Author Archives: Ted Kavadas

S&P500 Price Projections – Livingston Survey June 2017

The June 2017 Livingston Survey published on June 16, 2017 contains, among its various forecasts, a S&P500 forecast.  It shows the following price forecast for the dates shown:

June 30, 2017   2410.0

Dec. 29, 2017   2470.0

June 29, 2018   2550.0

Dec. 31, 2018   2630.0

These figures represent the median value across the forecasters on the survey’s panel.


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 2430.32 as this post is written

Janet Yellen’s June 14, 2017 Press Conference – Notable Aspects

On Wednesday, June 14, 2017 Janet Yellen gave her scheduled June 2017 FOMC Press Conference. (link of 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 June 14, 2017, with the accompanying “FOMC Statement” and “Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents, June 2017“ (pdf).

From Janet Yellen’s opening comments:

Following a slowdown in the first quarter, economic growth appears to have rebounded,
resulting in a moderate pace of growth so far this year. Household spending, which was
particularly soft earlier this year, has been supported by solid fundamentals, including ongoing
improvement in the job market and relatively high levels of consumer sentiment and wealth.
Business investment, which was weak for much of last year, has continued to expand. And
exports have shown greater strength this year, in part reflecting a pickup in global growth.
Overall, we continue to expect that the economy will expand at a moderate pace over the next
few years.

In the labor market, job gains have averaged about 160,000 per month since the start of
the year–a solid rate of growth that, although a little slower than last year, remains well above estimates of the pace necessary to absorb new entrants to the labor force. The unemployment rate has fallen about 1/2 percentage point since the beginning of the year and was 4.3 percent in May, a low level by historical standards and modestly below the median of FOMC participants’ estimates of its longer-run normal level. Broader measures of labor market utilization have also improved this year. Participation in the labor force has been little changed, on net, for about three years. Given the underlying downward trend in participation stemming largely from the aging of the U.S. population, a relatively steady participation rate is a further sign of improving conditions in the labor market. Looking ahead, we expect that the job market will strengthen somewhat further.

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

SAM FLEMING. Thank you very much. Sam Fleming from the Financial Times. We’ve
now had a very long streak of– or fairly long streak of weak inflation numbers at least measured by the CPI this morning as well. Marketplace-based inflation expectations are declining. What kind of vigilance are you now saying is needed in terms of weak inflation? How does that interact with your policy outlook? And would further disappointments argue for pressing pause on rate hikes or delaying balance sheet run-off? How do you think about those two potential responses to weak inflation?

CHAIR YELLEN. So, let me just say as I emphasized in my statement and always say monitory policy is not on a preset course. We indicated in our statement today that we’re closely
monitoring inflation developments and certainly have taken note of the fact there have been
several weak readings particular on core inflation. Our statement indicates that we expect
inflation to remain low in the near term. But on the other hand, we continue to feel that with a
strong labor market and labor market that’s continuing to strengthen, the conditions are in place for inflation to move up. Now, obviously we need to monitor that very carefully. And ensure especially with roughly five years of inflation running under our 2 percent objective that is a goal to which the committee is strongly committed. And we need to make sure that we have in place the policies that are necessary to achieve 2 percent inflation and I pledge that we will do that. But let me say with respect to recent readings, it’s important not overreact to a few readings and data on inflation can be noisy. As I pointed out, there have been some idiosyncratic factors I think that have held down inflation in recent months, particularly a huge decline in cell telephone service plan prices, some declines in prescription drugs. We had an exceptionally low reading on core PC in March, and that will continue to hold down 12-month changes until that reading drops out. But we are this morning’s reading on the CPI showed weakness in a number of categories and it’s certainly something that we will be closely monitoring in the months ahead. We will–we’re focused on in making our policy decisions on the medium term outlook and we will, you know, be looking carefully at incoming data and as always revising our outlook and policy plans as appropriate.


BINYAMIN APPELBAUM. Binyamin Appelbaum, the New York Times. Measures of financial conditions show that since the Fed started raising interest rates two years ago, financial conditions actually have loosened. Consumer business borrowing costs in many cases are down. Do you have the sense that the market is not listening to you? How much of a concern is that for you? And at some point, does it convince you that you need to raise rates perhaps more quickly?

CHAIR YELLEN. Well, in deciding what the appropriate path of rates is, we take many
different factors into account. We have certainly noticed the stock market is up considerably over the last year. That usually shows up in financial conditions indexes and is an important reason why some of them show easier financial conditions. There has been a modest decrease recently in the value of the dollar although it’s up substantially since mid-2014. So, we take those factors into account in deriving our forecasts and deciding the appropriate stance of policy. We have done that and– but other things also affect the stance of policy. So there really can’t be any simple relationship. We’re not targeting financial conditions. We’re trying to set a path of the federal funds rate, the taking into account of those factors and others that don’t show up in the financial conditions index. We’re trying to generate paths for employment and inflation that meet our mandated objectives.


NANCY MARSHALL-GENZER. Hi, Nancy Marshall-Genzer from Marketplace.  Recently, a group of economists send the Fed a letter earlier this month, disagreeing with your 2 percent inflation target and saying, they would like the economy to run a bit hotter. They don’t think the labor market is so tight. You say you’re committed to the 2 percent target, but what do you say to them?

CHAIR YELLEN. So, at the time that we adopted the 2 percent target, it was back in
2012, we had a very thorough discussion of the factors that should determine what our inflation objective should be. And, you know, I believe that was a well thought out decision. Now, at the moment, we are highly focused on trying to achieve our 2 percent objective. And we recognize the fact that inflation has been running below and it’s essential for us to move inflation back to that objective. Now, we’ve learned a lot in the meantime and assessments of the level of the neutral likely level currently and going forward of the neutral federal funds rate have changed and are quite a bit lower than they stood in 2012 or earlier years. And that means that the economy is– has the potential where policy could be constrained by the zero lower bound more frequently than at the time that we adopted our 2 percent objective. So, it’s that recognition that causes people to think we might be better off with a higher inflation objective, and that’s an important set. This is one of our most critical decisions and one we are attentive to evidence and outside thinking. It’s one that we will be reconsidering at some future time. And it’s important for our decisions to be informed by a wide range of views and research which is ongoing inside and outside the Fed. But a reconsideration of that objective needs to take account, not only of benefits of a higher in potential benefits, of a higher inflation target, but also the potential cost that could be associated with it. It needs to be a balanced assessment. But I would say that this is one of the most important questions facing monetary policy around the world in the future and we very much look forward to seeing research by economists that will help inform our future decisions on this.


MICHAEL MCKEE. And the characterization of you as a low-interest rate person?

CHAIR YELLEN. Well, I have felt that it’s been appropriate for interest rates to remain
low for a very long time. We are in the process of as the economy strengthens normalizing
interest rates. But certainly, we’ve had a lot of years in which interest rates have been low. I
thought it was necessary to support the economy at that time and was strongly in favor of those policies.


MICHAEL DERBY. Mike Derby from Dow Jones Newswires. In light of the plans to trim the balance sheet hopefully later this year, what have you learned about QE and your bond
buying policies as a tool for monetary policy? When they were launched, it wasn’t something
you had, you know, engaged in that scale before, a lot of fear and said it was going to create a
hyperinflation that hasn’t ever seem to come to pass. So, you know, in light of QE as potentially
a tool for the future, you know, it might come back again, what have you learned about how it
works in the economy? Like where do you see it affect things? You know, what are sort of the
lessons learned of the experience?

CHAIR YELLEN. Well, thanks. That’s a great question. I mean, staff in the Federal Reserve and outside economists who have done a great deal of work trying to evaluate QE, I think the general conclusion is that it has worked in that it has put some downward pressure on
longer term interest rates, so-called term premiums embedded in longer term interest rates.
There’s disagreement among economists about exactly how large those effects are and it’s
something that’s difficult to pin down. But obviously, it has not caused runaway inflation quite
the contrary. I mean, that was never my expectation but I do remember when people were afraid that that would happen. We do have the tools. We have, you know, even with a large balance sheet, we intend to shrink our balance sheet now. But even with a large balance sheet, we retain the ability to move the fed funds rate and set it as appropriate to the needs of the economy. So, I think we have learned that it works. It’s a valuable part of the toolkit. It’s something that if we were to encounter an episode in the future of extreme weakness where I’ve said, we want the fed funds rate and movements in short-term interest rates, that’s our go-to number one main policy tool. But if we were to hit the zero lower bound and constrained in our use of that tool, certainly balance sheet policies and forward guidance of the type that we provided, I believe based on the evidence of how they worked or to remain part of our toolkit. And we have said in the bullets that we released today on our balance sheet that in such of– an episode of such extreme weakness in the future, those are things we would consider going forward.

MICHAEL DERBY. One small follow-up. Is four and a half trillion sort of a natural limit
to how high you might want to push the balance sheet or could you envision it going higher if
you needed it to?

CHAIR YELLEN. Well, we’ve had no discussion of that issue, you know. And our focus
now is on getting it back to a more normal size. But I would say the use of QE in the United
States relative to the size of our economy is not as high as it’s been in some other countries that
have employed it. But that’s something we haven’t seriously even discussed.



The Special Note summarizes my overall thoughts about our economic situation

SPX at 2432.46 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 June 8, 2017 update (reflecting data through June 2, 2017) is -1.58.

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:

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

The NFCI chart below was last updated on June 14, 2017 incorporating data from January 5,1973 through June 9, 2017, on a weekly basis.  The June 9, 2017 value is -.86:


Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed June 14, 2017:

The ANFCI chart below was last updated on June 14, 2017 incorporating data from January 5,1973 through June 9, 2017, on a weekly basis.  The June 9 value is -.42:


Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed June 14, 2017:


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 2437.91 as this post is written

U.S. Deflation – June 14, 2017 Update

This post provides an update to various past posts discussing deflation and “deflationary pressures,” including the most recent post, that of June 28, 2016 titled “U.S. Deflation – June 28, 2016 Update.”   I have extensively written of “deflationary pressures” and deflation as I continue to believe that prolonged and deep U.S. deflationary conditions are on the horizon, and that such deflationary conditions will cause, as well as accompany, inordinate economic hardship. [note: to clarify, for purposes of this discussion, when I mention “deflation” I am referring to the CPI going below zero. Also, I have been using the term “deflationary pressures” as a term to describe deflationary manifestations within an environment that is still overall inflationary but heading towards deflation.]

The subject of deflation contains many complex aspects, and accordingly no short discussion can even begin to be a comprehensive discussion of such.  For reference, my past posts concerning U.S. deflation can be found under the “deflation” tag.

In this post I would like to highlight some recent notable developments.

Trying to assess and/or predict the possibility of U.S. deflation is very challenging for many reasons.  Among these reasons is that there are many different measures that are supposed to predict and/or depict the possibility of deflation, and they can show apparently contradictory readings.  Among these measures are both survey-based as well as market-based measures.

Another challenge is that deflation in the U.S. has been relatively non-existent since the beginning of the 20th Century.  As such, knowledge and “practical experience” with deflation is lacking.  As seen in the below chart (from Doug Short’s May 15, 2017 post titled “A Long-Term Look at Inflation“) with the exception of The Great Depression prolonged periods of pronounced deflation have practically been nonexistent, especially after 1950:

U.S. inflation long-term chart

Of note, the shortfall between the Federal Reserve’s stated inflation target (2% on the PCE Price Index) and the actual inflation reading continues.  For years there has been a continued inability for the 2% inflation target to be sustained.  For reference, here is a chart of the PCE Price Index from Doug Short’s post of May 30, 2017, titled “PCE Price Index Headline and Core Down Again in April“:

PCE Price Index Headline and Core

There are many reasons that I believe that U.S. deflation of a pronounced and lasting nature will occur.  Among the reasons for such are the following:

  • As mentioned above, the continuing inability to “create” inflation to rise above the 2% goal.
  • Prolonged and pronounced economic low- and no-growth levels experienced globally.   While there is widespread consensus that U.S. economic growth will remain positive for the foreseeable future, my analyses indicates that the economy continues to have many highly problematical areas and that the widespread consensus concerning current and future economic growth is (substantially) incorrect.
  • A renewed “flattening” of the Yield Curve.  While, for many reasons, I believe that the “Yield Curve” and its various proxies have to viewed with caution, the current trends are notable.  Below is a chart of a yield curve proxy,  showing the spread between the 10-Year Treasury and 2-Year Treasury, using constant maturity securities.  This daily chart is from June 1, 1976 through June 8, 2017, with recessionary periods shown in gray. The current value is .86%:

Yield Curve chart

source:  Federal Reserve Bank of St. Louis, 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity [T10Y2Y], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed June 12, 2017:

  • Continual indications of “deflationary pressures.”  I have written extensively concerning these persistent “deflationary pressures,” which have manifested in a variety of areas.
  • I continue to believe that the many continuing signs of “deflationary pressures” is a foreboding.  Among these signs is the pronounced weakness in many commodities.  One such measure is the Bloomberg Commodity Index, as seen below:  (chart courtesy of; chart creation and annotation by the author)

Bloomberg Commodity Index chart

In conclusion, I continue to believe that significant (in extent and duration) U.S. deflation is on the horizon.  As discussed in the November 14, 2013 post (“Thoughts Concerning Deflation”), deflation often accompanies financial system distress.  My analyses continue to show an exceedingly complex future financial condition in which an exceedingly large “financial system crash” will occur, during  and after which outright deflation will both accompany and exacerbate economic and financial conditions.


The Special Note summarizes my overall thoughts about our economic situation

SPX at 2440.35 as this post is written

NFIB Small Business Optimism – May 2017

The May NFIB Small Business Optimism report was released today, June 13, 2017. The headline of the Small Business Economic Trends report is “Small Business Optimism Continues Remarkable Surge.”

The Index of Small Business Optimism was unchanged in May at 104.5.

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

“The remarkable surge in optimism that began last year right after the election shows no signs of slowing down” said NFIB President and CEO Juanita Duggan. “Small business owners are highly encouraged by the President’s regulatory reform agenda, and they remain optimistic there will be tax reform and health-care reform. This is a policy-driven phenomenon.”

The Index for May matched its strong performance in April of 104.5. That means the Index has been at a historically high level for six straight months. Five of the Index components posted a gain, four declined, and one remained unchanged.


A strong majority of owners, 59 percent, reported hiring or trying to hire in May, although 51 percent said they found few or no qualified workers. Remarkably, that was a problem for 86 percent of owners who said they tried to hire. Nineteen percent of all owners in the survey said finding qualified workers was their top concern, making it the second-biggest problem for small business.

“The tight labor market has been a persistent problem for small business owners for the past several months, and the problem appears to be getting worse,” said NFIB Chief Economist Bill Dunkelberg. “It’s forcing small business owners to increase compensation, which we’re seeing in this data, to attract new workers and keep the ones they have. But it also means a lot of small business owners are short-handed. They can’t keep up with customer demand because the labor pool isn’t producing enough qualified workers. It’s a significant structural problem in the economy that policymakers will have to watch.”

Twenty-eight percent reported plans to make capital outlays, a one-point gain from April but well below historical levels for periods of growth.


Credit Markets

Only 3 percent of owners reported that all their borrowing needs were not satisfied, unchanged and historically very low. Thirty-one percent reported all credit needs met (down 1 point), and 51 percent explicitly said they did not want a loan. Only 1 percent reported that financing was their top business problem compared to 22 percent citing taxes, 19 percent citing the availability of qualified labor, and 13 percent regulations and red tape. Twenty-eight percent of all owners reported borrowing on a regular basis (down 3 points). The average rate paid on short maturity loans was up 50 basis points to 5.9 percent.

Here is a chart of the NFIB Small Business Optimism chart, as seen in the June 13 Doug Short post titled “NFIB Small Business Survey:  Index Continues Surge in May“:

NFIB Small Business Optimism Index

Further details regarding small business conditions can be seen in the full May 2017 NFIB Small Business Economic Trends (pdf) report.


The Special Note summarizes my overall thoughts about our economic situation

SPX at 2439.33 as this post is written

Deflation Probabilities – June 8, 2017 Update

While I do not agree with the current readings of the measure – I think the measure dramatically understates the probability of deflation, as measured by the CPI – the Federal Reserve Bank of Atlanta maintains an interesting data series titled “Deflation Probabilities.”

As stated on the site:

Using estimates derived from Treasury Inflation-Protected Securities (TIPS) markets, described in a technical appendix, this weekly report provides two measures of the probability of consumer price index (CPI) deflation through 2022.

A chart shows the trends of the probabilities.  As one can see in the chart, the readings are volatile.

As for the current weekly reading, the June 8, 2017 update states the following:

The 2017–22 deflation probability was 6 percent on June 7, unchanged from May 31. The 2016–21 deflation probability was 2 percent on June 7, up from 1 percent on May 31. These 2016–21 and 2017–22 deflation probabilities, measuring the likelihoods of net declines in the consumer price index over the five-year periods starting in early 2016 and early 2017, are estimated from prices of the five-year Treasury Inflation-Protected Securities (TIPS) issued in April 2016 and April 2017 and the 10-year TIPS issued in July 2011 and July 2012.


I post various economic 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 2425.42 this post is written

The June 2017 Wall Street Journal Economic Forecast Survey

The June 2017 Wall Street Journal Economic Forecast Survey was published on June 8, 2017.  The headline is “Unresolved U.S. Debt Ceiling Casts a Shadow Over Many Forecasters’ Economic Outlooks.”

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.

An excerpt:

Forecasters in The Wall Street Journal’s monthly survey have raised their assessments of the risk facing the U.S. economy. For the first time since the presidential election, a majority of economists in the survey are concerned the economy could do worse than forecast.

As seen in the “Recession Probability” section, the average response as to the odds of another recession starting within the next 12 months was 15.80%. The individual estimates, of those who responded, ranged from 0% to 33%.  For reference, the average response in May’s survey was 15.27%.

As stated in the article, the survey’s respondents were 60 academic, financial and business economists.  Not every economist answered every question.  The survey occurred on June 2, 2017 to June 6, 2017.

The current average forecasts among economists polled include the following:


full-year 2017:  2.3%

full-year 2018:  2.4%

full-year 2019:  2.0%

Unemployment Rate:

December 2017: 4.3%

December 2018: 4.1%

December 2019: 4.3%

10-Year Treasury Yield:

December 2017: 2.66%

December 2018: 3.20%

December 2019: 3.57%


December 2017:  2.1%

December 2018:  2.3%

December 2019:  2.3%

Crude Oil  ($ per bbl):

for 12/31/2017: $50.95

for 12/31/2018: $53.31

(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 site 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 2426.92 as post is written

Long-Term Charts Of The ECRI WLI & ECRI WLI, Gr. – June 9, 2017 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.

Below are three long-term charts, from Doug Short’s ECRI update post of June 9, 2017 titled “ECRI Weekly Leading Index…”  These charts are on a weekly basis through the June 9, 2017 release, indicating data through June 2, 2017.

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


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

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



I post various economic 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 2445.64 as this post is written

Total Household Net Worth As Of 1Q 2017 – Two Long-Term Charts

In the last post (“Total Household Net Worth As A Percent Of GDP 1Q 2017“) 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 1945:Q4 through 2017:Q1).  The last value (as of the June 8, 2017 update) is $94.83540 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 June 9, 2017:


The Special Note summarizes my overall thoughts about our economic situation

SPX at 2445.05 as this post is written

Total Household Net Worth As A Percent Of GDP 1Q 2017

The following chart is from the CalculatedRisk post of June 8, 2017 titled “Fed’s Flow of Funds:  Household Net Worth increased in Q4.” 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)

Total Household Net Worth As A Percent Of GDP

As seen in the above-referenced CalculatedRisk post:

Household net worth was at $94.8 trillion in Q1 2017, up from $92.5 trillion in Q4 2016.

The Fed estimated that the value of household real estate increased to $23.5 trillion in Q1. The value of household real estate is now above the bubble peak in early 2006 – but not adjusted for inflation, and this also includes new construction.

As I have written in previous posts concerning 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.


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.


The Special Note summarizes my overall thoughts about our economic situation

SPX at 2431.56 as this post is written