Wednesday, June 23, 2021

The U.S. Economic Situation – June 23, 2021 Update

Perhaps the main reason that I write of our economic situation is that I continue to believe, based upon various analyses, that our economic situation is in many ways misunderstood.  While no one likes to contemplate a future rife with economic adversity, current and future economic problems must be properly recognized and rectified if high-quality, sustainable long-term economic vitality is to be realized.

There are an array of indications and other “warning signs” – many readily apparent – that current economic activity and financial market performance is accompanied by exceedingly perilous dynamics.
I have written extensively about this peril, including in the following:
Building Financial Danger” (ongoing updates)
My analyses continues to indicate that the growing level of financial danger will lead to the next stock market crash that will also involve (as seen in 2008) various other markets as well.  Key attributes of this next crash is its outsized magnitude (when viewed from an ultra-long term historical perspective) and the resulting economic impact.  This next financial crash is of tremendous concern, as my analyses indicate it will lead to a Super Depression – i.e. an economy characterized by deeply embedded, highly complex, and difficult-to-solve problems.

For long-term reference purposes, here is a chart of the Dow Jones Industrial Average since 1900, depicted on a monthly basis using a LOG scale (updated through June 18, 2021, with a last value of 33,290.08):

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

DJIA since 1900

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 4241.84 as this post is written

Tuesday, June 22, 2021

Money Supply Charts Through May 2021

For reference purposes, below are two sets of charts depicting growth in the money supply.

The first shows the M1, defined in FRED as the following:

Before May 2020, M1 consists of (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of depository institutions; (2) demand deposits at commercial banks (excluding those amounts held by depository institutions, the U.S. government, and foreign banks and official institutions) less cash items in the process of collection and Federal Reserve float; and (3) other checkable deposits (OCDs), consisting of negotiable order of withdrawal, or NOW, and automatic transfer service, or ATS, accounts at depository institutions, share draft accounts at credit unions, and demand deposits at thrift institutions.

Beginning May 2020, M1 consists of (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of depository institutions; (2) demand deposits at commercial banks (excluding those amounts held by depository institutions, the U.S. government, and foreign banks and official institutions) less cash items in the process of collection and Federal Reserve float; and (3) other liquid deposits, consisting of OCDs and savings deposits (including money market deposit accounts). Seasonally adjusted M1 is constructed by summing currency, demand deposits, and OCDs (before May 2020) or other liquid deposits (beginning May 2020), each seasonally adjusted separately.

Here is the “M1 Money Stock” (seasonally adjusted) chart, updated on June 22, 2021 depicting data through May 2021, with a value of $19,221.7 Billion:

M1 Money Stock $19221.7B

Here is the “M1 Money Stock” chart on a “Percent Change From Year Ago” basis, with a current value of 18.1%:

M1 Money Stock 18.1 Percent Change From Year Ago

Data Source: Board of Governors of the Federal Reserve System (US), M1 Money Stock [M1SL], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed June 22, 2021: https://fred.stlouisfed.org/series/M1SL

The second set shows M2, defined in FRED as the following:

Before May 2020, M2 consists of M1 plus (1) savings deposits (including money market deposit accounts); (2) small-denomination time deposits (time deposits in amounts of less than $100,000) less individual retirement account (IRA) and Keogh balances at depository institutions; and (3) balances in retail money market funds (MMFs) less IRA and Keogh balances at MMFs.

Beginning May 2020, M2 consists of M1 plus (1) small-denomination time deposits (time deposits in amounts of less than $100,000) less IRA and Keogh balances at depository institutions; and (2) balances in retail MMFs less IRA and Keogh balances at MMFs. Seasonally adjusted M2 is constructed by summing savings deposits (before May 2020), small-denomination time deposits, and retail MMFs, each seasonally adjusted separately, and adding this result to seasonally adjusted M1.

Here is the “M2 Money Stock” (seasonally adjusted) chart, updated on June 22, 2021, depicting data through May 2021, with a value of $20,370.1 Billion:

M2 Money Stock $20,370.1B

Here is the “M2 Money Stock” chart on a “Percent Change From Year Ago” basis, with a current value of 13.8%:

M2 Money Stock 13.2 Percent Change From Year Ago

Data Source: Board of Governors of the Federal Reserve System (US), M2 Money Stock [M2SL], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed June 22, 2021: https://fred.stlouisfed.org/series/M2SL

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 4246.44 as this post is written

Monday, June 21, 2021

Updates Of Economic Indicators June 2021

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

The June 2021 Chicago Fed National Activity Index (CFNAI) updated as of June 21, 2021:

The CFNAI, with a current reading of .29

The CFNAI-MA3, with a current reading of .81

The ECRI WLI (Weekly Leading Index):

As of June 18, 2021 (incorporating data through June 11, 2021) the WLI was at 157.3 and the WLI, Gr. was at 19.3%.

A chart of the WLI,Gr., from the Advisor Perspectives’ ECRI update post of June 18, 2021:

ECRI WLI,Gr. since 2000 19.3 percent

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

The ADS Index, from 6-12-2020 through 6-12-21:

ADS Index

The Conference Board Leading Economic Index (LEI), Coincident Economic Index (CEI), and Lagging Economic Index (LAG):

As per the June 17, 2021 Conference Board press release, titled “The Conference Board Leading Economic Index (LEI) for the U.S. Increased in May” the LEI was at 114.5, the CEI was at 105.1, and the LAG was 103.0 in May.

An excerpt from the release:

“After another large improvement in May, the U.S. LEI now stands above its previous peak reached in January 2020 (112.0), suggesting that strong economic growth will continue in the near term,” said Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board. “Strengths among the leading indicators were widespread, with initial claims for unemployment insurance making the largest positive contribution to the index; housing permits made this month’s only negative contribution. The   Conference Board now forecasts real GDP growth in Q2 could reach 9 percent (annualized), with year-over-year economic growth reaching 6.6 percent for 2021.”

Here is a chart of the LEI from the Advisor Perspectives’ Conference Board Leading Economic Index update of June 17, 2021:

Conference Board LEI

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I post various indicators and indices because I believe they should be carefully monitored.  However, as those familiar with this site are aware, I do not necessarily agree with what they depict or imply.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 4224.79 as this post is written

Sunday, June 20, 2021

Trends Of S&P500 Earnings Forecasts

S&P500 earnings trends and estimates are a notably important topic, for a variety of reasons, at this point in time.

FactSet publishes a report titled “Earnings Insight” that contains a variety of information including the trends and expectations of S&P500 earnings.

For reference purposes, here are two charts as seen in the “Earnings Insight” report of June 17, 2021:

from page 27:

(click on charts to enlarge images)

S&P500 EPS 2021 & 2022

from page 28:

S&P500 EPS 2011-2022

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I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this site are aware, I do not agree with many of the consensus estimates and much of the commentary in these forecast surveys.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 4166.45 as this post is written

Friday, June 18, 2021

S&P500 EPS Estimates From Industry Analysts For 2021-2023

As many are aware, Refinitiv publishes earnings estimates for the S&P500.  (My other posts concerning S&P earnings estimates can be found under the S&P500 Earnings label)

The following estimates are from Exhibit 24 of the “S&P500 Earnings Scorecard” (pdf) of June 18, 2021, and represent an aggregation of individual S&P500 component “bottom up” analyst forecasts.  For reference, the Year 2014 value is $118.78/share; the Year 2015 value is $117.46/share; the Year 2016 value is $118.10/share; the Year 2017 value is $132.00/share; the Year 2018 value is $161.93/share; the Year 2019 value is $162.93/share; and the Year 2020 value is $139.72/share;

Year 2021 estimate:

$190.56/share

Year 2022 estimate:

$213.07/share

Year 2023 estimate:

$232.55/share

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I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this site are aware, I do not agree with many of the consensus estimates and much of the commentary in these forecast surveys.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 4166.45 as this post is written

Standard & Poor’s S&P500 EPS Estimates 2021 & 2022 – June 10, 2021

As many are aware, Standard & Poor’s publishes earnings estimates for the S&P500.  (My posts concerning their estimates can be found under the S&P500 Earnings label)

For reference purposes, the most current estimates are reflected below, and are as of June 10, 2021:

Year 2021 estimates add to the following:

-From a “bottom up” perspective, operating earnings of $186.62/share

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

-From a “bottom up” perspective, “as reported” earnings of $174.47/share

Year 2022 estimates add to the following:

-From a “bottom up” perspective, operating earnings of $210.19/share

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

-From a “bottom up” perspective, “as reported” earnings of $195.38/share

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I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this site are aware, I do not agree with many of the consensus estimates and much of the commentary in these forecast surveys.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 4184.23 as this post is written

S&P500 Price Projections – Livingston Survey June 2021

The June 2021 Livingston Survey (pdf) published on June 18, 2021 contains, among its various forecasts, a S&P500 forecast.  It shows the following price forecast for the dates shown:

June 30, 2021 4212.90

Dec. 31, 2021  4292.2

June 30, 2022 4382.8

Dec. 31, 2022  4474.30

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

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I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this site 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 4185.69 as this post is written

Thursday, June 17, 2021

Jerome Powell’s June 16, 2021 Press Conference – Notable Aspects

On Wednesday, June 16, 2021 FOMC Chairman Jerome Powell gave his scheduled June 2021 FOMC Press Conference. (link of video and related materials)

Below are Jerome Powell’s comments I found most notable – although I don’t necessarily agree with them – in the order they appear in the transcript.  These comments are excerpted from the “Transcript of Chairman Powell’s Press Conference“ (preliminary)(pdf) of June 16, 2021, with the accompanying “FOMC Statement” and “Summary of Economic Projections” dated June 16, 2021.

Excerpts from Chairman Powell’s opening comments:

Today, the Federal Open Market Committee kept interest rates near zero and maintained our asset purchases.  These measures, along with our strong guidance on interest rates and on our balance sheet, will ensure that monetary policy will continue to deliver powerful support to the economy until the recovery is complete.

also:

The process of reopening the economy is unprecedented, as was the shutdown at the onset of the pandemic.  As the reopening continues, shifts in demand can be large and rapid, and bottlenecks, hiring difficulties, and other constraints could continue to limit how quickly supply can adjust, raising the possibility that inflation could turn out to be higher and more persistent than we expect.  Our new framework for monetary policy emphasizes the importance of having well-anchored inflation expectations, both to foster price stability and to enhance our ability to promote our broad-based and inclusive maximum employment goal.  Indicators of longer-term inflation expectations have generally reversed the declines seen earlier in the pandemic and have moved into a range that appears broadly consistent with our longer-run inflation goal of 2 percent.  If we saw signs that the path of inflation or longer-term inflation expectations were moving materially and persistently beyond levels consistent with our goal, we would be prepared to adjust the stance of monetary policy.

Excerpts of Jerome Powell’s responses as indicated to various questions:

PAUL KIERNAN.  Hi, Chairman Powell. Thanks for the question. Your specific median forecasts on inflation seems to assume a pretty tame outlook for the rest of the year. As you know, the three-month annualized rate for the past three months was I think 8.4 percent in the CPI. And I’m just wondering sort of how much longer we can sustain those kinds of rates before you get nervous. Thanks. 

CHAIR POWELL.  So, inflation has come in above expectations over the last few months. But if you look behind the headline numbers, you’ll see that the incoming data are consistent with the view that the prices that are driving that higher inflation are from categories that are being directly affected by the recovery from the pandemic and the reopening of the economy. So, for example, the experience with lumber prices is illustrative of this. The thought is that prices like that have moved up really quickly because of the shortages and bottlenecks and the like. They should stop going up and at some point, in some cases should actually go down. And we did see that in the case of lumber. Another example where we haven’t seen that yet is prices for used cars, which accounted for more than a third of the total increase in core inflation. Used car prices are going up because of sort of a perfect storm of very strong demand and limited supply. It’s going up and at just an amazing annual rate. But we do think that it makes sense that that would stop, and that in fact it would reverse over time. So we think we’ll be seeing some of that. When will we be seeing it? We’re not sure. That narrative still seems quite likely to prove correct, although, you know, as I pointed out at the last press conference, the timing of that is pretty uncertain, and so are the effects in the near term. But over time, it seems likely that these very specific things that are driving up inflation will be temporary. And moving on, we’ll be looking. We’ll be looking at the monthly pricing data. I’ll also say that the labor market is going to be important, both for the maximum employment goal, but also for inflation. And we’ll be looking at that. And as I mentioned, we expect and I expect that we’ll see increases in supply over coming months as the factors that we believe have been suppressing supply abate, wane, move down. So, I can’t give you an exact number and exact time. But I would say that we do expect inflation to move down. If you look at the forecast for 2021 and — sorry, 2022 and 2023, among my colleagues on the on the Federal Open Market Committee, you will see that people do expect inflation to move down meaningfully toward our goal. And I think the full range of inflation projections for 2023 falls between 2 and 2.3 percent, which is consistent with our goals. 

also:

CRAIG TORRES.  Craig Torres at Bloomberg. If I were a businessman looking at the forecast today, I would ask how and when the Fed seeks to achieve an average of 2 percent inflation? In other words, does the FOMC have a look back period? Or does it plan to suppress inflation in outer years because over the next three years you’re going to be above inflation? So what is your look back period? Does the Committee have one? And if not, why not? And if they don’t, why isn’t this just flexible inflation targeting without an average in a range of 2 to 2 and a quarter percent?  Thanks. 

CHAIR POWELL.  You know, so as part of our year-and-a-half-long process, the review that we did and came out with at the end of that with the new statement on longer-run goals and monetary policy strategy, we look carefully at the idea. We’ve all read all the literature around different formulas for makeup and things like that. And, we concluded — and, you know, I strongly agree — that it’s not wise to wed yourself to a particular formulation of that. So, we did adopt a discretionary — there’s an element of discretion. You know, it says that we will seek inflation that runs moderately above 2 percent for some time. And it’s meant to create a broad sense that we want inflation to average 2 percent over time. And that under the old formula, under the old framework, what was happening was 2 percent was the ceiling because all of the errors were below. You were always getting back to 2 percent. So you were bouncing back and forth between one and a half and two, and we wanted them to be centered around two. So that’s the approach that we’re taking. And you’re right, it’s not a formulaic approach. We were clear on that when we announced the framework. Was there another part of your question, Craig? 

CRAIG TORRES. Ah, that pretty much answers it, Chair Powell. Thank you. 

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 4222.02 as this post is written