Monthly Archives: March 2013

Standard & Poor’s S&P500 Earnings Estimates For 2013 & 2014 – As Of March 21, 2013

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 tag)

For reference purposes, the most current estimates are reflected below, and are as of March 21, 2013:

Year 2013 estimates add to the following:

-From a “bottom up” perspective, operating earnings of $111.16/share

-From a “top down” perspective, operating earnings of $111.98/share

-From a “top down” perspective, “as reported” earnings of $108.68/share

Year 2014 estimates add to the following:

-From a “bottom up” perspective, operating earnings of $124.77/share

-From a “top down” perspective, operating earnings of $120.19/share

-From a “top down” perspective, “as reported” earnings of $118.10/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 1559.65 as this post is written

Median Household Income Chart

I have written many blog posts concerning the worrisome trends in income and earnings.

Doug Short, in his March 25 blog post, titled “Real Median Household Incomes:  Down $590 in February” produced the chart below.  It is based upon data from Sentier Research, and it shows both nominal and real median household incomes since 2000, as depicted.  As one can see, post-recession real median household income (seen in the blue line since 2009) is especially worrisome.

(click on chart to enlarge image)

Dshort 3-25-13 household-income-monthly-median-since-2000

As Doug mentions in his aforementioned blog post:

The Sentier Research monthly median household income data series is now available for February. Nominal median household incomes decline 0.5% month-over-month, but are up 2.4% year-over-year. Adjusted for inflation, real incomes fell 1.1% MoM and are essentially flat YoY at 0.4%.

Also seen in his blog post is a chart depicting each of the two (nominal and real household incomes) data series’ percent change over time since 2000.


The Special Note summarizes my overall thoughts about our economic situation

SPX at 1551.69 as this post is written

Updates Of Economic Indicators March 2013

Here is an update on various indicators that are supposed to predict and/or depict economic activity.  These indicators have been discussed in previous blog posts:

The March Chicago Fed National Activity Index (CFNAI)(pdf) updated as of March 25, 2013:

cfnai_monthly_MA3 3-25-13

The ECRI WLI (Weekly Leading Index):

As of 3/22/13 (incorporating data through 3/15/13) the WLI was at 129.8 and the WLI, Gr. was at 6.4%.

A chart of the WLI, Gr. since 2000, from Doug Short’s blog of March 22 titled “ECRI’s ‘Recession’ Indicators:  Unchanged from Last Week” :

Dshort 3-22-13 ECRI-WLI-growth-since-2000

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

Here is the latest chart, depicting 3-16-11 to 3-16-13:

ads_2yrs_3-16-11 - 3-16-13

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

As per the March 21 press release, the LEI was at 94.8 and the CEI was at 105.1 in February.

An excerpt from the March 21 release:

Says Ken Goldstein, economist at The Conference Board: “The U.S. economy is growing slowly now, and with this reading increases hope that it may pick up some momentum in the second half of the year. However, this latest report does not yet capture the recent effects of sequestration, which could dampen the pickup in GDP.”

Here is a chart of the LEI from Doug Short’s blog post of March 21 titled “Conference Board Leading Economic Index:  ’Economy Continues to Expand Slowly’” :

Dshort 3-21-13 CB-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 1564.22 as this post is written

Long-Term Charts Of The ECRI WLI & ECRI WLI, Gr. – March 22, 2013 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 two sources :

  • ECRI, March 5, Recession in the Yo-Yo Years (provides a link to a 17-page ECRI report dated March 2013 titled “The U.S. Business Cycle in the Context of the Yo-Yo Years”)
  • ECRI, March 8 Interview Summary (provides links to 3 video interviews)

Other past notable 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:

Below are three long-term charts, from Doug Short’s blog post of March 22 titled “ECRI ‘Recession’ Indicators:  Unchanged from Last Week.”  These charts are on a weekly basis through the March 22 release, indicating data through March 15, 2013.

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

(click on charts to enlarge images)

Dshort 3-22-13  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 3-22-13 ECRI-WLI-YoY

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

Dshort 3-22-13 ECRI-WLI-growth-since-1965



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 1556.03 as this post is written

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 current levels of each are notable, as they are vacillating from a short-term perspective and their long-term trends continue to sink.

Doug Short, in his blog post of March 22, titled “The Philly Fed Business Conditions Index” displays both the CFNAI MA-3 (3-month Moving Average) and ADS Index (91-Day Moving Average) from a couple 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.


(click on charts to enlarge images)

Dshort 3-22-13 Chicago-Fed-CFNAI-recession-indicator

The ADS Index, 91-Day MA:

Dshort 3-22-13 - ADS-index-91-day

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 1555.92 as this post is written

St. Louis Financial Stress Index – March 21, 2013 Update

On March 28, 2011 I wrote a post (“The STLFSI“) about the  St. Louis Fed’s Financial Stress Index (STLFSI) which is supposed to measure stress in the financial system.  For reference purposes, the most recent chart is seen below.  This chart was last updated on March 21, incorporating data from December 31,1993 to March 15, 2013 on a weekly basis.  The March 15, 2013 value is -.696 :

(click on chart to enlarge image)

STLFSI_3-21-13 -.696

Here is the STLFSI chart from a 1-year perspective:

STLFSI_3-21-13 1-year -.696


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 1552.49 as this post is written

Ben Bernanke’s March 20, 2013 Press Conference – Notable Aspects

On Wednesday, March 20, 2013 Ben Bernanke gave his scheduled press conference.

Below are Ben Bernanke’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 Bernanke’s Press Conference“(preliminary)(pdf) of March 20, 2013, with the accompanying “FOMC Statement” and “Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents, March 2013” (pdf).

From Ben Bernanke’s opening comments:

The data since our January meeting have been generally consistent with our expectation that the fourth-quarter pause in the recovery would prove temporary and that moderate economic growth would resume.


Overall, still-high unemployment, in combination with relatively low inflation, underscores the need for policies that will support progress toward maximum employment in a context of price stability.


As you already know from the policy statement, we are continuing the asset purchase program first announced in September. This decision was supported by our review at this meeting of the likely efficacy, costs, and risks of additional purchases. Let me briefly summarize the cost-benefit analysis supporting our decision.

Although estimates of the efficacy of the Federal Reserve’s asset purchases are necessarily uncertain, most participants agreed that these purchases—by putting downward pressure on longer-term interest rates, including mortgage rates—continue to provide meaningful support to economic growth and job creation. However, most also agreed that this monetary tool would likely not be able on its own to fully offset major economic headwinds, such as those that might arise from significant near-term fiscal restraint or from a sharp increase in global financial stresses.

We also had a thorough discussion of possible costs and risks of continued expansion of the Federal Reserve’s balance sheet. The risks include possible adverse implications of additional purchases for the functioning of securities markets, and the potential effects—under various scenarios—of a larger balance sheet on the Federal Reserve’s earnings from its asset holdings and, hence, on its remittances to the Treasury. The Committee also considered possible risks to financial stability, such as might arise if persistently low rates lead some market participants to take on excessive risk in a “reach for yield.” In the Committee’s view, these costs remain manageable, but will continue to be monitored and we will take them into appropriate account as we determine the size, pace, and composition of our asset purchases.

Bernanke’s responses as indicated to the various questions:

YLAN MUI. Hi. Ylan Mui, Washington Post. My question is around QE. Obviously, we’ve seen some of your colleagues giving more specific criteria, give some color around what they’re looking for before they would consider exiting from QE. Can you give us any additional color on what you’re looking for specifically in terms of substantial improvement in labor market? And does the fact that there aren’t thresholds associated with QE say anything about the level of disagreement among the committee members over what that exit should look like?

CHAIRMAN BERNANKE. Well, I’ll take your second question first. The lack of thresholds comes from the complexity of the problem. On the one hand, we have benefits, which are associated with improvements in the economy, but there are also costs associated with unconventional policy, such as potential effects of financial stability, which are hard to quantify and which people have different views about. So to this point, we’ve not been able to give quantitative thresholds for the asset purchases in the same way that we have for the federal funds rate target. We’re going to continue to try to provide the information as we go forward. In particular, as I mentioned today, as we make progress towards our objective, we may adjust the flow rate of purchases month to month to appropriately calibrate the amount of accommodation we’re providing given the outlook for the labor market.

In terms of further color, again given the complexity of the issue, we’ve not given quantitative analysis or quantitative thresholds. I would say that we’ll be looking for sustained improvement in a range of key labor market indicators, including obviously payrolls, unemployment rate, but also others like the hiring rate, the claims for unemployment insurance, quit rates, wage rates, and so on. We’re looking for sustained improvement across a range of indicators and in a way that’s taking place throughout the economy. And since we’re looking at the outlook, we’re looking at the prospects rather than the current state of the labor market, we’ll also be looking at things like growth to try to understand whether there’s sufficient momentum in the economy to provide demand for labor going forward. So that will allow us to look through perhaps some temporary fluctuations associated with short-term shocks or problems.


PETER BARNES. Peter Barnes of Fox Business, sir. The stock market has been hitting all-time highs. It’s recovered all of its losses from the financial crisis. I just want to know if I-from you if I still have time to get in.


PETER BARNES. But seriously, how do you feel about that? Is it good? Is it bad? Mission accomplished? And are you worried about bubbles? We’re still at 7.7 percent unemployment. I mean is the–what do you think?

CHAIRMAN BERNANKE. That’s right. We’re not targeting asset prices. We’re not measuring success by in terms of the stock market. We’re measuring success in terms of our mandate, which is employment and price stability, and that’s what we’re trying to achieve. We do monitor the entire financial system, not just the parts that we supervise or regulate. It includes the stock market and other asset markets. We use a variety of metrics. And I don’t want to now be pulled into going through every individual financial market and assessing it. But in the stock market, you know, we don’t see at this point anything that’s out of line with historical patterns. In particular, you should remember of course that while the Dow may be hitting a high, it’s a nominal term. This is not in real terms. And if you adjust for inflation and for the growth of the economy, you know, we’re still some distance from the high. I don’t think it’s all that surprising that the stock market would rise given that there has been increased optimism about the economy, and the share of income going to profits has been very high. Profit increases have been substantial, and the relationship between stock prices and earnings is not particularly unusual at this point.


BEN WEYL. Hi, Mr. Chairman. Ben Weyl, Congressional Quarterly. There’s a lot of talk about whether certain institutions are too big to fail. And I wanted to get it a different, if related, question. In 1980, let’s say there was about financial sector comprised about 5 percent of the US Economy, US GDP, now it’s about 9 percent. And I’m wondering if you think that shift is beneficial to the US economy?

CHAIRMAN BERNANKE. I don’t think I know the answer to that question. Certainly, the financial system has–I could argue two ways. I could say, well, the US economy grew pretty well between 1945 and 1975 or 1980. And the financial system was much simpler and didn’t have a lot of exotic derivatives and so on. So that would be argue–that would be one way to argue that maybe, you know, all these extra financial activity is not justified. On the other hand, the world is a lot more complicated. We’re a lot–The world is a lot more international. You have large multinational firms that are connecting resources, savers and investors in different countries. There’s a lot more demand for risk sharing, for liquidity services and so on. So I think based on that and based on the innovations that information technology have created lots of industries, you would expect financial services to be somewhat bigger. So I don’t really know the answer to that question. I think that my predecessor, Paul Volcker’s claim that the only contribution to the financial industry is the Automatic Teller Machine. It might be a little exaggerated. I know that people–some people have that view. Again, I don’t know the answer. I think that a somewhat bigger financial sector can be justified by the wider range of services and the more globalized financial economic system that we have. But the exact number, I can’t really say.


GREG ROBB. Thank you. There’s been a trend in the last couple of years where the economy kind of jumped out of the gate in the first part of the year only to kind of falter. Is that something that you’re worried about this year? And does that suggest that QE might have to stay kind of at the same pace you are now in some into the third quarter until we’re sure about that trend?

CHAIRMAN BERNANKE. Well, you’re absolutely right that there’s been a certain tendency for a spring slump that we’ve seen a few times. One possible explanation for that-besides some freaky things, some weather events and so on, one possible explanation is seasonality. Because of the severity of the recession in 2007 to 2009, the seasonals got distorted. And they may have led–and I say may because the statistical experts–many of them deny it. But it’s possible that they led job creation and GDP to be exaggerated to some extent early in the year. Our assessment is though that at this point that we’re far enough away from the recession that those seasonal factors ought to be pretty much washing out by now. So if we do in fact see a slump, it would probably be due to real fundamental causes. And then we would obviously have to respond to that. As I said we’re planning to adjust our tools to respond to changes in the outlook. And that can go either direction.


CATHERINE HOLLANDER. Catherine Hollander from National Journal. You argued in a 1999 paper and a 2002 speech that monetary policy was not the right tool for addressing asset bubbles. But in January, you suggested that there might be a role for it even if not as the first line of defense. Has your thinking on the issue evolved and can you explain why?

CHAIRMAN BERNANKE. Well, I still believe the following which is that monetary policy is a very blunt instrument. If you are raising interest rates to pop an asset bubble, even if you were sure you can do that, you might at the same time be throwing the economy into recession which kind of defeats the purpose of monetary policy. And therefore, I think the first line of defense–I mean, I think, we have a sort of a tripartite lines of defense. We start off with very extensive and sophisticated monitoring at a much higher level and much more comprehensively than we’ve had in the past. Then we have supervision and regulation where we work with other agencies to try to cover all the empty or uncovered areas in the financial system. And then, in addition, we try to use communication and similar tools to effect the way that the financial markets respond to monetary policy. So we do have some first lines of defense which I think should be used first. That being said, you know, I think that given the problems that we’ve had not just in the United States, but globally in the last 15, 20 years, that we need to at least take into account these issues as we make monetary policy. And I think most people on the FOMC would agree with that. What that means exactly depends on the circumstances. I think if the economy is in very weak condition and interest rates are very low for that purpose, it’s very difficult to contemplate raising rates a lot because you’re concerned about some sector in the financial sphere. On the other hand, if you’re in an expansion and there’s a credit boom going on, that–the case in that situation for making policy a little bit tighter might be better. So as I’ve said many times, I have an open mind in this question. We’re learning. All central bankers are learning. But I think I still would agree with the point I made in my very first speech in 2002 as a Governor at the Federal Reserve where I argued that the first line of defense ought to be the more targeted tools that we have including regulatory tools and to some extent macroprudential tools like some emerging markets use.


PETER COOK. Thank you, Mr. Chairman. As tempted as I might be to end with your NCAA picks or your view of the Nationals, I have something a little more serious for you, in line with what John asked you about your future. Given the unprecedented nature of that policy on your watch and the uncertainty surrounding the exit strategy, to what extent do you feel personally responsible to be at the helm when those decisions are made, and how does that affect your future? And more specifically, sort of the last time we gathered here at the press conference, you were asked if you’d spoken with the President about your future, and you said you hadn’t at that time. Could you at least tell us if you’ve had the conversation?

CHAIRMAN BERNANKE. I’ve spoken to the President a bit, but I really don’t have any-I don’t really have any information for you at this juncture. I don’t think that I’m the only person in the world who can manage the exit. In fact, one of the things that I hope to accomplish and was not entirely successful at as the Governor or as the Chairman of the Federal Reserve was to try to depersonalize, to some extent, monetary policy and financial policy and to get broader recognition of the fact that this is an extraordinary institution. It has a large number of very high quality policymakers. It has a terrific staff. Literally, dozens of Ph.D. economists who’ve been working through the crisis trying to understand these issues and implement our policy tools, and there’s no single person who is essential to that. But again, with respect to my personal plans, I will certainly let you know when I have something more concrete. Thank you.


The Special Note summarizes my overall thoughts about our economic situation

SPX at 1549.07 as this post is written

Zillow March 2013 Home Price Expectations Survey – Summary & Comments

On March 18, the Zillow March 2013 Home Price Expectations Survey (pdf) results were released.  This survey is done on a quarterly basis.  (please note:  as stated in the Press Release, “This is the first survey edition that utilized the U.S. Zillow Home Value Index (ZHVI) as the reference benchmark for the panel’s home price expectations.”)

Various charts from the March 2013 Survey results are presented, including the following:

Zillow March 2013 Home Price Expectations Chart


As one can see from the above chart, the average expectation is that the residential real estate market, as depicted by the U.S. Zillow Home Value Index Level, will continually climb.

The detail of the March 2013 Home Price Expectations Survey (pdf) is interesting.  Of the 118 survey respondents, 3 (of the displayed responses) forecast a cumulative price decrease through 2017; and of those 3, only 1, John Brynjolfsson, foresees a double-digit percentage cumulative price drop, at 11.04%.

The Median Cumulative Home Price Appreciation for years 2013-2017 is seen as 4.78%, 8.68%, 12.62%, 17.03% and 20.77%, respectively.

For a variety of reasons, I continue to believe that even the most “bearish” of these forecasts (as seen in John Brynjolfsson’s above-referenced forecast)  will prove too optimistic in hindsight.  Although a 11.04% cumulative 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 many people continue to 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, (even) from these price levels 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 titled “What’s Ahead For The Housing Market – A Look At The Charts.”


The Special Note summarizes my overall thoughts about our economic situation

SPX at 1549.71 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 22 “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.


The Special Note summarizes my overall thoughts about our economic situation

SPX at 1548.34 as this post is written

The March 2013 Wall Street Journal Economic Forecast Survey

The March Wall Street Journal Economic Forecast Survey was published on March 18, 2013.  The headline is “Easy Money Era a Long Game for Fed.”

Although I don’t agree with various aspects of the survey’s contents, I found numerous items to be notable, both within the article and in the Q&A found in the spreadsheet.

Notable excerpts from the article include:

According to the economists surveyed, circle these dates on your calendar: November 2013, May 2014 and June 2015. That is when on average they expect the Fed, respectively, to:

1) start slowing its monthly bond purchases,

2) stop buying bonds, and

3) begin thinking seriously about raising short-term interest rates, as unemployment reaches 6.5%.


Economists surveyed by the Journal, on average, said they didn’t expect the Fed’s balance sheet to return to normal—not bloated with the many extra bonds purchased in its quantitative-easing programs—until December 2019. More than a decade after the financial crisis ended, in other words, the Fed might still be a big player in long-term bond markets, directly shaping long-term rates.


They also said markets weren’t overheating, despite a recent run of stock-market highs; on a scale of 0 to 10, they said froth in markets was about a 5.

As well, as to the question (seen in the spreadsheet detail) “Please estimate on a scale of 0 to 100 the probability of a recession in the U.S. in the next 12 months,” the average was 15%.

The current average forecasts among economists polled include the following:


full-year 2013:  2.3%

full-year 2014:  2.9%

full-year 2015:  3.0%

Unemployment Rate:

December 2013: 7.4%

December 2014: 6.8%

December 2015: 6.2%

10-Year Treasury Yield:

December 2013: 2.41%

December 2014: 3.04%

December 2015: 3.61%


December 2013:  2.1%

December 2014:  2.2%

December 2015:  2.4%

Crude Oil  ($ per bbl):

for 12/31/2013: $94.94

for 12/31/2014: $93.10

(note: I highlight this WSJ Economic Forecast 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.


The Special Note summarizes my overall thoughts about our economic situation

SPX at 1552.10 as this post is written