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Author Topic: US Economics, the stock market , and other investment/savings strategies  (Read 59327 times)
Crafty_Dog
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« Reply #900 on: July 29, 2014, 08:57:07 PM »

Scott G. was kind enough to share his thoughts with me on the Hussman analysis:

First, let me say that Hussman's credentials as a connoisseur of valuations is somewhat suspect. His Strategic Growth Fund (HSGFX) has managed the unenviable record of delivering a -21% total return since early March 2009, while the S&P 500 has enjoyed a total return of 224%. If he has provided a service to mankind, it is in demonstrating just how badly a market timing investment strategy can perform.

But eventually, of course, he will be right and the market will suffer a correction, and perhaps a serious one. It's all a matter of timing, something he unfortunately appears to lack in addition to not being able to recognize valuations over multi-year periods.

Be that as it may, I don't agree with the valuations he cites today.

The standard PE ratio of the S&P 500 is 18, as compared to its long-term average of 16. That is not particularly stretched, in my view, especially in light of the fact that corporate profits are close to record levels relative to GDP and long-term interest rates are exceptionally low.

If I use after-tax corporate profits from the NIPA tables as the "E" and the S&P 500 index as the "P" then I find that PE ratios are almost exactly equal to their average since 1960.

I don't give much credence to Shiller's CAPE ratio, since I think that the level of profits 10 years ago has almost zero bearing on the valuation of equities today. Corporate profits relative to GDP are much higher today not because they are unsustainably high, but because of globalization, which has allowed successful firms here to address markets that are exponentially larger than they could have addressed just a few decades ago.

While he worries that the market is hugely over-leveraged, I note that various measures of leverage in the household sector are as low as they have been for many decades. And the fact that banks have accumulated over $2.6 trillion in excess reserves while only moderately expanding their lending activities suggests to me that banks, as well as households, have been very risk averse and continue to be.

He insists on believing that the Fed's QE policies have directly distorted valuations and interest rates. In contrast, I think most of what the Fed has done has been to accommodate the market's extraordinary demand for safe assets. I believe that if the Fed had really been pumping money into the economy and distorting all manner of things, that we would have seen quite a bit more inflation than we have to date.

Nevertheless, I do wish they would accelerate their timetable for higher short-term rates and for the unwinding of their balance sheet.
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DougMacG
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« Reply #901 on: July 30, 2014, 09:43:11 AM »

That is a strong response by Scott Grannis.  These guys working in the same field are kind of tough on each other.  Hussman missed the entire run-up.  Most on Grannis' side of it missed the entire crash, also a pretty big event of the last decade.  Taking the middle ground, I say you don't get to compare performance only from rock bottom unless you called both the crash and rock bottom.

As interesting as the images in the rear view mirror are, the point between the optimists and pessimists today is who is right today.

Scott does a nice job of both hedging and backing up his view.  This is a post worth re-reading after the market makes its next move in either direction.  If it is up 224% every 5 years and you believe current polls then the DOW hits 38,000 at the end of Hillary's first term.  Back up the truck, as we used to say.

But then Scott would also be right if, as he says, "eventually, of course, [Hussman] will be right and the market will suffer a correction, and perhaps a serious one."

We are all lousy market timers.  I know a number of people who do large money management.  I would take the compensation but wouldn't want the responsibility of getting all of the market returns for their clients now while fully protecting them against the next, inevitable, serious correction.

To me, the stock market offers you cloudy title to a company.  You share ownership with people who have very different time frames, objectives and systems for getting in and out of ownership than you do.  Psychology, emotions and subtle tipping points that trigger other events matter, and most of that we can't see.

Scott G:  "The standard PE ratio of the S&P 500 is 18, as compared to its long-term average of 16. That is not particularly stretched, in my view, especially in light of the fact that corporate profits are close to record levels relative to GDP and long-term interest rates are exceptionally low."

From here record profits could continue to go up forever (lol), or go down in a very possible recession, or stay flat for years.  The DOW still at 17000 in 5 years not at all out of the realm of possibilities, nor a worst case scenario.  Artificially low interest rates will most certainly go up the instant moment we quit holding them artificially down.  And reserves parked safely is still money created (out of thin air).

Good luck to everyone who is in.  I lost all my stock market money last time I was dead wrong.

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Crafty_Dog
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« Reply #902 on: July 30, 2014, 06:03:40 PM »

The First Estimate for Q2 Real GDP Growth 4.0% at an Annual Rate To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 7/30/2014

The first estimate for Q2 real GDP growth is 4.0% at an annual rate, easily beating the 3.0% rate expected by the consensus. Real GDP is up 2.4% from a year ago.
The largest positive contributions to real GDP growth in Q2 were from consumer spending and inventories. The largest drag was net exports.
Personal consumption, business investment, and home building were all positive in Q2, growing at a combined rate of 3.1% annualized. Combined, they are up 2.8% in the past year.

The GDP price index increased at a 2.0% annual rate in Q2. Nominal GDP (real GDP plus inflation) rose at a 6.0% rate in Q2, is up 4.1% from a year ago and up at a 3.7% annual rate from two years ago.

Implications: What a difference one report makes. Real GDP came in higher than the consensus expected for Q2, growing at a 4% annual rate. The rebound more than offset the weather-related hit in Q1, when real GDP fell at a (revised) 2.1% annual rate. Today’s report includes revisions to the GDP data going back several years and shows an economy that was a little weaker in 2010-12, but stronger than originally reported in 2013. New figures show real GDP grew 3.1% in 2013 versus a prior estimate of 2.6%. The one drawback in today’s data was that much of the growth in Q2 came from faster inventory accumulation, which will be tough to duplicate for the rest of the year. We still expect growth between 2% and 3%, but wouldn’t be surprised if it continued to come in at the lower end of that range. Nominal GDP grew at a 6% annual rate in Q2, is up 4.1% versus a year ago and is up at a 3.7% annual rate in the past two years. Nominal GDP is a good proxy for the level of interest rates over time and suggests that the Fed is falling behind the curve. Even though we think they should move faster, the Fed will stick to ending QE by Halloween and then start lifting rates in the first half of 2015. The BEA also released its first estimate of GDO - Gross Domestic Output for Q1 last Friday. GDO attempts to measure “all” economic activity. In other words it includes more business-to-business sales along the value-added chain of production. GDO shows that rather than steeply declining in Q1, the economy was roughly flat. This is not surprising given brutal winter weather and it suggests that the drop in Q1 real GDP was not as sinister as many wanted to believe. In other news today, the ADP index says private payrolls increased 218,000 in July. Plugging this into our models suggests the official Labor report (released Friday) will show a nonfarm gain of 220,000. On the housing front, the Case-Shiller index, which measures home prices in 20 key metro areas, dipped 0.3% in May, the first decline in 28 months, although prices are still up 9.3% from a year ago. The dip in May was led by Atlanta, Chicago, and Detroit. Look for price gains in the year ahead, but not as fast as in the past couple of years. Pending home sales, which are contracts on existing homes, declined 1.1% in June after rising 6% in May. Combined, these figures suggest a 2.4% gain in existing home sales in July. After all that, it’s still the Plow Horse.
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ccp
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« Reply #903 on: July 30, 2014, 06:51:05 PM »

Happy days are here again oh happy days are here again oh happy days are here again oh yeaaaaaaaahahhhh!!!!!!!!!

 wink

You wanna buy land in south central Florida?   grin
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G M
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« Reply #904 on: July 30, 2014, 08:10:29 PM »

http://davidstockmanscontracorner.com/qe-and-zirp-have-failed-to-lift-main-street-but-withdrawal-of-the-monetary-heroin-will-be-brutal/

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ccp
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« Reply #905 on: July 30, 2014, 11:16:08 PM »

Stockman is right.  And what does 40% of the voting public want to do about the wealth gap?

Tax the "rich" which also includes much of the middle class, to pay for all their debts. Continue the war on savings as Crafty apply puts it, "welcome" 5 million more poor illegals on top of the 12 million already here, and then all their relatives turning the rest of the country into Kalifornia (NJ too), punish the energy sector as Doug pointed out is the most thriving sector of all, embolden our enemies, piss off our friends, divide the nation even more and blame the other side, call them "haters" as the first Black and stooge in office does, all the while it is their policies worsening this mess.

But yes gotta support that brockster and the rest of the "for the po crowd".
The democrats in lock step eternally pushing *forward*  destroying America.

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Crafty_Dog
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« Reply #906 on: August 05, 2014, 10:06:08 AM »

Events vs. Data To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 8/4/2014

If you’re an investor looking for a reason to be worried, there are plenty of headlines to light the fuse. Widening war in the Middle East, turmoil in eastern Ukraine (or is that western Russia?), a debt default by Argentina…problems with some Portuguese bank…Ebola…tapering.

It’s not a short list, and equities are down roughly 3% since their peak on July 24th.

Maybe, just maybe, a long-awaited stock-market correction has begun. We can’t confirm or deny that prediction. All we know for certain is that this would be about the 43rd correction analysts have called in just the past 24 months.

What we do know is that the fundamentals do not suggest anything terribly serious is wrong with the US stock market. Don’t take this the wrong way. These events are all important. They matter. But in the long sweep of history, they don’t yet rise to the level of world changing events. Most of us have experienced much worse in our lifetimes.

Compared to the Yom Kippur War, the recent conflict between Israel and Gaza is small. And an interesting by-product of this current conflict is that more Arab countries are now supporting Israel.

Meanwhile, Putin’s Russia is playing an increasingly weak hand trying to foment a border crisis with Ukraine. The recent downing of Malaysian Airlines flight 17 has pushed Europe into sanctions that hurt Putin’s inner circle in its most vital organ. That would be their wallets.

Yes, Argentina isn’t going to pay all its debts. But, given its history, why is this news? Since its independence in 1816, Argentina has been in default or rescheduling about 1/3rd of the time. We’d be more surprised if Argentina always paid its debts on time.

Ebola is certainly a scary headline, but projecting some turning point for the market due to Bird Flu, Swine Flu or even AIDS back in the 1980s was an overreaction.

Fear makes any one of these seem a potentially cataclysmic event, but the same could be said about hundreds of things that have happened in the past 200 years. The one thing we’re sure of is that the economic fundamentals haven’t changed much and that the market remains undervalued.

Real GDP in the second quarter rose 4% at an annual rate after a weather-related drop in Q1 of 2.1%. Moreover, revisions to 2013 show that real GDP grew 3.1% in the four quarters of 2013. By the way, some analysts used year-over-year data for 2013 to show a 2.2% gain in real GDP, but this is like using your average net worth for the year to reflect your financial health, not what you had at year-end.

The job market is showing steady gains, with another 209,000 added to payrolls in July. That’s the sixth straight month above 200,000, the first time that’s happened since 1997. And it looks like more of the same in August: initial unemployment claims are at a four-week average of 297,000, the lowest since April 2006.

In addition, the manufacturing sector looks like it’s firing on all cylinders. The ISM Manufacturing Index beat on the upside, hitting 57.1 in July, the highest since 2011.
Construction plunged in June, but that’s a very volatile indicator from month to month and the trend is still up, with a gain of 26% since the bottom in early 2011.

Technical analysis is not our area of expertise, which is why we have to be agnostic about whether we’re in a correction. But if it is a correction, we think a rebound would be soon to follow.

We still believe the bull market will remain intact until a recession is on the way, the equity market gets overpriced, or monetary policy gets tight. None of these are here yet and we don’t expect them anytime soon.
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G M
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« Reply #907 on: August 05, 2014, 02:50:00 PM »

Events vs. Data To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 8/4/2014

If you’re an investor looking for a reason to be worried, there are plenty of headlines to light the fuse. Widening war in the Middle East, turmoil in eastern Ukraine (or is that western Russia?), a debt default by Argentina…problems with some Portuguese bank…Ebola…tapering.

It’s not a short list, and equities are down roughly 3% since their peak on July 24th.

Maybe, just maybe, a long-awaited stock-market correction has begun. We can’t confirm or deny that prediction. All we know for certain is that this would be about the 43rd correction analysts have called in just the past 24 months.

What we do know is that the fundamentals do not suggest anything terribly serious is wrong with the US stock market. Don’t take this the wrong way. These events are all important. They matter. But in the long sweep of history, they don’t yet rise to the level of world changing events. Most of us have experienced much worse in our lifetimes.

Compared to the Yom Kippur War, the recent conflict between Israel and Gaza is small. And an interesting by-product of this current conflict is that more Arab countries are now supporting Israel.

Meanwhile, Putin’s Russia is playing an increasingly weak hand trying to foment a border crisis with Ukraine. The recent downing of Malaysian Airlines flight 17 has pushed Europe into sanctions that hurt Putin’s inner circle in its most vital organ. That would be their wallets.

Yes, Argentina isn’t going to pay all its debts. But, given its history, why is this news? Since its independence in 1816, Argentina has been in default or rescheduling about 1/3rd of the time. We’d be more surprised if Argentina always paid its debts on time.

Ebola is certainly a scary headline, but projecting some turning point for the market due to Bird Flu, Swine Flu or even AIDS back in the 1980s was an overreaction.

Fear makes any one of these seem a potentially cataclysmic event, but the same could be said about hundreds of things that have happened in the past 200 years. The one thing we’re sure of is that the economic fundamentals haven’t changed much and that the market remains undervalued.

Real GDP in the second quarter rose 4% at an annual rate after a weather-related drop in Q1 of 2.1%. Moreover, revisions to 2013 show that real GDP grew 3.1% in the four quarters of 2013. By the way, some analysts used year-over-year data for 2013 to show a 2.2% gain in real GDP, but this is like using your average net worth for the year to reflect your financial health, not what you had at year-end.

The job market is showing steady gains, with another 209,000 added to payrolls in July. That’s the sixth straight month above 200,000, the first time that’s happened since 1997. And it looks like more of the same in August: initial unemployment claims are at a four-week average of 297,000, the lowest since April 2006.

In addition, the manufacturing sector looks like it’s firing on all cylinders. The ISM Manufacturing Index beat on the upside, hitting 57.1 in July, the highest since 2011.
Construction plunged in June, but that’s a very volatile indicator from month to month and the trend is still up, with a gain of 26% since the bottom in early 2011.

Technical analysis is not our area of expertise, which is why we have to be agnostic about whether we’re in a correction. But if it is a correction, we think a rebound would be soon to follow.

We still believe the bull market will remain intact until a recession is on the way, the equity market gets overpriced, or monetary policy gets tight. None of these are here yet and we don’t expect them anytime soon.



http://humanevents.com/2008/02/25/brian-wesbury-sees-no-recession-ahead/
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Crafty_Dog
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« Reply #908 on: August 08, 2014, 11:51:42 AM »



Nonfarm Productivity Increased at a 2.5% Annual Rate in the Second Quarter To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 8/8/2014

Nonfarm productivity (output per hour) increased at a 2.5% annual rate in the second quarter versus a consensus expected gain of 1.6%. Nonfarm productivity is up 1.2% versus last year.

Real (inflation-adjusted) compensation per hour in the nonfarm sector was up at a 0.1% annual rate in Q2 and is up 1.0% versus last year. Unit labor costs increased at a 0.6% rate in Q2 and are up 1.9% versus a year ago.

In the manufacturing sector, productivity was up at a 3.6% annual rate in Q2, much better than among nonfarm businesses as a whole. The faster gain in manufacturing productivity was due to faster growth in output. Real compensation per hour declined at a 0.8% annual rate in the manufacturing sector, while unit labor costs fell at a 1.3% rate.

Implications: After a large drop in productivity in Q1, nonfarm productivity grew at a 2.5% annual rate in Q2. Hours continued to increase at a healthy clip and output climbed even faster so output per hour increased. Productivity is only up 1.2% from a year ago, but we think government statistics underestimate actual productivity growth. There are many examples, in every area of the economy, but the service sector is particularly hard to measure. Drivers used to buy road atlases, and then GPS devices to help them navigate; now they download free apps that are more accurate and provide optimal routes through real-time traffic patterns. Travelers used to guess, hit-or-miss, where to go for a meal. Now they can use free services to tell them what restaurants are close and provide reviews. The figures from the government miss the value of these improvements, which means our standard of living is improving faster than the official reports show. Sectors of the economy that are easier to measure show more rapid productivity growth. In manufacturing, productivity surged at a 3.6% annual rate in Q2 and is up 2.1% from a year ago. The surge in Q2 was due to output growing much faster than hours. In spite of the overall problems with measurement, we anticipate faster productivity growth over the next few years as new technology increases output growth in all areas of the economy. In other news, yesterday new claims for unemployment insurance declined 14,000 to 289,000. The four week moving average at 293,500 is now the lowest since February 2006. Continuing claims for jobless benefits declined 24,000 to 2.52 million.
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G M
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« Reply #909 on: August 13, 2014, 08:50:19 PM »

http://goldsilver.com/news/james-rickards-cold-war-2-0-is-a-financial-war/?utm_medium=email&utm_campaign=8+13+14+GS+Weekly&utm_content=8+13+14+GS+Weekly+CID_38c81df2ad88f08af610e8f4dbeaee17&utm_source=GoldSilver%20Email%20Marketing&utm_term=read%20more
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Crafty_Dog
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« Reply #910 on: August 14, 2014, 07:53:11 PM »

Silver Wheaton, Pan American Silver each -5%, hurt by low silver prices • 2:16 PM

       Silver Wheaton (SLW -5.3%) and Pan American Silver (PAAS -5.3%) are both
sharply lower as low silver prices combined with still-high costs combine to
weigh on Q2 results.SLW said its silver equiv. realized price fell from
$23.05/oz. a year ago to $19.83 in this year's Q2; gold sales accounted for
~30% of sales, and SLW’s realized gold price of $1,295/oz. was included
in a 14% drop in the silver equiv. price.In Q2 results for PAAS, the average
realized price for silver was $19.58/oz., down from $22.68 in the year-ago
quarter; gold, which accounts for ~25% of sales, also suffered, fetching
$1,289/oz.vs. $1,423 a year ago.
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G M
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« Reply #911 on: August 14, 2014, 08:00:20 PM »

Silver Wheaton, Pan American Silver each -5%, hurt by low silver prices • 2:16 PM

       Silver Wheaton (SLW -5.3%) and Pan American Silver (PAAS -5.3%) are both
sharply lower as low silver prices combined with still-high costs combine to
weigh on Q2 results.SLW said its silver equiv. realized price fell from
$23.05/oz. a year ago to $19.83 in this year's Q2; gold sales accounted for
~30% of sales, and SLW’s realized gold price of $1,295/oz. was included
in a 14% drop in the silver equiv. price.In Q2 results for PAAS, the average
realized price for silver was $19.58/oz., down from $22.68 in the year-ago
quarter; gold, which accounts for ~25% of sales, also suffered, fetching
$1,289/oz.vs. $1,423 a year ago.


Buy on the dips.
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Crafty_Dog
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« Reply #912 on: August 14, 2014, 08:45:59 PM »

I bought PAAS at 9 and rode it to 40.  Got out in the low 30s and mid 20s IIRC.

As I have cautioned here a number of times, as soon as interest rates go up, the experience of the late 70s teaches that gold and silver will bet fuct.  As it is gold is donw over 35% from its peak.

The piece in GM,s post 909 epitomizes the notion of profity from prophesy.  It can be done, but then again the market can be wrong longer than you can stary solvent.
« Last Edit: August 14, 2014, 08:47:43 PM by Crafty_Dog » Logged
G M
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« Reply #913 on: August 14, 2014, 08:50:25 PM »

I bought PAAS at 9 and rode it to 40.  Got out in the low 30s and mid 20s IIRC.

As I have cautioned here a number of times, as soon as interest rates go up, the experience of the late 70s teaches that gold and silver will bet fuct.  As it is gold is donw over 35% from its peak.

The piece in GM,s post 909 epitomizes the notion of profity from prophesy.  It can be done, but then again the market can be wrong longer than you can stary solvent.

I'm not buying to flip silver and gold for profit. I'm buying to have something of value after we go Weimar.
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Crafty_Dog
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« Reply #914 on: August 26, 2014, 11:33:18 AM »

New Orders For Durable Goods Boomed 22.6% in July To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 8/26/2014

New orders for durable goods boomed 22.6% in July (+23.8% including revisions to prior months), easily beating the consensus expected gain of 8.0%. Orders excluding transportation declined 0.8% in July, but were up 0.3% including revisions to prior months, coming in below the consensus expected 0.5% gain. Orders are up 33.8% from a year ago while orders excluding transportation are up 6.6%.

The gain in overall orders was led by civilian aircraft and autos. The largest decline was for machinery.

The government calculates business investment for GDP purposes by using shipments of non-defense capital goods excluding aircraft. That measure rose 1.5% in July (+2.7% including revisions to prior months). If unchanged in August and September, these shipments will be up at an 8.8% annual rate in Q3 versus the Q2 average.
Unfilled orders increased 5.4% in July and are up 12.3% from last year.

Implications: Durable goods boomed 22.6% in July, the biggest increase on record going back to 1958. The entire gain in durable goods orders was due to the very volatile transportation sector, which rose 74.2% in July. In particular, civilian aircraft orders rose 318% as Boeing received 324 orders for new planes in July. Excluding transportation, new orders for durable goods declined 0.8% in July, but were revised up to a 3% gain in June (versus a prior estimate of 1.9%) and are up 6.6% versus a year ago. The best news today was that shipments of “core” capital goods, which exclude defense and aircraft – a good proxy for business equipment investment – rose 1.5% in July and June shipments were revised up to a 0.9% gain (versus a prior estimate of -0.3%). These shipments are now up 7.6% versus a year ago, a major acceleration from the 0.4% decline in the year ending in July 2013. Until recently, business investment had been unusually slow relative to other parts of the recovery, but it now looks like companies are finally updating their equipment and building out capacity more quickly. On the housing front; mixed news on home prices today. The FHFA index, which measures prices for homes financed with conforming mortgages, increased 0.4% in June, and is up 5.2% from a year ago. However, the Case-Shiller index, which measures homes in 20 key metro areas around the country, declined 0.2% in June, with 13 of the 20 areas showing a decline, led by Minneapolis and Detroit. That’s the first overall decline since early 2012. Still, in the past year, the Case-Shiller index is up 8.1%, with gains led by Las Vegas, San Francisco, and Miami. Both the FHFA index and Case-Shiller show smaller price gains in the past twelve months than in the twelve months that ended in June 2013. We expect that trend to continue, with these measures generally moving up but showing smaller gains than in the recent years. In other news this morning, the Richmond Fed index, a measure of factory sentiment in the mid-Atlantic region, rose to +12 in August from +7 in July, signaling continued gains in industrial production in August.
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Crafty_Dog
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« Reply #915 on: September 02, 2014, 01:42:07 PM »



The ISM Manufacturing Index Surged to 59.0 in August To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 9/2/2014

The ISM manufacturing index surged to 59.0 in August from 57.1 in July, easily beating the consensus expected level of 57.0. (Levels higher than 50 signal expansion; levels below 50 signal contraction.)
The major measures of activity were mixed in August, but all remain well above 50, signaling growth. The new orders index rose to 66.7 from 63.4, while the production index increased to 64.5 from 61.2. The supplier deliveries index dipped slightly to 53.9 from 54.1. The employment index was little changed at 58.1 from 58.2 in July.
The prices paid index declined to 58.0 in August from 59.5 in July.

Implications: A booming report from the manufacturing sector as the ISM Manufacturing index, which measures factory sentiment around the country, rose to 59.0 in August, the highest level in more than three years. The best news in today’s report came from the new orders index, which rose to 66.7, the highest reading in more than a decade, and a sign that factory activity should continue to pick up in the months ahead. According to the Institute for Supply Management, an overall index level of 59.0 is consistent with real GDP growth of 5.2% annually. While last week’s GDP report came in at a strong 4.2% for Q2, we don’t expect the growth rate to remain quite that fast over the remainder of the year. The long-term link between the ISM report and real GDP growth has tended to over-estimate real GDP growth in the past several years. On the inflation front, the prices paid index fell to a still elevated 58.0 in August from 59.5 in July. Along with broader measures of consumer and producer prices, inflation is showing signs of overly loose monetary policy. The employment index was essentially unchanged at 58.1 in August, just off the three year high reading of 58.2 in July’s report. With the data in today’s release, we are currently forecasting a gain of about 25,000 manufacturing jobs for this Friday’s employment survey. In other news today, construction increased 1.8% in July and 3.3% including upward revisions for May and June. The gain in July itself was led by state and local projects (like paving roads and building bridges). A large gain in commercial construction was led by power plants and manufacturing facilities. The upward revisions for May/June suggest real GDP will be revised up to a 4.4% annual growth rate in Q2 from a prior report of 4.2%.
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Crafty_Dog
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« Reply #916 on: September 04, 2014, 01:33:41 PM »

The ISM Non-Manufacturing Index Increased to 59.6 in August To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 9/4/2014

The ISM non-manufacturing index increased to 59.6 in August, easily beating the consensus expected 57.7. (Levels above 50 signal expansion; levels below 50 signal contraction.)

The major measures of activity were mostly higher in August, and all remain above 50. The business activity index jumped to 65.0 from 62.4 while the employment index increased to 57.1 from 56.0. The supplier deliveries index moved higher to 52.5 from 51.5. The new orders index dipped to 63.8 from 64.9.
The prices paid index declined to 57.7 in August from 60.9 in July.

Implications: Another strong reading from the service sector as the ISM services index jumped to 59.6 in August, beating the forecast from all 74 economic groups that made a prediction and coming in at the highest reading since August 2005. The ISM service sector has now shown expansion for a 55th consecutive month. Paired with the strong ISM manufacturing report from Tuesday, it’s clear the economy is continuing to bounce back from the harsher than normal winter that slowed activity at the start of the year. The business activity index– which has a stronger correlation with economic growth than the overall index – rose 2.6 points in August to 65.0, the highest reading for the index in close to ten years. New orders dipped slightly, but remain at a very robust reading of 63.8, suggesting production should continue to pick up in the months ahead. After the drop back in April, the employment index has expanded for each of the past four months and, with this month’s reading of 57.1, has moved above the average reading of 56.5 seen over the past five years. As employment continues to expand, expect income growth to boost consumer spending and business revenue, which, in turn, will help support even more job growth in the future. In other words, the growth in the economy is self-sustaining and should remain that way until monetary policy gets tight, which is at least a few years away. On the inflation front, the prices paid index dropped to a still elevated 57.7 in August from 60.9 in July. No sign of runaway inflation, but given loose monetary policy, we expect this measure to either stay elevated or move upward over the coming year. Once again, we have a report showing the Plow Horse economy may be starting to trot. In other recent news, Americans bought cars at a 17.5 million annual rate in August, much higher than the consensus expected and the fastest pace since January 2006. Sales were up 6.4% versus July and up 10% from a year ago. These figures suggest a strong rebound in retail sales in August after no change in July.
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DougMacG
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« Reply #917 on: September 04, 2014, 05:47:16 PM »

" ISM Non-Manufacturing Index Increased to 59.6"

The economy seems to do best in the contrived measurements.  How many people don't work in America, how many people don't work full time (hundreds of millions), how many even know or remember what full time, private sector employment is anymore?

 0.0: That is the manufacturing and non-manufacturing index level today combined for all the companies that never started over the last 8 years since Pelosi-Obama-Reid took power.

" the Plow Horse economy may be starting to trot"

Last time Wesbury said that, we were headed into negative growth territory with an economy too weak to withstand winter.  No mention that it is still the worst economic recovery in 80 years, perhaps more.  I think Wesbury is conflating market success with overall economic performance, which is stuck in an intentional, no-growth pattern of stagnation. Plow horses don't trot, especially when pulling a heavy load.
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DougMacG
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« Reply #918 on: September 08, 2014, 10:30:26 AM »

Another view on the performance of the US economy by Democrat Lawrence Summers:

http://www.washingtonpost.com/opinions/lawrence-summers-supply-issues-could-hamper-the-us-economy/2014/09/07/274ce00c-352f-11e4-9e92-0899b306bbea_story.html

The U.S. economy continues to operate way below estimates of its potential that were made prior to the onset of financial crisis in 2007, with a shortfall of gross domestic product now in excess of $1.5 trillion — or $20,000 per family of four. Just as disturbing, an average economic growth rate of less than 2 percent since that time has caused output to fall further and further below those estimates of potential. Almost a year ago, I invoked the concept of “secular stagnation” in response to the observation that, five years after the financial hemorrhaging had been stanched, the business cycle was not returning to what had been previously thought of as normal levels of output.

"...weak growth along with significant decreases in labor slack suggest a major slowing of the growth of potential output."

Lawrence Summers is a professor at and past president of Harvard University. He was treasury secretary from 1999 to 2001 and economic adviser to President Obama from 2009 through 2010.


http://www.cbo.gov/publication/45150

(I will posting the policy part of this that follows on the Political Economics thread.)
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Crafty_Dog
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« Reply #919 on: September 08, 2014, 01:47:57 PM »

Why Do Stocks Keep Rising? To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 9/8/2014

So far this year, the S&P 500, including dividends, has returned 10.1% to investors. The NASDAQ, including dividends, is up 10.7%.

This has happened even though the Federal Reserve has tapered bond purchases from $85 billion per month, to the current $25 billion. And everyone knows, QE will fall to $15 billion after September 17th and zero after the Fed’s meeting in late October.

The market is up in spite of Vladimir Putin invading Ukraine, the rise and rapid spread of ISIS in Iraq and Syria, and even volcanoes in Iceland. It’s up even though Ebola is spreading in Africa, upcoming Congressional elections in the US, and some members of the Fed publicly vocalizing about the need to raise interest rates sooner than next year.

The stock market is up even though some previously bullish analysts have turned skeptical or even bearish. It’s up even though it had a little hiccup back in July and even though the 5-year Treasury yield is up 100 basis points since early 2013.

This continues a trend that started sixty-six months ago on March 9, 2009. Since then, the S&P 500 is up at annualized average of 24% (including dividends). And the things the market has worried about in the past year don’t hold a candle to the fears stirred up over those previous five years.

During those five years, pundits on many business TV shows, after hearing that we thought stocks could go even higher and that the economy would keep growing, always asked “yeah, but what about ______”?

You can fill in the blank with a hundred things…they certainly did…the Sequester, Greece, Dubai, Cypress, the Fiscal Cliff (twice), part-time jobs, and on and on. This incessant pessimism, the constant belief that things were bound to go wrong seems almost surreal. How can somebody stay negative for so long, but convince themselves that they are always right?

Maybe this is why CNBC viewership is falling. According to Zap2it.com, it’s fallen to a 2-year low (click here).

It’s important to remember that many people watch business TV at work and ratings services do not do a good job of capturing this viewership. Nonetheless, if these data capture any type of decline at all, it’s a real shame.

The 21st century is an amazing period of entrepreneurial activity. Fracking, 3-D printing, robotics, biotech advances, the Cloud, wireless communication technologies, smartphones, tablets, and apps are just a few of the areas of massive advancement.

The business world is vibrant, productive and massively efficient. One broad measure of profits has grown 20% at an annual average rate between Q4-2008 and Q2-2014. How come TV can’t capture that vibrancy in a way that attracts more viewers?

The good news is that TV does not drive stock prices, profits do. Rising profits prove that resources are being utilized more efficiently and when resources are used more efficiently, they become more valuable.

One problem the pessimists have is that they look back at 2008 and see a failure of markets and the success of government. But TARP and QE never saved the economy. Stock markets fell an additional 40% after TARP was passed.  But once mark-to-market accounting rules were changed in March/April 2009, the crisis ended and a recovery began. That recovery has been real, not a “sugar high,” built on government action.

It may not have been the strongest recovery ever, but in those areas driven by, or that utilize, new technology, it has certainly been profitable.
That’s why stocks keep rising in spite of all the negative news that circulates. Understanding profits is the key to understanding why stocks keep rising.
________________________________________
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DougMacG
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« Reply #920 on: September 08, 2014, 04:48:16 PM »

Eloquent, as usual.  A little smug about being right the last 60 months or so, after missing the last crash.

Who was right or wrong during the run up is not the same question as who is right today.

What do we know happens after a long run up in stock prices?

a.  It will go up further
   or
b. It will come to a screeching and painful halt and decline.

Quoting BW:  ""Stock markets fell an additional 40% after TARP was passed [in 2008]."   - He is making a different point but what was his prediction then?  40% further crash?  That is an awful lot of lost value[tens of trillions?] to have missed so recently to be smug about anything now (IMHO).  I predict the market now will do either a. or b. above, go up or go down.  I would not base optimism on this column because I believe he is cherry picking his facts.  Other facts are not so positive.  For example, what about the dearth of startups?
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G M
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« Reply #921 on: September 08, 2014, 10:40:22 PM »

http://www.marketwatch.com/story/the-american-family-makes-200-more-a-year-than-it-did-in-1989-2014-09-05

Don't spend that 200 bucks all in one place.
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DougMacG
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« Reply #922 on: September 10, 2014, 10:26:06 AM »


1989 happened to be the end of the Reagan era, followed by endless, no-new-taxes tax increases, beginning in 1990.

That said, there are many problems with this type of analysis. 
a. Median family size is shrinking, so that measurement isn't particularly useful.
b. Tracking "the share of wealth owned by the top 3% of American families" over such an extended period doesn't show the mobility in and out of that group.
c.  We don't count most of the income received at the lower end of the scale.
d.  Every time an illegal or anyone else walks into this economy with nothing, the median goes down even if no one else's income or wealth has changed.

Far more enlightening IMHO are the analyses that take specific groups from specific points in time and then track their income and wealth mobility going forward.
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Crafty_Dog
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« Reply #923 on: September 12, 2014, 03:45:32 AM »



Economists See Overseas Risks as Growth Wild Card
WSJ Survey Shows Optimism on U.S. Economy, but Not So Much for Rest of World
By Nick Timiraos
WSJ
Sept. 11, 2014 12:08 p.m. ET

After an uneven first half of the year, most economists are relatively sanguine about the U.S. economy's growth outlook. It's the rest of the world that's a concern, according to The Wall Street Journal's monthly forecasting survey.

More than 90% of the 48 surveyed economists—not all of whom answered every question—said they expect the U.S. economy to improve relative to the first half of 2014. None see the economic outlook deteriorating. The survey was conducted after last Friday's weaker-than-expected August jobs report.

The brighter outlook for the U.S., coming as the Federal Reserve gets set to end its bond-buying stimulus program next month and amid generally improving economic data, stands in contrast to economists' views toward other large economies.

Just one-third said their outlook for the eurozone had improved, roughly balanced with the share seeing a worse outlook for the currency union. One-quarter of economists said their outlook for China improved, while almost 40% said it had deteriorated slightly. About 40% said their outlook for Japan had improved, compared with 12% that said it had deteriorated.

"The U.S. cycle is well ahead" of Europe and Japan, said Joseph Carson, an economist at Alliance Bernstein. "We've taken the hits and restructured. The household sector has deleveraged, and the financial sector has re-liquefied. You've seen little progress in Europe."

The U.S. is also better off because of increasing domestic oil production and the potential for new industries to grow on the back of that cheaper energy supply, Mr. Carson said.

Indeed, a majority of economists don't believe global oil prices will change over the next six months as a result of turmoil in the Middle East. One-third said the instability might lead to a slight increase in oil prices.

Economists cited the situation in Ukraine as the largest threat to global growth, followed by monetary missteps by central bankers and structurally high unemployment.

James F. Smith, chief economist at Parsec Financial, is pessimistic about the threat of economic warfare between Russia and Europe over the unrest in Ukraine, including the prospect of a European banking crisis from a Russian debt default. He also worries about the implications of Japan's growing trade deficit.  Still, compared with the August survey, the latest consensus outlook for economic growth, unemployment and inflation for 2014 and 2015 was little changed.

The economists see gross domestic product, the broadest measure of goods and services produced across the economy, advancing at a 3% annual pace this quarter and next. Just three economists expected growth to exceed 3.7% in the third or fourth quarters, and only two see growth falling below 2%.  The economy expanded at a 4.2% pace in the second quarter after contracting 2.1% in the first quarter, according to the Commerce Department.  Forecasters in the Journal survey expect the U.S. economy to grow at a 2.8% annual pace in 2015, down slightly from last month's forecast of 2.9% annual growth.

Economists saying there is more upside to their near-term forecast outnumber those who say there is more downside by nearly 2 to 1. Economists cited stronger consumer spending and faster capital investment by businesses as their top upside surprises, while they flagged geopolitical risks, Europe's economy, and the soft U.S. housing market as their biggest concerns.

Nearly half of economists believe that the 10-year Treasury yield will end the year at or under 2.76%, compared with the median forecast of 3% in the August survey.
Most economists don't expect the Fed to raise short-term interest rates from near zero before June 2015, and the number of economists who believe the Fed will move early next year declined since the August survey.

Messrs. Carson and Smith say they believe better hiring and growth in the U.S. could force the Fed to raise rates during the first quarter of 2015. Despite the turmoil abroad, the U.S. has seen little impact so far, Mr. Carson said. Stock prices and durable-goods orders have advanced, while oil prices have declined.

Others believe overseas risks will provide further reasons for policy makers to tread carefully. "If the Fed moves too quickly to raise rates, we risk leveling the forest rather than just trimming the overgrowth," said Diane Swonk, chief economist at Mesirow Financial. The turmoil abroad only makes the central bank's task "much more precarious," she said.

The Fed would rather move too slowly than too quickly, "given the lack of safety nets if we were to stumble into a recession," Ms. Swonk said.
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DougMacG
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« Reply #924 on: September 12, 2014, 07:58:40 AM »

...
More than 90% of the 48 surveyed economists—not all of whom answered every question—said they expect the U.S. economy to improve relative to the first half of 2014. None see the economic outlook deteriorating. ...

The optimism is impressive!  But stated occasionally in the climate change context, a poll of scientists (who all agree with each other) is not science.  This looks more like a study of how 'scientists' let the views of their peers influence their work. 

I judge economists by how well they can explain the past and present, not by how well they foresee the future, which none can do reliably or accurately. 

"... only two (of 48) see growth falling below 2%."

Not mentioned, but how many of these 48 economists predicted a contraction greater than 2% for last winter?  None, I'm sure.
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Crafty_Dog
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« Reply #925 on: September 14, 2014, 12:01:20 AM »

Retail Sales Increased 0.6% in August To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 9/12/2014

Retail sales increased 0.6% in August, matching consensus expectations, but were up 1.0% including revisions to prior months. Sales are up 5.0% versus a year ago.
Sales excluding autos increased 0.3% in August, matching consensus expectations, but were up 0.6% including revisions to prior months. These sales are up 4.1% in the past year.

The increase in sales in August was led by autos and building materials. The weakest category was gas.
Sales excluding autos, building materials, and gas were up 0.4% in August. If unchanged in September, these sales will be up at a 4.7% annual rate in Q3 versus the Q2 average.

Implications: A very solid report out of the retail sector today. Retail sales rose 0.6% in August, increasing for the seventh consecutive month, and rising by the most in four months. Sales continue to grow at a healthy clip from a year ago, up 5%. Moreover, the “mix” of retail sales was even better news than the headline, as gas station sales dropped 0.8% due to lower gas prices. Gas prices are also down 0.8% from a year ago. The widespread use of fracking and horizontal drilling is making this possible, which means consumers can take the money they save on filling their tanks and spend it on other things. “Core” sales, which exclude autos, building materials and gas, increased 0.4% in August and 0.8% including upward revisions to June and July. “Core” sales have now been positive in eleven of the last twelve months. These sales are a key input into GDP calculations and, if unchanged in September, the sales will grow 4.7% at an annual rate in Q3 versus Q2. Once we include other spending (on services and durables), our expectation is that “real” (inflation-adjusted) consumer spending, goods and services combined, will grow at a 2% annual rate in Q3. We expect consumer spending to accelerate in the year ahead, as lower unemployment means an acceleration in income gains at the same time that consumer debt service is hovering near multiple-decade lows. In other news this morning, no consistent sign yet of inflation in trade prices. Import prices fell 0.9% in August, although they declined only 0.1% excluding oil. Export prices slipped 0.5% in August and declined 0.3% excluding agriculture. In the past year, import prices are down 0.4% while export prices are up 0.4%. In other recent news, new claims for unemployment insurance increased 11,000 last week to 315,000. Continuing claims rose 9,000 to 2.50 million. These figures are consistent with our early forecast that payrolls are growing roughly 200,000 in September.
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