EconomicGreenfield

A Note On Asset Bubbles

2012-01-30T08:24:00.000-06:00

I would like to highlight the topic of asset bubbles and the numerous past posts I have written concerning them. This topic is particularly apropos given that my analysis indicates that various asset bubbles are very "mature," i.e. very close to ending or "popping." As well, I have been writing of my analysis concerning the building financial danger in the financial system, which also poses a grave danger to the sustenance of these asset bubbles. Among these mature asset bubbles are those in both the stock and bond markets.

There are two aspects of asset bubbles that are of great importance. The first is the impact such bubbles have on investors. The second is what impact these bubbles have on the overall economy.

It should be noted that asset bubbles are often widely seen as attractive and/or beneficial during their expansion phase. For instance, during the housing bubble, few people were wary of the "bubble" trend; in fact, the vast majority - including professional economists and policy makers - thought such price appreciation was "great" (i.e. highly beneficial), and such appreciation was "natural" as opposed to constituting a "bubble." The vast majority also believed such house price appreciation would last indefinitely, with few risks posed. Exceedingly few (especially on a percentage basis) predicted the "top" of the bubble or the economic ramifications of its aftermath.

My analysis continues to indicate that the peril presented by the current asset bubbles can't be overstated.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1314.53 as this post is written

Ben Bernanke’s January 25, 2012 Press Conference – Notable Aspects

2012-01-29T09:55:00.002-06:00

On Wednesday, January 25, Ben Bernanke gave his scheduled press conference.

Here are Ben Bernanke’s comments I found most notable, although I don’t necessarily agree with them. These comments are excerpted from the "Transcript of Chairman Bernanke’s Press Conference"(preliminary)(pdf) of January 25, 2012, with accompanying economic projections (pdf).

Bernanke’s responses as indicated to the various questions:

Opening Remarks:

from page 5 :

The longer-run projections shown...represent participants' assessments of the rate to which each variable converge over time under appropriate monetary policy, and in the absence of further shocks to the economy.

from page 7 (with regard to the initial increase in Fed Funds target rate) :

Six participants anticipate that policy firming is likely to commence in 2015 or 2016 while five others depict policy firming to commence in 2014. The remaining six participants judged that policy lift-off would be
appropriate in 2012 or 2013.

from page 8:

In particular, the Committee recognizes that hardships imposed by high and persistent unemployment in an underperforming economy and it is prepared to provide further monetary accommodation if employment is not making sufficient progress towards our assessment of its maximum level or if inflation show signs and moving further below its mandate consistent rate.

Q&A:

from page 8:

Steve Liesman: Thank you. Steve Liesman, CNBC. Mr. Chairman, we’ve had several months of economic data that's been stronger than most forecasters expected. Employment was over 200,000, unemployment rates come down 8 1/2 percent. But there seems to be very little mention of this recent strength in the statement. Do you and the Committee, Mr. Chairman, harbored doubts about the recent strength in the economy? And are you and the Committee baking in additional quantitative easing in order to achieve the growth rates that you've even forecast here? Thank you.

Chairman Bernanke: Steve, there have certainly been some encouraging news recently. We've seen slightly better performance in the labor market. Consumer sentiment has improved. Industrial production has been relatively strong. So there are some positive signs, no doubt. At the same time, we've had mixed results in some other areas, such as retail sales and we continue to see headwinds emanating from Europe coming from the slowing global economy and some other factors as well. So, you know, we are obviously hoping that the strength we saw on the fourth quarter and in recent data will continue into 2012 but we're going to continue to monitor that situation. I don't think we are ready to declare that we've entered a new stronger phase at this point and we'll continue to look at the data. We will, as I've said in my statement, and as we have in fact in the FOMC statement, you know, we continued to review our holdings, our portfolio holdings, securities, and we are prepared to take further steps in that direction if we see that the recovery’s faltering or if inflation is not moving towards target. So, that's something as an option that's certainly on the table. I think it would be premature to say definitively one way or the other, but we continue to look at that option and if conditions warrant, we will certainly consider using it.

from page 24:

Darren Gersh: Darren Gersh, Nightly Business Report. Let me kind of follow up on Peter's question, why shouldn't somebody looking at these numbers from the outside say, “look, as aggressive as you say you've been, as aggressive as you have been, it doesn't look like you're meeting any of your goals the next three years on the economy, so, why isn't the Fed doing more now?”

Chairman Bernanke: Well, again, as I said earlier, the Fed has been doing a great deal. Just since August we have put a date on our expected period of low interest rates. We undertook the maturity extension program which is still continuing. Today, we announced a further extension of the expected period of low rates by issuing these expected policy rate information, we hope to convey to the market the extent to which there is support on the Committee for maintaining rates at a low level for a significant time. So, you know, I don't accept the premise that we've been passive, we've been actually quite active in our policy and in one respect, the low level inflation is a validation in the following sense that there were some who are very concerned that our balance sheet policies and the like would lead to high inflation. There is certainly no sign of that yet and it hasn't shown up either in financial markets or in outside forecasters’expectations. Now that being said, as I mentioned earlier, if the situation continues with inflation below target and unemployment declining at a rate which is very, very slow, then more, our framework, the logic of our framework says we should be looking for ways to do more, it's not completely straightforward because, of course, we're now dealing with a variety of nonstandard policy tools, we can't just lower the federal funds rate 25 basis points like in the good old days but your basic point is right that, you know, we need to adopt policies that will both achieve our inflation objectives and help the economy recover as quickly as is feasible and I would say that your question, actually and earlier question, shows a benefit of explaining this framework because the framework makes very clear that we need to be thinking about ways in which we can provide further stimulus if we don't get some improvement in the pace of recovery and normalization of inflation.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1316.33 as this post is written

Updates On Economic Indicators January 2012

2012-01-27T08:45:00.000-06:00

Here is an update on various indicators that are supposed to predict and/or depict economic activity. These indicators have been discussed in previous blog posts:

The January Chicago Fed National Activity Index (CFNAI)(pdf) updated as of January 26, 2012:

The USA TODAY/IHS Global Insight Economic Outlook Index:

An excerpt from the January 3 update titled “Index forecasts weaker growth” :

The December update of the USA TODAY/IHS Global Insight Economic Outlook Index shows real GDP growth, at a six-month annualized growth rate, increasing to 2.5% in January and then slowing to 1.8% in May. While employment, housing (mostly the multifamily sector) and consumer spending are slowly recovering, concerns about the Eurozone and world growth continue.

The ECRI WLI (Weekly Leading Index):

As of 1/13/12 the WLI was at 123.4 and the WLI, Gr. was at -7.5%.

A chart of the WLI Growth since 2000, from Doug Short’s blog of January 20 titled “ECRI Recession Call: Growth Index Contraction Eases” :

The Dow Jones ESI (Economic Sentiment Indicator):

The Indicator as of January 9 was at 41.9, as seen below:

The Aruoba-Diebold-Scotti Business Conditions (ADS) Index:

Here is the latest chart, depicting 1-21-10 to 1-21-12:

The Conference Board Leading (LEI) and Coincident (CEI) Economic Indexes:

As per the January 26 release, the LEI was at 94.3 and the CEI was at 103.4 in December.

An excerpt from the January 26 release:

Added Ken Goldstein, economist at The Conference Board: “The CEI and other recent data reflect an economy that ended 2011 on a positive note and the LEI provides some reason for cautious optimism in the first half of 2012. This somewhat positive outlook for a strengthening domestic economy would seem to be at odds with a global economy that is losing some steam. Looking ahead, the big question remains whether cooling conditions elsewhere will limit domestic growth or, conversely, growth in the U.S. will lend some economic support to the rest of the globe.”

_________

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 1318.43 as this post is written

Conference Board CEO Confidence 4Q 2011 - Notable Excerpts

2012-01-26T07:48:00.001-06:00

On January 10, The Conference Board released its 4th Quarter CEO Confidence Survey. The overall measure of CEO Confidence was at 49, up from 42 in the third quarter.

Notable excerpts from this January 10 Press Release include:

Says Lynn Franco, Director of The Conference Board Consumer Research Center: “The bounce back in CEO Confidence in the final months of 2011 was due primarily to an improved short-term outlook. Overall, however, CEO confidence remains rather subdued. On the inflation front, CEOs anticipate price increases of about 1.8 percent for 2012, down from last year’s estimate of 3.3 percent.”

also:

CEOs’ assessment of current economic conditions was less pessimistic, with 17 percent saying conditions have improved compared to six months ago, up from just 11 percent last quarter.

Other recent surveys of business executives include the December 14 Business Roundtable’s CEO Economic Outlook Survey (pdf) and the December 15 Duke/CFO Magazine Global Business Outlook Survey (pdf).

_____

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 1326.06 as this post is written

The State of the Union Address – Notable Excerpts

2012-01-25T07:45:00.002-06:00

I found President Obama's State of the Union Address last night to contain some noteworthy comments. While I could comment extensively on many parts of the speech, for now I will indicate excerpts that I found most relevant, and may comment upon them at a future point. I am highlighting these excerpts for many reasons; it should be noted that I do not necessarily agree with all of them.

Here are the excerpts I found most relevant, in the order they occurred in the speech:

Think about the America within our reach: A country that leads the world in educating its people. An America that attracts a new generation of high-tech manufacturing and high-paying jobs. A future where we’re in control of our own energy, and our security and prosperity aren’t so tied to unstable parts of the world. An economy built to last, where hard work pays off, and responsibility is rewarded.

We can do this. I know we can, because we’ve done it before.

also:

...the basic American promise that if you worked hard, you could do well enough to raise a family, own a home, send your kids to college, and put a little away for retirement.

The defining issue of our time is how to keep that promise alive. No challenge is more urgent. No debate is more important. We can either settle for a country where a shrinking number of people do really well while a growing number of Americans barely get by, or we can restore an economy where everyone gets a fair shot, and everyone does their fair share, and everyone plays by the same set of rules. (Applause.) What’s at stake aren’t Democratic values or Republican values, but American values. And we have to reclaim them.

also:

Tonight, I want to speak about how we move forward, and lay out a blueprint for an economy that’s built to last -– an economy built on American manufacturing, American energy, skills for American workers, and a renewal of American values.

also:

On the day I took office, our auto industry was on the verge of collapse. Some even said we should let it die. With a million jobs at stake, I refused to let that happen. In exchange for help, we demanded responsibility. We got workers and automakers to settle their differences. We got the industry to retool and restructure. Today, General Motors is back on top as the world’s number-one automaker. (Applause.) Chrysler has grown faster in the U.S. than any major car company. Ford is investing billions in U.S. plants and factories. And together, the entire industry added nearly 160,000 jobs.

We bet on American workers. We bet on American ingenuity. And tonight, the American auto industry is back.

also:

Third, if you’re an American manufacturer, you should get a bigger tax cut. If you’re a high-tech manufacturer, we should double the tax deduction you get for making your products here. And if you want to relocate in a community that was hit hard when a factory left town, you should get help financing a new plant, equipment, or training for new workers. (Applause.)

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1314.65 as this post is written

misc. note

2012-01-24T11:34:00.000-06:00

Just a quick administrative note…

For those unaware, I maintain a separate site that mirrors all of the blog posts found on this site. This second site can be accessed should there be problems accessing this site.

Here is the link to this second site:

http://www.economicgreenfield.com

PPI,CPI & Profit Margin Trends – January 2012 Update

2012-01-24T10:32:00.001-06:00

In various past posts I have written of the challenges businesses face in pricing, given today’s economic environment. One aspect that I mentioned in the December 16, 2010 and April 25, 2011 posts was how the PPI (Producer Price Index) growth was significantly outpacing that of the CPI.

Since those posts, this PPI-CPI growth rate issue has remained notable. Doug Short, on his blog, has posted a few interesting charts illustrating this concept from a long-term historical viewpoint. Both of the charts shown below are from his January 20, 2012 post titled “Profit Margin Squeeze: New Update.”

First, here is a chart that shows the ratio, in the PPI, of Crude Goods to Finished Goods. The CPI is plotted below, in green. This situation, as depicted, is problematical for firms, and the overall economy, on a number of fronts:

(click on chart images to enlarge)

Second, a chart that shows data from the Philadelphia Federal Reserve regarding Prices Paid vs. Prices Received, with Inflation (CPI) and Recession periods also shown:

I believe that what this chart depicts is notable in a variety of ways. As shown, we are experiencing a unique situation, and while the index level has recently subsided, we are near historical peaks for the 12-month moving average (MA) as shown.

I believe this data and its implications for businesses and the economy at large is of great concern. Seeing how this situation resolves will be very interesting. This is especially so given the vulnerability of the U.S. Dollar to a substantial decline, a topic that I have written extensively about.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1316.00 as this post is written

Deloitte “CFO Signals” Report 4Q 2011 – Notable Aspects

2012-01-23T07:54:00.003-06:00

Recently Deloitte released their “CFO Signals” report for 4th Quarter 2011.

As seen in page 2 of the full (pdf) report, “Eighty four CFOs responded during the two weeks ended November 29. Over 70% are from public companies, and over 75% are from companies with more than $1B in annual revenue."

Here are some excerpts that I found notable:

from page 6:

CFOs now project average sales gains of about 6.3%* (down from last quarter’s 6.8%* and a new low for this survey), but 87% do expect year-over-year gains. Earnings growth expectations rebounded from their 18-month low of 9.3%* last quarter to 10.1%* this quarter. Projections for U.S. firms were above average at 10.9%* (10.5%* last quarter), with Canada lower at 7.4%* (8%* last quarter).

from page 6:

Despite their pessimistic sentiment, many CFOs appear to expect a brighter future. Few CFOs see economic conditions improving by the middle of 2012, but nearly 90% expect their home economies to be in better shape three years from now.

from page 8:

From late 2010 through the first part of 2011, CFOs’ concerns about global and domestic economies took a back seat to worries about internal missteps and detrimental government policy as barriers to growth. But two quarters ago, apparently sparked by rising sovereign debt issues in Europe, economic concerns began to climb back to the top of CFOs most worrisome risks. Recent escalation of the euro-zone financial crisis has only fueled the climb.

from page 12, regarding "Top Company Challenges" :

Revenue from existing markets again tops this quarter’s list with 54% of all CFOs and six of eight sectors naming it the top challenge (Energy/Resources and Healthcare/ Pharma are the exceptions). Revenue from new markets rebounded to 27%, up from 20% last quarter. It is a top concern for Technology, T/M/E, and Services.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1315.38 as this post is written

St. Louis Financial Stress Index – January 19, 2012 Update

2012-01-20T08:42:00.001-06:00

On March 28, 2011 I wrote a post ("The STLFSI") about the STLFSI (St. Louis Fed’s Financial Stress Index) which is supposed to measure stress in the financial system. Here is the most recent chart. This chart was last updated on January 19, incorporating data from 12-31-93 to 1-13-12 on a weekly basis. The present level is .64 :

_________

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1314.50 as this post is written

January 18 Gallup Poll Results On Americans' Personal Financial Situation - Notable Excerpts

2012-01-19T09:08:00.002-06:00

On January 18, Gallup published poll results titled "Half in U.S. Feel Worse Off Financially."

The poll asked various questions, including this one :

Would you say that you are financially better off now than you were a year ago, or are you financially worse off now?

An excerpt from the results, as discussed in the aforementioned January 18 release:

Nearly half of U.S. adults, 49%, say they are worse off financially today than a year ago, while 29% say they are better off and 21% volunteer that their finances haven't changed. The percentage rating their current finances negatively compared with a year ago is down from the high of 55% recorded twice in 2008, but is still among the highest in Gallup's four decades of measuring this attitude.

The chart shown in the poll results shows that the "% Worse off" results are notably elevated since latter-2008, relative to the other results going back to 1976.

While the question asked is somewhat subjective, these poll results seem to further support other information (much of which has been highlighted in previous blog posts) that despite an economic recovery/economic expansion (as officially designated by NBER) since June 2009 a large percentage of people in the United States are not seeing their personal financial condition improve.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1310.79 as this post is written

The January 2012 Wall Street Journal Economic Forecast Survey

2012-01-18T08:15:00.000-06:00

The January Wall Street Journal Economic Forecast Survey was published on January 13, 2012. The headline is “Economists Split Over Additional Fed Action.”

The commentary largely focuses on when, and if, the Federal Reserve will do another round of "bond purchases."

An excerpt from the article:

Of the 22 economists who expect more bond buying from the central bank, 19 forecast that it would take place before June. On average, they expect a new program would total less than $500 billion, making it the smallest one yet. The first round of bond buying, initiated by the Fed in 2008 and ended in 2010, totaled $1.25 trillion in mortgage-backed securities, $300 billion in Treasury bonds and $175 billion in federal agency debt. The second round ended in June 2011 and consisted of $600 billion in purchases of U.S. Treasurys.

Also, as seen in the Q&A section (in the spreadsheet), the economists put the probability of a U.S. recession in the next 12 months at 19%.

–

The current average forecasts among economists polled include the following:

GDP:

full-year 2011 : 1.7%

full-year 2012: 2.4%

full-year 2013: 2.8%

full-year 2014: 3.1%

Unemployment Rate:

December 2012: 8.2%

December 2013: 7.7%

December 2014: 7.0%

10-Year Treasury Yield:

December 2012: 2.56%

December 2013: 3.21%

December 2014: 3.82%

CPI:

December 2012: 2.2%

December 2013: 2.4%

December 2014: 2.6%

Crude Oil ($ per bbl):

for 12/31/2012: $99.41

(note: I comment upon this WSJ Economic Forecast survey each month; commentary on past surveys can be found under the “Economic Forecasts” label)

_____

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 necessarily 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 1293.67 as this post is written

Long-Term Charts Of The ECRI WLI & ECRI WLI, Gr.

2012-01-17T09:08:00.002-06:00

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 that the U.S. was "tipping into recession." I featured excerpts from their statement in the October 3 post ("ECRI Recession Statement Of September 30 – Notable Excerpts")

Below is a long-term chart, on a weekly basis through January 13, of the ECRI WLI (defined at ECRI's glossary) from Doug Short’s blog post of January 13 titled “ECRI Recession Call: Growth Index Contracts Further” :

(click on charts to enlarge images)

This next chart depicts, on a long-term basis, the WLI, Gr. through January 13:

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1289.09 as this post is written

The S&P500 Vs. The Shanghai Stock Exchange Composite Index – January 12, 2012

2012-01-12T09:11:00.000-06:00

Starting on May 3, 2010 I have written posts concerning the notable divergence that has occurred between the S&P500 and Chinese (Shanghai Composite) stock markets.

The chart below illustrates this divergence; it shows the S&P500 vs. the Shanghai Composite on a daily basis, since 2006:

(click on chart to enlarge image)(chart courtesy of StockCharts.com)

It is notable that the Shanghai Composite led the SPX (S&P500) significantly in late ’08 – early ’09, yet it has been declining lately.

I continue to find this divergence between the S&P500 and Shanghai Composite to be notable and disconcerting, on an “all things considered” basis.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1292.48 as this post is written

Building Financial Danger – January 11, 2012 Update

2012-01-11T08:43:00.001-06:00

On October 17 I wrote a post titled “Danger Signs In The Stock Market, Financial System And Economy.” This post is a brief fourth update to that post.

My overall analysis indicates a continuing elevated and growing level of danger.

I continue to believe the October 4 1074.77 low on the S&P500 will not be a “lasting bottom”, and the dynamics as described in the October 20 post (“Thoughts On The Next Stock Market Decline“) and the likelihood of longer-term substantial “downside” still apply.

Furthermore, as I mentioned in that October 17 post:

Of further concern is whether, and when, the above-mentioned problems might reach a point at which another (financial system) crash occurs. I am particularly concerned about the prospects of the next crash for a number of reasons, of which I will elaborate upon shortly.

(The elaboration on this "next crash" was subsequently addressed in the post of January 6, 2012 titled "The Next Crash And Its Significance.")

Predicting the timing and extent of a stock market crash is always difficult, and the immense complexity of today's economic situation makes such a prediction even more challenging. That being said, my analyses indicate that the danger inherent in the financial system has reached a level at which a stock market crash - that would also involve (as seen in 2008) various other markets as well - has reached a level at which a near-term crash is (at least) a significant concern.

As reference, below is a 1-year daily chart of the S&P500, indicating both the 50dma and 200dma:

(click on chart to enlarge image)(chart courtesy of StockCharts.com; chart creation and annotation by the author)

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1292.08 as this post is written

U-3 And U-6 Unemployment Rate Long-Term Reference Charts As Of January 6, 2012

2012-01-09T08:19:00.002-06:00

Shortly after each monthly employment report I have been posting a continual series titled “3 Critical Unemployment Charts.”

Of course, there are many other employment charts that can be displayed as well.

For reference purposes, below are the U-3 and U-6 Unemployment Rate charts from a long-term historical perspective. Both charts are from the St. Louis Fed site. The U-3 measure is what is commonly referred to as the official unemployment rate; whereas the U-6 rate is officially (per Bureau of Labor Statistics) defined as:

Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force

Of note, many economic observers use the U-6 rate as a (closer) proxy of the actual unemployment rate rather than that depicted by the U-3 measure.

Here is the U-3 chart, currently showing a 8.5% unemployment rate:

(click on charts to enlarge images)(charts updated as of 1-6-12)

Here is the U-6 chart, currently showing a 15.2% unemployment rate:

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1277.81 as this post is written

3 Critical Unemployment Charts – January 2012

2012-01-09T08:14:00.003-06:00

As I have commented previously, as in the October 6, 2009 post (“A Note About Unemployment Statistics”), in my opinion the official methodologies used to measure the various job loss and unemployment statistics do not provide an accurate depiction; they serve to understate the severity of unemployment.

However, even if one chooses to look at the official statistics, the following charts provide an interesting (and disconcerting) long-term perspective of certain aspects of the officially-stated unemployment situation.

The first two charts are from the St. Louis Fed site. Here is the Median Duration of Unemployment (current value = 21 weeks) :

(click on charts to enlarge images)(charts updated as of 1-6-12)

Here is the chart for Unemployed 27 Weeks and Over (current value = 5.588 million) :

Lastly, a chart from the CalculatedRisk.com site, from the January 6 post titled “December Unemployment Report…” This shows the employment situation vs. that of previous recessions, as shown:

As depicted by these charts, our unemployment problem is severe. Unfortunately, there do not appear to be any “easy” solutions.

In July 2009 I wrote a series of five blog posts titled “Why Aren’t Companies Hiring?”, which discusses various aspects of the topic, many of which lack recognition.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1277.81 as this post is written

St. Louis Financial Stress Index – January 5, 2012 Update

2012-01-06T09:13:00.000-06:00

On March 28 I wrote a post ("The STLFSI") about the STLFSI (St. Louis Fed’s Financial Stress Index) which is supposed to measure stress in the financial system. Here is the most recent chart. This chart was last updated on January 5, incorporating data from 12-31-93 to 12-30-11 on a weekly basis. The present level is .766:

_________

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1274.41 as this post is written

The Next Crash And Its Significance

2012-01-06T08:29:00.000-06:00

In the October 17 post ("Danger Signs In The Stock Market, Financial System And Economy") I wrote the following:

Of further concern is whether, and when, the above-mentioned problems might reach a point at which another (financial system) crash occurs. I am particularly concerned about the prospects of the next crash for a number of reasons, of which I will elaborate upon shortly.

"The next crash" is a topic of great importance. In the October 13, 2010 post ("Comments On The Next Crash") I stated:

In the past I have commented that I view a future crash as certain. Like that of 2008, such a crash would include not only equity markets but many others as well.

also:

...this next crash should be accorded great importance as it is likely to be severe, i.e. outsized by historical standards.

I also mentioned similar aspects in point #9 of "10 'Front and Center' Problem Areas That Pose a Threat to the Economy." Also from point #9:

Have we, as a nation, taken appropriate steps to avoid further financial and economic "crashes?" I would argue we have not, unfortunately.

Perhaps the main reason this next crash should be of paramount importance is its capability to usher in severe economic weakness, i.e. what would widely be considered a Depression. History has shown that stock market (and overall financial market crashes) often precede periods of pronounced economic weakness.

For many reasons, a Depression at this point would present inordinate challenges and hardships.

The economy needs a certain level of momentum, a level which it must maintain in order to function properly. If it doesn't maintain such a level, many different ill-effects are felt, not only from a strict economic sense but from a societal one as well. Some of these societal impacts were mentioned in a February 15 2010 post titled "America's Economic Future."

Due to the enormity and complexity of our economic problems, there is a high likelihood that we would go into what I have termed a "Super Depression." As defined in my June 23, 2009 post ("The Concept Of A "Super Depression"), a Super Depression is :

...a severe Depression embedded with highly complex, difficult-to-solve problems.

While no one likes to contemplate an economic future rife with adversity, the resolution of our current economic problems should be feared and respected. Absent proper economic policy, one shouldn't underestimate the downside of the resolution of our economic problems, especially given both apparent and unapparent evidence.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1281.06 as this post is written

U.S. Dollar Decline – January 5 2012 Update

2012-01-05T09:28:00.002-06:00

U.S. Dollar weakness is a foremost concern of mine. As such, I have extensively written about it. I am very concerned that the actions being taken to “improve” our economic situation will dramatically weaken the Dollar. Should the Dollar substantially decline from here, as I expect, the negative consequences will far outweigh any benefits. The negative impact of a substantial Dollar decline can’t be overstated, in my opinion.

The following three charts illustrate various technical analysis aspects of the U.S. Dollar, as depicted by the U.S. Dollar Index.

First, a look at the monthly U.S. Dollar from 1983. This clearly shows a long-term weakness, with the blue line showing technical support (until 2007):

(charts courtesy of StockCharts.com; annotations by the author)

(click on charts to enlarge images)

Next, another chart, this one focused on the daily U.S. Dollar since 2000 on a LOG scale. The red line represents both a trendline as well as a relatively good visual “best-fit” line. The gray dotted line is the 200-day M.A. (moving average). As seen on this chart, the U.S. Dollar looks vulnerable to continuing its downward trend that has been interrupted since early 2008:

Lastly, a chart of the Dollar on a weekly LOG scale. There are some clearly marked channels here, with a potential large, prominent triangle featured (shown with two potential lower trendlines, one red and one dashed blue line):

I will be providing updates on this U.S. Dollar situation regularly as it deserves very close monitoring…

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1268.24 as this post is written

Mean And Median Stock Market Price Targets For 2012

2012-01-05T08:19:00.000-06:00

Yesterday (January 4, 2012) The Wall Street Journal had an article titled "Street Wary on Its Random Walk." In this article, 2012 S&P500 price forecasts from 13 financial firms are displayed and discussed.

As seen in the subtitle, the strategists at the 13 firms expect, on average, for the S&P500 to end 2012 at 1334, a 6.1% gain. The median price forecast is 1340.

The article also shows how each firm's 2011 forecasts fared vs. the actual S&P500 close of 1257.6; all but one of the forecasts proved to be too high.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1277.30 as this post is written

Financial Stocks – January 4 2012 Update Concerning Poor “Price Action”

2012-01-04T12:49:00.002-06:00

On June 29 I wrote a blog post titled “Financial Stocks – Notable Price Action.”

I continue to believe that the “price action” of various financial stocks is disconcerting. I view the poor performance of these financial and brokerage stocks to be one indicator among (very) many that serves as a “red flag” as to the financial markets and economy as a whole.

Here is an updated chart to that shown in the June 29 post. It shows the XLF (the financial ETF) on a daily basis since 2007. As well, the S&P500 is plotted above it, with GS and JPM shown below it. The blue line on each indicates the 200dma:

(click on chart image to enlarge)(chart courtesy of StockCharts.com; chart created by and annotated by author)

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1277.06 as this post is written

Financial Stocks – Relative Price To Overall Stock Market – January 3 2012 Update

2012-01-03T09:26:00.002-06:00

In the June 29 post (“Financial Stocks – Notable Price Action”) I wrote the following:

I think that the relatively poor “price action” of various financial stocks is notable. It is one of many current indications that overall stock market health is not as strong as a casual glance at the major indices would indicate.

I continue to believe that the lagging / “sagging” price of various financial stocks is highly notable. Here is another chart that I created a while ago that provides another view of the poor “price action” of the financial stocks vs. that of the entire stock market, as depicted by the S&P500:

(click on chart to enlarge image)(chart courtesy of StockCharts.com; chart created by and annotated by author)

The above chart is depicted on a daily basis, LOG scale, since 2007. On each of the three plots, a blue line depicts the 50dma for perspective.

As one can see, there has been an interesting progression of the relative price of the XLF (Financial SPDR) vs. the S&P500, as seen in the top of the chart. In the middle of the chart, the same can be seen in the $XBD (Broker/Dealer Index). Generally, since mid-2009, the price of both the XLF and $XBD have been on a slow downward trajectory relative to the price of the S&P500. The S&P500 is plotted on the bottom of the chart.

In my experience, any time the financials lag the general stock market for a considerable period, it is generally a “red flag” that should be closely monitored.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1280.98 as this post is written

Consumer Confidence Surveys – As Of 12-30-11

2011-12-30T08:21:00.001-06:00

In yesterday’s post ("4 Confidence Charts – December 2011") I displayed four charts indicating various long-term consumer and small business confidence readings as compared to the S&P500.

Doug Short had a blog post of December 27 (“Consumer Confidence at an Eight-Month High") in which he presents the Conference Board and University of Michigan charts in a different fashion. They are presented below:

(click on charts to enlarge images)

There are a few aspects of the above charts that I find highly noteworthy. Of course, the continuing very subdued absolute levels of these two surveys is disconcerting.

Also, I find the “behavior” of these readings to be quite disparate as compared to the other post-recession periods, as shown in the charts between the gray shaded areas (the gray areas denote recessions as defined by the NBER.)

While I don’t believe that confidence surveys should be overemphasized, I find these readings to be very problematical, especially in light of a variety of other highly disconcerting measures highlighted in this blog.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1263.02 as this post is written

4 Confidence Charts – December 2011

2011-12-29T09:02:00.000-06:00

Here are four charts reflecting confidence survey readings. These are from the SentimenTrader.com site.

I find these charts valuable as they provide a long-term history of each survey, which is rare.

Each survey chart is plotted in blue, below the S&P500:

(click on each chart to enlarge image)

Conference Board Consumer Confidence, last updated 12-27-11:

University of Michigan Consumer Confidence, last updated 12-22-11:

Bloomberg Consumer Comfort Index (formerly the ABC News Consumer Comfort Index) last updated 12-22-11:

NFIB Small Business Optimism, last updated 11-8-11:

As one can see, these charts continue to show subdued readings, especially when viewed from a long-term perspective.

These charts should be interesting to monitor going forward. Although I don’t believe that confidence surveys should be overemphasized, they do help to delineate how the economic environment is being perceived.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1256.14 as this post is written

The Current Gold Price And Its Broader Significance

2011-12-28T08:40:00.001-06:00

Gold has recently been in a correction (or consolidation) after a very steep rally.

It appears as if Gold is at a critical juncture at present. As seen in the chart below (which depicts Gold on a daily basis, LOG scale, since 2008) Gold, at $1594.60/oz, is currently right below both the 200dma (depicted in red) as well as the rising trendline (recently broken to the downside) since early 2009:

(click on chart to enlarge image)(chart courtesy of StockCharts.com; chart creation and annotation by the author)

From an overall Technical Analysis standpoint, on both daily and weekly viewpoints, Gold appears vulnerable to a (significant) decline.

I have recently written of the broader implications of Gold's price movements. In one post, that of August 25 ("Gold And Deflationary Pressures") I wrote the following, which I feel is still currently applicable:

I am very closely monitoring Gold as I believe a steep, abnormal correction could serve to (further) indicate deflationary pressures – which of course would have outsized impacts on financial markets, the economy, and economic policy (particularly QE3 or some other large intervention.)

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1265.43 as this post is written

Zillow December 2011 Home Price Expectations Survey - Summary & Comments

2011-12-27T08:16:00.001-06:00

On December 20 Zillow released its December 2011 Home Price Expectations Survey results. This survey (formerly called the MacroMarkets Home Price Expectation Survey) is done on a quarterly basis.

The accompanying chart is seen below:

(click on chart image to enlarge)

As one can see from the above chart, the average expectation is that the residential real estate market, as depicted by the Case-Shiller US National Home Price Index (NSA), will slowly climb (on a cumulative basis) through 2016.

The survey detail is interesting. Of the 109 survey respondents, 9 (of the displayed responses) foresee a cumulative price decrease through 2016; and of those 9, only 3 foresee a double-digit percentage cumulative price drop. Mark Hanson remains the most “bearish” of the survey participants with a forecast of a 25.17% cumulative price decline through 2016.

The Median Cumulative Home Price Appreciation for years 2011-2016 is seen as -2.00%, -1.99%, .29%, 3.01%, 6.96%, and 10.63% respectively.

For a variety of reasons, I continue to believe that even the most “bearish” of these forecasts (as seen in Mark Hanson’s above-referenced forecast) will prove too optimistic in hindsight. Although a 25.17% decline is substantial, from a longer-term historical perspective such a decline is rather tame in light of the wild excesses that occurred over the “bubble” years.

I have written extensively about the residential real estate situation. For a variety of reasons, it is exceedingly complex. While many people continue to have an optimistic view regarding future residential real estate prices, in my opinion such a view is unsupported on an “all things considered” basis. Furthermore, (even) from these price levels there exists outsized potential for a price decline of severe magnitude, unfortunately. I discussed this downside, based upon historical price activity, in the October 24, 2010 post titled "What's Ahead For The Housing Market - A Look At The Charts."

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1265.33 as this post is written

Updates On Economic Indicators December 2011

2011-12-23T08:21:00.000-06:00

Here is an update on various indicators that are supposed to predict and/or depict economic activity. These indicators have been discussed in previous blog posts:

The December Chicago Fed National Activity Index (CFNAI)(pdf) updated as of December 22, 2011:

The USA TODAY/IHS Global Insight Economic Outlook Index:

An excerpt from the December 1 update titled “Index forecasts weaker growth” :

The November update of the USA TODAY/IHS Global Insight Economic Outlook Index shows real GDP growth, at a six-month annualized growth rate, increasing to 2.2% in November and December and then slowing to 1.6% in April. Persistent unemployment, elevated debt levels, high energy and food prices and low confidence have stalled consumer spending. Businesses are hesitant to expand amid uncertainty.

The ECRI WLI (Weekly Leading Index):

As of 12/9/11 the WLI was at 122.3 and the WLI, Gr. was at -7.5%.

A chart of the WLI Growth since 2000, from Doug Short’s blog of December 16 titled “ECRI Recession Call: Growth Index Contraction Moderates Fractionally” :

The Dow Jones ESI (Economic Sentiment Indicator):

The Indicator as of December 13 was at 42.0, as seen below:

The Aruoba-Diebold-Scotti Business Conditions (ADS) Index:

Here is the latest chart, depicting 12-17-09 to 12-17-11:

The Conference Board Leading (LEI) and Coincident (CEI) Economic Indexes:

As per the December 22 release, the LEI was at 118 and the CEI was at 103.7 in November.

An excerpt from the December 22 release:

Says Ataman Ozyildirim, economist at The Conference Board: “November’s increase in the LEI for the U.S. was widespread among the leading indicators and continues to suggest that the risk of an economic downturn in the near term has receded. Interest rate spread and housing permits made the largest contributions to the LEI this month, overcoming a falling average workweek in manufacturing, which reversed its October gain. The CEI also rose on improving employment and personal income although industrial production fell in November.”

Says Ken Goldstein, economist at The Conference Board: “The LEI is pointing to continued growth this winter, possibly even gaining momentum by spring. For the second month in a row, building permits made a relatively strong contribution and there is a chance that the long decline in housing is finally slowing. However, this somewhat positive outlook for the domestic economy is at odds with a global economy that appears to be losing steam. In particular, a deeper-than-expected recession in Europe could easily derail the outlook for the U.S. economy.”

_________

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1254.00 as this post is written

2012 Estimates For S&P500 Earnings & Price Levels

2011-12-22T08:10:00.002-06:00

In the December 19 edition of Barron’s, the cover story is titled “Buckle Up!”

Included in the story, 10 "stock-market strategists and investment managers” give various forecasts including 2012 S&P500 profits, 2012 S&P500 year-end price targets, 2012 & 2013 GDP growth, and 10-Year Treasury Note Yields.

As seen on page 27:

The mean prediction of the 10 stock-market strategists and investment managers surveyed by Barron's is that the Standard & Poor's 500 Index will end 2012 at about 1360, some 11.5% higher than Friday's close of 1220.

Also stated in the article:

The top-down call, or that of Wall Street's market strategists, is that earnings per share will rise about 7% in 2012, to $105, for companies in the S&P 500, from this year's estimated $98. The typically more optimistic bottom-up crowd of industry analysts calls for a 10% increase, to $108, although that forecast is down from an estimate of $113 in July.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1243.72 as this post is written

The December 2011 Wall Street Journal Economic Forecast Survey

2011-12-21T08:45:00.000-06:00

The December Wall Street Journal Economic Forecast Survey was published on December 9, 2011. The headline is “Inflation Seen Outpacing Home Prices.”

The commentary largely focuses on the housing market and when the economists polled believed it might recover.

I found these excerpts regarding the housing market to be interesting, although I don't agree with them:

The economists' predictions reflect a market that is at or near a bottom and showing signs of stabilization. New construction in 2011 is forecast to be mostly steady with a year earlier at around 600,000 homes and climbing to around 720,000 in 2012. But recovery may still be some time away due to several factors.

also:

Goldman Sachs economists Hui Shan and Sven Jari Stehn last week said their model for home prices indicates a bottom some time in 2012. They note that affordability has improved in recent years, helping the market to stabilize but other factors are preventing the sector from taking off.

Also, as seen in the Q&A section (in the spreadsheet), the economists put the probability of a U.S. recession in the next 12 months at 23%.

–

The current average forecasts among economists polled include the following:

GDP:

full-year 2011 : 1.7%

full-year 2012: 2.3%

full-year 2013: 2.7%

full-year 2014: 3.1%

Unemployment Rate:

December 2011: 8.8%

December 2012: 8.5%

December 2013: 8.0%

December 2014: 7.2%

10-Year Treasury Yield:

December 2011: 2.08%

December 2012: 2.75%

December 2013: 3.35%

December 2014: 3.97%

CPI:

December 2011: 3.3%

December 2012: 2.2%

December 2013: 2.4%

December 2014: 2.5%

Crude Oil ($ per bbl):

for 12/31/2011: $97.47

for 12/31/2012: $98.26

(note: I comment upon this WSJ Economic Forecast survey each month; commentary on past surveys can be found under the “Economic Forecasts” label)

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1241.30 as this post is written

Building Financial Danger – December 20, 2011 Update

2011-12-20T08:10:00.003-06:00

On October 17 I wrote a post titled “Danger Signs In The Stock Market, Financial System And Economy.” This post is a brief third update to that post.

My overall analysis indicates a continuing elevated and growing level of danger.

I have written numerous posts of some of what I consider both ongoing and recent “negative developments.” These developments, as well as other highly problematic conditions, have presented a highly perilous economic environment that threatens the overall financial system.

The "downside" of potential price depreciation among many asset classes is substantial, as many asset classes are currently "asset bubbles," a topic that I have extensively written about.

As far as the stock market is concerned, I don’t believe the October 4 1074.77 low on the S&P500 will prove to be a “lasting bottom”, and the dynamics as described in the October 20 post ("Thoughts On The Next Stock Market Decline") and other disturbing long-term “downside” considerations still apply.

As reference, below is a 1-year daily chart of the S&P500, indicating both the 50dma and 200dma:

(click on chart to enlarge image)(chart courtesy of StockCharts.com; chart creation and annotation by the author)

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1205.35 as this post is written

Total Household Net Worth As Of 3Q 2011 – A Long-Term Chart

2011-12-19T08:49:00.003-06:00

In the December 13 post ("Total Household Net Worth As A Percent Of GDP 3Q 2011") I displayed a long-term chart depicting Total Household Net Worth as a percentage of GDP.

For reference purposes, here is Total Household Net Worth from a long-term perspective (from 1949:Q4 to 2011:Q3). The last value (as of December 9, 2011) is $57.353 Trillion:

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1219.66 as this post is written

S&P500 Price Projections – Livingston Survey December 2011

2011-12-15T10:05:00.000-06:00

The December 8, 2011 Livingston Survey (pdf) contains, among its various forecasts, an S&P500 forecast. It shows the following price forecast for the dates shown:

Dec. 30, 2011 1267.7

June 29, 2012 1322.5

Dec. 31, 2012 1395

Dec. 31, 2013 1480

These figures represent the median value across the 35 forecasters on the survey’s panel.

_____

The Special Note summarizes my overall thoughts about our economic situation

Total Household Net Worth As A Percent Of GDP 3Q 2011

2011-12-13T10:00:00.000-06:00

The following chart is from the CalculatedRisk blog post of December 8, 2011 titled “Q3 Flow of Funds: Household Net Worth declines $2.4 Trillion in Q3.” It depicts Total Household Net Worth as a Percent of GDP. The underlying data is from The Federal Reserve Flow of Funds 3Q 2011 report:

(click on chart to enlarge image)

As seen in the above-referenced CalculatedRisk blog post:

The Fed estimated that household net worth declined $2.4 trillion in Q3. Household net worth peaked at $66.8 trillion in Q2 2007, and then net worth fell to $50.4 trillion in Q1 2009 (a loss of $16.4 trillion). Household net worth was at $57.4 trillion in Q3 2011 (up $7.0 trillion from the trough, but down $2.4 trillion in Q3).

The Fed estimated that the value of household real estate fell $98 billion to $16.1 trillion in Q3 2011. The value of household real estate has fallen $6.6 trillion from the peak - and is still falling in 2011.

My comments:

As I have written in previous posts on this Household Net Worth (as a percent of GDP) topic:

As one can see, the first outsized peak was in 2000, and attained after the stock market bull market / stock market bubbles and economic strength. The second outsized peak was in 2007, right near the peak of the housing bubble as well as near the stock market peak.

As seen on the chart, the Total Household Net Worth is making an upturn, but is significantly below the prior 2007 peak.

I could extensively write about various interpretations that can be made from this chart. One way this chart can be interpreted is a gauge of “what’s in it for me?” as far as the aggregated wealth citizens are gleaning from economic activity, as measured compared to GDP.

_____

The Special Note summarizes my overall thoughts about our economic situation

Building Financial Danger - December 8, 2011 Update

2011-12-08T14:56:00.001-06:00

On October 17 I wrote a post titled "Danger Signs In The Stock Market, Financial System And Economy." This post is a brief second update (the first being on November 18 titled "Building Financial Danger - An Update") to that post.

My overall analysis indicates a continuing elevated and growing level of danger. There are many worldwide and U.S.-specific "stresses" of a very complex nature.

While many take comfort in a variety of recently improving economic indicators and historically positive stock market seasonality, in my opinion this type of extrapolation from historical norms is largely inappropriate given the unique and highly perilous situation the overall financial system is facing. I have written numerous posts of some of what I consider both ongoing and recent "negative developments."

My analysis indicates that this continues to be an environment of rising risks and therefore is very dangerous in nature. As far as the stock market is concerned, I don't believe the October 4 1074.77 low on the S&P500 will prove to be a "lasting bottom", and the dynamics as described in the October 20 post ("Thoughts On The Next Stock Market Decline") and other disturbing long-term "downside" factors still apply.

As reference, below is a 1-year daily chart of the S&P500 (plotted above, indicating both the 50dma and 200dma) and the VIX (plotted below in red, with a rising trendline displayed in dark blue):

(click on chart to enlarge image)(chart courtesy of StockCharts.com; chart creation and annotation by the author)

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1238.34 as this post is written

The S&P500 Vs. The Shanghai Stock Exchange Composite Index – December 2011

2011-12-08T08:05:00.000-06:00

Starting on May 3, 2010 I have written posts concerning the notable divergence that has occurred between the S&P500 and Chinese (Shanghai Composite) stock markets.

The chart below illustrates this divergence; it shows the S&P500 vs. the Shanghai Composite on a daily basis, LOG scale, since 2006:

(click on chart to enlarge image)(chart courtesy of StockCharts.com)

It is notable that the Shanghai Composite led the SPX (S&P500) significantly in late ’08 – early ’09, yet it has been declining lately.

I continue to find this divergence between the S&P500 and Shanghai Composite to be notable and disconcerting, on an “all things considered” basis.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1261.01 as this post is written

U.S. Dollar Decline – December 7 2011 Update

2011-12-07T13:15:00.000-06:00

The following three charts illustrate various technical analysis aspects of the U.S. Dollar, as depicted by the U.S. Dollar Index.

First, a look at the monthly U.S. Dollar from 1983. This clearly shows a long-term weakness, with the blue line showing technical support (until 2007):

(charts courtesy of StockCharts.com; annotations by the author)

(click on charts to enlarge images)

I will be providing updates on this U.S. Dollar situation regularly as it deserves very close monitoring…

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1255.69 as this post is written

A Chart Of Recent S&P500 Price Volatility – December 6 Update

2011-12-06T07:45:00.001-06:00

This post is an update to recent posts that began on October 6 ("A Chart Of Recent S&P500 Price Volatility") on 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 outsized volatility in the stock market.

This chart depicts the S&P500 in 60 minute intervals from July 20 through yesterday’s (December 5) close. As such, it encompasses the progression of the stock market since its July 25 daily high of 1344.32:

(click on chart to enlarge image)(chart courtesy of StockCharts.com)

The blue line is a 50-period moving average. The light blue circle represents a period of reduced price fluctuations.

I continue to believe that this volatility is notable and has important implications.

As I wrote in the above-referenced October 6 post:

What I find notable is the frequency and extent of the price volatility. As one can see, there have been several episodes of advances and declines of roughly 80-100+ points in rapid fashion – some even happening over the course of a few days.

While there are various ways to interpret such volatility, my overall belief is that such is (yet another) cautionary sign.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1257.08 as this post is written

U-3 And U-6 Unemployment Rate Long-Term Reference Charts As Of December 2 2011

2011-12-05T07:36:00.000-06:00

Shortly after each monthly employment report I have been posting a continual series titled “3 Critical Unemployment Charts.”

Of course, there are many other employment charts that can be displayed as well.

Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force

Of note, many economic observers use the U-6 rate as a (closer) proxy of the actual unemployment rate rather than that depicted by the U-3 measure.

Here is the U-3 chart, currently showing a 8.6% unemployment rate:

(click on charts to enlarge images)(charts updated as of 12-2-11)

Here is the U-6 chart, currently showing a 15.6% unemployment rate:

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1244.28 as this post is written

3 Critical Unemployment Charts – December 2011

2011-12-04T20:12:00.001-06:00

The first two charts are from the St. Louis Fed site. Here is the Median Duration of Unemployment:

(click on charts to enlarge images)(charts updated as of 12-2-11)

Here is the chart for Unemployed 27 Weeks and Over:

Lastly, a chart from the CalculatedRisk.com site, from the December 2 post titled “November Unemployment Report…” This shows the employment situation vs. that of previous recessions, as shown:

As depicted by these charts, our unemployment problem is severe. Unfortunately, there do not appear to be any “easy” solutions.

In July 2009 I wrote a series of five blog posts titled “Why Aren’t Companies Hiring?”, which discusses various aspects of the topic, many of which lack recognition.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1244.28 as this post is written

St. Louis Financial Stress Index – December 1 Update

2011-12-02T09:22:00.001-06:00

On March 28 I wrote a post ("The STLFSI") about the STLFSI (St. Louis Fed’s Financial Stress Index) which is supposed to measure stress in the financial system. Here is the most recent chart. This chart was last updated on December 1, incorporating data from 12-31-93 to 11-25-11 on a weekly basis. The present level is .998:

_________

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1255.38 as this post is written

Standard & Poors S&P500 Earnings Estimates For 2011 & 2012

2011-12-01T08:19:00.001-06:00

As many are aware, Standard & Poors publishes earnings estimates for the S&P500. (My posts concerning their estimates can be found in the under the S&P500 Earnings tag)

Currently (their latest estimates are as of November 22), their estimates for 2011 add to the following:

-From a “bottoms up” perspective, operating earnings of $97.48/share

-From a “top down” perspective, operating earnings of N.A.

-From a “top down” perspective, “as reported” earnings of $89.36/share

Currently, their estimates for 2012 add to the following:

-From a “bottoms up” perspective, operating earnings of $107.84/share

-From a “top down” perspective, operating earnings of $105.32/share

-From a “top down” perspective, “as reported” earnings of $98.14/share

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1246.96 as this post is written

Defining An Economic Depression

2011-11-30T07:16:00.001-06:00

What is the official definition of an (economic) depression? Although the term is often heard, the term seems to lack a well-structured definition.

There is a section discussing depressions on The NBER's Business Cycle Dating Procedure: Frequently Asked Questions page. As seen in the discussion, it says:

The term depression is often used to refer to a particularly severe period of economic weakness. Some economists use it to refer only to the portion of these periods when economic activity is declining. The more common use, however, also encompasses the time until economic activity has returned to close to normal levels. The most recent episode in the United States that is generally regarded as a depression occurred in the 1930s.

also:

However, just as the NBER does not define the term depression or identify depressions, there is no formal NBER definition or dating of the Great Depression.

A January 14, 2009 article in Forbes, titled "What Is A Depression, Anyway?" also examines the issue as to how a depression is defined, and finds "While there's a fairly standard definition for a recession (two quarters of shrinking gross domestic product), there isn't one for a depression." However, the article later states with regard to a depression:

... a 10% contraction is often cited as the tipping point.

A March 10, 2009 CalculatedRisk blog post titled "What is a depression?" also examines the issue. An excerpt:

Although there is no formal definition, most economists agree it is a prolonged slump with a 10% or more decline in real GDP.

As well, other sources confirm the lack of a standardized definition, although the 10% decline in economic activity (measured via real GDP) is most commonly cited.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1195.19 as this post is written

Economic Forecast Efficacy Of Recent Years

2011-11-28T09:59:00.001-06:00

On November 25, the Liberty Street Economics blog (Federal Reserve Bank of New York) published a post titled "The Failure to Forecast the Great Recession."

The post examines the inability of the New York Fed, as well as the vast majority of professional forecasters in general, to predict the "Great Recession." It also mentions the failure of forecasters to predict the decline in housing.

Although I found the entire post to be worthwhile, here are a few notable excerpts:

Economic forecasters never expect to predict precisely. One way of measuring the accuracy of their forecasts is against previous forecast errors. When judged by forecast error performance metrics from the macroeconomic quiescent period that many economists have labeled the Great Moderation, the New York Fed research staff forecasts, as well as most private sector forecasts for real activity before the Great Recession, look unusually far off the mark.

also:

On the basis of their analysis, one could have expected that an October 2007 forecast of real GDP growth for 2008 would be within 1.3 percentage points of the actual outcome 70 percent of the time. The New York Fed staff forecast at that time was for growth of 2.6 percent in 2008. Based on the forecast of 2.6 percent and the size of forecast errors over the Great Moderation period, one would have expected that 70 percent of the time, actual growth would be within the 1.3 to 3.9 percent range. The current estimate of actual growth in 2008 is-3.3 percent, indicating that our forecast was off by 5.9 percentage points.

Using a similar approach to Reifschneider and Tulip but including forecast errors for 2007, one would have expected that 70 percent of the time the unemployment rate in the fourth quarter of 2009 should have been within 0.7 percentage point of a forecast made in April 2008. The actual forecast error was 4.4 percentage points, equivalent to an unexpected increase of over 6 million in the number of unemployed workers. Under the erroneous assumption that the 70 percent projection error band was based on a normal distribution, this would have been a 6 standard deviation error, a very unlikely occurrence indeed.

The post also examines more recent (April 2011) forecast performance, and finds that "the level of real activity in 2011 has been disappointing relative to expectations."

My comments:

Economic forecasts and their accuracy is of great importance for a variety of reasons. It is because of this importance that this blog features many economic forecasts and financial market predictions.

I have previously commented on forecasters' inability to predict the adverse financial events of 2007-2010. As well, a page titled "Predictions" serves as "a brief recap (in no way all-inclusive) of some forecasts and predictions that have been made during the Financial Crisis."

The accuracy of predictions prior to and during the "The Great Recession" serves as a reminder to how difficult financial crises, and their impacts, are to predict. The inability to predict "The Great Recession" should serve to cast uncertainty on forecasters' ability to predict future severe economic weakness, especially since the level of complexity inherent in the overall economic environment is, according to my analyses, growing.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1194.85 as this post is written

Long-Term Chart Of The ECRI Weekly Leading Index (WLI)

2011-11-23T09:39:00.001-06:00

On an intermittent basis I have commented on ECRI's methodologies and its indices, including the WLI Growth. I include the WLI Growth in the monthly update of economic indicators.

Although ECRI's WLI Growth measure receives far greater attention, it should also be noted that there is a ECRI WLI (Weekly Leading Index) from which the WLI Growth measure is derived.

Here is a simple definition of the U.S. Weekly Leading Index, as seen in the ECRI glossary:

The WLI is a forward-looking composite leading index that anticipates cyclical turning points in U.S. economic activity by 2-3 quarters. Updates are available on Friday mornings to members at 9:00 AM and to the public at 10:30 AM. The monthly data starts in 1949, and the weekly data in 1967.

For reference purposes, here are two charts that depict the ECRI WLI. Both are from Doug Short's post of November 21. The first is a long-term weekly chart of the ECRI WLI:

This next chart depicts both the WLI and WLI Growth measures, as noted, for comparison:

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1167.43 as this post is written

Updates On Economic Indicators November 2011

2011-11-22T08:22:00.001-06:00

Here is an update on various indicators that are supposed to predict and/or depict economic activity. These indicators have been discussed in previous blog posts:

The November Chicago Fed National Activity Index (CFNAI)(pdf) updated as of November 21, 2011:

The USA TODAY/IHS Global Insight Economic Outlook Index:

An excerpt from the November 8 update titled “Index forecasts weaker growth” :

The October update of the USA TODAY/IHS Global Insight Economic Outlook Index shows real GDP growth, at a six-month annualized growth rate, slowing to 1.1% by March. Persistent unemployment, elevated debt levels, high energy and food prices and low confidence have stalled consumer spending. Businesses are hesitant to expand amid uncertainty.

The ECRI WLI (Weekly Leading Index):

As of 11/11/11 the WLI was at 122.1 and the WLI, Gr. was at -7.8%.

A chart of the WLI Growth since 2000, from Doug Short's blog of November 18 titled "ECRI Recession Watch: Decline in Growth Index Continues to Moderate" :

The Dow Jones ESI (Economic Sentiment Indicator):

The Indicator as of August 31 was at 41.5, as seen below:

The Aruoba-Diebold-Scotti Business Conditions (ADS) Index:

Here is the latest chart, depicting 11-12-09 to 11-12-11:

The Conference Board Leading (LEI) and Coincident (CEI) Economic Indexes:

As per the November 18 release, the LEI was at 117.4 and the CEI was at 103.5 in October.

An excerpt from the November 18 release:

Says Ataman Ozyildirim, economist at The Conference Board: “The October rebound of the LEI — largely due to the sharp pick-up in housing permits — suggests that the risk of an economic downturn has receded. Improving consumer expectations, stock markets, and labor market indicators also contributed to this month’s gain in the LEI as did the continuing positive contributions from the interest rate spread. The CEI also rose somewhat, led by higher industrial production and employment.”

_________

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1192.98 as this post is written

The November 2011 Wall Street Journal Economic Forecast Survey

2011-11-21T15:41:00.001-06:00

The November Wall Street Journal Economic Forecast Survey was published on November 10, 2011. The headline is “Economists See Smaller Chance of U.S. Recession."

I found various aspects of the survey to be interesting, including the following excerpts:

The 52 economists surveyed in November—not all of whom answer every question—put 1-in-4 odds that the U.S. will experience a recession in the next 12 months, down from a 1-in-3 chance they were seeing just two months ago, when concerns were at their highest level since the recent recession ended in June 2009.

also:

The economists, on average, put 2-in-3 odds that the euro zone will fall into recession.

–

The current average forecasts among economists polled include the following:

GDP:

full-year 2011 : 1.7%

full-year 2012: 2.3%

full-year 2013: 2.6%

Unemployment Rate:

December 2011: 9.0%

December 2012: 8.7%

December 2013: 8.1%

10-Year Treasury Yield:

December 2011: 2.17%

December 2012: 2.79%

December 2013: 3.36%

CPI:

December 2011: 3.3%

December 2012: 2.2%

December 2013: 2.3%

Crude Oil ($ per bbl):

for 12/31/2011: $88.68

for 12/31/2012: $91.60

(note: I comment upon this survey each month; commentary on past surveys can be found under the “Economic Forecasts” label)

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1192.98 as this post is written

"America's New Poor" Segment - Notable Excerpts

2011-11-21T08:43:00.001-06:00

Yesterday, CBS aired a segment on its "Sunday Morning" show titled "America's new poor."

While dynamics similar to those discussed in the segment have been noted in previous posts on this blog, this segment is yet another notable reminder of the changing economic condition and the growing need for food assistance. This segment focuses on an area, Forsyth County, near Atlanta.

Here are some excerpts that I find especially notable:

But for more families here, prosperity is a pretense. The job's lost, the savings are gone, and the big house is either in foreclosure or on its way. And just keeping food on the table is a struggle.

So Forsyth's newly-needy file into local food banks.
Yesterday's GIVERS have become today's TAKERS.

also:

"The new poor could be you, me, your neighbor, your church member, somebody who has been affected by the economy," she said. "Many of our people who have come for assistance used to be our donors. And they'll say, 'I never thought I'd have to do this, never in my wildest dreams.'"

also:

Nearly 15 percent of Americans are now receiving food stamps, a record level, and a jump of about two-thirds since 2007.

One in SIX Americans - 49 million people - say they have trouble putting food on the table.

At Forsyth County's Lambert High, eight percent of kids now get free lunch, double the number three years ago.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1215.65 as this post is written

Building Financial Danger - An Update

2011-11-18T08:37:00.001-06:00

On October 17 I wrote a post titled "Danger Signs In The Stock Market, Financial System And Economy." This post is a brief update to that post.

My overall analysis continues to indicate that there is an elevated and growing level of danger.

Many prominent parties seem to be fixated on the European financial problems, and seem to be overlooking other problem areas. While I believe that the European debt problems are very serious and have broader implications, (as explained in yesterday's post "Europe And Contagion - Broader Implications") the other problems are of great concern as well.

Overall, my analysis indicates that this continues to be an environment of rising risks and therefore is dangerous in nature. As far as the stock market is concerned, the situation as described in the October 20 post ("Thoughts On The Next Stock Market Decline") still applies.

As reference, below is one view of the stock market that I find interesting. It is a 1-year daily chart of the S&P500 (through November 17) with annotations by Ron Walker of the The Chart Pattern Trader:

(click on chart to enlarge image)(chart courtesy of StockCharts.com, annotations by Ron Walker)

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1216.13 as this post is written

Europe And Contagion - Broader Implications

2011-11-17T08:53:00.001-06:00

Yesterday, The Wall Street Journal had an article titled "Turmoil Spreads in Europe." The subtitle is "Bond Market Selloff Hits Nations Seen as Healthy, Raising Specter of Contagion."

An excerpt:

Europe's debt troubles on Tuesday spilled over to top-rated nations that had been largely untouched by the crisis—including Austria, the Netherlands, Finland and France—in an ominous sign for European policy makers.

My comments:

I continue to believe that "contagion" already exists.

Also, the broader implication of the European situation - and one that is entirely lacking recognition - is whether the overall concept of sovereign debt is (in the process of) being repudiated. If so - and it appears too early to definitively answer - the implications are massive.

Here is what I wrote about both of these issues in a January 10 article titled "10 'Front and Center' Problem Areas That Pose a Threat to the Economy" :

European debt crisis: This situation appears to be unresolved in many respects. In fact, it almost appears to be a slow-spreading contagion. One interpretation of this overall situation is that it may signal a repudiation of (sovereign) debt. Should this interpretation prove accurate, it would not bode well for our highly-indebted global economy.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1230.63 as this post is written

Walmart’s Q3 2012 Results – Comments

2011-11-16T09:46:00.001-06:00

I found various notable items in Walmart’s Q3 conference call transcript (pdf) dated November 15, 2011. I view Walmart’s results and comments as particularly noteworthy given their retail prominence and focus on low prices. I have previously commented on their quarterly results; these previous posts are found under the “paycheck to paycheck” label.

Here are various excerpts that I find most notable:

comments from Mike Duke, page 7:

While we feel good about the progress in our stores, our customers remain concerned about jobs, and only one in 10 Walmart Moms that we surveyed view the state of the U.S. economy as good. They want to save money. They’re juggling credit cards, using coupons, and skipping restaurants and vacations. There is a real sense that the economic strain is taking its toll.

from Bill Simon, page 14:

Economic conditions in the third quarter remained largely unchanged. Our core customer was still impacted by high unemployment and continued uncertainty over the economy, leading to declining consumer confidence. Although they remained higher than a year ago, gas prices, which positively affect customer trips, moderated during the quarter.

from Bill Simon, page 14:

Rising food costs continue to be a major concern for customers. We hear from some shoppers that they believe it will be more difficult than ever to afford holiday meals for their families.

from Bill Simon, page 14:

As others in the industry reported, customers continue to see food prices rise in key categories, such as produce, dairy and meat. Walmart continues to invest in absorbing some of these increases to ensure price leadership in our markets. During the quarter, grocery inflation was approximately 4 percent, in line with what’s been seen throughout the industry. But given our price investment, the impact to our customers was substantially less.

from Bill Simon, page 16:

Customer feedback on the return of layaway has been overwhelmingly positive and layaway transaction volume continues to exceed plan. Our customers tell us that they appreciate that we’ve brought back this service, and it’s a great way to help families on a tight budget shop for Christmas. As a reminder, we’ve added service fees to reduce layaway cancellations in the fourth quarter.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1247.72 as this post is written

Philadelphia Fed – 4th Quarter 2011 Survey Of Professional Forecasters

2011-11-15T16:28:00.001-06:00

The Philadelphia Fed Fourth Quarter 2011 Survey of Professional Forecasters was released on November 14. This survey is somewhat unique in various regards, such as it incorporates a longer time frame for various measures.

The survey shows, among many measures, the following expectations:

GDP:

full-year 2011 : 1.8%

full-year 2012 : 2.4%

full-year 2013 : 2.7%

full-year 2014 : 3.5%

Unemployment Rate: (annual average level)

for 2011: 9.0%

for 2012: 8.8%

for 2013: 8.4%

for 2014: 7.8%

As for “the chance of a contraction in real GDP in any of the next four quarters,” estimates range from 11.8-17.3% for each of the quarters through Q4 2012.

As well, there are also a variety of time frames shown (present through the year 2020) with the expected inflation of each. Inflation is measured in Headline and Core CPI and Headline and Core PCE. Over all time frames expectations are shown to be in the 1.4-3.6% range.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1257.81 as this post is written

November 10 Gallup Poll On Americans’ Ability To Afford Food – Notable Excerpts

2011-11-14T08:20:00.001-06:00

In the October 17 post ("Danger Signs In The Stock Market, Financial System And Economy") I mentioned in point #6 "...numerous signs of broad-based financial strain among households."

A November 10 Gallup poll titled "Americans' Ability to Afford Food Nears Three-Year Low" illustrates one of these strains.

Here are what I found as the most notable excerpts from the poll results:

The percentage of Americans reporting that they had enough money to buy the food they or their families needed continued to decline in October, nearing the record low seen in November 2008. The percentage who did not lack money for food in 2011 fell to 79.8% from 80.1% in September, continuing a decline that began in April.

also:

This measure -- which asks if one had enough money to buy food in the past 12 months -- has decreased to its lowest level of the calendar year each October since 2009. The reason for this pattern is unclear and does not appear to be related to world food prices.

also:

Americans' access to basic needs is now at the lowest level recorded since Gallup and Healthways began tracking it in January 2008. The Basic Access Index -- which comprises 13 measures, including Americans' ability to afford food, housing, and healthcare -- declined to a record-low score of 81.2 in October. This means Americans' access to basic needs, though still high in an absolute sense, is now worse than it was throughout the economic crisis and recession, including the prior record lows recorded in February and March 2009.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1263.85 as this post is written

Financial Stocks – November 11 Update Concerning Poor “Price Action”

2011-11-11T06:00:00.000-06:00

On June 29 I wrote a blog post titled “Financial Stocks – Notable Price Action.”

Here is an updated chart to that June 29 post. It shows the XLF (the financial ETF) on a daily basis since 2007. As well, the S&P500 is plotted above it, with GS and JPM shown below it. The blue line on each indicates the 200dma:

(click on chart image to enlarge)(chart courtesy of StockCharts.com; chart created by and annotated by author)

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1239.70 as this post is written

Financial Stocks – Relative Price To Overall Stock Market - November 10 2011 Update

2011-11-10T08:55:00.001-06:00

In the June 29 post (“Financial Stocks – Notable Price Action”) I wrote the following:

I think that the relatively poor “price action” of various financial stocks is notable. It is one of many current indications that overall stock market health is not as strong as a casual glance at the major indices would indicate.

(click on chart to enlarge image)(chart courtesy of StockCharts.com; chart created by and annotated by author)

The above chart is depicted on a daily basis, LOG scale, since 2007. On each of the three plots, a blue line depicts the 50dma for perspective.

In my experience, any time the financials lag the general stock market for a considerable period, it is generally a “red flag” that should be closely monitored.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1229.10 as this post is written

NFIB Small Business Optimism – October 2011

2011-11-09T09:05:00.000-06:00

The October NFIB Small Business Optimism was released November 8. The headline of the Press Release is “Small Business Optimism Has Minor Uptick: Optimism Index Slight Uptick Still Weighed Down by Dominant Negative Forecast.”

The Index of Small Business Optimism increased 1.3 points in October, rising to 90.2.

Here are some excerpts from the report that I find particularly notable:

“Consumer sentiment remains at very low levels and is reflected in the 26 percent of small business owners who cite ‘poor sales’ as their biggest problem,” said NFIB Chief Economist Bill Dunkelberg. “There is no exuberance in spending, as consumers ‘make do’ rather than spend their increased savings in upgrades or new purchases. It’s that extra spending that would provide small business owners a reason to hire and order more inventory, the best stimulus we could have. But confidence is the key and right now there isn’t much."

also:

October’s survey shows that optimism improved a smidge, but mostly because the outlook for business conditions and real sales growth became less negative. However, these two Index components are still solidly negative and at recession levels.

also:

Four percent of owners reported financing as their most important business problem. So, for the overwhelming majority, credit availability is not a significant problem. Ninety-one percent reported that all their credit needs were met or that they were not interested in borrowing. Nine percent reported that not all of their credit needs were satisfied, the record low is 4 percent reached in 2000.

In conjunction with this October NFIB Small Business Optimism Survey, the CalculatedRisk blog on November 8 (in a post titled “NFIB: Small Business Optimism Index increases slightly in October") had three charts that depicted various facets (the Index itself; Hiring Plans and Poor Sales) of the Survey, as shown below:

(click on charts to enlarge images)

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1243.70 as this post is written

Market Action During Periods Of Intervention - Chart Since 2007

2011-11-08T07:43:00.003-06:00

In the August 9 post ("QE3 - Various Thoughts") I posted a chart that depicted the movements of the S&P500, 10-Year Treasury Yield and the Fed Funds rate spanning the periods of various interventions since 2007.

For reference purposes, here is an updated chart from Doug Short’s blog post of November 7 (“Fed Intervention and the Market") :

(click on chart to enlarge image)

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1261.12 as this post is written

Ben Bernanke’s November 2 Press Conference – Notable Aspects

2011-11-07T07:58:00.000-06:00

On Wednesday November 2 Ben Bernanke gave his scheduled Press Conference.

Here are Ben Bernanke’s comments I found most notable, although I don’t necessarily agree with them. These comments are excerpted from the "Transcript of Chairman Bernanke's Press Conference" of November 2 2011 (preliminary) (pdf), with Bernanke’s responses as indicated to the various questions:

from page 4 (Opening Remarks):

In short, while we still expect that economic activity and labor market conditions, will improve gradually over time, the pace of the progress is likely to be frustratingly slow. Moreover, there are significant downside risks to the economic outlook. Most notably, concerns about European fiscal and banking issues have contributed to strains in global financial markets which have likely had adverse effects on confidence and growth.

from page 7:

Binyamin Appelbaum: Has the Fed discussed the idea of nominal GDP targeting and what are your views on the advantages and disadvantages of that approach?

Chairman Bernanke: So the Fed's mandate is of course a dual mandate. We have a mandate for both employment and for price stability and we have a framework in place that allows us to communicate and to think about that, the two sides of that mandate. We talked today--or yesterday actually--about nominal GDP as indicators and information variable as something to add to the list of variables that we think about and it was a very interesting discussion. However, we think that within the existing framework that we have, which looks at both sides of the mandate, not just some combination of the two, we can communicate whatever we need to communicate about future monetary policy. So we are not contemplating at this at this time any radical change in framework. We're going to stay within the dual mandate approach that we've been using until this point.

from page 14:

Neil Irwin: Neil Irwin with the Washington Post. Mr. Chairman this is the third straight set of economic projections released that have downgraded forecasts for growth and for employment. I wonder, is there some systematic error, some blind spot that's behind these kind of overly optimistic forecasts? What are you doing internally to understand what you got wrong the last two projections?

Chairman Bernanke: Well, it's a perfectly fair question. And, you know, we spend a lot of time reviewing those errors, the staff in particular presents us with information on --on forecast errors and on revisions, et cetera. And so we look at that very carefully. I think it's clear that in retrospect that the severity of the financial crisis and a number of other problems including the dysfunction of the housing market have been more severe and more persistent than we initially believed and that together with a number of other phenomena like deleveraging by the household sector and so on has slowed the pace of recovery. So, yes, we have again downgraded the medium-term forecast, evidently the forces--you know, the drags on the recovery were stronger than we thought. I would add, however, though that although I think it's very important to look at the fundamental factors affecting the recovery, there's been some elements of bad luck. For example this year, the combination of the natural disaster in Japan, which had global impacts in terms of growth; oil price increases; the European debt crisis, which was not anticipated to be as severe and has created as much volatilities as it has in financial markets, all those things had been negatives for growth and they do explain at least part of the--of the downward revision.

from page 15:

Michael McKee: Michael McKee with Bloomberg Television. Many Americans wonder what the Fed has actually accomplished with its monetary policy actions since about QE2. Fed officials like to talk about the effect they've had on interest rates but the economy seems insensitive to interest rates these days. Can you explain what you have managed to accomplish? Can you tell us whether you feel your mandate requires you to do anything you can think of on an ongoing basis until some targets are met? And can you explain to the average American why you're doing what you're doing? And do you think that you risk credibility if the average American doesn't see some sort of improvement in the economy?

Chairman Bernanke: No, it's a fair question. I would first say that our monetary policy is having effects on the economy and we've talked about the effects on asset prices but we have continued to analyze the effects of changes in interest rates for example on decisions like investment or car purchases. One area where monetary policy has been blunted, the effects have been blunted, has been the mortgage market where very tight credit standards have prevented many people from purchasing or refinancing their homes and therefore the low mortgage rates that we've achieved have not been as effective as we had hoped. So, monetary policy maybe is somewhat less powerful in the current context than it has been in the past but nevertheless it is affecting economic growth and job creation. If you ask about the accomplishments, I would first of all mention a very important one which is that we have kept inflation close to 2 percent on average, which both has avoided the problems of high inflation but also very importantly has avoided the risk of deflation. And we have seen in other countries, in other contexts that deflation can be a very pernicious problem and very difficult to get out of once you are there. So, we have been able to achieve on average stable prices. With respect to growth, I think that our policies including the cutting rates to zero in December 2008 and the, the first round of--of asset purchases in the fall of '08 and in the spring of '09 were very important for helping to explain why the economy stopped contracting and began to grow again in the middle of 2009. I think there's a lot of evidence that that did promote growth and job creation. I would argue that we've also been successful with some of the later actions that we've taken, although it's early to say for things like the maturity extension program. But we always face the problem of asking the question of: Where we would be without these policies? And our best estimates are that absent the support of monetary policy that the economy would be in a much deeper ditch and that unemployment would be much higher than it is. That being said, you know, again people rightly recognize that we have not yet gotten the economy back to where we want it to be and their dissatisfaction is perfectly understandable. Yes, I do think that with, you know, that we do need to do whatever we can to move the economy towards price stability and maximum employment. We'll continue to do that so long as the tools that we have are efficacious and that they don't have costs or risks or negative side effects that are worse than the benefits, we'll always be making that evaluation.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1253.23 as this post is written

U-3 And U-6 Unemployment Rate Long-Term Reference Charts As Of November 4 2011

2011-11-07T06:41:00.000-06:00

Shortly after each monthly employment report I have been posting a continual series titled “3 Critical Unemployment Charts.”

Of course, there are many other employment charts that can be displayed as well.

Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force

Of note, many economic observers use the U-6 rate as a (closer) proxy of the actual unemployment rate rather than that depicted by the U-3 measure.

Here is the U-3 chart, currently showing a 9.0% unemployment rate:

(click on charts to enlarge images)(charts updated as of 11-4-11)

Here is the U-6 chart, currently showing a 16.2% unemployment rate:

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1253.23 as this post is written

3 Critical Unemployment Charts – November 2011

2011-11-07T06:18:00.001-06:00

The first two charts are from the St. Louis Fed site. Here is the Median Duration of Unemployment:

(click on charts to enlarge images)(charts updated as of 11-4-11)

Here is the chart for Unemployed 27 Weeks and Over:

Lastly, a chart from the CalculatedRisk.com site, from the November 4 post titled “October Unemployment Report…” This shows the employment situation vs. that of previous recessions, as shown:

As depicted by these charts, our unemployment problem is severe. Unfortunately, there do not appear to be any “easy” solutions.

In July 2009 I wrote a series of five blog posts titled “Why Aren’t Companies Hiring?”, which discusses various aspects of the topic, many of which lack recognition.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1253.23 as this post is written

U.S. Dollar Decline – November 2011 Update

2011-11-04T08:26:00.001-05:00

The following three charts illustrate various technical analysis aspects of the U.S. Dollar, as depicted by the U.S. Dollar Index.

First, a look at the monthly U.S. Dollar from 1983. This clearly shows a long-term weakness, with the blue line showing technical support (until 2007):

(charts courtesy of StockCharts.com; annotations by the author)

I will be providing updates on this U.S. Dollar situation regularly as it deserves very close monitoring…

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1261.15 as this post is written