Ben Bernanke, the Chairman of the Fed, spoke at the Federal Reserve Bank of San Francisco’s Conference on Asia and the Global Financial Crisis yesterday, bringing up some valid points on the recovery in Asia, as well as the linkages with the US. Although a large portion of his speech was dedicated to showing how the Asian markets were affected by the Global Financial Crisis, the more important portion was where he explained how many Asian nations were able to have such a rapid recovery. He put a great deal of emphasis on their solid macroeconomic foundations, as well as their rapid response, as one of the main reasons for their recovery. Most of the nations took a huge hit in the late 90's, during the Asian Financial Crisis, and learned from that time. They started running larger Current Account Surpluses and holding more foreign exchange reserves, essentially protecting them from major crises despite their increasing dependence on exports.
Of course, the problem with their method for dealing with is not quite built to last. The US current account deficit shrank from 5% of GDP in 2008 to 3% of GDP in 2009. Western Citizens are saving more, due to decreases in wealth and the credit crunch, which means that global merchandise exports are going down. With aggregate spending in the West decreasing, the Asian markets will have to seek a way to be less dependent on an export driven economy.
Today also signaled the release of some economic indicators from the Bureau of Labor Statistics and some other fine fellows within the government. PPI decreased for the 7th time this year, which wasn't wholly unexpected as the decrease in prices to energy and food are starting to effect other areas of the economy. Housing starts and permits also decreased slightly, which shows that there is still a bit of a glut in the housing market, as it has been hovering between 575k and 590k pretty consistently for the past 8 months.
Beyond these two statistics are two heavily interrelated stats: Initial Claims and Continuing Claims. Initial Claims represents new unemployed individuals gaining access to unemployment programs. Continuing Claims represents the number of individuals still claiming benefits. Initial Claims unexpectedly jumped in September and was 11k over the previous; that's bad. BUT Continuing Claims dropped by 42k and was 40k under the forecast amount; that's good. Although some people are still losing their jobs, jobs are being created. It's still pretty negative out there, but that's a small sign of hope. September is usually the beginning of hiring season for stores; high school and college kids are busy and the holidays are coming up. You could probably attribute the decline in continuing claims to just this, but I'd have to say it looks like the start of something more.
Taking all this into account and looking at the way the market performed today (S&P down .62%), I'd have to be rather bullish on the market for the next few weeks. Although their have been several positive earnings reports the past week or so (caterpillar comes to mind simply from today) I'm not sure that the typical Autumnal upswing has started yet. Until next time folks.
