Friday, April 30, 2010

Chicago Purchasing Managers Index Report

Released on 4/30/2010 9:45:00 AM For Apr, 2010

Prior Consensus Consensus Range Actual
Business Barometer Index - Level 58.8  60.0  57.0  to 61.5  63.8 
Business is accelerating sharply in the Chicago area, indicated by local purchasers whose composite index rose 5 points to 63.8 in April. Any reading over 50 indicates month-to-month growth and the higher the reading over 50 the faster the growth. Strength is centered where it's centered best, in new orders which rose more than 3 points to a very strong 65.2. Production follows new orders and is already very strong at 63.1 for a more than 2-1/2 point gain.

Increased production means increased demand for workers with employment arguably the best news of this report. Employment jumped more than 4 points to 57.2 indicating that Chicago businesses are hiring. A build in backlogs, up more than 7 points to 61.4, is a central factor behind the need for labor and this reading points to further hiring ahead.

BEA News: GDP, 1st Qtr 2010 (advance)

The U.S. Bureau of Economic Analysis (BEA) has issued the following news release today:
Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 3.2 percent in the first quarter of 2010, (that is, from the fourth quarter to the first quarter), according to the "advance" estimate released by the Bureau of Economic Analysis.  
The full text of the release on BEA's Web site can be found at

U.S. Bureau of Economic Analysis · 1441 L Street NW · Washington DC 20230 · 202-606-9900

Thursday, April 29, 2010

Thinking About PIIGS

The debt crisis unfolding in Greece, and another probably coming up in Portugal and maybe even Spain, is interesting for me. It is an opportunity to deepen my understanding of what it means to be involved in a debt default which could be our experience someday in the United States. I have read the size of these economies, as a percent of the European Union (EU) GDP, is reported to be about 2% for Greece, Portugal is less at 1.5% and Spain is a meaningful 9%. So why all the fuss and worry over the two small economies?

Monday, April 26, 2010

Market Data: Week Ending April 23,2010

Market Index 2009 Close 4/23   Close Week Change YTD Change
Dow Industrials Avg 10428.05 11,204.28 1.68% 7.44%
S&P 500 1115.1 1,217.28 2.11% 8.39%
Fed Funds Rate 0.25% 0.25% 0% 0%
10 yr T-bond Yld 3.85% 3.81% 0.05% -0.04%
5 yr T-note Yld
2.59% 0.12%
5 yr infl adj Note
0.29% 0.07%
Implied 5 yr Inflation %
2.30% 0.05%
2 yr T-note Yld 1.14% 1.07% 0.12% -0.07%
2-10 Yr Slope 2.70% 2.74% -0.12% 0.04%
90 day T-bill Yld
0.15% 0.00%
Gold ($/oz) $1,096.95 $1,153.70 1.46% 5.17%
WTI Oil ($/brl) $79.36 $85.21 0.40% 7.37%

Credit Spread 2009 Close 4/23   Close Week Change YTD Change 
Inv Grade Credit Idx
4.85% 0.05%
Low Grade Credit Idx
8.25% -0.02%
Markit CDX Inv Grd Idx
89 8.54%
Markit CDX Mid Grd Idx
137 4.58%

Wednesday, April 21, 2010

Do You Own Gold - A Follow Up

A couple of months ago, I spent some time reviewing the prospectus for the iShares Gold Bullion Trust. This is an exchange traded fund (ETF) with the ticker symbol GLD. In my interest of owning exposure to gold and owning it to protect myself from the possibility of a currency problem, GLD was convenient. Then came the popularity of GLD and some other ETF's, followed soon after by various writer's claiming expertise, who were sounding alarms about an environment where misrepresentations or fraud could exist. I could not prove or disprove these claims but I felt I could review the prospectus in the light of these claims and come to a conclusion, will I stay or will I go. Am I a trader or an investor?

Tuesday, April 20, 2010

One Eye on China: Fighting Inflation Using the Yuan or Interest Rates?

Some members of the US Congress are publicly creating pressure on the government in China to allow their currency, the Renminbi or yuan, to float. The belief is that it would naturally rise in exchange for the US dollar in particular, making goods and services in China more expensive. The benefit to the US is that a more expensive yuan would increase the incentive for US companies to move production facilities from China to the US. (Of course, they may just move to another favorable currency economy but that will be after the elections. Right now the expedient political move is to pressure China.) In his article, Get the Yuan Right, Prove Pundits Wrong, Andy Xie describes his beliefs about the cause and effect issues surrounding the internal difficulties facing the government of China, price inflation and the mother of all housing bubbles, making their decision for what to do with the pressure from D.C. very difficult.

Andy Xie makes the following observations, "By all measures (stock value to GDP ratios, inventory value to GDP ratios, new property sales to GDP ratios, price to income ratios, rental yields, and vacancy rates) China's property market is one of the biggest bubbles ever. It's probably much bigger than the U.S. property bubble relative to GDP. 

Monday, April 19, 2010

Weekly Market Data, Week Ending April 16, 2010

Market Index 2009 Close 4/16   Close Week Change YTD Change
Dow Industrials Avg 10428.05 11,018.66 0.19% 5.66%
S&P 500 1115.1 1,192.13 -0.19% 6.46%
Fed Funds Rate 0.25% 0.25% 0% 0%
10 yr T-bond Yld 3.85% 3.76% -0.12% -0.09%
5 yr T-note Yld
2.47% -0.15%
5 yr infl adj Note
0.22% -0.13%
Implied 5 yr Inflation %
2.25% -0.02%
2 yr T-note Yld 1.14% 0.95% -0.11% -0.19%
2-10 Yr Slope 2.70% 2.81% 0.11% 0.11%
90 day T-bill Yld
0.15% 0.00%
Gold ($/oz) $1,096.95 $1,136.90 -2.20% 3.64%
WTI Oil ($/brl) $79.36 $83.24 -1.92% 4.89%

Credit Spread 2009 Close 4/9    Close Week Change YTD Change 
Inv Grade Credit Idx
4.80% -0.13%
Low Grade Credit Idx
8.27% -0.21%
Markit CDX Inv Grd Idx
82 -5.75%
Markit CDX Mid Grd Idx
131 -4.38%

Friday, April 16, 2010

Mutual Fund Flows for March

Flows into long-term funds rose to $64 billion in March, as a result of an uptick in flows into both stock and bond programs. Bond funds ($40 billion) again drew a majority of the long-term fund flows, as overall still cautious investors sought alternatives to money market funds and deposit accounts in a near-zero cash-yield environment. US equity funds (+5.31%) outperformed international equity funds (+1.99%) over the first quarter helped by a strengthening US dollar, and saw a slight improvement in flows in March, to $12 billion; investor demand for global diversification however persisted, as international equity funds drew an equivalent amount over the month, bringing their total net intake in the first quarter to nearly $30 billion.

Wednesday, April 14, 2010

One Eye on the Fed: March CPI Index

The following release from Bloomberg, updates the condition of inflation in the US economy, using data collected and massaged by the Fed and its cohorts. It's the official public information and is useful because most people will use this data to base decisions around, right or wrong. In addition, I am adding in a few charts from the Federal Reserve displaying inflation in different contexts.

Fed inflation hawks got no help this morning as consumer price inflation was essentially nonexistent for March. Overall CPI inflation for March nudged up to 0.1 percent from no change the prior month. The March rise matched the consensus forecast for a 0.1 percent increase. Core CPI inflation, however, eased to no change from up 0.1 percent in March and coming in just under expectations for a 0.1 percent gain. At the headline level, food prices rose moderately while energy costs were flat. The core was held down in part by declines in apparel and recreation and flat housing costs.

Tuesday, April 13, 2010

Congressional Oversight Panel Report on Commercial R.E.

Elizabeth Warren is Chair of the Congressional Oversight Panel, also a law professor at Harvard, and IMHO is also a very pragmatic messenger. Here is her report for the Panel, recorded in February, describing their forecast of commercial real estate problems and the expected impact on the 2,988 community banks that finance commercial mortgages.

Monday, April 12, 2010

Weekly Market Data, Week Ending 4/9/2010

Market Index 2009 Close 4/9 Close Week Change YTD Change
Dow Industrials Avg 10428.05 10,997.35 0.64% 5.46%
S&P 500 1115.1 1,194.37 1.38% 6.64%
Fed Funds Rate 0.25% 0.25% 0% 0%
10 yr T-Note Yld 3.85% 3.88% -0.06% 0.03%
5 yr T-note Yld
2.62% -0.05%
5 yr infl adj Note
0.35% -0.09%
Implied 5 yr Inflation %
2.27% 0.04%
2 yr T-note Yld 1.14% 1.06% 0.00% -0.08%
2-10 Yr Slope 2.70% 2.82% 0.01% 0.12%
90 day T-bill Yld
0.15% -0.01%
Gold ($/oz) $1,096.95 $1,161.90 3.02% 5.92%
WTI Oil ($/brl) $79.36 $84.92 0.06% 7.01%

Credit Spread 2009 Close 4/9 Close Week Change YTD Change 
Inv Grade Credit Idx
4.93% 0.05%
Low Grade Credit Idx
8.48% 0.04%
Markit CDX Inv Grd Idx
87 1.16%
Markit CDX Mid Grd Idx
137 -4.20%

Saturday, April 10, 2010

S&P 500 Price to Earnings (P/E) and Earnings per Share (EPS) Data

This post is part of the foundation for the future being assembled here. It shows, in one simple to read location, the official S&P 500 P/E and EPS ratio's for their popular equity market index. Here is a link to an interesting description of the S&P 500 ratio's from two fund managers who wrote the piece for Barron's titled "What's the Real P/E Ratio?". In that article the author's make the observation that "There are two main earnings numbers that Wall Street uses when discussing valuations -- "reported earnings" or "operating earnings." Typically, the bulls use "operating earnings," and the bears use "reported earnings" because operating earnings are higher and reported earnings are lower." Please don't believe it is that simple. Read their article and then you will be able to understand the differences found between the two styles in 2008, seen below. Another brief description of some terms used can be found in the previous post titled S&P 500 Price/Earning Ratios. Below the break readers will see estimated earnings per share data followed by the actual P/E and EPS ratio's for the past ten years.




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Wednesday, April 7, 2010

10 Yr US Treasury is in Demand

Here is the detail from the Treasury, including some explanation of terms, following today's ten year note auction. Also, this information is found on Bloomberg today following the auction:

Buyers have returned in force to Treasury coupon auctions. The April 10-year note auction, a reopening of the February 3.625 percent coupon, posted a bid-to-cover ratio of 3.72 for the highest ratio in the last nine years of data.

The $21 billion auction stopped out at 3.900 percent, 3-1/2 basis points below the 1:00 bid. Retail demand was very strong with direct and indirect bidders taking down 59 percent of the auction vs. an average of 51 percent.

The chart below shows that the Total Amount for 2009 is identical to the amount of the auction in January 2010. The amount with the annual reports is the average for monthly auctions in the year. The monthly reports are showing the monthly auction amounts.


Monday, April 5, 2010

S&P 500 Price/Earnings Ratio

The information about the S&P 500 price to earnings ratio below is from a short article by Carl Swenlin. His article has another chart that shows the current S&P value compared with hypothetical values based on the reported trailing earnings and multiples in the undervalued, fair value and overvalued ranges.  This restores my confidence in my process. I have been unable to replicate the claims by some who insist that the S&P is trading at a P/E in the upper atmosphere, like 80-120 times trailing, not to be confused with average earnings per share as shown below. This just had to be saved for my future reference. Thanks Carl.


Saturday, April 3, 2010

Weekly Market Data, Week Ending 4/2/2010

Here is a quick data review of the holiday shortened week ending on April 2, 2010, Good Friday.

Market Index 2009 Close 4/2 Close Week Change YTD Change
Dow Industrials Avg 10428.05 10927.07 0.71% 4.79%
S&P 500 1115.1 1178.1 0.99% 5.35%
Fed Funds Rate 0.25% 0.25% 0% 0%
10 yr T-bond Yld 3.85% 3.94% 0.08% 0.09%
5 yr T-note Yld
2.67% 0.08%
5 yr infl adj Note
0.44% 0.01%
Implied 5 yr Inflation %
2.23% 0.07%
2 yr T-note Yld 1.14% 1.06% 0.00% -0.08%
2-10 Yr Slope 2.70% 2.81% 0.00% 0.11%
90 day T-bill Yld
0.16% 0.00%
Gold ($/oz) $1,096.95 $1,126.80
Oil ($/brl) $79.36 $84.87

Credit Spread 2009 Close 4/2 Close Week Change YTD Change 
Inv Grade Credit Idx

Low Grade Credit Idx

Markit CDX Inv Grd Idx
86 pts

Markit CDX Low Grd Idx
143 pts

Friday, April 2, 2010

One Eye on China: Are the Wheels Wobbling?

Here is a CNBC video clip showing Jing Ulrich talking about business conditions in China. Her perspective is one of promoting China's investment opportunities to foreign investors for Morgan Stanley. Never-the-less, she provides some interesting observations. For example, she talks about the tier one cities like Shanghai and Beijing compared with the tier two, three and four cities that would all be names I have not heard of. These cities will need development that represent needs of the population and potential asset growth in the China economic story. She points to the coming expansion of a high speed rail system as an integral piece of the rapidly developing emerging economy, creating employment now and part of the transportation infrastructure for further growth in the future.

Thursday, April 1, 2010

Bill Gross on Escape From a Debt Crisis

It has not been easy to find a candid observation of the condition of many economies around the world, and the debt problems that are now strangling us, that has any glimmer of optimism. But optimism is beginning to shine through the rare crack in a pragmatist's armor. Here is a link to Bill Gross' recent Outlook where he writes on the possibility of Keynesian policy successfully replacing the loss of widely available private sector credit. IMHO, Bill Gross can be the essential pragmatist. There is a risk he may also feel the need to be political or simply self serving, so I take his words with a little caution.