Thursday, December 30, 2010

Standard & Poors S&P500 Earnings Estimates For 2011 & 2012

As many are aware, Standard & Poors publishes earnings estimates for the S&P500.  My previous post concerning their estimates can be found at the September 17 and May 30 posts)

Currently, their estimates for 2011 add to the following:

-From a “bottom up” perspective, operating earnings of $94.79/share

-From a “top down” perspective, operating earnings of $88.46/share

-From a “top down” perspective, “as reported” earnings of $86.84/share

Currently, their estimates for 2012 add to the following:

-From a “bottom up” perspective, operating earnings of (N.A.)

-From a “top down” perspective, operating earnings of $93.32/share

-From a “top down” perspective, “as reported” earnings of $90.01/share


As seen in previous posts, there seems to be an overall consensus that 2011 S&P500 operating earnings will be in the $90-$95/share range.
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I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this blog are aware, I do not agree with many of the consensus estimates and much of the commentary in these forecast surveys.
_____
A Special Note concerning our economic situation is found here
SPX at 1259.78 as this post is written

Tuesday, December 28, 2010

Retail Sales Per Capita Adjusted For Inflation

On December 14, Doug Short posted to his blog a chart showing retail sales per capita, adjusted for inflation (CPI).  The data is through November, as noted on the chart:

(click on chart to enlarge image)



Of course, this view of total retail sales, on a per-capita (factoring in population growth) basis - as well as adjusted for inflation - is not one that is often seen.  I've posted it as I believe that this view is an important one, for many reasons.
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A Special Note concerning our economic situation is found here
SPX at 1257.54 as this post is written

Monday, December 27, 2010

CEO & CFO Surveys 4Q 2010

On December 14 the Business Roundtable’s CEO Economic Outlook Survey was released for the 4th quarter.  The December Duke/CFO Magazine Global Business Outlook Survey was also released on December 14.  Both contain a variety of statistics regarding how executives view business and economic conditions.

In the CEO survey, of particular interest is the CEO Economic Outlook Index, which increased to 101 from 86 in the 3rd quarter.  Also stated in the report, “In terms of the overall U.S. economy, member CEOs estimate real GDP will grow by 2.5 percent in 2011."

In the CFO survey, "'The current level of optimism has increased notably from last quarter,' said Kate O’Sullivan, senior editor at CFO Magazine."

Also, the survey states, "Top concerns for U.S. CFOs include weak consumer demand, the federal government’s agenda, and intense price pressure."

The CFO survey contians the Optimism Index chart, as seen below:



It should be interesting to see how well the CEOs and CFOs predict business and economic conditions going forward.   I discussed various aspects of this, and the importance of these predictions, in the July 9 post.
_____

I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this blog are aware, I do not agree with many of the consensus estimates and much of the commentary in these forecast surveys.
_____

A Special Note concerning our economic situation is found here
SPX at 1256.77 as this post is written

Wednesday, December 22, 2010

Updates On Economic Indicators December 2010

Here is an update on various indicators that are supposed to predict and/or depict economic activity.  These indicators have been discussed in previous blog posts:

The December Chicago Fed National Activity Index (CFNAI)(pdf) updated as of December 20, 2010:



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The Consumer Metrics Institute Contraction Watch:



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The USA TODAY/IHS Global Insight Economic Outlook Index:

An excerpt from the November 24 Release :

“The November update of the USA TODAY/IHS Global Insight Economic Outlook Index shows real GDP growth, at a six-month annualized growth rate, stabilizing at 2.2% in December through March and 2.1% in April. Weak housing and employment combined with high debt and tight credit continue to impede growth."

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The ECRI WLI (Weekly Leading Index):
As of 12/10/10 the WLI was at 127.4 and the WLI, Gr. was at -.1%.  A chart of the growth rates of the Weekly Leading and Weekly Coincident Indexes:



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The Dow Jones ESI (Economic Sentiment Indicator):

The Indicator as of November 30 was at 43.9, as seen below:



An excerpt from the November 30 News Release:

"“The ESI signals that the economy is in a holding pattern,” Dow Jones Newswires “Money Talks” Columnist Alen Mattich said. “If it had risen sharply, confirming October’s strong rise, then it would have been a very positive sign. Instead we are seeing an economy still poised between modest growth and a slipping back.”

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The Aruoba-Diebold-Scotti Business Conditions (ADS) Index:

Here is the latest chart, depicting 12-11-08 to 12-11-10:



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The Conference Board Leading (LEI) and Coincident (CEI) Economic Indexes:

As per the December 17 release, the LEI was at 112.4 and the CEI was at 101.7 in November.
An excerpt from the December 17, 2010 Press Release:

"Says Ataman Ozyildirim, economist at The Conference Board: "November's sharp increase in the LEI, the fifth consecutive gain, is an early sign that the expansion is gaining momentum and spreading.  Nearly all components rose in November.  Continuing strength in financial indicators is now joined by gains in manufacturing and consumer expectations, but housing remains weak."
_________

I post various indicators and indices because I believe they should be carefully monitored.  However, as those familiar with this blog are aware, I do not necessarily agree with what they depict or imply.

A Special Note concerning our economic situation is found here
SPX at 1254.60 as this post is written

Tuesday, December 21, 2010

"60 Minutes" On State Budget Problems

On Sunday, "60 Minutes" did a segment on state budget problems.  Both video and a transcript are available.

The segment is worth viewing, especially for those who lack familiarity with the issue.  While I don't agree with some of its comments, it provides a good overview of the situation and some of the complexities involved.

I have written a few posts on the state budget issue.  I believe its severity lacks recognition.

A Special Note concerning our economic situation is found here
SPX at 1247.08 as this post is written

Monday, December 20, 2010

S&P500 Price Targets & Projected Earnings 2011 & 2012

Today's Barron's has a cover story titled "Outlook 2011."
Among the average forecasts of the 10 respondents (strategists and investment managers) was the following:
  • A year-end 2011 S&P500 target of 1373.25
  • $92.90 S&P500 EPS for 2011
  • $100.83  S&P500 EPS for 2012 (an average from 6 respondents)
  • 3.2% GDP growth for 2011
In a separate story from Bloomberg of December 13 titled "No New Normal as Strategists Predict 11% S&P500 Gain" the average figures from 11 respondents are similar; a year-end 2011 S&P500 target of 1379 and an EPS of $92/share.

Both the Bloomberg and (especially the) Barron's stories have a variety of economic and market commentary accompanying the forecasts.
_____

I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this blog are aware, I do not agree with many of the consensus estimates and much of the commentary in these forecast surveys.
_____

A Special Note concerning our economic situation is found here
SPX at 1243.91 as this post is written

Friday, December 17, 2010

Quantitative Easing Exit Issues

During QE1 (the first round of The Federal Reserve's Quantitative Easing) there seemed to be substantial commentary and discussion concerning the exit of such a program.

Over the last few months the discussions over the exit strategy seem to have diminished greatly - despite the start of QE2 and speculation of additional QE programs, i.e. QE3, QE4, etc.

I have discussed the various risks of Quantitative Easing in several posts.  As I stated in the August 13 post, "There are an array of risks embedded in such QE efforts."  These risks, although very substantial, seem to (severely) lack recognition.

The (eventual) exit of Quantitative Easing is one of these risks.  This is a very complex topic of which much can be written.

While I believe it to be rather incontrovertible that The Federal Reserve does have the knowledge and tools to exit such QE programs, that is not to say that doing such will be without complications, adverse unforeseen consequences, or market disruptions.

While it is possible that the eventual exit from QE will go smoothly, I think that the possibility of adversity in doing so is high.  There is much that can go wrong in "a big way" on numerous fronts - especially if an exit is done under exigent circumstances.  As well, there are many conflicting incentives inherent in Quantitative Easing, which further complicates the "exit" issue.

One item that is particularly disconcerting is the potential for capital losses on the Fed's growing balance sheet.  I've already commented about this in the November 5 post.  In a December 2 Cumberland Advisors commentary titled "Fed Exit Strategies - Technical Analysis" (pdf), there are some notable statistics on this subject in their commentary on the exit issue.

It should be very interesting to monitor this QE exit as it occurs...

A Special Note concerning our economic situation is found here
SPX at 1236.63 as this post is written

Thursday, December 16, 2010

PPI & CPI Trends

On Tuesday the November PPI figures were released, and they continue their recent trend of being significantly higher than the CPI figures.

Should this trend continue, it will of course likely have a significant impact on many companies' profitability.

I believe there are many reasons for why PPI growth is trending significantly higher than CPI.

As far as CPI is concerned, one factor that currently seems pronounced  is widespread discounting at the retail level.  This discounting has widespread future implications.  I have discussed other notable factors in the two Pricing posts of September 7 and April 23.

A Special Note concerning our economic situation is found here
SPX at 1236.63 as this post is written

Tuesday, December 14, 2010

The December 2010 Wall Street Journal Economic Forecast Survey

The December Wall Street Journal Economic Forecast Survey was published December 13, 2010.

I found a couple of excerpts, seen below, to be especially notable:

"The economists now see stronger expansion in the first half of 2011, with growth picking up speed as the year progresses. For the year, they expect GDP will rise 3%. Meanwhile, they have reduced the odds of a double-dip recession to 15%, the lowest average forecast of the year, from 22% in September survey."
also:

"Also adding fuel to the recovery is the Federal Reserve's bond-buying program, though the economists said the effect may not be large. A Boston Fed study estimates that through 2012 the bond purchases will result in 700,000 additional jobs. Forty-two of 52 respondents called that estimate too optimistic."

I also found a variety of topics seen in the Q&A (spreadsheet tab) to be interesting.

The current average forecasts among economists polled include the following:

GDP:
full-year 2010 : 2.7%
full-year 2011 : 3.0%

Unemployment Rate:
for 12/1/2010: 9.7%
for 12/1/2011: 9.0%

10-Year Treasury Yield:
for 12/31/2010: 2.98%
for 12/31/2011: 3.71%

CPI:
for 12/1/2010: 1.2%
for 12/1/2011: 1.8%

Crude Oil  ($ per bbl):
for 12/31/2010: $86.00
for 12/31/2011: $88.26

(note: I comment upon this survey each month; commentary on past surveys can be found under the “Economic Forecasts” category)
_____

I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this blog are aware, I do not agree with many of the consensus estimates and much of the commentary in these forecast surveys.
_____

A Special Note concerning our economic situation is found here
SPX at 1240.46 as this post is written

Monday, December 13, 2010

S&P500 Price Projections - Livingston Survey December 2010

The December 9, 2010  Livingston Survey (pdf) contains, among its various forecasts, a S&P500 forecast.  It shows the following price forecast for the dates shown:

Dec. 30, 2010   1200
June 30, 2011   1250
Dec. 30, 2011   1298.5
Dec. 31, 2012    1350

These figures represent the median value across the 33 forecasters on the survey’s panel.
_____

I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this blog are aware, I do not agree with many of the consensus estimates and much of the commentary in these forecast surveys.
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A Special Note concerning our economic situation is found here
SPX at 1240.40 as this post is written

Friday, December 10, 2010

Total Household Net Worth As A Percent Of GDP 3Q 2010

The following chart is from the CalculatedRisk Blog of December 9, 2010.  It depicts Total Household Net Worth as a Percent of GDP.  The underlying data is from The Federal Reserve Flow of Funds 3Q 2010 report:

(click on chart to enlarge image)


As seen in the above-referenced CalculatedRisk blog post:

"According to the Fed, household net worth is now off $11 Trillion from the peak in 2007, but up $5.8 trillion from the trough in Q1 2009.

The Fed estimated that the value of household real estate fell $684 billion to $16.55 trillion in Q3 2010, from $17.2 trillion in Q2 2010."

My comments:

As I have written in previous posts on this topic:

"As one can see, the first outsized peak was in 2000, and attained after the stock market bull market / stock market bubbles and economic strength.  The second outsized peak was in 2007, right near the peak of the housing bubble as well as near the stock market peak.

As seen on the chart, the Total Household Net Worth is making an upturn, but is significantly below the prior 2007 peak.

I could extensively write about various interpretations that can be made from this chart.  One way this chart can be interpreted is a gauge of “what’s in it for me?” as far as the aggregated wealth citizens are gleaning from economic activity, as measured compared to GDP."

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A Special Note concerning our economic situation is found here
SPX at 1233.00 as this post is written

Thursday, December 9, 2010

Measuring QE2 Effectiveness

In announcing QE2 in their November 3 FOMC meeting, the statement contained the following excerpt:

"Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. Although the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow.

To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to expand its holdings of securities. The Committee will maintain its existing policy of reinvesting principal payments from its securities holdings. In addition, the Committee intends to purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability."

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There are many different ways one could use to gauge whether QE2 is successful.  Of great significance, I am not aware of any official statement that specifically states the goals (and metrics of such) of QE2.

However, lowering of interest rates, especially the 10-Year Treasury, appears to be a/the primary goal.

Below is a chart of the 10-Year Treasury yield, starting on November 3, the date of the announcement.  The actual asset purchases began on November 12:

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


As one can see, the 10-Year Treasury Yield has risen substantially over this period.

As for the goal of (modestly) increasing inflation, there are no daily CPI values available for this period.  However, if one uses values from the Billion Prices Project (which I discussed in the November 24 post) as a proxy, the index values have actually decreased.  The index was 100.76 on November 3; 100.6679 on November 12; and 100.51 on December 7.

It will be very interesting to see whether QE2 seems to meet its objectives.  Of course, if QE2 fails to reach its objectives, perhaps the foremost question would appear to be why this is so.  I plan on further commenting upon QE2 and its apparent effectiveness in future posts.  (posts on Quantitative Easing can be found here)

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A Special Note concerning our economic situation is found here
SPX at 1232.55 as this post is written

Wednesday, December 8, 2010

The Wealth Disparity

In his "60 Minutes" interview of Sunday (which I commented upon in the last post), Ben Bernanke responded to  a question (from Scott Pelley) regarding the wealth disparity:
Pelley: The gap between rich and poor in this country has never been greater. In fact, we have the biggest income disparity gap of any industrialized country in the world. And I wonder where you think that's taking America.
Bernanke: It's a very bad development. It's creating two societies. And it's based very much, I think, on educational differences. The unemployment rate we've been talking about. If you're a college graduate, unemployment is five percent. If you're a high school graduate, it's ten percent or more. It's a very big difference. It leads to an unequal society and a society which doesn't have the cohesion that we'd like to see.
I think this response from Bernanke is notable for many reasons, one of which that it seems that policy makers rarely mention the wealth disparity.

In his response, Bernanke cites educational differences as the primary cause of the wealth disparity, and as support of this argument states unemployment statistics.  For a variety of reasons I think that his reasoning in this response is flawed.  However, if one does generally agree that a better level of education is (increasingly) required for wealth attainment, that in itself is problematical.  It is hard to envision quick and dramatic increases in the quality of education in this country - such increases could take years.  As well, the dramatic increases in the cost of education (especially for undergraduate and advanced degrees) is a major hurdle to a widespread increase in the educational level.  Any increases in education should be viewed relative to that being attained by other countries on a global scale.

I strongly believe that the wealth disparity is a very important topic, especially at this juncture.  Aside from "societal issues" such as that of fairness, I believe that a sustainable economy cannot coexist with an ever-growing wealth disparity.  It has been disconcerting that no policy maker, to my knowledge, has offered any substantive plan to address this ever-growing wealth disparity.  This is the type of glaring, continually unaddressed problem that I discussed in my article "America's Economic Future - 'Greenfield' or 'Brownfield'?"

As well, there is an issue of standard of living for the vast majority of American citizens outside of the upper income and wealth levels.  The long-term growth in Real Median Family Income (which I discussed in the September 20, 2010 post) has been, at best, anemic.  If one assumes a continual slow-growth economy (the current consensus among economists and other market professionals) there would appear little reason for this Real Median Family Income level to suddenly materially increase.  If one assumes a less-favorable economic future, this Real Median Family Income could be ravaged by a variety of factors such as a less favorable employment environment and inflation/deflation effects.

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A Special Note concerning our economic situation is found here
SPX at 1226.48 as this post is written

Monday, December 6, 2010

Ben Bernanke's December 5 2010 "60 Minutes" Interview - Comments

Ben Bernanke gave his second interview to "60 Minutes" last night.

This interview is very notable in many respects.  I could make extensive comments on various aspects of the interview, as I continue to have vast differences of opinion with many of Ben Bernanke's stated comments and analyses.   For now I will make some brief comments on various excerpts from the transcript.  (My previous blog posts on Ben Bernanke can be found under the "Ben Bernanke" category.)

Perhaps the first thing to catch my attention was the following introductory comment by Scott Pelley:  "Bernanke feels he has to speak out because he believes his critics may not understand how much trouble the economy is in."

Other notable exchanges between Pelley and Bernanke include (with my comments, if any, prefaced in italics):

--

Pelley: Some people think the $600 billion is a terrible idea.

Bernanke: Well, I know some people think that but what they are doing is they're looking at some of the risks and uncertainties with doing this policy action but what I think they're not doing is looking at the risk of not acting.

my comment: This "risk of not acting" is a familiar refrain from those who support intervention efforts...

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Bernanke (with regard to QE2):  "What we're doing is lowing interest rates by buying Treasury securities. And by lowering interest rates, we hope to stimulate the economy to grow faster.

my comment: I think what Ben Bernanke meant to say is that he hopes to lower rates by buying Treasury securities.

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Pelley: Can you act quickly enough to prevent inflation from getting out of control?

Bernanke: We could raise interest rates in 15 minutes if we have to. So, there really is no problem with raising rates, tightening monetary policy, slowing the economy, reducing inflation, at the appropriate time. Now, that time is not now.

Pelley: You have what degree of confidence in your ability to control this?

Bernanke: One hundred percent.

my comment:  One of the most dangerous aspects of QE2 is that we (as a nation) don't appear to have a proper understanding and respect for the risks inherent in such an intervention.  I think it is very unfortunate that most people seem (solely) fixated on possible inflationary implications.  This fixation seems to preclude discussions of many other risks, which I have mentioned in other posts such as that of November 5.  Also, while Ben Bernanke may be able to "raise interest rates in 15 minutes" that is not to say that doing so would be "painless" or not "highly disruptive" to the markets and economy - especially if raising the interest rate is done under (seemingly) urgent necessity.

--

Pelley: How would you rate the likelihood of dipping into recession again?

Bernanke: It doesn't seem likely that we'll have a double dip recession. And that's because, among other things, some of the most cyclical parts of the economy, like housing, for example, are already very weak. And they can't get much weaker. And so another decline is relatively unlikely. Now, that being said, I think a very high unemployment rate for a protracted period of time, which makes consumers, households less confident, more worried about the future, I think that's the primary source of risk that we might have another slowdown in the economy.

Pelley: You seem to be saying that the recovery that we're experiencing now is not self-sustaining.

Bernanke: It may not be. It's very close to the border. It takes about two and a half percent growth just to keep unemployment stable. And that's about what we're getting. We're not very far from the level where the economy is not self-sustaining.

my comments:  First, the idea that housing "can't get much weaker" is incorrect.  My latest post on the potential downside of the housing market was on October 24.  Second, It is interesting to hear Ben Bernanke make these comments about sustainability of this recovery.  One of the main tenets of this blog is that the (purported) "economic recovery" we are currently experiencing is inherently unsustainable.  I have elaborated upon this topic here.

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Pelley: Is there anything that you wish you'd done differently over these last two and a half years or so?

Bernanke: Well, I wish I'd been omniscient and seen the crisis coming, the way you asked me about, I didn't. But it was a very, very difficult situation. And the Federal Reserve responded very aggressively, very proactively.

my comment:  This is a very candid assessment by Bernanke.  He is correct in his assessment that it was "a very, very difficult situation."  The question arises as to whether this failure to see the first crisis coming will be extended to that of the next crisis.  I believe that, unfortunately, it will (and has).  Perhaps the foremost characteristic of our current and future economic situation is that of vast complexity.  Also, with regard to the comment that "the Federal Reserve responded very aggressively, very proactively" - this is largely irrefutable; however, the main question should be whether the actions were correct both from a short-term and long-term perspective.  I discuss this concept in a January 18 2009 article about interventions.

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A Special Note concerning our economic situation is found here
SPX at 1224.71 as this post is written

Sunday, December 5, 2010

3 Critical Unemployment Charts - December 2010

As I have commented previously, as in the October 6, 2009 post, in my opinion the official methodologies used to measure the various job loss and unemployment statistics do not provide an accurate depiction.

However, even if one chooses to look at the official statistics, the following charts provide an interesting (and disconcerting) long-term perspective of certain aspects of the officially-stated  employment situation.

The first two charts are from the St. Louis Fed site.  Here is the Median Duration of Unemployment:

(click on charts to enlarge images)(charts updated through 12-3-10)



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Here is the chart for Unemployed 27 Weeks and Over:



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Lastly, a chart from the Minneapolis Federal Reserve site.  This shows the employment situation vs. that of previous recessions (as characterized by severity):



As depicted by these charts, our unemployment problem is severe.  Unfortunately, there do not appear to be any “easy” solutions.

In July 2009 I wrote a series of five blog posts titled “Why Aren’t Companies Hiring?”, which discusses various aspects of the topic, many of which lack recognition.

A Special Note concerning our economic situation is found here
SPX at 1224.71 as this post is written

Friday, December 3, 2010

Long-Term Historical Inflation And Implications

My thought on the matter is that the overall topic of inflation and its effects is a complex one.  Adding to the complexity is the definition of inflation.  Most people define inflation in terms of CPI, but there are many different ways of defining the concept.  On this blog, to avoid confusion, I try to specify what type of inflation measure I am referring to, e.g. "inflation as measured by CPI."

Many people are skeptical of the CPI as a measure of inflation as the figures belie that of practical experience.  I'm sure everyone can list innumerable items that have increased in price at a level far above the CPI's increases.

The following chart of historical long-term inflation (as measured by CPI) was seen on Doug Short's blog November 17:

(click on image to enlarge)



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As one can see, CPI is depicted in red and blue (deflation and inflation respectively).  Doug has also superimposed (in gray) an alternate measure of inflation, that of the SGS Alternate CPI.  This measure is seen post-1982.

For those unfamiliar with the SGS Alternate CPI (explained here), it is a measure derived by John Williams, as seen on his Shadow Governement Statistics site, shadowstats.com.

As one can see, the current value of SGS Alternate CPI, at 8.51%, is considerably higher than that of CPI, at 1.17%.  As seen on the chart, this large disparity has existed for years.

The need for an accurate understanding of the rate of inflation (or deflation) can hardly be overstated.  Everything ranging from policy decisions to standard of living issues is impacted.  Needless to say, inflation at roughly 5-10% (a range seen in the SGS Alternate CPI since the early 90's) is much different than that seen in the CPI figures.  This difference is really magnified once one compounds these annual rates.

I like to think of the inflation / deflation issue in a different light than that seen in the CPI or SGS Alternate CPI terms; and as such, do not "endorse" either.  However, I think it is important to recognize and follow both the CPI and SGS Alternate CPI trends.
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A Special Note concerning our economic situation is found here
SPX at 1217.90 as this post is written

Thursday, December 2, 2010

Federal Reserve Longer-Term Economic Projections

Here is a link to the FOMC Minutes of November 2-3, 2010. (pdf)

One item of interest is the section titled "Summary Of Economic Projections."  This section displays and discusses projections and statistics of various measures including GDP, Unemployment Rate, and PCE Inflation.  As stated in the FOMC Minutes:

"In conjunction with the November 2–3, 2010, FOMC meeting, the members of the Board of Governors and the presidents of the Federal Reserve Banks, all of whom participate in the deliberations of the FOMC, submitted projections for output growth, unemployment, and inflation for the years 2010 to 2013 and over the longer run."

These projections show gradual improvements in GDP and Unemployment through 2013.  As well, there is a "longer run" projection (post-2013) that shows  GDP growth in the 2.4-3.0% range and the unemployment rate at 5.0-6.3%.  PCE Inflation is shown at 1.5-2.0%.
_____

I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this blog are aware, I do not agree with many of the consensus estimates and much of the commentary in these forecast surveys.
_____

A Special Note concerning our economic situation is found here
SPX at 1206.07 as this post is written

Tuesday, November 30, 2010

Nassim Taleb Quote On Bernanke

In the November 22 - November 28 Bloomberg BusinessWeek, p23, Nassim Taleb is quoted as saying the following, which I find interesting:
"Bernanke is someone who talks about returns without talking about risk.  It's identical to a pilot who talks about speed but not about safety.  The measures he is using may work, but should they fail, the risks are humongous."
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A Special Note concerning our economic situation is found here
SPX at 1187.76 as this post is written

Monday, November 29, 2010

George W. Bush / Larry Kudlow Interview November 2010

Last Monday, CNBC aired a recent interview (with a transcript) of former President George W. Bush by Larry Kudlow.  The interview focused on George W. Bush's recently published book ("Decision Points") and the Financial Crisis of 2008-2009.

I found various comments by George W. Bush to be interesting.  In many instances I disagree with what he said.  For now, I will briefly highlight a few items and may extensively comment about this interview later.

Particularly notable is George W. Bush's comments about TARP, interventions, and government involvement.

However, two of his phrases really stand out above all others.  I find them of the utmost importance.  The first is:
"I had to abandon free market principles in order to save the free market system."
The second is (with regard to the need for action during the Financial Crisis):
"...there's not a lot of time for theoretical debate."
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A Special Note concerning our economic situation is found here
SPX at 1189.40 as this post is written

Wednesday, November 24, 2010

"The Billion Prices Project" - Comments

I am finding "The Billion Prices Project" to be valuable.

From the homepage, "The Billion Prices Project is an academic initiative that collects prices from hundreds of online retailers around the world on a daily basis to conduct economic research."

Two of the most prominent benefits I see from the data include that data is available daily and it serves as a comparison and is plotted against the CPI (last available data) for references purposes.  The current (as of 11-22-10) "Billion Prices" index value for the U.S. is 100.51.

As well, data is available for a number of countries.

This data from  "The Billion Prices Project" should be interesting to monitor going forward...

A Special Note concerning our economic situation is found here
SPX at 1180.73 as this post is written

Tuesday, November 23, 2010

Updates On Economic Indicators November 2010

Here is an update on various indicators that are supposed to predict and/or depict economic activity.  These indicators have been discussed in previous blog posts:

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The November Chicago Fed National Activity Index (CFNAI)(pdf) updated as of November 22, 2010:



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The Consumer Metrics Institute Contraction Watch:



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The USA TODAY/IHS Global Insight Economic Outlook Index:

An excerpt from the October 27 Release, titled “Latest economic index forecasts weak growth through first quarter” :

“The October update of the USA TODAY/IHS Global Insight Economic Outlook Index shows real GDP growth, at a six-month annualized growth rate, slowing to 1.4% in October and then increasing to 2.0% in February and March, as weak housing and employment conditions continue to impede growth.”

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The ECRI WLI (Weekly Leading Index):

As of 11/12/10 the WLI was at 124.3 and the WLI, Gr. was at -4.5%.  A chart of the growth rates of the Weekly Leading and Weekly Coincident Indexes:



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The Dow Jones ESI (Economic Sentiment Indicator):

The Indicator as of November 1 was at 43.9, as seen below:



An excerpt from the November 1 release:

"The Dow Jones Economic Indicator (ESI) jumped 3.2  points to 43.9  in October, an unusually strong gain. In back-testing through 1990, election year Octobers averaged a 0.3 point rise. The ESI is now at its highest point since December 2007.

October’s gain, however, was preceded by a 2.5 point drop in September. The ESI’s turbulence implies that the economy is teetering between a slow climb up and a relapse.

“The Dow Jones ESI rebounded in October from its dip the previous month, resuming a modest upward trend seen during much of the year,” Dow Jones Newswires “Money Talks” Columnist Alen Mattich said. “The indicator, however, is still well below levels seen during normal expansions. The October number was not particularly boosted by press coverage of impending quantitative easing from the Federal Reserve or from any one off factors, supporting the view that it reflects self sustaining growth in the economy.”

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The Aruoba-Diebold-Scotti Business Conditions (ADS) Index:

Here is the latest chart, depicting 11-13-08 to 11-13-10:



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The Conference Board Leading (LEI) and Coincident (CEI) Economic Indexes:

As per the November 18 release, the LEI was at 111.3 and the CEI was at 101.5 in October.

An excerpt from the November 18, 2010 Press Release:

“Says Ken Goldstein, economist at The Conference Board: “The economy is slow, but latest data on the U.S. LEI suggest that change may be around the corner. Expect modest holiday sales, driven by steep discounting. But following a post-holiday lull, the indicators are suggesting a mild pickup this spring.”

_________

I post various indicators and indices because I believe they should be carefully monitored.  However, as those familiar with this blog are aware, I do not necessarily agree with what they depict or imply.

A Special Note concerning our economic situation is found here
SPX at 1197.84 as this post is written

Monday, November 22, 2010

Companies Fastest To $1 Billion In Sales

In Friday's post, I mentioned consumers' migration to lower-priced stores.

This continual consumer migration to lower-priced sources can be seen in a variety of statistics.  One statistic that I find particularly interesting is contained in a Forbes story of September 3, 2010 titled "The Next Web Phenom." At the end of the story it states "Groupon is on pace to pull in $1 billion in sales faster than any company in history. This list excludes investment holding companies (which tend to be preassembled before formally launching) and those built mainly through mergers or acquisitions."

In the accompanying graphic, it shows how long it took the other fastest companies to grow to $1 Billion in sales.  Interestingly, of the eight fastest listed since 1995, every one - with the exceptions of Yahoo and Google - have a business model focused on offering (highly) discounted goods or services to consumers.
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A Special Note concerning our economic situation is found here
SPX at 1197.15 as this post is written

Friday, November 19, 2010

Walmart's Q32011 Results - Comments

I found two especially notable items in Walmart's Q3 conference call transcript (pdf).  I view Walmart's results as particularly noteworthy given their retail prominence and focus on low prices.  I previously commented upon their results in the May 20 post.

First, from page 13, "Comp store sales for the 13-week period, which ended October 29, declined 1.3 percent..."  Although I didn't see it mentioned in the transcript, this was the 6th straight quarter of drops.  One factor that may be fueling this decline is that apparently lower-price rivals - such as "dollar" stores and Aldi stores - are impinging on sales.  Although it is not clear to what extent this is happening, I think from an overall economic standpoint it is very telling - and at least somewhat alarming - that a significant number of people apparently are seeking lower price alternatives to Walmart.

Second, from page 8, "Our own surveys and the reports on the recent U.S. election cycle indicate that financial uncertainty still weighs heavily on everyday Americans, including many of our core customers. The paycheck cycle is still pronounced for these customers."  This "paycheck to paycheck" condition is something I have discussed in the aforementioned May 20 post as well as the September 23, 2009 post.  While it is not something that receives a lot of mention - and statistics on it are difficult to find - I feel that it is nonetheless important as it highlights strains in, among other things, household finances, affordability, and standard of living.
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A Special Note concerning our economic situation is found here
SPX at 1192.86 as this post is written

Thursday, November 18, 2010

Gallup Economic Surveys - Comments

Gallup has a variety of economic surveys that I find interesting.

Here are charts of three that I find especially noteworthy:

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Americans' Standard of Living Optimism: (reported November 5, 2010)



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U.S. Economic Confidence (reported November 9, 2010)



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U.S. Consumer Spending (reported November 11, 2010)



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At each link, details of each survey are presented.

These charts, along with other Gallup economic surveys,  should be interesting to monitor going forward.  Although I believe that (economic) surveys, in general, should be interpreted with caution, these Gallup surveys appear to provide a valuable additional perspective on various economic aspects.
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A Special Note concerning our economic situation is found here
SPX at 1178.59 as this post is written

Wednesday, November 17, 2010

Philadelphia Fed - 4th Quarter 2010 Survey Of Professional Forecasters

The Philadelphia Fed Fourth Quarter 2010 Survey of Professional Forecasters was released on November 15.  This survey is somewhat unique in various regards, such as it incorporates a longer time frame for various measures.

The survey shows, among many measures, the following expectations, which are close to other economic survey results featured on this blog:

GDP:
full-year 2010 : 2.7%
full-year 2011 : 2.5%
full-year 2012 : 2.9%
full-year 2013 : 3.0%

Unemployment Rate: (annual average level)

for 2010: 9.7%
for 2011: 9.3%
for 2012: 8.7%
for 2013: 7.9%
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As for "the chance of a contraction in real GDP in any of the next four quarters," estimates range from 11-13.8% for each of the quarters through Q4 2011.

As well, there are also a variety of time frames shown with the expected inflation of each.  Inflation is measured in Headline and Core CPI and Headline and Core PCE.  Over all time frames expectations are shown to be in (or very close to) the 1-2% range.
_____

I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this blog are aware, I do not agree with many of the consensus estimates and much of the commentary in these forecast surveys.
_____

A Special Note concerning our economic situation is found here
SPX at 1178.34 as this post is written

Tuesday, November 16, 2010

The November 2010 Wall Street Journal Economic Forecast Survey

The November Wall Street Journal Economic Forecast Survey was published November 15, 2010.

I found a couple of items to be especially interesting.

First, regarding the impact of QE2:  "The economic impact of the Fed's moves is likely to be modest, the forecasters said. They estimate growth in GDP will rise by 0.2 percentage points in 2011 because of the Fed's bond buying and the unemployment rate will fall by less than 0.1 percentage point."

Second, "Although the economists expect slow growth and continued high unemployment, they put the odds of renewed recession in the next 12 months at 16%, the lowest level since the May survey and down from a high of 21% in September."

The current average forecasts among economists polled include the following:

Ten-Year Treasury Yield:

for 12/31/2010: 2.61%
for 12/31/2011: 3.51%

CPI:

for 12/1/2010: 1.2%
for 12/1/2011: 1.9%

Unemployment Rate:

for 12/1/2010: 9.6%
for 12/1/2011: 8.9%

Crude Oil  ($ per bbl):

for 12/31/2010: $82.95
for 12/31/2011: $86.43

GDP:

full-year 2010 : 2.5%
full-year 2011 : 2.9%

(note: I comment upon this survey each month; commentary on past surveys can be found under the “Economic Forecasts” category)
_____

I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this blog are aware, I do not agree with many of the consensus estimates and much of the commentary in these forecast surveys.
_____

A Special Note concerning our economic situation is found here
SPX at 1197.75 as this post is written

Monday, November 15, 2010

Monetary Policy And The U.S. Dollar

As those familiar with this blog know, I am very concerned about the vulnerability of the U.S. Dollar to a substantial decline.  I have written extensively about this situation.

On November 12, Macroeconomic Advisers had a blog post from Larry Meyer that discussed monetary policy (focused on QE2) and the U.S. Dollar.  While I don't agree with various parts of this blog post, I nonetheless think it is noteworthy to see what a (very) prominent economic consulting firm has to say on the issue.

Here are some excerpts from that November 12 post:

How does the exchange rate affect monetary policy? How will the foreign backlash affect monetary policy going forward?
  • We have not changed our firmly-held view that the FOMC has no dollar policy; it has no target for the dollar, just as it has no target for equity valuations. Dollar policy is the realm of the Treasury. The foreign backlash will not dissuade the Committee from pursuing what it sees as appropriate policy.
  • For the most part, the dollar has two roles with respect to monetary policy: First, it is part of the transmission mechanism, part of how monetary policy affects the economy. Second, to the extent that the dollar moves independently of monetary policy, it is like any other variable: The FOMC takes actual and projected changes in exchange rates into account in its forecast and responds accordingly.
  • There are two circumstances (discussed below) under which the dollar would take more of a center stage in FOMC deliberations: (i) a “free fall” in the dollar and (ii) a tighter and more intense link between the dollar and commodity prices in a context of a faster pass-through from commodity prices to long-term inflation expectations and core inflation.
also:

Does the FOMC ever worry about the dollar? Yes, under two circumstances:
  • A Dollar Collapse: If the dollar were to go into “free fall” (we will know it when we see it), the FOMC would face an enormous challenge because that would be catastrophic for the U.S. and foreign economies alike. There would be chaos in financial markets around the world. This is a nightmare scenario for the Fed, but a tail risk. Here, we expect that the FOMC would have to be part of the policy response to stabilize the dollar. Free fall, however, is much more likely as a result of continued fiscal irresponsibility in the U.S.
  • The Dollar-Commodities-Inflation Nexus: The FOMC likely worries about the recent seemingly more intense relationship between the dollar and commodity prices. The consequences depend on the degree to which commodity prices are passed through to core inflation. In any case, a sharp and persistent rise in commodity prices could raise concern about an unhinging of long-term inflation expectations, which, in turn, could affect monetary policy. Today, however, the main driver of rising commodity prices, we believe, is supply and demand, especially soaring demand by Asian economies.
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A Special Note concerning our economic situation is found here
SPX at 1199.21 as this post is written

Friday, November 12, 2010

Stock Market Post-Peak Historical Performances

On November 6 Doug Short posted an interesting chart on his site.

This chart shows the post-peak performances, in percentage terms, of four bear markets, as shown.

As one can see, the current trajectory of the S&P500 (post-2007 peak)  is quite distinct from that of the post-2000 Nasdaq, post-1989 Nikkei, and post-1929 Dow Jones Industrials:

click on chart image to enlarge


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There are many different ways to interpret this chart.  It should be interesting to monitor on a going-forward basis.

A Special Note concerning our economic situation is found here
SPX at 1213.54 as this post is written

Thursday, November 11, 2010

3Q 2010 Corporate Revenues

For the last few quarters, I have been commenting upon revenue growth in corporate results.  I have focused on a variety of diversified manufacturers and distributors, all of them well-respected S&P500 firms.    Prior posts on this issue are found at this link.

For the recently released 3Q 2010 financial results, there generally has been decent revenue growth.   Many companies have been posting seemingly strong, double-digit growth, but this has been against weak year-ago results.  As one would expect, revenue growth appears strongest in the Asia region.

It will be interesting to monitor these revenue growth figures going forward.  Revenue growth generally lacks recognition, especially compared to earnings growth and whether companies are matching or beating earnings “expectations.”  However, for a variety of reasons revenue growth, and its dynamics, is of the utmost importance, especially in the exceedingly complex economic environment we have been experiencing.

A Special Note concerning our economic situation is found here
SPX at 1218.71 as this post is written

Wednesday, November 10, 2010

Ben Bernanke November 6, 2010 Remarks On QE2

On Saturday (November 6) Ben Bernanke took part in a panel discussion.  This was part of The Federal Reserve conference "A Return to Jekyll Island: The Origins, History, and Future of the Federal Reserve."

I found these comments, pertaining to QE2, to be highly notable:

Ben Bernanke:
"There is not really, in my mind, as much discontinuity as people think.  This sense out there, that quantitative easing or asset purchases, is some completely far removed, strange kind of thing and we have no idea what the hell is going to happen, and it's just an unanticipated, unpredictable policy - quite the contrary.  This is just monetary policy."
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A Special Note concerning our economic situation is found here
SPX at 1213.40 as this post is written

Tuesday, November 9, 2010

President Obama's November 7, 2010 "60 Minutes" Interview

On Sunday, President Obama was interviewed on "60 Minutes."

Here are four excerpts from the transcript that I found especially noteworthy.  I may comment upon them in the future as I find them, in various ways, to be (at least) somewhat provocative:

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President Obama:  "And so, you know, the playing field now is a lot bigger and a lot more competitive than it used to be. And people rightly worry that if we don't make some fundamental fixes to the economy, that America may not be the preeminent economic power that it's been in the past.

Now, I have confidence that it will be. Because we still have the best universities. The best scientists. The most productive workers in the world. We've got the most entrepreneurial culture. And the strongest capital markets in the world. So, I'm still confident that America will see the 21st Century as the American century just as the 20th Century was. But that won't happen unless we make some big fundamental changes. And that's why even in the midst of crisis, we still spent time on things like education reform. Because if we don't deal with 'em now, we're gonna fall behind."

also:

"I think that the way to think about it is the dangers of a second big recession are now much reduced. The danger of us tipping into a great depression, I think most economists would say, is not there on the horizon."

also:

President Obama:  "I think we have to make sure that people understand and business understands that my overarching philosophy is not one in which we have constantly increasing government intervention."

also:

President Obama:  "And especially an economy this big, there are limited tools to encourage the kind of job growth that we need. But I have fundamental confidence in this country. I am constantly reminded that we have been through worse times than these, and we've always come out on top. And I'm positive that the same thing is gonna happen this time.

You know, there are gonna be setbacks, and we may take two steps forward and one step back, but the trajectory of this country is always positive. And that's something that that prevents me from getting too discouraged."
_____

A Special Note concerning our economic situation is found here
SPX at 1222.70 as this post is written

Monday, November 8, 2010

3 Critical Unemployment Charts - November 2010

As I have commented previously, as in the October 6, 2009 post, in my opinion the official methodologies used to measure the various job loss and unemployment statistics do not provide an accurate depiction.

However, even if one chooses to look at the official statistics, the following charts provide an interesting (and disconcerting) long-term perspective of certain aspects of the officially-stated  employment situation.

The first two charts are from the St. Louis Fed site.  Here is the Median Duration of Unemployment:

(click on charts to enlarge images)(charts updated through 11-5-10)



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Here is the chart for Unemployed 27 Weeks and Over:



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Lastly, a chart from the Minneapolis Federal Reserve site.  This shows the employment situation vs. that of previous recessions (as characterized by severity):



As depicted by these charts, our unemployment problem is severe.  Unfortunately, there do not appear to be any “easy” solutions.

In July 2009 I wrote a series of five blog posts titled “Why Aren’t Companies Hiring?”, which discusses various aspects of the topic, many of which lack recognition.

A Special Note concerning our economic situation is found here
SPX at 1222.70 as this post is written

Friday, November 5, 2010

Ben Bernanke On QE2

Ben Bernanke wrote an op-ed in The Washington Post yesterday titled, "What the Fed did and why: supporting the recovery and sustaining price stability."

I could write very extensively about this piece as it is highly notable on several fronts.  For now, I will limit my comments.

My analysis indicates that the risks of QE lack recognition.  As well, the benefits appear highly overstated.  As such, we (as a nation) appear to have a mistaken understanding of the risk-reward ratio of large-scale QE.  This is especially problematical as I expect additional large-scale QE will be done in the future.  This belief is echoed by other prominent parties.

What I find interesting about Bernanke's (and other Fed members') comments about QE is that they seem very limited in discussing risks of QE.  This begs the question as to whether Fed members don't think there is much risk in QE.  From what I have seen, the main risk Fed members have discussed is money supply issues / future inflation as well as the ability to gracefully (i.e. non-disruptively) exit such QE efforts.  Bernanke briefly mentions both of these items in his above-mentioned Washington Post op-ed.

However, I view those risks as being only two among a multitude of others.  As I wrote in the August 13 post, "There are an array of risks embedded in such QE efforts."  In that post I discuss QE risks to the U.S. Dollar and QE's role in fostering asset bubbles.

Another risk that receives little recognition is the risks embedded in the ever-increasing size of the Fed's portfolio.   This is a very complex potential risk, entailing both large potential capital losses (driven in large part by rising interest rates) as well as other unintended (negative) consequences.  The potential capital losses aspect is well-documented in a Wall Street Journal editorial of today titled "High Rollers at the Fed."

Both of these risks, as well as the multitude others, will only grow in importance if, as I suspect, additional (over and above Wednesday's $600B announcement) large QE is performed in the future.

A Special Note concerning our economic situation is found here

SPX at 1222.43 as this post is written

Thursday, November 4, 2010

S&P500 Earnings Consensus For 2011

Barron's came out with its "Fall 2010 Big Money Poll" on November 1.

There are a variety of statistics and poll results in it that I found interesting.

Of special note is the S&P500 2011 profit consensus of respondents, at $91.11.

There seems to be a growing overall consensus that S&P500 Operating Earnings will be in the $90-$95/share range.  This has been seen in numerous sources, some of which have been featured in past blog posts.
_____

I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this blog are aware, I do not agree with many of the consensus estimates and much of the commentary in these forecast surveys.
_____

A Special Note concerning our economic situation is found here
SPX at 1197.96 as this post is written

Wednesday, November 3, 2010

Political Volatility - November 2010

The results of yesterday's elections further solidify the trend of increasing political volatility.  Survey results indicate that much of this volatility has been driven by widespread dissatisfaction concerning the economic situation.

While this volatility has been recognized, many of its implications have lacked recognition.

On January 25, 2010 I wrote a post titled "Political Volatility." This post discusses other implications, particularly economic, of this political volatility.

Also of (increasing) relevance is an article I wrote in December 2008 titled "President Obama's Greatest Challenge." (listed as the fourth article in the Directory of Articles)

A Special Note concerning our economic situation is found here
SPX at 1193.57 as this post is written

Tuesday, November 2, 2010

Quantitative Easing - Varied Thoughts

There has been an immense amount of material written about additional Quantitative Easing (QE2).

Here are some of the works that I have found among the most interesting (although I don't necessarily agree with what is being said):

"Guidelines for Global Economic Policymaking," (pdf) Gregory Hess, Shadow Open Market Committee, October 12, 2010

Investment Outlook, November 2010, Bill Gross

"Night of the Living Fed," (pdf) Jeremy Grantham, GMO, October 2010

"What's Ahead for the Fed," Roubini Global Economics, October 27, 2010

excerpted material, Contrary Investor, October 14, 2010 commentary
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As for my own thoughts on the issue, I have written about QE2 directly in the August 13 post, and have written extensively about interventions in various posts.  As well, two articles  focus on interventions, "Intervention's Potential Blindspots" as well as "My Overall Thoughts On The Bailouts, Stimulus Measures, and Interventions." (links for these two articles are found in "Directory of Articles")
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A Special Note concerning our economic situation is found here
SPX at 1193.59 as this post is written

Monday, November 1, 2010

Recession Measures - Updated

On April 21 I wrote a post titled "Recession Measures - Two Charts."

That post referenced an April 12  CalculatedRisk blog post titled “Recession Measures.” In it, Bill discussed key measures that the NBER uses to determine recoveries, and posted four charts.

Here are those charts, updated in his October 29 post.  The charts are constructed in a fashion different than most - in a "percent of peak" fashion.  As defined, "The following graphs are all constructed as a percent of the peak in each indicator. This shows when the indicator has bottomed - and when the indicator has returned to the level of the previous peak. If the indicator is at a new peak, the value is 100%."  Periods of recession, as defined by the NBER, are shown as blue bars.

Here are the four charts: (click on images to enlarge)

Real Gross Domestic Product, still 0.8% below the pre-recession peak:



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Real Personal Income Less Transfer Payments, still 5.5% below the pre-recession peak:



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Industrial Production, still 7.5% below the pre-recession peak:



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Payroll Employment, still 5.6% below the pre-recession peak:



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A Special Note concerning our economic situation is found here
SPX at 1183.26 as this post is written