It’s The economy stupid

IT’S THE ECONOMY STUPID

By John P. Bott, II

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• Full service Houston-based brokerage firm founded in 1986

• Fixed income specialists• Success is built upon long-standing client relationships

based on trust, honesty, and quality service

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John P. Bott, II

• Chairman of Tri-Star Financial• GP of Parallax Investments, • GP& CIO of Parallax Capital

Partners, LP Hedge fund and Portfolio Manager of Parallax Investments

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Dow Jones Industrial Average

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S&P 500

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NASDAQ Composite

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Average Hourly Earnings YoY % ChangeWhat It Is

The average hourly earning of nonsupervisory workers on private non-farm payrolls.

Why It Matters

Payrolls can give good indication of strength of the economy and potential inflation. If average hourly earnings are rising sharply it indicates overtime is being paid and higher wages are happening. Chart indicates economy still weak. Obama care impact 25 hr weeks etc

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Average Hourly Earnings YoY % Change

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US Auto Sales Total Annualized

What It IsThe seasonally adjusted annual sales of total light vehicles sold in the U.S., in millions.

Why It Matters

Auto sales are a huge measure of current consumer health. Cars are replaced every 7 to 10 years. The earlier the cycle occurs the healthier the economy.

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US Auto Sales Total Annualized

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US Job Openings By Industry Total

What It IsThe number and rate of job openings, hires and separations for the nation, by industry and geographic region.

Why It Matters

This number tells you, not only how many job openings are out there, but where they are located in the country.

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US Job Openings By Industry Total

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Unemployment Rate

What It IsRepresents the number of unemployed persons as a percent of the labor force.

Why It Matters

Higher unemployment

Lower retail sales lower auto sales lower lower housing sales lower manufacturing lower inflation lower job openings lower consumer confidence

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Unemployment Rate

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Underemployment Rate (U6)

What It IsTotal unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor

Why It Matters

This is the “real unemployment rate” this number is better than the “total number of employed” because of volatility of population growth.

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Underemployment Rate (U6)

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Conference Board Consumer ConfidenceWhat It Is

An average of responses to a series of five questions covering business conditions, employment conditions, and total family income.

Why It Matters

The question is going forward will consumers likely spend more or less? Very simple but asked to a lot of people.

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Conference Board Consumer Confidence

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Federal Funds Target Rate

What It IsThe interest rate charged by one depository institution on an overnight sale of valances at the Federal Reserve to another depository institution, as determined by the Federal Open Market Committee.

Why It Matters• Although not the best tool in the Federal Reserves tool chest, it is the most acceptable. When the Fed is tightening it moves the bar for overheating businesses but also for struggling businesses.

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Federal Funds Target Rate

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ISM Manufacturing Purchasing Managers IndexWhat It Is

An indicator of the economic health of the manufacturing sector.

Why It Matters

This number establishes for manufacturers the relative strength of all manufacturing in the economy. Below 50 is contraction above 50 is expansion.

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ISM Manufacturing PMI

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ISM Prices Paid

What It IsRepresents business sentiment regarding future inflation, where a higher figure indicates stronger expectations of inflation.

Why It Matters

Along with strength of the economy this number is an inflation prediction number

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ISM Prices Paid

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S&P/Case-Shiller Composite-20 Home Price IndexWhat It Is

Home price changes within all 20 metropolitan markets for which MacroMarkets LLC and S&P have an index.

Why It Matters

This number is very accurate and pertinent to the actual health of housing. Many other factors can be in play with overall indexes which include small towns and farming communities. Large urban has standardized impact on just urban areas.

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S&P/Case-Shiller Composite-20 Home Price Index

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Personal Consumption Expenditure Core Price Index YoYWhat It Is

Personal consumption expenditures by major type of product.

Why It Matters

Fed Res indicator of inflation. Much better than the CPI or PPI or Import Price Index

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Personal Consumption Expenditure Core Price Index YoY

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US New One Family Houses Sold Annual TotalWhat It Is

Number of new one family houses sold annually.

Why It Matters

Covers all price range of housing as well as city, small town and country housing.

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US New One Family Houses Sold Annual Total

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US Existing Home Sales SAAR

What It IsTotal existing homes sales based on closings. Includes single family, townhomes, condominiums, co-ops. Foreclosed homes are only counted in the inventory if the bank is working with a realtor.

Why It Matters• Shows real volumes of housing sales.•New house construction is very important to the strength of the economy.

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US Existing Home Sales SAAR

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Consumer Pricing Index YoY % ChangeWhat It Is

Represents changes in prices of all goods and services purchased for consumption by urban households.

Why It Matters

Tells price change for all urban households not good for telling middle class impact versus rich and poor.

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Consumer Pricing Index YoY % Change

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Advanced Retail Sales

What It IsAdvanced estimates of U.S retail and food services sales, adjusted for seasonal variation and holiday trading-day differences, but not for price changes.

Why It Matters

Inflation can distort this number as well as internet sales.

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Advanced Retail Sales

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Initial Jobless Claims

What It IsThe number of people who have filed for Unemployment benefits for the first time.

Why It MattersMore claims mean worse economy. Considered a very early warning system for health of the economy

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Initial Jobless Claims

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Producer Price Index YoY % ChangeWhat It Is

Measures average changes in prices received by domestic producers of commodities in all stages of processing.

Why It Matters

Can be a very early indicator of inflation in the rest of the economy. Tends to catch commodity spikes, and labor spikes which will be passed on to the consumer.

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Producer Price Index YoY % Change

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Import Price Index YoY % Change

What It IsMeasures changes in the prices of imports of merchandise into the country.

Why It Matters

When dollar strength of weakness is creating inflation or disinflation. It will show up here first.

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Import Price Index YoY % Change

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Export Price Index YoY % Change

What It IsMeasures changes in the prices of exports of merchandise out of the country.

Why It Matters

Flip side of import price. If export prices are rising it could imply that price pressure is coming to internal economy.

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Export Price Index YoY % Change

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Capacity Utilization

What It IsMeasures the rate at which potential output levels are getting met or used.

Why It Matters

Especially big number right now shows excess capacity which is unused and available to increase production in the short term.

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Capacity Utilization

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Mortgage Delinquencies As % Of Total LoansWhat It Is

The total number of residential loans 30-, 60-, and 90- days past due.

Why It Matters

When mortgage delinquencies are high it is unlikely that consumer spending will be strong.

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Mortgage Delinquencies As % Of Total Loans

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Mortgage Foreclosures As % Of Total LoansWhat It Is

Total foreclosures at the end of the quarter, started during the quarter and seriously delinquent.

Why It Matters

Can predict up turns and down turns coming in the economy.

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Mortgage Foreclosures As % Of Total Loans

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NFIB Small Business Optimism IndexWhat It Is

An index that is compiled from a survey conducted each month by the National Federation of Independent Business of its members.

Why It Matters

My favorite indicator of middle class participation and health in the economy

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NFIB Small Business Optimism Index

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Disclaimer The preceding presentation has been prepared for informational

purposes only. It does not constitute an offer, recommendation, or solicitation to buy or sell, nor is it an official confirmation of terms. The above is based on information generally available to the public from sources reasonably believed to be reliable. Note that for any collateralized mortgage product, (CMO), the yield and average life will fluctuate depending on the actual rate at which mortgage holders prepay the mortgages underlying the CMO and changes in the current interest rates. Past performance is not indicative of future returns. Tri-Star Financial makes no representations or warranties, express or implied as to the accuracy or completeness of the above information or that any returns indicated will be achieved.

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