From Mish: Catch a Wave
We are currently in Wave 4 Up of the Elliot waves. And Bear Market Rallies often end on good news (ex: Obama legislation passing the stimulus package)
Saturday, December 20, 2008
Readings for the Day
From Mish: California Implodes in Multiple Ways
From Mish: Catch a Wave
We are currently in Wave 4 Up of the Elliot waves. And Bear Market Rallies often end on good news (ex: Obama legislation passing the stimulus package)
From Mish: Catch a Wave
We are currently in Wave 4 Up of the Elliot waves. And Bear Market Rallies often end on good news (ex: Obama legislation passing the stimulus package)
Friday, December 19, 2008
Readings for the Day
From Calculated Risk: T2 Partners: "Why there is more pain to come" explains why housing crisis is not over because subprime mortgage is only a small portion of the MBS. As we all know, Alt-A mortgages is the next to blow up.
From Calculated Risk: Crude Oil Below $33 a Barrel: Crude oil dropped below $33 a barrel in New York as rising stockpiles at Cushing, Oklahoma, leave little room to store supplies for delivery next year. The more-active February contract rose 69 cents, or 1.7 percent, to $42.36.
From Calculated Risk: Retail Space to be Vacated and Calculated Risk: CRE Owner "Walking Away": These are why commercial real estate is going to continue performing weak in next year.
From DataQuick: California November 2008 Home Sales: An estimated 32,163 new and resale houses and condos were sold statewide last month. That was down 24.0 percent from 42,293 in October and up 25.7 percent from 25,578 for November last year.
From Calculated Risk: Crude Oil Below $33 a Barrel: Crude oil dropped below $33 a barrel in New York as rising stockpiles at Cushing, Oklahoma, leave little room to store supplies for delivery next year. The more-active February contract rose 69 cents, or 1.7 percent, to $42.36.From Calculated Risk: Retail Space to be Vacated and Calculated Risk: CRE Owner "Walking Away": These are why commercial real estate is going to continue performing weak in next year.
From DataQuick: California November 2008 Home Sales: An estimated 32,163 new and resale houses and condos were sold statewide last month. That was down 24.0 percent from 42,293 in October and up 25.7 percent from 25,578 for November last year.
The median price paid for a home last month was $258,000, down 7.2 percent from $278,000 for the month before, and down 37.7 percent from $414,000 for November a year ago.
Mortgage Equity Extraction Strongly Negative
From Calculated Risk: Q3 2008: Mortgage Equity Extraction Strongly Negative
For Q3 2008, Net Equity Extraction as minus $64.1 billion, or negative 2.4% of Disposable Personal Income (DPI). This graph shows the net equity extraction, or mortgage equity withdrawal (MEW):
The second graph shows "active MEW". This is defined as "Gross cash out" plus the change in the balance of "Home equity loans".
This suggests that the Home ATM is closed, and MEW is no longer supporting consumption.
For Q3 2008, Net Equity Extraction as minus $64.1 billion, or negative 2.4% of Disposable Personal Income (DPI). This graph shows the net equity extraction, or mortgage equity withdrawal (MEW):
The second graph shows "active MEW". This is defined as "Gross cash out" plus the change in the balance of "Home equity loans".
This suggests that the Home ATM is closed, and MEW is no longer supporting consumption.
S&P cuts ratings on 11 US and European Banks
From Yahoo! Finance: S&P cuts ratings on 11 US and European banks
Credit ratings agency Standard & Poor's said Friday it slashed the ratings on 11 U.S. and European banks by either one or two notches, while cutting the outlook on a 12th bank after revising its view on the troubled sector.
S&P cut ratings on Bank of America, Barclays Bank, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase Bank, Morgan Stanley, Royal Bank of Scotland, UBS and Wells Fargo Bank.HSBC Bank's outlook was revised to negative, though its rating remained unchanged.
Credit ratings agency Standard & Poor's said Friday it slashed the ratings on 11 U.S. and European banks by either one or two notches, while cutting the outlook on a 12th bank after revising its view on the troubled sector.
S&P cut ratings on Bank of America, Barclays Bank, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase Bank, Morgan Stanley, Royal Bank of Scotland, UBS and Wells Fargo Bank.HSBC Bank's outlook was revised to negative, though its rating remained unchanged.
All 12 banks still carry investment-grade ratings. The banks' ratings range between "A" and "AA+."
Banks are facing increasing industry risk amid the deepening economic slowdown, and that is likely to affect their future performance, S&P said. In revising its ratings, S&P increased the sensitivity of reliance on short-term wholesale funding into banks' ratings analysis. S&P now expects higher levels of stress on the sector during this downturn than in past slowdowns.
Auto Makers receive Bail Out - more than $17 Billion
From Market Watch: Auto Makers to get more than $17 Billion in Loans
The White House announced plans Friday to extend $13.4 billion in loans to troubled Detroit auto makers, with another $4 billion likely available in February, citing the need to avoid "disorderly liquidation" during an already troubled economic period.
The deal could help General Motors Corp. and closely held Chrysler LLC avoid bankruptcy. The administration said the funds are contingent on the companies showing they're financially viable and competitive by the end of March -- otherwise they must pay back the loans in full.
The loans will be allocated from the $350 billion Troubled Assets Relief Program being managed by the U.S. Treasury Department, subject to approval of bank capital applications.
The White House announced plans Friday to extend $13.4 billion in loans to troubled Detroit auto makers, with another $4 billion likely available in February, citing the need to avoid "disorderly liquidation" during an already troubled economic period.
The deal could help General Motors Corp. and closely held Chrysler LLC avoid bankruptcy. The administration said the funds are contingent on the companies showing they're financially viable and competitive by the end of March -- otherwise they must pay back the loans in full.
The loans will be allocated from the $350 billion Troubled Assets Relief Program being managed by the U.S. Treasury Department, subject to approval of bank capital applications.
Thursday, December 18, 2008
GE News Drives Market Down in last hour
From Yahoo! Finance: S&P says chance GE could lose "AAA" in 2 years:
Standard & Poor's on Thursday changed its outlook on General Electric Corp and its finance arm to negative because of concerns about funding at its capital unit, and said there is at least a one-in-three chance it will cut GE's credit rating from the top "AAA" in the next two years.
"In addition, fundamentals-based earnings and cash flow could decline sufficiently during the next two years to warrant a downgrade," the rating agency said. "We will continue to monitor GECC's success in executing on its funding and liquidity plans in light of capital market turmoil."
Hedge Funds closing is a major reason for the big sell off we have seen in September, October and November. According to Yahoo! Finance: Hedge Funds Close at Record Rate:
The number of hedge funds liquidated in the third quarter rose to 344, which is more than three times the 105 liquidations in the third quarter of 2007. It's also 77 more than the previous record of 267 liquidations in the fourth quarter of 2006.
-- Prices are right at the top of a downward sloping channel
-- Prices have been increasing since the end of November
-- The 10 day SMA is rising, it has crossed the 20 day SMA and it is about to cross over the 50 day SMA
-- Prices are above the 10, 20 and 50 day SMA
-- The 20 day SMA is now increasing
Bottom line: the markets are lining up for a rally.
From U.S.Treasury - Daily Treasury Yield Curve
Standard & Poor's on Thursday changed its outlook on General Electric Corp and its finance arm to negative because of concerns about funding at its capital unit, and said there is at least a one-in-three chance it will cut GE's credit rating from the top "AAA" in the next two years.
"In addition, fundamentals-based earnings and cash flow could decline sufficiently during the next two years to warrant a downgrade," the rating agency said. "We will continue to monitor GECC's success in executing on its funding and liquidity plans in light of capital market turmoil."
Hedge Funds closing is a major reason for the big sell off we have seen in September, October and November. According to Yahoo! Finance: Hedge Funds Close at Record Rate:
The number of hedge funds liquidated in the third quarter rose to 344, which is more than three times the 105 liquidations in the third quarter of 2007. It's also 77 more than the previous record of 267 liquidations in the fourth quarter of 2006.
The data also showed that 693 hedge funds were closed in the first nine months of the year versus 409 in the same period last year. That's an increase of 70% and represents nearly 7% of all hedge funds, according to HFR.
Indeed, in the third quarter, the number of hedge funds closing shop exceeded the number of funds launched for the first time since HFR started tracking this data in 1996.
At this rate, hedge fund liquidations are on track to reach 920 for the full year, the report said. That would outpace the 563 liquidations last year, and could top the previous record of 848 in 2005.
From Bonddad: Today's Market
-- Prices are right at the top of a downward sloping channel-- Prices have been increasing since the end of November
-- The 10 day SMA is rising, it has crossed the 20 day SMA and it is about to cross over the 50 day SMA
-- Prices are above the 10, 20 and 50 day SMA
-- The 20 day SMA is now increasing
Bottom line: the markets are lining up for a rally.
From U.S.Treasury - Daily Treasury Yield Curve
Commercial Real Estate
From Calculated Risk: S&P Negative Outlook on CMBS
"Now that the U.S. is officially in a recession, and since commercial real estate performance typically tends to lag U.S. economic developments, we're expecting property values to continue to drop and loans with marginal cash flow to default with increasing frequency," said credit analyst James Manzi. "We believe that borrowers with negative equity have little incentive to come 'out of pocket' to bring their payments current," he said.
Evidence of this malaise appears to be mounting: The delinquency rate has been increasing significantly, and Standard & Poor's internal reporting measures show an acceleration in the volume of troubled loans, especially large loans. "Any current change in property prices is hard to measure accurately because of the marked reduction in transaction volume during 2008, but estimates we've seen indicate a decline of roughly 10%-15% from the peaks of early 2007. And the gap between offered prices and asking prices, in our view, signals that valuations must decline further to restart any meaningful trading activity," said credit analyst Barbara Duka.
Unlike with residential real estate, commercial owners are much more willing to "walk away" from their properties. As we've discussed before, many commercial properties were purchased with interest reserves - and those reserves are currently covering the negative cash flow. When the interest reserves run out, the owners will probably default.
So Long SRS, there is no specific reason for commercial real estate to recover in a couple of weeks. It is $300 just a few weeks ago, and now it is record low. See the charts below:
"Now that the U.S. is officially in a recession, and since commercial real estate performance typically tends to lag U.S. economic developments, we're expecting property values to continue to drop and loans with marginal cash flow to default with increasing frequency," said credit analyst James Manzi. "We believe that borrowers with negative equity have little incentive to come 'out of pocket' to bring their payments current," he said.
Evidence of this malaise appears to be mounting: The delinquency rate has been increasing significantly, and Standard & Poor's internal reporting measures show an acceleration in the volume of troubled loans, especially large loans. "Any current change in property prices is hard to measure accurately because of the marked reduction in transaction volume during 2008, but estimates we've seen indicate a decline of roughly 10%-15% from the peaks of early 2007. And the gap between offered prices and asking prices, in our view, signals that valuations must decline further to restart any meaningful trading activity," said credit analyst Barbara Duka.
Unlike with residential real estate, commercial owners are much more willing to "walk away" from their properties. As we've discussed before, many commercial properties were purchased with interest reserves - and those reserves are currently covering the negative cash flow. When the interest reserves run out, the owners will probably default.
So Long SRS, there is no specific reason for commercial real estate to recover in a couple of weeks. It is $300 just a few weeks ago, and now it is record low. See the charts below:
Crude Oil Tumbles 10% to below $37!
From Market Watch: Oil Futures Tumbled 10% to end below $37 a barrel
Crude tumbled below $37 a barrel Thursday to their lowest level in at least four years, underscoring the market's preoccupation with a sharp slowdown in oil demand. Year to date, oil prices have fallen 59% and are 75% since their record level above $147 a barrel in July.
Crude tumbled below $37 a barrel Thursday to their lowest level in at least four years, underscoring the market's preoccupation with a sharp slowdown in oil demand. Year to date, oil prices have fallen 59% and are 75% since their record level above $147 a barrel in July.
Oil for January delivery fell $3.84, or 9.6%, to end at $36.22 a barrel on the New York Mercantile Exchange. Earlier, the contract hit an intraday low of $35.98 a barrel on Globex. The January contract will expire at the end of trading on Friday. The February crude contract, which showed greater trading volume, fell $2.94 to end at $41.67 a barrel on Nymex.
"Below $38, we don't see anything until the $25 level," said Edward Meir, an analyst at MF Global. OPEC agreed Wednesday to cut 4.2 million barrels a day from its actual September production level of 29.045 million barrels a day.
OPEC can cut supply as much as they want — but as long as demand drops even more sharply, prices are unlikely to rise. And demand for oil has crumbled amid the global economic downturn.
This action might be triggered by Margin Calls, even it is very oversold, but since it breaks the $40 support, there is no support level until $25. How long will oil stay low? Until the economy starts to recover and global demand starts to increase again. Will the dollar movement have anything to do with oil price?
This action might be triggered by Margin Calls, even it is very oversold, but since it breaks the $40 support, there is no support level until $25. How long will oil stay low? Until the economy starts to recover and global demand starts to increase again. Will the dollar movement have anything to do with oil price?
Bay Area Home Prices $350K to 8-Year Low: High in-land foreclosure sales
From DQ News: Bay Area Median Home Price Sinks to 8-Year Low; Sales up over '07 Again
The median price paid for all new and resale houses and condos combined in the nine-county Bay Area fell to $350,000 last month, lowest since Sept. 2000. The prices have been dropped for 12 consecutive months. That was down 6.7% from $375,000 in October and down a record 44.4% from $629,000 in November 2007, and was 47.4% below the peak median of $665,000 reached last year in June, July and August.
The median price paid for all new and resale houses and condos combined in the nine-county Bay Area fell to $350,000 last month, lowest since Sept. 2000. The prices have been dropped for 12 consecutive months. That was down 6.7% from $375,000 in October and down a record 44.4% from $629,000 in November 2007, and was 47.4% below the peak median of $665,000 reached last year in June, July and August.
Last month 47.6% of all homes that resold in the Bay Area had been foreclosed on at some point in the prior 12 months, up from 44.0% in October and 10.1% a year ago.
A total of 5,756 new and resale houses and condos closed escrow in the region last month, the second-lowest for a November since at least 1988. That was down 24.4% from 7,613 sales in October but up 12.3% from 5,127 sales in November 2007.
The Bay Area's more expensive counties - Marin, San Francisco, San Mateo and Santa Clara - saw their share of total Bay Area sales fall again, to 35.0%, compared with an historical average of 43%. Those four counties were also the only in the region to log year-over-year sales declines in November.
Before the credit crunch hit in August 2007, 62% of Bay Area sales were financed with jumbos, then defined as over $417,000. Last month just 23.0% of purchase loans were over $417,000.
The typical monthly mortgage payment that Bay Area buyers committed themselves to paying was $1,625 last month, down from $1,767 the previous month, and down from $2,963 a year ago. They are 51.5% below the current cycle's peak in June 2006.
Manufacture Sector Continues to deteriorate
From Calculated Risk: Philly Fed: Manufacturing Sector condition "continued to deteriorate"
The survey's broadest measure of manufacturing conditions, the diffusion index of current activity, improved from -39.3 in November to -32.9 this month. The index, which fell a dramatic 41 points in October, has remained near its current low reading for the past three months, and expect continued declines over the next six months.
The current employment index fell for the third consecutive month, decreasing four points, to its lowest reading since September 1982.
From Bonddad: Manufacturing tanking hard
This is a significant decline which happened quickly. It indicates the slowdown is extreme, sharp and very sudden.
Mortgage Rates & Weekly Unemployment Claims
From Yahoo! Finance: Mortgage Rates Fall; Unemployment data still weak
Mortgage giant Freddie Mac on Thursday reported that rates had fallen to the lowest level on records dating back to 1971. Average rates on 30-year fixed-rate mortgages dropped to 5.19%, down from the year's previous low of 5.47%, set last week. On Wednesday, some mortgage brokers were quoting mortgage rates of close to 4.5 percent for people with strong credit and hefty down payments. The national average rate on 30-year, fixed mortgages was 5.06 percent on Wednesday, according to financial publisher HSH Associates -- the lowest since the 1960s and down from 5.3 percent Tuesday.
However, the interest rate is still around +7% for jumbo loans. Moreover, low interest rates does not spur new mortgage applications, instead refinance increased dramatically. From the Big Picture: Fed's Rate Moves fail to spur Home buying:
Jobs data from the government, while better than expected, was still sobering. The Labor Department on Thursday said its tally of initial jobless benefit claims fell to a seasonally adjusted 554,000 from an upwardly revised figure of 575,000 the previous week. The new tally was slightly below economists' expectations of 558,000 claims. The 4-week moving average was 543,750, an increase of 2,750 from the previous week's revised average of 541,000.
Mortgage giant Freddie Mac on Thursday reported that rates had fallen to the lowest level on records dating back to 1971. Average rates on 30-year fixed-rate mortgages dropped to 5.19%, down from the year's previous low of 5.47%, set last week. On Wednesday, some mortgage brokers were quoting mortgage rates of close to 4.5 percent for people with strong credit and hefty down payments. The national average rate on 30-year, fixed mortgages was 5.06 percent on Wednesday, according to financial publisher HSH Associates -- the lowest since the 1960s and down from 5.3 percent Tuesday.
However, the interest rate is still around +7% for jumbo loans. Moreover, low interest rates does not spur new mortgage applications, instead refinance increased dramatically. From the Big Picture: Fed's Rate Moves fail to spur Home buying:
Jobs data from the government, while better than expected, was still sobering. The Labor Department on Thursday said its tally of initial jobless benefit claims fell to a seasonally adjusted 554,000 from an upwardly revised figure of 575,000 the previous week. The new tally was slightly below economists' expectations of 558,000 claims. The 4-week moving average was 543,750, an increase of 2,750 from the previous week's revised average of 541,000. Another slight improvement was seen in the number of people who continue to receive jobless benefits, which declined to 4.38 million from 4.43 million the previous week, still remain near the highest level since 1982. Economists expected a slight increase to 4.45 million.
From Calculated Risk: Weekly Unemployment Claims
Leading Indicators Fall in Nov.
From Yahoo! Finance: Leading indicators fall in November
The New York-based Conference Board on Thursday said its index of leading economic indicators fell for the second straight month, dropping 0.4 percent in November. That was slightly better than the 0.5 percent decline economists surveyed.
The index is designed to forecast economic activity in the next three to six months based on 10 economic components, including stock prices, building permits and initial claims for unemployment benefits.
Based on revised numbers, the index has decreased 2.8 percent in the six months through November, the worst drop since 1991, when the economy was in a recession.
Wednesday, December 17, 2008
Year-End Bear Market Rally
From Bonddad: Today's market
We broke the critical technical resistance today, as we ended up higher than 50 DMA the first time since September 3rd, that’s the longest stretch since August 2002. Now both 10 DMA and 20 DMA are edging higher.
Stocks have shown advances since their Nov. 20 low. Trading has been less volatile than it had in the previous three months. In the past 54 trading days, 18 had moves of at least a 5 percent. In the previous 53 years there had been only 17 days with moves greater than 5 percent.
Since Nov. 20, the Dow is up 18.2 percent, the S&P 500 is up 21.4 percent and the Nasdaq is up 20.8 percent.
How high can we go? Santa Rally until Obama takes office in January? Can Obama's $750 billion stimulus plan (in two years) help us out of the recession?
From Afraid to Trade: SP500 Fibonacci Price Clusters and Confluence Chart
According to Yahoo! Finance:
Many of the signs of a bottom have been evident in recent weeks, noting:
1. Cash levels in 401(k) accounts reached an all-time high in October, a sign investor sentiment hit extremely bearish levels, a contrarian indicator.
2. As of November 2008, the 10-year return for the S&P 500 matched its worst performance in history. Because of mean reversion, bad (or, in this case, awful) 10-year returns typically lead to positive 10-year returns going forward.
3. Treasury Yields Falling to zero — and negative for short periods — is a sign of panic among investors who would rather lock in a quantifiable loss vs. risk putting money to work in "riskier" assets.
Is Nov. 20 the bottom? Still I think we are at Eillot Wave 4, a bear market rally right now before it turns down again.
We broke the critical technical resistance today, as we ended up higher than 50 DMA the first time since September 3rd, that’s the longest stretch since August 2002. Now both 10 DMA and 20 DMA are edging higher.Stocks have shown advances since their Nov. 20 low. Trading has been less volatile than it had in the previous three months. In the past 54 trading days, 18 had moves of at least a 5 percent. In the previous 53 years there had been only 17 days with moves greater than 5 percent.
Since Nov. 20, the Dow is up 18.2 percent, the S&P 500 is up 21.4 percent and the Nasdaq is up 20.8 percent.
How high can we go? Santa Rally until Obama takes office in January? Can Obama's $750 billion stimulus plan (in two years) help us out of the recession?
From Afraid to Trade: SP500 Fibonacci Price Clusters and Confluence Chart
According to Yahoo! Finance:
Many of the signs of a bottom have been evident in recent weeks, noting:
1. Cash levels in 401(k) accounts reached an all-time high in October, a sign investor sentiment hit extremely bearish levels, a contrarian indicator.
2. As of November 2008, the 10-year return for the S&P 500 matched its worst performance in history. Because of mean reversion, bad (or, in this case, awful) 10-year returns typically lead to positive 10-year returns going forward.
3. Treasury Yields Falling to zero — and negative for short periods — is a sign of panic among investors who would rather lock in a quantifiable loss vs. risk putting money to work in "riskier" assets.
Is Nov. 20 the bottom? Still I think we are at Eillot Wave 4, a bear market rally right now before it turns down again.
When 0% isn't low enough
From CNBC: When 0% isn't low enough: Should the Obama team embrace inflation?
Dollar sank after FED's announcement. We already have a rate of 0%, what other tools can FED use to play? Printing Money? Are we going to be the next Japan? Can all these measures help deflation? Are we going to inflate our way out of the crisis?
Dollar sank after FED's announcement. We already have a rate of 0%, what other tools can FED use to play? Printing Money? Are we going to be the next Japan? Can all these measures help deflation? Are we going to inflate our way out of the crisis?
With every new economic indicator showing the threat of a deflationary spiral to be increasing, all of this - the existing bailouts, the Fed measures, the fiscal stimulus - may not be enough. Some economists are now advocating the ultimate heresy - that we will have to inflate our way out of this crisis.
One of the few economists of note to advocate this policy out loud is Simon Johnson, who left the chief economist post at the International Monetary Fund earlier this year and is now a professor at MIT's Sloan School of Management. Johnson believes that only a significant nominal inflation - which will mean negative real interest rates - will provide sufficient monetary stimulus to reflate the economy. He is calling for the Fed to permanently expand the monetary base - and to let the world know it is doing so - enough not only to compensate for current deflation, but to generate some real inflation.
"We need to have significant inflation: 2% is not enough to improve solvency significantly, and we may experience 5-10% for a year or two," Johnson and Peter Boone of the London School of Economics wrote in a recent posting on WSJ.com. "Inflation has major drawbacks and creates its own risks, but compared to the alternatives, it would be a relief."
It is, in fact, precisely the policy that Paul Krugman, recipient of this year's Nobel Prize in Economics, urged on Japan in a famous 1998 paper, where he said the central bank must "credibly promise to be irresponsible" in allowing some inflation to occur.
From Mish's Global Economy Analysis:
From Mish's Global Economy Analysis:
Architecture Billings Index hits another All Time Low
From Calculated Risk: Architecture Billings Index Hits Another All Time Low
Business conditions at architecture firms continue to deteriorate, with the Architecture Billings Index (ABI) posting its lowest level since the survey began in 1995 for the second month in a row. As a leading economic indicator of construction activity, the ABI shows an approximate nine to twelve month lag time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the November ABI rating was 34.7, down from the 36.2 mark in October. The inquiries for new projects score was 38.3, also a historic low point.
“With mounting job losses, declines in retail sales, and travel cut-backs the need for new commercial facilities has dropped considerably recently,” said AIA Chief Economist Kermit Baker, PhD, Hon. AIA. “What’s just as troubling is that the institutional sector --schools, hospitals and public buildings -- is also beginning to react to tighter credit conditions and a weakening economy.”
We should expect the first decline in architecture billing to impact non-residential structure investment this quarter (Q4 2008), and a further downturn in non-residential construction activity in mid-2009.
Business conditions at architecture firms continue to deteriorate, with the Architecture Billings Index (ABI) posting its lowest level since the survey began in 1995 for the second month in a row. As a leading economic indicator of construction activity, the ABI shows an approximate nine to twelve month lag time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the November ABI rating was 34.7, down from the 36.2 mark in October. The inquiries for new projects score was 38.3, also a historic low point.
“With mounting job losses, declines in retail sales, and travel cut-backs the need for new commercial facilities has dropped considerably recently,” said AIA Chief Economist Kermit Baker, PhD, Hon. AIA. “What’s just as troubling is that the institutional sector --schools, hospitals and public buildings -- is also beginning to react to tighter credit conditions and a weakening economy.”
We should expect the first decline in architecture billing to impact non-residential structure investment this quarter (Q4 2008), and a further downturn in non-residential construction activity in mid-2009.
Oil Slides 8% to $40 as Size of OPEC Cut Disappoints
From Bloomberg: OPEC Agrees to Cut Output by 4.2 Million Barrels
OPEC agreed to cut oil output by 4.2 million barrels a day from September production levels, Secretary-General said.
The Organization of Petroleum Exporting Countries will cut output from a daily level of 29.045 million barrels three months ago, indicating a new quota target of 24.845 million barrels a day.
From Calculated Risk: OPEC Cuts Output Target, Oil Prices FallCrude-oil futures tumbled 8% Wednesday, paying little heed to a widely expected production cut of 2.2 million barrels in current oil output by the OPEC oil cartel.
Crude for January delivery fell $3.54, or 8%, to end at $40.06 a barrel on the New York Mercantile Exchange.
Tuesday, December 16, 2008
Fed Cut Key Rate to a range from ZERO to 0.25%
From Yahoo! Finance: Fed cuts key interest rate to near zero
The Fed on Tuesday announced that it was reducing its target for the federal funds rate to between zero and 0.25 percent, lowest on record, down from 1 percent, a level that was already the lowest target rate in a half century.
The Fed on Tuesday announced that it was reducing its target for the federal funds rate to between zero and 0.25 percent, lowest on record, down from 1 percent, a level that was already the lowest target rate in a half century.
And the central bank pledged to use "all available tools" to fight the current downturn. It said it was likely that rates would be kept at "exceptionally low levels" for some time to come.
Commercial banks responded immediately to the Fed announcement by cutting their prime lending rate, the benchmark rate for millions of consumer and business loans, by three-fourths of a percentage point to 3.25 percent, pushing it to the lowest point in more than a half century.
Demand for government bonds surged. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.27 percent from 2.53 percent late Monday. The yield on the 30-year fell to 2.78 percent from 2.99 percent late Monday, it's lowest level in the 31 years since regular auctions of the securities started in 1977. Rates for other Treasuries of shorter maturity also fell, with 3-month bills barely holding above zero.
The Fed statement stressed the wide-ranging open market operations it will use to inject money into the economy and drive down interest rates along the entire interest-rate curve, not just at the short end. The Fed will directly buy mortgages to flood that market with much-needed liquidity, and it will buy long-term Treasury bonds to drive down yields.
Some Money Market Funds may see Negative yields!
From Bonddad: FED Reserve Lido
Housing Starts Falls Record in November
From Yahoo! Finance: Housing starts fall more than expected
New home starts fell to a seasonally adjusted annual rate of 625,000 from a downwardly revised level of 771,000 in October, the Commerce Department said Tuesday.
Single-family housing completions in November were at a rate of 760,000; this is 0.9 percent above the October figure of 753,000.
Notice that single-family completions are significantly higher than single-family starts. This is important because residential construction employment tends to follow completions, and completions will probably continue to decline.
That is a drop of 18.9 percent, the steepest since March 1984, the lowest level since 1959. The total is far below the 740,000 pace that Wall Street economists expected.
Applications for building permits, considered a good sign of future activity, fell by 15.6 percent to 616,000, from an upwardly revised figure of 730,000 in October. Economists expected an annual rate of 700,000 permits, according to a survey by Thomson Reuters. Single-family authorizations in November were at a rate of 412,000; this is 12.3 percent below the October figure of 470,000.
The new homes report comes a day after other dour housing news Monday, as the National Association of Home Builders/Wells Fargo housing market index held at a record-low level of nine in December for the second straight month.
Index readings higher than 50 indicate positive sentiment about the market. But the index has drifted below 50 since May 2006 and has been below 20 since April.
Builders began new single-family homes at an annual rate of 441,000 last month, the department said, 16.9 percent below October's figure of 531,000. That is the steepest drop in single-family home starts since January 1991, and lowest level since 1959 (record).
From Calculated Risk: Housing Starts Decline to Record Low
Single-family housing completions in November were at a rate of 760,000; this is 0.9 percent above the October figure of 753,000.
Notice that single-family completions are significantly higher than single-family starts. This is important because residential construction employment tends to follow completions, and completions will probably continue to decline.
CFO Are More Pessmastic for 2009
From Calculated Risk: CFOs: Recessions to last another year
CFOs are as negative as they have been in the history of the Duke Optimisim survey, falling to 71.5%.
CFOs are as negative as they have been in the history of the Duke Optimisim survey, falling to 71.5%.
• A record 81 percent of U.S. CFOs are more pessimistic about the economy this quarter (twice as many as last quarter), and 85 percent of European and Asian CFOs are more pessimistic.
• Nearly 60 percent of CFOs say the U.S. economic recovery will be delayed until the fourth quarter of 2009 or later, while 71 percent of European CFOs expect Europe’s recovery to be delayed until at least the fourth quarter of 2009
• Employment is expected to fall by 5 percent in the U.S. and Europe in 2009, and by 0.5 percent in Asia. Capital spending is expected to fall by about 10 percent in all regions
• Weak consumer demand and financial market woes are major concerns for CFOs around the world. More than 70 percent of U.S. and European firms are concerned about the state of their financial institutions. Among users of financial derivatives, 75 percent are concerned about the risk of default
CFO Optimism Index: Quarterly History
Earnings Update
From Yahoo! Finance: Best Buy 3Q profit sinks, company offers buyouts
Best Buy Co. Inc. offered voluntary severance packages to virtually all its 4,000 corporate employees Tuesday as the nation's largest consumer electronics chain announced its third-quarter profit skidded 77 percent.
The results -- which beat Wall Street's lowered expectations -- came in what the company called the "most challenging consumer environment" in its history, an environment so rough Best Buy hasn't been able to take full advantage of its largest rival's bankruptcy.
Programable chip maker Xilinx Inc. lowered its fiscal third-quarter guidance Tuesday, saying sales in December have been weaker than anticipated.
The company also reaffirmed the first-quarter outlook it gave on Dec. 3, and shares jumped more than 9 percent in after-hours trading.
Best Buy Co. Inc. offered voluntary severance packages to virtually all its 4,000 corporate employees Tuesday as the nation's largest consumer electronics chain announced its third-quarter profit skidded 77 percent.
The results -- which beat Wall Street's lowered expectations -- came in what the company called the "most challenging consumer environment" in its history, an environment so rough Best Buy hasn't been able to take full advantage of its largest rival's bankruptcy.
"We believe that the environment for consumer spending is likely to get worse before it gets better," said Chief Executive Brad Anderson. "In fact, we can foresee a period in which consumers may significantly shift their spending behaviors, which could have a dramatic impact on retailing."
Data released by MasterCard SpendingPulse said total consumer electronic spending declined approximately 25 percent last month. And, as wary shoppers tamped down discretionary spending, retailers boosted discounts to keep merchandise moving, often at the expense of profits.
From Yahoo! Finance: Xilinx cuts fiscal 3Q sales estimateProgramable chip maker Xilinx Inc. lowered its fiscal third-quarter guidance Tuesday, saying sales in December have been weaker than anticipated.
Xilinx said it expects sales to decline between 6 percent and 10 percent from second-quarter levels. The company previously predicted a range between 2 percent growth and a 2 percent decline in sales.
Xilinx reported fiscal second-quarter revenue of $483.5 million, suggesting the company expects revenue of $435.2 million to $454.5 million for the period ending in December, compared with $474.8 million in the same period a year ago. Wall Street analysts surveyed by Thomson Reuters were anticipating revenue of $458.5 million, on average.
From Yahoo! Finance: Adobe 4Q profit grows, revenue essentially flat
The company also reaffirmed the first-quarter outlook it gave on Dec. 3, and shares jumped more than 9 percent in after-hours trading.
Goldman Sachs Posts First Loss Since Going Public
From Yahoo! Finance: Goldman Sachs posts first loss since going public
Goldman Sachs Group Inc. on Tuesday reported its first quarterly loss since it went public in 1999, losing $2.29 billion during its fiscal fourth quarter, but investors seemed unfazed and sent its shares higher.
The Wall Street firm lost $4.97 per share in the quarter ended Nov. 30, compared with earnings of $3.17 billion, or $7.01 per share, last year.
Morningstar Inc. equity analyst Michael Wong said Goldman was able to shrink its total assets by 18 percent to $885 billion during the quarter, and that has helped reduce leverage. Moody's cut Goldman's long-term senior debt rating to "A1" -- still investment-grade -- from "Aa3."
Goldman Sachs Group Inc. on Tuesday reported its first quarterly loss since it went public in 1999, losing $2.29 billion during its fiscal fourth quarter, but investors seemed unfazed and sent its shares higher.
The Wall Street firm lost $4.97 per share in the quarter ended Nov. 30, compared with earnings of $3.17 billion, or $7.01 per share, last year.
Morningstar Inc. equity analyst Michael Wong said Goldman was able to shrink its total assets by 18 percent to $885 billion during the quarter, and that has helped reduce leverage. Moody's cut Goldman's long-term senior debt rating to "A1" -- still investment-grade -- from "Aa3."
General Growth Fall after missed deadline
From Yahoo! Finance: General Growth shares fall after missed deadline
Shares of troubled shopping mall owner General Growth Properties Inc. dropped Tuesday after the company missed a crucial deadline to repay $900 million in debt and saw its debt ratings downgraded further into junk status (from Caa2 to Ca).
Credit rating agency Moody's Investors Service on Monday downgraded the debt ratings for Chicago-based General Growth, which said earlier in the day it is still negotiating for an extension on the maturity date mortgage loans for two Las Vegas malls.
Why SRS dropped 25% today to its 52-week low of $61? Long on SRS.
Consumer Prices Pluged by Record 1.7% in November
From Yahoo! Finance: Consumer prices drop more than expected
Prices fell 1.7 percent, surpassing the previous record decline of 1 percent set in October. It was the largest one-month decline dating to February 1947. Core inflation, excluding food and energy, was flat in November after a 0.1 percent drop in October.
Prices fell 1.7 percent, surpassing the previous record decline of 1 percent set in October. It was the largest one-month decline dating to February 1947. Core inflation, excluding food and energy, was flat in November after a 0.1 percent drop in October.
Falling prices for goods and services might sound like a good thing for consumers, but a continued downward spiral can wreak economic havoc. During deflationary periods, companies earning less react by slowing production and cutting jobs, which causes consumers to scale back spending even more. The pattern is hard to stop because it feeds on itself.
Private economists predicted further price declines in coming months as the deepening recession cuts further into consumer demand, forcing businesses to reduce prices further as they try to spur sales.Energy prices fell by 17 percent in November, nearly double the 8.6 percent decline in October. Both declines represented record drops. Gasoline costs fell by a record 29.5 percent in November, while home heating oil costs were down 14.6 percent and natural gas prices were off 5.2 percent.
Food costs posted a modest 0.2 percent rise in November, the smallest increase in eight months.
The 1.7 percent decline in consumer prices was larger than the 1.2 percent drop that economists had been expecting. It left inflation rising over the past 12 months by 1.1 percent, the smallest 12-month increase since June 2002. Inflation has not risen at a slower pace since a 1 percent rise in the 12 months ending in February 1965.
The Producer Price Index for Finished Goods fell 2.2 percent in November, seasonally adjusted, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. This decline followed decreases of 2.8 percent in October and 0.4 percent in September. At the earlier stages of processing, prices received by manufacturers of intermediate goods dropped 4.3 percent in November after falling 3.9 percent in the prior month, and the crude goods index declined 12.5 percent subsequent to an 18.6-percent decrease in October.
South California Home Sales Up, Prices Down to $285K
From Data Quick News: Southland Home Sales Ease But Still Beat '07; Median Falls Below 300K
Southern California home sales outpaced last year for the fifth consecutive month in November, when 55% of buyers in the resale market chose repossessed homes. The abundance of discounted foreclosures helped push the median sale price down a record 35% from a year ago.
A total of 16,720 new and resale houses and condos closed escrow in the six-county Southland last month. That was down 22.3% from 21,532 in October but up 26.9% from 13,173 in November 2007, compares with annual gains of 64.6% in September and 66.7% in October. Moreover, the 22.3% drop in sales between October and November was a record and compares with an average October-to-November decline of just 7.4% since 1988. Last month's Southland sales were the second-lowest for any November in 16 years.
The median price paid for all homes combined last month was $285,000, down 5% from October and down a record 34.5% from November 2007. Last month's median was the lowest since it was $298,000 in April 2003, which was the last time the median was below $300,000. November's median stood 43.6% below the peak $505,000 median reached in spring and summer of last year.
Foreclosures have accounted for about half of all Southland resales during the past three months. In November, 54.6% of all the homes that resold had been foreclosed on at some point in the prior 12 months. That's up from 50.9% in October and 18.8% a year ago. At the county level, these "foreclosure resales" ranged from 44.1% of November existing home sales in Los Angeles County to 70.4% in Riverside County.
The typical monthly mortgage payment that Southern California buyers committed themselves to paying was $1,323 last month, down from $1,413 the previous month, and down from $2,049 a year ago. Adjusted for inflation, current payments are 37.4 percent below typical payments in the spring of 1989, the peak of the prior real estate cycle. They are 48.7 percent below the current cycle's peak in June 2006.
Monday, December 15, 2008
Industrial Output Fell 0.6% in Nov.
From Yahoo! Finance: Industrial output fell less than expected in Nov.
The Federal Reserve reported Monday that industrial activity dropped by 0.6 percent in November. Economists expected a decline of 0.8 percent.
The Federal Reserve Bank of New York’s general economic index fell to minus 25.8, the lowest level since records began in 2001, from minus 25.4 in November, the bank said today. Readings below zero for the Empire State index signal manufacturing activity is shrinking.
The New York Fed’s measure of new orders rose to minus 20.8 from minus 22.2 the prior month. A gauge of shipments increased to minus 8.8 from minus 13.9.
The report also showed inflation eased. The index of prices paid for raw materials decreased to minus 7.5 from 20.5 and the gauge of prices received dropped to minus 11.7, the lowest since July 2003, from 6. A measure of employment rose to minus 23.4 from minus 28.9, the lowest reading since December 2001.
"Manufacturing production tanked in November and the data were even worse than they look," said Joel Naroff, chief economist at Naroff Economic Advisors. "The only industry that posted a gain was aircraft and that was only because Boeing started back up after the strike."
The 0.6 percent drop in November followed a revised 1.5 percent increase in October. However, that gain occurred after a 4.1 percent plunge in September, which represented the biggest one-month drop since a 5 percent decline in February 1946.
For November, manufacturing output was down 1.4 percent, reflecting a 2.8 percent decline in production at auto plants, the third drop in the past four months. Production fell by a huge 11 percent in August and 3.6 percent in October.
From Mish's: Manufacturing Index Falls to Minus 25.8The Federal Reserve Bank of New York’s general economic index fell to minus 25.8, the lowest level since records began in 2001, from minus 25.4 in November, the bank said today. Readings below zero for the Empire State index signal manufacturing activity is shrinking.
The New York Fed’s measure of new orders rose to minus 20.8 from minus 22.2 the prior month. A gauge of shipments increased to minus 8.8 from minus 13.9.
The report also showed inflation eased. The index of prices paid for raw materials decreased to minus 7.5 from 20.5 and the gauge of prices received dropped to minus 11.7, the lowest since July 2003, from 6. A measure of employment rose to minus 23.4 from minus 28.9, the lowest reading since December 2001.
HomeBuilder Sentiment Index - Record Low
From Yahoo! Finance: Homebuilder sentiment index remains at record low
The National Association of Home Builders/Wells Fargo housing market index held at nine in December for the second month in a row.
The National Association of Home Builders/Wells Fargo housing market index held at nine in December for the second month in a row.
The index has drifted below 50 since May 2006 and has been below 20 since April. The slide in builders' confidence sharpened this fall in the wake of the U.S. financial crisis, slipping three points in October and then five points in November.
Homebuilders have asked Congress to enact a 10 percent tax credit of up to $22,000 for homebuyers that purchase a home over the next year. They also are seeking a temporary interest-rate reduction on 30-year mortgages.
From Calculated Risk: NAHB Index At Record Low
Credit Cards Interest Rate Up
From Yahoo! Finance: Interest rates up for popular credit card types
Monday December 15, 10:37 am ET
The average annual interest rates charged on popular types of credit cards mostly rose last week, according to Bankrate.com.
Monday December 15, 10:37 am ET
For low-interest cards, which have rates below the national average but are often offered only to customers with strong credit histories, the average APR edged up to 11.45 percent, from 11.41 percent the week before.
Cash back cards, which feature cash or other reward incentives and generally require a good-to-excellent credit rating for approval, saw their average APR inched higher, to 13.66 percent, from 13.56 percent last week.
For balance transfer cards, which allow consumers to consolidate outstanding debt from one or more cards and sometimes include a low introductory rate, the average annual percentage rate rose to 13.16 percent, from 13.10 percent the week before.
Overall, the average APR charged for all variable-rate cards tracked by Bankrate was 11.07 percent, down marginally from 11.08 percent the previous week.
Commercial Property Loan Delinquencies Down - Due to Law Changes
From Yahoo! Finance: Fitch: Commercial property loan delinquencies down
Fitch says commercial real estate loan delinquencies fell in Nov., helped by loan extensions NEW YORK (AP) -- Delinquencies on commercial real estate loans fell in November due to lenders allowing more loan extensions than in the previous month, Fitch Ratings said Monday.
The delinquency rate for commercial real estate collateralized debt obligations, or CDOs, fell to 2.8 percent last month from 3.13 percent in October. That marked the first decline since July.
There were 45 new loan extensions in November, up from 35 in October. Fitch expects an average of 40 extensions each month going forward, measuring 3.5 percent of loans in the commercial real estate CDO universe.Fitch rates 35 such CDOs, which represent 1,100 loans and 370 securities and assets with a balance of $23.8 billion.
As the economy deteriorates, Fitch expects delinquencies to rise with the riskiest loans backed by hotel and retail properties. Chicago-based shopping mall owner General Growth Properties Inc. is struggling to stay afloat with its staggering debt load, and is still negotiating for another extension on $900 million worth of mortgage loans for two Las Vegas malls.
From Calculated Risk: Office Landlord Advice: "Go Ugly Early."
From the Business Ledger: Vacancy rates skyrocket in [Chicago] I-55 corridor
[A] slowdown in leasing along with new speculative buildings coming online and new sublease space hitting the market have combined in a “perfect storm” ... Since Jan. 1, the I-55 corridor vacancy rate has risen from 11.66 percent to 18.5 percent at the end of the third quarter.
Earnings, Dividends, and Buybacks
From the Big Picture: Quote of the Day: "Earnings, Dividends & Buybacks"
Floyd Norris mentions a wild data point:
“Over the last four years, since the buyback boom began, from the fourth quarter of 2004 through the third quarter of 2008, companies in the S.&P. 500 showed:
Reported earnings: $2.42 trillion
Stock buybacks: $1.73 trillion
Dividends: $0.91 trillion”
Geez, did these guys really spend every dime they made in profits on stock buybacks and divvies? That doesn’t really leave a lot of money to go back into R&D, new product development, are anything else innovative.
Sunday, December 14, 2008
Readings for the Day
Market Next Week: A Possible Santa Rally?
We clearly break the crazy dive we had experienced in October and November. We have been rallied 17% from November 20th low of S&P=750. We are still heading up and have 50 DMA and 900 as a strong resistance. Now we are higher than the 10 and 20 DMA, while the volume is relatively light. The market has also been taking the bad news a lot more calmer, without a lot of +3% up/down days now. I think now we are at #4 wave of the Elliott Wave.
From CNBC: Week Ahead: Santa's Rally Could be Driven Chevrolet:
Stocks could chug higher if investors are comfortable with the status of the auto industry bail out and the Fed does not makes any surprise moves when it meets early in the week.
Economy Reports:
From CNBC: Week Ahead: Santa's Rally Could be Driven Chevrolet:
Stocks could chug higher if investors are comfortable with the status of the auto industry bail out and the Fed does not makes any surprise moves when it meets early in the week.
The Fed is expected to trim its target Fed funds rate by a half point, trimming it to a half percent, at the end of a two-day meeting Tuesday afternoon. There is a batch of fresh data on production, housing and inflation and fourth quarter earnings from major brokers—Goldman Sachs and Morgan Stanley.
"Economic news was as bad as it gets last week, and the market trades higher. It's not that bad news is good news, it's just that it's not getting the bad reaction it was getting," said Hogan. Hogan said he does not expect the broker earnings to surprise the market in the coming week. Bad news is already priced in to their shares.
Economy Reports:
Monday - FED Meeting starts, Empire State Manufacture Survey, Industrial Production, Housing Market Index
Tuesday - Consumer Price Index, Housing Starts, FOMC Announcement,
Wednesday - OPEC Meeting, Bank Reserve Settlement, EIA Petroleum Status Report
Thursday - Jobless claims, Philadelphia Fed Survey, Leading Indicators
Earnings:
Tuesday - Goldman Sachs earnings, Best buy, Adobe
Wednesday - MS Earnings, Nike
Thursday - Rite Aid, FedEx, Pier One, Oracle, Palm, Research in Motion, 3Com
San Francisco Housing Price is not Immune
From Calculated Risk: San Francisco: House Prices not Immune to Downturn
Marni Leff Kottle write in the San Francisco Chronicle: S.F. feels the pain of real estate meltdown
However prices will fall in San Francisco too, and by close to the same percentage as other areas in real terms, it will just take a little longer. I think those hoping for a price bottom in 2009 (in San Francisco) are way too optimistic.
Marni Leff Kottle write in the San Francisco Chronicle: S.F. feels the pain of real estate meltdown
The downturn that slammed other parts of the Bay Area and the rest of the country didn't really begin inflicting serious pain on San Francisco until the second half of this year, real estate experts said. And while no one expects San Francisco to see the kind of foreclosures and bank sales that have become common in the East Bay, the city's real estate market is clearly suffering.
"San Francisco had managed to fool itself through most of 2008 into thinking that it wasn't going to suffer the same sort of issues that have hurt other places in the state," said Christopher Thornberg, an economist with the consulting firm Beacon Economics. "The last four or five months of the year, San Francisco has seen price declines that have been quite prominent. You can't have prices fall as much as they have across the bay without some impact on San Francisco itself."
OK, the price dynamics in San Francisco will be different than in the East Bay; East Bay prices have fallen faster because of all the foreclosures and distressed sales.However prices will fall in San Francisco too, and by close to the same percentage as other areas in real terms, it will just take a little longer. I think those hoping for a price bottom in 2009 (in San Francisco) are way too optimistic.
Regression to Trend: Bearish or Bullish?
From dshort.com: Regression to Trend: Two views
The peak in 2000 marked an unprecedented 160% overshooting of the trend, which is double the overshoot in 1929. The index has been above the trend for 17 years. We also see that the major troughs saw declines in excess of 50% below the trend. If the S&P 500 were sitting squarely on the regression, it would be hovering around 820. If the index should decline over the next 12 months to a level comparable to previous major bottoms, it would fall to the vicinity of 400-425.
A critical factor for the reliability of a regression analysis of stock prices over many decades is the accuracy of the inflation adjustment. The Bureau of Labor Statistics (BLS) has been actively tracking inflation since 1919 and has estimated inflation rates back to 1913 using data on food prices. In 1982, however, the BLS began incorporating changes to the Consumer Price Index (CPI), which is used to calculate inflation. These changes have resulted in much lower "official" inflation rates than would have been the case if the method of calculation had remained consistent.
The peak in 2000 marked an unprecedented 160% overshooting of the trend, which is double the overshoot in 1929. The index has been above the trend for 17 years. We also see that the major troughs saw declines in excess of 50% below the trend. If the S&P 500 were sitting squarely on the regression, it would be hovering around 820. If the index should decline over the next 12 months to a level comparable to previous major bottoms, it would fall to the vicinity of 400-425.
A critical factor for the reliability of a regression analysis of stock prices over many decades is the accuracy of the inflation adjustment. The Bureau of Labor Statistics (BLS) has been actively tracking inflation since 1919 and has estimated inflation rates back to 1913 using data on food prices. In 1982, however, the BLS began incorporating changes to the Consumer Price Index (CPI), which is used to calculate inflation. These changes have resulted in much lower "official" inflation rates than would have been the case if the method of calculation had remained consistent. This time adjusted for inflation since 1982 using Williams' Shadow Government Statistics. The change is astonishing. The adjustments to post-1982 data alter the slope of the regression that impacts the variance from the trend across the entire time frame, dramatically so in the last two decades. With this adjustment, the S&P 500 has been below trend since 2002. The current bear market has dropped the monthly average index price 50% below the trend, which puts us in the territory of those secular market troughs. In fact, this regression analysis, the closing low on November 20th came within 2% of the monthly average trough following the Crash of 1929.
"My opinion is that the optimum method for calculating consumer prices is somewhere between the revised BLS method and the historic method preserved by Williams. But for a long-term regression analysis, consistency is essential, which makes me think the chart with the John Williams' Shadow Government Statistics gives a better indication of where the market currently resides."
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