Latest ECRI Weekly Leading Index Readings

[HenryTo]

For some reason, the ECRI doesn't publish weekly press releases anymore on its Weekly Leading Index readings - although one can still get access to the weekly readings via a (free) registration.

For the week ending June 17, 2005, the Weekly Leading Index level is at 133.4 - a growth rate of 0.2% from last year. I will try to update this thread every week from now on.

Hope everyone is having a great Sunday!

Henry

[HenryTo]

Hi Dash,

No problem at all. Here's what ECRI has to say about the lead times. I will do more research into the correlation between the ROC in its WLI and GDP numbers later this weekend.

[dash]

Hi Henry,

Thanks for the update. A couple of questions I've been meaning to ask for some time now:

1) What future time period does the WLI apply to?
2) Does the ROC number equate to GDP?

[HenryTo]

Week ending 3/23/2007:

WLI = 140.6
Annual ROC = 3.9%

Last week's numbers were revised to 140.1 and 3.8%, respectively.

[HenryTo]

Week ending 3/16/2007:

WLI = 140.2
Annual ROC = 3.9%

No revision to last week's numbers.

[HenryTo]

Week ending 3/9/2007:

WLI = 140.3
Annual ROC = 3.7%

Last week's annual ROC in the WLI was revised to 3.3%.

[HenryTo]

Week ending 3/2/2007:

WLI = 140.2
Annual ROC = 3.2%

Last week's WLI was revised to 140.0 but the annual ROC did not change.

[dash]

ECRI Inflation Index:

[rffrydr]

All in th emerging markets last week. $50 billion in treas. and agencies from foreign bank buyers. No break in liquidity there and bond short facing some serious headwinds.
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Today is the Tomorrow you worried about Yesterday!

[dash]

[rffrydr]

Good point on oil, Dash. I think this is due to anticipation of Iran sanctions over the weekend. Surely not a lot of piled in long hedgefunds after Amaranth. COT shows a recent turn from slight short to slight long. Next week will tell.

Buffet wasn't refering to this cycle--but he sure as hell was BETTING on it. See HTO's comments on his currency positions.

Behind the great bull story of the 90's (and the vitupertative "bond vigilantes" of which this is now can be seen an expression) was the grand virtous circle of declining inflation and Goverment budgets--across the western world. This was Abby J. Cohen's mantra (and still is) and is supposed to drive lasting increases in the "P." Now we are in the reaction to that era. The idea is simple: there is too much money around and it is priced accordingly--everywhere except where there is NO market for money. The Fed, by whatever connection you choose, is trying change the other end. Inflation is not inflation anymore but that doesn't mean things are not going up.

P/E are no doubt confused in more ways than one. Cyclicals are low PE stocks holding higher for longer (MA), alot of that "E" over the past five years hasn't been EARNINGS "E"; this is espeacially true for the financials with the 10years of bank consolidations, "goodwill," gradually but steadily dropping reserves and lastly big cash hoards earning 5%. There's the Hussman Peak Earnings thing--and, maybe, just maybe the pricing in of recession. By the time we know it, it'll have been around for a long, long time.
_________________
Today is the Tomorrow you worried about Yesterday!

[HenryTo]

Dash, thanks for the link to the blog. I have bookmarked it and will keep up with his posts going forward.

FYI, here's a link to the latest interview with the folks at ECRI. At the 4 minute market so, he discusses that while the lastest ECRI WLI reading does not incorporate the latest market decline, he nonetheless does not believe it will have a substantial impact on next week's reading:

http://publish.vx.roo.com/thestreet/portal/?channel=Market%20Strategy&clipid=1373_10342186

BTW, those ARMS readings that the blog cited were intraday readings. Also, the four-day moving average just touched 5.06 at the close last Friday - which isn't the highest on record but is the highest since October 21, 1987.

I have no information on how much of U.S. mutual fund assets is in domestic equities - do you know where he got that info?

Thanks,

Henry

[dash]

Thanks Henry. On the subject of P/Es and sentiment among many other issues this was a thought-provoking blogpost:

[HenryTo]

Hi Dash,

The chart showing the "correlation" between shrinking P/Es and the inverted yield curve smells like data-mining to me. Let's review some of the reasons why (and please chime in if you think I am wrong):

1) P/Es have have gone down three years in a row for the period ending December 31, 2006 - and while it could be due to the inverted yield curve, it could be due to many other reasons as well, such as:

- Much of the rally over the last three years has centered on cyclical companies such as steel, mining, materials, energy, etc. - and that is why the P/E of the S&P 500 has been declining, as these companies (who have traditionally sported low P/Es) made up an ever-bigger portion of the S&P 500. To me, this has no relation at all to the inverted yield curve.

- Many investors no longer want to "pay up" to invest in the "brand names" and large cap companies of the S&P 500, such as KO, IBM, WMT, HD, MSFT, EBAY, INTC, etc. Part of this is due to the huge bubble in large cap growth durin the late 1990s as the excesses are still being wound down. As John Bogle said in a CFA LA Society lunch earlier last week, ALL of the asset growth in the indexing business has occured in the ETF segment (which includes indexing to bond indices as well as country and narrow based ETFs) - none of it in index mutual funds such as what Vanguard (mostly) offers.

2) Sure, the yield curve is inverted but the entire curve is still spotting low interest rates - meaning that the PV of potential dividends or earnings should have (especially over the last couple of weeks) risen instead of gone down. This supports a higher P/E, not a lower one. As implied in the article, the market is now potentially discounting a deflationary bust.

3) The short history of that chart (going back to August 2003 only) suggests further that the author is data-mining.

Shrinking P/Es in the large cap brand name stocks (excluding cyclicals such as CAT, energy, materials, etc,.) along with a yield curve shifting lower suggests a deflationary bust - period. This is what the market is current discounting - not a growth recession but a hard landing or deflationary bust. If one believes in that scenario, then one should go short - but so far, nothing suggests to me that we're in for a hard landing.

Best regards,

Henry

[dash]

There are a couple of interesting charts and analysis in this article:

http://www.safehaven.com/article-7013.htm

The first shows how energy has been the cause of the deceleration we've seen in forward earnings estimates, so the price of oil may ironically be an important factor in the P/E going forward. On that note I was a little surprised to see that oil is particular and the CRB in general held up well this week. If the US is headed into a recession, and Chinese growth is slowing as their respective stockmarkets suggest, shouldn't oil be falling?

The other chart was the correlation between the P/E and the yield curve. It suggests that either the curve will disinvert or the P/E will drop, which presumably would come from a lower P given earnings growth has slowed to 7%.

The yield curve presents something of a conundrum: the low level of long rates are one of the main reasons bulls are suggesting the stockmarket is cheap (Fed model) and the high level of short rates also suggests that growth is strong, which should also be a positive. Yet viewed together it's a problem because an inverted curve is a sign of bad times ahead.

[dash]