Friday, September 23, 2016

Long-Term Charts Of The ECRI WLI & ECRI WLI, Gr. – September 23, 2016 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.
Below are three long-term charts, from Doug Short’s ECRI update post of September 23, 2016 titled “ECRI Weekly Leading Index:  WLIg Highest Since February 2013.”  These charts are on a weekly basis through the September 23, 2016 release, indicating data through September 16, 2016.
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-9-23-16-ecri-yoy
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 2167.77 as this post is written

The U.S. Economic Situation – September 23, 2016 Update

Perhaps the main reason that I write of our economic situation is that I continue to believe, based upon various analyses, that our economic situation is in many ways misunderstood.  While no one likes to contemplate a future rife with economic adversity, current and future economic problems must be properly recognized and rectified if high-quality, sustainable long-term economic vitality is to be realized.
There are an array of indications and other “warning signs” – many readily apparent – that current economic activity and financial market performance is accompanied by exceedingly perilous dynamics.
I have written extensively about this peril, including in the following:
Building Financial Danger” (ongoing updates)
My analyses continues to indicate that the growing level of financial danger will lead to the next stock market crash that will also involve (as seen in 2008) various other markets as well.  Key attributes of this next crash is its outsized magnitude (when viewed from an ultra-long term historical perspective) and the resulting economic impact.  This next financial crash is of tremendous concern, as my analyses indicate it will lead to a Super Depression – i.e. an economy characterized by deeply embedded, highly complex, and difficult-to-solve problems.
For long-term reference purposes, here is a chart of the Dow Jones Industrial Average since 1900, depicted on a monthly basis using a LOG scale (updated through September 16, 2016, with a last value of 18123.80):
(click on chart to enlarge image)(chart courtesy of StockCharts.com)
DJIA since 1900
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The Special Note summarizes my overall thoughts about our economic situation
SPX at 2177.18 as this post is written

Thursday, September 22, 2016

Updates Of Economic Indicators September 2016

Here is an update of various indicators that are supposed to predict and/or depict economic activity. These indicators have been discussed in previous blog posts:
The September 2016 Chicago Fed National Activity Index (CFNAI) updated as of September 22, 2016: (current reading of CFNAI is -.55; current reading of CFNAI-MA3 is -.07):
CFNAI-MA3
As of September 16, 2016 (incorporating data through September 9, 2016) the WLI was at 139.6 and the WLI, Gr. was at 8.7%.
A chart of the WLI,Gr., from Doug Short’s ECRI update post of September 16, 2016:
ECRI WLI,Gr.
Here is the latest chart, depicting the ADS Index from December 31, 2007 through September 17, 2016:
ADS Index
The Conference Board Leading (LEI), Coincident (CEI) Economic Indexes, and Lagging Economic Indicator (LAG):
As per the September 22, 2016 press release, titled “The Conference Board Leading Economic Index (LEI) for the U.S. Declined,” (pdf) the LEI was at 124.1, the CEI was at 114.1, and the LAG was 122.1 in August.
An excerpt from the September 22 release:
“While the U.S. LEI declined in August, its trend still points to moderate economic growth in the months ahead,” said Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board. “Although strengths and weaknesses among the leading indicators are roughly balanced, positive contributions from the financial indicators were more than offset by weakening of nonfinancial indicators, such as leading indicators of labor markets, suggesting some risks to growth persist.”
Here is a chart of the LEI from Doug Short’s Conference Board Leading Economic Index update of September 22:
Conference Board LEI
_________
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 2177.18 as this post is written

Janet Yellen’s September 21, 2016 Press Conference – Notable Aspects

On Wednesday, September 21, 2016 Janet Yellen gave her scheduled September 2016 FOMC Press Conference. (link of video and related materials)
Below are Janet Yellen’s comments I found most notable – although I don’t necessarily agree with them – in the order they appear in the transcript.  These comments are excerpted from the “Transcript of Chairman Yellen’s Press Conference“ (preliminary)(pdf) of September 21, 2016, with the accompanying “FOMC Statement” and “Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents, September 2016“ (pdf).
From Janet Yellen’s opening comments:
Economic growth, which was subdued during the first half of the year, appears to have picked up. Household spending continues to be the key source of that growth. This spending has been supported by solid increases in household income as well as by relatively high levels of consumer sentiment and wealth. Business investment, however, remains soft, both in the energy sector and more broadly. The energy industry has been hard hit by the drop in oil prices since mid-2014, and investment in that sector continued to contract through the first half of the year. However, drilling is now showing signs of stabilizing. Overall, we expect that the economy will expand at a moderate pace over the next few years.
also:
Ongoing economic growth and an improving job market are key factors supporting our inflation outlook. Overall consumer price inflation--as measured by the price index for personal consumption expenditures--was less than 1 percent over the 12 months ending in July, still short of our 2 percent objective. Much of this shortfall continues to reflect earlier declines in energy and import prices. Core inflation--which excludes energy and food prices that tend to be more volatile than other prices--has been running about 1-1/2 percent. As transitory influences holding down inflation fade, and as the job market strengthens further, we continue to expect inflation to rise to 2 percent over the next two to three years.
Janet Yellen’s responses as indicated to the various questions:
NANCY MARSHALL-GENZER. Nancy Marshall-Genzer with Marketplace. You mentioned commercial real estate. Are you worried that bubbles could form in the economy because of our prolonged low interest rates?
CHAIR YELLEN. Yes. Of course, we are worried that bubbles could form in the economy, and we routinely monitor asset evaluations. While nobody can know for sure what type of valuation represents a bubble--that's only something one can tell in hindsight--we are monitoring these measures of valuation, and commercial real estate valuations are high. Rents have moved up over time, but still valuations are high relative to rents. And so, it is something we've discussed. We called this out in our Monetary Policy Report and in other presentations.
And we are, in our supervision with banks, as I indicated, we have issued supervisory guidance to make sure that underwriting standards are sound on these loans, and we're aware-- this is something also that we look at in stress tests of the large-- the larger banks to see what would happen to their capital positions and to make sure that the hold sufficient capital. And, of course, I think the soundness and state of the banking system is improved substantially, but of course we are focused on such things.
also:
KAREN MRACEK. Karen Mracek with Market News International. You mentioned in the previous answer the need to be forward looking but you've also pointed to the economy not overheating as a reason you could, you know, hold off on raising rates at this one. Monetary policy is traditionally operated with long and variable lags. Do you think this timeline has changed since the financial crisis or due to the use of unconventional tools the Fed used and how does that factor into your decision making?
CHAIR YELLEN. So, I think the notion that monetary policy operates with long and variable lags, that statement is due to Milton Friedman and it is one of the essential things to understand about monetary policy and it is not fundamentally changed at all. And that is why I believe we have to be forward looking and I'm not in favor of the whites of their eyes rights sort of approach. We need to operate based on forecasts. But the global economy and the US economy have changed a lot. History doesn't always exactly replay itself. Many of the-- those of us sitting around the table, we learned the lesson that if policy is not forward looking, that inflation can pick up to highly undesirable levels that inflation expectations can be dislodged upward and the consequence of that can be that endemically higher inflation takes place which it is very costly to reduce. And absolutely, none of us want to relive an episode like that. And so I believe and my colleagues that it is important to be forward looking. We're going to make that mistake again. But the structure of the economy changes, things do change. The nature of the inflation process is changed I think significantly since the bad days of the '70s when the Fed had to face this chronic high inflation problem. We've seen inflation respond less to the economy, to movements in the unemployment rate that sometimes said the Phillips curve has become flatter. So we've seen less of a response, that's something we need to factor into our decision making. Inflation expectations appear to be better anchored, and perhaps that's been a result of a long period of low and stable inflation. That's an asset, it's something we didn't have in the 1970s. And in addition, we have to be attentive to the fact there we've now had a long period in which inflation is actually undershooting our 2 percent objective. And we see some signs that what I-- I would conclude inflation expectations are reasonably well-anchored at 2 percent. But we are seeing signs suggesting possible slippage there and we're long way from being-- facing the problems that Japan faces. But there always a-- should be a reminder to us that we also would not want to find ourselves in a period where inflation is chronically running below our objective. Inflation expectations are slipping and with a low neutral rate that becomes more important. So, things are changed, but principle of forward looking absolutely hold.

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The Special Note summarizes my overall thoughts about our economic situation
SPX at 2177.18 as this post is written

Wednesday, September 21, 2016

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 September 15, 2016 update (reflecting data through September 9) is -1.134.
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 September 21, 2016 incorporating data from January 5,1973 to September 16, 2016, on a weekly basis.  The September 16, 2016 value is -.62:
NFCI 9-21-16
Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed September 21, 2016:
The ANFCI chart below was last updated on September 21, 2016 incorporating data from January 5,1973 to September 16, 2016, on a weekly basis.  The September 16 value is .22:
anfci_9-21-16-22
Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed September 21, 2016:
_________
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 2150.40 as this post is written

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 September 16, 2016:
from page 19:
(click on charts to enlarge images)
S&P500 earnings estimate trends
from page 20:
S&P500 EPS 2006-2017
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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 2139.76 as this post is written

Tuesday, September 20, 2016

S&P500 EPS Projections For 2016 - 2018

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 20 of the “S&P500 Earnings Scorecard” (pdf) of September 19, 2016, and represent an aggregation of individual S&P500 component “bottom up” analyst forecasts.  For reference, the Year 2014 value is $118.78/share and the Year 2015 value is $117.46:
Year 2016 estimate:
$117.56/share
Year 2017 estimate:
$133.96/share
Year 2018 estimate:
$147.97/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 2139.12 as this post is written

Standard & Poor’s S&P500 Earnings Estimates For 2016 & 2017 – As Of September 16, 2016

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 September 16, 2016:
Year 2016 estimates add to the following:
-From a “bottom up” perspective, operating earnings of $110.29/share
-From a “top down” perspective, operating earnings of N/A
-From a “bottom up” perspective, “as reported” earnings of $101.18/share
Year 2017 estimates add to the following:
-From a “bottom up” perspective, operating earnings of $132.43/share
-From a “top down” perspective, operating earnings of N/A
-From a “bottom up” perspective, “as reported” earnings of $122.15/share
_____
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 2139.12 as this post is written