Monthly Archives: February 2014

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 February 20, incorporating data from January 5,1973 to February 14, 2014, on a weekly basis.  The February 14, 2014 value is -.94:

(click on chart to enlarge image)

NFCI_2-20-14 -.94

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed February 20, 2014:

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

The ANFCI chart below was last updated on February 20, incorporating data from January 5,1973 to February 14, 2014, on a weekly basis.  The February 14, 2014 value is -.19:

(click on chart to enlarge image)

ANFCI_2-20-14 -.19

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed February 20, 2014:

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

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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 1839.79 as this post is written

Walmart’s Q4 2014 Results – Comments

I found various notable items in Walmart’s Q4 2014 management call transcript (pdf) dated February 20, 2014.  (as well, there is Walmart’s press release of the Q4 and Full Year 2014 results)

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 conference call comments; these previous posts are found under the “paycheck to paycheck” tag.

Here are various excerpts that I find most notable:

comments from Claire Babineaux-Fontenot, EVP of finance and treasurer, page 9:

Strategic price investment within all three operating segments contributed to a 40 basis point reduction in our gross profit rate, bringing it to 23.9 percent for the quarter.

comments from Claire Babineaux-Fontenot, EVP of finance and treasurer, pages 10-11:

For the 53-week period ended January 31, U.S. comp sales, without fuel, decreased 0.4 percent.

While our gross profit grew 1.5 percent, our gross profit rate declined 3 basis points to 24.3 percent, which reflects our ongoing investment in price, as well as our global merchandise mix.

comments from Bill Simon, president and CEO of Walmart U.S., page 13:

Net sales grew by $1.8 billion or 2.4 percent.  For the 14 weeks ending January 31, comp store sales were down 0.4 percent, with ticket up 1.3 percent and traffic down 1.7 percent.  In the absence of a reduction of government SNAP benefits, which represented approximately 40 basis points of impact to comp sales, we believe the quarter would have been flat.  Additionally, comps were pressured by winter storms, which forced the closure of over 200 stores at some point over the course of quarter.

also:

In addition, we continue to be pleased with the strength of our small formats.  These stores continue to deliver positive comp sales and traffic increases each quarter.  In fact, comp sales, without fuel, for Neighborhood Markets grew approximately 5 percent for the 14-week period.

also:

Gross profit increased 0.8 percent, with our gross profit rate down 41 basis points, driven primarily by a commitment to price leadership.  Our customers rely on us to deliver low prices on the items they want most.  We believe our price investment was a material driver to accelerated share gains and positive comps during the holiday season.

comments from Bill Simon, president and CEO of Walmart U.S., page 16:

Gross profit for the year increased 1.8 percent, with a slight gross profit rate decline.  Price investments were offset by cost of goods savings initiatives.

comments from Bill Simon, president and CEO of Walmart U.S., page 18:

In the first quarter, we expect the retail landscape to remain challenging.  Comp sales were down at the beginning of the 13-week period, due largely to continued winter storms.  However, we’re encouraged by our underlying business trends and anticipate a positive sales comp for the balance of the quarter.  Therefore, we expect a relatively flat sales comp for the 13-week period ending May 2.   Last year’s 13-week comp ending April 26, 2013 was down 1.4 percent.

David Cheesewright, president and CEO of Walmart International, page 20:

Around the globe, the holiday season was softer than we would’ve liked, particularly in our larger markets, as we continue to see customers manage on a relatively tight budget.

Gross profit rate, on a reported basis, fell 53 basis points and on a constant currency basis, decreased 44 basis points.  This was primarily driven by price investments in Brazil, Canada and Mexico.

comments from Charles Holley, CFO, page 38:

  • We delivered over $473 billion in net sales.  E-commerce sales grew over 30 percent to more than $10 billion, including acquisitions.

comments from Charles Holley, CFO, page 41:

Let’s turn to guidance. We expect economic factors to have more negative than positive effect on our outlook. Now, you’ve heard today about some of the factors affecting the U.S. business, including reductions in government benefits, and along with higher taxes and tight credit, these items will continue to weigh on our customers.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1829.11 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 February 14, 2014:

from page 18:

(click on charts to enlarge images)

CY Bottom-Up EPS vs. Top-Down Mean EPS (Trailing 26-Weeks) 

FactSet Earnings Insight 2-14-14 CY2014 and CY2015

from page 19:

Calendar Year Bottom-Up EPS Actuals & Estimates

FactSet Earnings Insight 2-14-14 CY2001-CY2015

 

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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 1838.42 as this post is written

S&P500 Earnings Estimates For Years 2013, 2014, And 2015

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 tag)

The following estimates are from Exhibit 12 of “The Director’s Report” (pdf) of February 18, 2014, and represent an aggregation of individual S&P500 component “bottom up” analyst forecasts:

Year 2013 estimate:

$109.44/share

Year 2014 estimate:

$119.40/share

Year 2015 estimate:

$132.56/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 1839.54 as this post is written

Standard & Poor’s S&P500 Earnings Estimates For 2013, 2014 & 2015 – As Of February 12, 2014

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 February 12, 2014:

Year 2013 estimates add to the following:

-From a “bottom up” perspective, operating earnings of $107.56/share

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

-From a “top down” perspective, “as reported” earnings of $101.43/share

Year 2014 estimates add to the following:

-From a “bottom up” perspective, operating earnings of $120.74/share

-From a “top down” perspective, operating earnings of $124.42/share

-From a “top down” perspective, “as reported” earnings of $120.60/share

Year 2015 estimates add to the following:

-From a “bottom up” perspective, operating earnings of $137.29/share

-From a “top down” perspective, operating earnings of $149.66/share

-From a “top down” perspective, “as reported” earnings of $147.50/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 1840.76 as this post is written

The February 2014 Wall Street Journal Economic Forecast Survey

The February Wall Street Journal Economic Forecast Survey was published on February 13, 2014.  The headline is “Old Man Winter Taking a Toll, for Now, Economists Say.”

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.

One excerpt I found notable:

If their forecasts miss reality, more economists think it’s because they are being too cautious rather than too optimistic about growth in 2014. On average, they give a 38% probability that real GDP will grow faster than 3%, while the odds for recession are only 12%.

Stronger demand and a tighter labor market will allow pricing power to gain some traction. Economists think consumer prices will increase by 2% across of 2014, putting the inflation rate right at the Federal Reserve’s target.

Lower unemployment and inflation at goal will allow the Fed to maintain its pace of paring bond purchases by $10 billion per meeting, say the economists.

The current average forecasts among economists polled include the following:

GDP:

full-year 2013:  2.6%

full-year 2014:  2.8%

full-year 2015:  2.9%

full-year 2016:  2.9%

Unemployment Rate:

December 2014: 6.2%

December 2015: 5.8%

December 2016: 5.5%

10-Year Treasury Yield:

December 2014: 3.48%

December 2015: 4.00%

December 2016: 4.34%

CPI:

December 2014:  2.0%

December 2015:  2.1%

December 2016:  2.3%

Crude Oil  ($ per bbl):

for 12/31/2014: $95.62

(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 1841.01 as this post is written

Philadelphia Fed – 1st Quarter 2014 Survey Of Professional Forecasters

The Philadelphia Fed First Quarter 2014 Survey of Professional Forecasters was released on February 14, 2014.  This survey is somewhat unique in various regards, such as it incorporates a longer time frame for various measures.

The survey shows, among many measures, the following median expectations:

Real GDP: (annual average level)

full-year 2014 : 2.8%

full-year 2015:  3.1%

full-year 2016:  3.1%

full-year 2017:  2.4%

Unemployment Rate: (annual average level)

for 2014: 6.5%

for 2015: 6.1%

for 2016: 5.7%

for 2017: 5.5%

As for “the chance of a contraction in real GDP” in any of the next few quarters, mean estimates are 11.2%, 9.3%, 10.6%, 11.4% and 11.7% for each of the quarters from Q1 2014 through Q1 2015, respectively.

As well, there are also a variety of time frames shown (present quarter through the year 2023) with the median expected inflation (annualized) of each.  Inflation is measured in Headline and Core CPI and Headline and Core PCE.  Over all time frames expectations are shown to be in the 1.3%-2.3% range.

_____

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 1838.53 as this post is written

Long-Term Charts Of The ECRI WLI & ECRI WLI, Gr. – February 14, 2014 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 twelve 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:

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Below are three long-term charts, from Doug Short’s blog post of February 14, 2014 titled “ECRI Recession Watch:  Weekly Update.”  These charts are on a weekly basis through the February 14 release, indicating data through February 7, 2014.

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

Dshort 2-14-14 - ECRI-WLI 132.2

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

Dshort 2-14-14 - ECRI-WLI-YoY 2.4 percent

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

Dshort 2-14-14 - ECRI-WLI-growth-since-1965 3.3

_________

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 1835.71 as this post is written

St. Louis Financial Stress Index – February 13, 2014 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 February 13, incorporating data from December 31,1993 to February 7, 2014, on a weekly basis.  The February 7, 2014 value is -.843:

(click on chart to enlarge image)

STLFSI_2-13-14 -.843

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

STLFSI_2-13-14 -.843 1-year

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed February 13, 2014:

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 1821.49 as this post is written

Zillow Q1 2014 Home Price Expectations Survey – Summary & Comments

On February 12, 2014, the Zillow Q1 2014 Home Price Expectations Survey results were released.  This survey is done on a quarterly basis.

Two excerpts from the Press Release:

The survey of 110 economists, real estate experts and investment and market strategists asked panelists to predict the path of the U.S. Zillow Home Value Indexi through 2018 and solicited opinions on investor activity and federal monetary policy. The survey was sponsored by leading real estate information marketplace Zillow, Inc. and is conducted quarterly by Pulsenomics LLC.

also:

On average, panelists said they expect nationwide home value appreciation of 4.5 percent through the end of this year, a pace that exceeds historically normal annual appreciation rates of around 3 percent. This appreciation is expected to slow to roughly 3.8 percent in 2015 and 3.3 percent by 2018, rates much more in line with historic norms.

Based on current expectations for home value appreciation during the next five years, panelists predicted that overall U.S. home values could exceed their April 2007 peak by the first quarter of 2018, and may cross the$200,000 threshold by the third quarter of 2018.

Various Q1 2014 Zillow Home Price Expectations Survey charts are available, including that seen below:

Zillow 2-12-14 HPE Survey Chart Q1 2014 - large

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 Q1 2014 Home Price Expectations Survey (pdf) is interesting.  Of the 110 survey respondents, only two (of the displayed responses) forecast a cumulative price decrease through 2018; and of those two, neither foresee a double-digit percentage cumulative price drop.  The most “bearish” of these forecasts is that of Mark Hanson’s prediction of a 5.91% cumulative price decrease through 2018.

The Median Cumulative Home Price Appreciation for years 2014-2018 is seen as 4.50%, 8.51%, 12.48%, 15.86%, and 19.76%, respectively.

For a variety of reasons, I continue to believe that even the most “bearish” of these forecasts (as seen in Mark Hanson’s above-referenced forecast)  will prove too optimistic in hindsight.  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.”

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1819.26 as this post is written