S&P 500 Snapshot: Fed Induced Bipolar Disorder
May 22, 2013 Doug Short
With yesterday’s dovish duo Bullard and Dudley to set expectations, the S&P 500 rallied in anticipation of Chairman Bernanke’s congressional testimony and soared to its all-time intraday high, up 1.07% during his prepared remarks. But the Q&A deflated the balloon, and the 2 PM release of the latest Fed Minutes accelerated the decline. It seems that the possibility of tapering QE in the near term is not entirely off the table. The index hit its -1.23% intraday low about 30 minutes before the final bell. It then trimmed its loss to close down 0.83%.
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Bernanke’s Semi-Annual Tap-Dance of Distortions, Half-truths, Lies, and Hypocrisy to Congress
May 22, 2013 Mike Shedlock
Inquiring minds with extra time on their hands this morning are plodding through the Full Transcript of Bernanke’s Testimony To Joint Economic Committee, U.S. Congress looking for the usual collection of half-truths, distortions, and outright lies it usually contains.
Here are some point-by-point statements by Bernanke with my comments immediately following each set of statements.
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Today’s Market and Economists’ Forecasts for 10-Year Yields and the FFR
May 22, 2013 Doug Short
As I type this, the market is exhibiting some bipolar disorder following multiple doses of Fed speak: Yesterday Bullard’s presentation in Germany and Dudley’s speech in New York, and today Bernanke’s congressional testimony at 10 AM and the latest Fed Minutes at 2 PM.
Amidst the market confusion, I took a few minutes to review the Wall Street Journal’s May survey of economists to see what they had forecast for the 10-year yield and the Fed Funds Rate out to December 2015.
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Today’s Dow Now in Third Place
May 22, 2013 Doug Short
Here is the latest look at the "Sweet Sixteen" Dow recoveries adjusted for inflation/deflation I’ve been illustrating from time to time over the past three years. The charts below compare the current Dow recovery since the March 2009 low with fifteen other major recoveries dating from the origin of this legendary index in 1896.
...the current level has a nominal gain of 135.0% since the 2009 trough, and is currently at a new all-time high.
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Gasoline Volume Sales, Demographics and our Changing Culture
May 21, 2013 Doug Short
The Department of Energy’s Energy Information Administration (EIA) data on volume sales is over two months old when it released. The latest numbers, through mid-March, were published today. However, despite the lag, this report offers an interesting perspective on fascinating aspects of the US economy. Gasoline prices and increases in fuel efficiency are important factors, but there are also some significant demographic and cultural dynamics in this data series.
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Chained CPI Versus the Standard CPI: Breaking Down the Numbers
May 21, 2013 Doug Short
Note from dshort: I’ve updated this commentary to include the April Consumer Price Index data published last week.
The Consumer Price Index for Urban Consumers (CPI-U, or more generally CPI) is the most familiar gauge of inflation in the US. The data for the non-seasonally adjusted series stretches back a century to January 1913. But the news of late is about a relative newcomer to the inflation metrics of the Bureau of Labor Statistics (BLS), the Chained CPI for Urban Consumers (C-CPI-U).
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Two Measures of Inflation: New Update
May 21, 2013 Doug Short
Note from dshort: I’ve updated the accompanying charts with the latest Consumer Price Index data from the Bureau of Labor Statistics. The annualized rate of change is calculated to two decimal places for more precision in the side-by-side comparison with the PCE Price Index.
The BLS’s Consumer Price Index for April, released last week, shows core inflation below the Federal Reserve’s 2% long-term target range at 1.72%. Core PCE, at the end of last month, is significantly lower at 1.13%. The Fed is on record as preferring Core PCE as its inflation gaug
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Fed Failing to Inflate the Economy? Deflation Ahead?
May 21, 2013 Chris Kimble
The Fed is pumping billions into the economy every month, hoping to inflate the economy. From a stock market perspective, many key indexes are at all-time high levels. Is the Fed succeeding to inflate stocks? Many would say yes.
From a broad based Commodity perspective (CRX Index), higher prices are not taking place.
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The Philly Fed ADS Business Conditions Index
May 21, 2013 Doug Short
Note from dshort: After posted an update yesterday for the Chicago Fed National Activity Index, I received requests to update my periodic look at the Philly Fed ADS Index.
The Philly Fed’s Aruoba-Diebold-Scotti Business Conditions Index (hereafter the ADS index) is a fascinating but relatively little known real-time indicator of business conditions for the U.S. economy, not just the Third Federal Reserve District, which covers eastern Pennsylvania, southern New Jersey, and Delaware.
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Weekly Gasoline Update: Regular Is Up 7 Cents, Premium 4 cents
May 20, 2013 Doug Short
It’s time again for my weekly gasoline update based on data from the Energy Information Administration (EIA). Rounded to the penny, the average for Regular increased seven cents and Premium four cents. This is the third week of price gains after nine weeks of declines, which followed eleven weeks of price rises. Since their interim high in late February, Regular is down 11 cents and Premium 16 cents.
According to GasBuddy.com, eight states are averaging above $4.00 per gallon, up from four last week. Six states are in the 3.90-4.00 range, up from two last week.
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Bond Bulls DO NOT Want This Breakout to Happen!
May 20, 2013 Chris Kimble
S&P 500 has has a good month, up 7% in the past 30 days! Wow!
Can you believe that the yield on the 10-year note has jumped up at the same time? How about twice as much! Yep, the yield on the 10-year note is up over 15% in the past 30-days!
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Atypical Global Recovery Underway
May 20, 2013 Dwaine Van Vuuren
The Global Leading Economic Indicator (GLEI) rose for the month of March, but is following an atypical growth pattern coming out of recession, with a slope far shallower than the normal expected rebound. Also noteworthy this month is that the percentage of countries with rising LEI’s seems to have stalled-out at 69%. This is concerning at this stage of the recovery and only 5 months with the LEI above zero.
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Understanding the CFNAI Components
May 20, 2013 Doug Short
The Chicago Fed’s National Activity Index, which I reported on earlier today, is based on 85 economic indicators drawn from four broad categories of data:
- Production and income
- Employment, unemployment, and hours
- Personal consumption and housing
- Sales, orders, and inventories
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The Recent Decline In Gold
May 20, 2013 Ted Kavadas
The below chart is depicted on a daily basis from 2008 through May 17, with the thin blue line depicting the 50dma of the Gold price, Silver price, HUI Index, HUI:Gold ratio and S&P 500. As one can see, the closing price of Gold on May 17 is $1359.10/oz. I find several items on the chart to be noteworthy.
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Vehicle Miles Driven: Population-Adjusted Hits Yet Another Post-Crisis Low
May 20, 2013 Doug Short
The Department of Transportation’s Federal Highway Commission has released the latest report on Traffic Volume Trends, data through March. Travel on all roads and streets changed by -1.5% (-3.7 billion vehicle miles) for March 2013 as compared with March 2012. Cumulative Travel for 2013 changed by -0.8% (-5.6 billion vehicle miles) from 2012. The 12-month moving average of miles driven changed by -0.2% from March a year ago (PDF report). Both the civilian population-adjusted data (age 16-and-over) and total population-adjusted data and have hit new post-financial crisis lows.
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Chicago Fed: Economic Activity Was Slower in April
May 20, 2013 Doug Short
According to the Chicago Fed’s National Activity Index, April economic activity slowed from March, now at -0.53, down from March’s -0.23. This index has been negative (meaning below-trend growth) for eleven of the past fourteen months. Here are the opening paragraphs from the report:
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Gauging Investor Sentiment with Twitter: New Update
May 20, 2013 Blair Jensen
The Downside Hedge Twitter sentiment indicator for the S&P 500 Index (SPX) is painting moderately high readings on up days and fairly flat reading on down days. This is a positive sign for a market making new highs. Even though there continues to be a very large number of tweets concerned with overbought conditions there are enough tweets showing excitement about higher prices that the daily indicator doesn’t travel far below zero.
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The ’’Real’’ Mega-Bears: New Update
May 19, 2013 Doug Short
Note from dshort: In response to a special request and in light of the strong market performance in the S&P 500 and meteoric rise in the Nikkei 225, I’ve updated my Mega-Bear weekly chart series through Friday’s close.
It’s time again for an update of our "Real" Mega-Bears, an inflation-adjusted overlay of three secular bear markets. It aligns the current S&P 500 from the top of the Tech Bubble in March 2000, the Dow in of 1929, and the Nikkei 225 from its 1989 bubble high.
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Weighing the Week Ahead: Are You Ready for Some Fedspeak?
May 19, 2013 Jeff Miller
Ready or not, we should expect a week dominated by an even greater focus on Fed policy. There are four reasons:
1. The economic data calendar is very light;
2. Earnings season has ended;
3. Many will be heading for the exits early, anticipating a holiday weekend; and finally
4. Bernanke testifies on the economy before the Congressional Joint Economic Committee. There will also be other Fed speeches and the minutes of the last FOMC meeting.
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World Markets Weekend Update: The Rally Continues, Except for Hong Kong
May 18, 2013 Doug Short
For the fourth consecutive week, the worldwide rally continues unabated. Seven of the eight indexes on my watchlist posted strong gains with Japan again topping the list with its 3.63% advance. Hong Kong’s Hang Seng was the one index to take a breather. Amazingly enough, that Nikkei surge was three percent smaller than the previous week’s 6.67%.
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Best Stock Market Indicator Ever: Unchanged at 96%; Secondaries Confirm ’Tradable’
May 18, 2013 John F. Carlucci
The $OEXA200R Monthly (the percentage of S&P 100 stocks above their 200 DMA) is a technical indicator available on StockCharts.com used to find the "sweet spot" time period in the market when you have the best chance of making money. See Is This the Best Stock Market Indicator Ever? for a discussion of this technical tool.
The charts below are current through this week’s close.
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Getting Technical: Weekend Update
May 17, 2013 Serge Perreault
Here’s the latest weekend update from Serge Perreault, a Chartered Professional Accountant and market technician located near Montreal, Canada. Serge has been following the U.S. market in a series of weekly charts. Here is his update on the S&P 500.
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The Great ’’American’’ Divide
May 17, 2013 Lance Roberts
I have often spoken of the disconnect between Wall Street and Main Street. While asset prices are inflated by continued interventions of monetary policy from the Federal Reserve, boosting Wall Street profits and widening the wealth gap between the top 20% of Americans and the rest, "Main Street" continues to suffer a from a rising cost of living and falling wage growth. Just recently Gallup released the following survey:
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Recession Watch: ECRI’s Weekly Leading Indicator Declines
May 17, 2013 Doug Short
The Weekly Leading Index (WLI) of the Economic Cycle Research Institute (ECRI) is at 130.2, down slightly from last week’s 131.0. The WLI annualized growth indicator (WLIg) dropped to 7.0% from 7.4% last week, an upward revision from 7.3%....
Here are two significant developments since ECRI’s public recession call on September 30, 2011:
1. The S&P 500 is up 45.9%.
2. The unemployment rate has dropped from 9.0% to 7.5%.
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Joe Friday: ’’King Dollar Hasn’t Done This in Eight Years’’
May 17, 2013 Chris Kimble
The Yen, Australian $ and the Euro have created pennant patterns over the past few years and each of these currencies is now breaking support of the pennant patterns.
As the same time the US$ has been unable to close on a monthly basis above line (1) in the chart below.
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Conference Board Leading Economic Index: April Rebound Suggests Continuing Economic Expansion
May 17, 2013 Doug Short
The Conference Board Leading Economic Index (LEI) for April was released this morning. The index rose 0.6 percent to 95.0 (2004 = 100), versus -0.2 percent last month, which was a downward revision from -0.1 percent. The Briefing.com consensus was for a 0.3 percent increase. Today’s press release highlights a "continuing economic expansion with some upside potential."
Here first is an overview of today’s release from the LEI technical notes:
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Michigan Consumer Sentiment: Highest Since July 2007
May 17, 2013 Doug Short
The University of Michigan Consumer Sentiment preliminary number for May came in at 83.7, a major advance over the April final reading of 76.4. This is the highest level since July of 2007, prior to the Great Recession. The Briefing.com consensus was for 78.5.
See the chart below for a long-term perspective on this widely watched index. I’ve highlighted recessions and included real GDP to help evaluate the correlation between the Michigan Consumer Sentiment Index and the broader economy.
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NFL Executives Overpay for ’’Stock’’ Investments
May 17, 2013 Wesley R. Gray
We’ve all endured lectures on efficient markets in graduate school: Prices are always right; humans are rational computing algorithms; beating the market is futile; and so forth. Enter behavioral economics, the study of economics when economic agents -- also known as "people" -- are no longer assumed to be 100% rational.
At Empiritrage, LLC we focus on turning academic insights into investment performance and many of our best trading ideas are focused on areas of the market where behavioral bias unduly influences price behavior.
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A Long-Term Look at Inflation
May 16, 2013 Doug Short
The May 2012 Consumer Price Index for Urban Consumers (CPI-U) released today puts the April year-over-year inflation rate at 1.06%, dramatically below the 3.92% average since the end of the Second World War.
Let’s take a step back and look at the history of inflation over the past 140 plus years.
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Inflation: A Five-Month X-Ray View: New Update
May 16, 2013 Doug Short
Here is a table showing the annualized change in Headline and Core CPI for each of the past five months. I’ve also included each of the eight components of Headline CPI and a separate entry for Energy, which is a collection of sub-indexes in Housing and Transportation.
We can make some inferences about how inflation is impacting our personal expenses depending on our relative exposure to the individual components.
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The Big Four Economic Indicators: Real Retail Sales
May 16, 2013 Doug Short
Note from dshort: This commentary has been revised to include the April Real Retail Sales using today’s release of the Consumer Price Index....
Nominal Retail Sales only rose 0.1% in April from March, but Real Retail Sales rose 0.5%. Thus most of the real increase was attributable to the month-over-month decline in the seasonally adjusted CPI, which dropped 0.4%. The April year-over-year growth rate is 2.5%.
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The Whole is Greater than the Sum of the Parts
May 16, 2013 Adam Butler, Mike Philbrick, Rodrigo Gordillo
One of the most mind-blowing implications of portfolio theory is that a well conceived portfolio has the potential to be much better, in terms of risk adjusted performance, than what we might expect from the sum of the individual portfolio holdings.
Not incidentally, the name of our blog - GestaltU - relates directly to this concept.
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Philly Fed Business Outlook: Manufacturing Activity Weakened
May 16, 2013 Doug Short
The Philly Fed’s Business Outlook Survey is a monthly report for the Third Federal Reserve District, covers eastern Pennsylvania, southern New Jersey, and Delaware. The latest gauge of General Activity dropped from to -5.2 from last month’s 1.3. The 3-month moving average came in at -0.6, the eleventh negative reading in twelve months. Since this is a diffusion index, negative readings indicate contraction, positive ones indicate expansion. Here is the introduction from the Business Outlook Survey released today:
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What Inflation Means to You: Inside the Consumer Price Index
May 16, 2013 Doug Short
Let’s do some analysis of the Consumer Price Index, the best known measure of inflation. The Bureau of Labor Statistics (BLS) divides all expenditures into eight categories and assigns a relative size to each. The pie chart below illustrates the components of the Consumer Price Index for Urban Consumers, the CPI-U, which I’ll refer to hereafter as the CPI.
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Inflation Comes in Below Forecast, Thanks Again Mostly to Lower Gasoline Prices
May 16, 2013 Doug Short
The Bureau of Labor Statistics released the latest CPI data this morning. Year-over-year unadjusted Headline CPI came in at 1.06%, which the BLS rounds to 1.1%, down from 1.47% last month (rounded to 1.5%). Year-over-year Core CPI (ex Food and Energy) came in at 1.72% (rounded to 1.7%), down from last month’s 1.89% (rounded to 1.9%).
Here is the introduction from the BLS summary, which leads with the seasonally adjusted data monthly data:
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Weekly New Unemployment Claims: 360K, About 30K More Than Forecast
May 16, 2013 Doug Short
The Unemployment Insurance Weekly Claims Report was released this morning for last week. The 360,000 new claims number was a 32,000 increase from the previous week’s upwardly revised 328,000. The less volatile and closely watched four-week moving average, which is usually a better indicator of the recent trend, increased by 1,250 to 339,250. Here is the official statement from the Department of Labor:
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Leading Employment Indicators Suggest Higher Highs Into the Fall
May 15, 2013 Chris Puplava
Leading indicators for the labor market suggest we get an acceleration in payroll gains heading into the fall, which is what the market may be discounting currently as it continues to hit new all-time highs. With the market’s long-term momentum continuing to improve and the outlook for employment encouraging, the risks of a recession and/or bear market appear remote with the market likely heading to new all-time highs into the fall.
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Japan’s Market Drama Continues to Amaze: New Update
May 15, 2013 Doug Short
Note from dshort: With the Nikkei 225 breaking the 15,000 level, I decided to refresh the charts in this commentary. The index is up 88.0% from its November 2011 interim low. After months of discussion and press speculation, last month the Bank of Japan disclosed its radical redo of monetary policy. The index is up 22.1% since the day before the unveiling on April 4th.
What about Japanese government bonds? The closing yield on the day the Nikkei hit its interim low on November 25, 2011 was 1.53%. While the index is up 85.0%, the 10-year yield is now at 0.84%.
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Breakout in Japanese 10-Year Bond Yield
May 15, 2013 Mike Shedlock
Curve Watchers Anonymous has its eye on global interest rates. For example, please consider this chart of 10-Year Japanese bonds.
Chart courtesy of Steen Jakobsen, chief economist at Saxo Bank in Denmark.
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The Message from Lumber
May 15, 2013 Chris Kimble
Lumber has traded within a falling channel for the past 20-years. When lumber has hit the bottom of the channel, stocks have followed to the tune of 100% rallies twice.
The key to this pattern is when Lumber is at the top of the channel and turns down, it seems to pull the economy, stock market and economy lower with it
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Empire State Manufacturing Unexpectedly Contracts
May 15, 2013 Doug Short
There are a variety of components to the diffusion index for those who wish to dig deeper. But at the top level, here is a snapshot of New York State’s General Business Conditions. Today’s decline to -1.4 from 3.1 last month and from 10 three months ago in February is an unexpected slide. The Briefing.com consensus was for a slight expansion to 3.5.
The chart illustrates both the General Business Conditions and Future General General Business Conditions (the outlook six months ahead):
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Producer Price Index: Headline Inflation Drops 0.7%, Core Rises 0.1%
May 15, 2013 Doug Short
Today’s release of the April Producer Price Index (PPI) for finished goods shows a month-over-month decrease of 0.6%, seasonally adjusted, in Headline inflation. Core PPI rose 0.1%. Briefing.com had posted a MoM consensus forecast of -0.5% for Headline and 0.1% for Core PPI.
The April decline in Headline PPI is the second monthly decline following two months of increases, which had followed three months of declines. Year-over-year Headline PPI is at 0.7%, its lowest level in nine months, and Core PPI is at 1.7%, its lowest since YoY since January 2011.
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5 Questions That Every Market Bull Should Answer
May 14, 2013 Lance Roberts
There have been a litany of articles written recently discussing how the stock market is set for a continued bull rally. The are some primary points that are common threads among each of these articles which are that interest rates are low, corporate profitability is high and the Fed’s monetary programs continue to put a floor under stocks. The problem is that while I do not disagree with any of those points - they are all artificially influenced by outside factors.
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Wine Country Conference Speaker Presentations All Posted
May 14, 2013 Mike Shedlock
Note from dshort: I highly recommend spending some time studying the excellent Wine Country Conference materials that Mish has generously shared with the public.
In case you missed it, please note that all of the presentations at the Wine Country Conference have now been posted. They are about 45 minutes each except for my short opening remarks.
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Small Business Sentiment: A ’’Ho Hum, Yawn’’ Uptick
May 14, 2013 Doug Short
Note from dshort: I wrote this shortly after the NFIB report was released this morning, and thought I had posted it. Apparently I didn’t hit the send key.
The latest issue of the NFIB Small Business Economic Trends is out today (see report). The May update for April came in at 91.2, which, despite a 2.6 point gain, remains in the gloomy lows at the 12th percentile in this series, where a distinctly recessionary mood continues to prevail.
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MAC-Australia: A Moving Average Crossover System for Superannuation Asset Allocations
May 14, 2013 Georg Vrba
Australian employers must pay at least 9% of workers’ annual salaries into their superannuation accounts. Because the Government wants people to save for their retirement, they provide tax breaks and other incentives to help grow super savings over time. There is a wide choice of funds available, but most people seem to select, and stay in, a balanced multi-sector fund. A better way to allocate one’s savings and maximize returns is to use the signals from MAC-Australia....
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Census Bureau Revisions to Retail Sales
May 14, 2013 Doug Short
Yesterday today I posted my monthly update on Retail Sales. Those of us who routinely track this series know that the Advance Estimate, which is what we got yesterday, will be followed by a second estimate next month and a third estimate the month after. How big are those revisions? Big enough to warrant skepticism about the Advance Estimate?
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Checking in on the WSJ Economists’ Forecasts for GDP
May 14, 2013 Doug Short
The second estimate for Q1 GDP is over two weeks away, and there will be a third estimate one month later. However, for the Wall Street Journal’s survey of economists, Q1 GDP is ancient history. The latest survey, conducted May 3-7 starts asks for four quarterly estimates beginning with Q2 and annual estimates through 2015.
Let’s take a look at some of the views, focusing primarily on the remaining quarters in 2013. I’m using my usual graphing technique to illustrate the distribution of the individual forecasts.
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Clues To Watch For The End Of QE ’Infinity’
May 13, 2013 Lance Roberts
So, apparently, according to Jon Hilsenrath, "QE to Infinity" is actually "finite" after all. With Ben Bernanke set to "exit stage left" in 2014, the question of who replaces him at the helm of the massive USS "Federal Reserve" will be important as to the future of the current course of monetary policy. One of the top contenders for that job is Janet Yellen. However, according to the variety of erudite speakers at the recent Strategic Investment Conference, there are many hurdles ahead for her and she may be just too "dovish" to actually land the job.
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The Hottest Market on the Planet: How High Can It Go?
May 13, 2013 Chris Kimble
The world’s worst performing stock market index over the past 30-years happens to be the hottest asset over the past 12-months. Which is more important at this time, the 30-year track record or the past year’s performance?
In the chart below from a "Power of the Pattern" perspective, long-term patterns and short-term performance are creating a very interesting situation for the Nikkei 225 right now at (4).
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Retail Sales: Better Than Expected
May 13, 2013 Doug Short
The Advance Retail Sales Report released this morning shows that sales in April came in at 0.1% month-over-month, a strong improvement over the downwardly revised -0.5% in March. Today’s headline number came in above the Briefing.com consensus forecast of -0.3%. Cheaper gasoline prices gave a boost to Retail Sales ex Gas to the tune of 0.7%, up from -0.1% last month.
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Gauging Investor Sentiment with Twitter: New Update
May 13, 2013 Blair Jensen
The Downside Hedge Twitter sentiment indicator for the S&P 500 Index (SPX) continues to confirm the breakout above 1600, however, the daily indicator is showing some lower prints. As the market pushed higher above the 1625 range we started to see a lot of tweets indicating traders thought the market was overbought. Those tweets mentioned technical indicators such as Bollinger bands, trend channels, the McClellan oscillator, and the distance the market is above its moving averages. This suggests that traders believe the market is due for a short term pull back.
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Weighing the Week Ahead: Are Consumers Ready to Buy? What about Housing?
May 12, 2013 Jeff Miller
The economic recovery, to the surprise of nearly everyone, has been consumer-driven. This has occurred despite increased savings and an overall improvement in household balance sheets. Businesses have been cautious to invest and to hire. State and local governments have been slashing spending and employees.
I expect a week with a consumer focus. It starts with data on retail sales, expected to be weaker from the payroll tax increase and lower gasoline spending. It ends with the important indicators on housing.
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Consumer Staples & Discretionary Are Sending a Message to ’Respect’
May 11, 2013 Chris Kimble
Consumer Discretionary and Consumer Staples ETFs have been white hot over the past 5 years. The table below reflects that Staples (XLP) has gained over twice and Discretionary (XLY) three times as much as the S&P 500 over the past five years. No doubt these two have played a major role in pulling the S&P 500 up over 145% since the March 2009 low.
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Market’s Bill of Health: Cyclicals Are Back!
May 10, 2013 Chris Puplava
Sentiment in the markets plunged to levels not seen since the March 2009 lows despite the market heading to new highs. Many pundits were confused by this given the market’s action; however, what was taking place was that cyclical sectors and small cap stocks were suffering pullbacks, which were being masked by the market averages heading higher as they were being carried by large cap defensive sectors like health care and consumer staples. Since the April pullback, we have seen a clear rotation out of defensive sectors and into cyclicals.
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Joe Friday: ’Breakdown in Key Down Jones Index’
May 10, 2013 Chris Kimble
Earlier this week the "Power of the Pattern" shared that Utilities had almost doubled the performance of the S&P 500 and that they were making a bearish rising wedge up against a trio of resistance. The implication was that Utilities could run out of energy and impact the broad markets
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Amazing Demographic Trends in the 50-and-Older Work Force
May 10, 2013 Doug Short
In my periodic update on demographic trends in employment, I included a chart illustrating the growth (or shrinkage) in six age cohorts since the turn of the century. In this commentary we’ll zoom in on the age 50 and older Labor Force Participation Rate (LFPR)....
This is not the scenario that would have been envisioned a generation ago for the "Golden Years" of retirement. Consider: Today nearly one in three of the 65-69 cohort and almost one in five of the 70-74 cohort are in the labor force.
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Treasury Yield Snapshot: 10-Year Yield Up 15 Basis Points from Last Thursday
May 09, 2013 Doug Short
What’s New: I’ve updated the charts below through today’s close. The S&P 500 is now up 14.06% for 2013, fractionally below its all-time closing high set yesterday. The yield on the 10-year note closed at 1.81%, up 15 bps from its interim low of 1.66% five sessions ago.
The latest Freddie Mac Weekly Primary Mortgage Market Survey puts the 30-year fixed at 3.42%, down from its interim high of 3.63% in mid-March but up seven basis points from last week. The all-time low was 3.31%, which dates from the third week in November of last year.
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Revisions to the Nonfarm Payroll Jobs Report
May 09, 2013 Doug Short
Last month I posted a commentary on some Stunning Demographic Trends in Employment. In a footnote I commented on the unreliability of the Bureau of Labor Statistics’ employment data for Nonfarm Payroll Employment, which included a link to historic revisions back to 1979 on the BLS website. I subsequently posted a commentary to illustrate the changes.
With last Friday’s release of the May jobs report for April, we have an additional month of data.
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The ’Labor Hoarding’ Effect
May 09, 2013 Lance Roberts
The latest employment report released by the Bureau of Labor Statistics (BLS) showed a surprise jump in employment for the month of April of 165,000 jobs. The general consensus for the report was 153,000 jobs, so the "better than expected" news prompted a surge in the financial markets.
There has been much analysis of the data since the report with views that ranged from ebullient to dismissive. However, the reality is that, despite better than expected numbers in the report, employment gains to this point have been nothing more than a function of population growth.
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Stunning Demographic Trends in Employment: New Update
May 09, 2013 Doug Short
Note from dshort: I’ve now updated the data for this commentary with the latest numbers from the May Employment Report for April.
The Labor Force Participation Rate (LFPR) is a simple computation: You take the Civilian Labor Force (people age 16 and over employed or seeking employment) and divide it by the Civilian Noninstitutional Population (those 16 and over not in the military and or committed to an institution). The result is the participation rate expressed as a percent.
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Another Housing Bubble?
May 08, 2013 Mike Shedlock
Hugely Negative Real Interest Rates Fuel Yet Another Housing Bubble; A Word About "Inflation" and Treasury Yields
It’s easy to spot a Fed-sponsored housing bubble if you look in the right places. The best place to start is an analysis of price inflation as measured by the BLS as compared to a CPI-variant that takes actual housing prices into consideration instead of rent.
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Charting Down Under: The Australia All Ordinaries Index
May 08, 2013 Doug Short
Note from dshort: It’s been quite some time since I’ve updated my chart of Australia’s All Ordinaries stock index. In response to an email, I’ve refreshed my chart of the All Ordinaries and and overlay of my weekly world markets snapshot that includes the All Ordinaries Index along with the eight regulars.
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WTF is going on in stocks ... Watch The Flows!
May 07, 2013 Chris Kimble
Think back to 2007. If someone would have told you that almost $600 Billion would be withdrawn from Domestic U.S. stock funds over the next six years? What would you have said to them if they then told you that the S&P 500 would be at all-time highs? "Hmmm" at the least!
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Reductio Ad Absurdum
May 07, 2013 Eric Schaefer
In 1989, the eminent American economist Charles Kindleberger delivered a series of four lectures on the subject of economic laws and economic history. Among the four was the law of one price. As its names implies, the law holds that equivalent commodities must trade for the same price. If not, an arbitrage exists in which one could buy the good (from the cheapest supplier) and in turn sell it at a higher price to earn a riskless profit. An arbitrage’s existence signals a market is not efficient....
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Lacy Hunt: Cyclical Hurdles For A Highly Over-Leveraged Economy
May 07, 2013 Lance Roberts
Let’s begin by taking a trip back in history. In the 1930’s there was a 60% devaluation in the U.S. dollar as the economy struggled with the ongoing depression. Franklin D. Roosevelt felt that the cure for the economic malaise was higher taxes and more spending.
Dr. Irving Fisher, famous for his 1929 prediction that stocks had reached a "permanently high plateau," argued against increasing taxes but was ultimately no match for FDR.
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When Will the Fed’s Easing Measures End? The Unemployment Rate is the Key
May 07, 2013 Georg Vrba
The Federal Reserve’s is expected to extend its easing measures until the job market improves "substantially", the stated goal is a decline of the unemployment rate to 6.5%. One can use the unemployment rate model to provide an estimate of the future unemployment rate (UER). This model suggests that the unemployment rate will decline to 7% by the end of 2013, and to 6.5% by the middle of 2014; the implication being that the Fed could abandon its easing measures fairly soon, which should affect bond and stock prices adversely.
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Forget the Jobless Recovery, Get Ready for the Full-Employed Recession
May 06, 2013 Franz Lischka
Last week I wrote a commentary with the provocative title US economy: below stall speed or rather already above potential? I argued that the retirement wave of the baby boomer generation, after its first couple of years, will lead to much slower economic growth in the coming 10 to 17 years. What I subsequently noticed, was that my thesis was interpreted to be more negative than I intended. Or at least was the feeling I had after businessinsider.com reprinted the commentary with what appeared to be a Great Depression-era picture of a row of men looking for work....
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The Big Brother Trade
May 06, 2013 Bill Hardison
Two weeks ago, Barron’s cover showed a gleeful bull on a pogo stick with the caption, Dow 16,000! For the past 20 years, Barron’s has run their semi-annual Big Money Poll of professional investors. Currently, 74% describe themselves as either bullish or very bullish on the prospect for US stocks – a new record high for the Big Money Poll! That is survey data – you can say anything you like, but what does your behavior show? Last month we looked at bullishness from a hard data perspective. Surveys aside, if you really believe the market is going lower....
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Introduction to Santoren Bands
May 06, 2013 Tomas Leszczynski
Santoren Bands (SB) is a trading system based on relationships between bands of moving averages. The purpose of the system is to visualize the changes of momentum at various stages of a trend and to construct entry/exit strategies based on specific formations presented in such charts. SB is used in addition to traditional technical and fundamental analysis.
The main focus of SB is studying interactions of price and two key bands, which represent shorter and longer averages. The price activity within a space between these bands defines various SB objects.
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Gauging Investor Sentiment with Twitter: New Update
May 06, 2013 Blair Jensen
The Downside Hedge Twitter Sentiment Indicator for the S&P 500 Index (SPX) cleared its consolidation warning and is confirming the move higher with strong readings in smoothed sentiment. It is still showing signs of traders chasing with wide swings on the daily indicator and a broadening pattern in smoothed sentiment that somewhat mirrors the megaphone pattern in price. The latest peak in smoothed sentiment appears to be confirming the break above 1600 in SPX. Our only doubt is a result of the recent chasing of price....
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Weighing the Week Ahead: New Leadership for Stocks?
May 05, 2013 Jeff Miller
For several weeks I have been monitoring a developing change in the US equity markets. There is a growing perception that some of the "safe" assets may not be so safe. There is a corresponding realization that the "risky" choices might not be so risky.
Some see this as a sign of danger. Cam Hui, our "Humble Student of the Markets," notes the general market trend, concluding, "For traders, it may be premature to get overly bearish without some catalyst or trigger." He is concerned, however, that the defensive leadership is a sign of weakness.
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Little Love for Stocks as S&P 500 Hits All-Time Highs
May 04, 2013 Chris Kimble
The S&P 500 closed at all-time highs this week; is Wall Street totally in love with stocks?
See the pair of charts below. The one on the left was shared with Premium Members on July 13th last year, reflecting the lowest exposure to stocks by Wall Street strategists in the past 15-years. Little love for equities for sure! Since then the S&P 500 is up 16%. Have Wall Street strategists now fallen in love with stocks?
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Treasury Yields in Perspective
May 03, 2013 Doug Short
With the S&P 500 at an all-time high, let’s reflect for a moment on Treasuries, with a long-term perspective on yields. The chart below shows the 10-Year Constant Maturity yield since 1962 along with the Federal Funds Rate (FFR) and inflation. The range has been astonishing. The stagflation that set in after the 1973 Oil Embargo was finally ended after Paul Volcker raised the FFR to 20.06%.
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Real Hourly Wages and Hours Worked: Monthly Update
May 03, 2013 Doug Short
Here is a look at two key numbers in the May monthly employment report for April: Average Hourly Earnings and Average Weekly Hours. The government has been tracking the data for Production and Nonsupervisory Employees for decades. But coverage of Total Private Employees only dates from March 2006.
Let’s look at the broader series, which goes back far enough to show the trend since before the Great Recession. I want to look closely at a five-snapshot sequence.
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What Do Weekly Unemployment Claims Tell us About Recession Risk?
May 03, 2013 Doug Short
Note from dshort: I’ve updated this commentary to include the latest labor force data in today’s release of the April employment report.
A long-term chart of the seasonally-adjusted 4-week moving average of Initial Claims gives a rather distorted view of the economy. Why? Because it doesn’t take into account the 103% growth in the Civilian Labor Force since January 1967. For a better understanding of the weekly Initial Claims data, let’s view the numbers as a percent ratio of the Civilian Labor Force.
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Joe Friday: ’Doc Copper Rally Would Surprise Most Investors’
May 03, 2013 Chris Kimble
I shared the chart below with Premium Members on April 24th and early sign ups for our new Metals Research report last week, reflecting that Doc Copper was on support and that bullish sentiment towards Copper had collapsed to levels last seen at the 2009 financial crisis lows! A bullish set up/entry point was at hand.
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Year of the Yaun?
May 03, 2013 Mike Shedlock
Last month I received a lot of emails from readers regarding articles on a new currency relationship between Australia and China allowing direct convertibility of Australian dollars into Yuan.
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ISM Non-Manufacturing Business Report: Slower Growth in April
May 03, 2013 Doug Short
Today the Institute for Supply Management published its latest Non-Manufacturing Report. The headline NMI Composite Index is at 53.1 percent, signaling slower growth than last month’s 54.4 percent. The Briefing.com consensus was for 54.0 percent.
Here is the report summary:
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The Unemployment Rate Is Not Signaling a Recession: Update
May 03, 2013 Georg Vrba
A reliable source for recession forecasting is the unemployment rate, which can provide signals for the beginnings and ends of recessions. The unemployment rate model, updated with the April figure, does not at present signal a recession.
The model relies on four indicators to signal recessions:
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165K New Jobs Added, And Unemployment Rate Falls to 7.5%
May 03, 2013 Doug Short
Here is the lead paragraph from the Employment Situation Summary released this morning by the Bureau of Labor Statistics, with the bold bracketed text added by me:
Total nonfarm payroll employment rose by 165,000 in April, and the unemployment rate was little changed at 7.5 percent, the U.S. Bureau of Labor Statistics reported today [a decrease from 7.6 percent last month]. Employment increased in professional and business services, food services and drinking places, retail trade, and health care.
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Niall Ferguson - The Great Degeneration
May 02, 2013 Lance Roberts
I am at the 10th annual Strategic Investment Conference in California, which is put on annually by Altegris Investments and John Mauldin. Niall Ferguson is the Laurence A. Tisch Professor of History at Harvard University, a Senior Fellow of the Hoover Institution at Stanford University and a Senior Research Fellow at Jesus College at Oxford. He is also the author of 14 books including the must read The Ascent Of Money: A Financial History Of The World. The following are the notes from his presentation.
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Interpreting Krugman’s Austerity
May 02, 2013 Chris Turner
When confronted with issues of the day that affect future performance of investment portfolios, some issues catch my eye more than others. Some articles of late from Professor Paul Krugman appear to be contradictory to his Keynesian beliefs. Rather than try to debate someone undebatable, I thought more instructive would be to show some charts and let readers interpret the results.
While reading David Stockman’s new book, The Great Deformation, I thought of some interesting ideas to transform into charts.
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Just Two ’Recession’ Indicators: Shamelessly Spinning the Data
May 02, 2013 Doug Short
I received an email from a reader asking my opinion of a Zero Hedge article published yesterday: Just Two ’Recession’ Indicators, the two being retail sales and personal income less transfer payments. The former takes its message from an eight-year chart of retail sales for clothing and general merchandise lifted from BloombergBriefs.com (which requires a $1495 subscription, so it’s not on my daily reading list). The second highlights a widely circulated chart from David Rosenberg.
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The True Workforce Participation Rate and Employment to Workforce Ratio Signal a Growing Economy
May 02, 2013 Anton Vrba
We investigate the employment situation in respect to economic-capable persons 16 to 64 year old, from which we derive a workforce participation rate and an employment-workforce ratio that paints a picture of a growing economy showing no signs of recession. This is in contrast to the official Civilian Labor Force Participation Rate and the Civilian Employment-Population Ratio which do not project encouraging prospects for the economy.
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Market Valuation, Inflation and Treasury Yields: Clues from the Past
May 02, 2013 Doug Short
My monthly market valuation updates have long had the same conclusion: US stock indexes are significantly overvalued, which suggests cautious expectations on investment returns. In a "normal" market environment -- one with normal business cycles, Federal Reserve policy, interest rates and inflation -- current valuation levels would be a serious concern.
But these are different times.
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Market Valuation Overview: It Keeps Getting More Expensive
May 02, 2013 Doug Short
Here is a summary of the four market valuation indicators I usually update during the first week of the month.
- The Crestmont Research P/E Ratio
- The cyclical P/E ratio using the trailing 10-year earnings as the divisor
- The Q Ratio, which is the total price of the market divided by its replacement cost
- The relationship of the S&P Composite price to a regression trendline
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April 2013 Manufacturing ISM at a Glance; What do the Numbers Mean?
May 01, 2013 Mike Shedlock
Manufacturing employment has grown for 43 months. I expect that trend to break next month.
Production was up but inventories were way lower. The drop in inventories, in conjunction with a big slowdown in employment, is likely a leading indicator of future production.
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Sell in May? A Brief Sanity Check
May 01, 2013 Doug Short
On this first day of May, in homage to the Sell in May soothsayers (and in the spirit of market trivia), let’s survey the behavior of the months in the S&P Composite since 1928. The Composite is a spliced index of the earlier S&P 90 with the S&P 500. Because of its greater breadth, I prefer it to the Dow for historic research of this sort.
Market lore is full of monthly associations: The January Effect, Sell in May and Go Away, Summer Rallies, the September Slump, Manic-Depressive October, December Rallies, etc.
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The Q Ratio and Market Valuation: Monthly Update
May 01, 2013 Doug Short
The Q Ratio is a popular method of estimating the fair value of the stock market developed by Nobel Laureate James Tobin. It’s a fairly simple concept, but laborious to calculate. The Q Ratio is the total price of the market divided by the replacement cost of all its companies. Fortunately, the government does the work of accumulating the data for the calculation. The numbers are supplied in the Federal Reserve Flow of Funds Accounts of the United States, which is released quarterly.
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Crestmont Market Valuation Update
May 01, 2013 Doug Short
Description: The 2011 article P/E: Future On The Horizon by Advisor Perspectives contributor Ed Easterling provided an overview of Ed’s method for determining where the market is headed. His analysis is quite compelling. Accordingly I include the Crestmont data to my monthly market valuation updates.
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Anticipating Friday’s Employment Report
May 01, 2013 Doug Short
The most important economic news this week is Friday’s employment report from the Bureau of Labor Statistics. This monthly report contains a wealth of data for economists, probably the most significant in the near term being the month-over-month change in Total Nonfarm Employment (the PAYEMS series in the FRED repository).
Today we have the April estimates from ADP (119,000 new jobs) and TrimTabs (67,000 new jobs). These are extremely weak numbers.
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ISM Manufacturing Index Expands, But Less Than Expected
May 01, 2013 Doug Short
Today the Institute for Supply Management published its February Manufacturing Report. The latest headline PMI at 50.7 percent is the fifth month above 50 after one month below. However today’s number was below the Briefing.com consensus of 51.0 percent.
Here is the report summary:
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Is the Stock Market Cheap?
May 01, 2013 Doug Short
Here is a new update of a popular market valuation method using the most recent Standard & Poor’s "as reported" earnings and earnings estimates and the index monthly averages of daily closes for the past month, which is 1,570.70. The ratios in parentheses use the monthly close of 1,597.57. For the earnings, see the table below created from Standard & Poor’s latest earnings spreadsheet.
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Will the Market Keep Lumbering Along?
May 01, 2013 Chris Kimble
Lumber prices over the past 25 years have been a quality leading indicator for the future direction of the economy and the stock market, in both directions.
Back in March, the Power of the Pattern pointed out that Lumber was at the top of a 25-year channel (formed a bearish rising wedge), where 50% declines in Lumber often happen in the past, which was followed by a slowing economy and lower stock prices
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Regression to Trend: A Perspective on Long-Term Market Performance
May 01, 2013 Doug Short
Quick take: At the end of March the S&P 500 index price was 57% above its long-term trend, up from 56% above trend the previous month.
About the only certainty in the stock market is that, over the long haul, over performance turns into under performance and vice versa. Is there a pattern to this movement? Let’s apply some simple regression analysis (see footnote below) to the question.
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The S&P 500, Dow and Nasdaq Since Their 2000 Highs
May 01, 2013 Doug Short
Here is a update in response to a standing request from David England, a professor who has developed a popular college level stock market classes at John A. Logan College in Carterville, IL. In his presentations, he likes to disprove the standard message of Wall Street, "Don’t worry! The market will always come back." I furnished David with some charts, and I now share them with regular visitors to my Advisor Perspectives pages.
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Secular Bull and Bear Markets
May 01, 2013 Doug Short
Was the March 2009 low the end of a secular bear market and the beginning of a secular bull? Without crystal ball, we simply don’t know. One thing we can do is examine the past to broaden our understanding of the range of possibilities. An obvious feature of this inflation-adjusted is the pattern of long-term alternations between up-and down-trends.
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Moving Averages: Month-End Update
Apr 30, 2013 Doug Short
The S&P 500 closed April with a monthly gain of 1.81%. All three S&P 500 MAs and four of the five the Ivy Portfolio ETF MAs are signaling "Invested".
The Ivy Portfolio
The table below shows the current 10-month simple moving average (SMA) signal for each of the five ETFs featured in The Ivy Portfolio.
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The Second U.S. Housing Bubble Continues to Inflate
Apr 30, 2013 Craig Eyermann
After we had first announced that a new housing bubble had taken root in the U.S. economy beginning in July 2012, we soon followed up with additional analysis that suggested that it had perhaps begun to decelerate to a more sustainable level after December 2012. Recently revised data from the U.S. Census Bureau for the median sale prices of new homes in the United States through March 2013 now confirms that there has been no slowdown in the rapid inflation of new home sale prices observed since July 2012.
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Margin Debt Hitting Levels Only Seen ONE Other Time in History!
Apr 30, 2013 Chris Kimble
Note from dshort: Yesterday my friend Chris Kimble requested an update to the NYSE margin debt data that I’ve sometimes featured in the past. Here’s his take and annotated version of the chart.
Some times in history, investors feel so confident about the future of stocks that they actually use up all their available cash and then borrow money to invest in the market. Now is one of those times!
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Consumer Confidence Beats Expectations, But Remains at Recession Levels
Apr 30, 2013 Doug Short
The Latest Conference Board Consumer Confidence Index was released this morning based on data collected through April 18. The 68.1 reading was well above the consensus estimate of 61.0 reported by Briefing.com. Today’s number is a bounce off March’s 59.7 back to essentially the February level of 68.0. In fact, the last five months have seen a regular month-over-month oscillation since December: 66.7, 58.4, 68.0, 59.7, 68.1.
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When Warren Buffett Talks ... People Listen
Apr 30, 2013 Chris Turner
Okay, E.F. Hutton commercials originally featured the "people listen" tag (for those of us old enough to remember them). I began reading David Stockman’s book, The Great Deformation, and found myself writing notes for future research and posts. This first article examines an oldie but a goodie, the Warren Buffett market valuation metric: Market Value divided by Gross National Product.
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Is the US Spending Enough on Education?
Apr 30, 2013 Mike Shedlock
Given the constant chatter from the Obama administration and from teachers’ unions on the need to spend more for public education, let’s address the question "Is the US spending enough on education?"
I propose we look at the stats in graphical form starting with charts of population and total spending, culminating with education spending per child.
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Moving Averages: Month-End Preview
Apr 30, 2013 Doug Short
Here is a preview of the monthly moving averages I track on the last business day of the month. All three S&P 500 strategies are now signaling "invested" -- unchanged from last month. One of the Ivy Portfolio ETFs, the PowerShares DB Commodity Index Tracking (DBC), is signaling "cash".
Positions that are less than 2% from a signal are highlighted in yellow.
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March Spending Driven By Surge In Services
Apr 29, 2013 Lance Roberts
The latest personal income and expenditure report for March was of particularly interesting reading. However, as opposed to the mainstream headlines that immediately reported that despite higher payroll taxes consumers were still spending, and therefore a sign of a strong economy, it was where they were spending that was most telling. As I searched the various headlines, and read several of the economic releases, I came across only one analysis that questioned the headline report.
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Real Disposable Income Per Capita: Up Only 0.34% Year-over-Year
Apr 29, 2013 Doug Short
The first chart shows both the nominal per capita disposable income and the real (inflation-adjusted) equivalent since 2000. The 0.12 percent nominal month-over-month increase is a return to a more normal trend after the oscillation during the November-to-February caused by year-end 2012 tax management strategies. The real MoM change was 0.25 percent, thanks to the disinflationary trend in the PCE price index used to deflate the series.
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iM’s Business Cycle Index in Off-Peak-Mode
Apr 29, 2013 Anton Vrba and Georg Vrba
Long Recession Leads and Good Stock-Market Exit Signals
We report on a refined technique to analyze financial series based on the previous highest peak of the series in a business cycle, which we term the "off-peak-mode" of an index. We demonstrate this method by using our iMarketSignals Business Cycle Index (BCI) in off-peak-mode to achieve average leads to recessions of 20 weeks. Exiting the stock market at these early signals significantly improves investment performance.
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US Economy: Below Stall Speed or Already Above Potential?
Apr 29, 2013 Franz Lischka
Ever since the economic growth in the USA fell back below 2% on a year-over-year basis, which was in early 2011, there has been talk of below stall speed (the speed, below which an airplane losses lift and falls down to earth) growth and an unavoidable recession. With good reason: Since WWII every time year-over-year growth in the US had fallen below 2%, a recession followed in due course.
Well, until now. The recession is now almost 2 years late and still it has not arrived. Why?
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PCE Price Index Update: The Disinflationary Trend Continues
Apr 29, 2013 Doug Short
The latest Headline PCE price index year-over-year (YoY) rate of 0.97% is a decrease from last month’s adjusted 1.34%. The Core PCE index of 1.13% is decrease from the previous month’s adjusted 1.29%.
The current disinflationary trend in core PCE must certainly be troublesome to the Fed. After years of ZIRP and waves of QE, this closely watched indicator has been consistently moving in the wrong direction for the past year. It has contracted month-over-month for nine of the last 12 months since its interim high of 1.96% in March of 2012.
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World Markets Weekend Update: Rally on Steriods (Except for China)
Apr 28, 2013 Doug Short
The worldwide rally continued last week. Seven of the eight indexes on my watchlist posted big gains. The lone loser was the Shanghai Composite, down three percent (2.97% to be precise). How well did the other indexes perform? Well, the average of the seven winners was a three percent increase (2.99% at two decimal places). Germany’s DAXK was the top finisher, up 4.5%. France’s CAC 40 and Japan’s Nikkei also finished with gains of more than four percent. The S&P 500’s 1.74% gain was only good enough for sixth place.
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Will the ’Real’ GDP Please Stand Up? (The Deflator Makes a Difference)
Apr 26, 2013 Doug Short
How do you get from Nominal GDP to Real GDP? You extract inflation from the numbers. The Bureau of Economic Analysis (BEA) uses its own GDP deflator for this purpose, which is somewhat different from the BEA’s deflator for Personal Consumption Expenditures and quite a bit different from the better-known Bureau of Labor Statistics’ inflation gauge, the Consumer Price Index.
Let’s take a look at what "Real" GDP would look like if it were calculated with these other gauges.
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China: The Edifice Complex - Video of Jim Chanos’ Presentation at the Wine Country Conference
Apr 26, 2013 Mike Shedlock
Jim Chanos’ speech, "China: The Edifice Complex", is available at Wine Country Conference Speaker Presentations.
Click on the link and scroll down to find the correct video. Allow 45 minutes or so for viewing.
The videos are the actual presentations, and we are making a couple of them available each week for three weeks.
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10-Year S&P 500 Return Projections
Apr 26, 2013 Wesley R. Gray
Finally, a model that accounts for mean-reverting margins and valuations.
Estimating future market returns is complex. Dr. John P. Hussman has popularized an approach that looks at currently observed valuations, inputs a steady-state earnings growth projection, and plugs in a future valuation. The Hussman forecast can be represented by the following equation:
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Risk Of Deflation is High, and It Will Surprise the Majority!
Apr 26, 2013 Chris Kimble
In 2007, when stocks (S&P 500) and commodities (CRX Index/Copper) were peaking there, was little talk about deflation from the media around the globe (inset chart point 1). The future reality? The majority was surprised as the S&P 500 fell 50% and Commodities fell further.
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Real GDP Per Capita: Another Perspective on the Economy
Apr 26, 2013 Doug Short
Earlier today we learned that the Advance Estimate for Q1 2013 real GDP came in at 2.5 percent, up from 0.4 percent in Q4 2012. Let’s now review the numbers on a per-capita basis.
For an alternate historical view of the economy, here is a chart of real GDP per-capita growth since 1960.
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GDP Q1 Advance Estimate at 2.5%: A Welcome Increase from Q4 But Below Expectations
Apr 26, 2013 Doug Short
The Advance Estimate for Q1 GDP came in at 2.5 percent, a substantial improvement from the 0.4 percent in Q4 2012 although a bit below mainstream forecasts. The latest WSJ survey of economists had a consensus of 3.1 percent.
Here is an excerpt from the Bureau of Economic Analysis news release:
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Stock Indices Remain in Bullish Technical Patterns
Apr 25, 2013 Dominic Cimino
Will this year be a "sell in May and go away?" Or will this time be different? As the number of stock market skeptics seemingly increases weekly, I’d like to take the role of devil’s advocate for a moment. Even though market fundamentals admittedly continue to suggest headwinds for the market, bullish chart patterns remain in place and suggest that at least for the moment, any bearish panic is premature.
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It’s A Bit Early To Declare A Winner In The Economic Debate
Apr 25, 2013 Lance Roberts
Recently, Henry Blodget wrote that "The Economic Argument Is Over - And Paul Krugman Won." The premise of the article is that the ongoing debate between economic schools of thought, since the financial crisis began, over what policies were necessary to get the domestic and international economies growing again has been resolved.
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Honey, We Need to Shrink the US Dollar! (and Help Metals)
Apr 25, 2013 Chris Kimble
The U.S. Dollar has rallied since the summer of 2011, almost two years! The rally has taken it up to a resistance line that has been in place since 2005. Bullish sentiment at this point are lofty, reaching levels hit only five times in the past five years.
The combination of this line and high bullish sentiment has resulted in the US$ taking a breather. As the US$ has rallied, what has been the direction of Gold, Silver, Copper and Commodities (CRB/CRX)? Not too pretty!
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Get Out Your Shopping List, A Market Bottom Is Coming
Apr 25, 2013 Chris Puplava
Earlier in the month I suggested that we would likely hit a soft patch in Q2 and projected that the markets would remain weak through most of May. However, given the risk of recession remains a remote possibility, any pullback in the markets would serve as a buying opportunity. I believe the U.S. economy is still on a growth trajectory and if an economically weak Europe can re-energize in the second half, then the markets should head higher with cyclical sectors leading the charge.
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The ’’Real’’ Goods on the Latest Durable Goods Data
Apr 24, 2013 Doug Short
Earlier today I posted an update on the April Advance Report on March Durable Goods Orders. This Census Bureau series dates from 1992 and is not adjusted for either population growth or inflation.
Let’s now examine the same data adjusted for both population growth and producer price inflation, which gives us the "real" durable goods orders per capita. The snapshots below offer an alternate historical context in which to evaluate the standard reports on the nominal monthly data.
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Real Median Household Incomes: Up $69 in March But Down $13 Year-over-Year
Apr 24, 2013 Doug Short
Overview: The Sentier Research monthly median household income data series is now available for March. Nominal median household incomes were down $25 month-over-month but up $736 year-over-year. Adjusted for inflation, real incomes rose $69 MoM but are down $13 YoY....
As the excellent data from Sentier Research makes clear, the mainstream U.S. household was struggling before the Great Recession. At this point, real household incomes are in significantly worse shape than they were in June 2009 when the recession ended.
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An Infestation of Gold Bugs
Apr 24, 2013 Eric Schaefer
A curious event occurred on Monday, April 15th: the price of gold went into a tailspin, falling from $1,548 (on the Friday prior) to $1,416 per troy ounce (oz), a decline for the day of almost 9%. The rout continued on Tuesday and Wednesday before prices stabilized just above $1,400 per oz. The question on investors’ minds is, is this the beginning of the end of gold’s ascent? Or, just a pause before new heights are attained?
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Exit Signals for the Stock Market from iM’s Business Cycle Index
Apr 24, 2013 Anton Vrba and Georg Vrba
There is no bell ringing when the market peaks before recessions, but indicators such as iMarketSignals’ Business Cycle Index (BCI) are useful in identifying recession starts well in advance. By exiting the stock market at the time of BCI’s recession signals, investors would still have avoided about 60% of the market declines from pre-recession peaks to inter-recession troughs on average.
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Durable Goods Orders Plunged in March, Worse Than Expected
Apr 24, 2013 Doug Short
The April Advance Report on March Durable Goods was released this morning by the Census Bureau.
The latest new orders number at -5.7 percent was below the Briefing.com consensus of -3.1 percent. Year-over-year new orders are up a fractional 0.5 percent.
If we exclude transportation, "core" durable goods were down 1.4 percent. Year-over-year core goods are down 0.3 percent.
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Richmond Fed Manufacturing Composite: Activity Pulled Back in April and Expectations Waned
Apr 23, 2013 Doug Short
In the past I haven’t routinely followed the regional manufacturing indexes, but as a resident of the Fifth District, this is one I pay attention to. The Fifth District includes Virginia, Maryland, the Carolinas, the District of Columbia and most of West Virginia. The Federal Reserve Bank of Richmond is the region’s connection to nation’s Central Bank.
Today the manufacturing composite slipped into contraction territory at -6, down from 3 last month, which was a decline from 6 the month before.
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iM’s Weekly Business Cycle Index
Apr 22, 2013 Anton Vrba and Georg Vrba
11 Week Average Warning for the Past 7 Recessions with No False Positives
Knowing when the U.S. Economy is heading for recession is paramount for successful investment decisions. We have designed the weekly iMarketSignals Business Cycle Index (BCI) so it would have provided early reliably warnings for the past seven recessions. We achieved recession leads averaging 11 weeks, all with similar lengths. The absence of false positives, for the analyzed time period of 1967 to 2013, enhances the quality and reliability of the recession warnings.
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Struggling to Get Ahead: The Age Demographics of Weekly Earnings
Apr 19, 2013 Doug Short
The adjacent tables summarize the nominal and real change in earnings for the seven age groups from the first available data in 2000 to the latest in 2012. The real break-even point in the nominal table is 33.3%. In other words, based on annual averages for the Consumer Price Index, the cost of living in 2012 has risen by 33.3% since the turn of the century. In short, it takes about one-third more money in 2012 to have the same purchasing power as in 2000. That’s effect of that average annual increase of 2.43% that I mentioned earlier.
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Silver Outshines Gold: A Buy Signal
Apr 17, 2013 Georg Vrba
In a previous article I showed that a modified Coppock indicator could identify good investment periods for silver. This indicator has now generated a buy signal.
The chart below, taken from our weekly model update series, shows the silver price from 2005 to 2013, the modified Coppock indicator (blue graph), the buy signals (vertical black lines), and the model’s investment periods in silver (gray shaded periods).
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What the Bull Giveth, the Bear Taketh Away
Apr 15, 2013 Adam Butler, Mike Philbrick, Rodrigo Gordillo
Those who cannot remember the past are condemned to repeat it. - Santayana
The question of whether to commit new funds to stocks here is nuanced and complex, not least because it isn’t obvious that traditional alternatives - bonds or cash - offer any better value. We are very near all-time low interest rates across most developed government bond markets, credit spreads are near all-time tights, and rates are negative out to 5 or more years in real terms.
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Labor Force Participation Rate Since 1987: Some Eerie Demographic Trends
Apr 04, 2013 Doug Short
Tomorrow’s employment report is the major economic event of the week and one of the most closely watched of every month. The primary focus is on two items: the number of new jobs and the unemployment rate.
There are, however, many additional metrics in the employment report. The data series I personally find most fascinating is the Labor Force Participation Rate (LFPR). If we look at LFPR by age groups across time, we see some fascinating and somewhat disturbing trends.
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