Consumer Confidence Surveys – As Of July 31, 2015

Doug Short had a blog post of July 31, 2015 (“Michigan Consumer Sentiment: Small Decline but Still Positive Trend“) 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)

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There are a few aspects of the above charts that I find highly noteworthy.  Of course, until the recent sudden upswing, the continued subdued absolute levels of these two surveys was 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 site.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2111.86 as this post is written

Stock Market Capitalization To GDP – Through Q2 2015

“Stock market capitalization to GDP” is a notable and important metric regarding stock market valuation.  In February of 2009 I wrote of it in “Does Warren Buffett’s Market Metric Still Apply?”

Doug Short has recently published a post depicting this “stock market capitalization to GDP” metric.

As seen in his July 30, 2015 post titled “Market Cap to GDP:  The Buffett Valuation Indicator Remains in Levitation Mode” he shows two different versions, varying by the definition of stock market capitalization. (note:  additional explanation is provided in his post.)

For reference purposes, here is the first chart, with the stock market capitalization as defined by the Federal Reserve:

(click on charts to enlarge images)

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Here is the second chart, with the stock market capitalization as defined by the Wilshire 5000:

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As one can see in both measures depicted above, “stock market capitalization to GDP” is at notably high levels from a long-term historical perspective.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2111.40 as this post is written

Velocity Of Money – Charts Updated Through July 30, 2015

Here are three charts from the St. Louis Fed depicting the velocity of money in terms of the MZM, M1 and M2 money supply measures.

All charts reflect quarterly data through the 2nd quarter of 2015, and were last updated as of July 30, 2015.  As one can see, two of the three measures are at an all-time low for the periods depicted:

Velocity of MZM Money Stock, current value = 1.346:

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed July 30, 2015:

http://research.stlouisfed.org/fred2/series/MZMV

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Velocity of M1 Money Stock, current value = 5.956:

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed July 30, 2015:

http://research.stlouisfed.org/fred2/series/M1V

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Velocity of M2 Money Stock, current value = 1.494:

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed July 30, 2015:

http://research.stlouisfed.org/fred2/series/M2V

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2108.63 as this post is written

Real GDP Chart Since 1947 With Trendline – 2nd Quarter 2015

For reference purposes, below is a chart from Doug Short’s “Q2 GDP Advance Estimate at 2.3%, Close to Mainstream Forecasts” post of July 30, 2015, depicting Real GDP, with a trendline, as depicted.  This chart reflects the Gross Domestic Product Q2 2015 Advance Estimate (pdf) of July 30, 2015:

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2108.08 as this post is written

Three Charts Of Recent S&P500 Price Volatility

This post is an update to past posts regarding stock market volatility.

While I track many different measures of volatility, I find the following charts to be both simple and clear in depicting the recent increased volatility in the stock market.

Overall, my analyses indicates that there are many reasons for this volatility, and the volatility is notable.

For reference purposes, shown below are three charts with price labels.

First, a one-year daily depiction of the S&P500 through yesterday's (July 29, 2015) close, with a 50-day moving average (MA50) depicted by the blue line:

(click on chart to enlarge image)(charts courtesy of StockCharts.com)

Second, a four-month daily depiction of the S&P500 through yesterday's (July 29, 2015) close, with a 50-day moving average (MA50) depicted by the blue line:

(click on chart to enlarge image)(chart courtesy of StockCharts.com)

Third, a four-month depiction of the S&P500 in 60 minute intervals through yesterday's (July 29, 2015) close, with a 50-hour moving average (MA50) depicted by the blue line:

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2106.72 as this post is written

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 July 23, 2015 update (reflecting data through July 17) is -1.029.

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:

http://www.chicagofed.org/webpages/publications/nfci/index.cfm

Below are the most recently updated charts of the NFCI and ANFCI, respectively.

The NFCI chart below was last updated on July 29, 2015 incorporating data from January 5,1973 to July 24, 2015, on a weekly basis.  The July 24, 2015 value is -.79:

(click on chart to enlarge image)

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed July 29, 2015:

http://research.stlouisfed.org/fred2/series/NFCI

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The ANFCI chart below was last updated on July 29, 2015 incorporating data from January 5,1973 to July 24, 2015, on a weekly basis.  The July 24 value is .49:

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed July 29, 2015:

http://research.stlouisfed.org/fred2/series/ANFCI

_________

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 2095.66 as this post is written

Durable Goods New Orders – Long-Term Charts Through June 2015

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 June, updated on July 27, 2015. This value is $235,337 ($ Millions):

(click on charts to enlarge images)

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Here is the chart depicting this measure on a “Percentage Change from a Year Ago” basis:

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 July 27, 2015;

http://research.stlouisfed.org/fred2/series/DGORDER

_________

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 2068.92 as this post is written

U.S. Deflation – July 27, 2015 Update

This post provides an update to various past posts discussing deflation and “deflationary pressures,” including the most recent post, that of January 27, 2015 titled "U.S. Deflation - January 27, 2015 Update."   I have extensively written of “deflationary pressures” and deflation as I continue to believe that prolonged U.S. deflationary conditions are on the horizon, and that such deflationary conditions will cause, as well as accompany, inordinate economic hardship. [note: to clarify, for purposes of this discussion, when I mention “deflation” I am referring to the CPI going below zero. Also, I have been using the term “deflationary pressures” as a term to describe deflationary manifestations within an environment that is still overall inflationary but heading towards deflation.]

The subject of deflation contains many complex aspects, and as such no short discussion can even begin to be a comprehensive discussion of such.  However, in this post I would like to highlight some recent notable developments.

For reference purposes, here is a chart of the CPI and Core CPI as seen in Doug Short’s update of July 17 titled “June Consumer Price Index:  Year-over-Year Core at 1.8%”:

One notable aspect is that various measures show expectations concerning U.S. deflation remain at or near a zero probability for the next few years.  While the list of such measures is extensive, three prominent measures include the Federal Reserve Bank of Atlanta’s series titled “Deflation Probabilities,” the University of Michigan Inflation Expectation, and the “Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents, June 2015“ (pdf).

Another notable aspect concerning inflation and deflation is whether the Federal Reserve, through its various actions, can actually "control" inflation, which would include avoiding outright deflation.  It seems that it is widely believed that the Federal Reserve can do so.  Perhaps the most prominent comments on the subject in recent years are found in Ben Bernanke's speech of November 21, 2002, titled "Deflation:  Making Sure 'It' Doesn't Happen Here."  While I don't agree with various assertions and conclusions made in the speech, I do agree with the general premise that "sustained deflation can be highly destructive to a modern economy," especially given the dynamics and characteristics of our current economy and financial system.

Another noteworthy aspect of our current economic situation is that of a continuing shortfall between the Federal Reserve's stated inflation target (2% on the PCE) and the actual inflation reading.  This 2% inflation target has been “missed” (inflation has been less than 2%) for over 37 months.  As the Wall Street Journal article of June 1, 2015 ("Inflation Misses Fed's 2% Target for 36th Straight Month") mentions, "April 2012 was the last time the inflation rate was on target. That’s the longest such stretch of sub-2% inflation since the 1960s."

While many (including the views expressed in the Federal Reserve Bank of San Francisco's July 20 Economic Letter titled "Assessing the Recent Behavior of Inflation") seem to believe that this continuing shortfall is of little overall significance, I do believe that this shortfall is very significant, as, among other things, it shows that at this point inflation is far less "controllable" than commonly believed.

Recent market developments and other aspects show that "deflationary pressures" are in many ways intensifying.  While there are numerous measures that, in my opinion, indicate such, here are three prominent ones:

(charts courtesy of StockCharts.com; chart creation and annotation by the author)

The Bloomberg Commodity Index, now at 13-year lows (and notably less than levels seen during the Financial Crisis):

(depicted on a weekly LOG basis)

The HUI:Gold Ratio, which is the ratio of the HUI (an index of gold stocks) to that of the physical metal itself.  One theory, perhaps the predominant one, is that the gold stocks should anticipate, or at least verify, the price movements of the physical gold itself.  An implication of such is that a declining HUI:Gold ratio is an augur of lower gold prices.  Both the absolute levels of this HUI:Gold ratio, as well its continuing decline, would seem to suggest a forthcoming decline in the gold price to a level that almost certainly will signal deflation:

(depicted on a weekly LOG basis)

Light Crude Oil, now again below $50/bbl.  Notably, the widely anticipated "uptick" in consumer spending that was supposed to accompany such a decline in the price of oil has yet to materialize.  As Janet Yellen stated at her June 17, 2015 press conference, "There are questions at this point about just how much impact we’ve seen of lower energy prices on consumer spending. The decline in oil prices translates into an improvement in household income on average of something like $700 per household, and I’m not convinced yet by the data that we have seen the kind of response to that that I would ultimately expect."

(depicted on a weekly LOG basis)

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2079.66 as this post is written

Long-Term Charts Of The ECRI WLI & ECRI WLI, Gr. – July 24, 2015 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.

Below are three long-term charts, from Doug Short’s blog post of July 24, 2015 titled “ECRI Weekly Leading Index:  Recoveries Remain Resilient.”  These charts are on a weekly basis through the July 24 release, indicating data through July 17, 2015.

Here is the ECRI WLI (defined at ECRI’s glossary):

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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:

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This last chart depicts, on a long-term basis, the WLI, Gr.:

_________

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 2093.72 as this post is written

Money Supply Charts Through June 2015

For reference purposes, below are two sets of charts depicting growth in the money supply.

The first shows the MZM (Money Zero Maturity), defined in FRED as the following:

M2 less small-denomination time deposits plus institutional money funds.
Money Zero Maturity is calculated by the Federal Reserve Bank of St. Louis.

Here is the “MZM Money Stock” (seasonally adjusted) chart, updated on July 24, 2015 depicting data through June 2015, with value $13,324.7 Billion:

Here is the “MZM Money Stock” chart on a “Percent Change From Year Ago” basis:

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed July 24, 2015:

https://research.stlouisfed.org/fred2/series/MZMSL

The second set shows M2, defined in FRED as the following:

M2 includes a broader set of financial assets held principally by households. M2 consists of M1 plus: (1) savings deposits (which include money market deposit accounts, or MMDAs); (2) small-denomination time deposits (time deposits in amounts of less than $100,000); and (3) balances in retail money market mutual funds (MMMFs). Seasonally adjusted M2 is computed by summing savings deposits, small-denomination time deposits, and retail MMMFs, each seasonally adjusted separately, and adding this result to seasonally adjusted M1.

Here is the “M2 Money Stock” (seasonally adjusted) chart, updated on July 23, 2015, depicting data through June 2015, with value $11,981.90 Billion:

Here is the “M2 Money Stock” chart on a “Percent Change From Year Ago” basis:

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed July 24, 2015:

https://research.stlouisfed.org/fred2/series/M2SL

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2093.72 as this post is written

Updates Of Economic Indicators July 2015

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 July 2015 Chicago Fed National Activity Index (CFNAI) updated as of July 23, 2015:

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The ECRI WLI (Weekly Leading Index):

As of July 17, 2015 (incorporating data through July 10, 2015) the WLI was at 132.6 and the WLI, Gr. was at .6%.

A chart of the WLI,Gr., from Doug Short’s post of July 17, 2015, titled “ECRI Weekly Leading Index "Recoveries Remain Resilient“:

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

Here is the latest chart, depicting the ADS Index from December 31, 2007 through July 16, 2015:

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

As per the July 23, 2015 press release, titled “The Conference Board Leading Economic Index (LEI) for the U.S. Increased Again,” (pdf) the LEI was at 123.6 and the CEI was at 112.5 in June.

An excerpt from the July 23 release:

“The upward trend in the US LEI seems to be gaining more momentum with another large increase in June pointing to continued strength in the economic outlook for the remainder of the year,” said Ataman Ozyildirim, Director, Business Cycles and Growth Research, at The Conference Board. “Housing permits and the interest rate spread drove the latest gain in the LEI, while labor market indicators such as average workweek and initial claims remained unchanged.”

Here is a chart of the LEI from Doug Short’s blog post of July 23 titled “Conference Board Leading Economic Index Increased Again in June“:

_________

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 2104.52 as this post is written

The U.S. Economic Situation – July 23, 2015 Update

Perhaps the main reason that I write of our economic situation is that I continue to believe, based upon various analyses, that our economic situation is in many ways misunderstood.  While no one likes to contemplate a future rife with economic adversity, current and future economic problems must be properly recognized and rectified if high-quality, sustainable long-term economic vitality is to be realized.

There are an array of indications and other “warning signs” – many readily apparent – that current economic activity and financial market performance is accompanied by exceedingly perilous dynamics.

I have written extensively about this peril, including in the following:

“Building Financial Danger” (ongoing updates)

“A Special Note On Our Economic Situation”

“Forewarning Pronounced Economic Weakness”

“Thoughts Concerning The Next Financial Crisis”

“Was A Depression Successfully Avoided?”

“Has the Financial System Strengthened Since the Financial Crisis?”

“The Next Crash And Its Significance”

My analyses continues to indicate that the growing level of financial danger will lead to the next stock market crash that will also involve (as seen in 2008) various other markets as well.  Key attributes of this next crash is its outsized magnitude (when viewed from an ultra-long term historical perspective) and the resulting economic impact.  This next financial crash is of tremendous concern, as my analyses indicate it will lead to a Super Depression – i.e. an economy characterized by deeply embedded, highly complex, and difficult-to-solve problems.

For long-term reference purposes, here is a chart of the Dow Jones Industrial Average since 1900, depicted on a monthly basis using a LOG scale (updated through July 17, 2015, with a last value of 18086.45):

(click on chart to enlarge image)(chart courtesy of StockCharts.com)

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2107.75 as this post is written

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 July 16, 2015 update (reflecting data through July 10) is -.918.

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:

http://www.chicagofed.org/webpages/publications/nfci/index.cfm

Below are the most recently updated charts of the NFCI and ANFCI, respectively.

The NFCI chart below was last updated on July 22, 2015 incorporating data from January 5,1973 to July 17, 2015, on a weekly basis.  The July 17, 2015 value is -.75:

(click on chart to enlarge image)

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed July 22, 2015:

http://research.stlouisfed.org/fred2/series/NFCI

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The ANFCI chart below was last updated on July 22, 2015 incorporating data from January 5,1973 to July 17, 2015, on a weekly basis.  The July 17 value is .47:

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed July 22, 2015:

http://research.stlouisfed.org/fred2/series/ANFCI

_________

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 2112.06 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 July 17, 2015:

from page 24:

(click on charts to enlarge images)

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from page 25:

_____

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 2119.67 as this post is written