Wednesday, March 31, 2010

Consumer Metrics Institute Charts

Pursuant to the last post, here are some charts from The Consumer Metrics Institute that I find noteworthy:

As I indicated in the last post, I plan on including updated information from The Consumer Metrics Institute in my frequent updates of economic indicators...

SPX at 1170.51 as this post is written

The Consumer Metrics Institute

In the previous blog post I wrote of the issues and implications regarding the current economic growth rate.

There are a variety of sources and methods one may use in trying to gauge current and future economic growth. In this blog I frequently highlight and discuss many I feel are prominent and/or noteworthy. However, I am constantly searching for new sources as I feel that many of the well established, existing indices and methodologies have inherent weaknesses. These weaknesses, in many cases, are being magnified and exacerbated in our current economic environment.

One source of forecasting economic trends that I have recently become aware of is called "The Consumer Metrics Institute." This site uses proprietary methodologies that appear quite disparate from those used by others. I'll probably comment more on these methodologies later; however, for those interested the FAQs section as well as various other pages on the site provide an overview.

Their methods are yielding statistics that I find most interesting, both with regard to our current economic condition, as well as those pre-dating the 3Q/4Q 2008 financial maelstrom and aftermath.

In aggregate, I interpret the data shown by The Consumer Metrics Institute to show that current economic growth is not as strong as widely depicted and believed. Based upon their data, I infer (based on this data) that the economy may be far more vulnerable to significant economic weakness than widely envisioned.

It is always hazardous to place too much reliance on one data source, especially when it comes to economic forecasting. As well, it is easy to view the non-confirming (vs. highly established economic forecasting sources and widely held economic expectations) nature of this Consumer Metrics Institute data with skepticism as it belies many underlying consensus beliefs and associated data sources.

However, I think this is a potentially very valuable source of information and I plan on monitoring it diligently. It will be included in my frequent updates of economic indicators.

In the next post I will display a few charts from the site that I find especially noteworthy...

SPX at 1171.80 as this post is written

Tuesday, March 30, 2010

The Chicago Fed National Activity Index

This post, and the next, will deal with economic activity and economic indicators.

My most recent update of various economic indicators was on March 15.

One indicator that I have yet to add to this list is that of the Chicago Fed National Activity Index. Many people believe the Chicago Fed National Activity Index to be the best, or among the best, indicator of economic activity. Among its strengths is its broad nature, as it is comprised of 85 individual indicators.

Here is the most recent (March 22) chart of the CFNAI, that depicts February activity:

Source: Chicago Federal Reserve (pdf)

It is important to note that the trend shown on the chart is a 3-month moving average. One can see the monthly values denoted in the table as "CFNAI."

Overall, one can see the chart depicts the 3-month average as still being "below trend" after making a strong rebound off the early-2009 lows.

What I find interesting in this data is that it seems to indicate that the rate of economic rebound appears to have peaked. This same indication is seen in many of the economic indicators shown in the March 15 post.

If it true that we are now off-peak in terms of the rate of economic growth, the pivotal question becomes what will be the going-forward growth rate. As shown in the various economist forecasts that I have posted, most economists (as well as other professionals) are assuming a growth rate consistent with full-year GDP of 3%...i.e. relatively steady growth for the rest of the year.

However, there are also some who think a "double-dip" or other resumption of weakness is likely.

Is it possible that the rate of economic activity is already on a faster than anticipated decline? It appears too early to definitively say, based upon this CFNAI and other indicators. However, this possibility is something that I certainly think bears close monitoring as the implications of such could (dependent upon the extent of such weakness) be enormous.

SPX at 1173.22 as this post is written

Monday, March 29, 2010

The Latest Housing Intervention

Saturday's Wall Street Journal chronicles the latest housing intervention plan in a story titled "Mortgage Plan Remodeled Again."

I have written extensively about the residential real estate problems and dynamics thereof.

It strongly appears as if we, as a nation, have come to a place where there is hardly a real estate intervention that we don't like.

I think this situation is one filled with peril, as I strongly believe (and have written extensively of) the unintended consequences and hidden risks of interventions.

SPX at 1166.59 as this post is written

Greenspan's Most Notable Phrase

Alan Greenspan recently gave a lengthy video interview on Bloomberg. A short summary is found at this link; the actual video is the first listed near the bottom of the article.

I found the video to be most interesting. Greenspan elaborates upon his recent "The Crisis" paper, which I mentioned on March 23. As well, he discusses many other issues.

While there is much I can comment upon in this interview, I want to focus on a key phrase he mentions with regard to what is now happening:

"You can see the whole blossoming of finance."

I believe this to be the most notable of all of Greenspan's famous phrases.

I think we are seeing a blossoming - not of "finance", but instead of (hyper)bubbles. I think there are many bubbles of severe magnitude throughout the worldwide economy. I have previously written of these bubbles in a variety of posts.

I strongly disagree with those who think that bursting bubbles are not something to be unduly concerned about. In fact, Greenspan says in the interview, "Remember that the bursting of the bubble by itself is not a big catastrophe. We had a dot-com bubble, it burst, and the economy barely moved.”

While it may be pleasant to ignore the existence of bubbles, and downplay the potential significance of their bursting, I believe that the existence and prevalence of bubbles in today's worldwide economy is perhaps the largest threat to achieving Sustainable Prosperity.

SPX at 1166.59 as this post is written

Thursday, March 25, 2010

Disturbing Charts, Part II

As a continuation of yesterday's post, here are three other charts that I find disturbing in nature.

These charts raise a lot of questions. Many of these questions I have discussed in the blog, as I believe they are very significant in nature. Additionally, these charts should highlight the "atypical" nature of our economic situation from a long-term historical perspective.

Here is a St. Louis Fed chart depicting the Median Duration of Unemployment:

These next two charts are from the Minneapolis Federal Reserve. These charts really provide a perspective on the length and extent of this downturn. The first depicts our Unemployment situation:

This depicts Output:

More about these last two charts can be found in the February 8 blog post.

I will update these charts on an intermittent basis as they deserve close monitoring.

SPX at 1175.44 as this post is written

Wednesday, March 24, 2010

Disturbing Charts, Part I

In the next two posts, I am going to display various charts that I find disturbing. These charts would be disturbing at any point in the economic cycle; that they depict such a dismal situation now - 9 months into what most believe is an economic recovery - is especially notable.

Many more such charts exist, unfortunately. I also regularly discuss many troubling aspects of our economy in this blog.

As well, I find many aspects of the financial markets to be problematical. Those aspects will be covered in the near future.

All of these charts are from The Federal Reserve. Charts in this post are from the St. Louis Federal Reserve. I especially find these charts valuable as they depict our current situation in a longer-term historical context.

Here are the charts:

Housing starts:

The Federal Deficit:

Federal Net Outlays:

State & Local Personal Income Tax Receipts (% Change from Year Ago):

Total Loans and Leases of Commercial Banks (% Change from Year Ago):

Bank Credit - All Commercial Banks (Percent Change from Year Ago):

M1 Money Multiplier:

Now, onto Part II...

SPX at 1172.35 as this post is written

Tuesday, March 23, 2010

Greenspan's "The Crisis" Paper

Last Thursday, Alan Greenspan's "The Crisis" paper (pdf) became available.

I assume this is the paper that Alan Greenspan has previously spoken of, as seen in my previous post (February 26) on his defense of his tenure.

For now I simply want to post a link to the paper. I may further comment upon the paper at a later time.

I think the paper is valuable in that it provides a unique perspective on the financial crisis. However, I don't agree with many of the points made in the paper.

SPX at 1166.49 as this post is written

Monday, March 22, 2010

Health Care Legislation - A Few Comments

I would like to make a few comments regarding the health care legislation. I've written a few posts mentioning health care; these can be found with the "healthcare" label.

First, as I've previously written, the health care system that we now have needed to be changed. It clearly has evolved into something that is unsustainable economically as well as clearly suboptimal in other areas.

However, I don't view the legislation voted upon last night as a good solution. Although some aspects of it appear, in a general sense, to be laudable - such as making health care attainable to a broader audience - from an "all things considered" basis I believe that it doesn't solve many underlying problems. Furthermore, it will likely create new problems.

We, as a nation, had the opportunity to fix a long-standing "mess" and, as the future will show, we've failed to enact an effective solution. This scenario, of having opportunities to address major problems, and subsequently failing to enact effective solutions, is recurring in an increasing fashion, unfortunately.

Second, one aspect of the health care legislation that seems to be lacking in recognition is that of how businesses will be impacted. The health care legislation adds uncertainty, complexity, regulation, and costs to businesses. These factors are very significant, especially in today's economic climate. One area that these factors impact is hiring. I've explained this in my blog post series "Why Aren't Companies Hiring" which started on July 24, 2009.

SPX at 1158.71 as this post is written

Sunday, March 21, 2010

Comments On The HIRE Act

On Thursday President Obama signed the HIRE Act, a jobs stimulus. The summary of the signing can be found here.

There is also a transcript of his remarks found here.

I could make many comments about this jobs stimulus. However, as an intervention measure, it has many of the same characteristics of other interventions. As such, my previous extensive comments about interventions are highly relevant. Those posts can be found listed under the "Intervention" tag.

However, I will make two comments specific to this legislation:

First, the ARRA was supposed to be a "jobs creation" legislation. On various levels it has not performed as intended with regard to job creation. As I've pointed out before, we should be very cognizant of how previous stimulus bills have fared before enacting new ones.

Second, in President Obama's comments he said, "I’m signing it mindful that, as I’ve said before, the solution to our economic problems will not come from government alone. Government can’t create all the jobs we need or can it repair all the damage that’s been done by this recession." This entire idea of "creating" jobs or "stimulating" job creation needs to be intensely scrutinized. Should government be attempting to "create" jobs - as seems to be the current widely accepted theory - or should job creation and job growth be an inherent feature of a strong economy?


SPX at 1159.90 as this post is written

Friday, March 19, 2010

Largest Employers

Crain's recently came out with their list of the largest Chicago-area employers. What I found notable was that the top 5 employers are various government entities (federal, state and local).

Of course, this situation is not unique to the Chicago area. Many states have a large percentage of their total jobs as government jobs.

While many might be indifferent to this situation - assuming that a "job is a job" - from an overall economic standpoint it is troubling on various fronts.

One such front that deserves special attention is that which I discuss in the "America's Economic Future: 'Greenfield' or 'Brownfield'?" article.

SPX at 1161.65 as this post is written

Thursday, March 18, 2010

America's Economic Future - A Comment

Those familiar with this blog know that I believe (based off of my overall analysis) that our current purported economic recovery is not sustainable.

As I have indicated in previous writings, we as a nation need to be more "strategic" in nature if we are to attain true Sustainable Prosperity.

One critical question that we should be asking, from a strategic standpoint, is what is the value of a recovery if it is not sustainable? The answer is that there is very little if any value to such a recovery. In fact, a very strong case can be made that there will be strong negative repercussions stemming from such an unsustainable recovery.

Another issue, from a strategic standpoint, is one of opportunity cost. The opportunity cost of attaining a recovery that subsequently fails vs. a true sustainable recovery is enormous. This is especially true in our current economic environment where many factors such as the national debt are at truly ominous levels.

SPX at 1165.42 as this post is written

Wednesday, March 17, 2010

The US Dollar

On January 13 I wrote a blog post concerning the overall situation of the US Dollar.

In that post, I wrote that there appeared to be few if any signs that a severe US Dollar decline was impending.

However, the situation has changed. When viewed from a technical analysis perspective, US Dollar seems vulnerable to a decline when viewed on at least the daily and weekly timeframes.

In addition, from a fundamental perspective, the actions we (as a nation) have been taking to "improve" our economic situation imperil the dollar. These actions are almost innumerable, but certainly include ultra-low interest rates, large-scale deficit spending, and large-scale "money printing".

As the following chart shows, from a long-term monthly perspective the US Dollar seems to have resistance around the 80 level:

chart courtesy of

On an "all things considered" basis I believe we are now at the point where the US Dollar price should be intensely monitored as it appears highly vulnerable.

SPX at 1164.2 as this post is written

Monday, March 15, 2010

Updates On Economic Indicators

Here are some indicators that are supposed to predict and/or depict economic activity. These indicators have been discussed in previous blog posts:

The USA TODAY/IHS Global Insight Economic Outlook Index:

an excerpt dated 2/24: "The February update of the USA TODAY/IHS Global Insight Economic Outlook Index shows real GDP growth, at a six-month annualized growth rate, above 4% in January through April followed by slower but solid growth in May through July. The slower growth is expected as inventory boosts slow and the government's monetary and fiscal stimulus programs end."

The ECRI WLI (Weekly Leading Index):

an excerpt dated March 12: "(Reuters) - A gauge of future U.S. economic growth rose slightly in the latest week while its yearly growth index continued to fall to a 31-week low, upholding expectations the economy will likely decelerate starting mid-year, a research group said on Friday.

The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index was 130.6 for the week ended March 5, up from 129.8 the previous week."

Fortune's Big Picture Index:

-I was unable to obtain updated values for this index-

The Dow Jones ESI (Economic Sentiment Indicator)

This indicator was at 38.1 as of March 1; as seen on the chart, this index seems to be holding at a relatively steady level since November.

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

Here is the latest chart (updated as of March 6) of this indicator:

The Conference Board LEI (Leading Economic Index) and CEI (Coincident Economic Index)

Per a news release of February 18, the January LEI was at 107.4 and the January CEI was at 100.1. There exists a notable gap between these two measures.

"New Financial Conditions Index"

I had a post of this index on Wednesday.


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.

SPX at 1149.99 as this post is written

Sunday, March 14, 2010

The March Wall Street Journal Economic Forecast Survey

I found the March Wall Street Journal Economic Forecast Survey contained three sets of interesting material.

First, it contained the survey results and comments of economists with regard to what impact interventions (The Federal Reserve's actions as well as that of the ARRA) have played in "rescuing the U.S. economy from the financial crisis."

Second, according to the survey, "...the economists put the odds of a double-dip recession at just 17%..."

Third, to the question "How confident are you that Congress and the president will act to reduce the long-term budget deficit before a major financial market crisis?" these responses were interesting:

"We usually do the right thing after having exhausted all other options."

"Their record of fiscal discipline is horrific."

Otherwise, the various forecast averages for such measures as the Ten-Year Treasury Yield, GDP and Unemployment Rate remain largely unchanged. As seen in the detail, there hasn't been material change in the average of these forecasted measures for months.


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 the consensus estimates and much of the commentary in these forecast surveys.

SPX at 1149.99 as this post is written

Friday, March 12, 2010

Notable S&P500 Price Action

The climb in the S&P500 has been notable over the last few sessions. According to, through yesterday, "Yet another up day pushed the S&P 500 futures to its 10th straight gain, only the second time since their inception (01/15/87 was the other)."

Here is a chart of the S&P500 price action of the last two months:

chart courtesy of

This is yet another notable occurrence presently in the markets. I will be commenting more on some notable market aspects shortly.

SPX at 1149.65 as this post is written

Wednesday, March 10, 2010

"New Financial Conditions Index"

I ran across the following paper titled "Financial Conditions Indexes: A Fresh Look after the Financial Crisis" (pdf) dated February 22, 2010.

This paper discusses and explains this new attempt to create a "financial conditions index" that will accurately predict economic activity.

From the abstract: "As of the end of 2009, our FCI showed financial conditions at somewhat worse-than-normal levels. The main reason is that quantitative credit measures (e.g. asset-backed securities issuance) remain very weak, especially once we control for past economic growth. Thus, our analysis is consistent with an ongoing modest drag from financial conditions on economic growth in 2010."

Here is a chart of the "New FCI" from page 43 of the report:

I will reserve comment on this "New FCI" as I have yet to thoroughly review the paper and the "New FCI" methodology.

However, I find it interesting and hope to include it with the other financial and economic indicators I periodically (the last being the January 11 post) review.

SPX at 1143.84 as this post is written

Tuesday, March 9, 2010

Article On Asset Bubbles

On January 25 Fortune had an article on asset bubbles titled "Beware the 4 new asset bubbles."

The four purported bubbles mentioned in the article are Gold, oil, the stock market, and Treasuries. I have discussed each of these markets, with the exception of oil, in previous posts.

I found the logic and discussion in the article interesting, although I did not agree with various aspects of the article. I especially disagree with the logic about housing, for reasons I have recently written about.

It is very important for investors to understand whether the markets they are investing in are indeed experiencing bubbles. My previously written posts are found under the "Asset Bubbles" label.

Of course, the existence and prevalence of bubbles also has massive ramifications for the economy, especially when viewed from the standpoint of Sustainable Prosperity.

SPX at 1137.15 as this post is written

Monday, March 8, 2010

The "Double-Dip" Scenario

Lately there have been an increasing number of people citing the possibility of a "double-dip" recession. Much of this scenario is predicated upon the belief that as government stimulus spending fades, so too will economic activity.

This March 5 article from summarizes some of the opinions regarding the double-dip reasoning and possibilities.

I find these worries about a "double-dip" recession interesting for many reasons. Perhaps chief among these reasons is that even among those who think a "double-dip" recession is likely, these people don't seem to believe that any further economic weakness will be worse than that which we experienced during the trough set in late '08-early '09.

I'm not sure for the reasoning behind this belief; and I have seen none offered. However, per my previous posts I don't believe this is a logical conclusion.

SPX at 1138.70 as this post is written

Sunday, March 7, 2010

Another Ponzi Scheme

I have been intermittently commenting upon the growing number of investment frauds being uncovered. Those posts can be found using the "investment frauds" term.

Here is yet another alleged Ponzi scheme as seen in Thursday's Wall Street Journal article titled "SEC Charges Couple in Florida Ponzi Scheme."

As seen in the article, this alleged scheme is stated at $135 million.

It is difficult to say how widespread investment frauds are and how much investment fraud is yet to be uncovered.

However, based upon a variety of factors I would say that there is much investment fraud still "out there" (i.e. yet to be uncovered) and the true figure will likely prove to be eye-popping.

SPX at 1138.70 as this post is written

Thursday, March 4, 2010

"I Can Own Cheaper Than I Can Rent"

One of the commonly stated reasons for buying a home now, as opposed to renting, is that "I can own (a home) cheaper than I can rent."

This is no doubt the case in many areas of the country, especially those that have experienced large declines in residential real estate prices.

Is this condition, where one can own cheaper than renting, a valid justification for buying a home?

I would argue that it is not, for many reasons. Here are three of the many reasons:

First, "I can own cheaper than I can rent" usually refers to the condition that the monthly mortgage payment is cheaper than the monthly rent payment. Is this the main criteria that one should use when evaluating what is likely the largest financial commitment one will ever make, that of buying a house? Of course not - there should be many factors that weigh into such a decision.

Second, as indicated in the real estate valuation story in my last post, historically when house prices fell to or below the equivalent rent levels, a "bottom in (home) prices" had either been realized or was close. However, as I have written in previous posts, our national real estate situation is far dissimilar to that of prior years. As such, comparisons need to be adjusted accordingly.

Third, one should be very mindful of one's ability to sell real estate in today's real estate market, should one need to. Normally, the ability to sell real estate in a timely fashion, and at a "decent price," is not a major issue. However, for many people currently looking to sell a house, it has become a very significant factor. While I could post some statistics with regard to unsold home inventories and the like, I will not do so as I feel these statistics are significantly skewed (and as such unrepresentative) due to a variety of factors.

For these three reasons, as well as many others, I feel that on an "all things considered" basis, the fact that one "can own cheaper than renting" in many areas is to be considered more of a "red flag" than a "green light" as far as buying a house is concerned.

SPX at 1118.79 as this post is written

Tuesday, March 2, 2010

An Interesting Article On Housing Prices

I came across an interesting Fortune Magazine story dated February 16 titled "Where's housing headed? Follow rents." The link can be found here.

Of course, given my previous posts on residential real estate I don't agree with many aspects of the story, especially the statement "Given that analysis, it's likely that prices will fall another 5% or so nationwide."

However, I do find the story interesting as it portrays a case for the commonly-held belief that the residential real estate market decline is nearly over.

SPX at 1121.91 as this post is written

Monday, March 1, 2010

The Yield Curve As A Leading Indicator

Here is a link to the NY Fed's page regarding the yield curve (specifically the 10-year rates vs. 3-month rates) as a leading indicator.

What I find interesting is that the chart (pdf, at this link) plotting the current probability of recession indicates an imperceptibly small .04% chance of recession as of January 2010. As seen in the chart (as well as accompanying data file) the recent peak was in the 40%-50% range in the latter part of 2007 and into 2008.

Of course, I strongly disagree that there is currently a .04% of recession.

On the NY Fed link above, they have posted numerous studies that support the theory that the yield curve is a leading indicator. My objections with using it as a leading indicator, especially now, are various. These objections include: I don't think such a narrow measure is one that can be relied upon; both the yields at the short and long-end of the curve have been overtly and officially manipulated, thus distorting the curve; and, although the yield curve may have been an accurate leading indicator in the past, this period of economic weakness is inherently dissimilar in nature from past recessions and depressions in a multitude of ways - thus, historical yardsticks and metrics probably won't (and have not) proven appropriate.

SPX at 1110.87 as this post is written