Author Archives: Ted Kavadas

Zillow Q3 2017 Home Price Expectations Survey – Summary & Comments

On August 21, 2017, the Zillow Q3 2017 Home Price Expectations Survey results were released.  This survey is done on a quarterly basis.

An excerpt from the press release:

The panelists expect a future recession to have a moderate impact on the U.S. housing market overall, but some markets are more at risk than others. More than 60 percent of experts say the next recession will have a major impact on the San Francisco and Miami housing markets, and at least half predict a major impact in Los Angeles and New York as well.

Various Q3 2017 Zillow Home Price Expectations Survey charts are available, including that seen below:

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 Q3 2017 Home Price Expectations Survey (pdf) is interesting.  Of the 100+ survey respondents, only five (of the displayed responses) forecasts a cumulative price decrease through 2021, and only one of those forecasts is for a double-digit percentage decline.  That forecast is from Mark Hanson, who foresees a 24.47% cumulative price decrease through 2021.

The Median Cumulative Home Price Appreciation for years 2017-2021 is seen as 5.00%, 9.22%, 13.01%, 16.22%, and 19.33%, 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 2425.73 as this post is written

Updates Of Economic Indicators August 2017

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 August 2017 Chicago Fed National Activity Index (CFNAI) updated as of August 21, 2017:

The CFNAI, with current reading of -.01:

CFNAI 8-1-17

Federal Reserve Bank of Chicago, Chicago Fed National Activity Index [CFNAI], retrieved from FRED, Federal Reserve Bank of St. Louis, August 21, 2017;

https://fred.stlouisfed.org/series/CFNAI

The CFNAI-MA3, with current reading of -.05:

CFNAI-MA3_8-21-17 -.05

Federal Reserve Bank of Chicago, Chicago Fed National Activity Index: Three Month Moving Average [CFNAIMA3], retrieved from FRED, Federal Reserve Bank of St. Louis, August 21, 2017;

https://fred.stlouisfed.org/series/CFNAIMA3

The ECRI WLI (Weekly Leading Index):

As of August 18, 2017 (incorporating data through August 11, 2017) the WLI was at 144.5 and the WLI, Gr. was at 2.5%.

A chart of the WLI,Gr., from Doug Short’s ECRI update post of August 18, 2017:

ECRI WLI,Gr.

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

Here is the latest chart, depicting the ADS Index from December 31, 2007 through August 12, 2017:

ADS Index

The Conference Board Leading (LEI), Coincident (CEI) Economic Indexes, and Lagging Economic Indicator (LAG):

As per the August 17, 2017 press release, titled “The Conference Board Leading Economic Index (LEI) for the U.S. Increased in July” (pdf) the LEI was at 128.3, the CEI was at 115.7, and the LAG was 124.8 in July.

An excerpt from the release:

“The U.S. LEI improved in July, suggesting the U.S. economy may experience further improvements in economic activity in the second half of the year,” said Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board. “The large negative contribution from housing permits, a reversal from June, was more than offset by gains in the financial indicators, new orders and sentiment.”

Here is a chart of the LEI from Doug Short’s Conference Board Leading Economic Index update of August 17, 2017:

Conference Board LEI

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I post various indicators and indices because I believe they should be carefully monitored.  However, as those familiar with this site are aware, I do not necessarily agree with what they depict or imply.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2426.01 as this post is written

“Taylor Rule” Chart – August 11, 2017 Update

On January 9, 2017 I wrote a post (“Low Interest Rates And The Formation Of Asset Bubbles“) that mentioned the “Taylor Rule.”  As discussed in that post – and for other reasons – the level of the Fed Funds rate – and whether its level is appropriate – has vast importantance and far-reaching consequences with regard to many aspects of the economy and financial system.

For reference, below is an updated chart depicting the “Taylor Rule” prescription and the actual Fed Funds rate, provided by the Federal Reserve Bank of Atlanta, updated as of August 11, 2017:

Taylor Rule prescription

 

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2435.14 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 short-term and long-term trends of each continue to be notable.

Doug Short, in his blog post of August 17, 2017, titled “The Philly Fed ADS Index Business Conditions Index Update” displays both the CFNAI MA-3 (3-month Moving Average) and ADS Index (91-Day Moving Average) from a variety 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.

The CFNAI MA-3:

(click on charts to enlarge images)

CFNAI-MA3

The ADS Index, 91-Day MA:

ADS Index 91-Day Moving Average

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.

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I post various indicators and indices because I believe they should be carefully monitored.  However, as those familiar with this site 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 2439.32 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 August 11, 2017:

from page 23:

(click on charts to enlarge images)

S&P500 EPS projections CY2017 and CY2018

from page 24:

S&P500 Annual EPS Actual And Forecast

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I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this site 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 2442.86 as this post is written

S&P500 EPS Forecasts 2017, 2018, 2019

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 20 of the “S&P500 Earnings Scorecard” (pdf) of August 17, 2017, and represent an aggregation of individual S&P500 component “bottom up” analyst forecasts.  For reference, the Year 2014 value is $118.78/share, the Year 2015 value is $117.46, and the Year 2016 value is $118.10/share:

Year 2017 estimate:

$131.66/share

Year 2018 estimate:

$146.12/share

Year 2019 estimate:

$159.35/share

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I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this site 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 2448.71 as this post is written

Standard & Poor’s S&P500 Earnings Estimates For 2017 And 2018 – As Of August 10, 2017

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 August 10, 2017:

Year 2017 estimates add to the following:

-From a “bottom up” perspective, operating earnings of $127.14/share

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

-From a “bottom up” perspective, “as reported” earnings of $115.74/share

Year 2018 estimates add to the following:

-From a “bottom up” perspective, operating earnings of $144.42/share

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

-From a “bottom up” perspective, “as reported” earnings of $132.28/share

_____

I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this site 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 2464.35 as this post is written

Walmart’s Q2 2018 Results – Comments

I found various notable items in Walmart’s Q2 2018 management call transcript (pdf) dated August 17, 2017.  (as well, there is Walmart’s press release of the Q2 results and related presentation materials)

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, wrt Walmart U.S.: 

We had a strong quarter with comp-sales growth of 1.8 percent and
comp-traffic growth of 1.3 percent. It’s exciting that sales growth is coming
from across the business– including stores, e-commerce and a
combination of both.

comments from Brett Biggs, EVP & CFO, page 8:

Walmart U.S. eCommerce again performed very well on the topline
as GMV grew 67 percent and sales increased 60 percent, including
acquisitions. The majority of this growth was organic through
Walmart.com, including Online Grocery, which is growing quickly. We’re
delivering growth through an improved customer value proposition that
includes free two-day shipping on millions of items and Easy Reorder, as
well as an expanded assortment, now with more than 67 million SKUs – an
increase of more than 30 percent from the first quarter. With Easy
Reorder, we’re integrating both in-store and online purchases to provide
customers with a single spot to view and repurchase the items they buy
most frequently. Initiatives like these, along with everyday low prices, are
the reasons why customers are choosing Walmart in greater numbers. As
a reminder, we’ll begin to lap the Jet.com acquisition in the third quarter.

comments from Brett Biggs, EVP & CFO, page 9, wrt Walmart U.S.: 

Gross margin rate declined 5 basis points in the quarter. Savings
from procuring merchandise benefited the margin rate but was more than
offset by the mix effects from our growing e-commerce business, as well as
continued investments in price.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2468.11 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 August 10, 2017 update (reflecting data through August 4, 2017) is -1.582.

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 August 16, 2017 incorporating data from January 5,1973 through August 11, 2017, on a weekly basis.  The August 11, 2017 value is -.89:

NFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed August 16, 2017:

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

The ANFCI chart below was last updated on August 16, 2017 incorporating data from January 5,1973 through August 11, 2017, on a weekly basis.  The August 11 value is -.19:

ANFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed August 16, 2017:

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 site 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 2466.76 as this post is written

10-Year Treasury Yields – Two Long-Term Charts As Of August 16, 2017

I have written extensively about U.S. interest rates and their importance.  Rising interest rates have substantial ramifications for many aspects of the current-day economy.  My commentaries with regard to interest rates and the bond bubble are largely found under the “bond bubble” tag.   From an intervention perspective commentary is found under the “Intervention” category.

As reference, here is a long-term chart of the 10-Year Treasury yield since 1980, depicted on a monthly basis, LOG scale:

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

10-Year Treasury Yield since 1980

Here is a long-term chart of the 10-Year Treasury yield since 2008, depicted on a daily basis, LOG scale:

U.S. Treasury 10-Year Yield chart

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2467.86 as this post is written