Author Archives: Ted Kavadas

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

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2467.86 as this post is written

Philadelphia Fed – 3rd Quarter 2017 Survey Of Professional Forecasters

The Philadelphia Fed 3rd Quarter 2017 Survey of Professional Forecasters was released on August 11, 2017.  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 2017:  2.1%

full-year 2018:  2.4%

full-year 2019:  2.2%

full-year 2020:  2.0%

Unemployment Rate: (annual average level)

for 2017: 4.4%

for 2018: 4.2%

for 2019: 4.3%

for 2020: 4.3%

Regarding the risk of a negative quarter in real GDP in any of the next few quarters, mean estimates are 6.7%, 10.5%, 14.2%, 15.9% and 18.1% for each of the quarters from Q3 2017 through Q3 2018, respectively.

As well, there are also a variety of time frames shown (present quarter through the year 2026) 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 1.5% to 2.4% range.

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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 2442.52 as this post is written

Long-Term Charts Of The ECRI WLI & ECRI WLI, Gr. – August 11, 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 August 11, 2017 titled “ECRI Weekly Leading Index…”  These charts are on a weekly basis through the August 11, 2017 release, indicating data through August 4, 2017.

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:

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 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 2445.01 as this post is written

Deflation Probabilities – August 10, 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 August 10, 2017 update states the following:

The 2017–22 deflation probability was 5 percent on August 9, up from 3 percent on August 2. The 2016–21 deflation probability was 1 percent on August 9; it had been 0 percent from June 16 through August 2. 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 2438.21 this post is written

The August 2017 Wall Street Journal Economic Forecast Survey

The August 2017 Wall Street Journal Economic Forecast Survey was published on August 10, 2017.  The headline is “WSJ Survey:  Most Economists Expect Next Fed Rate Increase in December.”

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:

Economists surveyed by The Wall Street Journal this month see the Federal Reserve raising interest rates once more in 2017 and three times in 2018, a view that matches the Fed’s own projections.

As seen in the “Recession Probability” section, the average response as to the odds of another recession starting within the next 12 months was 15.00%. The individual estimates, of those who responded, ranged from 0% to 35%.  For reference, the average response in July’s survey was 14.78%.

As stated in the article, the survey’s respondents were 62 academic, financial and business economists.  Not every economist answered every question.

The current average forecasts among economists polled include the following:

GDP:

full-year 2017:  2.2%

full-year 2018:  2.4%

full-year 2019:  1.9%

Unemployment Rate:

December 2017: 4.2%

December 2018: 4.1%

December 2019: 4.2%

10-Year Treasury Yield:

December 2017: 2.60%

December 2018: 3.03%

December 2019: 3.31%

CPI:

December 2017:  1.7%

December 2018:  2.2%

December 2019:  2.3%

Crude Oil  ($ per bbl):

for 12/31/2017: $49.76

for 12/31/2018: $51.81

for 12/31/2019: $53.45

(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 2438.21 as 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 3, 2017 update (reflecting data through July 28, 2017) is -1.607.

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 9, 2017 incorporating data from January 5,1973 through August 4, 2017, on a weekly basis.  The August 4, 2017 value is -.90:

NFCI long-term chart

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed August 9, 2017:

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

The ANFCI chart below was last updated on August 9, 2017 incorporating data from January 5,1973 through August 4, 2017, on a weekly basis.  The August 4 value is -.20:

ANFCI long-term chart

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed August 9, 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 2470.25 as this post is written

Building Financial Danger – August 9, 2017 Update

My overall analysis indicates a continuing elevated and growing level of financial danger which contains many worldwide and U.S.-specific “stresses” of a very complex nature. I have written numerous posts in this site concerning both ongoing and recent “negative developments.”  These developments, as well as other exceedingly problematic conditions, have presented a highly perilous economic environment that endangers the overall financial system.

Also of ongoing immense importance is the existence of various immensely large asset bubbles, a subject of which I have extensively written.  While all of these asset bubbles are wildly pernicious and will have profound adverse future implications, hazards presented by the bond market bubble are especially notable.

Predicting the specific timing and extent of a stock market crash is always difficult, and the immense complexity of today’s economic situation makes such a prediction even more challenging. With that being said, my analyses continue to indicate that a near-term exceedingly large (from an ultra-long term perspective) stock market crash – that would also involve (as seen in 2008) various other markets as well – will occur.

(note: the “next crash” and its aftermath has great significance and implications, as discussed in the post of January 6, 2012 titled “The Next Crash And Its Significance“ and various subsequent posts in the “Economic Depression” category)

As reference, below is a daily chart since 2008 of the S&P500 (through August 8, 2017 with a last price of 2474.92), depicted on a LOG scale, indicating both the 50dma and 200dma as well as price labels:

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

S&P500 since 2008

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2467.29 as this post is written

Recession Probability Models – August 2017

There are a variety of economic models that are supposed to predict the probabilities of recession.

While I don’t agree with the methodologies employed or probabilities of impending economic weakness as depicted by the following two models, I think the results of these models should be monitored.

Please note that each of these models is updated regularly, and the results of these – as well as other recession models – can fluctuate significantly.

The first is the “Yield Curve as a Leading Indicator” from the New York Federal Reserve.  I wrote a post concerning this measure on March 1, 2010, titled “The Yield Curve as a Leading Indicator.”

Currently (last updated August 2, 2017 using data through July) this “Yield Curve” model shows a 9.4544% probability of a recession in the United States twelve months ahead.  For comparison purposes, it showed a 9.869% probability through June, and a chart going back to 1960 is seen at the “Probability Of U.S. Recession Predicted by Treasury Spread.” (pdf)

The second model is from Marcelle Chauvet and Jeremy Piger.  This model is described on the St. Louis Federal Reserve site (FRED) as follows:

Smoothed recession probabilities for the United States are obtained from a dynamic-factor markov-switching model applied to four monthly coincident variables: non-farm payroll employment, the index of industrial production, real personal income excluding transfer payments, and real manufacturing and trade sales. This model was originally developed in Chauvet, M., “An Economic Characterization of Business Cycle Dynamics with Factor Structure and Regime Switching,” International Economic Review, 1998, 39, 969-996. (http://faculty.ucr.edu/~chauvet/ier.pdf)

Additional details and explanations can be seen on the “U.S. Recession Probabilities” page.

This model, last updated on August 7, 2017, currently shows a .44% probability using data through May.

Here is the FRED chart (last updated August 7, 2017):

RECPROUSM156N

Data Source:  Piger, Jeremy Max and Chauvet, Marcelle, Smoothed U.S. Recession Probabilities [RECPROUSM156N], retrieved from FRED, Federal Reserve Bank of St. Louis, accessed August 7, 2017:

http://research.stlouisfed.org/fred2/series/RECPROUSM156N

The two models featured above can be compared against measures seen in recent blog posts.  For instance, as seen in the July 13 post titled “The July 2017 Wall Street Journal Economic Forecast Survey“ economists surveyed averaged a 14.78% probability of a U.S. recession within the next 12 months.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2479.52 as this post is written