to Dow-10,000 a decade ago – at the end of the 1990s. Today the stock market is no higher than it was then. In the meantime there have been two peaks well over 10,000 and two troughs well under 10,000, but no upward trend. Are we stuck in a range?

Second, the September 17th posting of this blog discussed the favorable impact of – and the reasons for - today’s high profit margins. That posting went on to say: “Improved profit margins will be very good for earnings when sales volume recovers. It appears that investors have bid up stock prices in anticipation of this event.”

But robust profit margins are only half the story. Sales volume must also recover strongly for the stock market to hit new highs. (Recall that total profits = Profit margins X sales volume.) Investors have clearly become concerned that an anemic economic recovery will deprive the stock market of that necessary prerequisite.

© 2009 Michael B. Lehmann

Thursday, October 29, 2009

3.5 Percent

The Lehmann Letter ©

Today the Commerce Department announced ( that GDP snapped its downward spiral by growing 3.5 percent in the third quarter.

That was good news and the stock market rallied in response.

Close examination of the underlying data, however, provides cause for concern. The GDP grew by roughly $112 billion. Durable goods expenditures, at $55 billion, represented almost half the increase. Most of that was the federal government’s cash-for-clunkers program. It’s over and motor-vehicle sales have consequently fallen. This quarter’s GDP will reflect that decline.

Inventories represented $30 billion of the gain, but in a strange way. They fell by $30 billion less than in the previous quarter, so that’s a smaller negative number rather than a positive gain. It all counts, but we’re not yet at the point where business firms are building inventory in the expectation of rising sales. They’re still cutting back – although by a smaller amount – because their inventories are excessive.

Residential construction, services expenditures, business equipment expenditures and federal expenditures accounted for the remaining gains. If we keep in mind that federal housing assistance underwrote the residential-construction improvement, it’s clear that the federal government played a big role in GDP’s rebound.

The private sector remains anemic.

© 2009 Michael B. Lehmann

Thursday, October 8, 2009

On Vacation

The Lehmann Letter ©

The blogger will be on vacation until Monday, October 26.

Thank you for your interest.

© 2009 Michael B. Lehmann

Friday, October 2, 2009


The Lehmann Letter ©

Today the Bureau of Labor Statistics announced that the economy lost 263,000 jobs in September and that the unemployment rate rose to 9.8%:

Job Growth

(Click on chart to enlarge)

Recessions shaded

You can observe this recession’s brutal impact on employment. You have to go back more than 30 years to find another recession in which monthly job losses exceeded 500,000. At least employment snapped back quickly from those recessions. If this recovery is a slow as the recoveries from the 1991 and 2001 recessions, we can expect serious unemployment through 1910.

(The chart was taken from [Click on Seminars and then Charts.] Go there for additional charts on the economy and a list of Economic Indicators.)

© 2009 Michael B. Lehmann