Wednesday, October 22, 2014

Chicago Fed National Financial Conditions Index (NFCI)

The St. Louis Fed’s Financial Stress Index (STLFSI) is one index that is supposed to measure stress in the financial system.  Its reading as of the October 16, 2014 update (reflecting data through October 10) is -1.065.
Of course, there are a variety of other measures and indices that are supposed to measure financial stress and other related issues, both from the Federal Reserve as well as from private sources.
Two other indices that I regularly monitor include the Chicago Fed National Financial Conditions Index (NFCI) as well as the Chicago Fed Adjusted National Financial Conditions Index (ANFCI).
Here are summary descriptions of each, as seen in FRED:
The National Financial Conditions Index (NFCI) measures risk, liquidity and leverage in money markets and debt and equity markets as well as in the traditional and “shadow” banking systems. Positive values of the NFCI indicate financial conditions that are tighter than average, while negative values indicate financial conditions that are looser than average.
The adjusted NFCI (ANFCI). This index isolates a component of financial conditions uncorrelated with economic conditions to provide an update on how financial conditions compare with current economic conditions.
For further information, please visit the Federal Reserve Bank of Chicago’s web site:
Below are the most recently updated charts of the NFCI and ANFCI, respectively.
The NFCI chart below was last updated on October 22, incorporating data from January 5,1973 to October 17, 2014, on a weekly basis.  The October 17, 2014 value is -.72:
(click on chart to enlarge image)
NFCI 10-22-14 update
Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed October 22, 2014:
The ANFCI chart below was last updated on October 22, incorporating data from January 5,1973 to October 17, 2014, on a weekly basis.  The October 17, 2014 value is -.48:
ANFCI 10-22-14 update
Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed October 22, 2014:
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I post various indicators and indices because I believe they should be carefully monitored.  However, as those familiar with this blog are aware, I do not necessarily agree with what they depict or imply.
_____
The Special Note summarizes my overall thoughts about our economic situation
SPX at 1927.11 as this post is written

Janet Yellen Speech Regarding Wealth Inequality - Notable Excerpts

In past posts I have discussed various disconcerting aspects regarding the financial condition faced by large numbers of Americans, as well as the worrisome levels (and economic ramifications) of income and wealth disparity.
On October 17, 2014 Federal Reserve Chair Janet Yellen gave a speech titled "Perspectives on Inequality and Opportunity from the Survey of Consumer Finances."  This speech references various statistics and charts, many of which I find disconcerting.
While I don't necessarily agree with various aspects discussed in the speech, below are a few excerpts from the speech that I find notable, in the order they appear:
The extent of and continuing increase in inequality in the United States greatly concern me. The past several decades have seen the most sustained rise in inequality since the 19th century after more than 40 years of narrowing inequality following the Great Depression. By some estimates, income and wealth inequality are near their highest levels in the past hundred years, much higher than the average during that time span and probably higher than for much of American history before then.2  It is no secret that the past few decades of widening inequality can be summed up as significant income and wealth gains for those at the very top and stagnant living standards for the majority. I think it is appropriate to ask whether this trend is compatible with values rooted in our nation's history, among them the high value Americans have traditionally placed on equality of opportunity.
also:
Since the survey began in its current form in 1989, the SCF has shown a rise in the concentration of income in the top few percent of households, as shown in figure 1.6 By definition, of course, the share of all income held by the rest, the vast majority of households, has fallen by the same amount.7 This concentration was the result of income and living standards rising much more quickly for those at the top. After adjusting for inflation, the average income of the top 5 percent of households grew by 38 percent from 1989 to 2013, as we can see in figure 2. By comparison, the average real income of the other 95 percent of households grew less than 10 percent. Income inequality narrowed slightly during the Great Recession, as income fell more for the top than for others, but resumed widening in the recovery, and by 2013 it had nearly returned to the pre-recession peak.8
The distribution of wealth is even more unequal than that of income, and the SCF shows that wealth inequality has increased more than income inequality since 1989. As shown in figure 3, the wealthiest 5 percent of American households held 54 percent of all wealth reported in the 1989 survey. Their share rose to 61 percent in 2010 and reached 63 percent in 2013. By contrast, the rest of those in the top half of the wealth distribution--families that in 2013 had a net worth between $81,000 and $1.9 million--held 43 percent of wealth in 1989 and only 36 percent in 2013.
The lower half of households by wealth held just 3 percent of wealth in 1989 and only 1 percent in 2013. To put that in perspective, figure 4 shows that the average net worth of the lower half of the distribution, representing 62 million households, was $11,000 in 2013.9 About one-fourth of these families reported zero wealth or negative net worth, and a significant fraction of those said they were "underwater" on their home mortgages, owing more than the value of the home.10 This $11,000 average is 50 percent lower than the average wealth of the lower half of families in 1989, adjusted for inflation. Average real wealth rose gradually for these families for most of those years, then dropped sharply after 2007. Figure 5 shows that average wealth also grew steadily for the "next 45" percent of households before the crisis but didn't fall nearly as much afterward. Those next 45 households saw their wealth, measured in 2013 dollars, grow from an average of $323,000 in 1989 to $516,000 in 2007 and then fall to $424,000 in 2013, a net gain of about one-third over 24 years. Meanwhile, the average real wealth of families in the top 5 percent has nearly doubled, on net--from $3.6 million in 1989 to $6.8 million in 2013.
Housing wealth--the net equity held by households, consisting of the value of their homes minus their mortgage debt--is the most important source of wealth for all but those at the very top.11 It accounted for three-fifths of wealth in 2013 for the lower half of families and two-fifths of wealth for the next 45. But housing wealth was only one-fifth of total wealth for the top 5 percent of families. The share of housing in total net worth for all three groups has not changed much since 1989.
also:
Another major source of wealth for many families is financial assets, including stocks, bonds, mutual funds, and private pensions.14 Figure 7 shows that the wealthiest 5 percent of households held nearly two-thirds of all such assets in 2013, the next 45 percent of families held about one-third, and the bottom half of households, just 2 percent. This figure may look familiar, since the distribution of financial wealth has concentrated at the top since 1989 at rates similar to those for overall wealth, which we saw in figure 3.15
The speech also contains a variety of charts.
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The Special Note summarizes my overall thoughts about our economic situation
SPX at 1941.28 as this post is written

Tuesday, October 21, 2014

Trends Of S&P500 Earnings Forecasts

S&P500 earnings trends and estimates are a notably important topic, for a variety of reasons, at this point in time.
FactSet publishes a report titled “Earnings Insight” that contains a variety of information including the trends and expectations of S&P500 earnings.
For reference purposes, here are two charts as seen in the “Earnings Insight” (pdf) report of October 17, 2014:
from page 26:
(click on charts to enlarge images)
Change in Bottom-Up EPS vs. Top-Down Mean EPS (Trailing 26-Weeks) 
S&P500 earnings estimates trends
from page 27:
Calendar Year Bottom-Up EPS Actuals & Estimates
S&P500 annual EPS
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I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this blog are aware, I do not agree with many of the consensus estimates and much of the commentary in these forecast surveys.
_____
The Special Note summarizes my overall thoughts about our economic situation
SPX at 1904.01 as this post is written

S&P500 Earnings Estimates For 2014 Through 2017

As many are aware, Thomson Reuters publishes earnings estimates for the S&P500.  (My other posts concerning S&P earnings estimates can be found under the S&P500 Earnings label)
The following estimates are from Exhibit 12 of “The Director’s Report” (pdf) of October 17, 2014, and represent an aggregation of individual S&P500 component “bottom up” analyst forecasts:
Year 2014 estimate:
$118.05/share
Year 2015 estimate:
$132.06/share
Year 2016 estimate:
$147.08/share
Year 2017 estimate:
$138.00/share
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I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this blog are aware, I do not agree with many of the consensus estimates and much of the commentary in these forecast surveys.
_____
The Special Note summarizes my overall thoughts about our economic situation
SPX at 1904.01 as this post is written

Monday, October 20, 2014

Standard & Poor’s S&P500 Earnings Estimates For 2014 & 2015 – As Of October 16, 2014

As many are aware, Standard & Poor’s publishes earnings estimates for the S&P500.  (My posts concerning their estimates can be found under the S&P500 Earnings label)
For reference purposes, the most current estimates are reflected below, and are as of October 16, 2014:
Year 2014 estimates add to the following:
-From a “bottom up” perspective, operating earnings of $118.37/share
-From a “top down” perspective, operating earnings of N/A
-From a “top down” perspective, “as reported” earnings of $111.72/share
Year 2015 estimates add to the following:
-From a “bottom up” perspective, operating earnings of $135.11/share
-From a “top down” perspective, operating earnings of $135.84/share
-From a “top down” perspective, “as reported” earnings of $134.90/share
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I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this blog are aware, I do not agree with many of the consensus estimates and much of the commentary in these forecast surveys.
_____
The Special Note summarizes my overall thoughts about our economic situation
SPX at 1886.76 as this post is written

Friday, October 17, 2014

Long-Term Charts Of The ECRI WLI & ECRI WLI, Gr. – October 17, 2014 Update

As I stated in my July 12, 2010 post (“ECRI WLI Growth History“):
For a variety of reasons, I am not as enamored with ECRI’s WLI and WLI Growth measures as many are.
However, I do think the measures are important and deserve close monitoring and scrutiny.
The movement of the ECRI WLI and WLI, Gr. is particularly notable at this time, as ECRI publicly announced on September 30, 2011 that the U.S. was “tipping into recession,” and ECRI has reiterated the view that the U.S. economy is currently in a recession, seen most recently in these twelve publicly available sources :
Other past notable year 2012 reaffirmations of the September 30, 2011 recession call by ECRI were seen (in chronological order) on March 15 (“Why Our Recession Call Stands”) as well as various interviews and statements the week of May 6, including:
Also, subsequent to May 2012:
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Below are three long-term charts, from Doug Short’s blog post of October 17, 2014 titled “ECRI Recession Watch:  Weekly Update.”  These charts are on a weekly basis through the October 17 release, indicating data through October 10, 2014.
Here is the ECRI WLI (defined at ECRI’s glossary):
ECRI WLI
This next chart depicts, on a long-term basis, the Year-over-Year change in the 4-week moving average of the WLI:
Dshort 10-17-14 - ECRI-WLI-YoY 2.5 percent
This last chart depicts, on a long-term basis, the WLI, Gr.:
ECRI WLI,Gr.
_________
I post various economic indicators and indices because I believe they should be carefully monitored.  However, as those familiar with this blog are aware, I do not necessarily agree with what they depict or imply.
_____
The Special Note summarizes my overall thoughts about our economic situation
SPX at 1888.21 as this post is written

Deflation Probabilities - October 15, 2014 Update

While I do not agree with the current readings of the measure – I think the measure dramatically understates the probability of deflation, as measured by the CPI – the Federal Reserve Bank of Atlanta maintains an interesting data series titled “Deflation Probabilities.”
As stated on the site:
Using estimates derived from Treasury Inflation-Protected Securities (TIPS) markets, described in a technical appendix, this weekly report provides two measures of the probability of consumer price index (CPI) deflation through 2018.
A chart shows the trends of the probabilities.  As one can see in the chart, the readings are volatile.
As for the current weekly reading, the October 15, 2014 update states the following:
The 2013–18 deflation probability—based on the 5-year TIPS issued in April 2013 and the 10-year TIPS issued in July 2008—was 0 percent on October 15, where it has been since early September 2013. The 2014–19 deflation probability is also 0 percent as of October 15.
Prices of Treasury Inflation-Protected Securities (TIPS) with similar maturity dates can be used to measure probabilities of a net decline in the consumer price index over the five-year period starting in early 2013 or the five-year period starting in early 2014.
I plan on providing updates to this measure on a regular interval.
_________
I post various economic indicators and indices because I believe they should be carefully monitored.  However, as those familiar with this blog are aware, I do not necessarily agree with what they depict or imply.
_____
The Special Note summarizes my overall thoughts about our economic situation
SPX at 1886.40 this post is written

A Chart Of Recent S&P500 Price Volatility – October 17,2014 Update

This post is an update to past posts regarding stock market volatility.
While I track many different measures of volatility, I find the following chart to be both simple and clear in depicting the recent increased volatility in the stock market.
Overall, my analyses indicates that there are many reasons for this volatility, and the volatility is very notable and has great significance.
This chart depicts the S&P500 in 60 minute intervals from September 1, 2014 through yesterday’s (October 16) close.   The blue line depicts a 50-period (hour) moving average.
(click on chart to enlarge image)(chart courtesy of StockCharts.com)
S&P500 hourly since September 1, 2014
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The Special Note summarizes my overall thoughts about our economic situation
SPX at 1862.76 as this post is written