Monthly Archives: September 2014

Standard & Poor’s S&P500 Earnings Estimates For 2014 & 2015 – As Of September 18, 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 September 18, 2014:

Year 2014 estimates add to the following:

-From a “bottom up” perspective, operating earnings of $119.11/share

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

-From a “top down” perspective, “as reported” earnings of $110.10/share

Year 2015 estimates add to the following:

-From a “bottom up” perspective, operating earnings of $136.19/share

-From a “top down” perspective, operating earnings of $135.84/share

-From a “top down” perspective, “as reported” earnings of $132.30/share

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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.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1995.36 as this post is written

Updates Of Economic Indicators September 2014

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 September 2014 Chicago Fed National Activity Index (CFNAI)(pdf) updated as of September 22, 2014:

CFNAI-MA3

The ECRI WLI (Weekly Leading Index):

As of September 19, 2014 (incorporating data through September 12, 2014) the WLI was at 135.6 and the WLI, Gr. was at 2.1%.

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

Here is the latest chart, depicting the ADS Index from December 31, 2007 through September 13, 2014:

ADS Index

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

As per the September 19, 2014 press release, the LEI was at 103.8 and the CEI was at 109.7 in August.

An excerpt from the September 19 release:

“The LEI continued to rise in August, although at a slower rate than in July,” said Ataman Ozyildirim, Economist at The Conference Board. “The LEI’s six-month growth trend has been held back slightly by lackluster contributions from housing permits and new orders for nondefense capital orders. Despite concerns about investment picking up, the economy should continue expanding at a moderate pace for the remainder of the year.”

_________

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 2006.27 as this post is written

Total Household Net Worth As Of 2Q 2014 – Two Long-Term Charts

In the last post (“Total Household Net Worth As A Percent Of GDP 2Q 2014“) I displayed a long-term chart depicting Total Household Net Worth as a percentage of GDP.

For reference purposes, here is Total Household Net Worth from a long-term perspective (from 1949:Q4 to 2014:Q2).  The last value (as of September 18, 2014) is $81.49279 Trillion:

(click on each chart to enlarge image)

Total Household Net Worth

Also of interest is the same metric presented on a “Percent Change from a Year Ago” basis:

total household net worth percent change from year ago

Data Source: FRED, Federal Reserve Economic Data, Board of Governors of the Federal Reserve System; accessed September 19, 2014:

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

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2011.36 as this post is written

Total Household Net Worth As A Percent Of GDP 2Q 2014

The following chart is from the CalculatedRisk blog post of September 19, 2014 titled “Fed’s Q2 Flow of Funds:  Household Net Worth at Record High.” It depicts Total Household Net Worth as a Percent of GDP.  The underlying data is from the Federal Reserve’s Z.1 report, “Financial Accounts of the United States“ :

(click on chart to enlarge image)

Household Net Worth As A Percent Of GDP

As seen in the above-referenced CalculatedRisk blog post:

Net worth previously peaked at $67.9 trillion in Q2 2007, and then net worth fell to $55.0 trillion in Q1 2009 (a loss of $12.9 trillion). Household net worth was at $81.5 trillion in Q2 2014 (up $26.5 trillion from the trough in Q1 2009).

The Fed estimated that the value of household real estate increased to $20.2 trillion in Q2 2014. The value of household real estate is still $2.3 trillion below the peak in early 2006.

As I have written in previous posts on this Household Net Worth (as a percent of GDP) topic:

As one can see, the first outsized peak was in 2000, and attained after the stock market bull market / stock market bubbles and economic strength.  The second outsized peak was in 2007, right near the peak of the housing bubble as well as near the stock market peak.

also:

I could extensively write about various interpretations that can be made from this chart.  One way this chart can be interpreted is a gauge of “what’s in it for me?” as far as the aggregated wealth citizens are gleaning from economic activity, as measured compared to GDP.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2011.36 as this post is written

Janet Yellen’s September 17, 2014 Press Conference – Notable Aspects

On Wednesday, September 17, 2014 Janet Yellen gave her scheduled press conference. (video and related materials)

Below are Janet Yellen’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 Yellen’s Press Conference“(preliminary)(pdf) of September 17, 2014, with the accompanying “FOMC Statement” and “Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents, September 2014“ (pdf).

From Janet Yellen’s opening comments:

The Committee continues to see sufficient underlying strength in the economy to support ongoing improvement in the labor market. Although real GDP rose at an annual rate of only about 1 percent in the first half of the year, that modest gain reflected in part transitory factors, including a dip in net exports. Indeed, private domestic final demand—that is, spending by domestic households and businesses—grew about twice as fast as GDP. Indicators of spending and production for the third quarter suggest that economic activity is expanding at a moderate pace, and the Committee continues to expect a moderate pace of growth going forward.

also:

Regarding interest rates, the Committee reaffirmed its forward guidance that it likely will
be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal, and longer-term inflation expectations remain well anchored. This judgment is based on the Committee’s assessment of realized and expected progress toward its objectives of maximum employment and 2 percent inflation—an assessment that is based on a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. Further, once we begin to remove policy accommodation, it is the Committee’s current assessment that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

Janet Yellen’s responses as indicated to the various questions:

YLAN MUI. Hi, Ylan Mui, Washington Post. My question is about the new exit principles. You guys say that you don’t plan to end reinvestments until after the first rate hike. Can you give us a little bit of a sense of what are the conditions you’re going to be looking for when you eventually began to end the reinvestments? It sounds like tapering the reinvestments is also on the table. What might go into your decision on whether or not to end them altogether, whether or not to taper them? And do you have a general timeline for how long you think it will take to shrink the balance sheet once you actually start?

CHAIR YELLEN. OK. All good questions. So, I think the Committee would–will be focused on, we intend to use the path of short-term interest rates as our key tool of policy. And of course, market participants will be very focused, as we are, on what is the appropriate timing and pace of interest rate increases when that time comes. And I think the Committee would like to feel that it has successfully begun the normalization process and that we’re successfully  communicating with markets about how that process will be playing out over time. And I think when the Committee is comfortable that that process is established, is working well, and we’re comfortable with the outlook, that they will begin the process of ceasing–or possibly tapering–but eventually ceasing reinvestments. So, we say that it will depend on economic and financial conditions, but we want to make sure normalization is successfully underway. If we were only to shrink our balance sheet by ceasing reinvestments, it would probably take, to get back to levels of reserve balances that we had before the crisis. I’m not sure we will go that low but we’ve said that we will try to shrink our balance sheet to the lowest levels consistent with the efficient and effective implementation of policy. It could take to the end of the decade to achieve those levels.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2011.37 as this post is written

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 September 11, 2014 update (reflecting data through September 5) is -1.284.

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

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

The NFCI chart below was last updated on September 17, incorporating data from January 5,1973 to September 12, 2014, on a weekly basis.  The September 12, 2014 value is -.92:

(click on chart to enlarge image)

National Financial Conditions  Index

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed September 17, 2014:

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

The ANFCI chart below was last updated on September 17, incorporating data from January 5,1973 to September 12, 2014, on a weekly basis.  The September 12, 2014 value is -.40:

(click on chart to enlarge image)

Adjusted National Financial Conditions Index

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed September 17, 2014:

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 1997.29 as this post is written

VIX Weekly And Monthly Charts Since The Year 2000

For reference purposes, below are two charts of the VIX from year 2000 through Friday’s (September 12, 2014) close, which had a closing value of 13.31:

Below is the VIX Weekly chart, depicted on a LOG scale, with the 13- and 34-week moving averages, seen in the cyan and red lines, respectively:

(click on chart to enlarge image)(chart courtesy of StockCharts.com; chart creation and annotation by the author)

VIX Weekly

Here is the VIX Monthly chart, depicted on a LOG scale, with the 13- and 34-month moving average, seen in the cyan and red lines, respectively:

(click on chart to enlarge image)(chart courtesy of StockCharts.com; chart creation and annotation by the author)

VIX Monthly

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1985.54 as this post is written

Long-Term Charts Of The ECRI WLI & ECRI WLI, Gr. – September 12, 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 publicly available 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 September 12, 2014 titled “ECRI Recession Watch:  Weekly Update.”  These charts are on a weekly basis through the September 12 release, indicating data through September 5, 2014.

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 9-12-14 - ECRI-WLI-YoY 2.4 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 1985.66 as this post is written

The September 2014 Wall Street Journal Economic Forecast Survey

The September Wall Street Journal Economic Forecast Survey was published on September 11, 2014.  The headline is “Economists See Overseas Risks as Growth Wild Card.”

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

Two excerpts:

More than 90% of the 48 surveyed economists—not all of whom answered every question—said they expect the U.S. economy to improve relative to the first half of 2014. None see the economic outlook deteriorating. The survey was conducted after last Friday’s weaker-than-expected August jobs report.

also:

The economists see gross domestic product, the broadest measure of goods and services produced across the economy, advancing at a 3% annual pace this quarter and next. Just three economists expected growth to exceed 3.7% in the third or fourth quarters, and only two see growth falling below 2%.

The economy expanded at a 4.2% pace in the second quarter after contracting 2.1% in the first quarter, according to the Commerce Department.

Forecasters in the Journal survey expect the U.S. economy to grow at a 2.8% annual pace in 2015, down slightly from last month’s forecast of 2.9% annual growth.

As seen in the “Recession Probability” section, the average response as to the odds of another recession starting within the next 12 months was 11.65%; August’s average response was 12.10%.

The current average forecasts among economists polled include the following:

GDP:

full-year 2014:  2.0%

full-year 2015:  2.8%

full-year 2016:  2.8%

Unemployment Rate:

December 2014: 5.9%

December 2015: 5.4%

December 2016: 5.2%

10-Year Treasury Yield:

December 2014: 2.84%

December 2015: 3.58%

December 2016: 4.00%

CPI:

December 2014:  2.1%

December 2015:  2.2%

December 2016:  2.4%

Crude Oil  ($ per bbl):

for 12/31/2014: $94.45

for 12/31/2015: $93.67

(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 1985.95 as this post is written

Markets During Periods Of Federal Reserve Intervention – September 12, 2014 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 September 12 (“ECRI Recession Watch:  Weekly Update“) :

markets during Federal Reserve intervention

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1980.68 as this post is written