The Cracks in the Economy’s Foundation Become Bigger
Last week the Bureau of Economic Analysis has updated its gross output data for US industries until the end of Q4 2015. Unfortunately these data are only available with a considerable lag, but they used to be published only once every few years in the past, so the current situation represents a significant improvement.
Photo credit: bargewanderlust
Big Moves in Markets No-One is Paying Attention to
A lot of attention has been on equities and precious metals in the past week but the biggest movers right now are the softs [e.g. commodities like grains, oils, sugar, etc.).
We actually are in Kansas now, Dorothy!
Photo via agriculture.ks.gov
Dismal Earnings, Extreme Valuations
The current earnings season hasn’t been very good so far. Companies continue to “beat expectations” of course, but this is just a silly game. The stock market’s valuation is already between the highest and third highest in history depending on how it is measured.
Photo credit: Kjetil Ree
Business under Pressure
A recent post by Mish points to the fact that many of the business-related data that have been released in recent months continue to point to growing weakness in many parts of the business sector. We show a few charts illustrating the situation below:
Still Slowing Down
Year-end distortions have begun to slowly come out of the data, and while broad true US money supply growth remains fairly brisk, it has begun to slow again relative to January’s y/y growth rate, to 7.8% from 8.32%.
So far it remains in the sideways channel (indicated by the blue lines below) between approx. 7.4% and 8.6%, in which it has meandered since mid 2013. We believe the next break “below the shelf” is likely to be a significant event.
A Useful Leading Indicator?
We often see charts comparing the S&P 500 to the growth in the Federal Reserve’s balance sheet, or more specifically, to assets held by the Fed. There is undeniably a close correlation between the two, but it has struck us as not very useful as a “timing device”, or an early warning device if you will.
Recently we have come across a video of a presentation by Bob Murphy, in which he uses a slightly different comparison that might prove more useful in this respect. Instead of merely looking at Fed assets, he uses the total monetary base. Here is a chart comparing the monetary base to the S&P 500 Index since 2009:
The monetary base (red line) vs. the S&P 500 (blue line) – as can be seen, sometimes one or the other series leads, but in recent years the monetary base has been a leading indicator. It probably lagged the market in 2010/11 due to the fact that traders at the time bought stocks in anticipation of more monetary pumping – whereas nowadays the market appears to be reacting with a slight lag to changes in base money – click to enlarge.
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