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Browsing Posts published in January, 2012

The Consumer – Easy Pod: Hints of Improvement But Consumer Still Under Pressure (Jan 31, 2012)

January 31, 2012 at 9:32 am No comments

This first section is the same intro I have each time for this Easy Pod, so skip ahead to the indicators if you’ve already read it.

I’m continuing with a feature I’m calling “Easy Pod” – a collection of indicators that help portray the current status of something.  In this post, that something is the consumer.  Let’s first review quickly what a consumer is, and why this matters.

Quick ‘n Easy

Consumer spending makes up about 70% of our economy, so we care deeply about how they are doing.  Although intuitively it makes sense that a more confident consumer would spend more, it turns out that income is a bigger factor.  Still, the consumer’s confidence and sentiment are good coincident indicators of how the economy is doing.

From Merriam-Webster Dictionary:

Consumer = one that utilizes economic goods

We talk a lot about the GDP (Gross Domestic Product – Easy Intro to GDP) as the accepted measure of overall economic activity.  Well, guess what makes up about two-thirds of that economic activity?  That’s right, laundry detergent purchases.  Just kidding.  It’s consumer spending.  That’s me, you, your neighbor … every one of us is a consumer, and the more we spend, the better the economy is generally doing.

Naturally, there is a huge interest in knowing how consumers are feeling.  Are they confident about their financial health, which would mean they are more likely to make big purchases like cars, appliances, vacation packages, etc.?  Or are they extremely concerned about losing their jobs or having their homes decrease in value, which might make them put off those purchases and even spend less at the grocery store?

To assess these kinds of things, there are countless indicators of the health of the consumer.  In this “Easy Pod” I will take a look at a few different indicators related to the consumer that I like to follow.  Check back regularly for updates.

Quick Summary

Indicator (Click for details – only works if full article is open) Current Rating (change)
Daily Consumer Leading Indicators Neutral
Bloomberg US Weekly Consumer Comfort Index Negative
Consumer Confidence Index (The Conference Board) Negative
Consumer Sentiment (University of Michigan) Negative

continue reading…

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Easy Pod, Economy, Indicators none

Economic Indicator Roundup: Improving Real Estate Picture Adds Strength (Jan 30, 2012)

January 30, 2012 at 9:33 am No comments

Economic Indicator Roundup

For a “Quick ‘n Easy” read, just review the labeled white boxes, then skip to my “Easy Take” summary at the end.  You can review any charts/graphs afterward.  I want to make sure no one is intimidated by the length of my posts, even though I’m trying to making them easy …

This is a dashboard of economic indicators that I most regularly follow.  For each, I will try to give you a brief description, the latest reading and what I understand to be its implications.  For simplicity, I will assign each a rating of positive, neutral or negative.  For each indicator, I will denote in its section how I decide which rating to give it.

  • Positive – indicative of a healthy, growing economy.
  • Neutral – indicative of a slow or no growth economy but not a contracting (recession) economy.
  • Negative – indicative of a shrinking economy or recession.

 

Quick Summary

Indicator (Click for details – only works if full article is open) Current Rating (change)
USA Today / IHS Global Insight Economic Outlook Index Neutral
Bloomberg Financial Conditions Index Negative (Downgrade)
Daily Consumer Leading Indicators Neutral
ADS Business Conditions Index Positive
Employment Trends Index Neutral
Citigroup Economic Surprise Index Positive
Chicago Fed National Activity Index Neutral
Easynomics Real Estate Price Stability Index Positive (Upgrade)

 


Indicator: USA Today / IHS Global Insight Economic Outlook Index   |   NEUTRAL
Easy Intro: Click here   |   Link to Source: Click here   |   Latest Date This Info Represents: December 2011

Quick ‘n Easy

A combination of indicators that predict the growth rate of the economy for the next several months suggests that the U.S. economy will grow at a slower-than-average pace through April 2012.  But at least it’s slow growth instead of a shrinkage.

Source: USAToday.com

Easy Description: Forecast of the 6-month annualized Real GDP growth rate for the next several months.  Based on an index of 11 leading indicators, each of which generally predicts future changes in economic growth.

Latest Reading: Forecast for December 2011 and January 2012 is 2.4% and 2.5% respectively, and each month’s forecast is slightly lower from there, eventually reaching a May 2012 forecast of 1.8%

Implications: There has been some improvement in these numbers from last month.  However, these numbers continue to convey the risks ahead – growth should slow compared to historical averages, which removes some of the cushion that would protect us against a shock to the system (like what’s happening in Europe.)  These growth rates will almost certainly result in an increase in unemployment rates.  Also, some of this forecast depends upon interest rate spreads (the difference in interest rates on short-term bonds versus long-term bonds, for example).  Those kinds of spreads have been artificially affected by the Federal Reserve’s interventions that are intended to keep interest rates low.  Their usefulness as tools for forecasting economic growth are lower as a result.  What I’m saying is that this forecast may be slightly too optimistic – it shouldn’t shock anyone if we end up in a recession six months from now, despite what this forecast says.

Easynomics Rating Methodology: For this index, if the average growth rate of the forecast months is 3 percent or higher, I will rate that “positive” – between 0 and 3 percent is “neutral” – below zero will be “negative.” continue reading…

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Real Gross Domestic Product (GDP): Easy Trends – A Stronger Quarter But Still Some Worries (1st Estimate Q4 2011)

January 30, 2012 at 5:00 am No comments

Real Gross Domestic Product (Real GDP)

I’m continuing a feature called “Easy Trends” – a place where I’ll analyze the recent trend for an indicator and discuss whether it is currently going up, down or neither.  You can read the basics of my methodology on the FAQ page.

Quick ‘n Easy

The GDP is simply the broadest and most widely accepted measure of economic activity.  Even though there are specific details of it that many dispute, you can typically be assured that if this number is high, things are going well in the economy.

You can read my Easy Intro to GDP for more information on what the Gross Domestic Product represents.  Suffice it to say, it’s a broad measure of economic activity.  If this number is growing, it is generally a good sign.  We probably want to see levels up in the 3 to 3.5 percent annual growth range for signs of a growing economy.  When the unemployment rate is too high, however, you need to have even more growth than that to put a dent in the unemployment figure.

Here’s a historical chart of real GDP annualized growth rate for each quarter from Doug Short, including lines that show the historical average growth rate and the “best fit” line (linear regression):

Courtesy: AdvisorPerspectives.com/Dshort

Trends and Projections

Below, I will discuss whether the indicator is currently in a trend, when the last confirmed trend was and what that says about projecting the next data point to be released. continue reading…

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Updates on Stock Market Forecast and Portfolio Simulation (Jan 29, 2012)

January 29, 2012 at 5:00 pm No comments

Modified Ivy Portfolio Simulation

The portfolio basically kept pace with the S&P 500 this week.  Thru the close on Fri Jan 27, the Easynomics portfolio is underperforming the S&P 500 by 11.53 percent (versus underperforming by 11.29 percent last week.)  Check out the details on my Portfolio Simulation page.

Easynomics Stock Market Forecast (Experimental)

As for the Stock Market Forecast, the projected close for Fri Jan 27 was significantly off.  Once I feel the model has enough data, I will remove the “experimental” tag.  This time it underestimated the S&P closing price by 4.65 percent with the final estimate.  (Remember, the forecast is based on the “Tech It Easy” rating from 13 weeks prior to the date it’s forecasting, but as new data becomes available, the model adapts, which is why the 13-week forecast keeps changing right up until a week prior to the “big day.”)

Here’s how the forecast performed last week (followed by notes on the forecast for the upcoming week): continue reading…

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Technical Analysis Summary of S&P 500 – Tech It Easy: Shifting Down to Neutral (Jan 28, 2012)

January 28, 2012 at 8:45 am No comments

Technical Analysis Summary of S&P 500

This is my standard intro to technical analysis – you can skip down to the table (or click “continue reading”) if you read this feature regularly:

Many people who trade in the markets believe that there are patterns that can generally lead to profitable trades.  By analyzing stock charts that show the change in price along with the volume (how many shares were traded), “technical analysts” believe they have an edge and can time their trades profitably.  There is significant controversy over this subject, however.  Others say that, unless you have some information that no one else does, basically you can never beat “the market” because everything is already baked into the current price of a stock.

Nevertheless, supporters of “technical analysis” are everywhere, and the tools for their trade can be found throughout bookstores and the Internet.  I like to follow some websites that do some of the work automatically and provide a snapshot opinion of whether a particular stock is considered “bullish” (going to go up in price), “bearish” (going to go down in price) or “neutral” (stay about the same price).

For simplicity, I’d like to start by showing you a snapshot of what several technical analysis websites suggest about the exchange traded fund (ETF) with the ticker symbol of SPY.  This fund is supposed to go up and down the same as the S&P 500 index does.  And many people consider the S&P 500 index (a measure of the price of the 500 largest companies that trade in the U.S.) to be an accurate gauge of where “the market” stands.

For each of the sources below, where I have a choice, I will use a measure that attempts to predict the future direction of SPY or S&P 500 in the next 3 months. continue reading…

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Modified Ivy Portfolio: Mid-Month Reversal of SPY – Part 2

January 27, 2012 at 10:50 pm No comments

On January 12, the price of SPY had risen so much that my rules for the hypothetical “Modified Ivy Portfolio” dictated that I begin exiting the short position on SPY before the end of the month, as it was so much higher than the threshold value that it was extremely unlikely to be a “sell” by the end of the month.  Therefore, per the rules I laid out, I already executed a portion of the exit on January 13.  The rules specify that I should make another portion of the exit trade five trading days later if conditions were still valid, which would be January 23:

- On the close of Thu Jan 19, the price of SPY was so far above the 10-month closing average (assuming Jan 19 was the last day of the month) that it would almost certainly not be a “sell” by the end of the month.  There were only 7 trading days left in the month at that point, and during only one 7-day period out of the last 30 such periods had the price of SPY dropped more than the cushion that SPY had earned at the close of Jan 19.

- My rules dictate that I continue exiting the SPY position, in this case meaning to “buy to cover” because it was a short position.

- Ideally, I would reduce the position by 1/7th each day until the end of the month.  But to minimize commissions, I buy 5 days’ worth at a time.  So, 5/7ths of the position is about 31 shares.  Thus, I did a “buy to cover” of 31 shares of SPY at 5 minutes after markets opened on Jan 23.  The position will be closed with a trade on Monday January 30, five minutes after markets open.

All of this is accurately reflected in my current portfolio now.

NOTE: The price of VXF on the close of January 25 was sufficiently high enough to require a mid-month change, but because it happened with fewer than 5 trading days left in the month, the rules dictate that no mid-month change in that position will occur.  This will be reversed into a “long” position at the beginning of February, assuming it still stays above the correct threshold.

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