Posts filed under “Cycles”

Consumer Deleveraging Continues

The Fed released its report on consumer credit, and it comes as no surprise that revolving credit eased for the 26th consecutive month as consumers continue to shed credit — either by paying it down or, in some cases, walking away from it.  From a high of $973.6 billion in August 2008, revolving credit has contracted by $173.1 billion to $800.5 billion (a level last seen six years ago, in December 2004).  It is an annualized rate of decline of about 17.75%.  Nonrevolving credit has been flatlining over the same period:

Correction: Thanks to Ron Griess for pointing out some sloppiness in my post:  The 17.75% decline to which I referred is not the annualized rate of decline — it is the peak-to-now overall decline.  The annualized rate of decline, as Ron correctly points out, is -8.64%.  I apologize for the sloppiness.  My mind is apparently already on vacation.  Thanks, Ron.


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

Bump Higher in Job Openings

The Bureau of Labor Statistics just released its most recent Job Openings and Labor Turnover (JOLTS) data, and the number of job openings increased to 3.4 million (from 3.0 million last month; it was a gain of +351k openings, to be precise).  Consequently, the number of unemployed per job opening has declined from 6.25 (Oct. 2009,…Read More

Category: Cycles, Data Analysis, Economy, Employment, Markets

Zulauf: How Cyclicality Drives Investing Decisions

I have been a fan of Felix Zulauf’s approach to investing for many years. The longstanding Barron’s roundtable member is a straight shooter, with a superlative track record. That was why I was thrilled to do an extensive interview with this Summer (Interview, Transcript). Felix is advising on a new fund (Disclosure: We are investors…Read More

Category: Cycles, Markets

The New Economic Cycle

Gordon Long has an interesting graphic on what he describes as the New Economic Cycle. > > Quite fascinating . . . > Source: We’ll Need The Courage Of Our Forefathers The New Economic Cycle Gordon T. Long The Automatic Earth, November 8 2010

Category: Cycles, Economy

Grinding It Out

Invictus here, folks.  (Have I mentioned what a pain in the ass it is to track down references to my work since Morgan Freeman and Matt Damon stole my name?). Now that the NBER has officially dated the end of the recession, it probably makes some sense to start putting comps in terms of “from…Read More

Category: Cycles, Data Analysis, Economy

Monday Morning Grab Bag

Invictus here, folks, with a smattering of items that caught my eye last week.  Food for thought on what will likely be a quiet Columbus Day trading session (famous last words). Revisiting a theme I introduced here in July, I continue to follow the trend of Temporary Services jobs vs. Private Sector jobs less Temps. …Read More

Category: Credit, Cycles, Data Analysis, Economy, Employment

September Trading and Q4

If you closed your eyes in January and opened them today, stocks have barely performed. But the swings have been enormous.

Markets of barely positive on the year, despite all the bad news — Greek scare, Euro crisis, Flash Crash, China slowdown, U.S. double dip, Treasury yields at all time lows, on top of the 2009 run up that left markets overbought.

Despite the ugly U.S. newsflow, US markets have actually been resilient this year. There have been multiple opportunities to rollover, or even crash, and somehow, we have  managed to avoid that fate so far (Cue conspiracy wingnut rant). Perhaps this means equities have more strength than people think.

Let’s have a look at some of the present and historical data.

The first chart shows the swings the market has taken this year: Down 7%, up 14%, -15%, +10%, -6%, +9%. So much for Buy & Hold: This is a nimble trader’s market:


2010 Market Swings

Chart courtesy of Michael A. Gayed, Pension Partners


Next up, let’s look at some history: The Stock Trader’s Almanac shows us what September trading (since 1950) has looked like, along with the subsequent Q4 performance. Yes, its a sweet track record — 1973 and 2007 are the only real nasty marks — but I must remind everyone that correlation does not equal causation. (50 years of data is not sufficient to say this is not a random outcome).

The Alamanc notes:

“In nominal terms, Sept will be the 2nd best on record for the S&P 500, a great run of almost 10%. Let’s look at the gain in another context. As is done with economic data to take out the influence of inflation, a REAL calculation is done to deflate the NOMINAL reading in order to take out the noise of higher prices vs volume. Using the CRB index as a market inflation gauge for Sept, the S&P 500 in REAL terms only rose modestly as the CRB index is up 8.7% month to date. This highlights the allure of inflation and higher asset prices from a policy perspective as it creates an image of prosperity but with a much more unstable underpinning.”

Here is the Alamanac’s table of historical September versus Q4 runs:


S&P Sept Q4
1954 8.3% 11.4%
1998 6.2% 20.9%
1950 5.6% 4.9%
1996 5.4% 7.8%
1997 5.3% 2.4%
1958 4.8% 10.3%
1973 4.0% – 10.0%
1988 4.0% 2.1%
1995 4.0% 5.4%
1968 3.9% 1.2%
2007 3.6% – 3.8%
2009 3.6% 5.5%
1967 3.3% – 0.2%
1970 3.3% 9.4%
1965 3.2% 2.7%
1964 2.9% 0.7%
1980 2.5% 8.2%
2006 2.5% 6.2%
1976 2.3% 2.1%
1955 1.1% 4.1%
1983 1.0% – 0.7%
1992 0.9% 4.3%
2004 0.9% 8.7%
1982 0.8% 16.8%
2005 0.7% 1.6%
1953 0.1% 6.3%


Last, let’s look at a set of economic projections that forecast future economic performance by combining historical patterns with recent data, from Trendlines Research.

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Category: Cycles, Economy, Markets, Technical Analysis

War & Peace + Inflation + Secular Bull = Dow 38K ?

I mentioned this morning that Jeff Hirsch is the anti-Prechter — forecasting a wild $38K Dow in 2025. (Discussed this AM here, with Jeff’s full piece here) Jeff and I are in the same secular bear market camp; However, he argues that the current secular Bear market will end ~18 years after the last secular…Read More

Category: Cycles, Inflation, Investing, Psychology, Technical Analysis, War/Defense

Smackdown: Fisher vs El-Erian

Ken Fisher channels my monkey comments to diss PIMCO’s Mohamed El-Erian and their “New Normal” thesis. I disagree with the New Normal thesis, but for very different reasons than Fisher does. (Note: I am a fan of his book, The Wall Street Waltz). I’ll post more on this later this week, but the shorter version…Read More

Category: Cycles, Investing

Households, Treasuries, Small Biz, Inflation

There was a ton of data released last week, some of which we only get quarterly or annually.  It would be virtually impossible to comment on all the items of interest contained in just three of the more bountiful reports — the Census Bureau’s annual release of Income, Poverty and Health Insurance in the United States, the quarterly Fed Flow of Funds report (one of my favorites, even though the data’s always a bit stale), and the monthly Small Business Economic Trends report from the National Federation of Independent Business.  That said, here are a few items that caught my eye which tend to be overlooked and not reported elsewhere.


Among the things that jumped out at me in last week’s Income, Poverty and Health Insurance in the United States: 2009, which is always a fascinating read, was the virtually stagnant condition of household formation in the United States.  Page 13 of the report shows the number of households in the U.S. in 2008 as 117,181,000. For 2009, Census tells us the number rose to 117,538,000, for a gain of 0.30%, the lowest growth rate on record according to their database (and eclipsing what had been the previous lowest on record — 0.34% — in 2008).

Here’s a graphic (calculated using Table HH-1):



The formation of new households is obviously critical for the growth of the economy for more reasons than I could detail here (think housing, for starters, then move on to durable goods, then perhaps autos).  While one would expect the rate to decline in hard times (job insecurity, wage stagnation), a continuation of this trend will only serve to exacerbate some of the challenges we’re trying to work through.

[ADDING 9/20/2010:  We have heard from Calculated Risk regarding the usability/utility of the chart above and the underlying data from which I derived it (i.e. it tends to be unreliable as a time series).  In fact, CR had a post here just Saturday on this very topic;  readers are encouraged to have a look.  That said, we do clearly agree that “combined data suggest extremely slow growth over the last few years,” and that is my overarching point.]


Turning to Friday’s Fed Flow of Funds report, I noted that Treasury securities on the balance sheet of U.S. households have exploded — by $616 billion from the second quarter of 2009 to the second quarter of 2010.  From $447.448B to 1.063622T:



Now, this is not to say I am in the bond bubble camp, as I am not.  I am merely pointing out that the flight to safety is — and will likely continue to be — in full effect as economic uncertainty prevails and boomers (and retirees) struggle to get what safe income they can.  I would also note that part of this equation probably has to do with the fact that — at ~2.75% on the 10-year — it takes a lot more bonds money to produce the same income than it would at, say, 5% or higher.  None of this is to say that Treasuries represent a significant percent of household assets — they do not.  But the almost vertical rise in dollar terms is noteworthy.

As Americans continue the long, hard slog of balance sheet repair, it is encouraging to see owners’ equity as a percent of real estate on the mend, though there’s a long way to go:




The NFIB put out its Small Business Economic Trends report last week, and although the Optimism Index eked out a modest gain (though still mired in recessionary terrain), much of the commentary was downright depressing:

There is no life in the jobs market.
The environment for capital spending is not good.
The weak economy continued to put downward pressure on prices.
Those looking for loans predominately are looking for cash flow support, not funds to expand or hire (see Small Business Credit in a Recession, 12/09).
Overall, 91 percent of the owners reported all their credit needs met or they did not want to borrow, unchanged from July.

The first two comments are fairly obvious to anyone with a pulse living in the United States.  The third comment — supported by two inflation-related releases last week — argues that a deflationary scenario is not out of the question.  The fourth comment is very troubling, in my opinion.  It is disheartening to see that those businesses seeking credit are doing so to support their cash flow needs.  Over time, without a more sustained recovery, that will not end well.  While it is encouraging to see that 91% of small businesses either do not want to borrow or are having their borrowing needs met, it does call into question the talking point that “banks aren’t lending” or “credit is not available.”  Finally, I would note that Poor Sales continue to be the Number One problem cited by small business — above Taxes, Gov’t Regulation/Red Tape, or any other issue:  “What businesses need are customers, giving them a reason to hire and make capital expenditures and borrow to support those activities.”  So for all the rhetoric about “uncertainty,” the simple fact of the matter is a lack of demand.

AND A WORD ON INFLATION after the jump

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Category: Cycles, Data Analysis, Economy