A Story Unraveling

Title: Blue Floral
Artist: Goga

The market had a bad day today. There will be lots of "stories" that will be told as to why. In fact, I'm becoming quite enchanted with these 'stories' in that they represent the lamination of someone's opinion onto an observation. Mind you, it's opinion, not empiricism: there's big gap between the two that seldom is acknowledged.

There's a reason why my blog is called, The Perplexed Investor. I'm considerably less perplexed now than I was at the outset. I realize that the market needs a few whacks to the head before it dismisses its incredulity that a trend has changed. Today came a whack to the head and at the expense of a previously-spun 'story' that is now unraveling.

The whack came in the form of the ISM Non-Manufacturing report which you can read here which showed a slowing in non-mfg services. Specifically: "Business activity in the non-manufacturing sector contracted in January for the first time in 58 months, say the nation's purchasing and supply executives in the latest Non-Manufacturing ISM Report On Business®."

Rather than relying on the Market-Watch and other blurbs, I suggest that you actually go to the link and read the bulletin and the components. It's also worth noting that this report was released early due to potential "breach" in the information.

In Leisa-land, I try to keep things simple, and being aware of the dissonance in the stories that one hears v. common sense is a good use of one's conscious time and energy. It probably doesn't hurt for one's subconscious to mull through these things either so long as it does not rob one of sleep. Here's the story that is unraveling: The mfg index and durable goods numbers have been weakening steadily throughout last year. Nevertheless, we were told (the 'story') that such slowing doesn't matter, as we were a services based economy. One has to remember that people who produce "stuff"--dishwashers, homes, commercial buildings, I-Pods, computers, furniture, clothing and accessories, food to eat--generate a good bit of the demand for non manufacturing services. I'll carve out the medical profession from that statement.

Consumers who are under pressure buy less of the stuff that gets manufactured/produced. The folks that manufacture stuff, cut back on their purchases of business stuff, AND they cut back on the non manufacturing-services. In a nutshell, producing "stuff" supports a good bit of the services sector. So when production slows.....services will slow. The media created this mfg v. services bifurcated story, when it--like most things--is integral to the whole. I'd like to find some harder numbers on the dynamic of mfg v. services.

It's also worth noting the 'story' on the falling dollar helping exports. That is true. But remember, we produce less "stuff" now than we did previously, so it helps less. Ironically the 'story' of a services based economy rarely gets told on the same day that folks are touting the 'story' of a falling dollar helping exports. Funny how that is.

But the market is realizing that one of its last bastions of hope is weakening.