Sunday, May 30, 2010

S&P500 Earnings Estimates For 2010 & 2011

As many are aware, Standard & Poors publishes earnings estimates on a quarterly basis.

Currently, their estimates for 2010 add to the following:

-From a "bottom up" perspective, operating earnings of $81.72/share
-From a "top down" perspective, operating earnings of $71.32/share
-From a "top down" perspective, "as reported" earnings of $64.84/share

Currently, their estimates for 2011 add to the following:

-From a "bottom up" perspective, operating earnings of $94.88/share
-From a "top down" perspective, operating earnings of $78.40/share
-From a "top down" perspective, "as reported" earnings of $80.92/share

As I commented in the December 20, 2009 post, coming into 2010 the overall consensus on S&P500 earnings for the year seemed to be in the $75 range.

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

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SPX at 1089.41 as this post is written

Friday, May 28, 2010

"From Bubble To Bubble To Bubble"

I ran across the following weekly S&P500 chart and comment from Maurice Walker, of at  Although I do not necessarily agree with all of the chart's annotations and the accompanying commentary, I definitely think that both are worthy of contemplation:

chart courtesy of

(one can click on the chart to enlarge the image)

Maurice Walker's accompanying comment:

"The Keynesian Cure Never Works

The US had a massive malinestment (An investment in wrong lines which leads to capital losses. Malinvestment results from the inability of investors to foresee correctly, at the time of investment) in housing induced by affordable housing mandates, easy money from the Fed, and Fannie and Freddie guaranteeing mortgages that they had no business guaranteeing.

You cannot get over a debt infused recession with more debt. You have to work off the malinvestment. This is why the Keynesian cure never works. Just look at Greece.

But instead of working off the malivestment, we are trying reinflate the housing bubble with more spending. We are trying to reinflate the economic bubble with the stimulus package.

The Fed has to keep pressing the accelerator faster and faster to main tain the same simulative effect. But if the keep doing this it will cause inflation to arise. Additionally, the Fed already engineered a runaway expansion of the monetary base, that will generate explosive inflation. The borrowing needs of Obama's record-shattering deficits will only exacerbate the effect. We are moving from a housing bubble to a government debt bubble that is going to ultimately collapse the dollar."

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SPX at 1092.58 as this post is written

Thursday, May 27, 2010

"Bubble Investing"

I recently saw an ad for "Bubble Investing" and thought it was notable.  It used to be that the mere idea of an asset bubble led to concern.  Now, it appears as if asset bubbles are seen by many as more of an opportunity than a threat.

Of course, investing in bubbles can be profitable.  As I wrote in the December 3, 2009 post, "Investing in bubbles can be extremely profitable on the way up; however, for the "long" investor they can produce huge losses if one doesn't time the exit appropriately."  History has shown that the (vast) majority of investors don't time the exit appropriately.

While I have extensively written of how problematical the asset bubble situation is today, it should be noted that others have written to the contrary.   The April 25 2010 post concerning work by Frederic Mishkin and an April 27 article by James Picerno are two prominent examples.

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SPX at 1085.04 as this post is written

Wednesday, May 26, 2010

Updates On Economic Indicators

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 May Chicago Fed National Activity Index (CFNAI) (pdf) updated as of May 24, 2010:

The Consumer Metrics Institute Contraction Watch:

The USA TODAY/IHS Global Insight Economic Outlook Index:

An excerpt of May 24, 2010:
"The May update of the USA TODAY/IHS Global Insight Economic Outlook Index shows strong growth in real GDP, at a six-month annualized growth rate, in April and May followed by slower, yet solid, growth in June through October. Increased consumer and business spending will fuel strong growth into the second quarter, but tight credit, high debt and still-high unemployment will moderate growth in the second half of the year."

The ECRI WLI (Weekly Leading Index) : Last updated 5/14/10:
The WLI is at 127.3

The Dow Jones ESI (Economic Sentiment Indicator):
The Index as of April 30 was at 38.3.  The title of the April 30 news release is "Dow Jones Economic Sentiment Indicator slips to 38.3 for April; signals that Recovery has yet to firmly take hold."

The Aruoba-Diebold-Scotti Business Conditions (ADS) Index
Here is the latest chart, updated through 5-15-10:

“New Financial Conditions Index”
I had a post of this index on 3/10/10.  There is currently no updated value available.
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.

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SPX at 1074.14 as this post is written

Monday, May 24, 2010

MacroMarkets Home Price Expectations Survey

On May 19 The Wall Street Journal had an article about a new housing survey called the MacroMarkets Home Price Expectations Survey.

From the website:

"MacroMarkets has assembled a distinguished panel of over 100 economists, investment strategists, and housing market analysts who are surveyed every month regarding their 5-year expectations for future home prices in the United States."

The Wall Street Journal article summarized the May 2010 survey results as follows:

"The analysts surveyed by MacroMarkets on average expect home prices, as measured by the S&P/Case-Shiller national index, to rise about 12% in the five years ending Dec. 31, 2014. As of Dec. 31, that index was down about 28% from its peak level in mid-2006."

However, if one looks at the detail (pdf), one sees a significant differing of opinions, with the highest cumulative gain (through 2014) expected to be 36.74% and the lowest a loss of 17.99%.

This survey should be interesting to watch as it provides a relatively broad view of housing price expectations on a recurring basis.

As for the survey results - I find them interesting.  The overall consensus view on housing seems to mirror this survey's average forecasted results - that of mild but steady home price appreciation over the next few years.

I've written extensively about housing, as it is of the utmost importance to our economic situation.  Our national real estate problems are vastly complex and highly problematical.  Perhaps my overall view on the situation and the path of housing prices is best summarized by my January 8, 2010 post.

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SPX at 1087.69 as this post is written

Friday, May 21, 2010

Four Erroneous Phrases

Over the last few months, four phrases have been used frequently in describing our economic condition.  I find these phrases to be inaccurate and misleading.

Here are the four phrases (in italics) and some brief commentary:

"the Great Recession"

Many people have labeled the economic weakness (ended by the subsequent purported economic recovery) as "the Great Recession."  This appears to be in recognition of a deep recession that in many ways seemed to be second only to The Great Depression as far as severity.

I believe the phrase to be inaccurate as my analysis indicates we have yet to experience the full extent of the economic weakness -  and as such categorizing weakness to date is premature.  Also, I find the term "Great Recession" to be rather glib and flippant, as it minimizes the extent of our economic difficulties.

"employment is a lagging indicator"

This phrase is heard constantly.  It seems as if the more it is said, the more accepted it becomes.  I believe that although employment may have been a "lagging indicator" in the past, during our current period of economic weakness it is either a coincident or leading indicator, depending upon the time horizon and other guidelines used.

"saddling our children / grandchildren with debt"

This phrase, and variants, is often heard in relation to the expansion of deficits and national debt.  While I don't believe it is wholly inaccurate, I think it embodies various mistaken beliefs.  Among these mistaken beliefs are that we as a country will not face near-term repercussions from our amassing of debts; and that the worst consequence (and only one worthy of mention) of our current economic actions with regard to future generations' prosperity is our amassing of debt.

The broader, and more important question -  which is seemingly never mentioned - is whether we are acting as "good stewards" in relation to the economic condition that will be faced by future generations.  In essence, is the current generation promoting an economic environment that will bode well for future generations?  I will likely discuss this topic in the future.

the "Flash Crash"

This phrase has been frequently used to describe the sudden, deep decline of the stock market on May 6.  I don't think the phrase is accurate for a number of reasons.  Again, the phrase sounds glib and implies that the decline lacked (lasting) significance or happened without significant reason or provocation.

There are many other erroneous phrases used frequently to discuss our economic condition.  In the future I will highlight others that I believe have outsized significance.

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SPX at 1074.33 as this post is written

Thursday, May 20, 2010

The "Paycheck To Paycheck" Condition

Yesterday The Wall Street Journal had a story about Wal-Mart's results.

I found two aspects of the story notable.  First, the sales results seemed particularly low in relation to the recent widespread media coverage of strong retail sales.  Wal-Mart "said that U.S. sales at stores open at least a year fell 1.1%, and store visits dropped despite recent attempts to attract shoppers with price cuts."

Second, a comment in the story caught my attention.  CFO Tom Schoewe is quoted saying, "More than ever, our customers are living paycheck to paycheck."

I've commented on this "paycheck to paycheck" issue previously.  It is a very unfortunate situation and one that is a testament to the widespread lack of prosperity.  While accurate statistics of the "paycheck to paycheck" situation are hard to find, it seems as if it is a widespread condition among many income levels.

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SPX at 1115.05 as this post is written

Wednesday, May 19, 2010

Stock Market Volatility

As seen in the chart below, the 50 day moving average (as seen in blue) for the VIX is now trending higher.  This is the first time since March 2009 in which it has done so in a significant manner:

chart courtesy of

Of course, there are many different ways to measure volatility.  Other measures are showing a significant increase as well.

I expect there to be significant, and steadily increasing (relative to the past 15 months) volatility going forward.  This will be seen in both up and down price movements.

This volatility is being caused by a variety of factors.

I believe that we are building to a variety of major market events.  I will be elaborating upon this shortly.

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SPX at 1116.65 as this post is written

Monday, May 17, 2010

The May 2010 Wall Street Journal Economic Forecast Survey

The May Wall Street Journal Economic Forecast Survey focuses on the economic problems in Europe and the odds of The Federal Reserve increasing interest rates.

As seen in the detail of this survey, the current average forecasts for December 31, 2010 among economists polled include the following:

Ten-Year Treasury Yield: 4.16%
CPI: 1.8%
Unemployment: 9.3%
Crude: $81.56
GDP (full year 2010) : 3.2%
GDP (full year 2011) : 3.1%

Of note, with the exception of the Crude forecast, the above categories have not seen much change in average expectations for up to a year.

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

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SPX at 1135.68 as this post is written

Sunday, May 16, 2010

Milton Friedman On Monetary And Fiscal Policy

I found this passage from Milton Friedman in 1958, as seen on John B. Taylor's blog, to be notable, especially given the immense monetary and fiscal policy actions taken to "improve" our economic situation:

"The available evidence…casts grave doubt on the possibility of producing any fine adjustments in economic activity by fine adjustments in monetary policy....and much danger that such a policy may make matters worse rather than better…The basic difficulties and limitations of monetary policy apply with equal force to fiscal policy.

Political pressures to ‘do something’ …are clearly very strong indeed in the existing state of public attitudes.

The main moral to be had from these two preceding points is that yielding to these pressures may frequently do more harm than good. There is a saying that the best is often the enemy of the good, which seems highly relevant. The attempt to do more than we can will itself be a disturbance that may increase rather than reduce instability."

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SPX at 1135.68 as this post is written

Friday, May 14, 2010

"Is America In Decline?"

I found this exchange on last Sunday's (May 9) "60 Minutes" to be interesting.  It is between Scott Pelley of "60 Minutes" and Hillary Clinton.  For now I will simply post the exchange, and may comment upon it later:

Pelley:  "Larry Summers, the president's economic advisor, asked this question: 'How long can the world's biggest borrower remain the world's greatest power?' Is America in decline?"

Clinton:  "No. We're not. But it's a question that has to be answered."

SPX at 1157.44 as this post is written

Thursday, May 13, 2010

Impact Of Government Stimulus On GDP

John B. Taylor had a blog post on May 1, 2010 that discussed the impact of government stimulus on GDP.  The post is titled "Latest Data Continue to Show Little Impact of Government Stimulus on GDP."

One of the reasons that I write extensively about interventions, which includes stimulus programs,  is that I believe we, as a nation, will continue to do them.  This is highly problematical for a number of reasons.  I've previously written of this issue in the article "My Overall Thoughts On The Bailouts, Stimulus Measures and Interventions".

SPX at 1171.67 as this post is written

Wednesday, May 12, 2010

The Loss of Manufacturing In The United States

The following excerpt is from the Global Economics section of Bloomberg BusinessWeek, May 10-May 16 2010:

"Industrial America's plight can be encapsulated in a few incredible numbers.  According to the Bureau of Labor Statistics, U.S. employment in manufacturing over the past six months has been the lowest since March 1941, before the U.S. entered World War II.  The March total was a little under 11.6 million workers, down 19 percent in just the past five years.  Productivity advances account for some job reductions, but that's not the whole story:  Manufacturing's share of GDP shrank from 25 percent in the 1960s to 15 percent in 2000 and just 11 percent in 2008, according to data from the Commerce Dept.'s Bureau of Economic Analysis."

I believe that our loss of manufacturing, and manufacturing jobs, represents one of the largest errors in our economic strategy.

Perhaps most disconcerting has been our national attitude toward the loss of this manufacturing.  It perhaps can best be summarized in the commonly heard phrase "we don't need manufacturing in order to be successful."

While the underlying reasons for this manufacturing loss are complex, and some would argue unavoidable, it nonetheless has created many substantial, enduring problems.

SPX at 1166.11 as this post is written

Monday, May 10, 2010

Thoughts On The May 6 Stock Market Plunge

I find last Thursday's stock market plunge to be highly notable on several fronts.  The temptation is to treat the event as a "fluke" or "one off" event that is inconsequential; it is especially tempting to do so when most of the damage was quickly reversed and, as of this writing, stock indices are again climbing.
There is no official report yet about the causes and effects of Thursday's plunge.  Aside from the main question as to what caused the plunge, I think that the following questions are paramount and also deserve recognition:
  • Is technology a "culprit" in the affair or is it working like it should?
  • Does this stock market plunge belie the widely held (and "common sense") assumption that these stock markets are immensely "liquid"?
  • What trades should be "broken" and why?
  • Is the current stock market "system" one that has a great deal of inherent "integrity" - both structurally and ethically?
  • Are rules and regulators "behind the (technology) curve" as widely speculated?
  • Will further rules, regulations, and "trading curbs" make a similar future occurrence more or less likely?
  • Will the exact cause of the plunge ever be determined?
  • Can the exact cause of the plunge be determined?
  • Does the plunge nullify the idea, held by some, that markets are "efficient"?
There are countless other questions that can be added to the above list.  Needless to say, I think the plunge has great significance and to summarily dismiss it, as many appear to have done, is a mistake.

I wrote of my concerns about high-frequency trading and the stock market about four weeks prior to Thursday's plunge.

SPX at 1110.88 as this post is written

Friday, May 7, 2010

My Thoughts On Our Current Economic Situation

On an intermittent basis I post a summary of my thoughts on our (U.S.) current economic situation.

My overall views have not changed since my last post on the subject, which can be found in the January 19 post.

SPX at 1128.15 as this post is written

Thursday, May 6, 2010

Rising Costs And Inflation

"And long before this recession hit -- for a decade -- middle-class families had already been expensing -- experiencing a sense of declining economic security.  Their paychecks were flat-lining even though the cost of everything from groceries to college educations to health care were all going up."
President Obama, during an April 2, 2010 speech

Although the CPI and various other cost and inflation indices have been relatively subdued for many years, it is inarguable that many costs routinely experienced by the average American have dramatically increased.  Perhaps the main resultant effect of these cost increases are for the average citizen to (continually) experience a declining standard of living.

Over the last few months, many costs have been rising sharply.  These cost increases are most pronounced among many commodities, as discussed in this April 23 Wall Street Journal article "High Cost of Raw Materials."

These pervasive cost increases are also impacting many businesses in pronounced ways.  I will be discussing this in a subsequent post as these impacts are little understood, yet will likely have large future effects.

SPX at 1162.89 as this post is written

Wednesday, May 5, 2010

1Q 2010 Corporate Revenues

For the last few quarters, I have been commenting upon the general lack of revenue growth in corporate results.  I have focused on a variety of diversified manufacturers and distributors, all of them well-respected S&P500 firms.    My last comment on this issue was on January 29.

For the recently released 1Q2010 financial results, it is hard to generalize the revenue growth or lack thereof.   Some companies have been posting seemingly strong, double-digit growth, but this has been against weak year-ago results.  It appears that many of the firms that have the strongest revenue growth have achieved this growth via sales to the Asia region.

It will be interesting to monitor these revenue growth figures going forward.  Revenue growth during our current period of economic weakness is a key issue, and generally lacks recognition, especially compared to earnings growth and whether companies are matching or beating earnings "expectations."

SPX at 1173.6 as this post is written

Monday, May 3, 2010

The S&P500 And Chinese Stock Market

Over the last few months a notable divergence has occurred between the U.S. and Chinese stock markets.

Two charts illustrate this divergence. The first shows the S&P500 vs. the Shanghai Composite on a daily basis:

chart courtesy of

The second chart shows a chart of FXI, the iShares FTSE/Xinhua China 25 Index. This chart is from of 4/30/10. One can see the flagging momentum:

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

I find this divergence in the SPX and Chinese stock markets to be curious and cautionary. Many companies in the S&P500 are deriving the vast majority of any current revenue growth - not to mention earnings - from overseas, particularly Asia. Given this scenario, it seems strange that the SPX is significantly outperforming the Chinese stock market.

SPX at 1193.6 as this post is written

Sunday, May 2, 2010

More Ponzi Schemes

The Wall Street Journal has recently had two more articles concerning alleged Ponzi schemes.

The first is titled "Our Ponzi Nation: Florida Entrepreneur Hit With Charges."

The second is titled "Alleged Ponzi In Colorado Has Shades of Madoff Affair."

Also, there was an interesting story from April 17 titled "Report Says SEC Missed Many Shots At Stanford."

I have been intermittently commenting about the growing number of investment frauds being uncovered. Ponzi Schemes, although seemingly common, are just one form of investment fraud.

The main question remains how much investment fraud is still undiscovered? As I commented in the March 7 post,
"...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."

As well, I believe there are significant amounts of other fraud types still undiscovered, such as that at the corporate level. This corporate fraud includes corporate accounting misrepresentation. Of course, Enron remains the most famous example of corporate accounting fraud.

SPX at 1186.69 as this post is written