Market Index | 2009 Close | 12/24 Close | Week Change | Simple YTD % |
Dow Industrials Avg | 10428.05 | 11,573.50 | 0.71% | 10.98% |
S&P 500 | 1115.1 | 1,256.77 | 1.03% | 11.27% |
Fed Funds Rate | 0.25% | 0.21% | -0.01% | -19.05% |
10 yr T-note Yld | 3.85% | 3.39% | 0.06% | -13.57% |
5 yr T-note Yld | 2.06% | 0.11% | ||
5 yr TIPS - 'Real' Yld | -0.01% | -0.02% | ||
Implied 5 yr Inflation % | 2.07% | 0.13% | ||
2 yr T-note Yld | 1.14% | 0.65% | 0.04% | -0.49% |
2-10 Yr Slope | 2.70% | 2.74% | 0.02% | 0.04% |
90 day T-bill Yld | 0.13% | 0.03% | ||
Gold ($/oz) | $1,096.95 | $1,380.50 | 0.09% | 25.85% |
WTI Oil ($/brl) | $79.36 | $91.51 | 3.97% | 15.31% |
VIX "Worry Index" | 21.68 | 16.47 | 2.23% | -24.03% |
Credit Spreads | 12/24 Close | Week Change | ||
Inv Grade Credit Idx | 4.83% | -0.03% | ||
Low Grade Credit Idx | 8.36% | -0.03% | ||
Markit CDX Inv Grd Idx | 86 | 0.00% | ||
Markit CDX Mid Grd Idx | 132 | -2.22% |
Monday, December 27, 2010
Market Data: Week Ending December 24, 2010
Labels:
Market data
Wednesday, December 22, 2010
Inflation Forecasting
Two economic analysts at the Cleveland Fed published their article earlier this month on the Banks web site. Brent H. Meyer and Mehmet Pasaogullari wrote Simple Ways to Forecast Inflation: What Works Best?. For this article, they investigate a few simple statistical models to forecast Consumer Price
Index (CPI) inflation, along with some even-simpler rules of thumb. They investigate two readily available survey measures of
one-year-ahead inflation expectations, the median expectation from the
University of Michigan’s Survey of Consumers (UM) and the
median expectation for CPI inflation from the Federal Reserve Bank of
Philadelphia’s Survey of Professional Forecasters (SPF).
They conclude that there is no standout method. They were impressed with the ability of 'inflation expectations' to accurately anticipate the correct level of inflation. Specifically, they noticed that measurements of inflation expectation such as the UM survey and the Philly Fed's SPF, mentioned earlier, produced forecasts that were more accurate than most of the statistically based models they investigated.
These measures are intriguing as forecasting tools, as it is highly
plausible that, given wage and price stickiness, individuals embed
expectations of future inflation into their price-setting and
decision-making behavior today. In fact, if you’ve read or listened to a
Federal Reserve official lately, chances are you’ve probably heard
something to the effect of “inflation expectations matter.” Indeed,
central bankers’ sensitivity to inflation expectations seems warranted,
as it is theoretically possible that expectations can be self-fulfilling
prophecies. However, we are mainly interested in the forecasting
properties of these measures here.
They conclude that there is no standout method. They were impressed with the ability of 'inflation expectations' to accurately anticipate the correct level of inflation. Specifically, they noticed that measurements of inflation expectation such as the UM survey and the Philly Fed's SPF, mentioned earlier, produced forecasts that were more accurate than most of the statistically based models they investigated.
Labels:
inflation
Tuesday, December 21, 2010
Please, Just Lie to Me! A Lesson on Financial Cognitive Dissonance
First contributed by: Anonymous, aka: Curious George on 12/1/2009
What is cognitive dissonance?
Anxiety that results from simultaneously holding contradictory or otherwise incompatible attitudes, beliefs, or the like, as when one likes a person but disapproves strongly of one of his or her habits. (Dictionary.com)
It’s not so much the definition of cognitive dissonance but rather how we respond to it that is important. If investment decisions are built on untruths, results will suffer. Every day we are presented with conflicting information and we are conflicted in what to believe. If one wants good investment results then good information really does matter. So, where is the truth?
Social psychologist Leon Festinger says “Dissonance and consonance are relations among cognitions that is, among opinions, beliefs, knowledge of the environment, and knowledge of one's own actions and feelings. Two opinions, or beliefs, or items of knowledge are dissonant with each other if they do not fit together; that is, if they are inconsistent, or if, considering only the particular two items, one does not follow from the other” (Leon Festinger 1956: 25).
His three ways of dealing with cognitive dissonance
1. One may try to change one or more of the beliefs, opinions, or behaviors involved in the dissonance;
What is cognitive dissonance?
Anxiety that results from simultaneously holding contradictory or otherwise incompatible attitudes, beliefs, or the like, as when one likes a person but disapproves strongly of one of his or her habits. (Dictionary.com)
It’s not so much the definition of cognitive dissonance but rather how we respond to it that is important. If investment decisions are built on untruths, results will suffer. Every day we are presented with conflicting information and we are conflicted in what to believe. If one wants good investment results then good information really does matter. So, where is the truth?
Social psychologist Leon Festinger says “Dissonance and consonance are relations among cognitions that is, among opinions, beliefs, knowledge of the environment, and knowledge of one's own actions and feelings. Two opinions, or beliefs, or items of knowledge are dissonant with each other if they do not fit together; that is, if they are inconsistent, or if, considering only the particular two items, one does not follow from the other” (Leon Festinger 1956: 25).
His three ways of dealing with cognitive dissonance
1. One may try to change one or more of the beliefs, opinions, or behaviors involved in the dissonance;
Monday, December 20, 2010
Market Data: Week Ending, December 17, 2010
Market Index | 2009 Close |
12/17 Close |
Week Change | Simple YTD % |
Dow Industrials Avg | 10428.05 | 11,491.90 | 0.72% | 10.20% |
S&P 500 | 1115.1 | 1,243.91 | 0.28% | 10.36% |
Fed Funds Rate | 0.25% | 0.22% | 0.04% | -13.64% |
10 yr T-note Yld | 3.85% | 3.33% | 0.01% | -15.62% |
5 yr T-note Yld | 1.95% | -0.03% | ||
5 yr TIPS - 'Real' Yld | 0.01% | -0.13% | ||
Implied 5 yr Inflation % | 1.94% | 0.10% | ||
2 yr T-note Yld | 1.14% | 0.61% | -0.03% | -0.53% |
2-10 Yr Slope | 2.70% | 2.72% | 0.04% | 0.02% |
90 day T-bill Yld | 0.10% | -0.02% | ||
Gold ($/oz) | $1,096.95 | $1,379.20 | -1.14% | 25.73% |
WTI Oil ($/brl) | $79.36 | $88.02 | 0.26% | 10.91% |
VIX "Worry Index" | 21.68 | 16.11 | -8.52% | -25.69% |
Credit Spreads | 12/17 Close |
Week Change | ||
Inv Grade Credit Idx | 4.86% | 0.06% | ||
Low Grade Credit Idx | 8.39% | 0.08% | ||
Markit CDX Inv Grd Idx | 86 | -2.27% | ||
Markit CDX Mid Grd Idx | 135 | -1.46% |
Labels:
Market data
Thursday, December 16, 2010
November 2010 Consumer Price Index
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.1 percent in November on a
seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months,
the all items index increased 1.1 percent before seasonal adjustment.
The indexes for food, energy, and all items less food and energy all increased slightly in November. The
index for food at home rose in November after being unchanged in October, with the indexes for eggs
and nonalcoholic beverages both rising notably. Although the index for gasoline rose, the index for
household energy declined and the increase in the energy index was the smallest in five months.
The index for all items less food and energy rose in November after being unchanged the previous three
months. Increases in the indexes for shelter and airline fares accounted for most of the rise, while the
indexes for new vehicles, used cars and trucks, and household furnishings and operations all declined.
Over the last 12 months, the index for all items less food and energy has risen 0.8 percent. The energy
index has risen 3.9 percent over that span with the gasoline index up 7.3 percent but the household
energy index down 0.2 percent. The food index has risen 1.5 percent, with the food at home index up 1.7
percent.
Here is a link to the entire release from the BLS.
seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months,
the all items index increased 1.1 percent before seasonal adjustment.
The indexes for food, energy, and all items less food and energy all increased slightly in November. The
index for food at home rose in November after being unchanged in October, with the indexes for eggs
and nonalcoholic beverages both rising notably. Although the index for gasoline rose, the index for
household energy declined and the increase in the energy index was the smallest in five months.
The index for all items less food and energy rose in November after being unchanged the previous three
months. Increases in the indexes for shelter and airline fares accounted for most of the rise, while the
indexes for new vehicles, used cars and trucks, and household furnishings and operations all declined.
Over the last 12 months, the index for all items less food and energy has risen 0.8 percent. The energy
index has risen 3.9 percent over that span with the gasoline index up 7.3 percent but the household
energy index down 0.2 percent. The food index has risen 1.5 percent, with the food at home index up 1.7
percent.
Here is a link to the entire release from the BLS.
Labels:
CPI
Tuesday, December 14, 2010
One Eye on the Fed: QE 2 Affirmed
This from Econoday/Bloomberg today in summary of the FOMC Meeting and their message to the public.
The statement affirms the Committee's commitment to doing everything they can to reflate assets and reduce unemployment levels. Call this what you want, it is still bullish for assets in the short term.
"Basically, the Fed still sees the need to continue with its plans for balance
sheet expansion. In turn, the Fed maintained its position regarding continuing
with $600 billion in QE2.
"To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to continue expanding its holdings of securities as announced in November. The Committee will maintain its existing policy of reinvesting principal payments from its securities holdings. In addition, the Committee intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month."
Kansas City Fed President Thomas Hoenig continued to dissent.
"Mr. Hoenig was concerned that a continued high level of monetary accommodation would increase the risks of future economic and financial imbalances and, over time, would cause an increase in long-term inflation expectations that could destabilize the economy." The vote for the statement was 10 to 1.
The bottom line is that QE2 continues much as expected. This will continue to support economic recovery, eventual lower unemployment, and a more acceptable rate of inflation. On the news, markets were little changed as the statement largely met expectations in terms of rates and commentary."
"To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to continue expanding its holdings of securities as announced in November. The Committee will maintain its existing policy of reinvesting principal payments from its securities holdings. In addition, the Committee intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month."
Kansas City Fed President Thomas Hoenig continued to dissent.
"Mr. Hoenig was concerned that a continued high level of monetary accommodation would increase the risks of future economic and financial imbalances and, over time, would cause an increase in long-term inflation expectations that could destabilize the economy." The vote for the statement was 10 to 1.
The bottom line is that QE2 continues much as expected. This will continue to support economic recovery, eventual lower unemployment, and a more acceptable rate of inflation. On the news, markets were little changed as the statement largely met expectations in terms of rates and commentary."
The statement affirms the Committee's commitment to doing everything they can to reflate assets and reduce unemployment levels. Call this what you want, it is still bullish for assets in the short term.
Monday, December 13, 2010
Market Data: Week Ending December 10, 2010
Market Index | 2009 Close | 12/10 Close | Week Change | Simple YTD % |
Dow Industrials Avg | 10428.05 | 11,410.30 | 0.25% | 9.42% |
S&P 500 | 1115.1 | 1,240.40 | 1.28% | 10.10% |
Fed Funds Rate | 0.25% | 0.18% | -0.02% | -38.89% |
10 yr T-note Yld | 3.85% | 3.32% | 0.31% | -15.96% |
5 yr T-note Yld | 1.98% | 0.37% | ||
5 yr TIPS - 'Real' Yld | 0.14% | 0.29% | ||
Implied 5 yr Inflation % | 1.84% | 0.08% | ||
2 yr T-note Yld | 1.14% | 0.64% | 0.17% | -0.50% |
2-10 Yr Slope | 2.70% | 2.68% | 0.14% | -0.02% |
90 day T-bill Yld | 0.12% | -0.01% | ||
Gold ($/oz) | $1,096.95 | $1,394.90 | -0.81% | 27.16% |
WTI Oil ($/brl) | $79.36 | $87.79 | -1.57% | 10.62% |
VIX "Worry Index" | 21.68 | 17.61 | -2.22% | -18.77% |
Credit Spreads | 12/10 Close | Week Change | ||
Inv Grade Credit Idx | 4.80% | 0.12% | ||
Low Grade Credit Idx | 8.31% | 0.08% | ||
Markit CDX Inv Grd Idx | 88 | -4.35% | ||
Markit CDX Mid Grd Idx | 137 | -6.80% |
Labels:
Market data
Wednesday, December 8, 2010
Ten Year Demand is Weaker, Yields Rising
From Bloomberg/Econoday: Results for the $21 billion 10-year note auction (a reopening of the
2.625 percent November issue) are no better than average. Coverage of
2.92 is up slightly from the prior auction yet is still the second
lowest since the February auction. Buyside participation is right at
averages with the group taking down 56 percent of the auction. At 3.340
percent, the auction stopped out right at the 1:00 p.m. ET deadline.
Tomorrow the Treasury auctions $13 billion of 30-year bonds. Treasury
prices moved slightly higher following the results.
Labels:
Auction,
Treasuries
Monday, December 6, 2010
One Eye on The Fed: Now An Ally?
Bernanke has gotten a lot of resistance about the latest round of quantitative easing (QE2) since it was formalized on November 3. This weekend he has talked about the FOMC commitment to their strategy. Here are some statements attributed to the Fed Chairman from the transcript of his appearance on "60 Minutes". On the current condition of the mandated concerns of the Fed he said U.S. unemployment may take five years to fall to a
normal level and that Fed purchases of Treasury securities
beyond the $600 billion announced last month are possible (emphasis added).
We knew that unemployment has grown to be such a deep problem that it will be several years to recover to more normal levels. What is a more enlightening message is that the Fed does not have a ceiling on the amount of the current QE program. In other words, there is no backing away from, or hesitation to use as much new currency as is necessary to reflate the economy.
“Because the Fed is acting, I would say the risk is pretty low” of deflation, Bernanke said. “But if the Fed did not act, then given how much inflation has come down since the beginning of the recession, I think it would be a more serious concern.”
Bernanke said he is “100 percent” confident that, when necessary, the central bank can control inflation and reverse its accommodative monetary policy.
“We’ve been very, very clear that we will not allow inflation to rise above 2 percent,” he said.
“We could raise interest rates in 15 minutes if we have to,” he said. “So, there really is no problem with raising rates, tightening monetary policy, slowing the economy, reducing inflation, at the appropriate time.”
“That time is not now,” he said.
We knew that unemployment has grown to be such a deep problem that it will be several years to recover to more normal levels. What is a more enlightening message is that the Fed does not have a ceiling on the amount of the current QE program. In other words, there is no backing away from, or hesitation to use as much new currency as is necessary to reflate the economy.
“Because the Fed is acting, I would say the risk is pretty low” of deflation, Bernanke said. “But if the Fed did not act, then given how much inflation has come down since the beginning of the recession, I think it would be a more serious concern.”
Bernanke said he is “100 percent” confident that, when necessary, the central bank can control inflation and reverse its accommodative monetary policy.
“We’ve been very, very clear that we will not allow inflation to rise above 2 percent,” he said.
“We could raise interest rates in 15 minutes if we have to,” he said. “So, there really is no problem with raising rates, tightening monetary policy, slowing the economy, reducing inflation, at the appropriate time.”
“That time is not now,” he said.
Labels:
Federal Reserve,
FOMC,
Market outlook
Market Data: Week Ending Dec. 3, 2010
Market Index | 2009 Close | 12/3 Close | Week Change | Simple YTD % |
Dow Industrials Avg | 10428.05 | 11,382.11 | 2.62% | 9.15% |
S&P 500 | 1115.1 | 1,224.71 | 2.97% | 8.95% |
Fed Funds Rate | 0.25% | 0.20% | 0.00% | 0% |
10 yr T-note Yld | 3.85% | 3.01% | 0.14% | -0.84% |
5 yr T-note Yld | 1.61% | 0.08% | ||
5 yr TIPS - 'Real' Yld | -0.15% | 0.06% | ||
Implied 5 yr Inflation % | 1.76% | 0.02% | ||
2 yr T-note Yld | 1.14% | 0.47% | -0.04% | -0.67% |
2-10 Yr Slope | 2.70% | 2.54% | 0.18% | -0.16% |
90 day T-bill Yld | 0.13% | -0.02% | ||
Gold ($/oz) | $1,096.95 | $1,406.20 | 2.98% | 28.19% |
WTI Oil ($/brl) | $79.36 | $89.19 | 6.48% | 12.39% |
VIX "Worry Index" | 21.68 | 18.01 | -18.95% | -16.93% |
Credit Spreads | 12/3 Close | Week Change | ||
Inv Grade Credit Idx | 4.68% | 0.04% | ||
Low Grade Credit Idx | 8.23% | -0.21% | ||
Markit CDX Inv Grd Idx | 92 | -1.08% | ||
Markit CDX Mid Grd Idx | 147 | 0.68% |
Labels:
Market data
Saturday, December 4, 2010
The Gold Express
Today's chart
(provided by Chart of the Day) provides some long-term perspective in regards to the gold market. As
today's chart illustrates, gold has been in a strong bull market since
2001. The pace of that upward trend increased beginning in mid-2005.
Following the financial crisis of late 2008, gold surged back up to
resistance of its accelerated uptrend (see red line) -- a 100% gain in
just over two years. After having tested the upper bounds of its
accelerated uptrend, gold has pulled back -- another failed test of
resistance. Over the past week, however, gold has resumed its upward
trend and is once again approaching/testing resistance.
Labels:
Gold
Wednesday, December 1, 2010
Open Thread Comments
Barry Ritholtz posted an invitaion to readers today. The invitation asked for comments about the advance of stock indexes today. He attracted some comments that I find informative and worthy of capturing for my future reference. He posted a chart like this one and then got some great comments.
Here are the comments referred to:
Here are the comments referred to:
Labels:
Market outlook
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