As many are aware, Standard & Poors publishes earnings estimates for the S&P500. My previous post concerning their estimates can be found at the September 17 and May 30 posts)
Currently, their estimates for 2011 add to the following:
-From a “bottom up” perspective, operating earnings of $94.79/share
-From a “top down” perspective, operating earnings of $88.46/share
-From a “top down” perspective, “as reported” earnings of $86.84/share
Currently, their estimates for 2012 add to the following:
-From a “bottom up” perspective, operating earnings of (N.A.)
-From a “top down” perspective, operating earnings of $93.32/share
-From a “top down” perspective, “as reported” earnings of $90.01/share
As seen in previous posts, there seems to be an overall consensus that 2011 S&P500 operating earnings will be in the $90-$95/share 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 1259.78 as this post is written
Thursday, December 30, 2010
Tuesday, December 28, 2010
Retail Sales Per Capita Adjusted For Inflation
On December 14, Doug Short posted to his blog a chart showing retail sales per capita, adjusted for inflation (CPI). The data is through November, as noted on the chart:
(click on chart to enlarge image)
Of course, this view of total retail sales, on a per-capita (factoring in population growth) basis - as well as adjusted for inflation - is not one that is often seen. I've posted it as I believe that this view is an important one, for many reasons.
_____
A Special Note concerning our economic situation is found here
SPX at 1257.54 as this post is written
(click on chart to enlarge image)
Of course, this view of total retail sales, on a per-capita (factoring in population growth) basis - as well as adjusted for inflation - is not one that is often seen. I've posted it as I believe that this view is an important one, for many reasons.
_____
A Special Note concerning our economic situation is found here
SPX at 1257.54 as this post is written
Monday, December 27, 2010
CEO & CFO Surveys 4Q 2010
On December 14 the Business Roundtable’s CEO Economic Outlook Survey was released for the 4th quarter. The December Duke/CFO Magazine Global Business Outlook Survey was also released on December 14. Both contain a variety of statistics regarding how executives view business and economic conditions.
In the CEO survey, of particular interest is the CEO Economic Outlook Index, which increased to 101 from 86 in the 3rd quarter. Also stated in the report, “In terms of the overall U.S. economy, member CEOs estimate real GDP will grow by 2.5 percent in 2011."
In the CFO survey, "'The current level of optimism has increased notably from last quarter,' said Kate O’Sullivan, senior editor at CFO Magazine."
Also, the survey states, "Top concerns for U.S. CFOs include weak consumer demand, the federal government’s agenda, and intense price pressure."
The CFO survey contians the Optimism Index chart, as seen below:
It should be interesting to see how well the CEOs and CFOs predict business and economic conditions going forward. I discussed various aspects of this, and the importance of these predictions, in the July 9 post.
_____
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 1256.77 as this post is written
In the CEO survey, of particular interest is the CEO Economic Outlook Index, which increased to 101 from 86 in the 3rd quarter. Also stated in the report, “In terms of the overall U.S. economy, member CEOs estimate real GDP will grow by 2.5 percent in 2011."
In the CFO survey, "'The current level of optimism has increased notably from last quarter,' said Kate O’Sullivan, senior editor at CFO Magazine."
Also, the survey states, "Top concerns for U.S. CFOs include weak consumer demand, the federal government’s agenda, and intense price pressure."
The CFO survey contians the Optimism Index chart, as seen below:
It should be interesting to see how well the CEOs and CFOs predict business and economic conditions going forward. I discussed various aspects of this, and the importance of these predictions, in the July 9 post.
_____
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 1256.77 as this post is written
Wednesday, December 22, 2010
Updates On Economic Indicators December 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 December Chicago Fed National Activity Index (CFNAI)(pdf) updated as of December 20, 2010:
-
The Consumer Metrics Institute Contraction Watch:
-
The USA TODAY/IHS Global Insight Economic Outlook Index:
An excerpt from the November 24 Release :
“The November update of the USA TODAY/IHS Global Insight Economic Outlook Index shows real GDP growth, at a six-month annualized growth rate, stabilizing at 2.2% in December through March and 2.1% in April. Weak housing and employment combined with high debt and tight credit continue to impede growth."
-
The ECRI WLI (Weekly Leading Index):
As of 12/10/10 the WLI was at 127.4 and the WLI, Gr. was at -.1%. 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 30 was at 43.9, as seen below:
An excerpt from the November 30 News Release:
"“The ESI signals that the economy is in a holding pattern,” Dow Jones Newswires “Money Talks” Columnist Alen Mattich said. “If it had risen sharply, confirming October’s strong rise, then it would have been a very positive sign. Instead we are seeing an economy still poised between modest growth and a slipping back.”
-
The Aruoba-Diebold-Scotti Business Conditions (ADS) Index:
Here is the latest chart, depicting 12-11-08 to 12-11-10:
-
The Conference Board Leading (LEI) and Coincident (CEI) Economic Indexes:
As per the December 17 release, the LEI was at 112.4 and the CEI was at 101.7 in November.
An excerpt from the December 17, 2010 Press Release:
"Says Ataman Ozyildirim, economist at The Conference Board: "November's sharp increase in the LEI, the fifth consecutive gain, is an early sign that the expansion is gaining momentum and spreading. Nearly all components rose in November. Continuing strength in financial indicators is now joined by gains in manufacturing and consumer expectations, but housing remains weak."
_________
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 1254.60 as this post is written
The December Chicago Fed National Activity Index (CFNAI)(pdf) updated as of December 20, 2010:
-
The Consumer Metrics Institute Contraction Watch:
-
The USA TODAY/IHS Global Insight Economic Outlook Index:
An excerpt from the November 24 Release :
“The November update of the USA TODAY/IHS Global Insight Economic Outlook Index shows real GDP growth, at a six-month annualized growth rate, stabilizing at 2.2% in December through March and 2.1% in April. Weak housing and employment combined with high debt and tight credit continue to impede growth."
-
The ECRI WLI (Weekly Leading Index):
As of 12/10/10 the WLI was at 127.4 and the WLI, Gr. was at -.1%. 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 30 was at 43.9, as seen below:
An excerpt from the November 30 News Release:
"“The ESI signals that the economy is in a holding pattern,” Dow Jones Newswires “Money Talks” Columnist Alen Mattich said. “If it had risen sharply, confirming October’s strong rise, then it would have been a very positive sign. Instead we are seeing an economy still poised between modest growth and a slipping back.”
-
The Aruoba-Diebold-Scotti Business Conditions (ADS) Index:
Here is the latest chart, depicting 12-11-08 to 12-11-10:
-
The Conference Board Leading (LEI) and Coincident (CEI) Economic Indexes:
As per the December 17 release, the LEI was at 112.4 and the CEI was at 101.7 in November.
An excerpt from the December 17, 2010 Press Release:
"Says Ataman Ozyildirim, economist at The Conference Board: "November's sharp increase in the LEI, the fifth consecutive gain, is an early sign that the expansion is gaining momentum and spreading. Nearly all components rose in November. Continuing strength in financial indicators is now joined by gains in manufacturing and consumer expectations, but housing remains weak."
_________
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 1254.60 as this post is written
Tuesday, December 21, 2010
"60 Minutes" On State Budget Problems
On Sunday, "60 Minutes" did a segment on state budget problems. Both video and a transcript are available.
The segment is worth viewing, especially for those who lack familiarity with the issue. While I don't agree with some of its comments, it provides a good overview of the situation and some of the complexities involved.
I have written a few posts on the state budget issue. I believe its severity lacks recognition.
A Special Note concerning our economic situation is found here
SPX at 1247.08 as this post is written
The segment is worth viewing, especially for those who lack familiarity with the issue. While I don't agree with some of its comments, it provides a good overview of the situation and some of the complexities involved.
I have written a few posts on the state budget issue. I believe its severity lacks recognition.
A Special Note concerning our economic situation is found here
SPX at 1247.08 as this post is written
Monday, December 20, 2010
S&P500 Price Targets & Projected Earnings 2011 & 2012
Today's Barron's has a cover story titled "Outlook 2011."
Among the average forecasts of the 10 respondents (strategists and investment managers) was the following:
Both the Bloomberg and (especially the) Barron's stories have a variety of economic and market commentary accompanying the forecasts.
_____
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 1243.91 as this post is written
Among the average forecasts of the 10 respondents (strategists and investment managers) was the following:
- A year-end 2011 S&P500 target of 1373.25
- $92.90 S&P500 EPS for 2011
- $100.83 S&P500 EPS for 2012 (an average from 6 respondents)
- 3.2% GDP growth for 2011
Both the Bloomberg and (especially the) Barron's stories have a variety of economic and market commentary accompanying the forecasts.
_____
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 1243.91 as this post is written
Friday, December 17, 2010
Quantitative Easing Exit Issues
During QE1 (the first round of The Federal Reserve's Quantitative Easing) there seemed to be substantial commentary and discussion concerning the exit of such a program.
Over the last few months the discussions over the exit strategy seem to have diminished greatly - despite the start of QE2 and speculation of additional QE programs, i.e. QE3, QE4, etc.
I have discussed the various risks of Quantitative Easing in several posts. As I stated in the August 13 post, "There are an array of risks embedded in such QE efforts." These risks, although very substantial, seem to (severely) lack recognition.
The (eventual) exit of Quantitative Easing is one of these risks. This is a very complex topic of which much can be written.
While I believe it to be rather incontrovertible that The Federal Reserve does have the knowledge and tools to exit such QE programs, that is not to say that doing such will be without complications, adverse unforeseen consequences, or market disruptions.
While it is possible that the eventual exit from QE will go smoothly, I think that the possibility of adversity in doing so is high. There is much that can go wrong in "a big way" on numerous fronts - especially if an exit is done under exigent circumstances. As well, there are many conflicting incentives inherent in Quantitative Easing, which further complicates the "exit" issue.
One item that is particularly disconcerting is the potential for capital losses on the Fed's growing balance sheet. I've already commented about this in the November 5 post. In a December 2 Cumberland Advisors commentary titled "Fed Exit Strategies - Technical Analysis" (pdf), there are some notable statistics on this subject in their commentary on the exit issue.
It should be very interesting to monitor this QE exit as it occurs...
A Special Note concerning our economic situation is found here
SPX at 1236.63 as this post is written
Over the last few months the discussions over the exit strategy seem to have diminished greatly - despite the start of QE2 and speculation of additional QE programs, i.e. QE3, QE4, etc.
I have discussed the various risks of Quantitative Easing in several posts. As I stated in the August 13 post, "There are an array of risks embedded in such QE efforts." These risks, although very substantial, seem to (severely) lack recognition.
The (eventual) exit of Quantitative Easing is one of these risks. This is a very complex topic of which much can be written.
While I believe it to be rather incontrovertible that The Federal Reserve does have the knowledge and tools to exit such QE programs, that is not to say that doing such will be without complications, adverse unforeseen consequences, or market disruptions.
While it is possible that the eventual exit from QE will go smoothly, I think that the possibility of adversity in doing so is high. There is much that can go wrong in "a big way" on numerous fronts - especially if an exit is done under exigent circumstances. As well, there are many conflicting incentives inherent in Quantitative Easing, which further complicates the "exit" issue.
One item that is particularly disconcerting is the potential for capital losses on the Fed's growing balance sheet. I've already commented about this in the November 5 post. In a December 2 Cumberland Advisors commentary titled "Fed Exit Strategies - Technical Analysis" (pdf), there are some notable statistics on this subject in their commentary on the exit issue.
It should be very interesting to monitor this QE exit as it occurs...
A Special Note concerning our economic situation is found here
SPX at 1236.63 as this post is written
Thursday, December 16, 2010
PPI & CPI Trends
On Tuesday the November PPI figures were released, and they continue their recent trend of being significantly higher than the CPI figures.
Should this trend continue, it will of course likely have a significant impact on many companies' profitability.
I believe there are many reasons for why PPI growth is trending significantly higher than CPI.
As far as CPI is concerned, one factor that currently seems pronounced is widespread discounting at the retail level. This discounting has widespread future implications. I have discussed other notable factors in the two Pricing posts of September 7 and April 23.
A Special Note concerning our economic situation is found here
SPX at 1236.63 as this post is written
Should this trend continue, it will of course likely have a significant impact on many companies' profitability.
I believe there are many reasons for why PPI growth is trending significantly higher than CPI.
As far as CPI is concerned, one factor that currently seems pronounced is widespread discounting at the retail level. This discounting has widespread future implications. I have discussed other notable factors in the two Pricing posts of September 7 and April 23.
A Special Note concerning our economic situation is found here
SPX at 1236.63 as this post is written
Tuesday, December 14, 2010
The December 2010 Wall Street Journal Economic Forecast Survey
The December Wall Street Journal Economic Forecast Survey was published December 13, 2010.
I found a couple of excerpts, seen below, to be especially notable:
"The economists now see stronger expansion in the first half of 2011, with growth picking up speed as the year progresses. For the year, they expect GDP will rise 3%. Meanwhile, they have reduced the odds of a double-dip recession to 15%, the lowest average forecast of the year, from 22% in September survey."
"Also adding fuel to the recovery is the Federal Reserve's bond-buying program, though the economists said the effect may not be large. A Boston Fed study estimates that through 2012 the bond purchases will result in 700,000 additional jobs. Forty-two of 52 respondents called that estimate too optimistic."
I also found a variety of topics seen in the Q&A (spreadsheet tab) to be interesting.
The current average forecasts among economists polled include the following:
GDP:
full-year 2010 : 2.7%
full-year 2011 : 3.0%
Unemployment Rate:
for 12/1/2010: 9.7%
for 12/1/2011: 9.0%
10-Year Treasury Yield:
for 12/31/2010: 2.98%
for 12/31/2011: 3.71%
CPI:
for 12/1/2010: 1.2%
for 12/1/2011: 1.8%
Crude Oil ($ per bbl):
for 12/31/2010: $86.00
for 12/31/2011: $88.26
(note: I comment upon this survey each month; commentary on past surveys can be found under the “Economic Forecasts” category)
_____
I post various economic forecasts because I believe they should be carefully monitored. However, as those familiar with this blog are aware, I do not agree with many of the consensus estimates and much of the commentary in these forecast surveys.
_____
A Special Note concerning our economic situation is found here
SPX at 1240.46 as this post is written
I found a couple of excerpts, seen below, to be especially notable:
"The economists now see stronger expansion in the first half of 2011, with growth picking up speed as the year progresses. For the year, they expect GDP will rise 3%. Meanwhile, they have reduced the odds of a double-dip recession to 15%, the lowest average forecast of the year, from 22% in September survey."
also:
"Also adding fuel to the recovery is the Federal Reserve's bond-buying program, though the economists said the effect may not be large. A Boston Fed study estimates that through 2012 the bond purchases will result in 700,000 additional jobs. Forty-two of 52 respondents called that estimate too optimistic."
I also found a variety of topics seen in the Q&A (spreadsheet tab) to be interesting.
GDP:
full-year 2010 : 2.7%
full-year 2011 : 3.0%
Unemployment Rate:
for 12/1/2010: 9.7%
for 12/1/2011: 9.0%
10-Year Treasury Yield:
for 12/31/2010: 2.98%
for 12/31/2011: 3.71%
CPI:
for 12/1/2010: 1.2%
for 12/1/2011: 1.8%
Crude Oil ($ per bbl):
for 12/31/2010: $86.00
for 12/31/2011: $88.26
(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 1240.46 as this post is written
Monday, December 13, 2010
S&P500 Price Projections - Livingston Survey December 2010
The December 9, 2010 Livingston Survey (pdf) contains, among its various forecasts, a S&P500 forecast. It shows the following price forecast for the dates shown:
Dec. 30, 2010 1200
June 30, 2011 1250
Dec. 30, 2011 1298.5
Dec. 31, 2012 1350
These figures represent the median value across the 33 forecasters on the survey’s panel.
_____
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 1240.40 as this post is written
Dec. 30, 2010 1200
June 30, 2011 1250
Dec. 30, 2011 1298.5
Dec. 31, 2012 1350
These figures represent the median value across the 33 forecasters on the survey’s panel.
_____
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 1240.40 as this post is written
Friday, December 10, 2010
Total Household Net Worth As A Percent Of GDP 3Q 2010
The following chart is from the CalculatedRisk Blog of December 9, 2010. It depicts Total Household Net Worth as a Percent of GDP. The underlying data is from The Federal Reserve Flow of Funds 3Q 2010 report:
(click on chart to enlarge image)
As seen in the above-referenced CalculatedRisk blog post:
"According to the Fed, household net worth is now off $11 Trillion from the peak in 2007, but up $5.8 trillion from the trough in Q1 2009.
The Fed estimated that the value of household real estate fell $684 billion to $16.55 trillion in Q3 2010, from $17.2 trillion in Q2 2010."
My comments:
As I have written in previous posts on this topic:
"As one can see, the first outsized peak was in 2000, and attained after the stock market bull market / stock market bubbles and economic strength. The second outsized peak was in 2007, right near the peak of the housing bubble as well as near the stock market peak.
As seen on the chart, the Total Household Net Worth is making an upturn, but is significantly below the prior 2007 peak.
I could extensively write about various interpretations that can be made from this chart. One way this chart can be interpreted is a gauge of “what’s in it for me?” as far as the aggregated wealth citizens are gleaning from economic activity, as measured compared to GDP."
-
A Special Note concerning our economic situation is found here
SPX at 1233.00 as this post is written
(click on chart to enlarge image)
As seen in the above-referenced CalculatedRisk blog post:
"According to the Fed, household net worth is now off $11 Trillion from the peak in 2007, but up $5.8 trillion from the trough in Q1 2009.
The Fed estimated that the value of household real estate fell $684 billion to $16.55 trillion in Q3 2010, from $17.2 trillion in Q2 2010."
My comments:
As I have written in previous posts on this topic:
"As one can see, the first outsized peak was in 2000, and attained after the stock market bull market / stock market bubbles and economic strength. The second outsized peak was in 2007, right near the peak of the housing bubble as well as near the stock market peak.
As seen on the chart, the Total Household Net Worth is making an upturn, but is significantly below the prior 2007 peak.
I could extensively write about various interpretations that can be made from this chart. One way this chart can be interpreted is a gauge of “what’s in it for me?” as far as the aggregated wealth citizens are gleaning from economic activity, as measured compared to GDP."
-
A Special Note concerning our economic situation is found here
SPX at 1233.00 as this post is written
Thursday, December 9, 2010
Measuring QE2 Effectiveness
In announcing QE2 in their November 3 FOMC meeting, the statement contained the following excerpt:
"Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. Although the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow.
To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to expand its holdings of securities. The Committee will maintain its existing policy of reinvesting principal payments from its securities holdings. In addition, the Committee intends to purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability."
-
There are many different ways one could use to gauge whether QE2 is successful. Of great significance, I am not aware of any official statement that specifically states the goals (and metrics of such) of QE2.
However, lowering of interest rates, especially the 10-Year Treasury, appears to be a/the primary goal.
Below is a chart of the 10-Year Treasury yield, starting on November 3, the date of the announcement. The actual asset purchases began on November 12:
(click on chart to enlarge image)(chart courtesy of StockCharts.com)
As one can see, the 10-Year Treasury Yield has risen substantially over this period.
As for the goal of (modestly) increasing inflation, there are no daily CPI values available for this period. However, if one uses values from the Billion Prices Project (which I discussed in the November 24 post) as a proxy, the index values have actually decreased. The index was 100.76 on November 3; 100.6679 on November 12; and 100.51 on December 7.
It will be very interesting to see whether QE2 seems to meet its objectives. Of course, if QE2 fails to reach its objectives, perhaps the foremost question would appear to be why this is so. I plan on further commenting upon QE2 and its apparent effectiveness in future posts. (posts on Quantitative Easing can be found here)
-
A Special Note concerning our economic situation is found here
SPX at 1232.55 as this post is written
"Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. Although the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow.
To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to expand its holdings of securities. The Committee will maintain its existing policy of reinvesting principal payments from its securities holdings. In addition, the Committee intends to purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability."
-
There are many different ways one could use to gauge whether QE2 is successful. Of great significance, I am not aware of any official statement that specifically states the goals (and metrics of such) of QE2.
However, lowering of interest rates, especially the 10-Year Treasury, appears to be a/the primary goal.
Below is a chart of the 10-Year Treasury yield, starting on November 3, the date of the announcement. The actual asset purchases began on November 12:
(click on chart to enlarge image)(chart courtesy of StockCharts.com)
As one can see, the 10-Year Treasury Yield has risen substantially over this period.
As for the goal of (modestly) increasing inflation, there are no daily CPI values available for this period. However, if one uses values from the Billion Prices Project (which I discussed in the November 24 post) as a proxy, the index values have actually decreased. The index was 100.76 on November 3; 100.6679 on November 12; and 100.51 on December 7.
It will be very interesting to see whether QE2 seems to meet its objectives. Of course, if QE2 fails to reach its objectives, perhaps the foremost question would appear to be why this is so. I plan on further commenting upon QE2 and its apparent effectiveness in future posts. (posts on Quantitative Easing can be found here)
-
A Special Note concerning our economic situation is found here
SPX at 1232.55 as this post is written
Wednesday, December 8, 2010
The Wealth Disparity
In his "60 Minutes" interview of Sunday (which I commented upon in the last post), Ben Bernanke responded to a question (from Scott Pelley) regarding the wealth disparity:
In his response, Bernanke cites educational differences as the primary cause of the wealth disparity, and as support of this argument states unemployment statistics. For a variety of reasons I think that his reasoning in this response is flawed. However, if one does generally agree that a better level of education is (increasingly) required for wealth attainment, that in itself is problematical. It is hard to envision quick and dramatic increases in the quality of education in this country - such increases could take years. As well, the dramatic increases in the cost of education (especially for undergraduate and advanced degrees) is a major hurdle to a widespread increase in the educational level. Any increases in education should be viewed relative to that being attained by other countries on a global scale.
I strongly believe that the wealth disparity is a very important topic, especially at this juncture. Aside from "societal issues" such as that of fairness, I believe that a sustainable economy cannot coexist with an ever-growing wealth disparity. It has been disconcerting that no policy maker, to my knowledge, has offered any substantive plan to address this ever-growing wealth disparity. This is the type of glaring, continually unaddressed problem that I discussed in my article "America's Economic Future - 'Greenfield' or 'Brownfield'?"
As well, there is an issue of standard of living for the vast majority of American citizens outside of the upper income and wealth levels. The long-term growth in Real Median Family Income (which I discussed in the September 20, 2010 post) has been, at best, anemic. If one assumes a continual slow-growth economy (the current consensus among economists and other market professionals) there would appear little reason for this Real Median Family Income level to suddenly materially increase. If one assumes a less-favorable economic future, this Real Median Family Income could be ravaged by a variety of factors such as a less favorable employment environment and inflation/deflation effects.
-
A Special Note concerning our economic situation is found here
SPX at 1226.48 as this post is written
Pelley: The gap between rich and poor in this country has never been greater. In fact, we have the biggest income disparity gap of any industrialized country in the world. And I wonder where you think that's taking America.
Bernanke: It's a very bad development. It's creating two societies. And it's based very much, I think, on educational differences. The unemployment rate we've been talking about. If you're a college graduate, unemployment is five percent. If you're a high school graduate, it's ten percent or more. It's a very big difference. It leads to an unequal society and a society which doesn't have the cohesion that we'd like to see.I think this response from Bernanke is notable for many reasons, one of which that it seems that policy makers rarely mention the wealth disparity.
In his response, Bernanke cites educational differences as the primary cause of the wealth disparity, and as support of this argument states unemployment statistics. For a variety of reasons I think that his reasoning in this response is flawed. However, if one does generally agree that a better level of education is (increasingly) required for wealth attainment, that in itself is problematical. It is hard to envision quick and dramatic increases in the quality of education in this country - such increases could take years. As well, the dramatic increases in the cost of education (especially for undergraduate and advanced degrees) is a major hurdle to a widespread increase in the educational level. Any increases in education should be viewed relative to that being attained by other countries on a global scale.
I strongly believe that the wealth disparity is a very important topic, especially at this juncture. Aside from "societal issues" such as that of fairness, I believe that a sustainable economy cannot coexist with an ever-growing wealth disparity. It has been disconcerting that no policy maker, to my knowledge, has offered any substantive plan to address this ever-growing wealth disparity. This is the type of glaring, continually unaddressed problem that I discussed in my article "America's Economic Future - 'Greenfield' or 'Brownfield'?"
As well, there is an issue of standard of living for the vast majority of American citizens outside of the upper income and wealth levels. The long-term growth in Real Median Family Income (which I discussed in the September 20, 2010 post) has been, at best, anemic. If one assumes a continual slow-growth economy (the current consensus among economists and other market professionals) there would appear little reason for this Real Median Family Income level to suddenly materially increase. If one assumes a less-favorable economic future, this Real Median Family Income could be ravaged by a variety of factors such as a less favorable employment environment and inflation/deflation effects.
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A Special Note concerning our economic situation is found here
SPX at 1226.48 as this post is written
Monday, December 6, 2010
Ben Bernanke's December 5 2010 "60 Minutes" Interview - Comments
Ben Bernanke gave his second interview to "60 Minutes" last night.
This interview is very notable in many respects. I could make extensive comments on various aspects of the interview, as I continue to have vast differences of opinion with many of Ben Bernanke's stated comments and analyses. For now I will make some brief comments on various excerpts from the transcript. (My previous blog posts on Ben Bernanke can be found under the "Ben Bernanke" category.)
Perhaps the first thing to catch my attention was the following introductory comment by Scott Pelley: "Bernanke feels he has to speak out because he believes his critics may not understand how much trouble the economy is in."
Other notable exchanges between Pelley and Bernanke include (with my comments, if any, prefaced in italics):
--
Pelley: Some people think the $600 billion is a terrible idea.
Bernanke: Well, I know some people think that but what they are doing is they're looking at some of the risks and uncertainties with doing this policy action but what I think they're not doing is looking at the risk of not acting.
my comment: This "risk of not acting" is a familiar refrain from those who support intervention efforts...
--
Bernanke (with regard to QE2): "What we're doing is lowing interest rates by buying Treasury securities. And by lowering interest rates, we hope to stimulate the economy to grow faster.
my comment: I think what Ben Bernanke meant to say is that he hopes to lower rates by buying Treasury securities.
--
Pelley: Can you act quickly enough to prevent inflation from getting out of control?
Bernanke: We could raise interest rates in 15 minutes if we have to. So, there really is no problem with raising rates, tightening monetary policy, slowing the economy, reducing inflation, at the appropriate time. Now, that time is not now.
Pelley: You have what degree of confidence in your ability to control this?
Bernanke: One hundred percent.
my comment: One of the most dangerous aspects of QE2 is that we (as a nation) don't appear to have a proper understanding and respect for the risks inherent in such an intervention. I think it is very unfortunate that most people seem (solely) fixated on possible inflationary implications. This fixation seems to preclude discussions of many other risks, which I have mentioned in other posts such as that of November 5. Also, while Ben Bernanke may be able to "raise interest rates in 15 minutes" that is not to say that doing so would be "painless" or not "highly disruptive" to the markets and economy - especially if raising the interest rate is done under (seemingly) urgent necessity.
--
Pelley: How would you rate the likelihood of dipping into recession again?
Bernanke: It doesn't seem likely that we'll have a double dip recession. And that's because, among other things, some of the most cyclical parts of the economy, like housing, for example, are already very weak. And they can't get much weaker. And so another decline is relatively unlikely. Now, that being said, I think a very high unemployment rate for a protracted period of time, which makes consumers, households less confident, more worried about the future, I think that's the primary source of risk that we might have another slowdown in the economy.
Pelley: You seem to be saying that the recovery that we're experiencing now is not self-sustaining.
Bernanke: It may not be. It's very close to the border. It takes about two and a half percent growth just to keep unemployment stable. And that's about what we're getting. We're not very far from the level where the economy is not self-sustaining.
my comments: First, the idea that housing "can't get much weaker" is incorrect. My latest post on the potential downside of the housing market was on October 24. Second, It is interesting to hear Ben Bernanke make these comments about sustainability of this recovery. One of the main tenets of this blog is that the (purported) "economic recovery" we are currently experiencing is inherently unsustainable. I have elaborated upon this topic here.
--
Pelley: Is there anything that you wish you'd done differently over these last two and a half years or so?
Bernanke: Well, I wish I'd been omniscient and seen the crisis coming, the way you asked me about, I didn't. But it was a very, very difficult situation. And the Federal Reserve responded very aggressively, very proactively.
my comment: This is a very candid assessment by Bernanke. He is correct in his assessment that it was "a very, very difficult situation." The question arises as to whether this failure to see the first crisis coming will be extended to that of the next crisis. I believe that, unfortunately, it will (and has). Perhaps the foremost characteristic of our current and future economic situation is that of vast complexity. Also, with regard to the comment that "the Federal Reserve responded very aggressively, very proactively" - this is largely irrefutable; however, the main question should be whether the actions were correct both from a short-term and long-term perspective. I discuss this concept in a January 18 2009 article about interventions.
-
A Special Note concerning our economic situation is found here
SPX at 1224.71 as this post is written
This interview is very notable in many respects. I could make extensive comments on various aspects of the interview, as I continue to have vast differences of opinion with many of Ben Bernanke's stated comments and analyses. For now I will make some brief comments on various excerpts from the transcript. (My previous blog posts on Ben Bernanke can be found under the "Ben Bernanke" category.)
Perhaps the first thing to catch my attention was the following introductory comment by Scott Pelley: "Bernanke feels he has to speak out because he believes his critics may not understand how much trouble the economy is in."
Other notable exchanges between Pelley and Bernanke include (with my comments, if any, prefaced in italics):
--
Pelley: Some people think the $600 billion is a terrible idea.
Bernanke: Well, I know some people think that but what they are doing is they're looking at some of the risks and uncertainties with doing this policy action but what I think they're not doing is looking at the risk of not acting.
my comment: This "risk of not acting" is a familiar refrain from those who support intervention efforts...
--
Bernanke (with regard to QE2): "What we're doing is lowing interest rates by buying Treasury securities. And by lowering interest rates, we hope to stimulate the economy to grow faster.
my comment: I think what Ben Bernanke meant to say is that he hopes to lower rates by buying Treasury securities.
--
Pelley: Can you act quickly enough to prevent inflation from getting out of control?
Bernanke: We could raise interest rates in 15 minutes if we have to. So, there really is no problem with raising rates, tightening monetary policy, slowing the economy, reducing inflation, at the appropriate time. Now, that time is not now.
Pelley: You have what degree of confidence in your ability to control this?
Bernanke: One hundred percent.
my comment: One of the most dangerous aspects of QE2 is that we (as a nation) don't appear to have a proper understanding and respect for the risks inherent in such an intervention. I think it is very unfortunate that most people seem (solely) fixated on possible inflationary implications. This fixation seems to preclude discussions of many other risks, which I have mentioned in other posts such as that of November 5. Also, while Ben Bernanke may be able to "raise interest rates in 15 minutes" that is not to say that doing so would be "painless" or not "highly disruptive" to the markets and economy - especially if raising the interest rate is done under (seemingly) urgent necessity.
--
Pelley: How would you rate the likelihood of dipping into recession again?
Bernanke: It doesn't seem likely that we'll have a double dip recession. And that's because, among other things, some of the most cyclical parts of the economy, like housing, for example, are already very weak. And they can't get much weaker. And so another decline is relatively unlikely. Now, that being said, I think a very high unemployment rate for a protracted period of time, which makes consumers, households less confident, more worried about the future, I think that's the primary source of risk that we might have another slowdown in the economy.
Pelley: You seem to be saying that the recovery that we're experiencing now is not self-sustaining.
Bernanke: It may not be. It's very close to the border. It takes about two and a half percent growth just to keep unemployment stable. And that's about what we're getting. We're not very far from the level where the economy is not self-sustaining.
my comments: First, the idea that housing "can't get much weaker" is incorrect. My latest post on the potential downside of the housing market was on October 24. Second, It is interesting to hear Ben Bernanke make these comments about sustainability of this recovery. One of the main tenets of this blog is that the (purported) "economic recovery" we are currently experiencing is inherently unsustainable. I have elaborated upon this topic here.
--
Pelley: Is there anything that you wish you'd done differently over these last two and a half years or so?
Bernanke: Well, I wish I'd been omniscient and seen the crisis coming, the way you asked me about, I didn't. But it was a very, very difficult situation. And the Federal Reserve responded very aggressively, very proactively.
my comment: This is a very candid assessment by Bernanke. He is correct in his assessment that it was "a very, very difficult situation." The question arises as to whether this failure to see the first crisis coming will be extended to that of the next crisis. I believe that, unfortunately, it will (and has). Perhaps the foremost characteristic of our current and future economic situation is that of vast complexity. Also, with regard to the comment that "the Federal Reserve responded very aggressively, very proactively" - this is largely irrefutable; however, the main question should be whether the actions were correct both from a short-term and long-term perspective. I discuss this concept in a January 18 2009 article about interventions.
-
A Special Note concerning our economic situation is found here
SPX at 1224.71 as this post is written
Sunday, December 5, 2010
3 Critical Unemployment Charts - December 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 12-3-10)
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Here is the chart for Unemployed 27 Weeks and Over:
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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 1224.71 as this post is written
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 12-3-10)
-
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 1224.71 as this post is written
Friday, December 3, 2010
Long-Term Historical Inflation And Implications
My thought on the matter is that the overall topic of inflation and its effects is a complex one. Adding to the complexity is the definition of inflation. Most people define inflation in terms of CPI, but there are many different ways of defining the concept. On this blog, to avoid confusion, I try to specify what type of inflation measure I am referring to, e.g. "inflation as measured by CPI."
Many people are skeptical of the CPI as a measure of inflation as the figures belie that of practical experience. I'm sure everyone can list innumerable items that have increased in price at a level far above the CPI's increases.
The following chart of historical long-term inflation (as measured by CPI) was seen on Doug Short's blog November 17:
(click on image to enlarge)
-
As one can see, CPI is depicted in red and blue (deflation and inflation respectively). Doug has also superimposed (in gray) an alternate measure of inflation, that of the SGS Alternate CPI. This measure is seen post-1982.
For those unfamiliar with the SGS Alternate CPI (explained here), it is a measure derived by John Williams, as seen on his Shadow Governement Statistics site, shadowstats.com.
As one can see, the current value of SGS Alternate CPI, at 8.51%, is considerably higher than that of CPI, at 1.17%. As seen on the chart, this large disparity has existed for years.
The need for an accurate understanding of the rate of inflation (or deflation) can hardly be overstated. Everything ranging from policy decisions to standard of living issues is impacted. Needless to say, inflation at roughly 5-10% (a range seen in the SGS Alternate CPI since the early 90's) is much different than that seen in the CPI figures. This difference is really magnified once one compounds these annual rates.
I like to think of the inflation / deflation issue in a different light than that seen in the CPI or SGS Alternate CPI terms; and as such, do not "endorse" either. However, I think it is important to recognize and follow both the CPI and SGS Alternate CPI trends.
_____
A Special Note concerning our economic situation is found here
SPX at 1217.90 as this post is written
Many people are skeptical of the CPI as a measure of inflation as the figures belie that of practical experience. I'm sure everyone can list innumerable items that have increased in price at a level far above the CPI's increases.
The following chart of historical long-term inflation (as measured by CPI) was seen on Doug Short's blog November 17:
(click on image to enlarge)
-
As one can see, CPI is depicted in red and blue (deflation and inflation respectively). Doug has also superimposed (in gray) an alternate measure of inflation, that of the SGS Alternate CPI. This measure is seen post-1982.
For those unfamiliar with the SGS Alternate CPI (explained here), it is a measure derived by John Williams, as seen on his Shadow Governement Statistics site, shadowstats.com.
As one can see, the current value of SGS Alternate CPI, at 8.51%, is considerably higher than that of CPI, at 1.17%. As seen on the chart, this large disparity has existed for years.
The need for an accurate understanding of the rate of inflation (or deflation) can hardly be overstated. Everything ranging from policy decisions to standard of living issues is impacted. Needless to say, inflation at roughly 5-10% (a range seen in the SGS Alternate CPI since the early 90's) is much different than that seen in the CPI figures. This difference is really magnified once one compounds these annual rates.
I like to think of the inflation / deflation issue in a different light than that seen in the CPI or SGS Alternate CPI terms; and as such, do not "endorse" either. However, I think it is important to recognize and follow both the CPI and SGS Alternate CPI trends.
_____
A Special Note concerning our economic situation is found here
SPX at 1217.90 as this post is written
Thursday, December 2, 2010
Federal Reserve Longer-Term Economic Projections
Here is a link to the FOMC Minutes of November 2-3, 2010. (pdf)
One item of interest is the section titled "Summary Of Economic Projections." This section displays and discusses projections and statistics of various measures including GDP, Unemployment Rate, and PCE Inflation. As stated in the FOMC Minutes:
"In conjunction with the November 2–3, 2010, FOMC meeting, the members of the Board of Governors and the presidents of the Federal Reserve Banks, all of whom participate in the deliberations of the FOMC, submitted projections for output growth, unemployment, and inflation for the years 2010 to 2013 and over the longer run."
These projections show gradual improvements in GDP and Unemployment through 2013. As well, there is a "longer run" projection (post-2013) that shows GDP growth in the 2.4-3.0% range and the unemployment rate at 5.0-6.3%. PCE Inflation is shown at 1.5-2.0%.
_____
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 1206.07 as this post is written
One item of interest is the section titled "Summary Of Economic Projections." This section displays and discusses projections and statistics of various measures including GDP, Unemployment Rate, and PCE Inflation. As stated in the FOMC Minutes:
"In conjunction with the November 2–3, 2010, FOMC meeting, the members of the Board of Governors and the presidents of the Federal Reserve Banks, all of whom participate in the deliberations of the FOMC, submitted projections for output growth, unemployment, and inflation for the years 2010 to 2013 and over the longer run."
These projections show gradual improvements in GDP and Unemployment through 2013. As well, there is a "longer run" projection (post-2013) that shows GDP growth in the 2.4-3.0% range and the unemployment rate at 5.0-6.3%. PCE Inflation is shown at 1.5-2.0%.
_____
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 1206.07 as this post is written
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