Durable Goods, Norway And The Fed: Will The Fed Taper During Deceleration?

Confounded Interest ^ | 10/25/2013 | Anthony B. Sanders

[whitedog57]

Yesterday, I posted charts showing the deceleration of economic indicators in the USA, as The Fed’s Balance sheet continues to grow (white). The indicators are labor force participation (purple), M2 Money Velocity (gold) and the 10 year Treasury yield (green).

charming

Today, we got another deceleration warning from durable goods orders (non-airline, non-defense).

Orders for U.S. equipment such as computers and machinery unexpectedly declined in September for the second time in three months, indicating business spending was weakening ahead of the partial government shutdown.

Bookings for non-military capital goods excluding aircraft decreased 1.1 percent, the Commerce Department reported today in Washington. The median forecast in a Bloomberg survey called for a 1 percent gain. A surge in aircraft demand led to a 3.7 percent jump in total durable orders.

“The more you look into it, the more disappointing it gets,” said Tim Quinlan, an economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “It kind of raises doubts about the sustainability of the manufacturing sector to continue to underpin economic growth.”

And then comes this news flash from Norway:

Norway’s sovereign wealth fund, the world’s largest, warned that stock market gains may reverse as Europe’s biggest equity investor said it won’t use new inflows to buy more shares.

“Our share in the stock market has been stable or falling even though markets are rising, and that means in practice that we’re not using inflows to buy stocks,” Yngve Slyngstad, chief executive officer of Norges Bank Investment Management, said at a press conference today in Oslo. The fund is preparing for a “correction” in stock prices, he said.

Well, its not the Hinderburg Omen which is not flashing red at the moment.

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And it isn’t the Ichimoki indicator.

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Could it be that the price-to-sales ratio for the SPX is unsustainable (that is, the stock market is overpriced?).

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Could it be that housing in the US is getting unaffordable (again)?

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Could it be that there are worries that The Fed will pare back it’s tapering? Here is a chart of The Fed’s balance sheet (green line) and the SPX stock market index since late 2008.

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If you believe the Taylor Rule, The Fed should continue pouring on the coal.

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Let’s see what happens at the upcoming Fed Open Market Committee meeting.

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[whitedog57]

Throw in Obamacare and we have a partay!