Author Archives: Ted Kavadas

Building Financial Danger – February 8, 2018 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 February 7, 2018 with a last price of 2681.66 ), 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 2640.98 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 February 1, 2018 update (reflecting data through January 26, 2018) is -1.431.

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 February 7, 2018 incorporating data from January 8, 1971 through February 2, 2018, on a weekly basis.  The February 2, 2018 value is -.88:

NFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed February 7, 2018:

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

The ANFCI chart below was last updated on February 7, 2018 incorporating data from January 8,1971 through February 2, 2018, on a weekly basis.  The February 2 value is -.69:

ANFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed February 7, 2018:

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 2695.14 as this post is written

Four Charts Of Recent S&P500 Price Volatility – February 6, 2018

This post is an update to past posts regarding stock market volatility.

While I track many different measures of volatility, I find the following charts to be both simple and clear in depicting the recent volatility in the stock market.

Overall, my analyses indicates that there are many reasons for this volatility, and the volatility is highly significant.

For reference purposes, shown below are four charts with y-axis price labels.  Of note, yesterday (February 5, 2018) the S&P500 and Dow Jones Industrial Average (DJIA) had their largest point declines in history and the VIX had its largest point gain and percentage gain.

First, a one-year daily depiction of the S&P500 through yesterday’s (February 5, 2018) close, with a 50-day moving average (MA50) depicted by the blue line:

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

S&P500 1-year daily

Second, a three-month daily depiction of the S&P500 through yesterday’s (February 5, 2018) close, with a 50-day moving average (MA50) depicted by the blue line:

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

S&P500 daily 3 months

Third, a three-month depiction of the S&P500 in 60-minute intervals through yesterday’s (February 5, 2018) close, with a 50-hour moving average (MA50) depicted by the blue line:

S&P500 60 minutes 3 months

Fourth, a three-month depiction of the S&P500 in 10-minute intervals through yesterday’s (February 5, 2018) close, with a 50-period moving average (MA50) depicted by the blue line:

S&P500 10 minutes 3 months

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2648.94 as this post is written

S&P500 And Long-Term VIX Chart – Through February 5, 2018

For reference purposes, below is a chart of the S&P500 and VIX from year 2003 through Monday’s (February 5, 2018) close.  The closing price for the S&P500 was 2648.94 and the VIX had a closing value of 37.32.  A dashed blue line depicts the VIX value of 20.  Price labels are also shown:

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

VIX and S&P500 chart since 2003

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2648.94 as this post is written

Stock Market Capitalization To GDP – Through Q4 2017

“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 February 5, 2018 post titled “Market Cap to GDP:  An Updated Look at 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 capitalization to GDP

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

stock 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.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2648.94 as this post is written

Janet Yellen Interview February 4, 2018

On February 4, 2018 there was an interview of Janet Yellen that aired on the CBS “Sunday Morning” show.  The interview was titled “Janet Yellen:  The exit interview.”

Below are segment excerpts and Janet Yellen’s comments I found most notable – although I don’t necessarily agree with them – in the order they appear in the interview:

Under Yellen’s leadership, the Board slowly raised interest rates, and also slowly started cutting back on bonds and other assets the Fed bought up to ease the recession.

It worked!  Inflation is now less than 2%, and unemployment — at 6.7% when she took office — has dropped significantly, to 4.1%.

“The labor market has become stronger,” Yellen said. “I believe that since I’ve become Chair, several million jobs have been created, [something] on the order of ten million.”

also:

As for whether Yellen’s view that the stock market (which plummeted on Friday) has been too high in recent months:

“Well, I don’t want to say too high.  But I do want to say high. Price-earnings ratios are near the high end of their historical ranges.  If you look at commercial real estate prices, they are quite high relative to rents.  Now, is that a bubble or is too high?  And there it’s very hard to tell.  But it is a source of some concern that asset valuations are so high.

“What we look at is, if stock prices or asset prices more generally were to fall, what would that mean for the economy as a whole?  And the financial system is much better capitalized. The banking system is more resilient.  And I think our overall judgment is that, if there were to be a decline in asset valuations, it would not damage unduly the core of our financial system.”

“We’re in the ninth year of a recovery; can it really keep going like this?” asked Braver.

“Yes, it can keep going.  Recoveries don’t die of old age!”

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2722.07 as this post is written

Recession Probability Models – February 2018

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 February 2, 2018 using data through January) this “Yield Curve” model shows a 10.4146% probability of a recession in the United States twelve months ahead.  For comparison purposes, it showed a 11.4585% probability through December, 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 February 1, 2018, currently shows a .46% probability using data through November.

Here is the FRED chart (last updated February 1, 2018):

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 February 5, 2018:

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 January 12 post titled “The January 2018 Wall Street Journal Economic Forecast Survey“ economists surveyed averaged a 13.11% probability of a U.S. recession within the next 12 months.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2762.13 as this post is written

VIX Weekly And Monthly Charts Since The Year 2000 – February 5, 2018 Update

For reference purposes, below are two charts of the VIX from year 2000 through Friday’s (February 2, 2018) close, which had a closing value of 17.31.

Here 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

____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2762.13 as this post is written

Charts Of Equities’ Performance Since March 9, 2009 And January 1, 1980 – February 4, 2018 Update

In the March 9, 2012 post (“Charts of Equities’ Performance Since March 9, 2009 And January 1, 1980“) I highlighted two charts for reference purposes.

Below are those two charts, updated through the latest daily closing price.

The first is a daily chart of the S&P500 (shown in green), as well as five prominent (AAPL, IBM, AMZN, SBUX, CAT) individual stocks, since 2005.  There is a blue vertical line that is very close to the March 6, 2009 low.  As one can see, both the S&P500 performance, as well as many stocks including the five shown, have performed strongly since the March 6, 2009 low:

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

S&P500 and prominent stocks

This next chart shows, on a monthly LOG basis, the S&P500 since 1980.  I find this chart notable as it provides an interesting long-term perspective on the S&P500′s performance.  The 20, 50, and 200-month moving averages are shown in blue, red, and green lines, respectively:

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

S&P500 monthly since 1980

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2762.13 as this post is written

Long-Term Stock Charts DJIA, DJTA, S&P500, And Nasdaq Composite

StockCharts.com maintains long-term historical charts of various major stock market indices, interest rates, currencies, commodities, and economic indicators.

As a long-term reference, below are charts depicting various stock market indices for the dates shown.  All charts are depicted on a monthly basis using a LOG scale.

(click on charts to enlarge images)(charts courtesy of StockCharts.com)

The Dow Jones Industrial Average, from 1900 – February 2, 2018:

DJIA since 1900

The Dow Jones Transportation Average, from 1900 – February 2, 2018:

DJTA since 1900

The S&P500, from 1925 – February 2, 2018:

S&P500 since 1925

The Nasdaq Composite, from 1978 – February 2, 2018:

Nasdaq Composite since 1978

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2762.13 as this post is written