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Bernanke's Parting Words; Manufacturing Data: Best of Kass

NEW YORK (TheStreet) -- Doug Kass of Seabreeze Partners is known for his accurate stock market calls and keen insights into the economy, which he shares with RealMoney Pro readers in his daily trading diary.

Among the posts this past week were entries about Ben Bernanke's last major speech and the ISM index for December.

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Bernanke's Parting Words
Originally published on Friday, Jan. 3 at 2:59 p.m. EDT.

Ben Bernanke's last major speech as Fed chief before he exits stage left provided no new information on future policy under Janet Yellen but was more of a pat on the back for what he has done since the financial crisis began.

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Bernanke is optimistic on growth in coming quarters (which if it comes true, Yellen will likely continue tapering) and talked about the "considerable progress" the economy has made over the past four-and-a-half years. And he defended quantitative easing by saying that academic research supports the argument that it "helped promote the recovery." 

This defense of QE, however, is only valid if the recovery continues when QE no longer is active, which wasn't the case after QE 1 and QE 2 ended.

 Let's hope this time is different.

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On the beginning of the end of this round of QE, he said it "did not indicate diminution of its commitment to maintain a highly accommodative monetary policy for as long as needed; rather, it reflected the progress we have made toward our goal of substantial improvement in the labor market outlook." 

This points to the Fed's whole argument about tapering not being tightening, but the bond market has voted otherwise. 

Finally, he blamed fiscal policy and low productivity as hindrances to the recovery.



Parsing the Data

Originally published on Thursday, Jan. 2 at 10:34 a.m. EDT.

Following a mixed bag of regional manufacturing survey releases over the past few weeks, the national ISM index for December was 57, about in line with the estimate of 56.8 and down a touch from the November print of 57.3, which was the best since April 2011.

New orders rose +0.6 points to the best since April 2010, but backlogs were lower by -2.5 points. The employment component was up slightly to 56.9 from 56.5, but that is the highest since June 2011. After rising +7.5 points over the past two months, export orders moderated by -4.5 points, to 55. Inventories at the manufacturing level fell -3.5 points, to 47, after three straight months above 50, and we know it was a big lift to third-quarter 2013 GDP. Inventories at the customer level were up +2.5 points, still below 50 but to the highest level since July. Prices paid were up +1 point after dropping -3 points in November.

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Of the 18 industries surveyed, 13 saw growth and the ISM summed up the report by saying, "Comments from the panel generally reflect a solid final month of the year, capping off the second half of 2013, which was characterized by continuous growth and momentum in manufacturing."

Bottom line: While off a bit (month over month), manufacturing continues to be a bright spot in the economy. But, to generate the 3%+ 2014 GDP growth that some are calling for, we need to see a pickup in capital investment, an improvement in income growth, a housing market that can handle a continued rise in mortgage rates and an auto sector that doesn't get hurt by the rise in rates either.

While there are high hopes for all, only time will provide the evidence, because it's not clear yet.


 

Doug Kass is the president of Seabreeze Partners Management Inc. Under no circumstances does this information represent a recommendation to buy, sell or hold any security.

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