Monthly Archives: September 2011

Our Current Economic “Man-Made Problems”

On September 8, President Obama gave the Address by the President to a Joint Session of Congress.  It concerned the economy and the American Jobs Act.  (I highlighted what I believed to be the most notable excerpts in a September 9 blog post titled “President Obama’s Address of September 8 2011“)

In the Address, President Obama said the following:

President Kennedy once said, “Our problems are man-made –- therefore they can be solved by man.  And man can be as big as he wants.”

This quote is from President Kennedy’s American University Speech of June 10, 1963.  (another transcript is found here.)

I find this quote to be interesting in its logic.  From today’s perspective, how applicable is it to our economic problems, the context in which President Obama was referring to?

I continue to believe that our current economic situation is of great complexity.  As I wrote in “A Special Note On Our Economic Situation” :

What separates this period of economic weakness from those that have preceded it is its complexity.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1160.40 as this post is written

Near-Term Direction Of Stock Market – Update

Since the S&P500 highs of early May and early July I have written a variety of posts warning of what I considered cautionary signs for the stock market.

One of those posts was on August 29, titled “The Near Term Direction Of The Stock Market.”  In that post I commented:

Was that August 9 low a “true bottom” – i.e. one that will not be breached, at least in the short-term?  I believe that the answer will be “no.”

I still believe that we will see a near-term low in the S&P500 below that August 9 low of 1101.54.

Additionally, the stock market “price action” feels very “unsettled” to me, and, as such,  I think the “danger” here is rather high.

My analysis indicates the main underlying driver of the peril continues to be “deflationary pressures” as I have mentioned recently, such as in the aforementioned August 29 post.

For reference, here is a 1-year daily chart of the S&P500, annotated with notable prices:

 

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1157.56 as this post is written

Gold’s Uptrend Since 2009

In my August 25 post (“Gold And Deflationary Pressures“) I spoke of the correction in Gold and its broader economic implications.  At that time Gold was at $1726/oz (December futures.)

Now, the December Gold futures are at $1645.1/oz.  If one views Gold’s ascent from early 2009, one can see a rising trendline – one that seems very significant.  A daily chart of Gold since 2008 is shown below, with the rising trendline (which has served as support) in blue, as well as the 50 and 200dmas in dark blue and red, respectively:

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

I am continuing to monitor Gold’s correction very closely, for many reasons including those indicated in the aforementioned August 25 post.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1175.38 as this post is written

Updates On Economic Indicators September 2011

Here is an update on various indicators that are supposed to predict and/or depict economic activity.  These indicators have been discussed in previous blog posts:

The September Chicago Fed National Activity Index (CFNAI)(pdf) updated as of September 26, 2011:

The Consumer Metrics Institute Contraction Watch:

The USA TODAY/IHS Global Insight Economic Outlook Index:

An excerpt from the September 6 update titled “Index forecasts weak growth through year end” :

The August update of the USA TODAY/IHS Global Insight Economic Outlook Index shows real GDP growth, at a six-month annualized growth rate, remaining below 2% through the second half of the year. Persistent unemployment, elevated debt levels, high energy and food prices and low confidence have stalled consumer spending. Businesses are hesitant to expand amid uncertainty.

The ECRI WLI (Weekly Leading Index):

As of 9/16/11 the WLI was at 122.2 and the WLI, Gr. was at -6.7%.

The Dow Jones ESI (Economic Sentiment Indicator):

The Indicator as of August 31 was at 41.5, as seen below:

An excerpt from the August 31 Press Release, titled “Threat of a Recession Looms According to Dow Jones Economic Sentiment Indicator” :

In August, federal spending issues and a ratings downgrade took its toll on economic sentiment, according to the Dow Jones Economic Sentiment Indicator. The indicator fell for the third straight month to 41.4 from 41.5 in July.

“The warning lights are flashing but the index is not quite calling recession, merely a very subdued state of sentiment about the economy,” says Dow Jones Newswires “Money Talks” columnist Alen Mattich.

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

Here is the latest chart, depicting 9-17-09 to 9-17-11:

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

As per the September 22 release, the LEI was at 116.2 and the CEI was at 103.3 in August.

An excerpt from the September 22 release:

Says Ataman Ozyildirim, economist at The Conference Board: “The August increase in the U.S. LEI was driven by components measuring financial and monetary conditions which offset substantially weaker components measuring expectations. The growth trend in the LEI has moderated and positive and negative contributors to the index have been roughly balanced. The leading indicators point to rising risks and volatility, and increasing concerns about the health of the expansion.”

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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.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1162.95 as this post is written

The S&P500 Vs. The Shanghai Stock Exchange Composite Index – September 2011

Starting on May 3, 2010 I have written posts concerning the notable divergence that has occurred between the S&P500 and Chinese (Shanghai Composite) stock markets.

The chart below illustrates this divergence; it shows the S&P500 vs. the Shanghai Composite on a daily basis, LOG scale, since 2006:

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

It is notable that the Shanghai Composite led the SPX (S&P500) significantly in late ’08 – early ’09, yet it has been declining lately.

I continue to find this divergence between the S&P500 and  Shanghai Composite to be notable and disconcerting, on an “all things considered” basis.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1136.43 as this post is written

Total Household Net Worth As Of 2Q 2011 – A Long-Term Chart

In the September 18 post (“Total Household Net Worth As A Percent Of GDP 2Q 2011“) I displayed a long-term chart depicting Total Household Net Worth as a percentage of GDP.

For reference purposes, here is Total Household Net Worth from a long-term perspective (from 1949:Q4 to 2011:Q2).  The last value is $58.463 Trillion:

The above chart was last updated as of September 16, 2011.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1129.56 as this post is written

MacroMarkets September 2011 Home Price Expectations Survey

Yesterday (September 21) MacroMarkets released its September 2011 Home Price Expectations Survey (pdf) results.  This survey is now done on a quarterly basis.

The accompanying chart is seen below:

(click on chart image to enlarge)

As one can see from the above chart, the average expectation is that not only has the residential real estate market (nearly) hit a “bottom” as far as pricing; but that steady yet mild appreciation will occur through 2015.

The survey detail is interesting.  Of the 111 survey respondents, 20 (of the displayed responses) foresee a cumulative price decrease through 2015; and of those 20, only four foresee a double-digit percentage cumulative price drop.  Mark Hanson remains the most “bearish” of the survey participants with a forecast of a 22.03% cumulative price decline through 2015.

The Median Cumulative Home Price Appreciation for years 2011-2015 is seen as -2.53%, -2.62%, -.84%, 1.99%, and 5.44% 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.  Although a 22.03% decline is substantial, from a longer-term historical perspective such a decline is rather tame 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, (even) 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.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1134.24 as this post is written

Hunger In The Chicago Area

Yesterday CBSChicago.com had a story titled “Study Finds 1 in 5 Chicagoans Are Hungry.”

Although the entire article is worthwhile, I find the following excerpts to be most notable (and disconcerting):

The Greater Chicago Food Depository has, for the first time, done a neighborhood-by-neighborhood breakdown of hunger in the Chicago area.

As WBBM’s Mike Krauser reports, some of the numbers are staggering.

The numbers are growing—and about 20 percent of Chicagoans are hungry, a new analysis found.

also:

As CBS 2′s Derrick Blakley reports, the report found nearly 850,000 people in Cook County aren’t sure where their next meal is coming from.

also:

At St. Sylvester’s Pantry in Logan Square, the story’s much the same. Three years ago, they served 225 families. Now, they serve more than 800.

Deacon Fred Ortiz said, “We have people that have been in banking, people that have been in teaching, medical fields. We have seen a very, very big increase in that type of client coming in for service.”

Overall, the Chicago Food Depository says visits to food pantries are soaring, up 58 percent in the last three years.

Depository CEO Kate Maehr said, “That hunger is not restricted to one neighborhood. It’s in every community and every suburban community in our county and across our state in record numbers.”

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1126.84 as this post is written

Food Stamps As Of September 2011

This post is an update to previous posts concerning food stamps.  The program is officially called “Supplemental Nutrition Assistance Program,” or SNAP.  As stated on the SNAP website, “As of Oct. 1, 2008, Supplemental Nutrition Assistance Program (SNAP) is the new name for the federal Food Stamp Program.”

The data was last updated September 1, 2011, reflecting June 2011 levels.

Here is a table showing various monthly statistics with regard to National Level participation and costs going back to FY2008.  As seen in this table, the number of people participating as of June 2011 is 45,183,931, up 9.46% from year-ago (June 2010) levels.  As a reference point, the figure as of June 2009 (the official end of the recession as defined by the NBER) was 34,882,031.  Longer-term annual data is also available.

As I wrote in the April 12, 2010 post, “Of course, what is particularly disconcerting is not only the extent of participation in these programs, but the fact that this is yet another notable statistic that is getting worse well after the purported end of the recession.”

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1202.09 as this post is written

Year-End 2011 S&P500 Price & Earnings Forecasts

Yesterday (September 19) The Wall Street Journal had an article titled “Wall Street’s Optimism Fades.”

The article contains a variety of forecasts and commentary regarding the stock market and earnings.

Here are two excerpts of forecasts:

Goldman Sachs last Wednesday ratcheted down its end-of-year prediction for the S&P 500 to 1250, from its previous forecast of 1400. Last Monday, Wells Fargo dropped its forecast to 1250 from 1390. And on Friday, Citigroup lowered its target to 1325 from 1400.

The S&P 500 ended last week at 1216.01, which leaves most of the predictions still looking relatively bullish. Strategists on average expect the S&P 500 to end the year at 1309, according to Birinyi Associates—a rise of 7.6% from Friday’s close through year end.

At the beginning of 2011, strategists were looking for an 8.5% gain for the entire year, predicting a year-end close of 1365.

also:

Consensus earnings estimates for the S&P 500 companies this year fell below $100 a share last week, according to S&P Capital IQ, down from $100.31 on Aug. 24. For the past few years, analysts have mostly been right to stay optimistic; strong company earnings have been a big driver of the S&P 500’s 75% rise from March 2009.

To be sure, the consensus forecast for annual per-share earnings of $99.91 is still bullish, reflecting confidence that the economy can avoid a double-dip recession. In 2010, S&P 500 earnings were $84 a share, according to Barclays. But the falling forecasts indicate that even the most sanguine analysts are starting to worry about the burdens of a sagging economy and policy uncertainty.

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I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this blog are aware, I do not agree with many of the consensus estimates and much of the commentary in these forecast surveys.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1219.79 as this post is written