Morning Report: Commodities continue to fall 12/8/15

Stocks are lower this morning as commodity prices continue their downward spiral off of weak economic news out of China. Bonds and MBS are up.

Job openings fell in October to 5.4 million from 5.5 million. Note that payrolls increased by a lot in October (almost 300k), so that drop makes some sense.

The NFIB Small Business Optimism Index fell to 94.8 from 96.1 last month. Small business wants to hire and expand, but is finding it difficult to hire qualified workers. Small business also intends to increase capital expenditures, which have been deferred since the Great Recession.

The IBD/TIPP Economic Optimism index increased in December to 47.2 from 45.5. As a general rule, the indices tend to inverse gasoline price indices. When gas prices fall, people are generally more upbeat.

Oil continues its downward spiral. If you look at the chart below, you can see how oil has traded since 2007. We are approaching the 2008 lows in oil right now. Note that oil has its own dynamic, particularly with Iran, who will be adding about 3.8 million barrels of oil per day. The problems in the oil patch are creating problems for the banks, as oil is trading at 37 bucks a barrel and it costs something like $40 – $45 to get it out of the ground.

The story is more than oil, however. Commodities are down across the board, from the softs like coffee to the industrial metals like copper. This is the canary in the coal mine for global demand. The ISM data indicates manufacturing is going through a soft spot, if not a recession. If you look at the Commodity Research Bureau commodity index, you can see we are well below the lows of 2008 and are approaching the lows of 2002.

So if global demand is falling, and inflation is nonexistent, why is the Fed going to raise rates next week? At the end of the day, the Fed has more or less painted itself in a corner, and will have to move for credibility’s sake. They have telegraphed this move so much that they have to follow through. The punch line is that the Fed may hike the Fed Funds rate next week and mortgage rates might not move much, if at all.

In spite of all the carnage in the commodity markets, there is one that is holding up better than most: lumber. And that speaks to future demand for construction. Note that in last Friday’s jobs report, construction employment increased again. Next year could be the beginning of the return of housing construction, hopefully.

Speaking of homebuilders, McMansion builder Toll Brothers reported earnings this morning, and beat on the top line while missing on the bottom line. Net signed contracts increased 29% in dollars and 12% in units. ASPs increased 4.4% to $790k.

Foreclosures continue to fall, according to CoreLogic. Completed foreclosures fell 27% YOY to 27k in October. There are 463,000 homes in some state of foreclosure, which is the lowest level since November 2007.

17 Responses

  1. Are you also one of those thinking that they should have just raised the rate in September and not dilly-dallied about it so much?

    (Frist)

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  2. I don’t think it really matters all that much… They aren’t going to go on a 300 basis point tightening regime… I think they maybe hike 25 in December and 25 in March and then are on the sidelines until the election is over…

    If 50 basis points on the Fed Funds rate has any meaningful effect on the economy, I would be very surprised.

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    • Imagine a Trump v Hillary race. Is it possible for the American public to face a worse choice? One will seemingly say anything to rile up the populist base and is either ignorant or contemptuous of the constitution, and the other is….Donald Trump. Ugh.

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    • Brent, you never answered my ? yesterday about the LMCI, so I looked it up and now I understand it. However, now that I understand it, that drop looks precipitous.

      LMCI chart

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  3. Thx!

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  4. Mark, sorry I didnt get back to you… The LMCI is a very new index – i think it is less than a year old.

    It will be interesting to see how much of a lagging index it is.

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  5. @Scottc1: “Imagine a Trump v Hillary race. Is it possible for the American public to face a worse choice? One will seemingly say anything to rile up the populist base and is either ignorant or contemptuous of the constitution, and the other is….Donald Trump. Ugh.”

    Seems likely to be the race. And Trump would make a very interesting president. And, of course, send the left into apoplexy.

    Interesting that they (the left), generally, can understand how wars of adventure in the Middle East and other “evils” of the west can cause an undesirable reaction from terrorists, but the Tea Party and Trump (and his popularity) are inexplicable. Couldn’t possibly be a reaction to their rhetoric or overreach.

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  6. @kevinwillis1: We keep getting told it’s anger at the mainstream GOP rather than the left. You guys need to make up your minds.

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    • Mich:

      We keep getting told it’s anger at the mainstream GOP rather than the left. You guys need to make up your minds.

      There’s no inconsistency. It is anger at the GOP establishment for not taking on, and in many instances actually accommodating, the left. So it is a reaction to both the GOP’s impotency against (or collusion with) the left’s bad policies/thinking.

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  7. I think it would be fascinating if both Trump and Sanders went independent. Say Rubio gets the (R) nod, Hillary gets the (D) nom, Sanders runs green, and Trump runs independent…

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  8. Adele must pay white privilege reparations. Or something…

    https://www.change.org/p/billboard-potus-adele-adele-needs-to-publicly-recognize-her-white-privilege

    I am guessing this is an epic trolling attempt, however if it is real, the left has gone more batshit crazy than the right…

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  9. I thought lefties believe that Baggers are a Koch funded fraud? That they’re AstroTurf. When did that change?

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  10. I am guessing this is an epic trolling attempt

    The Onion meets Kanye West

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  11. @brentnyitray: “I am guessing this is an epic trolling attempt, however if it is real, the left has gone more batshit crazy than the right…”

    Probably trolling (something almost as disturbing . . . what a waste of time).

    Though I expect some of the people who signed it are real and sincere enough.

    People hassling Adele need to check their skinny privilege. Also, more than white privilege, Adele benefits from her clear “able to sing really well privilege”. As such, she needs something to make her voice far more mediocre, ala Harrison Bergeron.

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  12. I love the confederate flag behind her pic. Hello! She’s a Brit..

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  13. @Michigoose: “We keep getting told it’s anger at the mainstream GOP rather than the left. You guys need to make up your minds.”

    Why can’t it be both? That being said, the question is more about the convenience of what is classified is a “reaction” to bad behavior, requiring that “bad behavior” be reformed, and what sort of behaviors spring apparently from nowhere except the moral failings of the individuals and groups involved, thus not requiring that anyone else temper their own actions and rhetoric in order to stop inspiring the behavior.

    My personal belief is that it’s just tribalism as it manifests in modernity. Ergo, bad behavior that is external, and generally held to be a negative by both (or multiple) tribes (that is, one of the few things they agree on) is characterized as a reaction to the Other Tribe’s bad behavior, and if only that Other Tribe would reform and behave like the Good Tribe, these external bad things would stop happening (ergo, the gods would be appeased). Thus, these negatives that are external to both (or all) parties are attributed to the bad behavior not of the 3rd party external actors responsible for them, but on the actions or inadequacies of the other tribe (or other tribes) that are not the Good Tribe (i.e., the one you (royal you) are a member of).

    Bad behaviors of the Other Tribe, however, are clearly not in response to anything, but simply manifest out of the moral failings, inadequacies, baseness, or outright evil and stupidity of the Other Tribe. They are the sole source of their bad behavior, thus, conveniently, the Good Tribe has no responsibility, nor do the behaviors of external bad actors and 3rd parties.

    It’s a causal chain of back-patting, self-aggrandizing convenience when we attribute certain behaviors as reactive and other behaviors as the fault of the primary actors. That’s all I’m saying. 🙂

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  14. I am guessing this is an epic trolling attempt

    More like epic failure. Only 139 signatures so far. The Change.org petition to drop the “T” from the LGBT has more traction.

    Like

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