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Archive for 1969

Two Measures of Inflation: New Update

Courtesy of Doug Short.

Note from dshort: I’ve now updated the charts below to include today’s 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.


The BLS’s Consumer Price Index for January, released today, shows core inflation above the Federal Reserve’s 2% target at 2.28%. Core PCE, at the end of last month, is fractionally below the target at 1.85%. The Fed, of course, is on record as using Core PCE as its inflation gauge:

The inflation rate over the longer run is primarily determined by monetary policy, and hence the Committee has the ability to specify a longer-run goal for inflation. The Committee judges that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve’s statutory mandate. Communicating this inflation goal clearly to the public helps keep longer-term inflation expectations firmly anchored, thereby fostering price stability and moderate long-term interest rates and enhancing the Committee’s ability to promote maximum employment in the face of significant economic disturbances. [Source]

The October 2010 core CPI of 0.61% was the lowest ever recorded, and two months later the core PCE of 0.93% was an all-time low. However, we have seen a significant divergence between the headline and core numbers for both indicators, especially the CPI, at least until a few months ago, when energy prices began moderating. The latest headline CPI and PCE are both off their respective interim highs set in September.


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Race to the Finish: The 1968 and 2000 Secular Bears

Courtesy of Doug Short.

Note from dshort: I received a request to post an update of my overlay of the 1968-1982 secular bear with our current market from the peak in 2000.


Here’s an update of a chart series I’ve occasionally shared that compares two secular bear markets — the current decline since the peak in March 2000 and the S&P 500 from its peak on November 29, 1968 to its bottom on August 12, 1982.

The first chart is a overlay of the index price for the two periods excluding dividends. At first blush, the 2000 secular bear looks like the more savage beast.


 

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Now let’s adjust both for inflation using the BLS Consumer Price Index. As the next chart clearly illustrates, the era of stagflation in the 1970s decimated the real value of the earlier series.

 

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Most people, even first wave Boomers, don’t realize the savagery of that earlier 14-year decline other than perhaps a recollection of the decade of stagflation that started with the 1973 oil embargo. The chart illustrates how both bears behaved over the decade following their peaks and how the stagflation bear continued its race to the bottom for another two years.

It will be interesting to check back in two years to see who wins this battle of the bears.

But what about a Total Return comparison?

If we factor in dividends, the earlier bear looks far better. After all, the dividend yield on the S&P 500 averaged 4.18% during those years compared to 1.82% since the market peak in 2000.

 

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But when we adjust for inflation, the performance of these two secular bears is far more similar, and the real total returns over the same elapsed time puts the two in a virtual “dead heat” (no pun intended).

 

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We’ll check back on this competition a periodically in the months ahead.

 

 

 

 





Those Russell 2000 Twins

Courtesy of Doug Short.

Advisor Perspectives welcomes guest contributions. The analysis and recommendations presented here do not necessarily represent those of Advisor Perspectives.


The chart blow was posted on August 8th, reflected an almost perfect identical inverted wedge patterns in the Russell 2000 (see post here).


 

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Below is an update on the Russell (this time right-side-up). Note how much the current pattern continues to look like 2008.

 

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The 750-770 level was stiff resistance in 2008, and so far it remains stiff resistance in 2011. For the repeating pattern to fail, the Russell needs to break out to the upside at (4).

 

(c) Kimble Charting Solutions
blog.kimblechartingsolutions.com

 

 

 

 





A Million Dollars Ain’t What It Used To Be

Courtesy of Doug Short.

If you had $1 Million in the bank you would be rich – right? That is what half of the respondents to a recent study by the Gallup Organization said. From the survey: “…Americans [were asked] how much net worth, or savings in cash, stocks, real estate, and other investments, they would need to consider themselves rich. The median figure Americans give is $1 million, the same as in Gallup’s 2003 poll asking the same question.

Currently, 26% of Americans say they would need in excess of $1 million in savings in order to consider themselves rich, including 14% who say $5 million or more. At the other end of the spectrum, 13% would consider themselves rich with less than $100,000 in savings. Estimates of the amount of savings a person needs to be rich are generally similar by subgroup, though college graduates report a median of $1 million and college nongraduates of $500,000.”

 

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Of course, in today’s society, we are constantly bombarded with big numbers. Whether it is “The Millionaire Matchmaker” providing “relationship services” for millionaire’s to billions of dollars in corporate profits or trillions of dollars in government debt; it’s all just a digit or two with lots of zero’s behind them. Meanwhile, back at home, the average American is struggling to make ends meet in a weak economy. Therefore, it is not surprising that a dream of just ONE million dollars would go a long way to solving their ills. However, being “rich” in terms of a total net worth number tells us very little. In reality what these individuals are trying to say is that I want enough money to “live the life that we have become accustomed to.” without have to stress myself just to get by.

How Much Income Do You Need To Be Rich?

The amount of INCOME you need at retirement is a much more important question. Income as a function of retirement is relative to the living standards to which you have become accustomed. Therefore, when it comes to “retirement”, it all boils down to the income stream that is available from which to live. However, in order figure that out we need to determine…
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The Dollar, Gold and the Market

Courtesy of Doug Short.

Commodity expert Dennis Gartman certainly struck a nerve in the financial community as word hit the street of his call on gold in the latest Gartman Letter (subscription required). Here is the gist, as reported by Bloomberg:

“Since the early autumn here in the Northern Hemisphere gold has failed to make a new high. Each high has been progressively lower than the previous high, and now we’ve confirmation that the new interim low is lower than the previous low. We have the beginnings of a real bear market, and the death of a bull.”

For a bit of historical context, here is a 20-year overlay of Gold and the Dollar.

 

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Here is an equally interesting overlay of Gold and the S&P 500.

 

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Now let’s take a long-term look at the Dollar and the S&P 500.

 

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And finally, a three-way overlay.

 

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Given the fundamental economic crisis in Europe, questions about the sustainability of growth in China, and the slow-motion boomer demographic shift in the US, the prospect of secular changes in these three asset classes (Gold, the Dollar and US equities) would not be unexpected.

 

 

 

 





Dollar Soars Following FOMC No Hint of QE3; Looking Ahead, What’s Next?

Courtesy of Doug Short.

I have read countless articles recently regarding the inevitability of QE3. I have disagreed for four reasons:

  1. Price of oil near $100 give Fed little choice
  2. Rising price of food gives Fed little choice
  3. Stock market has risen on air and hype of European bailout giving Fed little reason
  4. Falling unemployment rate (even though it’s totally bogus) gives Fed little reason

Why should the Fed react when hot air from Europe gave a huge lift to the markets?

I would have been surprised if the Fed tossed a QE3 bone under those circumstances. And it didn’t. The Forex market responded appropriately:

  • The US dollar rose against all major currencies
  • The Euro sunk to an 11-month low

Euro Daily Chart

The Euro took out the October 2011 low and is in fact now at lows last seen mid-January of 2011.

Forex Currency Market

The US dollar rose against every Barchart-Listed Currency.

Looking Ahead, What’s Next?

If the Fed holds off on QE3 and the ECB cuts further, both of which are likely for the near-future, the US dollar will likely strengthen more. However, and as I have pointed out, one cannot look at these things in isolation.

A downgrade of the EFSF and/or France by rating agencies would be US dollar supportive as would falling demand for commodities from China as noted in China?s Deserted ?Fake Disneyland?; Shanghai Prices Down 40% from Peak, Inventory Clogs Market; Pollyannas Proven Wrong; Implications for US Dollar

Implications for US Dollar
I have said on numerous occasions, China’s shift from a real estate and construction economy is going to send many commodity prices tumbling. In isolation, this is good for the US dollar, but things cannot be viewed in isolation.

Currency movements will depend on how central banks in the US, China, Europe, and Japan react to the global slowdown.

Certainly the Crumbling of Comprehensive Solution No. 4; Treaty “Legally Doubtful”; Cracks and Splinters Everywhere is US dollar supportive regardless of repeated “Pet Lies” by EC President Van Rompuy.

On the other side of the coin, US deficits are out of control. However, I believe (and the market seems to agree), the other factors are more important in the short-to-intermediate term.


Originally posted at Mish’s Global Economic Trend Analysis

(c) Mike “Mish” Shedlock
Investment Advisor Representative
www.sitkapacific.com

 

 

 

 





Estimating Future Stock Market Returns

Courtesy of Doug Short.

“Mankind are so much the same, in all times and places, that history informs us of nothing new or strange in this particular. Its chief use is only to discover the constant and universal principles of human nature.” - David Hume

 

Long-time readers will know that we do not make predictions in the normal sense. That is, we endorse the decisive evidence that markets and economies are complex, dynamic systems which are not reducible to normal cause-effect analysis. However, we are willing to acknowledge the likelihood that the future is likely to rhyme with the past. Thus, we apply simple statistical models to discover mean estimates of what the future may hold over meaningful investment horizons (10+ years), while acknowledging the wide range of possibilities that exist around these averages.

There are several reasons why it may be useful to have a more robust estimate of future expected returns on stocks:

  • People who are approaching retirement need to estimate probable returns in order to budget how much they need to save.
  • A retiree’s level of sustainable income is largely dictated by expected returns over the early years of retirement.
  • Investors of all types must make an informed decision about how best to allocate their capital among various investment opportunities

Many studies have attempted to quantify the relationship between Shiller PE and future stock returns. Shiller PE smoothes away the spikes and troughs in corporate earnings which occur as a result of the business cycle by averaging inflation-adjusted earnings over rolling historical 10-year windows.

This study contributes substantially to research on smoothed earnings and Shiller PE by adding three new valuation indicators: the Q-Ratio, total market capitalization to GNP, and deviations from the long-term price trends. The Q-Ratio measures how expensive stocks are relative to the replacement value of corporate assets. Market capitalization to GNP accounts for the aggregate value of U.S. publicly traded business as a porportion of the size of the economy. In 2001, Warren Buffett wrote an article in Fortune where he states, “The ratio has certain limitations in telling you what you need to know. Still, it is probably the best single measure of where valuations stand at any given…
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The Shanghai Tower and Aftermath

Courtesy of Doug Short.

Note from dshort: I’ve updated the charts to include today’s 2.14% decline in the index.


Today all eyes are on the eurozone financial crisis, crashing commodities, and the potential drag on US markets. But what caught my eye was the Shanghai Composite, which logged its 5th consecutive daily decline and the 16th decline in the last 21 sessions.

My friend and occasional guest contributor Chris Kimble came up with the notion of an Eiffel Tower formation as an emblematic way to discuss asset bubbles, which was featured in a guest commentary from last summer. The behavior of the Shanghai index over a two-year period beginning in late 2006 is a classic example, as the first two charts illustrate.


 

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With an arithmetic vertical axis, the tower fit is rather amazing.

 

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But let’s switch to a log scale vertical axis and shorten the timeframe to look at the numbers. We diminish the playful tower analogy, but we get a more accurate visual representation of the relative values of peaks and troughs in the price.

 

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Where is this index headed in the near to intermediate term? The trend toward austerity in the European Union, China’s biggest export market, will be a significant problem, likewise the financial stress of a deflating housing bubble. However, over the next few years, Chinese demographics should provide a bit of cushion.

In developed countries, the peak earning years are ages 45-54, with the 45-49 cohort as the peak spenders. Assuming China is moving toward a similar pattern (an assumption I make with caution), the earning-spending cohorts will grow significantly. Unless the housing bubble triggers a widespread retrenchment and a loss of consumer confidence, demographics, at least over the next 5-10 years, should work in China’s favor, driven by home-grown consumption.

One thing is certain. We’ll want to keep a close eye on the Shanghai Composite in the months ahead.

 

 

 

 

 

 





A Confederacy of Dunces?

Courtesy of Doug Short.

On January 9th, 1790, Secretary of the Treasury Alexander Hamilton issued his Report on Public Credit in response to a request by the House of Representatives. The report, though overlooked, belongs in the canon of American historical documents along with the Declaration of Independence, the Constitution and the Federalist Papers among others. In it Hamilton argued the newly formed Federal government should assume the war debts incurred by the thirteen colonies during the Revolutionary War.


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At the time, the credit of the U.S. government was in disrepute. Although the newly formed government (or, its predecessor under the Articles of Confederation) had not repudiated its war time debts, it was in arrears on both interest and principal. Furthermore, in the intervening period between the Treaty of Paris (1783) and the Constitution’s ratification (1788) several states had adopted differing policies to the war debts they incurred. Some such as Georgia had made it a priority to settle its accounts; while others such as South Carolina delayed repayment.

The brilliance of Hamilton?s plan was to recognize that no matter how scrupulous the new Federal government might be in paying its debts, the reputation of the United States would be tarnished by the reluctance or inability of individual states to pay their war loans. Naturally there was discord between states such as Georgia that would gain little by Hamilton?s proposal and other states like Massachusetts which would be relieved of their debt burden.

In the end, Congress voted to adopt the Hamilton plan. Within a short space of time the credit of the United States was redeemed. Debt which formerly traded at a deep discount appreciated sharply.

Today European leaders are faced with a similar dilemma. All realize certain member states of the European Monetary Union have borrowed way more than they can ever hope to repay. Certain nations, most notably Germany but also the Netherlands, Finland and Austria, hesitate to bail out their profligate neighbors to the south.

Their objections rest upon the argument of sovereignty. Without suitable restraints, there is little to stop the likes of a Greece from indulging in another borrowing…
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Economists’ GDP Forecasts: December 2011 versus December 2007

Courtesy of Doug Short.

Last week I posted the latest GDP forecasts from the Wall Street Journal’s December Survey of economists here. I focused on their forecasts for Q4 2011, Q1 2012 and the overall 2012 forecasts.

On Friday the Wall Street Rant blog posted an interesting overlay of the December WSJ GDP survey forecasts for 2012 with the equivalent 2008 forecasts made in December 2007.

Here’s is the chart followed by an excerpt from the Rant commentary.


 

 

The Wall Street Journal recently released its December Survey of Economists. This is where you generally get to hear about the current consensus groupthink. In the survey, 54 economists gave their projections for GDP in 2012 (among many other things). I decided to compare this year’s projections for the year ahead to what these great minds saw coming in December 2007 (the month the last recession started). Does anything about this strike anyone else as quite similar?

Now just maybe if they would have added a negative sign to their 2008 forecasts they would have been pretty spot on (considering GDP for the year finished down -2.5%). The December 2007 survey included 51 “economists”….yet not one came up with a negative GDP projection. Here we are now in 2011, with the European situation, the rest of the developed world including the US and Japan soaked in debt, and China trying to build ghost cities until someone rises from the dead, and not one of the 54 “economists” is willing to project anything lower than 1.3%. (Link to source.)

This coming week we will get the third estimate for Q3 GDP. The preliminary estimate was 2.5%, revised downward last month to 2.0%. Not until the end of January will we get our first estimate of 2011 Q4 GDP, and the first estimate for Q1 GDP won’t be released until the end of April. So it will be some time before we have even the first clue as to the accuracy of the latest WSJ estimates for next year’s GDP.

What About GDP and Recessions?

For a bit of historical perspective, here is a chart of GDP…
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Help One Of Our Own PSW Members

"Hello PSW Members –

This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible.  Feel free to contact me directly at jennifersurovy@yahoo.com with any questions.

Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts.  After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.)  Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.

http://www.youcaring.com/medical-fundraiser/help-get-shadowfax-out-from-the-darkness-of-medical-bills-/126743

Thank you for you time!

 
 

Chart School

Consumer Price Index Rose Slightly in September; Social Security COLA for 2015 Will Be 1.7%

Courtesy of Doug Short.

The Bureau of Labor Statistics released the September CPI data this morning. Year-over-year unadjusted Headline CPI came in at 1.66%, down from the previous month's 1.99%. Year-over-year Core CPI (ex Food and Energy) came in at 1.72% (rounded to 1.7%), little changed from the previous month's 1.70%. The non-seasonally adjusted month-over-month Headline number was up 0.08%, and the Core number was up 0.23%. On a seasonally-adjusted basis, the all items index was up 0.1%.

The CPI for Urban Wage Earners and Clerical Workers (CPI-W), which is used to calculate Social Security cost-of-living-adjustments, rose 0.1%, which was enough to ensure that the 2015 COLA will be 1.7%.

Here is the introduction from the BLS summary, which leads with the seasonally adjusted data monthly data:

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0...

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Zero Hedge

Equity Levitation Stumbles After Second ECB Denial Of Corporate Bond Buying, Report Of 11 Stress Test Failures

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

A day after a Reuters headline blast proclaimed that, in a stunning turn of events, the ECB which has barely started buying covered bond (of countries like Germany today for example, because the record low yielding Bunds clearly need help from the ECB) will also buy corporate bonds, sending the stock market soaring the most in 2014, it has now backtracked for the second time, and following a report from the FT yesterday which denied the report, the second denial came straight from Reuters itself which hours ago said that the ECB "has no concrete plans to buy corporate b...



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Phil's Favorites

Poster Children

Poster Children

Courtesy of 

IBM, Coca-Cola and McDonalds are three of America’s largest corporations and most well-known brands. They are true multinationals in every sense of the word and they dominate their industries both at home and abroad. They are numbers 23, 58 and 106 on the Fortune 500 list, respectively. Together, they make up 12 percent of the Dow Jones Industrial Average’s total weighting.

And all three are plagued by the same problem – they’re shrinking. More than this, their shrinkage is finally being recognized on The Street, now that investors are peeling back all of the layers of buybac...



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All About Trends

Mid-Day Update

Reminder: David is available to chat with Members, comments are found below each post.

Click here for the full report.




To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...

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Sabrient

Sector Detector: Sharp selloff in stocks sets up long-awaiting buying opportunity

Courtesy of Sabrient Systems and Gradient Analytics

Last week brought even more stock market weakness and volatility as the selloff became self-perpetuating, with nobody mid-day on Wednesday wanting to be the last guy left holding equities. Hedge funds and other weak holders exacerbated the situation. But the extreme volatility and panic selling finally led some bulls (along with many corporate insiders) to summon a little backbone and buy into weakness, and the market finished the week on a high note, with continued momentum likely into the first part of this week.

Despite concerns about global economic growth and a persistent lack of inflation, especially given all the global quantitative easing, fundamentals for U.S. stocks still look good, and I believe this overdue correction ultimately will shape up to be a great buying opportunity -- i.e., th...



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Digital Currencies

Goodbye War On Drugs, Hello Libertarian Utopia. Dominic Frisby's Bitcoin: The Future of Money?

Courtesy of John Rubino.

Now that bitcoin has subsided from speculative bubble to functioning currency (see the price chart below), it’s safe for non-speculators to explore the whole “cryptocurrency” thing. So…is bitcoin or one of its growing list of competitors a useful addition to the average person’s array of bank accounts and credit cards — or is it a replacement for most of those things? And how does one make this transition?

With his usual excellent timing, London-based financial writer/actor/stand-up comic Dominic Frisby has just released Bitcoin: The Future of Money? in which he explains all this in terms most readers will have no tr...



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OpTrader

Swing trading portfolio - week of October 20th, 2014

Reminder: OpTrader is available to chat with Members, comments are found below each post.

 

This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...



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Market Shadows

Falling Energy Prices: Sober Look takes a Sober Look

Falling Energy Prices: Sober Look takes a Sober Look

What do falling energy prices mean for the US consumer? Sober Look writes a brief yet thorough overview of the consequences of the correction in the price of crude oil. There are good aspects, particularly for the consumer, bad aspects, and out-right ugly possibilities. For more on this subject, read James Hamilton's How will Saudi Arabia respond to lower oil prices?  In previous eras, Saudi Arabia would tighten the supply to help increase prices, but in this "game of chicken," the rules m...



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Stock World Weekly

Stock World Weekly

Newsletter writers are available to chat with Members regarding topics presented in SWW, comments are found below each post.

Here's this week's Stock World Weekly. Just sign in with your PSW user name and password. (Or take a free trial.)

#457319216 / gettyimages.com

 

...

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Option Review

Release Of Fed Minutes, Icahn Tweet Boost Shares In Apple

Shares in Apple (Ticker: AAPL) are near their highs of the session in the final hour of trading on Wednesday, adding to the muted gains seen earlier in the day, following the release of the September FOMC meeting minutes and after activist investor and Apple shareholder Carl Icahn tweeted, “Tmrw we’ll be sending an open letter to @tim_cook. Believe it will be interesting.” Icahn’s tweet hit the ether at 2:33 pm ET and was met with a spike in volume in Apple shares. The stock is currently up 2.0% on the day at $100.75 as of 3:15 pm ET.

Chart – Apple rally accelerate...



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Promotions

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Pharmboy

Biotechs & Bubbles

Reminder: Pharmboy is available to chat with Members, comments are found below each post.

Well PSW Subscribers....I am still here, barely.  From my last post a few months ago to now, nothing has changed much, but there are a few bargins out there that as investors, should be put on the watch list (again) and if so desired....buy a small amount.

First, the media is on a tear against biotechs/pharma, ripping companies for their drug prices.  Gilead's HepC drug, Sovaldi, is priced at $84K for the 12-week treatment.  Pundits were screaming bloody murder that it was a total rip off, but when one investigates the other drugs out there, and the consequences of not taking Sovaldi vs. another drug combinations, then things become clearer.  For instance, Olysio (JNJ) is about $66,000 for a 12-week treatment, but is approved for fewer types of patients AND...



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