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U.S. Stocks Advance to 17-Month High on Economic Confidence, Paced by AIG

by on March 13, 2010

By Craig Trudell March 13 (Bloomberg) — U.S. stocks rose, pushing the Standard & Poor’s 500 Index to a 17-month high, as Citigroup Inc. led a rally among banks and data boosted confidence that the economic recovery is sustainable. Citigroup rallied 13 percent on speculation the U.S. government may sell its stake and after Chief Executive Officer Vikram Pandit said the bank will be consistently profitable. American International Group Inc., the bailed-out insurer, surged 22 percent after selling a division to MetLife Inc. for $15.5 billion. Home Depot Inc. and McDonald’s Corp. each rose at least 2.8 percent after U.S. retail sales unexpectedly increased in February. The S&P 500 climbed 1 percent to 1,149.99 this week. It closed at 1,150.24 on March 11, the highest level since October 2008, and has now surged 70 percent since its bear-market low on March 9, 2009. The Dow Jones Industrial Average gained 58.49 points, or 0.6 percent, to 10,624.69. “The market forecast an apocalyptic, utopian scenario one year ago, and that proved to be inaccurate,” said Stephen Wood , who helps manage $176 billion as chief market strategist for Russell Investments. “A big percentage of what we’ve seen over the last year is the market correcting this incorrect forecast. We were wrong, and we need to get back to a more accurate pricing of the current environment.” Jobs, Takeovers The S&P 500 has risen 9 of the past 11 days after reports showed the labor market and consumer confidence are improving and takeovers bolstered optimism that the economy is gaining strength. The stock index had fallen 8.1 percent between Jan. 19 and Feb. 8 on concern Greece’s budget crisis would throttle the recovery. Stocks rose this week even after inflation in China accelerated more than economists estimated, spurring speculation that the government will boost interest rates to slow the world’s fastest-growing major economy. Central banks including the Federal Reserve have kept rates low to stimulate the economy out of the worst contraction since the Great Depression. The Fed has pledged to keep its target rate for overnight loans between banks low for an “extended period.” “The endpoint of the ‘extended period’ is certainly a lot closer than it was six months ago,” Russell’s Wood said. The Fed’s next rate decision is scheduled for March 16. The central bank won’t raise rates until November, according to forecasts by economists surveyed by Bloomberg. Government Sale Citigroup advanced 13 percent to $3.97 and closed at $4.18 on March 11, the highest price since Nov. 24. Pandit said he “wouldn’t be surprised” if the government were considering a sale of its 27 percent stake. AIG soared 22 percent, the most in the S&P 500, to $34.23 after the insurer sold American Life Insurance Co. to MetLife, the bailed-out company’s second divestiture of a non-U.S. life insurance unit this month. Retailers advanced after Americans braved blizzards and overcame job concerns to propel sales in February, pointing to a broadening in growth that will help sustain the expansion. Purchases at stores unexpectedly climbed 0.3 percent, the fourth gain in five months, Commerce Department figures showed. Home Depot, the world’s largest home-improvement retailer, rose 2.8 percent to $32.45. McDonald’s, the biggest fast-food chain, climbed 2.9 percent to $65.53. McDonald’s said global sales rose 4.8 percent in February, topping some analysts’ estimates. Forecasting Gains Barton Biggs , the hedge-fund manager who recommended buying U.S. stocks in March of last year when the S&P 500 sank to a 12- year low, said American equities may rise another 10 percent to 15 percent over the next couple of months. “I’m very struck by the level of bearishness everywhere I go,” said Biggs, who runs New York-based hedge fund Traxis Partners LP. “I’m not obsessed with history. I’m bullish because I think the global economic recovery is on track and is going to be surprisingly strong. The world was falling apart in 2009. There’s been a tremendous change.” Boeing Co. climbed 2.8 percent to $69.83. The second- largest commercial planemaker said it plans to ramp up production of its 787 Dreamliner to 2 1/2 a month by August as it works toward building 10 of the composite-plastic jets each month by 2013 and reclaiming the top delivery spot next year from Airbus SAS. Cisco Systems Inc. jumped 2.7 percent to $25.88. The biggest maker of networking gear introduced an Internet router starting at $90,000 that will let Web users download movies, songs and data faster to computers and mobile devices. Sprint Nextel Co. led telephone companies to the biggest gain among 10 industries in the S&P 500. The third-largest U.S. wireless company said it will pay off debt and control expenses . To contact the reporter on this story: Craig Trudell at ctrudell1@bloomberg.net .

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U.S. Stocks Advance to 17-Month High on Economic Confidence, Paced by AIG

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Hale "Bonddad" Stewart: No Virgina, the Economic Stats Aren’t Manipulated

by Hale Bonddad Stewart on January 4, 2010

One of the greatest themes around the economic blogsphere is the government is manipulating the numbers to make things look better than they are. However, this is an easily debunked claim. The latest source for this claim is a story from the New York Times . Here are the first three paragraphs from that story: A widening gap between data and reality is distorting the government’s picture of the country’s economic health, overstating growth and productivity in ways that could affect the political debate on issues like trade, wages and job creation. The shortcomings of the data-gathering system came through loud and clear here Friday and Saturday at a first-of-its-kind gathering of economists from academia and government determined to come up with a more accurate statistical picture. The fundamental shortcoming is in the way imports are accounted for. A carburetor bought for $50 in China as a component of an American-made car, for example, more often than not shows up in the statistics as if it were the American-made version valued at, say, $100. The failure to distinguish adequately between what is made in America and what is made abroad falsely inflates the gross domestic product, which sums up all value added within the country. Let’s look at the third paragraph in detail, especially the opening sentence. “The fundamental shortcoming is in the way imports are accounted for.” So, the issue is not with an entire group of statistics but with the way we count imports. The net effect of this problem? The statistical distortions can be significant. At worst, the gross domestic product would have risen at only a 3.3 percent annual rate in the third quarter instead of the 3.5 percent actually reported, according to some experts at the conference. The same gap applies to productivity. And the spread is growing as imports do. So — the very worst reading of the data as it currently exists would have subtracted .2 from US GDP. And that’s the worst reading of the distortion — the worst. And yet, this news article has been cited as proof that the official US government statistics are way off. Then there is “Shadowstats.” . Many people cite them as proof positive the US government is distorting the data. For example, here is a chart of their CPI calculation. However, there is a big problem with claiming the blue line is the correct measurement of inflation. It comes in the form of bond yields: If the blue line on the shadowstats graph were the correct inflation measure, bond yields would be at least 400 basis points higher. Why? If shadow stats were correct, then bond investors would have been losing money for most of the 2001-2008 period because inflation was higher than the stated interest rate on the 10-year Treasury bond. Simply put, investors would not put up with that and instead would have sent yields far higher for the last decade. Yet they did not. That tells us that Shadow stats CPI number is wrong. And if there was a grand conspiracy regarding US economic statistics, where are the academic papers specifically showing why certain numbers are wrong? For example, go the National Bureau of Economic Research and the social science research network. Then search both for “birth/death model.” According to literally the entire economic blogsphere this statistical adjustment to the establishment job numbers is an abomination (Except A Dash of Insight who explains why the criticism is unwarranted here, here and here. ) Yet there are no papers from academics on why this number is wrong. Type in “US import prices” and you get the same thing — nothing. Simply put, there is no huge outcry from the people who should be doing that — academics. In summation, we have the following points: 1.) The New York Times story that supposedly shows a massive conspiracy regarding government statistics has been taken massively out of context. 2.) ShadowStats is bunk, plain and simple. Or to quote professor Jim Hamilton: Why do people continue to give credibility to an operation like Shadowstats? Now that’s something that I’d like to hear explained. 3.) The people who should be publishing papers showing the massive distortions in US government numbers aren’t publishing those papers.

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Hale "Bonddad" Stewart: No Virgina, the Economic Stats Aren’t Manipulated

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