Earth Kicked Out Of Our Sun's Habitable/Goldilocks Zone

Not only is this interesting in the sense that it is great science, but it also shows that we should always check and double check our generally accepted assumptions.

As New Scientist states

Shockingly, Earth – which used to be smack-bang in the middle of our sun's habitable zone – is now a scant million kilometres away from the warm edge, so almost too hot for liquid water. Of course, we know Earth is robustly life-friendly – the mismatch is probably because neither definition accounts for clouds, which reflect sunlight away from Earth.

As Earth shows, the Goldilocks zone is no ultimate judge of habitability, something exoplanet researchers have known for years. As well as clouds, volcanic activity or the location of other moons or planets in the solar system, may be important for life to develop on planets like Earth

Excited About Today's ISM- Don't

The Institute of  Supply Management (ISM) released January Purchasing Managers Index (PMI) earlier today, showing that the growth in manufacturing continued in January. The January PMI was 53.1, better than the 50.2 in December on a increase in the the five index inputs.

MANUFACTURING AT A GLANCE JANUARY 2013
Index	Series Index Jan	Series Index Dec	Percentage Point Change	Direction	Rate of Change	Trend* (Months)
PMI™	53.1	50.2	+2.9	Growing	Faster	2
New Orders	53.3	49.7	+3.6	Growing	From Contracting	1
Production	53.6	52.6	+1.0	Growing	Faster	5
Employment	54.0	51.9	+2.1	Growing	Faster	40
Supplier Deliveries	53.6	53.7	-0.1	Slowing	Slower	3
Inventories	51.0	43.0	+8.0	Growing	From Contracting	1
Customers' Inventories	48.5	47.0	+1.5	Too Low	Slower	14
Prices	56.5	55.5	+1.0	Increasing	Faster	6
Backlog of Orders	47.5	48.5	-1.0	Contracting	Faster	10
Exports	50.5	51.5	-1.0	Growing	Slower	2
Imports	50.0	51.5	-1.5	Unchanged	From Growing	1

This is all well and good and is likely contributing to the equity market's gains, but I would not expect the strength (or at the very least the accelerating trend) to last, as the forward looking metrics are suggesting underlying future weakness. For one, the customer inventories index (which typically moves inverse to new orders) is 3 points more than average. High customer inventory index readings tend to suggest lower new orders in future periods. Additionally, the inventory index, which measures inventory levels at manufacturers, moved from contracting in December to a gain in January with a reading of 51 in the most recent period. Since 1990, the inventory index has averaged 45, indicating the pairing of inventories. More so, an inventory index greater than 50 has foreshadowed a decline of about 2 to 3 points in PMI over the next 3 to 6 months. Also of note is that the backlog of orders contracted once again, registering a 47.5. The order backlog, in conjunction with new orders, flows into production rates, and a contracting backlog in not constructive for future production rates.

Last item to note are the comments from survey respondents, most of which sounded a caution tone.

• "Fiscal cliff, uncertainty in general and EU economic weakness are factors causing our customers to be very tentative with commitments for product purchases in 2013." (Machinery)
• "Midwest drought impact will be felt at least through midyear, impacting protein, sweeteners, eggs, oils, emulsifiers, etc." (Food, Beverage & Tobacco Products)
• "Slowing interest in high-dollar purchases reflects continuing economic uncertainty." (Miscellaneous Manufacturing)
• "Expenditure and investment are expected to remain high in North America in Q1 and Q2, 2013." (Petroleum & Coal Products)
• "Housing sales are trending upward in light of overall market uncertainty, translating to improving optimism in appliance market." (Electrical Equipment, Appliances & Components)
• "Still waiting for reaction to consumer tax increases." (Fabricated Metal Products)
• "Government spending is very low, probably due to the fiscal cliff and the looming debt ceiling." (Transportation Equipment)
• "Business is improving." (Furniture & Related Products)
• "The general theme developing in our industry is that we can move suitable volumes. However, profit margin is elusive." (Wood Products)
• "Overall production volume decreasing. Decrease is led by decline in exports of 10 percent." (Chemical Products)

The Fed's Exit Will Be Messy

Santelli states it succinctly, the Federal Reserve's exit of it crisis mode strategy will be 'messy'. However, messy may be an understatement.

As of Jan 30th, the Fed's balance sheet is levered by nearly 55x, as over $3 trillion in assets is being supported by just $54.8 billion in capital. Unless you are a reader of John Hussman or the like, these figures are never mentioned by any main stream media source, but may have profound impact on everything from the global economy to your portfolio's performance. In March of 2000, the Federal Reserve took back $30 to $40 billion in excess liquidity, previously floated to alleviate any potential problems with Y2K, which helped reciprocate the NSADAQ crash that year. What would happen if the Fed had to reduce the balance sheet by $500 billion to say offset a rise inflation expectations?

Federal Reserve Balance sheet Jan 30 by

A Little Andromeda For The Morning

The picture below shows the Andromeda Galaxy, our closet galactic neighbor at a distance of a mere 2 million light years and by the way the furthest object that can be seen by the naked eye, in the far end of the infrared spectrum.



What that means is that the image shows cold dust clouds swirling amongst the hot stars within the galaxy. And actually cold may be an understatement, as the image, taken with Herschel Space Observatory, resolves dust clouds that are just a few tens of degrees above absolute zero.

High Volume High 1/31/13 Edition

Getting right in to the new high volume highs list, CSII beat expectations for sales and earnings. CPRT gained after it was announced that JANA partners took an 11% kn the company. CAM reported results with revenue exceeding expectations and also reported large order growth. CXS' shares increased on an upped bid from Annaly. In a similar vein, WMS gained on the announcement of a takeover offer. Both should be probably disregarded for potential future investment. As for the rest of the list, the shares of MHP gained as the company raised its quarterly dividend while DST reported strong earnings, beating estimates. TIVO's shares gained on no news, although this could be a short covering rally. Last, both UGI and UTEK both reported results that exceeded analyst estimates.

Volume Off the High 1/31/13 Edition

Looking at the names, CAH was off on no apparent news. Volume off the high on now news should be closely watched. There is also a number of company shares selling off after reporting earnings including UPS, MDC, TWC, RDEN, and HAR. Last, we have STZ, as the shares declined after the announcement that the DoJ was suing to block a deal with AmBev.

Credit Supernova- Bill Gross

The whole article can be found here and is most definitely worth the read..

 

If so then the legitimate question is: how much time does money/credit have left and what are the investment consequences between now and then? Well, first I will admit that my supernova metaphor is more instructive than literal. The end of the global monetary system is not nigh. But the entropic characterization is most illustrative. Credit is now funneled increasingly into market speculation as opposed to productive innovation. Asset price appreciation as opposed to simple yield or “carry” is now critical to maintain the system’s momentum and longevity. Investment banking, which only a decade ago promoted small business development and transition to public markets, now is dominated by leveraged speculation and the Ponzi finance Minsky once warned against.

So our credit-based financial markets and the economy it supports are levered, fragile and increasingly entropic – it is running out of energy and time. When does money run out of time? The countdown begins when investable assets pose too much risk for too little return; when lenders desert credit markets for other alternatives such as cash or real assets.