Twenty five years ago one of the top tier data points was the Leading Index of Economic Indicators (LEI).  It was a hard and fast rule that three consecutive declines in the LEI all but assured a recession will occur in the next six months.  Today it is regarded as fourth tier statistic with little market narrative.

July’s LEI rose by 0.5%, the greatest increase since September 2018.  Moreover June’s was revised considerably higher from -0.3% to -0.1%.  The average since the recovery commenced was 0.3%.  Historically such a reading on the LEI is consistent with a 2.1%-2.4% GDP.

Speaking of strength weekly jobless claims were also considerably lower than expected, hovering at fifty years low.

On the other hand a third tier data point, the Market Manufacturing PMI slipped below 50 for the first time since for the first time in over eight years, a data point the market focused upon.

According to Bloomberg there are now over 400 firms that collect, slices and dices information, information that is then sold to algorithmic traders and hedge funds to formulate investment policy.  Ten years ago there were five.

This data ranges from the number of “hits” to a company’s web site to how many negative or positive words/articles are written about a particular company or sector or general economic environment.

Twenty five years ago I sat in a presentation of then a top tier money manager and economist.  He spoke at length about his proprietary models of counting cars in a Best Buy parking lot to how many rail road cars were in a rail yard to how many trucks passed through a specific intersection.  This data was essential in formulating his opinions.

As inferred above, this data collection is now on massive steroids. I rhetorically ask is this too much data equivalent to the false Soviet Union premise of concentrated wheat plantings will yield bumper crops?  [Note: This practice was a major cause for the famine in the Soviet Union in the mid 1930s]

I rhetorically ask how accurate is the information being collected?  Many top tier firms have commented about the collapse of integrity of financial reports where comments from unedited blogospheres are regarded as ultimate truth, many times these comments are entirely unsubstantiated.

The market is convinced the Federal Reserve will lower the overnight rate by 0.75% by year end.  Can I rhetorically ask has the markets been duped by the unending flow of negative diatribe, a diatribe that is being written for other purposes under the simple guise it is not what one writes but rather why one writes it?

FRB Powell speaks today and I reiterate he is in a lose lose position.  The data indicates a “robust” and accelerating economy but the narrative (and Treasury yields) is suggesting an economy that is about to fall into the abyss.  Moreover there is the political nature of any such action and the subsequent potential claim the Chair caved to political pressure.

In my view anything less than a very dovish speak will cause volatility to rise given current yields.

Speaking of which another Fed President stated yesterday that he does think further rate cuts are required and he “reluctantly” supported the July reduction.  Equites reversed a 200 point advance on the statement.  There are now three regional presidents that have voiced their resistance to the notion the economy needs lower interest rates.  Late in the afternoon another Fed official also talked back the possibility of lowering rates.

To write the obvious, volatility can increase today if FRB Chair Powell’s’ remarks are not what the market is expecting.

Last night the foreign markets were up.  London was up 0.75%, Paris up 0.40%  and Frankfurt up 0.35%.  China was up 0.49%, Japan up 0.40% and Hang Sang up 0.50%.

The Dow should open moderately higher but his could change radically based upon the interpretation of Powell’s remarks.  The 10-year is off 7/32 to yield 1.64%.


The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.