Friday, June 27, 2014

Long-Term Charts Of The ECRI WLI & ECRI WLI, Gr. – June 27, 2014 Update

As I stated in my July 12, 2010 post (“ECRI WLI Growth History“):
For a variety of reasons, I am not as enamored with ECRI’s WLI and WLI Growth measures as many are.
However, I do think the measures are important and deserve close monitoring and scrutiny.
The movement of the ECRI WLI and WLI, Gr. is particularly notable at this time, as ECRI publicly announced on September 30, 2011 that the U.S. was “tipping into recession,” and ECRI has reiterated the view that the U.S. economy is currently in a recession, seen most recently in these twelve sources :
Other past notable year 2012 reaffirmations of the September 30, 2011 recession call by ECRI were seen (in chronological order) on March 15 (“Why Our Recession Call Stands”) as well as various interviews and statements the week of May 6, including:
Also, subsequent to May 2012:
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Below are three long-term charts, from Doug Short’s blog post of June 27, 2014 titled “ECRI Recession Watch:  Weekly Update.”  These charts are on a weekly basis through the June 27 release, indicating data through June 20, 2014.
Here is the ECRI WLI (defined at ECRI’s glossary):
ECRI WLI
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This next chart depicts, on a long-term basis, the Year-over-Year change in the 4-week moving average of the WLI:
Dshort 6-27-14 - ECRI-WLI-YoY 3.4 Percent
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This last chart depicts, on a long-term basis, the WLI, Gr.:
ECRI WLI,Gr.
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I post various economic 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 1960.96 as this post is written

Consumer Confidence Surveys – As Of June 27, 2014

Doug Short had a blog post of June 27, 2014 (“Final June 2014 Michigan Consumer Sentiment Shows a Small Improvement“) in which he presents the latest Conference Board Consumer Confidence and Thomson/Reuters University of Michigan Consumer Sentiment Index charts.  They are presented below:
(click on charts to enlarge images)
Conference Board Consumer Sentiment
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University of Michigan Consumer Sentiment
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There are a few aspects of the above charts that I find highly noteworthy.  Of course, the continuing subdued absolute levels of these two surveys is disconcerting.
Also, I find the “behavior” of these readings to be quite disparate as compared to the other post-recession periods, as shown in the charts between the gray shaded areas (the gray areas denote recessions as defined by the NBER.)
While I don’t believe that confidence surveys should be overemphasized, I find these readings to be very problematical, especially in light of a variety of other highly disconcerting measures highlighted throughout this blog.
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The Special Note summarizes my overall thoughts about our economic situation
SPX at 1957.20 as this post is written

Thursday, June 26, 2014

VIX Weekly And Monthly Charts Since The Year 2000

For reference purposes, below are two charts of the VIX from year 2000 through yesterday’s (June 25, 2014) close, which had a closing value of 11.59:
Below is the VIX Weekly chart, depicted on a LOG scale, with the 13- and 34-week moving averages, seen in the cyan and red lines, respectively:
(click on chart to enlarge image)(chart courtesy of StockCharts.com; chart creation and annotation by the author)
VIX Weekly chart
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Here is the VIX Monthly chart, depicted on a LOG scale, with the 13- and 34-month moving average, seen in the cyan and red lines, respectively:
(click on chart to enlarge image)(chart courtesy of StockCharts.com; chart creation and annotation by the author)
VIX Monthly chart
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The Special Note summarizes my overall thoughts about our economic situation
SPX at 1948.09 as this post is written

Wednesday, June 25, 2014

Chicago Fed National Financial Conditions Index (NFCI)

The St. Louis Fed’s Financial Stress Index (STLFSI) is one index that is supposed to measure stress in the financial system.  Its reading as of the June 19, 2014 update is -1.303.
Of course, there are a variety of other measures and indices that are supposed to measure financial stress and other related issues, both from the Federal Reserve as well as from private sources.
Two other indices that I regularly monitor include the Chicago Fed National Financial Conditions Index (NFCI) as well as the Chicago Fed Adjusted National Financial Conditions Index (ANFCI).
Here are summary descriptions of each, as seen in FRED:
The National Financial Conditions Index (NFCI) measures risk, liquidity and leverage in money markets and debt and equity markets as well as in the traditional and “shadow” banking systems. Positive values of the NFCI indicate financial conditions that are tighter than average, while negative values indicate financial conditions that are looser than average.
The adjusted NFCI (ANFCI). This index isolates a component of financial conditions uncorrelated with economic conditions to provide an update on how financial conditions compare with current economic conditions.
For further information, please visit the Federal Reserve Bank of Chicago’s web site:
Here are the most recently updated charts of the NFCI and ANFCI, respectively.
The NFCI chart below was last updated on June 25, incorporating data from January 5,1973 to June 20, 2014, on a weekly basis.  The June 20, 2014 value is -.99:
(click on chart to enlarge image)
NFCI
Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed June 25, 2014:
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The ANFCI chart below was last updated on June 25, incorporating data from January 5,1973 to June 20, 2014, on a weekly basis.  The June 20, 2014 value is -.20:
(click on chart to enlarge image)
ANFCI
Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed June 25, 2014:
_________
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 1959.53 as this post is written

Durable Goods New Orders – Long-Term Charts Through May 2014

Many people place emphasis on Durable Goods New Orders as a prominent economic indicator and/or leading economic indicator.
For reference, below are charts depicting this measure.
First, from the St. Louis Fed site (FRED), a chart through May, last updated on June 25, 2014.  This value is 238,008 ($ Millions) :
(click on charts to enlarge images)
Durable Goods New Orders
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Here is the chart depicting this measure on a “Percentage Change from a Year Ago” basis:
Durable Goods New Orders Percent Change From Year Ago
Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Manufacturers’ New Orders:  Durable Goods [DGORDER] ; U.S. Department of Commerce: Census Bureau ; accessed June 25, 2014;
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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 1952.50 as this post is written

Trends Of S&P500 Earnings Forecasts

S&P500 earnings trends and estimates are a notably important topic, for a variety of reasons, at this point in time.
FactSet publishes a report titled “Earnings Insight” that contains a variety of information including the trends and expectations of S&P500 earnings.
For reference purposes, here are two charts as seen in the “Earnings Insight” (pdf) report of June 20, 2014:
from page 18:
(click on charts to enlarge images)
CY Bottom-Up EPS vs. Top-Down Mean EPS (Trailing 26-Weeks) 
S&P500 earnings estimate trends
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from page 19:
Calendar Year Bottom-Up EPS Actuals & Estimates
S&P500 annual earnings
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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 1949.98 as this post is written

S&P500 Earnings Estimates For Years 2014 Through 2017

As many are aware, Thomson Reuters publishes earnings estimates for the S&P500.  (My other posts concerning S&P earnings estimates can be found under the S&P500 Earnings label)
The following estimates are from Exhibit 12 of “The Director’s Report” (pdf) of June 24, 2014, and represent an aggregation of individual S&P500 component “bottom up” analyst forecasts:
Year 2014 estimate:
$119.69/share
Year 2015 estimate:
$133.22/share
Year 2016 estimate:
$147.18/share
Year 2017 estimate:
$138.00/share
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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 1949.98 as this post is written

Tuesday, June 24, 2014

Standard & Poor’s S&P500 Earnings Estimates For 2014 & 2015 – As Of June 19, 2014

As many are aware, Standard & Poor’s publishes earnings estimates for the S&P500.  (My posts concerning their estimates can be found under the S&P500 Earnings label)
For reference purposes, the most current estimates are reflected below, and are as of June 19, 2014:
Year 2014 estimates add to the following:
-From a “bottom up” perspective, operating earnings of $119.61/share
-From a “top down” perspective, operating earnings of $120.89/share
-From a “top down” perspective, “as reported” earnings of $114.47/share
Year 2015 estimates add to the following:
-From a “bottom up” perspective, operating earnings of $137.19/share
-From a “top down” perspective, operating earnings of $148.18/share
-From a “top down” perspective, “as reported” earnings of $144.60/share
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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 1949.88 as this post is written

Current Economic Situation

With regard to our current economic situation, my thoughts can best be described/summarized by the posts found under the 37 “Building Financial Danger” posts.
My thoughts concerning our ongoing economic situation – with future implications – can be seen on the page titled “A Special Note On Our Economic Situation,” which has been found near the bottom of every blog post since August 15, 2010.
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The Special Note summarizes my overall thoughts about our economic situation
SPX at 1962.61 as this post is written

The Bond Bubble – June 2014 Update

In previous posts I have discussed the Bond Bubble and its many facets, as my analyses indicates that the overall bond market is an exceedingly large asset bubble with immensely large and wide-ranging economic implications.
Since my last post on the Bond Bubble (the February 6, 2013 post titled “The Bond Bubble - February 2013 Update“) I have written various posts about interest rates and associated dynamics.
It should be noted that current rates on 10-Year Treasury Yields, from a long-term historical view, remain extremely depressed.  This can be seen in the following chart of 10-Year Treasury Yields:
10-Year Constant Maturity Treasury Yield
Data Source: FRED, Board Of Governors Of The Federal Reserve System; accessed June 23, 2014:
Here is another chart of the 10-Year Treasury Yield, from 1980 on a LOG scale, with a long-term trendline, and currently yielding 2.623%:
(click on chart to enlarge image)(chart courtesy of StockCharts.com; chart creation and annotation by the author)
10-Year Treasury Yield
Perhaps one of the more striking aspects of the bond environment is that although 10-Year Treasury Yields are up significantly from their lows, various interest rates on less creditworthy securities are at or near their lows.  This can be seen in various securities and bond segments, both domestically and internationally, including the BofA Merrill Lynch US High Yield Master II Index chart, which shows a current yield (as of June 20, 2014) of 5.18% and its OAS Spread at 3.36%.
Of course, the question remains as to which direction interest rates, especially on the 10-Year Treasury, will take from here.
While there have been many arguments - including economic weakness - put forth that would indicate 10-Year Treasury Yields will fall from here, there are also many other (including those lesser-recognized) factors that indicate that the next sustained move on 10-Year Treasury Yields will continue upward.  While the "up vs. down" argument is complex, my analyses indicate that the trend in the 10-Year Treasury Yield will continue upward.
As I have explained in previous posts on interest rates and the Bond Bubble, such as the August 22, 2013 post "The Impact Of Rising Interest Rates," what is particularly intimidating is the prospects for the economy and financial markets when the bond bubble finally "bursts."  While the duration of this bond bubble makes (ultra) low interest rates seem sustainable - and by extension, "natural" - my analyses indicate that this interest rate environment is nothing of the sort.
Furthermore, relative to past rising interest rate environments, due to various current dynamics the coming increase in interest rates will be far more pernicious to the overall economy.
As I stated in the aforementioned February 6, 2013 post;
The perils of this bond bubble and its future “bursting” can hardly be overstated.
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The Special Note summarizes my overall thoughts about our economic situation
SPX at 1962.61 as this post is written

Monday, June 23, 2014

Updates Of Economic Indicators June 2014

Here is an update of various indicators that are supposed to predict and/or depict economic activity. These indicators have been discussed in previous blog posts:
The June 2014 Chicago Fed National Activity Index (CFNAI)(pdf) updated as of June 23, 2014:
CFNAI MA-3
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As of June 20, 2014 (incorporating data through June 13, 2014) the WLI was at 135.4 and the WLI, Gr. was at 4.4%.
Here is a chart of the ECRI WLI,Gr., from Doug Short’s June 20, 2014 post titled “ECRI Recession Watch:  Weekly Update” :
ECRI WLI,Gr.
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Here is the latest chart, depicting the ADS Index from December 31, 2007 through June 14, 2014:
ADS Index
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As per the June 19, 2014 press release, the LEI was at 101.7 and the CEI was at 109.0 in May.
An excerpt from the June 19 release:
“May’s increase in the LEI, the fourth consecutive one, was broad based,” said Ataman Ozyildirim, Economist at The Conference Board. “Housing permits held the index back slightly but the LEI still points to an expanding economy and its pace may even pick up in the second half of the year.”
Here is a chart of the LEI from Doug Short’s blog post of June 19 titled “Conference Board Leading Economic Index Increased Again in May“ :
Conference Board LEI
_________
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 1960.90 as this post is written

Thursday, June 19, 2014

Janet Yellen’s June 18, 2014 Press Conference – Notable Aspects

On Wednesday, June 18, 2014 Janet Yellen gave her scheduled press conference. (video and related materials)
Below are Janet Yellen’s comments I found most notable – although I don’t necessarily agree with them – in the order they appear in the transcript.  These comments are excerpted from the “Transcript of Chairman Yellen’s Press Conference“(preliminary)(pdf) of June 18, 2014, with the accompanying “FOMC Statement” and “Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents, June 2014“ (pdf).
From Janet Yellen’s opening comments:
Today’s policy actions reflect the Committee’s assessment that the economy is continuing to make progress toward our objectives of maximum employment and price stability.  In the labor market, conditions have improved further.  The unemployment rate, at 6.3 percent, is four-tenths lower than at the time of our March meeting, and the broader U-6 measure—which includes marginally attached workers and those working part time but preferring full-time work—has fallen by a similar amount.  Even given these declines, however, unemployment remains elevated, and a broader assessment of indicators suggests that underutilization in the labor market remains significant.
Although real GDP declined in the first quarter, this decline appears to have resulted mainly from transitory factors.  Private domestic final demand—that is, spending by domestic households and businesses—continued to expand in the first quarter, and the limited set of indicators of spending and production in the second quarter have picked up.  The Committee thus believes that economic activity is rebounding in the current quarter and will continue to expand at a moderate pace thereafter.  Overall, the Committee continues to see sufficient underlying strength in the economy to support ongoing improvement in the labor market.
Janet Yellen’s responses as indicated to the various questions:
YLAN MUI.  Hi. Ylan from the Washington Post. My question is sort of the flip side of Steve's and it's about your outlook for unemployment. Your predecessor has said that the Fed has been consistently too pessimistic about the level of the unemployment rate, and today, you guys lowered your outlook again. Can you tell me a little bit about how you see the unemployment rate evolving to meet your forecast? Why you believe the rate of decline will start to level off?
And what an unexpected drop might mean for the first-rate hike.
CHAIR YELLEN. So, it's true that unemployment has declined by more than the committee expected and you do see a small downward revision in the committee's projections, at least the central tendency for the unemployment rate. Now, first of all, I mean, the labor market I think has continued to broadly improve. We have seen continued job growth at a pace that is certainly sufficient to be diminishing labor market slack over time. Over the last three months for example, payroll employment has been rising around 230,000 jobs per month and we're running close to 200,000 over the last year. So, it's no way surprising to see it decline in the unemployment rate. That said, many of my colleagues and I would see a portion of the decline in the unemployment rate as perhaps not representing a diminution of slack in the labor market. We have seen labor force participation rate decline. And while I think most of us would agree that there has been and will continue to be secular decline in the labor force participation rate for demographic reasons, I think a portion of the decline we've seen in the unemployment rate probably reflects a kind of shadow unemployment or discouragement, a cyclical part of labor force participation. Now, if that's correct, we may see that as the economy picks up steam and we see further recovery in the labor market, that those, let's call them discouraged workers, will return either to unemployment or to employment. And as labor force participation begins to stabilize, the unemployment rate will come down less quickly. And I think for a number of people, that's a component of the forecast. You asked about implications, for the path of policy and I would just say, the guidance that we've given, our forward guidance states that the timing of liftoff will depend on actual progress we see and the progress we expect to see going forward in terms of achieving both of our goals, namely maximum employment and our 2 percent inflation objective. So, we're not going to look at any single indicator like the unemployment rate to assess how we're doing on meeting our employment goal, we will look at broad range of indicators. That said, as I try to emphasize in my opening statement, there is uncertainty about monetary policy. The appropriate path of policy, the timing in pace of, interest rate increases, ought to and I believe will respond to unfolding economic developments. If those were to prove faster than the committee expects, it would be logical to expect a more rapid increase in the fed funds rate. But the opposite also holds true. If we don't see the improvement that's projected in the baseline outlook, that the opposite would be true and the pace of the timing pace of interest rate increases would be later and more gradual.
also:
JASON LANGE.  Good afternoon, Jason Lange with Reuters. Chair Yellen, the Fed has slashed its growth projections for this year and you've gone to pains to explain that there is uncertainty in the path of interest rates in the economy and yet, the Fed central tendency projections for 2015 and 2016 remain quite strong. Are you confident that the U.S. economy has entered a period of sustained above trend economic growth? Thank you.
CHAIR YELLEN. Well, when you say confident, I suppose the answer is no because there is uncertainty, but I think there are many good reasons why we should see a period of sustained growth in excess of the economy's potential. We have a highly accommodative monetary policy. We have diminishing fiscal drag. We have easing credit conditions. We have households who are becoming more comfortable with their debt levels and more able to service that debt, an improving job market. We have rising home prices and rising equity prices and an improving global economy at least in my estimation. So, I think all of those things ought to be working to produce above trend growth and I think that's what's reflected in the forecast. But nevertheless as I said, of course there is uncertainty around that projection. You know, nevertheless, the labor market has continued to improve, and over a number of years in which admittedly growth has come in at a disappointing level, we've still seen the labor market broadly improve and I expect that to continue.
also:
PEDRO DA COSTA. Hi, I'm Pedro da Costa from Dow Jones Newswires. Thank you very much. Since we are currently having a World Cup, I thought it would be valid to ask a question about the world. And I'm surprised--a little surprised at the optimism of your forecast given some, you know, the darkening outlook overseas. You've got conflict in the Ukraine, escalation of war in Iraq with implications for oil prices that potentially have global economic impact. You have--excuse me--a European recovery that's still fairly weak, and emerging markets that are slowing down sharply. Do you think the U.S. can be a lone engine of economic recovery globally? And if I could just follow up very quickly on Greg's question, because you talked about the two sides of the mandate, but you didn't quite answer the financial stability part. Do you think--is financial stability currently preventing the Fed from being more accommodative than it would like? And if not, when do you expect that to happen if at all? Thank you.
CHAIR YELLEN. So, let me--I'm sorry I didn't answer the last part of Greg's question and the last part of yours. Let me start there. With respect to financial stability, we monitor potential threats to financial stability very carefully, and we have spoken about some--I've spoken in recent congressional testimonies and speeches about some threats to financial stability that are on our radar screen that we are monitoring. Trends in leverage lending in the underwriting standards there, diminished risk spreads in lower-grade corporate bonds, high-yield bonds have certainly caught our attention. There is some evidence of reach for yield behavior. That's one of the reasons I mentioned that this environment of low volatility is very much on my radar screen and would be a concern to me if it prompted an increase in leverage or other kinds of risk-taking behavior that could unwind in a sharp way and provoke a sharp, for example, jump in interest rates. And we've seen what effect that can have on the global economy, and I think it's something that it's important to avoid. But broadly speaking, if the question is: To what extent is monetary policy at this time being driven by financial stability concerns? I would say that--well, I would never take off the table that monetary policy should--could in some circumstances respond. I don't see them shaping monetary policy in an important way right now. I don't see a broad-based increase in leverage, rapid increase in credit growth or maturity transformation, the kinds of broad trends that would suggest to me that the level of financial stability risks has risen above a moderate level. And we are using supervisory tools and regulations both to make the financial system more robust and to pay particular attention to areas where we've spotted concerns like leverage lending, which is very much a focus of our supervision.
Now, let's see. There was a first part to your question, and the first part was about global risks, and we always pay attention to global risks and the likely evolution of the global economy. You expressed a lot of pessimism about emerging markets, and I see it more likely that we'll see moderate growth and a pickup there. Of course, there are geopolitical risks, the Middle East developments in Iraq, of course. They're not only a humanitarian concern; they are a concern with respect potentially to energy supplies and prices, and so I would certainly list that as something in the category of risks to the outlook.
also:
PETER BARNES. Peter Barnes with Fox Business, ma'am. Can I--just to follow up a little bit on what Pedro asked about. Specifically, what about equity markets? I mean, right now, today, the S&P 500 is on track to close at a--another record high. You have said that you have not seen any evidence of bubbles in equity markets, and that they have been trading within historic norms. Is that still the case today? Thank you.
CHAIR YELLEN. So I don't have a sense--the committee doesn't try to gauge what is the right level of equity prices. But we do certainly monitor a number of different metrics that give us a feeling for where valuations are relative to things like earnings or dividends, and look at where these metrics stand in comparison with previous history to get a sense of whether or not we're moving to valuation levels that are outside of historical norms, and I still don't see that. I still don't see that for equity prices broadly.
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The Special Note summarizes my overall thoughts about our economic situation
SPX at 1959.48 as this post is written