Tuesday, November 30, 2010

Nassim Taleb Quote On Bernanke

In the November 22 - November 28 Bloomberg BusinessWeek, p23, Nassim Taleb is quoted as saying the following, which I find interesting:
"Bernanke is someone who talks about returns without talking about risk.  It's identical to a pilot who talks about speed but not about safety.  The measures he is using may work, but should they fail, the risks are humongous."

A Special Note concerning our economic situation is found here
SPX at 1187.76 as this post is written

Monday, November 29, 2010

George W. Bush / Larry Kudlow Interview November 2010

Last Monday, CNBC aired a recent interview (with a transcript) of former President George W. Bush by Larry Kudlow.  The interview focused on George W. Bush's recently published book ("Decision Points") and the Financial Crisis of 2008-2009.

I found various comments by George W. Bush to be interesting.  In many instances I disagree with what he said.  For now, I will briefly highlight a few items and may extensively comment about this interview later.

Particularly notable is George W. Bush's comments about TARP, interventions, and government involvement.

However, two of his phrases really stand out above all others.  I find them of the utmost importance.  The first is:
"I had to abandon free market principles in order to save the free market system."
The second is (with regard to the need for action during the Financial Crisis):
"...there's not a lot of time for theoretical debate."

A Special Note concerning our economic situation is found here
SPX at 1189.40 as this post is written

Wednesday, November 24, 2010

"The Billion Prices Project" - Comments

I am finding "The Billion Prices Project" to be valuable.

From the homepage, "The Billion Prices Project is an academic initiative that collects prices from hundreds of online retailers around the world on a daily basis to conduct economic research."

Two of the most prominent benefits I see from the data include that data is available daily and it serves as a comparison and is plotted against the CPI (last available data) for references purposes.  The current (as of 11-22-10) "Billion Prices" index value for the U.S. is 100.51.

As well, data is available for a number of countries.

This data from  "The Billion Prices Project" should be interesting to monitor going forward...

A Special Note concerning our economic situation is found here
SPX at 1180.73 as this post is written

Tuesday, November 23, 2010

Updates On Economic Indicators November 2010

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 22, 2010:


The Consumer Metrics Institute Contraction Watch:


The USA TODAY/IHS Global Insight Economic Outlook Index:

An excerpt from the October 27 Release, titled “Latest economic index forecasts weak growth through first quarter” :

“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 1.4% in October and then increasing to 2.0% in February and March, as weak housing and employment conditions continue to impede growth.”


The ECRI WLI (Weekly Leading Index):

As of 11/12/10 the WLI was at 124.3 and the WLI, Gr. was at -4.5%.  A chart of the growth rates of the Weekly Leading and Weekly Coincident Indexes:


The Dow Jones ESI (Economic Sentiment Indicator):

The Indicator as of November 1 was at 43.9, as seen below:

An excerpt from the November 1 release:

"The Dow Jones Economic Indicator (ESI) jumped 3.2  points to 43.9  in October, an unusually strong gain. In back-testing through 1990, election year Octobers averaged a 0.3 point rise. The ESI is now at its highest point since December 2007.

October’s gain, however, was preceded by a 2.5 point drop in September. The ESI’s turbulence implies that the economy is teetering between a slow climb up and a relapse.

“The Dow Jones ESI rebounded in October from its dip the previous month, resuming a modest upward trend seen during much of the year,” Dow Jones Newswires “Money Talks” Columnist Alen Mattich said. “The indicator, however, is still well below levels seen during normal expansions. The October number was not particularly boosted by press coverage of impending quantitative easing from the Federal Reserve or from any one off factors, supporting the view that it reflects self sustaining growth in the economy.”


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

Here is the latest chart, depicting 11-13-08 to 11-13-10:


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

As per the November 18 release, the LEI was at 111.3 and the CEI was at 101.5 in October.

An excerpt from the November 18, 2010 Press Release:

“Says Ken Goldstein, economist at The Conference Board: “The economy is slow, but latest data on the U.S. LEI suggest that change may be around the corner. Expect modest holiday sales, driven by steep discounting. But following a post-holiday lull, the indicators are suggesting a mild pickup this spring.”


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.

A Special Note concerning our economic situation is found here
SPX at 1197.84 as this post is written

Monday, November 22, 2010

Companies Fastest To $1 Billion In Sales

In Friday's post, I mentioned consumers' migration to lower-priced stores.

This continual consumer migration to lower-priced sources can be seen in a variety of statistics.  One statistic that I find particularly interesting is contained in a Forbes story of September 3, 2010 titled "The Next Web Phenom." At the end of the story it states "Groupon is on pace to pull in $1 billion in sales faster than any company in history. This list excludes investment holding companies (which tend to be preassembled before formally launching) and those built mainly through mergers or acquisitions."

In the accompanying graphic, it shows how long it took the other fastest companies to grow to $1 Billion in sales.  Interestingly, of the eight fastest listed since 1995, every one - with the exceptions of Yahoo and Google - have a business model focused on offering (highly) discounted goods or services to consumers.

A Special Note concerning our economic situation is found here
SPX at 1197.15 as this post is written

Friday, November 19, 2010

Walmart's Q32011 Results - Comments

I found two especially notable items in Walmart's Q3 conference call transcript (pdf).  I view Walmart's results as particularly noteworthy given their retail prominence and focus on low prices.  I previously commented upon their results in the May 20 post.

First, from page 13, "Comp store sales for the 13-week period, which ended October 29, declined 1.3 percent..."  Although I didn't see it mentioned in the transcript, this was the 6th straight quarter of drops.  One factor that may be fueling this decline is that apparently lower-price rivals - such as "dollar" stores and Aldi stores - are impinging on sales.  Although it is not clear to what extent this is happening, I think from an overall economic standpoint it is very telling - and at least somewhat alarming - that a significant number of people apparently are seeking lower price alternatives to Walmart.

Second, from page 8, "Our own surveys and the reports on the recent U.S. election cycle indicate that financial uncertainty still weighs heavily on everyday Americans, including many of our core customers. The paycheck cycle is still pronounced for these customers."  This "paycheck to paycheck" condition is something I have discussed in the aforementioned May 20 post as well as the September 23, 2009 post.  While it is not something that receives a lot of mention - and statistics on it are difficult to find - I feel that it is nonetheless important as it highlights strains in, among other things, household finances, affordability, and standard of living.

A Special Note concerning our economic situation is found here
SPX at 1192.86 as this post is written

Thursday, November 18, 2010

Gallup Economic Surveys - Comments

Gallup has a variety of economic surveys that I find interesting.

Here are charts of three that I find especially noteworthy:


Americans' Standard of Living Optimism: (reported November 5, 2010)


U.S. Economic Confidence (reported November 9, 2010)


U.S. Consumer Spending (reported November 11, 2010)


At each link, details of each survey are presented.

These charts, along with other Gallup economic surveys,  should be interesting to monitor going forward.  Although I believe that (economic) surveys, in general, should be interpreted with caution, these Gallup surveys appear to provide a valuable additional perspective on various economic aspects.

A Special Note concerning our economic situation is found here
SPX at 1178.59 as this post is written

Wednesday, November 17, 2010

Philadelphia Fed - 4th Quarter 2010 Survey Of Professional Forecasters

The Philadelphia Fed Fourth Quarter 2010 Survey of Professional Forecasters was released on November 15.  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, which are close to other economic survey results featured on this blog:

full-year 2010 : 2.7%
full-year 2011 : 2.5%
full-year 2012 : 2.9%
full-year 2013 : 3.0%

Unemployment Rate: (annual average level)

for 2010: 9.7%
for 2011: 9.3%
for 2012: 8.7%
for 2013: 7.9%

As for "the chance of a contraction in real GDP in any of the next four quarters," estimates range from 11-13.8% for each of the quarters through Q4 2011.

As well, there are also a variety of time frames shown 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 (or very close to) the 1-2% 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 many of the consensus estimates and much of the commentary in these forecast surveys.

A Special Note concerning our economic situation is found here
SPX at 1178.34 as this post is written

Tuesday, November 16, 2010

The November 2010 Wall Street Journal Economic Forecast Survey

The November Wall Street Journal Economic Forecast Survey was published November 15, 2010.

I found a couple of items to be especially interesting.

First, regarding the impact of QE2:  "The economic impact of the Fed's moves is likely to be modest, the forecasters said. They estimate growth in GDP will rise by 0.2 percentage points in 2011 because of the Fed's bond buying and the unemployment rate will fall by less than 0.1 percentage point."

Second, "Although the economists expect slow growth and continued high unemployment, they put the odds of renewed recession in the next 12 months at 16%, the lowest level since the May survey and down from a high of 21% in September."

The current average forecasts among economists polled include the following:

Ten-Year Treasury Yield:

for 12/31/2010: 2.61%
for 12/31/2011: 3.51%


for 12/1/2010: 1.2%
for 12/1/2011: 1.9%

Unemployment Rate:

for 12/1/2010: 9.6%
for 12/1/2011: 8.9%

Crude Oil  ($ per bbl):

for 12/31/2010: $82.95
for 12/31/2011: $86.43


full-year 2010 : 2.5%
full-year 2011 : 2.9%

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

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.

A Special Note concerning our economic situation is found here
SPX at 1197.75 as this post is written

Monday, November 15, 2010

Monetary Policy And The U.S. Dollar

As those familiar with this blog know, I am very concerned about the vulnerability of the U.S. Dollar to a substantial decline.  I have written extensively about this situation.

On November 12, Macroeconomic Advisers had a blog post from Larry Meyer that discussed monetary policy (focused on QE2) and the U.S. Dollar.  While I don't agree with various parts of this blog post, I nonetheless think it is noteworthy to see what a (very) prominent economic consulting firm has to say on the issue.

Here are some excerpts from that November 12 post:

How does the exchange rate affect monetary policy? How will the foreign backlash affect monetary policy going forward?
  • We have not changed our firmly-held view that the FOMC has no dollar policy; it has no target for the dollar, just as it has no target for equity valuations. Dollar policy is the realm of the Treasury. The foreign backlash will not dissuade the Committee from pursuing what it sees as appropriate policy.
  • For the most part, the dollar has two roles with respect to monetary policy: First, it is part of the transmission mechanism, part of how monetary policy affects the economy. Second, to the extent that the dollar moves independently of monetary policy, it is like any other variable: The FOMC takes actual and projected changes in exchange rates into account in its forecast and responds accordingly.
  • There are two circumstances (discussed below) under which the dollar would take more of a center stage in FOMC deliberations: (i) a “free fall” in the dollar and (ii) a tighter and more intense link between the dollar and commodity prices in a context of a faster pass-through from commodity prices to long-term inflation expectations and core inflation.

Does the FOMC ever worry about the dollar? Yes, under two circumstances:
  • A Dollar Collapse: If the dollar were to go into “free fall” (we will know it when we see it), the FOMC would face an enormous challenge because that would be catastrophic for the U.S. and foreign economies alike. There would be chaos in financial markets around the world. This is a nightmare scenario for the Fed, but a tail risk. Here, we expect that the FOMC would have to be part of the policy response to stabilize the dollar. Free fall, however, is much more likely as a result of continued fiscal irresponsibility in the U.S.
  • The Dollar-Commodities-Inflation Nexus: The FOMC likely worries about the recent seemingly more intense relationship between the dollar and commodity prices. The consequences depend on the degree to which commodity prices are passed through to core inflation. In any case, a sharp and persistent rise in commodity prices could raise concern about an unhinging of long-term inflation expectations, which, in turn, could affect monetary policy. Today, however, the main driver of rising commodity prices, we believe, is supply and demand, especially soaring demand by Asian economies.

A Special Note concerning our economic situation is found here
SPX at 1199.21 as this post is written

Friday, November 12, 2010

Stock Market Post-Peak Historical Performances

On November 6 Doug Short posted an interesting chart on his site.

This chart shows the post-peak performances, in percentage terms, of four bear markets, as shown.

As one can see, the current trajectory of the S&P500 (post-2007 peak)  is quite distinct from that of the post-2000 Nasdaq, post-1989 Nikkei, and post-1929 Dow Jones Industrials:

click on chart image to enlarge


There are many different ways to interpret this chart.  It should be interesting to monitor on a going-forward basis.

A Special Note concerning our economic situation is found here
SPX at 1213.54 as this post is written

Thursday, November 11, 2010

3Q 2010 Corporate Revenues

For the last few quarters, I have been commenting upon revenue growth in corporate results.  I have focused on a variety of diversified manufacturers and distributors, all of them well-respected S&P500 firms.    Prior posts on this issue are found at this link.

For the recently released 3Q 2010 financial results, there generally has been decent revenue growth.   Many companies have been posting seemingly strong, double-digit growth, but this has been against weak year-ago results.  As one would expect, revenue growth appears strongest in the Asia region.

It will be interesting to monitor these revenue growth figures going forward.  Revenue growth generally lacks recognition, especially compared to earnings growth and whether companies are matching or beating earnings “expectations.”  However, for a variety of reasons revenue growth, and its dynamics, is of the utmost importance, especially in the exceedingly complex economic environment we have been experiencing.

A Special Note concerning our economic situation is found here
SPX at 1218.71 as this post is written

Wednesday, November 10, 2010

Ben Bernanke November 6, 2010 Remarks On QE2

On Saturday (November 6) Ben Bernanke took part in a panel discussion.  This was part of The Federal Reserve conference "A Return to Jekyll Island: The Origins, History, and Future of the Federal Reserve."

I found these comments, pertaining to QE2, to be highly notable:

Ben Bernanke:
"There is not really, in my mind, as much discontinuity as people think.  This sense out there, that quantitative easing or asset purchases, is some completely far removed, strange kind of thing and we have no idea what the hell is going to happen, and it's just an unanticipated, unpredictable policy - quite the contrary.  This is just monetary policy."

A Special Note concerning our economic situation is found here
SPX at 1213.40 as this post is written

Tuesday, November 9, 2010

President Obama's November 7, 2010 "60 Minutes" Interview

On Sunday, President Obama was interviewed on "60 Minutes."

Here are four excerpts from the transcript that I found especially noteworthy.  I may comment upon them in the future as I find them, in various ways, to be (at least) somewhat provocative:


President Obama:  "And so, you know, the playing field now is a lot bigger and a lot more competitive than it used to be. And people rightly worry that if we don't make some fundamental fixes to the economy, that America may not be the preeminent economic power that it's been in the past.

Now, I have confidence that it will be. Because we still have the best universities. The best scientists. The most productive workers in the world. We've got the most entrepreneurial culture. And the strongest capital markets in the world. So, I'm still confident that America will see the 21st Century as the American century just as the 20th Century was. But that won't happen unless we make some big fundamental changes. And that's why even in the midst of crisis, we still spent time on things like education reform. Because if we don't deal with 'em now, we're gonna fall behind."


"I think that the way to think about it is the dangers of a second big recession are now much reduced. The danger of us tipping into a great depression, I think most economists would say, is not there on the horizon."


President Obama:  "I think we have to make sure that people understand and business understands that my overarching philosophy is not one in which we have constantly increasing government intervention."


President Obama:  "And especially an economy this big, there are limited tools to encourage the kind of job growth that we need. But I have fundamental confidence in this country. I am constantly reminded that we have been through worse times than these, and we've always come out on top. And I'm positive that the same thing is gonna happen this time.

You know, there are gonna be setbacks, and we may take two steps forward and one step back, but the trajectory of this country is always positive. And that's something that that prevents me from getting too discouraged."

A Special Note concerning our economic situation is found here
SPX at 1222.70 as this post is written

Monday, November 8, 2010

3 Critical Unemployment Charts - November 2010

As I have commented previously, as in the October 6, 2009 post, in my opinion the official methodologies used to measure the various job loss and unemployment statistics do not provide an accurate depiction.

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  employment situation.

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 through 11-5-10)


Here is the chart for Unemployed 27 Weeks and Over:


Lastly, a chart from the Minneapolis Federal Reserve site.  This shows the employment situation vs. that of previous recessions (as characterized by severity):

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.

A Special Note concerning our economic situation is found here
SPX at 1222.70 as this post is written

Friday, November 5, 2010

Ben Bernanke On QE2

Ben Bernanke wrote an op-ed in The Washington Post yesterday titled, "What the Fed did and why: supporting the recovery and sustaining price stability."

I could write very extensively about this piece as it is highly notable on several fronts.  For now, I will limit my comments.

My analysis indicates that the risks of QE lack recognition.  As well, the benefits appear highly overstated.  As such, we (as a nation) appear to have a mistaken understanding of the risk-reward ratio of large-scale QE.  This is especially problematical as I expect additional large-scale QE will be done in the future.  This belief is echoed by other prominent parties.

What I find interesting about Bernanke's (and other Fed members') comments about QE is that they seem very limited in discussing risks of QE.  This begs the question as to whether Fed members don't think there is much risk in QE.  From what I have seen, the main risk Fed members have discussed is money supply issues / future inflation as well as the ability to gracefully (i.e. non-disruptively) exit such QE efforts.  Bernanke briefly mentions both of these items in his above-mentioned Washington Post op-ed.

However, I view those risks as being only two among a multitude of others.  As I wrote in the August 13 post, "There are an array of risks embedded in such QE efforts."  In that post I discuss QE risks to the U.S. Dollar and QE's role in fostering asset bubbles.

Another risk that receives little recognition is the risks embedded in the ever-increasing size of the Fed's portfolio.   This is a very complex potential risk, entailing both large potential capital losses (driven in large part by rising interest rates) as well as other unintended (negative) consequences.  The potential capital losses aspect is well-documented in a Wall Street Journal editorial of today titled "High Rollers at the Fed."

Both of these risks, as well as the multitude others, will only grow in importance if, as I suspect, additional (over and above Wednesday's $600B announcement) large QE is performed in the future.

A Special Note concerning our economic situation is found here

SPX at 1222.43 as this post is written

Thursday, November 4, 2010

S&P500 Earnings Consensus For 2011

Barron's came out with its "Fall 2010 Big Money Poll" on November 1.

There are a variety of statistics and poll results in it that I found interesting.

Of special note is the S&P500 2011 profit consensus of respondents, at $91.11.

There seems to be a growing overall consensus that S&P500 Operating Earnings will be in the $90-$95/share range.  This has been seen in numerous sources, some of which have been featured in past blog posts.

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.

A Special Note concerning our economic situation is found here
SPX at 1197.96 as this post is written

Wednesday, November 3, 2010

Political Volatility - November 2010

The results of yesterday's elections further solidify the trend of increasing political volatility.  Survey results indicate that much of this volatility has been driven by widespread dissatisfaction concerning the economic situation.

While this volatility has been recognized, many of its implications have lacked recognition.

On January 25, 2010 I wrote a post titled "Political Volatility." This post discusses other implications, particularly economic, of this political volatility.

Also of (increasing) relevance is an article I wrote in December 2008 titled "President Obama's Greatest Challenge." (listed as the fourth article in the Directory of Articles)

A Special Note concerning our economic situation is found here
SPX at 1193.57 as this post is written

Tuesday, November 2, 2010

Quantitative Easing - Varied Thoughts

There has been an immense amount of material written about additional Quantitative Easing (QE2).

Here are some of the works that I have found among the most interesting (although I don't necessarily agree with what is being said):

"Guidelines for Global Economic Policymaking," (pdf) Gregory Hess, Shadow Open Market Committee, October 12, 2010

Investment Outlook, November 2010, Bill Gross

"Night of the Living Fed," (pdf) Jeremy Grantham, GMO, October 2010

"What's Ahead for the Fed," Roubini Global Economics, October 27, 2010

excerpted material, Contrary Investor, October 14, 2010 commentary
As for my own thoughts on the issue, I have written about QE2 directly in the August 13 post, and have written extensively about interventions in various posts.  As well, two articles  focus on interventions, "Intervention's Potential Blindspots" as well as "My Overall Thoughts On The Bailouts, Stimulus Measures, and Interventions." (links for these two articles are found in "Directory of Articles")
A Special Note concerning our economic situation is found here
SPX at 1193.59 as this post is written

Monday, November 1, 2010

Recession Measures - Updated

On April 21 I wrote a post titled "Recession Measures - Two Charts."

That post referenced an April 12  CalculatedRisk blog post titled “Recession Measures.” In it, Bill discussed key measures that the NBER uses to determine recoveries, and posted four charts.

Here are those charts, updated in his October 29 post.  The charts are constructed in a fashion different than most - in a "percent of peak" fashion.  As defined, "The following graphs are all constructed as a percent of the peak in each indicator. This shows when the indicator has bottomed - and when the indicator has returned to the level of the previous peak. If the indicator is at a new peak, the value is 100%."  Periods of recession, as defined by the NBER, are shown as blue bars.

Here are the four charts: (click on images to enlarge)

Real Gross Domestic Product, still 0.8% below the pre-recession peak:


Real Personal Income Less Transfer Payments, still 5.5% below the pre-recession peak:


Industrial Production, still 7.5% below the pre-recession peak:


Payroll Employment, still 5.6% below the pre-recession peak:


A Special Note concerning our economic situation is found here
SPX at 1183.26 as this post is written