Fed Keeps Low-Rate Policy Intact; Treasury Yields Spike Anyway; Hissy Fit Over Fluff
Jun 19, 2013 Mike Shedlock
Curve Watchers Anonymous has a close eye on treasury yields in the wake of essentially no news from Bernanke as to when the Fed might actually begin hiking rates.
A mere hint the Fed might slow its QE program was enough to send treasury yields and the US dollar higher and stocks lower.
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S&P 500 Snapshot: Post-FOMC Selloff on Hints of a QE Phase Out
Jun 19, 2013 Doug Short
With nothing of international significance to predetermine US market direction, the trade from the opening bell was one of marking time in advance of the June FOMC press release at 2 PM and more importantly Chairman Bernanke’s hour-long press conference at 2:30. Prior to 2 PM the S&P 500 traded in a narrow negative range and hit its intraday high at 2:01 PM, up 0.04%, Then began a three-stage selloff. The first was a brief knee-jerk sell when the Fed summary was released, one that was essentially reversed a few minutes later. The second....
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WSJ Economists’ Forecasts for 10-Year Yields and the FFR
Jun 19, 2013 Doug Short
In advance of today’s FOMC meeting outcome and Chairman Bernanke’s press conference, let’s take a quick look at a couple of items in the latest Wall Street Journal survey of economists -- this one conducted June 7-11. With the recent controversy over the direction of Treasury yields, a key issue addressed in the survey is where economists expect the 10-year yield to be across six timeframes: mid-year and year end 2013 through 2015.
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$171 Billion in ETF Assets are Having a Bummer of a Year So Far!
Jun 19, 2013 Chris Kimble
The inset table below documents the seven largest ETF’s in the U.S. So far this year, five of the seven are either underperforming the S&P 500 by 10% or more, three of them by more than 25%! These funds total $171 Billion in assets! Three of the top seven are actually underwater YTD! (VWO, GLD & EEM).
Emerging markets YTD are actually sub-merging in price! After hitting a falling resistance line recently, two of the top seven ETF’s have fallen hard.
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Real Retail Sales Per Capita: Another Perspective on the Economy
Jun 19, 2013 Doug Short
The Advance Retail Sales Report released last week shows that sales in May came in at 0.6% month-over-month and 4.3% year-over-year.
Now let’s dig a bit deeper into the "real" data, adjusted for inflation and against the backdrop of our growing population.
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Chained CPI Versus the Standard CPI: Breaking Down the Numbers
Jun 18, 2013 Doug Short
Note from dshort: I’ve updated this commentary to include the latest Consumer Price Index data published this morning.
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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A Long-Term Look at Inflation
Jun 18, 2013 Doug Short
The June 2013 Consumer Price Index for Urban Consumers (CPI-U) released today puts the May year-over-year inflation rate at 1.36%, dramatically below the 3.91% average since the end of the Second World War and over a full percent lower than its 10-year moving average.
Let’s take a step back and look at the history of inflation over the past 140 plus years.
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Dividends Still in Recessionary Territory
Jun 18, 2013 Craig Eyermann
We were busy doing other things earlier this month, but here’s the economic situation with respect to dividends in the U.S. stock market through May 2013....
With 18 public U.S. companies acting to cut their dividends in May 2013, the number of companies taking such actions is still consistent with recessionary conditions being present within the U.S. economy.
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The Big Four Economic Indicators: Real Retail Sales
Jun 18, 2013 Doug Short
Note from dshort: This commentary has been revised to include Real Retail Sales for May. The Sales data was released last Thursday, but we needed this mornings Consumer Price Index to make an accurate inflation adjustment....
The back-to-back improvement in Real Retail Sales is encouraging, although it would be considerably more encouraging if were seeing commensurate increases in Real Personal Incomes and also household incomes, which I report on elsewhere.
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Inflation: A Five-Month X-Ray View: New Update
Jun 18, 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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What Inflation Means to You: Inside the Consumer Price Index
Jun 18, 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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Two Measures of Inflation: Headline and Core Below Fed Target
Jun 18, 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 May, released a few minutes ago, shows core inflation below the Federal Reserve’s 2% long-term target range at 1.68%. Core PCE, at the end of last month, is significantly lower at 1.05%, its all-time low.
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Inflation Matches YoY Forecast, But with Shelter Costs Up & Food Costs Down
Jun 18, 2013 Doug Short
The Bureau of Labor Statistics released the latest CPI data this morning. Year-over-year unadjusted Headline CPI came in at 1.36%, which the BLS rounds to 1.4%, up from 1.06% last month (rounded to 1.1%). Year-over-year Core CPI (ex Food and Energy) came in at 1.68% (rounded to 1.7%), essentially unchanged from last month’s 1.72% (rounded to 1.7%).
Here is the introduction from the BLS summary, which leads with the seasonally adjusted data monthly data:
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Forecasting the Market: A Thought Experiment Revisited
Jun 18, 2013 Chris Turner
With 99% of companies reporting for Q1-13 earnings season, here is the latest update of my ongoing "thought experiment" for forecasting the S&P 500 price based on earnings fundamentals.
The chart below is based on the latest trailing twelve-month earnings (TTM) data published on the Standard & Poor’s website as of June 13, 2013.
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Thoughts on the Price of Gold
Jun 17, 2013 Ted Kavadas
The price of Gold is particularly important at this juncture, for a number of reasons.
I have recently written of the decline in Gold’s price and its significance with regard to "deflationary pressures," most recently in the June 10 post titled "The Prospect Of Deflation" as well as the May 20 post (seen on Doug Short’s blog) titled "The Recent Decline In Gold."
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Weekly Gasoline Update: Down Two-to-Three Cents
Jun 17, 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 was down three cents and Premium two cents. Since their interim high in late February, Regular is down 16 cents and Premium 17 cents.
According to GasBuddy.com, three states (Hawaii, Illinois and Alaska) are averaging above $4.00 per gallon, down from six last week. One state (California) is in the 3.90-4.00 range, down from four last week.
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Empire Manufacturing Index: Looking Inside Pandora’s Box
Jun 17, 2013 Lance Roberts
Note from dshort: This morning I posted an Empire Manufacturing update shortly after the May report was posted, mentioning that that several of the key components are in contraction mode. Lance has done a nice job illustrating the disturbing weakness behind the headline number.
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Empire State Manufacturing Improves Modestly, But Details Show Serious Weakness
Jun 17, 2013 Doug Short
This morning we got the latest Empire State Manufacturing Survey. The diffusion index for General Business Conditions beat expectations, posting a expansionary reading of 7.8. The Briefing.com consensus was for a slight expansion to 0.8. However, a quick look at the report shows that several of the key components are in contraction mode: New Order -6.8, Shipments -11.8, Unfilled Orders -14.5, Delivery Time -6.5, Inventories -11.3 and Average Employee Workweek -11.3. The two big positives were Price Paid +21.0 and Prices Received +11.3.
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Congratulations to Mish Shedlock
Jun 17, 2013 Doug Short
When I woke up this morning and checked email, I had a message from featured contributor Mike "Mish" Shedlock that I wanted to share with his Advisor Perspectives readers. Here is Mish’s announcement.
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Percent of Indicators at Bearish Extremes Declines for S&P 500
Jun 17, 2013 Chris Kimble
I shared the sentiment chart below last week with Members, reflecting that the percentage of indicators at bearish extremes was declining a good bit of late despite a small decline in the S&P 500. It was info like this that caused me to harvest gains in the international short positions we had.
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Gauging Investor Sentiment with Twitter: New Update
Jun 17, 2013 Blair Jensen
The Downside Hedge sentiment indicator calculated from the Twitter stream for the S&P 500 Index (SPX) continues to show fairly positive readings in the face of market volatility. The large moves in price over the past week only produced one moderately negative print on a daily basis.
Smoothed sentiment has broken out above its short term down trend line after bouncing from a longer term uptrend line. This suggests that traders were buying the dip to 1600 on SPX and also the 50 day moving average.
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World Markets Weekend Update: Bad Across the Board
Jun 16, 2013 Doug Short
All eight indexes on my world watchlist were down for the week. The top performing S&P 500 fell 1.01% and the gradient of losses was a steady decline to the worst performing Hang Seng, with its 2.81% selloff over its holiday-shortened week. The Nikkei, the biggest loser of the previous three weeks (and I mean BIG: -3.47%, -5.73% and -6.51%), finished in third place last week with a more modest -1.48%.
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Weighing the Week Ahead: Will the Fed Change Course?
Jun 16, 2013 Jeff Miller
After weeks of speculation based upon speeches, newspaper columns, and pundit pontification we will finally have some hard information. Maybe. The two-day FOMC meeting will include not only the regular announcement of the decision, but also revised economic forecasts and a press conference by Chairman Bernanke. Everyone will be watching for any hints of a change in policy.
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Best Stock Market Indicator Ever: Slips to 90%; Secondaries Confirm ’Tradable’
Jun 15, 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
Jun 14, 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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ECRI Recession Watch: New Update
Jun 14, 2013 Doug Short
The Weekly Leading Index (WLI) of the Economic Cycle Research Institute (ECRI) is at 131.3, up slightly from last week’s 131.0 (revised from 130.9). The WLI annualized growth indicator (WLIg) rose to 6.6% from 6.4% last week (revised from 6.3%)....
Two weeks ago the company took a new approach to its recession call in its most recent publicly available commentary on the ECRI website: What Wealth Effect?
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Michigan Consumer Sentiment: June Preliminary Down Fractionally from May Final
Jun 14, 2013 Doug Short
The University of Michigan Consumer Sentiment preliminary number for June came in at 82.7, down from the 84.5 final reading for May. Today’s number was below Briefing.com consensus of 83.0 and Investing.com’s more optimistic forecast of no change.
To put today’s report into the larger historical context since its beginning in 1978, consumer sentiment is now 3% below the average reading (arithmetic mean) and 2% below the geometric mean. The current index level is at the 39th percentile of the 426 monthly data points in this series.
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Joe Friday: ’’Apple & the Nikkei Have Something in Common Right Now’’
Jun 14, 2013 Chris Kimble
One of the charts below is Apple and the other is the Nikkei 225. Do you know which is which? When it comes to patterns, who makes them? People do. Regardless of a company or an index of a country, patterns often repeat, because they are created by people, motivated by fear and greed.
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Producer Price Index: Headline Inflation Rises 0.5%, Core Rises 0.1%
Jun 14, 2013 Doug Short
Today’s release of the May Producer Price Index (PPI) for finished goods shows a month-over-month increase of 0.5%, seasonally adjusted, in Headline inflation. Core PPI rose 0.1%. Briefing.com had posted a MoM consensus forecast of 0.1% for both Headline and Core PPI.
The May increase in Headline PPI after two consecutive monthly declines followed two months of increases, which had followed three months of declines. Year-over-year Headline PPI is at 1.8%, its highest since October, and Core PPI is at 1.6%, its lowest YoY since January 2011.
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Treasury & Mortgage Snapshot: 30-Year Fixed Mortgage at 14-Month High
Jun 13, 2013 Doug Short
What’s New: I’ve updated the charts below through today’s close (June 13). The latest Freddie Mac Weekly Primary Mortgage Market Survey, out today, puts the 30-year fixed at 3.98%. That’s the highest rate since early April of last year. Its all-time low was 3.31%, which dates from the third week in November of last year.
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Nikkei 225: The Abenomics Rally and Aftermath ... So Far
Jun 13, 2013 Doug Short
Now that Abenomics has its own entry in Wikipedia (the economic policies of Japanese Prime Minister Shinzo Abe), let’s take a quick look at the Nikkei 225 since its November 2011 low, just before Abe’s campaign promises began to lift the market.
Based on closes, the Nikkei rose 80.1% from November 12, 2012 to its May 22 high. It has now fallen 20.4% as of June 13th, 16 market days later.
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Doc Copper Looking Bearish, Global Slowdown Ahead?
Jun 13, 2013 Chris Kimble
While the Nikkei (now down 20% in a few weeks) and the Yen (carry trade starting to unwind) seem to be front and center in the media, an equally important leading indicator looks to be creating a bearish pattern that suggests lower prices are ahead and a possible global slowdown is right around the corner.
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Retail Sales: Again Better Than Expected
Jun 13, 2013 Doug Short
The Advance Retail Sales Report released this morning shows that sales in May came in at 0.6% month-over-month, a strong improvement over the 0.1% in April. Today’s headline number came in above the Briefing.com consensus forecast of 0.3%. Excluding autos, Retail Sales were up 0.3%, up from last month’s 0.0%.
The first chart below is a log-scale snapshot of retail sales since the early 1990s. I’ve included an inset to show the trend in this indicator over the past several months.
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Weekly New Unemployment Claims at 334K, Down 12K and Better Than Forecast
Jun 13, 2013 Doug Short
The Unemployment Insurance Weekly Claims Report was released this morning for last week. The 334,000 new claims number was a 12,000 decrease from the previous week’s 346,000 (a rare case of no revision). The less volatile and closely watched four-week moving average, which is usually a better indicator of the recent trend, rose by 4,500 to 352,500. Here is the official statement from the Department of Labor:
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Gallup: Consumer Spending Is Up, Retail Data Is Down
Jun 12, 2013 Lance Roberts
In an interesting report from Gallup, Americans’ self-reported daily spending rose to an average of $90 in May, the highest since October 2008 and higher than it has been in May since the $114 found in the same month in 2008. Spending is up from $86 in April and on par with the $89 found in March.
This is a very interesting question from the standpoint that, while consumers are "saying" they are spending more, the issue is whether they are "actually" doing it.
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Stunning Demographic Trends in Employment: New Update
Jun 12, 2013 Doug Short
Note from dshort: I’ve finally gotten around to updating this commentary with the latest numbers from the June Employment Report for May.
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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The ’’Perfect Storm’’ for Portfolios
Jun 12, 2013 Chris Kimble
What would be the "Perfect Storm" for most portfolios? For stocks and bonds fall at the same time!
The 2-pack below highlights a couple of key support lines for bonds and stocks that are being pushed on very hard! If this action continues, it would hurt the value of many portfolios!
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Third Eiffel Tower Pattern in 15 years for the S&P 500?
Jun 12, 2013 Chris Kimble
Several times the Power of the Pattern has illustrated that Eiffel tower patterns can be very important to your portfolio construction & management. At the time when most investors were in love with Gold and Apple, I suggested that Eiffel tower patterns looked to be forming in these white hot assets.
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The Full-Time Aristocracy
Jun 12, 2013 Eric Schaefer
We can always count on the Bureau of Labor Statistics (BLS) each month to provide topics for this publication. The May 2013 employment situation report once again did not disappoint. Buried within the report’s tables is an important trend which has received scant attention from the media....
Today involuntary part-time employment accounts for 28.3% of all part-time positions. At the recession’s commencement, the corresponding ratio was just 18.9%. In the past, part-time work was a preference; today, it is a necessity.
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iM-Best10+: A Portfolio Management System for Very High Returns
Jun 11, 2013 Georg Vrba
In a previous article I demonstrated that one could get high returns by using a ranking system, and periodically rebalancing one’s portfolio to hold only the 10 highest ranked stocks of a S&P 500 stock pool. One can further improve returns by ensuring that the pool does not contain poor performing stocks. Removing poor performing stocks from the S&P 500 pool and adding high performing stocks resulted in a pool of 429 stocks to which I applied my ranking/trading system.
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The Last Time This Happened a Majority of Assets Slipped to Lower Prices
Jun 11, 2013 Chris Kimble
The Australian Dollar is often looked at as the "Risk On/Risk Off" currency. Back in 2008 the AU$ formed a bearish rising wedge which suggests a two-thirds chance of lower prices. Once the breakdown took place risk assets around the world tanked (stock & commodities)!
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Small Business Sentiment: Highest Level Since May 2012
Jun 11, 2013 Doug Short
The latest issue of the NFIB Small Business Economic Trends is out today. The June update for May came in at 94.4, which, despite a 3.2 point gain, remains in the lowest quartile of this indicator across time at the 22nd percentile in this series. A more optimistic view is that the index is its highest since its 94.5 reached twice since the onset of the Great Recession, first in February 2011 and 15 months later in May 2012. The index ended a sustained, 14-year cycle above this level in January 2008, the month after the onset of the Great Recession.
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The Prospect Of Deflation
Jun 11, 2013 Ted Kavadas
Deflation and the potential for such a condition to develop is currently a topic of paramount importance, for a variety of reasons. [note: to clarify, for purposes of this discussion, when I mention "deflation" I am referring to the CPI going below zero.]
As one can see in the various professional economic forecasts mentioned in this blog – as well as the continually low readings from the Federal Reserve Bank of Atlanta’s series titled "Deflation Probabilities" - there is virtually no expectation of deflation either in the near-term or for the next few years.
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Update - Stock Indices Remain in Bullish Technical Patterns
Jun 10, 2013 Dominic Cimino
... In conclusion, U.S. equity indices continue to remain in bullish technical chart patterns. I believe these patterns should be respected. I also am aware of the macro-economic headwinds present, but I personally will not entertain a strong bearish conviction until failures of the patterns I have showcased present themselves.
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Amazing Demographic Trends in the 50-and-Older Work Force
Jun 10, 2013 Doug Short
Note from dshort: I’ve updated the age cohort chart in this commentary to include the latest data in Friday’s employment report for May.
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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No Picnic for U.S. & Emerging Market Bonds If This Happens!
Jun 10, 2013 Chris Kimble
Aggregate Bond ETF (AGG) and Emerging Markets Bond ETF (EMB) have declined rather sharply of late. The declines have taken each of them down to multi-year support lines at (1) in the charts below. This 2-pack reflects that interest rates all over the world are rising and causing bond prices to decline!
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The Philly Fed ADS Business Conditions Index
Jun 10, 2013 Doug Short
Note from dshort: I’ve updated my periodic look at the Philly Fed ADS Index through Friday’s release, which incorporated the latest Payroll Employment data.
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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Gauging Investor Sentiment with Twitter: New Update
Jun 10, 2013 Blair Jensen
The Downside Hedge Twitter Sentiment indicator for the S&P 500 Index (SPX) closed Friday with a reading of +19.4. We consider a print of +20 near a market low as an initiation thrust that often signals a resumption of an uptrend. Friday’s reading indicates the market should continue to move higher in the near term.
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Weighing the Week Ahead: Is This a Tipping Point?
Jun 09, 2013 Jeff Miller
Each week I consider the upcoming calendar and the current market, predicting the main theme we should expect. This step is an important part of my trading preparation and planning. It takes more hours than you can imagine. My record is pretty good, with recent topics including Fedspeak, increased volatility, and a focus on interest rates – all very accurate.
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The Fed Balance Sheet: What is Uncle Sam’s Largest Asset?
Jun 07, 2013 Doug Short
Note from dshort: I’ve updated the quiz based on yesterday’s Q1 Flow of Funds release. Hint: The correct answer is the same as it was for the last quiz, just more incredible.
Pop Quiz! Without recourse to your text, your notes or a Google search, what line item is the largest asset on Uncle Sam’s balance sheet?
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Real Hourly Wages and Hours Worked: Signs of Encouragement
Jun 07, 2013 Doug Short
Here is a look at two key numbers in the June monthly employment report for May: 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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The Civilian Labor Force, Unemployment Claims and Recession Risk
Jun 07, 2013 Doug Short
Note from dshort: I’ve updated this commentary to include the latest labor force data in today’s release of the May 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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The Unemployment Rate Is Not Signaling a Recession: Update
Jun 07, 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 May figure, does not at present signal a recession.
The model relies on four indicators to signal recessions:
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175K New Jobs Added, But Unemployment Rate Ticks Up to 7.6%
Jun 07, 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 increased by 175,000 in May, and the unemployment rate was essentially unchanged at 7.6 percent, the U.S. Bureau of Labor Statistics reported today [an increase from 7.5 percent last month]. Employment rose in professional and business services, food services and drinking places, and retail trade.
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Joe Friday: ’’Nikkei Loses 50% of Its One-Year Gains In Two Weeks’’
Jun 07, 2013 Chris Kimble
Two weeks ago today the Power of the Pattern shared that the Nikkei had lost between 30% to 60% of its value, 100% of the time over the past 20 years, when up against a certain resistance line!
The Nikkei has been the lead dog, as one month ago it had made almost 50% more than the S&P 500 over the past year. The price action in the Nikkei has had its influences on the rest of the global stock markets.
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Four Tools Of Corporate Profitability and The Economic Conseqences
Jun 06, 2013 Lance Roberts
Recently, I wrote an article discussing the "Truth About Wall Street Analysts" and the inherent conflict between Wall Street and individual investors. There is also another group of individuals who are also just as conflicted - corporate executives. Today, more than ever, corporate executives are compensated by stock options, and other stock based compensation, which are tied to rising stock prices. There are billions at stake in many cases and the game of "beat the Wall Street estimate" is critical in keeping corporate stock prices elevated.
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Household Net Worth: The ’’Real’’ Story
Jun 06, 2013 Doug Short
Let’s take a long-term view of household net worth from the latest Flow of Funds report. A quick glance at the complete data series shows a distinct bubble in net worth that peaked in Q4 2007 with a trough in Q1 2009, the same quarter the stock market bottomed. The latest Fed balance sheet shows a total net worth that is 35.2% above the 2009 trough at a new all-time high 3.4% above the 2007 peak. The nominal Q4 net worth is up 4.5% from the previous quarter and up 9.6% year over year.
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The Q Ratio and Market Valuation: Monthly Update
Jun 06, 2013 Doug Short
Note from dshort: I’ve updated this monthly commentary to include the latest Fed Flow of Funds data through Q1 released at noon today.
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.
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Market Valuation, Inflation and Treasury Yields: Clues from the Past
Jun 06, 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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iM-Best10: A Portfolio Management System for High Returns
Jun 06, 2013 Georg Vrba
The S&P 500 has notched up significant gains over the last year. But looking a bit further back then the performance of the stock market is dismal. An investment in an S&P 500 Index fund made 13 and 14 years ago has only produced negative real returns to date. However, one can get much better returns from the S&P 500 by using a ranking system, and then periodically rebalance one’s portfolio to hold only the 10 highest ranked stocks of the S&P 500 at any time. This method would have produced average annual returns of about 35% over the last 14 years.
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13-Year Cycle About To Turn the Market Around Again?
Jun 06, 2013 Chris Kimble
What does the 1974 low, 1987 crash and 2000 dot.com highs have in common? They are some of the most important highs/lows in the past 40 years and they are 13-years apart!
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First Quarter Hourly Compensation Plunges
Jun 05, 2013 Mike Shedlock
First Quarter Hourly Compensation Plunges 3.8%, Most on Record; Manufacturing Hourly Compensation Plunges 6.9%; What’s Going On?
Inquiring minds are digging into the stunningly bad Quarter-Over-Quarter decline in wages and real wages across all sectors as noted in the Revised First Quarter BLS Productivity and Costs report.
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Japan’s Amazing Market Drama: New Update
Jun 05, 2013 Doug Short
Note from dshort: The amazing rally in the Nikkei 225 hit its interim high on May 22nd, up 91.5% from its interim low in November of 2011. Even more astonishing is its meteoric 80.43% rise from its mid-November 2012 low. The steroid effect of massive monetary intervention has waned over the past ten sessions, and the index is now down 16.72% as of today’s close. That puts it about 3.3% from the traditional bear market 20% threshold.
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ISM Non-Manufacturing Business Report: Slightly Faster Growth in May
Jun 05, 2013 Doug Short
Today the Institute for Supply Management published its latest Non-Manufacturing Report. The headline NMI Composite Index is at 53.7 percent, signaling slightly faster growth than last month’s 53.1 percent. The Briefing.com and Investing.com forecasts were both for 53.5 percent.
Here is the report summary:
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Anticipating Friday’s Employment Report
Jun 05, 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 May estimates from ADP (135K new jobs) and TrimTabs (135K new jobs). These are weak numbers.
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Fed Policies and Obama Programs Exacerbate Credit Crunch to Small Businesses
Jun 04, 2013 Mike Shedlock
The Fed believes that holding interest rates low fosters business growth, hiring, and bank lending?
So why isn’t that happening? I have discussed many reasons, but today I have another one from Steve H. Hanke, Professor of Applied Economics at The Johns Hopkins University who discusses The Federal Reserve vs. Small Business.
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Recession Probability Models
Jun 04, 2013 Ted Kavadas
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.
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Voluntary or Involuntary?
Jun 04, 2013 Eric Schaefer
That is the question analysts are pondering regarding the post-recession increase in the ratio of private inventories to gross domestic product (GDP). The ratio measures the value of inventories held by businesses, from manufacturers to retailers, to facilitate trade and economic activity.
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Dow is 4% Away from These 13-to-30 Year Resistance Lines
Jun 04, 2013 Chris Kimble
A series of long-term resistance lines, ranging from 13 years to 31 years, drawn off of monthly closing prices, meet at one price point at (1) in the chart below. You will notice in the inset chart that last month the Dow touched one of these lines and stopped on a dime.
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Picking Managers Based on the FACTS
Jun 04, 2013 Wesley R. Gray
Used car salesmen are everywhere -- including the asset management business. My experience working with family offices in the dual role of consultant and investment manager has given me the opportunity to see a lot of marketing materials and investment strategies over the years. I’ve always wanted a simple framework that would allow me to quickly assess any investment manager or strategy that walked in the door, but nothing really existed. Necessity is indeed the mother of all invention: I developed my own framework for thinking about manager selection and assessment.
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A Mirage Called the Stock Market
Jun 03, 2013 Michael Lombardi
While an economic slowdown is looming over the global economy, no one seems to care, as stock markets continue to reach new record-highs—giving investors false hopes of economic growth. But how long can this mirage actually last?
The economic slowdown in the global economy I’m talking about is a worldwide pullback in growth. Take India as the first example. According to India’s Central Statistics Office, the Indian economy is growing at five percent—its slowest pace in a decade!
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King Dollar Creates Bearish Wick at 8-year Resistance!
Jun 03, 2013 Chris Kimble
From a monthly basis, the U.S. Dollar created another large bearish wick along an 8-year resistance line at (1) in the chart below. This might surprise a few investors as the Dollar is a popular investment choice right now, with 77% of investors bullish the US$. The combo of the wick at resistance and 77% bulls increases the odds that the US$ remains soft for a while.
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Crestmont Market Valuation Update
Jun 03, 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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Is the Stock Market Cheap?
Jun 03, 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 1,639.84. The ratios in parentheses use the monthly close of 1,630.74. For the earnings, see the table below created from Standard & Poor’s latest earnings spreadsheet.
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The S&P 500, Dow and Nasdaq Since Their 2000 Highs
Jun 03, 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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ISM Manufacturing Index Contracts, Worst Level Since June 2009
Jun 03, 2013 Doug Short
Today the Institute for Supply Management published its May Manufacturing Report. The latest headline PMI at 49.0 percent is the first month of contraction following five months of modest expansion and only the fourth month of contraction since the end of the Great Recession. Today’s number is the lowest since June 2009. The Briefing.com consensus was for 50.7 percent.
Here is the report summary:
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Regression to Trend: A Perspective on Long-Term Market Performance
Jun 03, 2013 Doug Short
Quick take: At the end of May the S&P 500 index price was 65% above its long-term trend, up from 57% 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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Moving Averages: Month-End Update
Jun 03, 2013 Doug Short
The S&P 500 closed May with a monthly gain of 2.08%. All three S&P 500 MAs and three 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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Secular Bull and Bear Markets
Jun 02, 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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Gauging Investor Sentiment with Twitter: New Update
Jun 02, 2013 Blair Jensen
The Downside Hedge Twitter Sentiment Indicator for the S&P 500 Index (SPX) is starting to show weakness along with the general market. Over the past two weeks the daily readings have been mostly positive, but declining. Friday printed a fairly negative reading of -16 which is the lowest reading we’ve seen since mid-April. It is our first indication that traders on Twitter are becoming decidedly bearish. In the individual tweets we’re seeing a lot of top calling rather than calls for consolidation.
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Weighing the Week Ahead: Will the Interest Rate Surge Continue?
Jun 02, 2013 Jeff Miller
Since 2008 investors have preferred bonds to stocks. When the valuation difference became compelling, the stock rebound was led by defensive sectors – anything with attractive yield. We are now at a crucial point in this trend. Last week’s spike in long-term interest rates has driven the ten-year yield back above the dividend yield on the S&P 500 for the first time since 2011. Abnormal Returns discusses the rarity of this situation, noting, "This relative yield argument has been used by many to get investors to jump back into stocks."
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Dynamic Asset Allocation for Practitioners Part 1: The Many Faces of Momentum
Jun 01, 2013 Adam Butler, Mike Philbrick, Rodrigo Gordillo
A (Very) Short History of Dynamic Asset Allocation
The field of tactical or dynamic asset allocation has grown dramatically since Mebane Faber published what is perhaps the first broadly accessible paper on the topic in 2007, ’A Quantitative Approach to Tactical Asset Allocation’. Faber’s original paper utilized a simple 10 month moving average as a signal to move into or out of a basket of 5 major global asset classes. Over the period 1970 through the paper’s 2009 update, this technique generated better returns than any of the individual assets....
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Double Top in the NYSE with Margin Debt at Sky High Levels?
Jun 01, 2013 Chris Kimble
The NYSE made an important high five years ago this month and then proceeded to waterfall in price. Now the rally in the NYSE has it back to that important high, in the same month, five years later.
At the same time several key emotional highs and lows over the past few years have formed resistance lines that meet at the same price as the potential double top.
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Real Disposable Income Per Capita: Up Only 0.27% Year-over-Year
May 31, 2013 Doug Short
The first chart shows both the nominal per capita disposable income and the real (inflation-adjusted) equivalent since 2000. The 0.19 percent nominal month-over-month shrinkage is a disturbing move after the pattern of oscillation during November-to-February caused by year-end 2012 tax management strategies. The April nominal data puts us back to the level of October 2012. The real MoM change was 0.6 percent, thanks to the disinflationary trend in the PCE price index used to deflate the series
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Joe Friday: ’’Last Time This Happened, The S&P 500 Fell More Than 15%’’
May 31, 2013 Chris Kimble
It would be an understatement to say Real Estate is important to any economy. DJ Home Builders formed a bearish pattern back in 2007, then broke support and this index and the broad markets fell hard.
The last decline of 15%+ in the S&P 500 took place in 2011, when the Home Builders broke support of the bearish rising wedge.
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PCE Price Index Update: Sorry Fed, The Disinflationary Trend Continues
May 31, 2013 Doug Short
The latest Headline PCE price index year-over-year (YoY) rate of 0.74% is a decrease from last month’s adjusted 1.01%. The Core PCE index of 1.05% is decrease from the previous month’s adjusted 1.17%.
The continuing disinflationary trend in core PCE (the blue line in the charts below) must be troubling to the Fed. After years of ZIRP and waves of QE, this closely watched indicator has been consistently moving in the wrong direction for over a year. It has contracted month-over-month for ten of the last 13 months since its interim high of 1.96% in March of 2012.
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Intellectual Dishonesty and Insanity on Steroids
May 31, 2013 Mike Shedlock
I just finished reading The Smith/Klein/Kalecki Theory of Austerity by Paul Krugman and I believe it is the most disingenuous piece he has ever written.
Krugman comes out blazing with the statement "Noah Smith recently offered an interesting take on the real reasons austerity garners so much support from elites, no matter how badly it fails in practice."
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Three Reasons For Higher Market Highs
May 30, 2013 Lance Roberts
While stocks could continue to climb higher that does not mitigate the underlying risks. In fact, it is quite the opposite. It is very likely that we are creating one, or more, asset bubbles once again. However, what is missing currently is the catalyst to spark the next major correction.
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Moving Averages: Month-End Preview
May 30, 2013 Doug Short
Here is a preview of the monthly moving averages I track after the close of the last business day of the month. All three S&P 500 strategies are now signaling "invested" -- unchanged from last month. Two of the Ivy Portfolio ETFs, iShares Barclays 7-10 Year Treasury (IEF) and the PowerShares DB Commodity Index Tracking (DBC), is signaling "cash". Last month only DBC was signaling "cash".
Positions that are less than 2% from a signal are highlighted in yellow.
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BEA Revises 1st Quarter 2013 GDP Growth Down Slightly To 2.38% Annual Rate
May 30, 2013 Rick Davis
In their second estimate of the US GDP for the first quarter of 2013, the Bureau of Economic Analysis (BEA) reported that the economy was growing at a 2.38% annualized rate, only 0.12% lower than the 2.50% growth rate previously published.
Nearly all of the revisions in the details of the report were similarly modest. Consumer spending on goods is now reported to have been slightly better, while consumer spending on services was essentially unchanged. Aggregate consumer spending is now reported to have provided the entire net growth of the economy.
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Real GDP Per Capita: Another Perspective on the Economy
May 30, 2013 Doug Short
Earlier today we learned that the Second Estimate for Q1 2013 real GDP came in at 2.4 percent, down from 0.1 percent in the Advance Estimate released last month.
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 Second Estimate at 2.4%: A Small Downward Revision from 2.5%
May 30, 2013 Doug Short
The Second Estimate for Q1 GDP came in at 2.4 percent, a slight downward revision from the 2.5 percent Advance Estimate. Both Investing.com and Briefing.com had forecast no change.
Here is an excerpt from the Bureau of Economic Analysis news release:
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House of Sand
May 29, 2013 Alan Hartley
I strolled Botany Bay today. You don’t see it happen with the naked eye, but the ocean finely divides and grinds rock and minerals into what we know as sand. For now, the tide is out. The sun is shining. There is a cool breeze. Two little children build an impressive sandcastle. There was so much to be thankful for during this Memorial Day weekend, but as an asset manager, I can’t help but think about investing.
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S&P Dividend Yield Below 10-Yr Treasury Yield: Looking for Value?
May 29, 2013 Mike Shedlock
In an email note today economist Steen Jakobsen notes the "S&P Dividend Yield is Below the 10-Yr Treasury Yield (1.93% vs. 2.19%)".
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Real Median Household Incomes: Up 0.5% in April But Only a Fractional 0.6% Year-over-Year
May 29, 2013 Doug Short
Overview: The Sentier Research monthly median household income data series is now available for April. Nominal median household incomes were up $77 month-over-month and $877 year-over-year. However, adjusted for inflation, real incomes rose $266 (0.5%) MoM but are up only $317 (0.6%) 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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Triumph of the Ostriches
May 29, 2013 Adam Butler, Mike Philbrick, Rodrigo Gordillo
Obviously the title of this post is a riff on the classic book, Triumph of the Optimists by Dimson, Marsh and Staunton (2002). The book describes 100 years of investment returns across a range of markets, making a number of important conclusions. Unsurprisingly, the financial marketing complex narrowly focused its attention on the strong returns the authors observed in equity markets over the post WWII period.
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Did Apple Outsmart Investors? A $17 Billion Goof by the Street?
May 29, 2013 Chris Kimble
The Power of the Pattern suggested back on the first of May that rates were ready to blast off and Bonds could get hurt big-time.
At the same time the pattern was suggesting yields were ready to blast off, Apple came to market with $17 Billion in bonds, the largest corporate bond offering in history.
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Why the Market is Doomed
May 29, 2013 Dave Skarica
I consider myself a total and utter contrarian. I think I have taken even more of a role as a contrarian and value investor in the past 4 years since the bottom of the financial crisis. I love what others hate.
It is important to see pessimism and embrace it. To as my mentor Sir John Templeton said "Buy at the point of maximum pessimism". This has saved us in the past year.
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Evaluating 3 Bullish Arguments
May 28, 2013 Lance Roberts
These are indeed interesting times that we live in. As the markets elevate higher on the back of the global central bank interventions it is important to keep in context the historical tendencies of the markets over time. It is not uncommon at major market peaks to see "irrational exuberance" begin to grip the markets. In March of 2000, as foreign capital inflows drove markets higher, Jim Cramer came out with his 10 must own stocks for the next decade. By the end of 2002, of the few that were still in business, the destruction of capital was enormous.
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Leading Indicator Limit Down Today, Falling 25% in the Past 70 Days
May 28, 2013 Chris Kimble
The Power of the Pattern suggested that a key economic asset could fall 50% in value back on 3/18, due to 20-year channel resistance and 75% bulls.
Lumber was trading at $385 at the time, today lumber is limit down trading at $287, losing 25% of its value in 70 days!
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Richmond Fed Manufacturing: Still Contracting, But Less Pronounced
May 28, 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 remains in contraction territory at -2, but that is a slower rate than the -6 of April.
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Consumer Confidence Beats Expectations, Now at a 5-Year High
May 28, 2013 Doug Short
The Latest Conference Board Consumer Confidence Index was released this morning based on data collected through May 15. The 76.2 reading was above the consensus estimate of 72.5 reported by Briefing.com and 7.2 points above the April upwardly adjusted 69.0 (previously reported at 68.1). This is the highest level since February of 2008.
Here is an excerpt from the Conference Board report.
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Charts Imply the Threat of Deflation is Still Present
May 28, 2013 Dominic Cimino
Although it feels like the threat of deflation has generally been discarded by the investment community, charts seem to imply the threat remains. Even as investors, analysts, and some at the Fed appear more preoccupied with impending inflation, a select group of charts infer that central banks do not have deflation thoroughly at bay. Let’s take a look.
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Weighing the Week Ahead: Time for More Volatility?
May 27, 2013 Jeff Miller
Eureka! Markets can move in both directions - even in a single day!
The relentless market rally since the fiscal cliff was averted has left everyone expecting a correction, looking for an entry point - or both. This came to a sudden end last week. We can see this readily from Doug Short’s graphic summary of the week’s trading (see the full article for more charts and helpful discussion).
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The Thin Gray Line
May 27, 2013 Eric Schaefer
We sleep safely at night because rough men stand ready to visit violence on those who would harm us. The provenance of the quote has been lost to eternity. Some attribute it to Eric Blair (popularly known by his pen name, George Orwell); others ascribe it to Winston Churchill, the eminent British Prime Minister who led his country to victory during the Second World War. Still others claim The Washington Times columnist Richard Grenier deserves the credit.
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Large Risk of Instability in Japan
May 27, 2013 Mike Shedlock
Rates Climb Even With Japan Buying 70% of New Issuance
When political leaders go out of their way to make mollifying statements on the economy, it’s a sure thing the opposite is about to happen. Platitudes are flowing in Japan as Haruhiko Kuroda, Japan’s central bank governor, says the risk of systemic instability is "not large".
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Corporate Share Buybacks: How Timely Are They?
May 26, 2013 Mike Shedlock
Factset Buyback Quarterly has an interesting series of charts and facts on corporate share buybacks.
Here is my favorite chart in the series.
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Great Graphic: Focus on US Equities
May 25, 2013 Marc Chandler
The S&P 500 has risen by 16.7% year-to-date and 25% over the past twelve months. It has risen for almost 200 days without a five percent pullback, though ideas that the Fed may taper off its purchases of long-term assets prompted some profit-taking at the end of last week.
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The Great Graphic here is from Goldman Sachs research that was posted on the internet by Finansakrobat. It draws from the industry reports of the flow into US equity funds.
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Beppe Grillo: ’’Referendum on the Euro Within a Year’’
May 25, 2013 Mike Shedlock
Via google translate from Corriere Della Sera, Beppe Grillo is in favor of a "Referendum on the Euro Within a year".
Sooner or later this sentiment is going to catch fire. And the sooner the better for Europe when it does.
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Market’s Bill of Health: Short Term Reversal, Otherwise Bullish
May 24, 2013 Chris Puplava
Wednesday’s selloff proved to change the short-term outlook of the market as indicated by a reversal commonly referred to by technicians as a bearish engulfing pattern. Such a reversal is also corroborated in the loss of short-term bullish momentum as the percentage of stocks within the S&P 500 with a daily MACD buy signal plummeted to 41% from last week’s 75% reading. With that said, the market’s long and intermediate-term momentum still remain bullish as does the overall market trend.
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Margin Debt and the ’’Highway to the Danger Zone’’
May 24, 2013 Chris Kimble
Sir John Templeton first alerted me to the dangers of excess margin debt in the late 1990’s, and I’ve been a fan of keeping in touch with this key indicator ever since.
Fresh Margin debt numbers have just been released. My good friend Doug Short shared the chart below, reflecting that margin debt continues to move higher, reaching levels where the S&P 500 has struggled to move much higher!
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The ’’Real’’ Goods on the Latest Durable Goods Data
May 24, 2013 Doug Short
Earlier today I posted an update on the May Advance Report on April 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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NYSE Margin Debt and the S&P 500: A Sign of Vulnerability?
May 24, 2013 Doug Short
Note from dshort: One of my economic correspondents, James Ross, called my attention to the fact that the NYSE has released new data for margin debt, now available through April. I’ve updated the charts in this commentary to include the new numbers.
The New York Stock Exchange publishes end-of-month data for margin debt on the NYXdata website, where we can also find historical data back to 1959. Let’s examine the numbers and study the relationship between margin debt and the market, using the S&P 500 as the surrogate for the latter.
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Joe Friday: ’’Junk Bonds Look Bearish and Could Break Support’’
May 24, 2013 Chris Kimble
High Yield ETFs JNK & HYG have formed bearish rising wedges. Two-thirds of the time, prices end up lower in the future after forming this type of pattern. The support lines of the rising wedges are being tested very hard and appear to be giving way right now.
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Durable Goods Orders in April Bounced Back Partially from the March Plunge
May 24, 2013 Doug Short
The May Advance Report on April Durable Goods was released this morning by the Census Bureau.
The latest new orders number at 3.3 percent was above the Briefing.com consensus of 1.6 percent. Year-over-year new orders are up 2.4 percent. This is a welcome improvement over the previous month’s -5.9 percent MoM and -0.8 percent YoY.
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The More, the Merrier
May 23, 2013 Eric Schaefer
Five years after the 2008 financial market collapse, governments and central banks across the globe have still not re-ignited a sustained global economic expansion. What growth there has been, has been localized, sporadic and anemic. Europe remains mired in recession. The expansion in the U.S. is episodic, with alternating quarters of growth and contraction. While China, seemingly rebounding, lacks the aggregate demand to pull other economies along in its wake.
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Hottest Stock Market in the World Creates a Huge Engulfing Bearish Wick
May 23, 2013 Chris Kimble
33 days ago I was honored to do an interview with Phil Pearlman, executive editor of StockTwits (listen here). A couple of the key points in the interview were:
1) Follow the price action of the world’s hottest stock market.
2) Investor sentiment did not appear to be at peak levels and the market had more room to the upside.
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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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 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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