Monthly Archives: February 2015

Trends Of U.S. Treasury Yields – February 20, 2015 Update

For references purposes, below are two charts that show the trend in interest rates for various Treasuries, including the 3-Month, 2-Year, 5-Year, 7-Year, and 10-Year.

A chart showing the interest rate trends of the last 20 years, on a monthly basis:

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

U.S. Treasury Yields

A chart showing the interest rate trends of the last year, on a daily basis:

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

U.S. Treasury Yields

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2097.45 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 February 19, 2015 update (reflecting data through February 13) is -.928.

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 February 19, 2015 incorporating data from January 5,1973 to February 13, 2015, on a weekly basis.  The February 13, 2015 value is -.64:

(click on chart to enlarge image)

NFCI 2-19-15 -.64

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed February 19, 2015:

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

The ANFCI chart below was last updated on February 19, 2015 incorporating data from January 5,1973 to February 13, 2015, on a weekly basis.  The February 13 value is .11:

ANFCI 2-19-15 .11

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed February 19, 2015:

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 2099.78 as this post is written

Walmart’s Q4 2015 Results – Comments

I found various notable items in Walmart’s Q4 2015 management call transcript (pdf) dated February 19, 2015.  (as well, there is Walmart’s press release of the Q4 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 management call comments; these previous posts are found under the “paycheck to paycheck” tag.

Here are various excerpts that I find most notable:

comments from Doug McMillon, President and CEO, page 4:

Now clearly, our sales benefitted from customers having more spending power due to lower gas prices in most of our large markets. In addition, product inflation and more favorable weather were a tailwind to U.S. comp sales.

comments from Doug McMillon, President and CEO, page 7:

Value matters to everyone, regardless of household income level, and digital access creates even more price transparency. Being the low price leader has been a part of our customer proposition; and it will continue to be a priority in the future.

also:

Walmart U.S. improved its sales and operating income trends each consecutive quarter during fiscal 2015. Fourth quarter comp sales were the strongest in more than 2 years, with positive traffic for the first time in 9 quarters. Our Neighborhood Markets have continued to deliver strong comps. Our emphasis remains on the quality of the stores that we open, not the quantity.

comments from Greg Foran, president and CEO of Walmart U.S., page 13:

First, we believe associates equally value their hourly rate and hours worked. We’re happy to announce improvements to both aspects of associates’ earning opportunity. Current and future associates will benefit from this initiative, which ensures that Walmart hourly associates earn at least $1.75 above today’s federal minimum wage, or $9.00 per hour in April. And current associates will earn $10.00 per hour or higher by next February.

comments from Greg Foran, president and CEO of Walmart U.S., page 16:

And finally, we saw strong performance from our Neighborhood Market format. While all formats experienced positive sales comps, our traditional Neighborhood Markets continue to outperform Walmart supercenters and discount stores, providing customers with the products and services they desire at locations that are convenient to them. Our traditional Neighborhood Markets delivered approximately a 7.7 percent comp for the quarter.

comments from Greg Foran, president and CEO of Walmart U.S., page 17:

Now let me cover our full-year financial performance. For the year, net sales increased 3.1 percent, or $8.6 billion, to $288 billion. Comp sales improved 0.5 percent for the 52-week period ended January 30, while operating income declined 2.1 percent to $21.3 billion. Gross profit improved 2.6 percent for the year, with a 12 basis point decline in gross profit rate. This was primarily driven by price investments in meat and preferred Medicare prescription plans.

comments from Greg Foran, president and CEO of Walmart U.S., page 18:

In FY16, we expect to open approximately 60 to 70 supercenters, including relocations and expansions. Additionally, we’ll open an estimated 180 to 200 Neighborhood Markets, including 10-15 smaller-format locations, as we complete our openings of this test program. We’ll continue to monitor the progress of these test locations before making any further commitments to this format. We expect to add approximately 15 to 16 million retail square feet this year.

 

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2098.19 as this post is written

The Stock Market Bubble – February 2015 Update

This post is an update to various past posts concerning the stock market bubble, most recently that of November 21, 2013 titled “Is The Stock Market Experiencing A Bubble?

Many people don’t believe that we are currently experiencing a stock market bubble because their primary reference regarding stock market bubbles is that of the mid- to late-1990s, in which there was a stock market bubble with immense speculative activity, wildly resplendent “price action” in the technology and internet sectors, and many exceedingly high (in some cases stratospheric) company valuations.  It was an amazingly notable period for many reasons.

Today’s overall stock market bubble is not as “overt” and “flamboyant” in nature and many “bubble” aspects aren’t necessarily (widely) recognized or necessarily understood.  However, just because the obvious signs aren’t glaringly obvious doesn’t mean that the bubble’s magnitude is smaller.

One of the problems in identifying an asset bubble is that there is no standard definition of one, and many – if not most – bubbles are identified “after the fact.”  As there is no standard definition of an asset bubble, there is no definitive measures to “prove” or “disprove” of one’s existence.

However, there are many underlying financial conditions that historically have led to asset bubbles.  While the list is extensive, among the more notable conditions are (ultra) easy monetary policy and the accompanying ultra-low interest rate environment, both of which have been extant for a number of years now.

My posts concerning the existence of the stock market as being in an asset bubble date back to 2011.  While I base this view both on technical analysis and fundamental analysis factors, in this post I will primarily focus on fundamental measures.  While a full discussion of these factors would be exceedingly lengthy and, at times, very complex, below is discussion of some of the more notable factors, including earnings and valuations.

Earnings

Perhaps the most common equity valuation metric in use today is the P/E ratio.  By this measure, stocks don’t necessarily appear exceedingly expensive.  One way to look at it is the from the FactSet Earnings Insight of February 13, 2015 (pdf), which says:

The current 12-month forward P/E ratio is 17.1. This P/E ratio is well above the 5-year (13.6) average and the 10-year (14.1) average.

However, my analyses indicate that earnings are being impacted by a variety of special factors that likely will prove transitory in nature.  Among these factors – which are further discussed in the November 21, 2013 post mentioned above – are ultra-low interest rates and share buybacks.  As well, the decline in corporate taxes has played a role, as discussed in the June 3, 2014 ProfitabilityIssues.com post titled “Long-Term Trends And Sources Of Corporate Profitability Growth.”

Other factors that have increased profitability is cost-cutting, subdued hiring, and continually-low increases in (nominal) labor costs.

As a result of myriad factors, the S&P500 net profit margin is notably high from a historical perspective.  According to the Wall Street Journal article of February 1, S&P500 net profit margins “averaged 8.4% between 1999 and 2013,” and are now 10.1%  (Historical and projected S&P500 net profit margins are seen in the February 5, 2015 ProfitabilityIssues.com post titled “S&P500 Net Profit Margins – 2 Charts.”)

Of note, this occurred during a recent period of low revenue growth.  Additionally, as one can see from both the net profit margins chart mentioned above as well as in the Wall Street Journal article, consensus analyst expectations are for a further rise of net profit margins to over 11% by 2016.

Other metrics illustrate how distended the aggregate level of profitability is from a long-term historical perspective.  One measure that can be used is (After-Tax) Corporate Profits as a Percent of GDP.  This chart is seen below.  From 1947 through the 3rd quarter of 2014, the average is 6.5% and the median is 6.2%.  The Q3 2014 value is 10.8%:

After-Tax Corporate Profits As A Percent Of GDP

US. Bureau of Economic Analysis, Corporate Profits After Tax (without IVA and CCAdj) [CP], retrieved from FRED, Federal Reserve Bank of St. Louis https://research.stlouisfed.org/fred2/series/CP/, February 13, 2015.
US. Bureau of Economic Analysis, Gross Domestic Product [GDP], retrieved from FRED, Federal Reserve Bank of St. Louis:

Stock Market “Price Action” And Valuations

Stock market “price action” and valuations are other notable aspects of today’s stock market bubble.  For reference, here is a long-term chart of the S&P500 since 1925 (depicted on a LOG scale through February 13, 2015):

(click on charts to enlarge image)(chart courtesy of StockCharts.com)

S&P500 since 1925

While, admittedly, the recent overall stock “price action” isn’t as “frenzied” as it was in the late 1990s, there are many pockets of extreme stock valuations and/or continuously sharply rising stock prices.  With regard to the former, there are many large-cap stocks that appear highly overvalued based upon measures including (continual) lack of profitability.  With regard to the latter, there are many stocks – including those in the biotech sector – that exhibit “frothy” stock “price action.”  This can be seen in the parabolic advance seen in various biotech indices, including the BTK Biotechnology Index seen below:

(click on charts to enlarge image)(chart courtesy of StockCharts.com)

BTK since 2009

As well, there are many valuation measures that would indicate that stocks are expensive, if not very much so.  When one uses stock market valuation measures other than the P/E ratio, one often sees the stock market as either being (very) expensive or in “bubble” territory.  These other valuation measures include the Q-Ratio and CAPE (“Shiller PE”), etc.  (note:  these factors are discussed in Doug Short’s “Market Valuation Overview.”)

As well, there is the stock market capitalization to GDP measure,  which is seen in Doug Short’s post of January 7, 2015 (“Market Cap to GDP:  The Buffett Valuation Indicator“):

market capitalization to GDP

In addition to these many instances of notably rich public stock valuations, there is also the tangential issue of notably high private company valuations.  This issue has been recently discussed in the January 22, 2015 Fortune article titled “The Age of Unicorns,” subtitled “The billion-dollar tech startup was supposed to be the stuff of myth.  Now they seem to be … everywhere,” as well as the Barron’s article of December 8, 2014 titled “This Time It’s Different.”

Size Of The Stock Market Bubble

While the above discussion indicates a stock market that is overvalued, if not very much so, there are many reasons why the stock market bubble is far larger than any before it.  One of the reasons is the current distension – and forthcoming mean reversion – of many of the measures discussed above.

While a detailed mean reversion discussion would be very lengthy and complicated – and as such isn’t suitably discussed in a brief manner – it is highly relevant with regard to the potential downside and associated financial and economic dynamics that will come into play.  As well, the consequences of mean reversion will determine the magnitude of the ultimate stock market price decline, which will be the main measure as to this bubble’s magnitude.

While projections are difficult to make due to a number of factors and the uncertainty that would accompany such a rapidly changing environment, changes in overall stock market valuations will certainly be far greater than most would assume.  It appears that this issue of mean-reversion and the resulting revaluation greatly lacks recognition.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2096.99 as this post is written

Zillow Q1 2015 Home Price Expectations Survey – Summary & Comments

On February 13, 2015, the Zillow Q1 2015 Home Price Expectations Survey results were released.  This survey is done on a quarterly basis.

An excerpt from the Press Release:

The panelists predicted U.S. home values will rise 4.4 percent in 2015, to a median value of $187,040. The most optimistic forecasted a 5.5 percent increase, while the least optimistic projected a 3.1 percent increase. On average, panelists said they expect median U.S. home values to exceed their pre-recession peak of $196,400 by May 2017.

“During the past year, expectations for annual home value appreciation over the long run have remained flat, despite lower mortgage rates,” said Terry Loebs, Founder of Pulsenomics. “Regarding the near-term outlook, there is a clear consensus among the experts that the positive momentum in U.S. home prices will continue to slow this year.  At 4.4 percent, overall expectations for nationwide home value growth in 2015 are one-third lower than the actual 6.6 percent appreciation rate recorded last year.”

Various Q1 2015 Zillow Home Price Expectations Survey charts are available, including that seen below:

Q1 2015 Home Price Expectations Press Release - U.S. 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, will continually climb.

The detail of the Q1 2015 Home Price Expectations Survey (pdf) is interesting.  Of the 101 survey respondents, only one (of the displayed responses) forecasts a cumulative price decrease through 2019; and even that one does not foresee a double-digit percentage cumulative price drop.  That forecast is from Mark Hanson, which foresees a 7.55% cumulative price decrease through 2019.

The Median Cumulative Home Price Appreciation for years 2015-2019 is seen as 4.50%, 8.16%, 12.04%, 15.07%, 18.75%, 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 very mild 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, 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 2096.99 as this post is written

Philadelphia Fed – 1st Quarter 2015 Survey Of Professional Forecasters

The Philadelphia Fed 1st Quarter 2015 Survey of Professional Forecasters was released on February 13, 2015.  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 2015:  3.2%

full-year 2016:  2.9%

full-year 2017:  2.7%

full-year 2018:  2.7%

Unemployment Rate: (annual average level)

for 2015: 5.4%

for 2016: 5.1%

for 2017: 5.0%

for 2018: 4.9%

Regarding the risk of a negative quarter in real GDP in any of the next few quarters, mean estimates are 7.9%, 9.3%, 11.1%, 11.9% and 13.2% for each of the quarters from Q1 2015 through Q1 2016, respectively.

As well, there are also a variety of time frames shown (present quarter through the year 2024) 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 -1.4% to 2.3% range.

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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 2094.60 as this post is written

The February 2015 Wall Street Journal Economic Forecast Survey

The February Wall Street Journal Economic Forecast Survey was published on February 12, 2015.  The headline is “WSJ Survey:  Economists See Cheap Oil Weighing On Capital Investment.”

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:

Despite the weakness in capital spending, forecasters are optimistic about the overall U.S. economy. The average forecast says inflation-adjusted gross domestic product will grow 2.9% over the course of 2015. That would be faster than the 2.5% gain in 2014 and the second-best annual performance since the recession ended.

Supporting the outlook are expectations that oil prices will rise only slowly this year, and solid job growth will lead to bigger pay raises.

also:

What could derail the economy in 2015? As was the case through most of 2014, the majority of economists still cite international events as the biggest potential nightmares.

Slower global growth was the top potential danger, but other foreign risks included financial-market fallout if Greece exits the eurozone and an escalation of Ukraine-Russia tensions.

As seen in the “Recession Probability” section, the average response as to the odds of another recession starting within the next 12 months was 11.11%; January’s average response was 11.54%.

The current average forecasts among economists polled include the following:

GDP:

full-year 2015:  2.9%

full-year 2016:  2.8%

full-year 2017:  2.6%

Unemployment Rate:

December 2015: 5.2%

December 2016: 4.9%

December 2017: 4.8%

10-Year Treasury Yield:

December 2015: 2.71%

December 2016: 3.46%

December 2017: 3.84%

CPI:

December 2015:  1.4%

December 2016:  2.3%

December 2017:  2.3%

Crude Oil  ($ per bbl):

for 12/31/2015: $62.15

(note: I highlight this WSJ Economic Forecast survey each month; commentary on past surveys can be found under the “Economic Forecasts” category)

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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 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 2086.00 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 February 5, 2015 update (reflecting data through January 30) is -.883.

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 February 11, 2015 incorporating data from January 5,1973 to February 6, 2015, on a weekly basis.  The February 6, 2015 value is -.63:

(click on chart to enlarge image)

NFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed February 11, 2015:

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

The ANFCI chart below was last updated on February 11, 2015 incorporating data from January 5,1973 to February 5, 2015, on a weekly basis.  The February 5 value is .14:

ANFCI 2-11-15 .14

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed February 11, 2015:

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 2066.07 as this post is written

NFIB Small Business Optimism – January 2015

The January NFIB Small Business Optimism report was released today, February 10, 2015. The headline of the Small Business Economic Trends report is “NFIB:  Small Business Optimism Falls, But Still In Normal Zone.”

The Index of Small Business Optimism decreased 2.5 points in January to 97.9.

Here are some excerpts from that I find particularly notable (but don’t necessarily agree with) :

OPTIMISM INDEX

The Small Business Optimism Index fell 2.5 points to 97.9, giving back the December gain that took the Index over 100. Still, the Index indicates that the small business sector is operating in a somewhat “normal” zone. Seven components fell, one was unchanged and 2 rose a bit. Most of the decline was accounted for by expected business conditions (43 percent of the decline), expected real sales (14 percent) and earnings (14 percent). The good news was the increase in the percent of owners reporting hard to fill openings and the drop of only 1 point in the net percent of owners planning job creation from December’s very good number.

also:

LABOR MARKETS

The percent of owners reporting job creation fell 4 percentage points to a net 5 percent of owners, still a solid number. Thirteen percent report increasing employment an average of 3.1 workers while 8 percent reduced their workforce by an average of 3.2 workers. Forty-eight percent reported hiring or trying to hire (down 6 points), but 42 percent reported few or no qualified applicants for the positions they were trying to fill. Fourteen percent reported using temporary workers, unchanged. Twenty-six percent of all owners reported job openings they could not fill in the current period, up 1 point and a very solid reading. The net percent of owners planning to create new jobs gave up 1 point from December’s excellent reading, providing evidence that the December number was not a fluke. A net 14 percent planning to create new jobs is a strong reading.

Here is a chart of the NFIB Small Business Optimism chart, as seen in the February 10 Doug Short post titled “Small Business Optimism:  Index Relinquishes Some of Its December Advance“ :

NFIB Small Business Optimism January 2015

Further details regarding small business conditions can be seen in the full January 2015 NFIB Small Business Economic Trends (pdf) report.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2068.59 as this post is written

The Accuracy Of Economic Forecasts

On February 2, 2015 the Federal Reserve Bank of San Francisco (FRBSF) published an Economic Letter titled “Persistent Overoptimism about Economic Growth.” (pdf)

This Economic Letter has many notable aspects.  Here are some excerpts that I found particularly notable, although I don’t necessarily agree with them:

Economic forecasting can be a humbling endeavor. In a cross-country study of private-sector forecasts from 1989 to 1998, Loungani (2001) finds that “the record of failure to predict recessions is virtually unblemished.”

also:

An updated study by Ahir and Loungani (2014) finds that the private-sector’s record of failure to predict recessions remained intact through 2008 and 2009.

also:

Notwithstanding the typical failure to predict recessions, it is worth considering whether some warning signals about the Great Recession went unheeded.

also:

Recessions triggered by financial crises are typically preceded by sustained episodes of bubbly asset prices and debt-financed spending booms.

also (under “Implications for economic models) :

Research has identified numerous instances of persistent bias in the track records of professional forecasters. These findings apply not only to forecasts of growth, but also of inflation and unemployment (Coibion and Gorodnichencko 2012). Overall, the evidence raises doubts about the theory of “rational expectations.” This theory, which is the dominant paradigm in macroeconomics, assumes that peoples’ forecasts exhibit no systematic bias towards optimism or pessimism. Allowing for departures from rational expectations in economic models would be a way to more accurately capture features of real-world behavior (see Gelain et al. 2013).

My comments:

I have featured various economic forecasts that preceded the Financial Crisis on the “Predictions” page.  Additionally, I highlighted various aspects of the Wall Street Journal economic forecast survey of August 2008 in the post titled “A Look Back – 2008 Economic Forecasts.”  Needless to say, virtually all professional forecasts not only failed to predict the Financial Crisis, but as seen in the August 2008 Wall Street Journal poll, they almost evenly split as to whether the U.S. was then even experiencing a recession.

My analyses indicates there are many reasons for over-optimism in economic forecasts as well as other flaws and resulting incorrect conclusions in prominent professional economic analyses.  Many of the reasons are complex, and as such aren’t suitably discussed in a brief manner.

However, one aspect that is highly disconcerting was the inability of professional forecasters as well as policymakers to predict or otherwise foresee the Financial Crisis, even though there were many obvious “signs” at the time of (highly) problematical aspects.

While some would view this performance as being in the past – and as such not necessarily relevant to the future – I would argue that is exceedingly relevant in many ways.

If one believes, as I do, that the overall economic and financial environments have (greatly) increased in complexity since the Financial Crisis, it bodes poorly with regard to the expected accuracy of professional forecasts with regard to the next financial crisis.  More importantly, based solely upon the “track record” of these professional economic forecasts, can it be reasonably assumed that the next financial crisis can be forecast if not successfully avoided?

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2057.46 as this post is written