Monthly Archives: June 2014

Long-Term Charts Of The ECRI WLI & ECRI WLI, Gr. – June 27, 2014 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.

The movement of the ECRI WLI and WLI, Gr. is particularly notable at this time, as ECRI publicly announced on September 30, 2011 that the U.S. was “tipping into recession,” and ECRI has reiterated the view that the U.S. economy is currently in a recession, seen most recently in these twelve sources :

Other past notable year 2012 reaffirmations of the September 30, 2011 recession call by ECRI were seen (in chronological order) on March 15 (“Why Our Recession Call Stands”) as well as various interviews and statements the week of May 6, including:

Also, subsequent to May 2012:

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Below are three long-term charts, from Doug Short’s blog post of June 27, 2014 titled “ECRI Recession Watch:  Weekly Update.”  These charts are on a weekly basis through the June 27 release, indicating data through June 20, 2014.

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:

Dshort 6-27-14 - ECRI-WLI-YoY 3.4 Percent

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

ECRI WLI,Gr.

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I post various economic 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 1960.96 as this post is written

Consumer Confidence Surveys – As Of June 27, 2014

Doug Short had a blog post of June 27, 2014 (“Final June 2014 Michigan Consumer Sentiment Shows a Small Improvement“) in which he presents the latest Conference Board Consumer Confidence and Thomson/Reuters University of Michigan Consumer Sentiment Index charts.  They are presented below:

(click on charts to enlarge images)

Conference Board Consumer Sentiment

University of Michigan Consumer Sentiment

There are a few aspects of the above charts that I find highly noteworthy.  Of course, the continuing subdued absolute levels of these two surveys is disconcerting.

Also, I find the “behavior” of these readings to be quite disparate as compared to the other post-recession periods, as shown in the charts between the gray shaded areas (the gray areas denote recessions as defined by the NBER.)

While I don’t believe that confidence surveys should be overemphasized, I find these readings to be very problematical, especially in light of a variety of other highly disconcerting measures highlighted throughout this blog.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1957.20 as this post is written

VIX Weekly And Monthly Charts Since The Year 2000

For reference purposes, below are two charts of the VIX from year 2000 through yesterday’s (June 25, 2014) close, which had a closing value of 11.59:

Below is the VIX Weekly chart, depicted on a LOG scale, with the 13- and 34-week moving averages, seen in the cyan and red lines, respectively:

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

VIX Weekly chart

Here is the VIX Monthly chart, depicted on a LOG scale, with the 13- and 34-month moving average, seen in the cyan and red lines, respectively:

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

VIX Monthly chart

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1948.09 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 19, 2014 update is -1.303.

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

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

The NFCI chart below was last updated on June 25, incorporating data from January 5,1973 to June 20, 2014, on a weekly basis.  The June 20, 2014 value is -.99:

(click on chart to enlarge image)

NFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed June 25, 2014:

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

The ANFCI chart below was last updated on June 25, incorporating data from January 5,1973 to June 20, 2014, on a weekly basis.  The June 20, 2014 value is -.20:

(click on chart to enlarge image)

ANFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed June 25, 2014:

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 1959.53 as this post is written

Durable Goods New Orders – Long-Term Charts Through May 2014

Many people place emphasis on Durable Goods New Orders as a prominent economic indicator and/or leading economic indicator.

For reference, below are charts depicting this measure.

First, from the St. Louis Fed site (FRED), a chart through May, last updated on June 25, 2014.  This value is 238,008 ($ Millions) :

(click on charts to enlarge images)

Durable Goods New Orders

Here is the chart depicting this measure on a “Percentage Change from a Year Ago” basis:

Durable Goods New Orders Percent Change From Year Ago

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Manufacturers’ New Orders:  Durable Goods [DGORDER] ; U.S. Department of Commerce: Census Bureau ; accessed June 25, 2014;

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

_________

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 1952.50 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 June 20, 2014:

from page 18:

(click on charts to enlarge images)

CY Bottom-Up EPS vs. Top-Down Mean EPS (Trailing 26-Weeks) 

S&P500 earnings estimate trends

from page 19:

Calendar Year Bottom-Up EPS Actuals & Estimates

S&P500 annual earnings

_____

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 1949.98 as this post is written

S&P500 Earnings Estimates For Years 2014 Through 2017

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 12 of “The Director’s Report” (pdf) of June 24, 2014, and represent an aggregation of individual S&P500 component “bottom up” analyst forecasts:

Year 2014 estimate:

$119.69/share

Year 2015 estimate:

$133.22/share

Year 2016 estimate:

$147.18/share

Year 2017 estimate:

$138.00/share

_____

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 1949.98 as this post is written

Standard & Poor’s S&P500 Earnings Estimates For 2014 & 2015 – As Of June 19, 2014

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 June 19, 2014:

Year 2014 estimates add to the following:

-From a “bottom up” perspective, operating earnings of $119.61/share

-From a “top down” perspective, operating earnings of $120.89/share

-From a “top down” perspective, “as reported” earnings of $114.47/share

Year 2015 estimates add to the following:

-From a “bottom up” perspective, operating earnings of $137.19/share

-From a “top down” perspective, operating earnings of $148.18/share

-From a “top down” perspective, “as reported” earnings of $144.60/share

_____

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 1949.88 as this post is written

Current Economic Situation

With regard to our current economic situation, my thoughts can best be described/summarized by the posts found under the 37 “Building Financial Danger” posts.

My thoughts concerning our ongoing economic situation – with future implications – can be seen on the page titled “A Special Note On Our Economic Situation,” which has been found near the bottom of every blog post since August 15, 2010.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1962.61 as this post is written

The Bond Bubble – June 2014 Update

In previous posts I have discussed the Bond Bubble and its many facets, as my analyses indicates that the overall bond market is an exceedingly large asset bubble with immensely large and wide-ranging economic implications.

Since my last post on the Bond Bubble (the February 6, 2013 post titled “The Bond Bubble – February 2013 Update“) I have written various posts about interest rates and associated dynamics.

It should be noted that current rates on 10-Year Treasury Yields, from a long-term historical view, remain extremely depressed.  This can be seen in the following chart of 10-Year Treasury Yields:

10-Year Constant Maturity Treasury Yield

Data Source: FRED, Board Of Governors Of The Federal Reserve System; accessed June 23, 2014:

https://research.stlouisfed.org/fred2/series/DGS10

Here is another chart of the 10-Year Treasury Yield, from 1980 on a LOG scale, with a long-term trendline, and currently yielding 2.623%:

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

10-Year Treasury Yield

Perhaps one of the more striking aspects of the bond environment is that although 10-Year Treasury Yields are up significantly from their lows, various interest rates on less creditworthy securities are at or near their lows.  This can be seen in various securities and bond segments, both domestically and internationally, including the BofA Merrill Lynch US High Yield Master II Index chart, which shows a current yield (as of June 20, 2014) of 5.18% and its OAS Spread at 3.36%.

Of course, the question remains as to which direction interest rates, especially on the 10-Year Treasury, will take from here.

While there have been many arguments – including economic weakness – put forth that would indicate 10-Year Treasury Yields will fall from here, there are also many other (including those lesser-recognized) factors that indicate that the next sustained move on 10-Year Treasury Yields will continue upward.  While the “up vs. down” argument is complex, my analyses indicate that the trend in the 10-Year Treasury Yield will continue upward.

As I have explained in previous posts on interest rates and the Bond Bubble, such as the August 22, 2013 post “The Impact Of Rising Interest Rates,” what is particularly intimidating is the prospects for the economy and financial markets when the bond bubble finally “bursts.”  While the duration of this bond bubble makes (ultra) low interest rates seem sustainable – and by extension, “natural” – my analyses indicate that this interest rate environment is nothing of the sort.

Furthermore, relative to past rising interest rate environments, due to various current dynamics the coming increase in interest rates will be far more pernicious to the overall economy.

As I stated in the aforementioned February 6, 2013 post;

The perils of this bond bubble and its future “bursting” can hardly be overstated.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 1962.61 as this post is written