Monthly Archives: December 2013

Standard & Poor’s S&P500 Earnings Estimates For 2013 & 2014 – As Of December 19, 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 December 19, 2013:

Year 2013 estimates add to the following:

-From a “bottom up” perspective, operating earnings of $107.40/share

-From a “top down” perspective, operating earnings of N/A

-From a “top down” perspective, “as reported” earnings of $96.72/share

Year 2014 estimates add to the following:

-From a “bottom up” perspective, operating earnings of $122.11/share

-From a “top down” perspective, operating earnings of $110.72/share

-From a “top down” perspective, “as reported” earnings of $106.00/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 1818.32 as this post is written

St. Louis Financial Stress Index – December 19, 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 December 19, incorporating data from December 31,1993 to December 13, 2013, on a weekly basis.  The December 13, 2013 value is -.803:

(click on chart to enlarge image)

STLFSI_12-19-13 -.803

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

STLFSI_12-19-13 -.803 1-year

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed December 19, 2013:

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

_________

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 1804.70 as this post is written

Markets During Periods Of Federal Reserve Intervention – December 17, 2013 Update

In the August 9, 2011 post (“QE3 – Various Thoughts“) I posted a chart that depicted the movements of the S&P500, 10-Year Treasury Yield and the Fed Funds rate spanning the periods of various Federal Reserve interventions since 2007.

For reference purposes, here is an updated chart from Doug Short’s blog post of December 17 (“Treasury Snapshot:  Eye on the Fed“) :

(click on chart to enlarge image)

Dshort 12-17-13 - SPX-10-yr-yield-and-fed-intervention

 

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1810.65 as this post is written

Chicago Fed National Financial Conditions Index (NFCI)

Each week I have been posting two charts of the St. Louis Fed’s Financial Stress Index (STLFSI), which is supposed to measure stress in the financial system.

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

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

The NFCI chart below was last updated on December 18, incorporating data from January 5,1973 to December 13, 2013, on a weekly basis.  The December 13, 2013 value is -.94:

(click on chart to enlarge image)

NFCI_12-18-13 -.94

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed December 18, 2013:

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

The ANFCI chart below was last updated on December 18, incorporating data from January 5,1973 to December 13, 2013, on a weekly basis.  The December 13, 2013 value is -.30:

(click on chart to enlarge image)

ANFCI_12-18-13 -.30

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed December 18, 2013:

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 1782.73 as this post is written

Corporate Bond Yields And OASs

I often write about interest rates and related topics as my analyses indicates that the overall bond market is an exceedingly large asset bubble.

The characteristics and price levels of corporate bonds is highly noteworthy.

For reference purposes, here are three bond indices and their FRED charts, as well as depictions of their spreads (as seen in OASs) :

The BofA Merrill Lynch US Corporate Master Index

An excerpt from the FRED description of the BofA Merrill Lynch US Corporate Master Index :

This data represents the effective yield of the BofA Merrill Lynch US Corporate Master Index, which tracks the performance of US dollar denominated investment grade rated corporate debt publically issued in the US domestic market.

A chart of the BofA Merrill Lynch US Corporate Master Index, with an effective yield of 3.30% as of December 16, 2013:

(click on chart to enlarge images)(chart last updated on 12-16-13)

BAMLC0A0CMEY_12-16-13 3.30 percent

The BofA Merrill Lynch US Corporate Master Index Option-Adjusted Spread (OAS)

An excerpt from the FRED description of the BofA Merrill Lynch US Corporate Master Index Option-Adjusted Spread (OAS):

The BofA Merrill Lynch Option-Adjusted Spreads (OASs) are the calculated spreads between a computed OAS index of all bonds in a given rating category and a spot Treasury curve. An OAS index is constructed using each constituent bond’s OAS, weighted by market capitalization. The Corporate Master OAS uses an index of bonds that are considered investment grade (those rated BBB or better).

A chart of the The BofA Merrill Lynch US Corporate Master Index Option-Adjusted Spread (OAS), with a value of 1.35% as of December 16, 2013:

(click on chart to enlarge image)(chart last updated on 12-16-13)

BAMLC0A0CM_12-16-13 1.35 percent

The BofA Merrill Lynch US High Yield Master II Index

An excerpt from the FRED description of the BofA Merrill Lynch US High Yield Master II Index:

This data represents the effective yield of the BofA Merrill Lynch US High Yield Master II Index, which tracks the performance of US dollar denominated below investment grade rated corporate debt publically issued in the US domestic market.

A chart of the The BofA Merrill Lynch US High Yield Master II Index, with an effective yield of 5.90% as of December 16, 2013:

(click on chart to enlarge image)(chart last updated on 12-16-13)

BAMLH0A0HYM2EY_12-13-13 5.90 percent

The BofA Merrill Lynch High Yield Master II Option-Adjusted Spread (OAS)

An excerpt from the FRED description of the BofA Merrill Lynch High Yield Master II Option-Adjusted Spread (OAS) :

The BofA Merrill Lynch Option-Adjusted Spreads (OASs) are the calculated spreads between a computed OAS index of all bonds in a given rating category and a spot Treasury curve. An OAS index is constructed using each constituent bond’s OAS, weighted by market capitalization. The BofA Merrill Lynch High Yield Master II OAS uses an index of bonds that are below investment grade (those rated BB or below).

A chart of the BofA Merrill Lynch High Yield Master II Option-Adjusted Spread (OAS), with a value of 4.12 percent as of December 16, 2013:

(click on chart to enlarge image)(chart last updated on 12-16-13)

BAMLH0A0HYM2_12-16-13 4.12 percent

The BofA Merrill Lynch US High Yield CCC or Below Effective Yield

An excerpt from the FRED description of The BofA Merrill Lynch US High Yield CCC or Below Effective Yield :

This data represents the effective yield of the BofA Merrill Lynch US Corporate C Index, a subset of the BofA Merrill Lynch US High Yield Master II Index tracking the performance of US dollar denominated below investment grade rated corporate debt publically issued in the US domestic market. This subset includes all securities with a given investment grade rating CCC or below.

A chart of The BofA Merrill Lynch US High Yield CCC or Below Effective Yield, with an effective yield of 9.20% as of December 16, 2013:

(click on chart to enlarge image)(chart last updated on 12-16-13)

BAMLH0A3HYCEY_12-16-13 9.2 percent

The BofA Merrill Lynch High Yield CCC or Below Option-Adjusted Spread (OAS)

An excerpt from the FRED description of The BofA Merrill Lynch High Yield CCC or Below Option-Adjusted Spread (OAS):

This data represents the Option-Adjusted Spread (OAS) of the BofA Merrill Lynch US Corporate C Index, a subset of the BofA Merrill Lynch US High Yield Master II Index tracking the performance of US dollar denominated below investment grade rated corporate debt publically issued in the US domestic market. This subset includes all securities with a given investment grade rating CCC or below.

A chart of The BofA Merrill Lynch High Yield CCC or Below Option-Adjusted Spread (OAS), with a value of 7.58 percent as of December 16, 2013:

(click on chart to enlarge image)(chart last updated on 12-16-13)

BAMLH0A3HYC_12-16-13 7.58 percent

 

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1781.54 as this post is written

2014 Estimates For S&P500 Earnings & Price Levels

In the December 16, 2013 edition of Barron’s, the cover story is titled “Bullish on 2014.”

Included in the story, 10 investment strategists give various forecasts for 2014 including S&P500 profits, S&P500 year-end price targets, GDP growth, and 10-Year Treasury Note Yields.

A couple of excerpts:

THE 10 STRATEGISTS Barron’s consulted about the outlook for 2014 have year-end targets for the S&P of 1900 to 2100, well above Friday’s close of 1775.32; their mean prediction is 1977. The bullish consensus might trouble contrarians, but Wall Street’s pros see ample reason for optimism, given their expectations of a stronger economy and rising corporate profits.

also:

Specifically, the strategists eye S&P profits of $118, up from this year’s estimated $108 to $109. Industry analysts typically have higher forecasts; their 2014 consensus is $122, according to Yardeni Research.

The article also mentions that among the investment strategists, average expected 2014 GDP growth is 2.7%.

_____

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 1775.32 as this post is written

Recession Probability Models

There are a variety of economic models that are supposed to predict the probabilities of recession.

While I don’t agree with the methodologies employed or probabilities of impending economic weakness as depicted by the following two models, I think the results of these models should be monitored.

Please note that each of these models is updated regularly, and the results of these – as well as other recession models – can fluctuate significantly.

The first is the “Yield Curve as a Leading Indicator” from the New York Federal Reserve.  I wrote a blog post concerning this measure on March 1, 2010, titled “The Yield Curve as a Leading Indicator.”

Currently (last updated December 3, using data through November) this “Yield Curve” model shows a 1.35% probability of a recession in the United States twelve months ahead.  For comparison purposes, it showed a 1.54% probability through October, and a chart going back to 1960 is seen at “Probability Of U.S. Recession Charts.” (pdf)

The second model is from Marcelle Chauvet and Jeremy Piger.  This model is described on the St. Louis Federal Reserve site (FRED) as follows:

Smoothed recession probabilities for the United States are obtained from a dynamic-factor markov-switching model applied to four monthly coincident variables: non-farm payroll employment, the index of industrial production, real personal income excluding transfer payments, and real manufacturing and trade sales. This model was originally developed in Chauvet, M., “An Economic Characterization of Business Cycle Dynamics with Factor Structure and Regime Switching,” International Economic Review, 1998, 39, 969-996. (http://faculty.ucr.edu/~chauvet/ier.pdf)

Additional details and explanations can be seen on the “U.S. Recession Probabilities” page.

This model, last updated on December 9, 2013, currently shows a .2% probability using data through September.

Here is the FRED chart (last updated December 9, 2013) :

RECPROUSM156N_12-9-13 .2 percent

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Marcelle Chauvet and Jeremy Piger; U.S. Recession Probabilities [RECPROUSM156N]; accessed December 15, 2013:

http://research.stlouisfed.org/fred2/series/RECPROUSM156N

The two models featured above can be compared against measures seen in recent blog posts.  For instance, as seen in the December 13 post titled “The December 2013 Wall Street Journal Economic Forecast Survey“ economists surveyed averaged a 12% probability of a U.S. recession within the next 12 months.

Of course, there is a (very) limited number of prominent parties, such as ECRI (most recently featured in the December 13 post titled “Long-Term Charts Of The ECRI WLI & ECRI WLI,Gr. – December 13, 2013 Update“) that believe the U.S. is currently experiencing a recession.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1775.32 as this post is written

The December 2013 Wall Street Journal Economic Forecast Survey

The December Wall Street Journal Economic Forecast Survey was published on December 13, 2013.  The headline is “Economists Split on Start of Fed Pullback.”

I found numerous items to be notable – although I don’t necessarily agree with them – both within the article and in the Q&A found in the spreadsheet.

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 12%.

The current average forecasts among economists polled include the following:

GDP:

full-year 2013:  2.1%

full-year 2014:  2.7%

full-year 2015:  2.9%

Unemployment Rate:

December 2013: 7.1%

December 2014: 6.5%

December 2015: 6.0%

10-Year Treasury Yield:

December 2013: 2.86%

December 2014: 3.47%

December 2015: 3.91%

CPI:

December 2013:  1.4%

December 2014:  2.0%

December 2015:  2.2%

Crude Oil  ($ per bbl):

for 12/31/2013: $97.85

for 12/31/2014: $97.26

(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 1777.77 as this post is written

Long-Term Charts Of The ECRI WLI & ECRI WLI, Gr. – December 13, 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 nine 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:

__

Below are three long-term charts, from Doug Short’s blog post of December 13, 2013 titled “ECRI Recession Watch:  Weekly Update.”  These charts are on a weekly basis through the December 13 release, indicating data through December 6, 2013.

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

(click on charts to enlarge images)

Dshort 12-13-13 - ECRI-WLI 131.4

This next chart depicts, on a long-term basis, the Year-over-Year change in the 4-week moving average of the WLI:

Dshort 12-13-13 - ECRI-WLI-YoY 4.5 percent

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

Dshort 12-13-13 ECRI-WLI-growth-since-1965 2.8

_________

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 1777.41 as this post is written

St. Louis Financial Stress Index – December 12, 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 December 12, incorporating data from December 31,1993 to December 6, 2013, on a weekly basis.  The December 6, 2013 value is -.775:

(click on chart to enlarge image)

STLFSI_12-12-13 -.775

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

STLFSI_12-12-13 -.775 1-year

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed December 12, 2013:

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

_________

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 1777.63 as this post is written