I have written extensively about the importance of U.S. interest rate levels. Rising interest rates have substantial ramifications for many aspects of the current-day economy. My commentaries with regard to interest rates and the bond bubble are largely found under the “bond bubble” label. From an intervention perspective commentary is found under the “Intervention” label.
As reference, below is a long-term chart of the 10-Year Treasury yield since 1980, depicted on a monthly basis, LOG scale:
(click on charts to enlarge images)(charts courtesy of StockCharts.com; chart creation and annotation by the author)
Here is a long-term chart of the 10-Year Treasury yield since 2008, depicted on a daily basis, LOG scale:
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The Special Note summarizes my overall thoughts about our economic situation
The St. Louis Fed’s Financial Stress Index (STLFSI2) is one index that is supposed to measure stress in the financial system. Its reading as of the December 31, 2020 update (reflecting data through December 25, 2020) is -.5823.
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 January 6, 2021 incorporating data from January 8, 1971 through January 1, 2021, on a weekly basis. The January 1 value is -.60442:
The ANFCI chart below was last updated on January 6, 2021 incorporating data from January 8, 1971 through January 1, 2021, on a weekly basis. The January 1, 2021 value is -.52039:
I post various indicators and indices because I believe they should be carefully monitored. However, as those familiar with this site are aware, I do not necessarily agree with what they depict or imply.
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The Special Note summarizes my overall thoughts about our economic situation
“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?”
On the Advisor Perspectives’ site there is an update depicting this “stock market capitalization to GDP” metric.
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” continues to be at notably high levels from a long-term historical perspective.
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The Special Note summarizes my overall thoughts about our economic situation
Below are those two charts, updated through the latest daily closing price.
The first is a daily chart of the S&P500 (shown in green), as well as five prominent (AAPL, IBM, AMZN, SBUX, CAT) individual stocks, since 2005. There is a blue vertical line that is very close to the March 6, 2009 low. As one can see, both the S&P500 performance, as well as many stocks including the five shown, have performed strongly since the March 6, 2009 low:
(click on chart to enlarge image)(chart courtesy of StockCharts.com; chart creation and annotation by the author)
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This next chart shows, on a monthly LOG basis, the S&P500 since 1980. I find this chart notable as it provides an interesting long-term perspective on the S&P500′s performance. The 20, 50, and 200-month moving averages are shown in blue, red, and green lines, respectively:
(click on chart to enlarge image)(chart courtesy of StockCharts.com; chart creation and annotation by the author)
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The Special Note summarizes my overall thoughts about our economic situation
StockCharts.com maintains long-term historical charts of various major stock market indices, interest rates, currencies, commodities, and economic indicators.
As a long-term reference, below are charts depicting various stock market indices for the dates shown. All charts are depicted on a monthly basis using a LOG scale.
(click on charts to enlarge images)(charts courtesy of StockCharts.com)
The Dow Jones Industrial Average, from 1900 – December 31, 2020:
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The Dow Jones Transportation Average, from 1900 – December 31, 2020:
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The S&P500, from 1925 – December 31, 2020:
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The Nasdaq Composite, from 1978 – December 31, 2020:
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The Special Note summarizes my overall thoughts about our economic situation
U.S. Dollar weakness is a foremost concern of mine. As such, I have extensively written about it, including commentary on the “A Substantial U.S. Dollar Decline And Consequences” page. 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, in my opinion, be overstated.
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, and the red line representing a (past) trendline:
(charts courtesy of StockCharts.com; annotations by the author)
(click on charts to enlarge images)
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Next, another chart, this one focused on the daily U.S. Dollar since 2000 on a LOG scale. The red line represents a (past) trendline. The gray dotted line is the 200-day M.A. (moving average):
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Lastly, a chart of the Dollar on a weekly LOG scale. There are two clearly marked past channels, with possible technical support depicted by the dashed light blue line:
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I will continue providing updates on this U.S. Dollar situation regularly as it deserves very close monitoring…
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The Special Note summarizes my overall thoughts about our economic situation
Various surveys, economic growth projections, and market risk indicators portray a short period (through mid-2020) of substantial U.S. economic decline, followed by a sustained significant economic rebound and then financial system stability for the foreseeable future.
However, there are various indications – many of which have been discussed on this site – that this very widely-held consensus is in many ways incorrect. There are many exceedingly problematical financial conditions that have existed prior to 2020, and continue to exist. As well, numerous economic dynamics continue to be exceedingly worrisome and many economic indicators have portrayed facets of weak growth or outright decline prior to 2020.
Of paramount importance is the resulting level of risk and the future economic implications.
From an “all things considered” standpoint, I continue to believe the overall level of risk remains at a fantastic level – one that is far greater than that experienced at any time in the history of the United States.
Cumulatively, these highly problematical conditions will lead to future upheaval. The extent of the resolution of these problematical conditions will determine the ongoing viability of the financial system and economy as well as the resultant quality of living.
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.
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The Special Note summarizes my overall thoughts about our economic situation
