Posts filed under “Cycles”

High Correlation Between Retail Sales and Job Creation

For the past 19 years, the levels of Real Retail and Food Services Sales and Total Nonfarm Payrolls have had a +0.96 correlation, so it’s hardly an overstatement to suggest this morning’s number bears close scrutiny.

NOTE:  Until 2000, RRSFS (NAIC-basis) was RETAIL (SIC-basis) at FRED.  RETAIL has been discontinued.  The two can be spliced with bit of work, but I believe the chart above tells the story adequately enough.

The NFIB Small Business Economic Trends report is out (7:30 AM Eastern), and the headline to the tease — which is sent out in advance — was not good (emphasis mine):

Consumer Spending Remains Weak

For the third consecutive month, NFIB’s Small Business Optimism Index fell. While the drop was slight—.3 points, with the index settling at 90.9 in May—the index makes clear that optimism is moving in the wrong direction: a recession-level reading for an economy fighting its way through a recovery.  A leading cause of the low reading is the stubborn problem of weak consumer spending, which is especially problematic for services, a sector dominated by small businesses.

Category: Consumer Spending, Cycles, Data Analysis, Economy, Employment

Could It Happen Here?

10-year JGB first broke under 3% 16 years ago, on June 23, 1995, according to Japan’s Ministry of Finance.  It first happened here in November 2008, so we’re 2 1/2 years from that event. Below is a chart covering the ensuing period for each subsequent to the first break under 3%.  I’m unclear as to what,…Read More

Category: Credit, Cycles, Investing, Markets

Whither (and Withering) Demand?

I have long wanted to collect my thoughts about some of the issues — masked in part, I believe, by the two bubbles we’ve had in the past 11 years — that are exacerbating our current crisis and will continue to forestall any semblance of a robust recovery.

This issue has been vexing me for a while.  I think the reason is that there are so many disparate yet loosely connected ideas banging around in my mind that it’s been a challenge to figure out where to start and how to tie it all together.  That and the fact that my anger at our collective indifference to these matters is probably clouding my thinking.  So, apologies in advance if this is a bit disjointed.  All this stuff is most definitely interconnected, and I’ve tried to bring it together as coherently as possible without turning it into my master’s thesis.

I’ve written previously (maybe here, for sure elsewhere) that my biggest concerns are always jobs (that we create them) and incomes (that they’re decent and rising), in that order.  We are failing on both fronts, and the asshats in Washington (both sides, to be sure) seem to have decided there are more pressing issues to address and/or that we’ve reached the end of the line and there’s nothing that can be done on either front so we’d just better suck it up and adapt.  Worse, what really worries me is that there are very disturbing long-term trends that no one seems to want to acknowledge, no less try to remedy, that contributed mightily to the crisis we just struggled through — and may well again if corrective measures aren’t taken.

We know from the NFIB that the “Single Largest Problem” facing their membership is Poor Sales.  We know that Poor Sales and the Unemployment Rate are very highly correlated (+0.86), as I demonstrated here in February.  Poor Sales implies a lack of demand (or poor business decision-making, like selling parkas in Hawaii) — not uncertainty about Obamacare, tax rates, or other government rules and regulations (which are, by the way, also potential answers to that same poll question).  Larger corporations have also indicated soft demand for their products.  How to increase demand?  Well, real disposable income could go up, but it isn’t — or Americans could borrow more, which they aren’t.  Let’s have a look under the hood.

Here’s a brief discussion of the disturbing long term trends have only exacerbated our problems and are rarely, if ever, mentioned in my regular econo-surfing.

Income Inequality

Our Gini Coefficient has been rising for decades, indicating growing income inequality.

(Bonus points to the commenter who, without a shred of evidence, attempts to link the current financial crises in Greece, Ireland, and Spain to the fact that their Gini Coefficients have declined over 20 years.)

Our own Census data (chart below for the United States only) would indicate that United States income inequality has increased even more than that measured by OECD (I calculate it at just over a 5% percent gain from mid-’80s to mid-’00s, but in either case the trend is not a good one):

Source:, Income Inequality, Table F-4

There are many footnotes to all the Census data presented in this post; please see them here.

How is it that the Gini Coefficient is increasing?  Here’s a look at exactly how:

The chart immediately above is, by the way, completely consistent with the stock of a company like Tiffany (NYSE:TIF) recently hitting an all time high — as have some other luxury retailers.  You see where I’m going here?  If not, see here or here.  Or here.

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Category: Consumer Spending, Current Affairs, Cycles, Data Analysis, Economy

ADP’s Job Data Reliability? Not Great . . .

> Yesterday’s selloff was triggered in part by a weak ADP report, and fears of a broader economic slowdown. Lets see if we can navigate the crosscurrents here to discern what, if anything, is happening. First off, the economy is slowing. At least, the 2nd derivative rate of growth is throttling back, from over 3%…Read More

Category: Cycles, Economy, Employment

ECRI: Global Slowdown to Hit by Summer


Global Slowdown to Hit by Summer, Even for U.S., Says Achuthan
Stacy Curtin
Yahoo Daily Ticker

Category: Cycles, Economy, Quantitative, Video

Investment Cycle for Equities and Corporate Bonds

David Merkel has a very interesting post up on where about how maximizing enhancing yield on fixed income investments. Within that post is a very interesting discussion on who the equity/credit cycle works: 1. After a washout, valuations are low and momentum is lousy. People/Institutions are scared to death of equities and any instruments with…Read More

Category: Cycles, Fixed Income/Interest Rates, Investing

Best Market Analogy: 1973 or 1907 ?

For most of the selloff and recovery, I have mentioned that my favorite market analogy to our current situation has been 1973-74, which had a 55% collapse and 74% snapback rally. However, as this market has continued to power higher, it has left 1973 behind, and is looking more and more like the Great Panic…Read More

Category: Cycles, Markets, Technical Analysis

Short Memories (Fade the Inflation Hysteria, II)

Flashback to June 2008 (only three short years ago): Headline CPI was running very close to 5.0 percent.  The Fed funds rate was at 2.0 percent.  Brent crude was $132/barrel.  The Fed’s June 2008 minutes mentioned the word “inflation” 110 times (“deflation” and “disinflation” combined:  zero), and also contained this caveat (emphasis mine): With increased…Read More

Category: Contrary Indicators, Cycles, Data Analysis, Economy, Federal Reserve, Inflation

Housing Starts, Composites vs 2007-11 Cycle

Terrific pair of charts from Ron Griess The excesses in the prior cycle (2001-2006) have made the current run utterly abysmal: > Current Cycle versus 1o Prior Cycles Click for larger graphs > Current Cycle versus Composite All charts courtesy of The Chart Store

Category: Cycles, Real Estate

About 8 months ago, I was intrigued by the prospects of 500% market gains being a regular cyclical phenomena.

The first post was titled “Hirsch’s WTF Forecast: Dow 38,820” and filed under the category “Really, really bad calls.” (I’ll mea culpa if we come anywhere near 30,000 by 2025). I thought my old pal Jeff had lost his mind.

But then I spoke with Jeff. He explained his reasoning. He sent me his fathers infamous 1977 500% call. I ended up doing a new post “War & Peace + Inflation + Secular Bull = Dow 38K ?”  The more I looked into it, the more it seemed like an ingenious piece of history repeating.

I became impressed enough the methodology that I agreed to write the forward! I have no idea if we will see Dow 38820 in 2025, but the thesis is both intriguing and  defendable . . .

Some notable reviews follow:

“As someone who views the investment glass half empty, I would normally treat a forecasted price target for the Dow Jones Industrial of 38,820 as hyperbolic and outlandish.  That is, unless the forecaster is Jeff Hirsch!  Jeff is ‘bred in the purple’ and has royalty in his investment blood as his legendary dad, Yale Hirsch, was the dean of all technical analysts (and was the first of his kind to accurately predict the roaring Bull Market of 1974-1990). More importantly, Jeff’s rationale for another super boom is well articulated in his own unique set of facts, figures and dissection of history.  To every serious investor I say, Read Super Boom or Perish!”

-Douglas A. Kass, President, Seabreeze Partners Management Inc.

“Jeff Hirsch delivers a 500% effort in Super Boom. Unless you’re closed minded or comatose there is a lot, lot more here than any investment reader can normally hope for. The visuals and data alone are worth many times the price.”
-Ken Fisher, Founder and CEO, Fisher Investments, Forbes “Portfolio Strategy” Columnist, 5-time New York Times bestselling author

Super Boom reminds the reader of the power of compounding. DJIA 38,820 by 2025 might sound like an outrageous level, but the implied sub-9% compound annual growth rate (following a decade of decline) makes the target appear more attainable. Within these pages, Jeff demonstrates that he has learned a lot from his father and has inherited the reputation as a renowned and respected market historian.”
-Sam Stovall, Chief Investment Strategist, Standard & Poor’s Equity Research

“As a kid I taught Jeff how to catch big rainbow trout in Montana. In Super Boom, he’s returned the favor by showing us how to catch a monster stock market move. A must-read book.”
—Larry Williams, trader

Chapter 5 excerpt after the jump

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Category: Books, Cycles, Technical Analysis