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Investment Analysis Clubs / Macro Economic Trends and Risks


Subject:  Control Panel: Channelized? Date:  2/10/2013  6:23 PM
Author:  WendyBG Number:  415542 of 537075

The Control Panel shows several positive trends that indicate optimism about the real economy. These have been supported over the past couple of months by increases in the money supply, but the money supply has recently leveled out. Financial conditions are loose. The velocity and monetary multiplier are low. Money is pumping into the asset market but not the real economy, otherwise consumer price inflation would rise.

The Fear & Greed Index is still in Extreme Greed, but the needle has been gradually falling over the past couple of weeks.

Every stock index and sentiment indicator is very strong, with bullish sentiment writ large. The "mungofitch lagged MA" is hitting new highs. The ratio of the S&P 500:gold is climbing above its MA and will soon be at the peak it reached 2 years ago, in early 2011 (if it continues the trend).

The trade remains risk-on.

Gold has been stable within a very narrow channel for the past couple of months and within a broad channel since its pullback in late 2011.

The USD is stable within a narrow channel.

Treasury yields continue to trend upward. The real (inflation-adjusted) yield of the 10 year Treasury is about zero (instead of negative) and the 30 year Treasury actually has a positive real yield of about 2%, the highest it has been for quite a while (though still lower than the historic average). Inflation for 2012 was reported at 2.1%. The implied 10 year inflation rate (Treasury minus TIPS yield) is 2.5%, which is close to the long-term average.

Copper and energy prices have recently been rising, though they have been in a stable channel for the past year.

The "mungofitch ratio" of copper:gold has been in a stable channel for the past year. It has recently been rising.

ECRI says that a recession is underway, although their index of leading indicators is positive, as is the Fed's.

Real personal income excluding current transfer receipts is rising, as are new factory orders and the Purchasing Manager's Index, both for Manufacturing and Non-manufacturing.

The recent charts are all rising. The longer-term (a year or more) are channelized. We are now at the tops of the channels.

Will the markets break upward through the channels? Or will they descend again and stay within the channels?

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