Financial topics

[Higgenbotham]

Update on leading indicators. This was last covered on July 10. New links are added where needed; otherwise, the old links still contain the updated info.

We had discussed the likelihood of incorrect oil price correlations by the Fed as preliminarily confirmed by the decline in March traffic volume. This has now been confirmed by a stunning decline in April traffic volume.

http://www.fhwa.dot.gov/ohim/tvtw/11aprtvt/11aprtvt.pdf

Traffic volume continues to be weak, though it has not deteriorated significantly since April. This weakness has been confirmed by the 12 month moving average, which is now near the 2009 low and is also near 2004 levels.

http://www.fhwa.dot.gov/ohim/tvtw/11augtvt/11augtvt.pdf

ECRI WLI and Interest Rate Correlations 2007/2011

The ECRI WLI (Weekly Leading Index) is showing some interesting behavior relative to 2007 and the stock market. The data can be found here:

http://www.businesscycle.com/resources

In 2007, the WLI peaked on June 8 at 143.8 and declined for 16 weeks to a short term low of 139.8 on September 28, for a loss of 4 points. The stock market made its final high 13 days later on October 11.

In 2011, the WLI peaked on March 4 at 130.8 and declined for 16 weeks to a short term low of 126.4 on June 24, for a loss of 4.4 points. The stock market made a lower high 13 days later on July 7.

The ECRI WLI has deteriorated significantly since July and now stands near 122.

http://www.businesscycle.com/reports_indexes/allindexes

In 2007, the interest rates on 10 year and 30 year bonds peaked on June 13. The stock market made its final high 120 days later on October 11. In 2011, the interest rates on the 10 year and 30 year bonds peaked on February 9. So far, the stock market has made its high for the year on May 2 and it is well past the comparable 120 day window of the 2007 high.

Interest rates on 10 and 30 year bonds have continued to decline significantly since July.

The semiconductor book to bill ratio is performing better than during the comparable 2007 period alluded to above.

http://www.semi.org/cms/groups/public/d ... 033815.pdf

The semiconductor book to bill has deteriorated significantly over the past 4 months.

http://prod.semi.org/en/sites/semi.org/ ... 033815.pdf

Used vehicle prices remain strong. In 2007, they began to stall out in advance of the downturn. In late 2008, they bottomed before the rest of the economy.

http://www.manheimconsulting.com/Used_V ... Index.html

Used vehicle prices have been falling for 4 months.

Electric power generation remains steady and above March 2010 levels through March 2011.

http://www.eia.gov/cneaf/electricity/epm/epm_sum.html

Flash estimates for April 2011 remain above year ago levels.

http://www.eia.gov/cneaf/electricity/ep ... /flash.pdf

Flash estimates for July 2011 remain above year ago levels.

The employment population ratio has been discussed quite heavily lately as a way of looking past the unemployment statistics to see who really is working in America. What I find most interesting is the fact that it shot up out of all the previous post WWII recessions but is not doing so now.

http://research.stlouisfed.org/fred2/series/EMRATIO

EMRATIO remains essentially unchanged from 4 months ago.

The Restaurant Performance Index just fell below 100. There's a graph at the bottom of the latest release showing this index served as a good indicator when it fell to 99 in November, 2007.

http://www.restaurant.org/pressroom/pre ... e/?ID=2132

http://www.restaurant.org/pressroom/pre ... e/?ID=1539

The latest release shows the Restaurant Performance Index stable at 100.1 for September.

http://www.restaurant.org/pressroom/pre ... e/?ID=2176

[aedens]

http://generationaldynamics.com/forum/v ... 5414#p5414
http://www.isc.hbs.edu/pdf/DPS_Clusters ... -20-10.pdf
http://arxiv.org/PS_cache/arxiv/pdf/110 ... 5728v2.pdf
http://generationaldynamics.com/forum/v ... 210#p10297
From the study:
Here is a bare-bones way to think about this situation: A is the customer, B is the service
provider. B informs A what A should buy from B, and a third entity, C, pays for it from a
common pool of funds. Stated this way, the problem has no known economic solution
because there is no equilibrium. There is no automatic balance between willingness to pay
by the consumer and willingness to accept by the producer that constrains and limits the
choices of each. Functions are mediated as conditions to exist.
Leading Economic Indicators are shifted and so our
pocket "Higg, and Old and the term we acepted, noted was somewhat accurate in nature.
Rough number was ~11% deviation mid quarter in my observation. Time out pockets to sort capital.
From the study:
Shareholders are ranked by network control (according to the threshold model, TM)
This finding is extremely important since there was no prior economic theory or empirical evidence regarding whether
and how top players are connected. Finally, it should be noted that governments and natural persons are only
featured further down in the list.
829 of the type: A > B > C > A
4395 of the type: A > B > C > A
8963 of the type: A > B > C > A
3129 of the type: A > B > C > A

I would posit proper supports are under way. I worked under verticle and now horizontal structures.
It would take much time to cover over three decades of observation in action. The Fed is aware
and it will be sorted. Management Teams are aware IMO and the sun will
come up tommorow. Would you rather support verticle failures or horizontal realities.

[richard5za]

Is the following hysteria, or is it a sign of actual approaching crisis?

Difficult to say, (personal opinion) because one doesn't know who was withdrawing. Its interesting information though, so thank you for this. It needs watching.

[Higgenbotham]

I read a number of market commentators and message boards. Something struck me tonight.

First, nobody is calling for a crash. I can't recall reading the word crash in a few weeks. So I e-mailed the most bearish guy I know and told him that I think the stock market is going to crash this month. He sees it going down, but doesn't see a crash. Good grief, he's been talking about a crash for 2 years.

Second, all of the commentators I read or listen to who are normally bearish or have been bearish lately are now bullish! Every single one of them! It's incredible! The only people I can find who sound bearish are ECRI and John Hussman but their main thrust is that a recession is coming or here.

Third, the news is just crazy! Today I read that Warren Buffett put more money in stocks last quarter than he has in something like 15 years. The thrust of the article is that Buffett "sees something big" because he bought into industrial companies, whereas he normally gravitates to financial and consumer products. Last time Buffett was in the media touting stocks was late July right before the stock market dropped 20% in 2 weeks!

Fourth, the trading boards are equally nuts. The thrust of what I'm reading tonight is that when price is going up you buy, when your indicators indicate a trend you stay long no matter what, and the economy doesn't matter. Can't blame anyone for thinking that, but where were they on October 4? Were they looking for a sharp rally to the mid 1200s? Of course not!

Fifth, I called my brokers in Chicago late this afternoon. They were short term bullish and thinking the S&P would rally to about 1275 tomorrow. Can't blame them for that. One of the brokers gave me the normal chant about a Christmas rally which, according to her, happens every year. I asked her if she had a daily chart from 1973. She said no. I said in 1973 the stock market topped on October 26 and fell 20% into Christmas. LOL.

Bottom line, nobody knows what the stock market will do but after today I want to stay short and go back to ignoring all this. We are down a bit in the after hours. I've never been more bearish and never been more convinced that a stock market crash is immediately in front of us, not weeks or months out. Everything I read today makes it seem more likely. This is not about indicators and Christmas, etc. It's about the fact that the world is collapsing and going into a new Dark Age and nobody wants to admit it.

[aedens]

Risk off since who is next. How many acounts got frozen at MF.
How many got thinking on ECB rate cut since parity seems to be course?

[Tom Acre]

I read a number of market commentators and message boards. Something struck me tonight.

First, nobody is calling for a crash....

Second, all of the commentators ... are now bullish! Every single one of them! It's incredible! ...

Third, the news is just crazy! ...

Fourth, the trading boards are equally nuts. The thrust of what I'm reading tonight is that when price is going up you buy, ...

Bottom line, ... It's about the fact that the world is collapsing and going into a new Dark Age and nobody wants to admit it.

Adding to John's "Kick the Can" axiom, when they start running out of road, they stick their heads in the sand (if their heads not already somewhere else...)

[Higgenbotham]

Adding to John's "Kick the Can" axiom, when they start running out of road, they stick their heads in the sand (if their heads not already somewhere else...)

And perhaps the worse the situation is in reality, the deeper they will divorce themselves from reality.

How many rebounds have we had in the stock market in the face of the problems in Europe and otherwise? I'm counting 3 or 5 depending - April 2010 (followed by the Europe induced mini crash), February 2011 (followed by the Fukushima induced dip), May 2011 (followed by another dip), July 2011(followed by the US downgrade induced mini crash), and now November 2011.

If we look at these triggers, we can see behaviors in common across all the countries affected.

In the 1930s there was one stock market rebound (toward April 1930) before the games were stopped and reality was dealt with. The April 1930 rebound was to somewhere around the equivalent of 1200 on the S&P. If we group the February/May/July 2011 rebounds as one, we now have a situation where the S&P has exceeded 1200 3 times, and dropped well below 1200 the first 2 times it was exceeded. From a GD perspective I find the preceding analysis quite interesting - the fact that we have had 3 "kick the can" rebounds in the stock market after the 2007 high versus 1 "kick the can" rebound after the 1929 high.

PS The 1200 equivalent is calculated by multiplying the 2007 S&P high (1556 is my preferred number) by the ratio of the 1929 Dow high (381) and the 1930 Dow high (294). These numbers may be slightly inaccurate but that's the method.

[aedens]

The point is we mentioned how dangerous it is in this climate. Namely winners and losers chosen. Higgy and myself and a few others I fail to mention also clearly understand the climate. Clearly we must understand the disconnects and to be forthright the FED is finally catching on but the intent we mention is the decimation of working capital enumerated as malinvestment not to mention to service debt which mann has a firm grip on in the forums. I wish to be clear on the threat we face since we focus on earning's based on complicated metric's. I can only interpolate a few to sense net working capital and see who gets red circled along the way by the Political Clubbing Beast. We can linger a few quarters more in my myopic opinion as the process unfolds we watch and thanks to your thought provoking facet's conclude it will be longer than all wish given the trends we see. What I mean is contraction and debt Implosions in true context to regional play foreign and domestic we see here on GD.
Fri Aug 06, 2010 4:45 pm

This leads back to our points about profits. So-called profits that accrue due to predatory methods are only temporary and are not really profits, but overall losses to the system.
Higgenbotham Fri Aug 06, 2010 10:33 am

I remember your 18 month encylical conveyances a few pages back. Coincidences as footprints as we go.

[Higgenbotham]

I remember your 18 month encylical conveyances a few pages back. Coincidences as footprints as we go.

The 14 month polarity inversion of the herd off the flash crash discussed earlier this year is still correlating (now August 27, 2010 low to October 27, 2011 high) and there was not enough short covering fuel into the 18 month cycle inversion to break it. This would tend to indicate a secondary high but it would need to be confirmed by a reversal tomorrow, I believe. This lower high is in my interpretation more bearish than if a low had been put in today. Though the S&P will need to take out 1200 to prove that thesis and if that happens a new fork in the road presents itself.

[aedens]

It will be event driven. The interpetations this time will be self evident and clarified. I feel affairs of citizens issues will ensue.
To many dislocations driven from political instabilities.