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Economic Data Continues To Signal An Icky Economy

Jul. 27, 2013 8:45 AM ET
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Growth, Long/Short Equity, Momentum

Seeking Alpha Analyst Since 2008

Steven Hansen (A.K.A "The Hand") was born, raised and educated in California. Steven worked for 25 years for a major international engineering and construction corporation. He has lived outside of the USA almost continuously since 1978. Steven retired in 1995 to sail the world. He is still sailing today and is currently located in Malaysia. On the financial side, Steven is a pragmatist. His motto is to "go with the flow" and believes that the only correct investing method is one which makes you money both short and long term. He does not fall in love with philosophies – only results. He has invested well enough to retire at 45 and stay retired.

Some look at the data and say "the economy is heating up". Some say "too cold". No one says "just right". I say the dynamics and the economic gearing of the economy are mismatched causing icky growth.

Part of the problem is labels and dogma. One side believes a governments job is to help the weak. The other side believes a strong economy is built by letting capitalism run free. Both sides believe the path runs through the 1%. Helping the weak is labeled as "big government and socialism". The other side is labeled as "anti-middle class and anti-poor".

The problem is both sides literally want to do the same things to get the economy rolling using different words which both sides are disagreeing because of the words used - and in the final analysis both sides do not understand what they want to do will not help the economy. Basically both sides have little understanding of dynamics, and want to do things that the underlying economy is not geared to execute properly. One cannot make consumers consume in a consumption based economy. Tickle down government and trickle down profits do not trickle down to the consumer.

I have my ideas on what would work, but from experience i know that you can make anything work as long as the gearing and direction are aligned. Right now, the economy has entered a different terrain and requires different gearing - while the leadership is arguing the type of fuel to use in the car.

The Econintersect economic forecast for July 2012 again declined marginally, and remains under a zone which would indicate the economy is about to grow normally. The concern is that consumers are spending a historically high amount of their income.

The ECRI WLI growth index value has been weakly in positive territory for over four months - but in a noticeable improvement trend. The index is indicating the economy six month from today will be slightly better than it is today.

Current ECRI WLI Growth Index

Initial unemployment claims degraded from 334,000 (reported last week) to 343,000 this week. Historically, claims exceeding 400,000 per week usually occur when employment gains are less than the workforce growth, resulting in an increasing unemployment rate.

The real gauge - the 4 week moving average - improved from 346,000 (reported last week) to 345,250. Because of the noise (week-to-week movements from abnormal events AND the backward revisions to previous weeks releases), the 4-week average remains the reliable gauge.

Weekly Initial Unemployment Claims - 4 Week Average - Seasonally Adjusted - 2011 (red line), 2012 (green line), 2013 (blue line)

Bankruptcies this Week: Maxcom Telecomunicaciones, American Roads Holdings

Data released this week which contained economically intuitive components (forward looking) were:

All other data released this week either does not have enough historical correlation to the economy to be considered intuitive, or is simply a coincident indicator to the economy.

Weekly Economic Release Scorecard:

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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