Monday, November 30, 2015

Stock Market Capitalization To GDP – Through Q3 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 November 27, 2015 post titled “Market Cap to GDP:  A Fractional Decline in the Buffett Valuation Indicator” 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)
stock market cap to GDP
Here is the second chart, with the stock market capitalization as defined by the Wilshire 5000:
market capitalization to GDP
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 2085.10 as this post is written

Consumer Confidence Surveys – As Of November 25, 2015

Doug Short had a blog post of November 25, 2015 (“Michigan Consumer Sentiment: November Final Survey Drops from Preliminary“) 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 Confidence
Michigan Consumer Sentiment
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.
_____
The Special Note summarizes my overall thoughts about our economic situation
SPX at 2085.24 as this post is written

Wednesday, November 25, 2015

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 November 25, 2015 update (reflecting data through November 20) is -.822.
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:
Below are the most recently updated charts of the NFCI and ANFCI, respectively.
The NFCI chart below was last updated on November 25, 2015 incorporating data from January 5,1973 to November 20, 2015, on a weekly basis.  The November 20, 2015 value is -.71:
NFCI
Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed November 25, 2015:
The ANFCI chart below was last updated on November 25, 2015 incorporating data from January 5,1973 to November 20, 2015, on a weekly basis.  The November 20 value is -.19:
ANFCI
Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed November 25, 2015:
_________
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 2089.11 as this post is written

Durable Goods New Orders – Long-Term Charts Through October 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 October, updated on November 25, 2015. This value is $238,976 ($ Millions):
(click on charts to enlarge images)
durable goods new orders
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 November 25, 2015;
_________
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 2091.00 as this post is written

Money Supply Charts Through October 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 November 20, 2015 depicting data through October 2015, with a value of $13,634.7 Billion:
money supply
Here is the “MZM Money Stock” chart on a “Percent Change From Year Ago” basis:
money supply change from year ago
Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed November 25, 2015:
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 November 19, 2015, depicting data through October 2015, with a value of $12,201.4 Billion:
M2 money supply
Here is the “M2 Money Stock” chart on a “Percent Change From Year Ago” basis:
M2 money supply percent change from year ago
Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed November 25, 2015:
_____
The Special Note summarizes my overall thoughts about our economic situation
SPX at 2091.00 as this post is written

Tuesday, November 24, 2015

House Prices Reference Chart

As a reference for long-term house price index trends, below is a chart, updated with the most current data (through September) from the CalculatedRisk blog post of November 24, 2015 titled “Real Prices and Price-to-Rent Ratio in September”:
(click on chart to enlarge image)
nominal house prices
_____
The Special Note summarizes my overall thoughts about our economic situation
SPX at 2089.14 as this post is written

Corporate Profits As A Percentage Of GDP

In the last post (“3rd Quarter 2015 Corporate Profits“) I displayed, for reference purposes, a long-term chart depicting Corporate Profits After Tax.
There are many ways to view this measure, both on an absolute as well as relative basis.
One relative measure is viewing Corporate Profits as a Percentage of GDP.  I feel that this metric is important for a variety of reasons.  As well, the measure is important to a variety of parties, including investors, businesses, and government policy makers.
As one can see from the long-term chart below (updated through the third quarter), (After Tax) Corporate Profits as a Percentage of GDP is at levels that can be seen as historically (very) high.  While there are many reasons as to why this is so, from a going-forward standpoint I think it is important to recognize both that such a notable condition exists, as well as contemplate and/or plan for such factors and conditions that would come about if (and in my opinion “when”) a more historically “normal” ratio of Corporate Profits as a Percentage of GDP occurs.  This topic can be very complex in nature, and depends upon myriad factors.  In my opinion it deserves far greater recognition.
(click on chart to enlarge image)
corporate profits as a percent of GDP
Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed November 24, 2015
_____
The Special Note summarizes my overall thoughts about our economic situation
SPX at 2089.80 as this post is written

3rd Quarter 2015 Corporate Profits

Today’s GDP release (Q3, 2nd Estimate)(pdf) was accompanied by the BLS Corporate Profits report for the 3rd Quarter.
Of course, there are many ways to adjust and depict overall Corporate Profits.  For reference purposes, here is a chart from the St. Louis Federal Reserve (FRED) showing the Corporate Profits After Tax (last updated November 24, 2015, with a value of $1785.8 Billion):
Corporate Profits
Here is the Corporate Profits After Tax measure shown on a Percentage Change from a Year Ago perspective:
corporate profits percent change from year ago
Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Corporate Profits After Tax [CP]; U.S. Department of Commerce: Bureau of Economic Analysis; accessed November 24, 2015; https://research.stlouisfed.org/fred2/series/CP
_____
The Special Note summarizes my overall thoughts about our economic situation
SPX at 2088.64 as this post is written

Monday, November 23, 2015

Updates Of Economic Indicators November 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 November 2015 Chicago Fed National Activity Index (CFNAI) updated as of November 23, 2015:
CFNAI-MA3
As of November 20, 2015 (incorporating data through November 13, 2015) the WLI was at 131.0 and the WLI, Gr. was at -2.6%.
A chart of the WLI,Gr., from Doug Short’s post of November 20, 2015, titled “ECRI Weekly Leading Index: ‘Multiple Jobholders Boost 'Full-Time' Employment'":
ECRI WLI,Gr.
Here is the latest chart, depicting the ADS Index from December 31, 2007 through November 14, 2015:
ADS Index
The Conference Board Leading (LEI), Coincident (CEI) Economic Indexes, and Lagging Economic Indicator (LAG):
As per the November 19, 2015 press release, titled “The Conference Board Leading Economic Index (LEI) for the U.S. Increased Sharply in October,” (pdf) the LEI was at 124.1, the CEI was at 113.0, and the LAG was 119.3 in October.
An excerpt from the November 19 release:
“The U.S. LEI rose sharply in October, with the yield spread, stock prices, and building permits driving the increase,” said Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board. “Despite lackluster third quarter growth, the economic outlook now appears to be improving. While the U.S. LEI’s six-month growth rate has moderated, the U.S. economy remains on track for continued expansion heading into 2016.”
Here is a chart of the LEI from Doug Short’s blog post of November 19 titled “Conference Board Leading Economic Index Rose in October“:
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 2094.72 as this post is written

The U.S. Economic Situation – November 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)
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 November 20, 2015, with a last value of 17823.81):
(click on chart to enlarge image)(chart courtesy of StockCharts.com)
DJIA from 1900
_____
The Special Note summarizes my overall thoughts about our economic situation
SPX at 2088.74 as this post is written

Friday, November 20, 2015

Broad-Based Indicators Of Economic Activity

The Chicago Fed National Activity Index (CFNAI) and the Aruoba-Diebold-Scotti Business Conditions Index (ADS Index) are two broad-based economic indicators that I regularly feature in this site.
The short-term and long-term trends of each continue to be notable.
Doug Short, in his blog post of November 19, 2015, titled “The Philly Fed ADS Index Business Conditions Index” displays both the CFNAI MA-3 (3-month Moving Average) and ADS Index (91-Day Moving Average) from a variety of perspectives.
Of particular note, two of the charts, shown below, denote where the current levels of each reading is relative to the beginning of past recessionary periods, as depicted by the red dots.
The CFNAI MA-3:
(click on charts to enlarge images)
CFNAI-MA3
The ADS Index, 91-Day MA:
ADS Index
Also shown in the Doug Short’s aforementioned post is a chart of each with a long-term trendline (linear regression) as well as a chart depicting GDP for comparison purposes.
_________
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 2089.17 as this post is written

Long-Term Charts Of The ECRI WLI & ECRI WLI, Gr. – November 20, 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 November 20, 2015 titled “ECRI Weekly Leading Index:  ‘Multiple Jobholders Boost 'Full-Time' Employment’.”  These charts are on a weekly basis through the November 20, 2015 release, indicating data through November 13, 2015.
Here is the ECRI WLI (defined at ECRI’s glossary):
ECRI WLI
This next chart depicts, on a long-term basis, the Year-over-Year change in the 4-week moving average of the WLI:
Dshort 11-20-15 - ECRI-WLI-YoY -1.6 percent
This last chart depicts, on a long-term basis, the WLI, Gr.:
ECRI 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 2089.17 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 November 13, 2015:
from page 24:
(click on charts to enlarge images)
S&P500 earnings estimate trends
from page 25:
S&P500 annual earnings

_____
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 2081.24 as this post is written

Thursday, November 19, 2015

S&P500 2015, 2016 & 2017 Annual EPS Estimates

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 November 19, 2015, and represent an aggregation of individual S&P500 component “bottom up” analyst forecasts.  For reference, the Year 2014 value is $118.78/share:
Year 2015 estimate:
$118.18/share
Year 2016 estimate:
$128.25/share
Year 2017 estimate:
$144.25/share
_____
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 2081.42 as this post is written

Standard & Poor’s S&P500 Earnings Estimates For 2015 & 2016 – As Of November 12, 2015

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 November 12, 2015:
Year 2015 estimates add to the following:
-From a “bottom up” perspective, operating earnings of $106.80/share
-From a “top down” perspective, operating earnings of N/A
-From a “bottom up” perspective, “as reported” earnings of $95.92
Year 2016 estimates add to the following:
-From a “bottom up” perspective, operating earnings of $126.85/share
-From a “top down” perspective, operating earnings of N/A
-From a “bottom up” perspective, “as reported” earnings of $118.07/share
_____
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 2081.21 as this post is written

Wednesday, November 18, 2015

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 November 12, 2015 update (reflecting data through November 6) is -.88.
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:
Below are the most recently updated charts of the NFCI and ANFCI, respectively.
The NFCI chart below was last updated on November 18, 2015 incorporating data from January 5,1973 to November 13, 2015, on a weekly basis.  The November 13, 2015 value is -.72:
NFCI
Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed November 18, 2015:
The ANFCI chart below was last updated on November 18, 2015 incorporating data from January 5,1973 to November 13, 2015, on a weekly basis.  The November 13 value is -.29:
ANFCI
Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed November 18, 2015:
_________
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 2065.83 as this post is written

Tuesday, November 17, 2015

Walmart’s Q3 2016 Results – Comments

I found various notable items in Walmart’s Q3 2016 management call transcript (pdf) dated November 17, 2015.  (as well, there is Walmart’s press release of the Q3 results(pdf))
I view Walmart’s results and comments as particularly noteworthy given their retail prominence and focus on low prices.  I have previously commented on their quarterly management call comments; these previous posts are found under the “paycheck to paycheck” label.
Here are various excerpts that I find most notable:
comments from Doug McMillon, President and CEO, page 3:
As we expected, operating income continued to be pressured by our decision to invest in our front line associates. To improve the store experience for our customers and create a bridge to our future where digital capabilities will play an increasing role in our stores, we’re making a $1.2 billion planned investment in our people this year that we understood would impact near-term operating income. This is by far the biggest driver of the decline in consolidated operating income.
comments from Claire Babineaux-Fontenot, EVP and treasurer, page 9:
I’ll close today’s discussion with a few comments on returns. At Walmart, we remain committed to providing good returns for our shareholders. During last month’s meeting for the investment community, we announced a new share repurchase authorization of $20 billion, and said that our intention is to utilize this authorization over a two-year period. The company repurchased approximately 6.1 million shares for $437 million during the third quarter.
comments from Greg Foran, president and CEO of Walmart U.S., page 10:
Our customers told us they’re happy with the improvements we’re making in their shopping experience, as reflected in our customer experience scores. To date, 70 percent of our stores have achieved the initial goal we set for them, and we’ll raise the bar for next year. We also saw some progress this quarter in gross margin, with the work we’ve put in on pharmacy, markdowns, and shrink. However, as we’ve discussed before, the investments in our stores and our associates are significant, and will continue to pressure the bottom line.
comments from Greg Foran, president and CEO of Walmart U.S., page 12:
Moving on to the remainder of our financials…gross margin increased 32 basis points versus last year. Gross margin rate improved in food, general merchandise, and consumables but was somewhat offset by declines in health & wellness. Reimbursement levels continued to pressure pharmacy profits; however, we’ve made some strides across several initiatives that improved margins in this department versus Q2. Additionally, we remained focused on our urgent agenda items, including better management of markdowns to zero. Finally, while only just beginning to show in our results, we are pleased with our efforts thus far on addressing shrink, which has been a significant headwind for us this year.

_____
The Special Note summarizes my overall thoughts about our economic situation
SPX at 2054.61 as this post is written