Figuring Out ECRI’s Recession Call

I am writing this post in response to the article “Why Our Recession Call Stands” of March 15, 2012 by Lak­sh­man Achuthan and Anir­van Banerji of the Economic Cycle Research Institute (ECRI). ECRI said: “How about forward-looking indi­ca­tors? We find that year-over-year growth in ECRI’s Weekly Lead­ing Index (WLI) remains in a cycli­cal down­turn (top […]

Is Risk in Emerging Economies Less Than Developed Economies?

To get an overall view of the health of emerging-market economies I developed a GDP-weighted manufacturing PMI as well as a GDP-weighted non-manufacturing/services PMI index using 2010’s GDP converted to U.S. dollars. Following a double-dip in September and November last year, growth in manufacturing is steadily increasing, with the manufacturing PMI in February rising to […]

Time to Add the VIX to Your Equity Portfolio?

The interim solving of the debt crisis in Greece has restored calm in the markets, with the CBOE S&P 500 Volatility Index (VIX) settling at 17.3 compared to its long-term average of 20.0. The big question now is whether the VIX will return to the low levels of 1991-1996 and 2004-2006. Sources: CBOE; Plexus Holdings. […]

Global Manufacturing PMI: Saved by the U.S.

The contraction in the global manufacturing sector continued in November. The global manufacturing PMI that I calculate on a GDP-weighted basis for the major economic regions was virtually unmoved at 49.6 from October’s 49.5. The relatively unchanged PMI masks significant changes in the individual countries and regions, though. The global manufacturing sector was saved by […]

Poll Results: Sentiment – Where Have the Bulls Disappeared?

Sentiment indicators from the AAII (individual investors) and Investors Intelligence (newsletter writers) indicate that stock market sentiment is at historically high levels, and has been for a while. However, whenever I discuss stock markets with people – ranging from private investors to institutions to journalists – most of them seem to be more concerned about a looming correction in the near term than being bullish. Maybe it is just a question of communicating with different people from those participating in the surveys, but anecdotally I do not observe particularly bullish sentiment.

Mature-Market Bonds: Quo Vadis?

The yield on the 10-year US government bond dropped from a high of 3.96% to a recent low of 3.13%. The key question for investors is: Will US long bond yields continue down or consolidate and move higher? In order to cast some light on this issue, I have analyzed a few key graphs and historical relationships, as reported below.

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Sources: I-Net Bridge, Plexus Asset Management.

Chart du Jour: No Signs of Imminent Rate Hike

The interesting graph below by Morgan Stanley strategist Teun Draaisma, courtesy of The Money Game – The Business Insider, looks at the last few recessions, and specifically the timing of three subsequent economic events: first positive non-farm payroll statistic, the peak in ISM new orders minus inventories, and then finally the first rate hike. As shown, the first two items have not yet taken place. Also, subsequent to recent recessions, rate hikes (green bar) came significantly after the end of the recessions.

Picture du Jour: The Lost Decade for the U.S. Economy

I posted a chart about the decade of zeros in the context of the Dow Jones Industrial Index a few days ago. There are a number of economic statistics conveying the same message. The chart below, courtesy of The Washington Post, illustrates that US job growth expanded at a healthy rate for most of the […]

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