S&P 500 Snapshot: Fed Induced Bipolar Disorder
by Chart School - May 22nd, 2013 5:35 pm
Courtesy of Doug Short.
With yesterday’s dovish duo Bullard and Dudley to set expectations, the S&P 500 rallied in anticipation of Chairman Bernanke’s congressional testimony and soared to its all-time intraday high, up 1.07% during his prepared remarks. But the Q&A deflated the balloon, and the 2 PM release of the latest Fed Minutes accelerated the decline. It seems that the possibility of tapering QE in the near term is not entirely off the table. The index hit its -1.23% intraday low about 30 minutes before the final bell. It then trimmed its loss to close down 0.83%. The 10-year yield jumped 9 bps to close at 2.03%, just off the 2013 interim high of 2.07% on March 11th and 37 bps off its 2013 low set 14 sessions back.
Here is a 15-minute look at the week so far.
Not surprisingly the volume on today’s 2.32% high-low intraday range was 24% above its 50-day moving average.
The S&P 500 is now up 16.07% for 2013 and 0.83% below the all-time closing high set yesterday.
For a better sense of how these declines figure into a larger historical context, here’s a long-term view of secular bull and bear markets in the S&P Composite since 1871.
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Bernanke’s Semi-Annual Tap-Dance of Distortions, Half-truths, Lies, and Hypocrisy to Congress
by Chart School - May 22nd, 2013 4:35 pm
Courtesy of Doug Short.
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
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.
Bernanke: Conditions in the job market have shown some improvement recently. The unemployment rate, at 7.5 percent in April, has declined more than 1/2 percentage point since last summer. Moreover, gains in total nonfarm payroll employment have averaged more than 200,000 jobs per month over the past six months, compared with average monthly gains of less than 140,000 during the prior six months.
Mish: What Bernanke failed to say is real wages are anemic and the Fed’s low interest rate policy is making it easy for corporations to borrow at excessively low rates and use the money to invest in hardware and software robots to fire workers. Excessively low rates also punish savers and those on fixed income.
Bernanke: Payroll employment has now expanded by about 6 million jobs since its low point, and the unemployment rate has fallen 2-1/2 percentage points since its peak.
Mish: Even if those were all full-time jobs, this was a very anemic recovery by historic standards.
Bernanke: Despite this improvement, the job market remains weak overall: The unemployment rate is still well above its longer-run normal level, rates of long-term unemployment are historically high, and the labor force participation rate has continued to move down. Moreover, nearly 8 million people are working part time even though they would prefer full-time work. High rates of unemployment and underemployment are extraordinarily costly: Not only do they impose hardships on the affected individuals and their families, they also damage the productive potential of the economy as a whole by eroding workers’ skills and--particularly relevant during this commencement season--by preventing many young people from gaining workplace skills and experience in the first place.
Mish: That is a reasonably accurate set of statements but nowhere does the Fed admit its role in creating those conditions with its boom-bust, moral-hazard monetary policies.
Bernanke: The loss of output and earnings associated with high unemployment also reduces government…
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Today’s Market and Economists’ Forecasts for 10-Year Yields and the FFR
by Chart School - May 22nd, 2013 3:35 pm
Courtesy of 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. The survey was conducted May 3-7 and 48 economists responded, although some omitted responses to some questions.
The bond market is a few minutes from closing. A peak at Bloomberg shows the 10-year yield at 2.02 percent. Thus far in 2013 the closing low was 1.66 (twice, on May 1st and 2nd) and the closing high was 2.07 on March 11. The first chart shows the economists forecast for the yield at the end of June. I’ve used a 6 percent vertical scale for all charts to help us visualize the comparisons.
Here’s what they forecast for the end of 2015 (note that fewer were willing to take a stab that far out).
The survey sought responses at six-month intervals. This table shows the high, low, median (middle) and average forecasts and the number of responses for the six periods.
Of course, a key driver for yield expectorations is what the Fed is doing with the Fed Funds Rate. The current set rate is 0-0.25 percent with the latest effective rate of late hovering around 0.10. Here’s what the economists expect at the end of 2015.
Here is a side-by side showing the high, low and median for the 10-year yield and FFR.
For the past few months the market has been trading as if QE and Zero Interest Rate Policy would continue seemingly indefinitely. And Japan’s Abenomics has no doubt supported this mindset. Yesterday’s dovish presentations by Bullard and Dudley and the written testimony of Bernanke today gave the impression that the Fed was in no hurry to taper QE. But Bernanke, as a CNBC pundit interviewing Bill Gross, put it “spoke from both sides of his mouth.” And the Fed minutes certainly included talk…
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Today’s Dow Now in Third Place
by Chart School - May 22nd, 2013 8:35 am
Courtesy of 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. (See the footnote for my selection criteria.)
At this point the Dow is 1058 market days beyond the 2009 low. The last time I checked, in early April, the index was in fourth place in our Sweet Sixteen competition and 11.5% below the recovery from the 1982 low over the equivalent time frame. Now, 30 sessions later, the current level has a nominal gain of 135.0% since the 2009 trough, and is currently at a new all-time high. However, since we’re comparing such a diverse set of market eras with such a wide patterns of inflation/deflation, the real numbers provide greater comparative insights.
The two rallies with higher real gains at the equivalent post-trough point were the troughs in 1932 and 1921 (see the table below).
Why is inflation adjustment useful for this overlay? Throughout history the cost of living has undergone some dramatic changes, as this chart illustrates. High inflation, such as during the 1974 recovery, gives an exaggerated sense of price growth. Deflation, which accompanied several of the earlier market cycles, makes recoveries appear weaker. By adjusting for the inflationary/deflationary cycles, we get a clearer sense of the real value of the index price across time.
Now let’s extend the time frame. Here is a set of charts with increasing numbers of market days: 500, 1000, 2000, 3000, 4000, and 5000. Depending on the historical period, the number of market days in a year varies slightly. But it rounds out to about 250 market days per year. So the time frames in this series are approximately 2, 4, 8, 12, 16, and 20 years. The series features the 500-day chart with and without the 1932 recovery, which was a quite an outlier. At 1000 market days, the 1932 recovery continues to lead the…
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Gasoline Volume Sales, Demographics and our Changing Culture
by Chart School - May 21st, 2013 6:35 pm
Courtesy of 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.
Because the sales data are highly volatile with some obvious seasonality, I’ve added a 12-month moving average (MA) to give a clearer indication of the long-term trends. The latest 12-month MA is 8.2% below the all-time high set in August 2005. We are fractionally above the interim low of 8.3% below the high set two months ago in the December report.
The next chart includes an overlay of monthly retail gasoline prices, all grades and formulations. I’ve shortened the timeline to start with EIA price series, which dates from April 1993. The retail prices are updated weekly, so the price series is the more current of the two.
As we would expect, the rapid rise in gasoline prices in 2008 was accompanied by a significant drop in sales volume. With the official end of the recession in June 2009, sales reversed direction … slightly. The 12-month MA hit an interim high in November 2010, and then resumed contraction. The moving average for the latest month (March 2013) is about 7.9% below the pre-recession level and 4.8% off the November 2010 interim high. For some historical context, the latest data point is a level first achieved going on fifteen years ago, in June 1998.
Some of the shrinkage in sales can be attributed to more fuel-efficient cars. But that presumably would be minor over shorter time frames and would be offset to some extent by population growth. Also, if we look at Edmunds.com for data on the…
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S&P 500 Snapshot: Fractional Gain to a New High
by Chart School - May 21st, 2013 6:35 pm
Courtesy of Doug Short.
Another day of no economic data left the markets looking for cues. The Nikkei closed with a fractional gain of 0.13%, and the EURO STOXX 50 slipped a fractional 0.10%. So today’s focus was on couple of the more dovish Fed presidents, Bullard and Dudley. For an interesting visual of the Fed Presidents on the Dove-Hawk scale, see this graphic from Thomson Reuters. Bullard’s presentation is available here. Dudley’s speech is available here. But of course it’s Bernanke’s testimony to Congress tomorrow that will be the main event for Fed watchers. The S&P 500 traded in in a 0.74% range from an intraday low of -0.21% this morning to an intraday high this afternoon of 0.52%. The index closed the day with a trimmed gain of 0.17%. But any positive number was destined to be a new all-time high.
Here is a 10-minute look at the week so far.
Volume today was 5% below its 50-day moving average.
The S&P 500 is now up 17.04% for 2013.
For a better sense of how these declines figure into a larger historical context, here’s a long-term view of secular bull and bear markets in the S&P Composite since 1871.
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Chained CPI Versus the Standard CPI: Breaking Down the Numbers
by Chart School - May 21st, 2013 4:35 pm
Courtesy of Doug Short.
Note from dshort: I’ve updated this commentary to include the April Consumer Price Index data published last week.
The Consumer Price Index for Urban Consumers (CPI-U, or more generally CPI) is the most familiar gauge of inflation in the US. The data for the non-seasonally adjusted series stretches back a century to January 1913. But the news of late is about a relative newcomer to the inflation metrics of the Bureau of Labor Statistics (BLS), the Chained CPI for Urban Consumers (C-CPI-U). The BLS has a Frequently Asked Questions page on the Chained CPI that’s been around for a while. At present the page footer says “Last Modified Date: April 6, 2005″.
The reason the Chained CPI has been a hot topic in the news is that it’s being proposed as the method for determining cost of living adjustments for Social Security. Here are some typical examples of topic in the popular press:
- Chained CPI and You: A Primer (Atlantic Wire)
- Why ‘Chained CPI’ Rattles the Elderly (and Soon to Be) (Businessweek)
- How ‘Chained CPI’ Will Hit Your Pocketbook (Daily Finance)
- What’s the Chained CPI? (AARP)
- Seniors would see smaller Social Security checks under Obama budget (CNN Money)
For a snapshot comparison of how the conventional CPI and Chained CPI stack up against each other, I’ve created a variation on the CPI chart I’ve been updating monthly for the past several years here. The chart illustrates the overall change in inflation for CPI, Core CPI, and the eight top-level components of CPI since the turn of the century (more here). I also include energy, which is a collection of subcomponents, and College Tuition and Fees, a subcomponent of one of the top eight.
The BLS has published the data for these metrics for chained CPI from December 1999. The one missing element is College Tuition and Fees, a subcomponent of Education and Communication. The chart below pairs the two versions of each component showing the total change since December 1999. We can thus have a more educated sense of how the Chained CPI and conventional CPI differ from one another.
…
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19 Out Of 19
by ilene - May 21st, 2013 4:05 pm
Courtesy of ZeroHedge. View original post here.
Submitted by Tyler Durden.
The Dow completes its 19th week in a row with a green close on a Tuesday – there are no superlatives left. As a gentle reminder, since February 1st, the Dow has gained 9.85%; absent Tuesdays it is up a mere 0.5%. Despite equity strength, bonds rallied, VIX rallied, the USD ranged violently (Fed's Bullard and Dudley) to end unchanged, and commodities drifted lower on another dismally low volume day. Correlations between stocks and the rest of risk-assets have completely broken down today.
19-in-a-row…
It's been a hell of a six months on Tuesdays…
Treasuries did not buy into the rotation…again…
VIX futures roll tomorrow and likely had some effect (and we saw notable volume in higher up calls – though more like rolls than outrights) but VIX remains absolutely agnostic of the last 40 SPX points…
FX markets ended the day oddly unchanged – despite some very notable swings on the back of Fed's Bullard and Dudley's comments…
Commodities in general drifted lower today…
Stocks (once again) were in a world of their own for much of the post-EU close… cross-asset-class correlations completely disappeared this afternoon as stocks wee notably bid beyond every other risk asset
Charts: Bloomberg and Capital Context
Bonus Chart: A Gentle reminder… SPY is 6 sigma rich to HYG (arb delta is around 3xHYG vs 1xSPY)
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Two Measures of Inflation: New Update
by Chart School - May 21st, 2013 3:35 pm
Courtesy of Doug Short.
Note from dshort: I’ve updated the accompanying charts with the latest Consumer Price Index data from the Bureau of Labor Statistics. The annualized rate of change is calculated to two decimal places for more precision in the side-by-side comparison with the PCE Price Index.
The BLS’s Consumer Price Index for April, released last week, shows core inflation below the Federal Reserve’s 2% long-term target range at 1.72%. Core PCE, at the end of last month, is significantly lower at 1.13%. The Fed is on record as preferring Core PCE as its inflation 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] Note: Bolding added by me. |
Elsewhere the Fed stresses the importance of longer-term inflation patterns, the likelihood of persistence and the importance of “core” inflation (less food and energy). Why the emphasis on core? Here is an excerpt from one of the Fed FAQs.
| Finally, policymakers examine a variety of “core” inflation measures to help identify inflation |
…
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Fed Failing to Inflate the Economy? Deflation Ahead?
by Chart School - May 21st, 2013 12:35 pm
Courtesy of Doug Short.
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
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.
In fact the opposite is the case, as the CRX index below has been created a series of lower highs since May of 2011, and the CRX index is down 18% from two years ago this month. These lower high could well be forming a “Descending Triangle” which the majority of the time suggests lower prices are ahead.
Velocity is a ratio of nominal GDP to a measure of the money supply. It can be thought of as the rate of turnover in the money supply — that is, the number of times one dollar is used to purchase final goods and services included in GDP
Velocity peaked back in 2000 and is now is at its lowest levels in 50-YEARS! The CRX peaked back in 2008 and may be forming a “Descending Triangle” over the past 5-years. This pattern the majority of the time suggests lower prices are ahead.
If this resistance lines holds at (3) in the top chart and the CRX starts falling in price, it would be suggesting deflation is about to pick up speed, despite the massive money printing by the Fed!
The best news for the global economy would be the CRX breaking resistance, reflecting global commodity strength. Watch the CRX in the next couple of months; it will tell us a ton about the status of the world’s economy and the Fed’s attempt to inflate!
For information about Kimble Charting Solutions, send an email to services@kimblechartingsolutions.com.
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