Monthly Archives: November 2015

Stock Market Capitalization To GDP – Through Q3 2015

“Stock market capitalization to GDP” is a notable and important metric regarding stock market valuation.  In February of 2009 I wrote of it in “Does Warren Buffett’s Market Metric Still Apply?

Doug Short has recently published a post depicting this “stock market capitalization to GDP” metric.

As seen in his November 27, 2015 post titled “Market Cap to GDP:  A Fractional Decline in the Buffett Valuation Indicator” he shows two different versions, varying by the definition of stock market capitalization. (note:  additional explanation is provided in his post.)

For reference purposes, here is the first chart, with the stock market capitalization as defined by the Federal Reserve:

(click on charts to enlarge images)

stock market cap to GDP

Here is the second chart, with the stock market capitalization as defined by the Wilshire 5000:

market capitalization to GDP

As one can see in both measures depicted above, “stock market capitalization to GDP” is at notably high levels from a long-term historical perspective.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2085.10 as this post is written

Consumer Confidence Surveys – As Of November 25, 2015

Doug Short had a blog post of November 25, 2015 (“Michigan Consumer Sentiment: November Final Survey Drops from Preliminary“) 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 Confidence

Michigan Consumer Sentiment

There are a few aspects of the above charts that I find highly noteworthy.  Of course, until the recent sudden upswing, the continued subdued absolute levels of these two surveys was 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 site.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2085.24 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 November 25, 2015 update (reflecting data through November 20) is -.822.

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 November 25, 2015 incorporating data from January 5,1973 to November 20, 2015, on a weekly basis.  The November 20, 2015 value is -.71:

NFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed November 25, 2015:

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

The ANFCI chart below was last updated on November 25, 2015 incorporating data from January 5,1973 to November 20, 2015, on a weekly basis.  The November 20 value is -.19:

ANFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed November 25, 2015:

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

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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.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2089.11 as this post is written

Durable Goods New Orders – Long-Term Charts Through October 2015

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 October, updated on November 25, 2015. This value is $238,976 ($ 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 November 25, 2015;

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 2091.00 as this post is written

Money Supply Charts Through October 2015

For reference purposes, below are two sets of charts depicting growth in the money supply.

The first shows the MZM (Money Zero Maturity), defined in FRED as the following:

M2 less small-denomination time deposits plus institutional money funds.
Money Zero Maturity is calculated by the Federal Reserve Bank of St. Louis.

Here is the “MZM Money Stock” (seasonally adjusted) chart, updated on November 20, 2015 depicting data through October 2015, with a value of $13,634.7 Billion:

money supply

Here is the “MZM Money Stock” chart on a “Percent Change From Year Ago” basis:

money supply change from year ago

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed November 25, 2015:

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

The second set shows M2, defined in FRED as the following:

M2 includes a broader set of financial assets held principally by households. M2 consists of M1 plus: (1) savings deposits (which include money market deposit accounts, or MMDAs); (2) small-denomination time deposits (time deposits in amounts of less than $100,000); and (3) balances in retail money market mutual funds (MMMFs). Seasonally adjusted M2 is computed by summing savings deposits, small-denomination time deposits, and retail MMMFs, each seasonally adjusted separately, and adding this result to seasonally adjusted M1.

Here is the “M2 Money Stock” (seasonally adjusted) chart, updated on November 19, 2015, depicting data through October 2015, with a value of $12,201.4 Billion:

M2 money supply

Here is the “M2 Money Stock” chart on a “Percent Change From Year Ago” basis:

M2 money supply percent change from year ago

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed November 25, 2015:

https://research.stlouisfed.org/fred2/series/M2SL

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2091.00 as this post is written

House Prices Reference Chart

As a reference for long-term house price index trends, below is a chart, updated with the most current data (through September) from the CalculatedRisk blog post of November 24, 2015 titled “Real Prices and Price-to-Rent Ratio in September”:

(click on chart to enlarge image)

nominal house prices

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2089.14 as this post is written

Corporate Profits As A Percentage Of GDP

In the last post (“3rd Quarter 2015 Corporate Profits“) I displayed, for reference purposes, a long-term chart depicting Corporate Profits After Tax.

There are many ways to view this measure, both on an absolute as well as relative basis.

One relative measure is viewing Corporate Profits as a Percentage of GDP.  I feel that this metric is important for a variety of reasons.  As well, the measure is important to a variety of parties, including investors, businesses, and government policy makers.

As one can see from the long-term chart below (updated through the third quarter), (After Tax) Corporate Profits as a Percentage of GDP is at levels that can be seen as historically (very) high.  While there are many reasons as to why this is so, from a going-forward standpoint I think it is important to recognize both that such a notable condition exists, as well as contemplate and/or plan for such factors and conditions that would come about if (and in my opinion “when”) a more historically “normal” ratio of Corporate Profits as a Percentage of GDP occurs.  This topic can be very complex in nature, and depends upon myriad factors.  In my opinion it deserves far greater recognition.

(click on chart to enlarge image)

corporate profits as a percent of GDP

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed November 24, 2015

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2089.80 as this post is written

3rd Quarter 2015 Corporate Profits

Today’s GDP release (Q3, 2nd Estimate)(pdf) was accompanied by the BLS Corporate Profits report for the 3rd Quarter.

Of course, there are many ways to adjust and depict overall Corporate Profits.  For reference purposes, here is a chart from the St. Louis Federal Reserve (FRED) showing the Corporate Profits After Tax (last updated November 24, 2015, with a value of $1785.8 Billion):

Corporate Profits

Here is the Corporate Profits After Tax measure shown on a Percentage Change from a Year Ago perspective:

corporate profits percent change from year ago

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Corporate Profits After Tax [CP]; U.S. Department of Commerce: Bureau of Economic Analysis; accessed November 24, 2015; https://research.stlouisfed.org/fred2/series/CP

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2088.64 as this post is written

Updates Of Economic Indicators November 2015

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 November 2015 Chicago Fed National Activity Index (CFNAI) updated as of November 23, 2015:

CFNAI-MA3

The ECRI WLI (Weekly Leading Index):

As of November 20, 2015 (incorporating data through November 13, 2015) the WLI was at 131.0 and the WLI, Gr. was at -2.6%.

A chart of the WLI,Gr., from Doug Short’s post of November 20, 2015, titled “ECRI Weekly Leading Index: ‘Multiple Jobholders Boost ‘Full-Time’ Employment’“:

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 November 14, 2015:

ADS Index

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

As per the November 19, 2015 press release, titled “The Conference Board Leading Economic Index (LEI) for the U.S. Increased Sharply in October,” (pdf) the LEI was at 124.1, the CEI was at 113.0, and the LAG was 119.3 in October.

An excerpt from the November 19 release:

“The U.S. LEI rose sharply in October, with the yield spread, stock prices, and building permits driving the increase,” said Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board. “Despite lackluster third quarter growth, the economic outlook now appears to be improving. While the U.S. LEI’s six-month growth rate has moderated, the U.S. economy remains on track for continued expansion heading into 2016.”

Here is a chart of the LEI from Doug Short’s blog post of November 19 titled “Conference Board Leading Economic Index Rose in October“:

Conference Board LEI

_________

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 2094.72 as this post is written

The U.S. Economic Situation – November 23, 2015 Update

Perhaps the main reason that I write of our economic situation is that I continue to believe, based upon various analyses, that our economic situation is in many ways misunderstood.  While no one likes to contemplate a future rife with economic adversity, current and future economic problems must be properly recognized and rectified if high-quality, sustainable long-term economic vitality is to be realized.

There are an array of indications and other “warning signs” – many readily apparent – that current economic activity and financial market performance is accompanied by exceedingly perilous dynamics.

I have written extensively about this peril, including in the following:

Building Financial Danger” (ongoing updates)

A Special Note On Our Economic Situation

Forewarning Pronounced Economic Weakness

Thoughts Concerning The Next Financial Crisis

Was A Depression Successfully Avoided?

Has the Financial System Strengthened Since the Financial Crisis?

The Next Crash And Its Significance

My analyses continues to indicate that the growing level of financial danger will lead to the next stock market crash that will also involve (as seen in 2008) various other markets as well.  Key attributes of this next crash is its outsized magnitude (when viewed from an ultra-long term historical perspective) and the resulting economic impact.  This next financial crash is of tremendous concern, as my analyses indicate it will lead to a Super Depression – i.e. an economy characterized by deeply embedded, highly complex, and difficult-to-solve problems.

For long-term reference purposes, here is a chart of the Dow Jones Industrial Average since 1900, depicted on a monthly basis using a LOG scale (updated through November 20, 2015, with a last value of 17823.81):

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

DJIA from 1900

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2088.74 as this post is written