Earlier this week the SP made a new high after failing to do so for six months. However, the market’s breadth (of number of new highs vs. new lows) has shrunk to record lows, an extreme and dangerous sign. Only 3 sectors of the SP made new highs this week, versus 7 in January’s peak. The extreme price appreciation of the FANGs stocks has warped the averages. Corporate earnings before tax were up 0.2% a year since their peak in 3rd quarter 2014, which means in inflation-adjusted terms profits have been shrinking. In order to have a healthy and fairly priced market I’d like to see earnings increasing consistently and robustly for each of the last 16 quarters, instead
The yield curve spread between 2 year Treasury bond and ten year is 21.5 basis points, it was about 25 a week ago, and is consistently dropping to new lows not seen since last economic top of 2007. Economists say that a declining spread eventually moves the yield curve to inversion which is a symptom of recession, and partly a cause of it. Global rates have already inverted as have some domestic esoteric short term bond swap contracts for 2 and 4 year maturities. The old paradigm that the ten year Treasury yield is the same as nominal GDP hasn’t worked since 2008 crash because a new world exists where major regions such as the EU and Japan
When corporations buyback shares of publicly traded stock the opinion of most experts is that it does no harm. I think on a small scale this could be partly true, but on a macro scale, if every company does buybacks and if buybacks act to raise the price of a stock then the companies’ actions in the aggregate can create a momentum driven bubble for the entire market, which is harmful. It is analogous, in an inverted mirror image way, to the fallacy of composition argument where during recessions even though it is best for each individual to save money and avoid household deficits, if everyone saves at the same time, then there will be a disruptive reduction of
Today the CPI data was released with the core rate for 12 months up 2.4%. Housing increased 3.5%; if housing is multiplied times its 40% weight that would be 1.4 percentage points of the 2.9% overall non-core CPI, so CPI ex-housing is 2.9% minus 1.4 = 1.5%, and would be even lower if the figure was ex- food and energy. The problem with housing CPI is the Owner’s Equivalent rent is miscalculated by non-landlords who are unfamiliar with rental rates and who let their emotions of pride about their house leap to conclusions about imputed rent they are not actually paying; further these people may own their house free of debt or they may have a fixed rate mortgage,
The expected inflation “breakeven rate” for 5 year TIPS Treasuries rose in a trend line from 1.5% in mid-2017 to 2.17% and then last month the trend line was broken, and now it is down to 1.98%. Residential construction spending decreased 4 of last 5 quarters; the last time it happened was at the bottom in the 2008-2010 period. Read the article “Housing Sours Suddenly; It Won't Come Back Anytime Soon”. Much of the news about an inflationary shortage of workers concerns low payed semiskilled workers, but these types often earn so little that they can’t effectively use their paycheck to qualify for a big, attractive “A” paper loan that would increase the money supply and thus cause inflation. What
If Apple reaches $203 (only 1% higher than today’s price) it will be the first U.S. $Trillion Company, however, the first global one occurred in October, 2007 in China when PetroChina (PTR) reached a peak of $262 a share. Now PTR is at $74 a share, a decline of 72% from the peak of a decade ago. I bought PTR in March, 2005 at $62 and sold it November, 2006 at $116. I sold because I was worried (too early) that oil and PTR were going up too far and might plunge suddenly. Instead oil went higher, peaking in July, 2008. I don’t regret getting out too early because the downside risk of a volatile oil stock is great.