Thursday, March 31, 2011

CEO & CFO Surveys 1Q 2011

On March 30 the Business Roundtable’s CEO Economic Outlook Survey was released for the 1st quarter.  The March Duke/CFO Magazine Global Business Outlook Survey was released on March 9.  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 113 from 101 in the 4th quarter.  Also stated in the report, “In terms of the overall U.S. economy, member CEOs estimate real GDP will grow by 2.9 percent in 2011, an increase from the 2.5 percent expected in the fourth quarter of 2010.”

As well, “With today’s survey results, the last three quarters have shown steady improvement in the CEO economic outlook. Our CEOs see momentum in the economy over the next six months, with increased demand fueling greater investment and job creation,” said Ivan G. Seidenberg, Chairman of Business Roundtable and Chairman and CEO of Verizon Communications. “This shift continues a trend as reflected in recent employment data, with the private sector leading the way in creating more jobs.”

In the CFO Survey, "CFO optimism has increased, rising to the highest level since early 2007."  Also, "Chief financial officers in the U.S. have a more optimistic outlook about the economy, with robust growth expected in earnings and capital spending. Overall employment is expected to grow slowly, though some job categories are in strong demand. However, an uptick in inflation would pose notable risks for many firms."

The CFO survey contains 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.

(past posts on CEO and CFO Surveys can be found under the "CFO and CEO Confidence" tag)

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.

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1328.26 as this post is written

Tuesday, March 29, 2011

MacroMarkets March 2011 Home Price Expectations Survey

On March 22 MacroMarkets released its March Home Price Expectations Survey results.

Here is the Press Release (pdf); the accompanying chart is seen below:

(click on chart image to enlarge)

As one can see from the above chart, the average expectation is that not only has the residential real estate market (nearly) hit a “bottom” as far as pricing; but that steady yet mild appreciation will occur through 2015.

The survey detail (pdf) is interesting.  Of the 111 survey respondents, only 9 (of the displayed responses) foresee a cumulative price decrease through 2015; and of those 9, only two, Gary Shilling and Mark Hanson, foresee a double-digit percentage cumulative price drop.  Gary Shilling remains the most “bearish” of the survey participants with a forecast of a 19.68% cumulative price decline through 2015.

The Median Cumulative Home Price Appreciation for years 2011-2015 is seen as -.5%, .98%, 4.03%, 7.14%, and 11.15% respectively.

For a variety of reasons, I continue to believe that even the most “bearish” of forecasts (seen in Gary Shilling’s above-referenced forecast)  will prove too optimistic in hindsight.  Although a 19.68% decline is substantial, from a longer-term historical perspective such a decline is rather tame in light of the wild excesses that occurred over the “bubble” years.

I have written extensively about the residential real estate situation.  For a variety of reasons, it is exceedingly complex.  While at this time many people have an optimistic view regarding future residential real estate prices, in my opinion such a view is unsupported on an “all things considered” basis.  Furthermore, there exists outsized potential for a price decline of severe magnitude, unfortunately.  I discussed this downside, based upon historical price activity, in the October 24, 2010 post.


The Special Note summarizes my overall thoughts about our economic situation

SPX at 1310.19 as this post is written

Monday, March 28, 2011


One doesn't hear much about the STLFSI (St. Louis Fed's Financial Stress Index) with regard to measuring stress in the financial system.

Here is a document (pdf) that explains the construction of this index.

My thoughts on this index are varied and complex.  For now, I am simply posting it as a reference, as I find it interesting.  One might note that at present levels of .155, the reading of the STLFSI is very close to the levels that immediately preceded the two recessionary periods indicated in gray.

This chart was last updated on March 24, incorporating data from 12-31-93 to 3-18-11 on a weekly basis:


The Special Note summarizes my overall thoughts about our economic situation 

SPX at 1319.05 as this post is written

Sunday, March 27, 2011

The Stock Market And Its "Wealth Effect"

On February 18 I wrote a post concerning Alan Greenspan's comments regarding the stock market "as a stimulus."

In this post, I would like to highlight comments made by Federal Reserve officials (Bernanke and Sack) as well as another made by Greenspan, as I believe that these official comments regarding the stock market's "wealth effect" and related themes deserve recognition and scrutiny.

From Bernanke's November 4 Washington Post Op-ed "What the Fed Did and Why...", in which he is commenting upon the Fed's plans to buy $600 Billion in long-term Treasuries (i.e. QE2):
"This approach eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose and long-term interest rates fell when investors began to anticipate the most recent action. Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion."
From Brian Sack of the New York Fed, in an October 4 speech titled "Managing The Federal Reserve's Balance Sheet" :
"Nevertheless, balance sheet policy can still lower longer-term borrowing costs for many households and businesses, and it adds to household wealth by keeping asset prices higher than they otherwise would be."
From Alan Greenspan's “Activism.” (pdf) :
"Equity values, in my experience, have been an underappreciated force driving market economies. Only in recent years has their impact been recognized in terms of ‘wealth effects’. This is one form of stimulus that does not require increased debt to fund it. I suspect that equity prices, whether they go up or down from here, will be a major component, along with the degree of activist government, in shaping the U.S. and world economy in the years immediately ahead."

My comments:

I could write extensively about this collection of comments.  For now, I will say that until recently, the idea of prominent Federal Reserve officials publicly talking of the stock market as an instrument for creating a "wealth effect" would have seemed rather foreign.  I see considerable peril, for a variety of reasons, in having officials make these types of comments.

Can an asset class such as the stock market be reliably counted upon as a means unto itself to create sustainable, broad-based wealth?  Especially if, as I believe, the stock market is currently a bubble?  I think we should reflect upon our (national) experience in housing before answering this question.

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1313.80 as this post is written

Friday, March 25, 2011

U.S. Currency Weakness - A Few Thoughts

I have written many posts concerning the vulnerability of the U.S. Dollar to a substantial decline, and the ill-effects such a decline would have on the U.S. economy and markets.

The U.S. Dollar is now at 75.65, and is exhibiting weak "price action" and weak technicals.  As one can see from the following chart, the Dollar is nearing the bottom of its long-term range:

(click on chart to enlarge image)(chart courtesy of; annotations by the author)


I would like to reiterate a few thoughts from past posts regarding the U.S. Dollar:

from the January 13, 2010 post:
Many people, especially those of the “hard money” and “Austrian” philosophies, have long held that many of the actions we (as a nation) have been taking to combat our current period of economic weakness would unduly pressure the dollar.  These actions have included very low interest rates, truly outsized interventions (including “money printing”) and deficit spending.
from the July 30, 2010 post:
For many reasons I doubt that the 70.7 level reached in 2008 will serve as any type of significant technical support.  Below the 70.7 level is obviously a “new frontier” with no obvious strong technical support.  In essence, from a technical perspective the downside would appear rather open-ended.
from a February 3, 2011 post on a different site:
I have heard the widespread arguments that conclude a lower dollar as positive and beneficial to the U.S. economy. However, I think these arguments are largely based on the assumption that such a dollar decline would be “reasonable” (i.e. not a sudden decline of unexpected magnitude). However, in my (admittedly very unique) opinion, various technical and fundamental analyses support a substantial dollar decline. My analysis indicates that once the U.S. dollar (currently at 77.07) falls below the 70-area it would likely usher in a new trading environment that would not be supportive.
Should a substantial U.S. dollar decline occur, as my analysis indicates, I think it will prove very detrimental to the U.S. economy and financial markets. Furthermore, it will prove very difficult to reverse.

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1309.66 as this post is written

Thursday, March 24, 2011

Milton Friedman On The Fed's Ability To Control Interest Rates

On February 14 I wrote a post highlighting Milton Friedman’s “Free to Choose” television series of 1980.

From time to time I plan on commenting on various material contained therein as much of it is highly relevant to issues we are currently encountering.

His following comments are particularly noteworthy given today's economic environment and intervention activities such as QE2:

First, in his "Free to Choose" book, Chapter 9, p. 266:
"...the Fed has given its heart not to controlling the quantity of money but to controlling interest rates, something that it does not have the power to do."
In Volume 9 of his "Free to Choose" television series, Friedman makes a variety of interesting comments from roughly the 37:22 mark to 38:13.  At roughly 37:45 he makes a comment about ideas to "finance the deficit by printing money" and then at 37:57 makes this comment:
"The Federal Reserve's activities in trying to hold down interest rates have put us in a position where we have the highest interest rates in history.  It's another example of how - of the difference - between the announced intentions of a policy and the actual result."

The Special Note summarizes my overall thoughts about our economic situation 

SPX at 1297.54 as this post is written

Wednesday, March 23, 2011

71% Worry About Economy "A Great Deal"

On March 21, Gallup released results from an annual survey in which they gathered information on American's concerns about 14 major national issues.

The survey responses indicated that the economy was the top-ranking concern, with 71% indicating they worry about the economy "a great deal."

Here is an excerpt from the Press Release that I find particularly notable:
"Americans' economic anxiety has not abated over the past year, as 7 in 10 Americans continue to tell Gallup they personally worry a great deal about the economy. This has ranked as Americans' top concern on this measure since 2008. Healthcare led the list from 2002 through 2007 and remains among the top five today.
This year's additions reveal that federal spending and the budget deficit worry Americans nearly as much as the economy. The interesting distinction is that all three party groups worry about the economy, while the deficit concerns far more Republicans and independents than Democrats."

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1288.71 as this post is written

Tuesday, March 22, 2011

Updates On Economic Indicators March 2011

Here is an update on various indicators that are supposed to predict and/or depict economic activity.  (Past updates of these indicators, as well as previous posts discussing the individual indicators, can be found under "Economic Indicators") :

The March Chicago Fed National Activity Index (CFNAI)(pdf) updated as of March 21, 2011:


The Consumer Metrics Institute Contraction Watch:


The USA TODAY/IHS Global Insight Economic Outlook Index:

An excerpt from the February 25 Press Release, titled "Economic index forecasts stronger growth" :
"The February update of the USA TODAY/IHS Global Insight Economic Outlook Index shows real GDP growth, at a six-month annualized growth rate, increasing to 3.6% in March through June and then slowing slightly to 3.4% in July. Improved consumer and business confidence and the new tax legislation are expected to help fuel growth. But continued high unemployment, a still-weak housing sector and tight credit conditions will keep growth below 4% this year."


The ECRI WLI (Weekly Leading Index):

As of 3/11/11 the WLI was at 130.4 and the WLI, Gr. was at 7.1%.  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 February 28 was at 46.5, as seen below:


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

Here is the latest chart, depicting 3-12-09 to 3-12-11:


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

As per the March 17 release, the LEI was at 113.4 and the CEI was at 102.5 in February.

An excerpt from the March 17, 2011 Press Release:

Says Ataman Ozyildirim, economist at The Conference Board:

“With February’s large gain, the U.S. LEI returned to the strengthening upward trend that began last September. The LEI is pointing to an economic expansion that should gain more momentum in the coming months. In February, improvements in labor markets, financial components, and consumer expectations more than offset falling housing permits.”


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.

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1298.38 as this post is written

Monday, March 21, 2011

Stiglitz Interview - Notable Excerpt

Today's Barron's has an interview with Joseph Stiglitz.  I found his answer to the following question to be an interesting perspective:
Before we talk about all that, what are the most surprising developments since you won your Nobel Prize?
Surprising to whom? The bubble episode surprised so much of the world—Greenspan and Bernanke believed that markets knew how to handle risk, self-regulation was adequate and the banks had incentives to manage risk and so forth and so on. We saw that it isn't true—in a very dramatic way. That wasn't surprising to me because my Nobel Prize was about the economics of information and this notion of agency theory, that the people who are making decisions do not necessarily reflect the interests of those who they are supposed to be serving.
The kind of incentive schemes that were being employed by firms, banks and financial institutions weren't consistent with any model of rational behavior other than exploitation. If you believe incentives matter, something untoward was going to happen. At the level of markets, securitization had some fundamental flaws, because you didn't have the incentives to monitor or manage them and created a moral hazard. To our leaders and erstwhile gurus, it came as a very big surprise. You have a market economy where incentives do matter, but in which they aren't always aligned.

The Special Note summarizes my overall thoughts on our economic situation

SPX at 1273.72 as this post is written

Friday, March 18, 2011

The Indelible Mark Of The Great Depression

On February 14 I wrote a post highlighting Milton Friedman's "Free to Choose" television series of 1980.

From time to time I plan on commenting on various material contained therein as much of it is highly relevant to issues we are currently encountering.

In Volume 9 there are a couple of comments made, at roughly the 40:36 mark and 42:40 mark, by Congressman Clarence J. Brown and moderator Robert McKenzie, respectively.  In essence, they are commenting upon how the experience of The Great Depression has had a great psychological impact upon the country, and as such drives many of our economic fears and actions.  This commentary is especially notable as the series was filmed in 1980.

This mindfulness of The Great Depression seems highly elevated in current times as well.  This is seen in numerous ways.

For example, Ben Bernanke's background includes being considered a foremost scholar of The Great Depression.

Furthermore, during and after "The Financial Crisis" there were innumerable mentions and comparisons to The Great Depression, many by policy makers.  I have highlighted many of these instances in past posts.

A Special Note concerning our economic situation is found here
SPX at 1273.72 as this post is written

Wednesday, March 16, 2011

Standard & Poors S&P500 Earnings Estimates For 2011 & 2012

As many are aware, Standard & Poors publishes earnings estimates for the S&P500.  My previous posts concerning their estimates can be found on September 17, May 30, and December 30)

Currently, their estimates for 2011 add to the following:

-From a “bottom up” perspective, operating earnings of $96.21/share

-From a “top down” perspective, operating earnings of $93.63/share

-From a “top down” perspective, “as reported” earnings of $96.26/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 $98.30/share

-From a “top down” perspective, “as reported” earnings of $97.12/share

As seen in previous posts, there seemed to be an earlier 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 1281.87 as this post is written

Tuesday, March 15, 2011

The March 2011 Wall Street Journal Economic Forecast Survey

The March Wall Street Journal Economic Forecast Survey was published March 14, 2011.  The headline is “Jobless Rate at 2012 Presidential Vote Forecast at 7.7%, Highest Since Carter-Ford, but the Trend May Matter Most."

I find the most notable aspects of this survey to be in the survey detail (spreadsheet), in which the economists "grade" both the Obama administration as well as Congressional Republicans regarding their economic policies.

Also of note were the economists' responses regarding the future strength of various major currencies.

The current average forecasts among economists polled include the following:


full-year 2011 : 3.4%

Unemployment Rate:

for 6/1/2011: 8.8%
for 12/1/2011: 8.4%

10-Year Treasury Yield:

for 6/30/2011: 3.73%
for 12/31/2011: 4.03%


for 6/1/2011: 2.5%
for 12/1/2011: 2.5%

Crude Oil  ($ per bbl):

for 6/30/2011: $98.67
for 12/31/2011: $94.97

(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 necessarily 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 1296.39 as this post is written

Monday, March 14, 2011

4 Confidence Charts - March 2011

Here are four charts reflecting confidence survey readings.  These are from the site.

I find these charts valuable as they provide a long-term history of each survey, which is rare.

Each survey chart is plotted in blue, below the S&P500:

(click on each chart to enlarge image)

Conference Board Consumer Confidence, last updated 2-22-11:


University of Michigan Consumer Confidence, last updated 3-11-11:


Bloomberg Consumer Comfort Index (formerly the ABC News Consumer Comfort Index) last updated 3-3-11:


NFIB Small Business Optimism, last updated 2-11-11:


As one can see, these charts continue to show subdued readings, especially when viewed from a long-term perspective.

These charts should be interesting to monitor going forward.  Although I don’t believe that confidence surveys should be overemphasized, they do help to delineate how the economic environment is being perceived.

A Special Note concerning our economic situation is found here
SPX at 1304.28 as this post is written

Friday, March 11, 2011

Total Household Net Worth As A Percent Of GDP 4Q 2010

The following chart is from the CalculatedRisk blog post of March 10, 2011.  It depicts Total Household Net Worth as a Percent of GDP.  The underlying data is from The Federal Reserve Flow of Funds 4Q 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 $8.8 Trillion from the peak in 2007, but up $8.1 trillion from the trough in Q1 2009.
Update: Household net worked peaked at $65.7 trillion in Q2 2007. Net worth fell to $48.7 trillion in Q1 2009 (a loss of almost $17 trillion), and net worth was at $56.8 trillion in Q4 2010 (up $8.1 trillion from the trough).
The Fed estimated that the value of household real estate fell $260 billion to $16.37 trillion in Q4 2010. The value of household real estate has fallen $6.3 trillion from the peak - and is still falling in 2011."
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 1295.11 as this post is written

Thursday, March 10, 2011

Alan Greenspan On Impact Of QE2

Recently Alan Greenspan wrote a paper titled "Activism." (pdf)   While I don't agree with many of its analyses and conclusions, I am finding it to be an interesting document.

On March 4, CNBC interviewed Greenspan.  I found one response by Greenspan to be especially notable.  The question happens at the 42 second mark:
interviewer:  "...isn't QE2 some government activism that could be actually hurting the strength of the economy rather than helping it?"
Greenspan:  "I think we're not going to know the answer to that question until after the fact - because you have to go full-cycle on these types of projects..."

A Special Note concerning our economic situation is found here
SPX at 1298.05 as this post is written

Wednesday, March 9, 2011

Warren Buffett - "America's best days lie ahead"

From time to time I post comments from Warren Buffett.  I find his perspectives interesting,  notable, and very unique, although in many cases I (at least) partially disagree with his thoughts.

His latest "Chairman's Letter" in the Berkshire Hathaway 2010 Annual Report contained some interesting comments regarding the American economy, both past and future.  Here are the excerpts I found most notable:
"Money will always flow toward opportunity, and there is an abundance of that in America.  Commentators today often talk of “great uncertainty.” But think back, for example, to December 6, 1941, October 18, 1987 and September 10, 2001. No matter how serene today may be, tomorrow is always uncertain.
Don’t let that reality spook you. Throughout my lifetime, politicians and pundits have constantly moaned about terrifying problems facing America. Yet our citizens now live an astonishing six times better than when I was born. The prophets of doom have overlooked the all-important factor that is certain: Human potential is far from exhausted, and the American system for unleashing that potential – a system that has worked wonders for over two centuries despite frequent interruptions for recessions and even a Civil War – remains alive and effective.
We are not natively smarter than we were when our country was founded nor do we work harder. But look around you and see a world beyond the dreams of any colonial citizen. Now, as in 1776, 1861, 1932 and 1941, America’s best days lie ahead."

A Special Note concerning our economic situation is found here
SPX at 1321.82 as this post is written

Monday, March 7, 2011

Another Story Concerning Homeless Children

Last night, "60 Minutes" ran a segment on homeless children.   (A transcript is found at this link.)

Of course, the overall concept of homeless children, as well as children suffering from (economic) adversity, is sad and disconcerting.  The video is disturbing.

One line from the segment is especially notable:
"We all hear about the recovery - that the recession ended in 2009 - but some things are getting worse before they get better. And child poverty is one of them."
As mentioned in many past blog posts, many measures of poverty and economic adversity have worsened significantly since the official (as defined by the NBER) end of the recession, June 2009.  This divergence is disconcerting, and deserves both greater recognition as well as rectification.

As I wrote in my September 9, 2009 post:
"...I think it is important to have stories and statistics concerning poverty and misfortune published on a more frequent basis.  While they are certainly disheartening, it is far better to have awareness of the trends and circumstances regarding poverty and related issues than to be ignorant of them, and pretend they don’t exist."
A Special Note concerning our economic situation is found here
SPX at 1325.88 as this post is written

Sunday, March 6, 2011

3 Critical Unemployment Charts - March 2011

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; they serve to understate the severity of unemployment.

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  unemployment 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 as of 3-4-11)


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 1321.15 as this post is written

Friday, March 4, 2011

U.S. Dollar Decline - March 2011 Update

U.S. Dollar weakness is a foremost concern of mine.  As such, I have extensively written about it.  I am very concerned that the actions being taken to “improve” our economic situation will dramatically weaken the Dollar.  Should the Dollar substantially decline from here, as I expect, the negative consequences will far outweigh any benefits.  The negative impact of a substantial Dollar decline can’t be overstated, in my opinion.

The following three charts illustrate various technical analysis aspects of the U.S. Dollar, as depicted by the U.S. Dollar Index.

First, a look at the monthly U.S. Dollar from 1983.  This clearly shows a long-term weakness, with the blue line showing technical support (until 2007):

(charts courtesy of; annotations by the author)

(click on chart image to enlarge)


Next, another chart, this one focused on the daily U.S. Dollar since 2000 on a LOG scale.  The red line represents both a trendline as well as a relatively good visual “best-fit” line.  The gray dotted line is the 200-day M.A. (moving average).  As seen on this chart, the U.S. Dollar looks vulnerable to continuing its downward trend that has been interrupted since early 2008:


Lastly, a chart of the Dollar on a weekly LOG scale.  There are some clearly marked  channels here, with a large, prominent triangle featured.  Triangles are thought of as “continuation” patterns.  In this case, it would be a continuation of the Dollar downtrend since 2002:


I will be providing updates on this U.S. Dollar situation regularly as it deserves very close monitoring…


A Special Note concerning our economic situation is found here
SPX at 1329.87 as this post is written

Thursday, March 3, 2011

The Stock Market - Two Other Notes

There are two other aspects I would like to highlight with regard to the stock market.

First, per my last two posts, my analysis indicates the entire stock market is currently a bubble.   Given that conclusion, as well as my opinion that there are various other asset bubbles in existence right now, I would like to highlight a post I wrote on May 27, 2010 titled "Bubble Investing."

Second, I view the stock market as exhibiting characteristics of a "crowded trade."  I recently wrote of this condition on February 28 in "The Stock Market as a 'Crowded Trade'."

A Special Note concerning our economic situation is found here
SPX at 1308.44 as this post is written

Tuesday, March 1, 2011

The Stock Market Bubble - Various Aspects

(This post is made in conjunction with the last post, "The Stock Market Bubble - General Comments")

There are various aspects of the stock market that lead me to conclude that the stock market is experiencing a bubble.

First, for reference purposes, here is a 1-year daily chart of the S&P500 updated through February 28, 2011:

(click on chart to enlarge)(chart courtesy of

Here is a list of various general areas that, in total, I believe support the conclusion that the stock market is a bubble :
  • Exceedingly strong price action; by many measures this rally is among - if not - the strongest in history
    • This is seen in the price chart of the S&P500 - as well as many individual stocks - as an increasingly "parabolic" trajectory, especially viewed from September 2010 to present
  • A high degree of "froth" - Although difficult to prove, "froth” is often seen during the terminal stages of asset bubbles
  • Excessively high sentiment - Among established, quantifiable sentiment measures, this stock market has been displaying prolonged periods of excessive sentiment readings
  • Extremely rapid valuation increases seen in a variety of private (tech) companies to high valuations, despite any clear indication that fundamentals have changed proportionately
  • The stock market seems to have the “feel” of a self-feeding mania, which was seen in other recent bubbles such as the NASDAQ and Internet bubbles of the late-90s, as well as the housing bubble
  • Proprietary measures that I keep that show vast overvaluation
  • A general attitude of "nothing bad can happen" - often the low interest rate environment and strong intervention policies such as QE2 are quoted as "guarantees" precluding any substantial adversity
I have repeatedly stated, since my June 2, 2010 post, that I believe the stock market will continue to rise despite highly problematical future conditions in both the stock market and overall economy.  While I still think it will continue to rise, at this point I feel that it is becoming an increasingly (very) high-risk proposition to hold long equity positions.  This is especially so given my certainty that there will be an exceedingly large stock market "crash" in the future, of which I have previously commented upon.

A Special Note concerning our economic situation is found here
SPX at 1327.22 as this post is written