ECRI's WLI Growth Rate - No Double Dip Recession

ECRI's WLI and its WLI Growth Rate Up Again.  ECRI says the US Economy will Avoid a Double Dip Recession

The Economic Cycle Research Institute, ECRI - a New York-based independent forecasting group, released their latest readings for their proprietary Weekly Leading Index (WLI) this morning. (More about ECRI) 

For the week ending October 22, 2010

• WLI  is 123.1, up from the prior week's revised reading of 122.0.  
• The lowest reading for WLI this year was 120.4 for the week ending July 16.
• Since apparently bottoming at -10.3 for the week of August 27,  WLI growth moved higher or was flat for the eighth consecutive week to minus 6.5% from minus 6.9% a week ago.  
• The last positive reading for WLI growth was for the week ending May 28, 2010 when it stood at positive 0.1%. 

Yesterday  ECRI said  "The much-feared double-dip recession is not going to happen. That is the message from leading business cycle indicators, which are unmistakably veering away from the recession track, following the patterns seen in post-World War II slowdowns that didn't lead to recession.After completing an exhaustive review of key drivers of the business cycle, ranging from credit to inventories and measures of labor market conditions, we can forecast with confidence that the economy will avoid a double dip.

Note my chart for today shows the first estimate of Q3 GDP growth of 2.0%.  Q2 GDP was unchanged at 1.7%. Once again, ECRI scores a direct hit with WLI and WLI growth stabilizing before it was announced GDP was stable. 

Chart of WLI and WLI growth vs GDP Growth
 
click to view full size charts

Since ECRI releases their WLI numbers for the prior week and the stock market is known in real time, you can often get a clue for next week's WLI from the weekly change in the stock market.

Chart of S&P500 vs ECRI's WLI 

Chart of WLI from 1973 to 2010

 Chart courtesy of ECRI

Notes: 

1. The WLI for the week ending 10/29/10 will be released on 11/5/10.
2. Occasionally the WLI level and growth rate can move in different directions, because the latter is derived from a four-week moving average.
3. ECRI uses the WLI level and WLI growth rate to HELP predict turns in the business cycle and growth rate cycle respectively. Those target cycles are not the same as GDP level or growth, but rather a set of coincident indicators (including production, employment income and sales) that make up the coincident index. Based on two additional decades of data not available to the general public, there are a couple of occasions (in 1951 and 1966) when WLI growth fell well below negative ten, but no recessions resulted (although there were clear growth slowdowns).

Disclosure:  I am long the exchange traded fund for the S&P500, SPY charts and quote, in my personal account and in the "Explore Portfolio" in  "Kirk Lindstrom's Investment Letter."

KEY ECRI Articles:

• Oct. 28, 2010 ECRI Warns of High Inflation Nightmare From QE2
• Sept. 24, 2010 ECRI - Premature to Predict New Recession
• July 01, 2010 ECRI Weekly Leading Indicators Widely Misunderstood
• Dec. 04, 2009: ECRI Warns of Lasting High Unemployment Despite Economic Recovery
• July 31, 2009: ECRI Predicts End of Home Price Downturn
• July 21, 2009:  ECRI Predicts The End of the Recession is Imminent
• April 3, 2009: ECRI Says US Business Cycle Recovery Ahead
• March 28, 2008: ECRI Calls it "A Recession of Choice"

More Charts:

• DJIA 
• S&P500 
• NASDAQ 
• NYSE Composite

ECRI Warns of High Inflation Nightmare From QE2

ECRI Warns The Fed's QE2 May Cause High Inflation Nightmare

The Economic Cycle Research Institute, ECRI - a New York-based independent forecasting group, says there will be no double dip recession and Fed's planned QE2, a second round of quantitative easing, could lead to unintended "worse nightmare" of high inflation. (More about ECRI)  

Earlier today, Lakshman Achuthan, ECRI's co-founder and chief operating officer. and Anirvan Banerji,ECRI's co-founder and chief research officer, wrote: 

• "The much-feared double-dip recession is not going to happen."
• "That is the message from leading business cycle indicators, which are unmistakably veering away from the recession track, following the patterns seen in post-World War II slowdowns that didn't lead to recession."
• After completing an exhaustive review of key drivers of the business cycle, ranging from credit to inventories and measures of labor market conditions, we can forecast with confidence that the economy will avoid a double dip.

But ECRI warned there is bad news for growth and jobs

• But the bad news is that a revival in economic growth is not yet in sight. 
• The slowing of economic growth that began in mid-2010 will continue through early 2011. 
• Thus, private sector job growth, which is already easing, will slow further, keeping the double-dip debate alive. 

Even worse, the Fed could be behind the curve yet again with QE2 leading to unintended inflation down the road.

• The problem with QE2. The worse news is that, even without the nightmare of a new recession, an uglier scenario may still lie ahead in the form of unintended consequences of such Fed stimulus.

ECRI warns that the Fed, using its rear-view mirror indicators, may be goosing the economy with an inflationary stimulus program when it isn't needed and worse, just before the economy could get better.

• Because monetary policy acts with "long and variable lags," the Fed should, in principle, rely on forward-looking measures to time its actions. Yet, in practice, it does pretty much the opposite, relying on backward-looking statistics like core inflation and hard-to-assess measures of the so-called output gap, including estimates of "full employment."
  
• In mid-2003, the last time "core" inflation was this low, the Fed cut rates to just 1% and kept it there for a year, contributing in no small measure to the inflation of the housing bubble that ended so disastrously.
• In fact, the Fed is about to launch QE2 because it believes inflation to be too low, which really means they are willing to go to new extremes to head off the risk of deflation.  Yet, over the last two centuries the U.S. economy has seen sustained deflation only when it has mostly been in recession -- a scenario that our analysis rules out for now.

If the Fed goes ahead with its planned QE2 program, then the question for us investors will be "where is the next bubble forming?"

• Today, the car that is the U.S. economy is crawling uphill, slowing as its engine sputters. With politicians fighting about whether to use a screwdriver or a spanner wrench to fix the motor, the Fed is convinced we'll end up using neither. Determined not to let the car start rolling back disastrously downhill, yet unaware that the road is about to level off, the Fed is strapping an untested rocket onto the car in hopes of blasting it over the top.
  
• The Fed, looking out the rear-view mirror to steer the car, won't know when we're approaching a bend in the road, though we're now high up in the mountains, with a dangerous abyss below.

If the Fed goes ahead with its planned QE2 program, then the question for us investors will likely be "where is the next bubble forming?"  The very high returns for my individual TIPS and TIPS funds (FINPX Charts and VIPSX Charts)  these past two years plus the large gains in gold (Gold Charts and Quote) and commodities, despite low CPI inflation, might be signaling what lies ahead.

iSuppli Updates 2010 & 2011 Chip Revenue Forecasts

iSuppli Updates its 2010 and 2011 Chip Revenue Forecasts

Current iSuppli global semiconductor revenue growth forecasts:

• 2010: +32%
• 2011: +5.1%

21 Sept 2010:  Key excerpts from the article on iSuppli's web site titled "Amid Softening Demand and Rising Inventory, iSuppli Trims 2010 Chip Forecast"

• iSuppli now expects that revenue in the fourth quarter will decline by 0.3 percent compared to the third quarter, the first sequential decrease since the market collapse in the fourth quarter of 2008 and first quarter of 2009.
• With consumer demand slowing and inventories rising, the market research firm iSuppli Corp. is trimming its 2010 semiconductor revenue forecast to 32 percent, down from its previous outlook of 35.1 percent.
•  In terms of specific semiconductor products, the hottest items in 2010 will be DRAM, voltage regulators, LEDs, Programmable Logic Devices (PLDs) and data converters. Revenue for each of these products is projected to grow by more than 43 percent in 2010. DRAM will lead the group with 87 percent growth on the strength of the soaring PC market.
• ... based on its most recent analysis of the electronics supply chain, iSuppli expects the chip business to experience a soft landing in 2011 and not to suffer the kind of dramatic downturn seen in 2009. 
• Global semiconductor revenue in 2011 will rise by 5.1 percent, iSuppli predicts. 

ECRI's WLI Growth Rate Up Again

ECRI's WLI Inched Lower but WLI Growth Rate Up Again

The Economic Cycle Research Institute, ECRI - a New York-based independent forecasting group, released their latest readings for their proprietary Weekly Leading Index (WLI) this morning. (More about ECRI) 

For the week ending October 15, 2010

• WLI  is 122.1, down from the prior week's reading of 122.2.  
• The lowest reading for WLI this year was 120.4 for the week ending July 16.
• Since apparently bottoming at -10.3 for the week of August 27,  WLI growth moved higher or was flat for the seventh consecutive week to minus 6.8% from minus 7.0% a week ago.  
• The last positive reading for WLI growth was for the week ending May 28, 2010 when it stood at positive 0.1%. 

Four weeks ago with both the WLI and its growth rate lower, Lakshman Achuthan, managing director at ECRI said, "After a brief plunge in the late spring, the WLI has been fairly stable throughout the summer and into September, suggesting that it is still premature to predict a new recession."

Chart of WLI and WLI growth vs GDP Growth
click to view full size charts

Since ECRI releases their WLI numbers for the prior week and the stock market is known in real time, you can often get a clue for next week's WLI from the weekly change in the stock market.

Chart of S&P500 vs ECRI's WLI 

Chart of WLI from 1973 to 2010

 Chart courtesy of ECRI

Notes: 

1. The WLI for the week ending 10/22/10 will be released on 10/29/10.
2. Occasionally the WLI level and growth rate can move in different directions, because the latter is derived from a four-week moving average.
3. ECRI uses the WLI level and WLI growth rate to HELP predict turns in the business cycle and growth rate cycle respectively. Those target cycles are not the same as GDP level or growth, but rather a set of coincident indicators (including production, employment income and sales) that make up the coincident index. Based on two additional decades of data not available to the general public, there are a couple of occasions (in 1951 and 1966) when WLI growth fell well below negative ten, but no recessions resulted (although there were clear growth slowdowns).

Disclosure:  I am long the exchange traded fund for the S&P500, SPY charts and quote, in my personal account and in the "Explore Portfolio" in  "Kirk Lindstrom's Investment Letter."

KEY ECRI Articles:

• Sept. 24, 2010 ECRI - Premature to Predict New Recession
• July 01, 2010 ECRI Weekly Leading Indicators Widely Misunderstood
• Dec. 04, 2009: ECRI Warns of Lasting High Unemployment Despite Economic Recovery
• July 31, 2009: ECRI Predicts End of Home Price Downturn
• July 21, 2009:  ECRI Predicts The End of the Recession is Imminent
• April 3, 2009: ECRI Says US Business Cycle Recovery Ahead
• March 28, 2008: ECRI Calls it "A Recession of Choice"

More Charts:

• DJIA 
• S&P500 
• NASDAQ 
• NYSE Composite

Flat COLA: No Social Security Cost of Living Adjustment for 2011

There will be no fizz in Social Security checks for the new year.  The Social Security Administration announced "There will be no increase in Social Security benefits payable in January 2011, nor will there be an increase in SSI payments."

COLA Computation

• The last year in which a COLA became effective was 2008. Therefore the law requires that we use the average CPI-W for the third quarter of 2008 as the base from which we measure the increase (if any) in the average CPI-W. The base average is 215.495, as shown in the table below.
• Also shown in the table below, the average CPI-W for the third quarter of 2010 is 214.136. Because there is no increase in the CPI-W from the third quarter of 2008 through the third quarter of 2010, there is no COLA for December 2010.

	CPI-W for—
	2008	2010
July	216.304	213.898
August	215.247	214.205
September	214.935	214.306
Third quarter total	646.486	642.409
Average (rounded to the nearest 0.001)	215.495	214.136

Remember that the price of oil peaked during the three months in 2008 when the COLA for 2009 was set at 5.8%. 

Chart showing oil prices vs the S&P500.
click image to see a larger version

With oil prices the past three months about half their peak value, CPI is slowly catching up but still below the 2008 calculation. The good news for seniors is they benefited from a higher SS payment than they would have received if the 2009 COLA was set a few months later after the price of oil crashed to $35 at the end of 2008.

Here is a chart and current quote for crude oil prices.

Since this blow-up of CPI in 2008 due to high oil prices, I've reported CPI by month in my newsletter in a table so you can see what to expect. CPI peaked in July 2008 at 219.964. I show this value in Red. This September the CPI recovered to 218.439, still slightly below its 2008 peak. CPI for 2008 was only up 0.1% but Social Security beneficiaries got a 5.8% adjustment because of the spike in oil prices. They were very, very lucky to get a 5.8% raise while the rest of the country got fewer hours or lost jobs during the recession.

This table Automatic Social Security Cost-Of-Living Adjustments by Year clearly shows the January 2009 adjustment of 5.8% was the largest since July 1982!

Since actual CPI was effectively lower than what Social Security recipients were getting paid for, taxpayers were very generous to retired people at a very good time... during this recession. My guess is the CPI will make a new high in the next few months and COLAs will show up again next year for 2012.

Table of Social Security COLAs by Year

Current Oil Prices and New Graph
Click for a chart and current quote for crude oil prices.
.

ECRI's WLI Growth Rate Inches Higher

ECRI's WLI Falls but WLI Growth Rate Up For Sixth Straight Week

The Economic Cycle Research Institute, ECRI - a New York-based independent forecasting group, released their latest readings for their proprietary Weekly Leading Index (WLI) this morning. (More about ECRI) 

For the week ending October 8, 2010

• WLI  is 122.4, down from the prior week's reading of 123.7.  
• The lowest reading for WLI this year was 120.4 for the week ending July 16.
• Since apparently bottoming at -10.3 for the week of August 27,  WLI growth moved higher for the sixth consecutive week to minus 6.9% from minus 7.0% a week ago.  
• The last positive reading for WLI growth was for the week ending May 28, 2010 when it stood at positive 0.1%. 

Three weeks ago with both the WLI and its growth rate lower, Lakshman Achuthan, managing director at ECRI said, "After a brief plunge in the late spring, the WLI has been fairly stable throughout the summer and into September, suggesting that it is still premature to predict a new recession." 

Chart of WLI and WLI growth vs GDP Growth

click to view full size charts

Since ECRI releases their WLI numbers for the prior week and the stock market is known in real time, you can often get a clue for next week's WLI from the weekly change in the stock market.

Chart of S&P500 vs ECRI's WLI 

Notes: 

1. The WLI for the week ending 10/15/10 will be released on 10/22/10.
2. Occasionally the WLI level and growth rate can move in different directions, because the latter is derived from a four-week moving average.
3. ECRI uses the WLI level and WLI growth rate to HELP predict turns in the business cycle and growth rate cycle respectively. Those target cycles are not the same as GDP level or growth, but rather a set of coincident indicators (including production, employment income and sales) that make up the coincident index. Based on two additional decades of data not available to the general public, there are a couple of occasions (in 1951 and 1966) when WLI growth fell well below negative ten, but no recessions resulted (although there were clear growth slowdowns).

Before you claim understanding of ECRI's WLI, make sure you read the article  "ECRI Weekly Leading Indicators Widely Misunderstood."

"Bottom line, neither the “experts” predicting that the sky is falling based on the WLI, nor the other “experts” indulging in misinformed WLI-bashing in an effort to discredit the super-bears, have a real clue to what the WLI is all about...  A slowdown in U.S. economic growth is imminent, but a new recession is not." 

Disclosure:  I am long the exchange traded fund for the S&P500, SPY charts and quote, in my personal account and in the "Explore Portfolio" in  "Kirk Lindstrom's Investment Letter."

KEY ECRI Articles:

• Sept. 24, 2010 ECRI - Premature to Predict New Recession
• Dec. 04, 2009: ECRI Warns of Lasting High Unemployment Despite Economic Recovery
• July 31, 2009: ECRI Predicts End of Home Price Downturn
• July 21, 2009:  ECRI Predicts The End of the Recession is Imminent
• April 3, 2009: ECRI Says US Business Cycle Recovery Ahead
• March 28, 2008: ECRI Calls it "A Recession of Choice"

More Charts:

• DJIA 
• S&P500 
• NASDAQ 
• NYSE Composite

Google Q3-2010 Earnings Announcement Press Release

MOUNTAIN VIEW, Calif. – October 14, 2010 - Google Inc. (NASDAQ: GOOG) today announced financial results for the quarter ended September 30, 2010.

"Google had an excellent quarter," said Eric Schmidt, CEO of Google. "Our core business grew very well, and our newer businesses -- particularly display and mobile -- continued to show significant momentum. Going forward, we remain committed to aggressive investment in both our people and our products as we pursue an innovation agenda."

Q3 Financial Summary

Google reported revenues of $7.29 billion for the quarter ended September 30, 2010, an increase of 23% compared to the third quarter of 2009. Google reports its revenues, consistent with GAAP, on a gross basis without deducting traffic acquisition costs (TAC). In the third quarter of 2010, TAC totaled $1.81 billion, or 26% of advertising revenues.

Google reports operating income, operating margin, net income, and earnings per share (EPS) on a GAAP and non-GAAP basis. The non-GAAP measures, as well as free cash flow, an alternative non-GAAP measure of liquidity, are described below and are reconciled to the corresponding GAAP measures in the accompanying financial tables.

• GAAP operating income in the third quarter of 2010 was $2.55 billion, or 35% of revenues. This compares to GAAP operating income of $2.07 billion, or 35% of revenues, in the third quarter of 2009. Non-GAAP operating income in the third quarter of 2010 was $2.93 billion, or 40% of revenues. This compares to non-GAAP operating income of $2.39 billion, or 40% of revenues, in the third quarter of 2009.
• GAAP net income in the third quarter of 2010 was $2.17 billion, compared to $1.64 billion in the third quarter of 2009. Non-GAAP net income in the third quarter of 2010 was $2.46 billion, compared to $1.88 billion in the third quarter of 2009.
• GAAP EPS in the third quarter of 2010 was $6.72 on 322 million diluted shares outstanding, compared to $5.13 in the third quarter of 2009 on 320 million diluted shares outstanding. Non-GAAP EPS in the third quarter of 2010 was $7.64, compared to $5.89 in the third quarter of 2009.
• Non-GAAP operating income and non-GAAP operating margin exclude the expenses related to stock-based compensation (SBC). Non-GAAP net income and non-GAAP EPS exclude the expenses related to SBC and the related tax benefits. In the third quarter of 2010, the charge related to SBC was $380 million, compared to $318 million in the third quarter of 2009. The tax benefit related to SBC was $85 million in the third quarter of 2010 and $73 million in the third quarter of 2009.

Q3 Financial Highlights

Revenues – Google reported revenues of $7.29 billion in the third quarter of 2010, representing a 23% increase over third quarter 2009 revenues of $5.94 billion. Google reports its revenues, consistent with GAAP, on a gross basis without deducting TAC.

Google Sites Revenues - Google-owned sites generated revenues of $4.83 billion, or 67% of total revenues, in the third quarter of 2010. This represents a 22% increase over third quarter 2009 revenues of $3.96 billion.

Google Network Revenues - Google’s partner sites generated revenues, through AdSense programs, of $2.20 billion, or 30% of total revenues, in the third quarter of 2010. This represents a 22% increase from third quarter 2009 network revenues of $1.80 billion.

International Revenues - Revenues from outside of the United States totaled $3.77 billion, representing 52% of total revenues in the third quarter of 2010, compared to 52% in the second quarter of 2010 and 53% in the third quarter of 2009. Excluding gains related to our foreign exchange risk management program, had foreign exchange rates remained constant from the second quarter of 2010 through the third quarter of 2010, our revenues in the third quarter of 2010 would have been $9 million lower. Excluding gains related to our foreign exchange risk management program, had foreign exchange rates remained constant from the third quarter of 2009 through the third quarter of 2010, our revenues in the third quarter of 2010 would have been $169 million higher.

• Revenues from the United Kingdom totaled $840 million, representing 12% of revenues in the third quarter of 2010, compared to 13% in the third quarter of 2009.
• In the third quarter of 2010, we recognized a benefit of $89 million to revenues through our foreign exchange risk management program, compared to $39 million in the third quarter of 2009.

Paid Clicks – Aggregate paid clicks, which include clicks related to ads served on Google sites and the sites of our AdSense partners, increased approximately 16% over the third quarter of 2009 and increased approximately 4% over the second quarter of 2010.

Cost-Per-Click – Average cost-per-click, which includes clicks related to ads served on Google sites and the sites of our AdSense partners, increased approximately 3% over the third quarter of 2009 and increased approximately 2% over the second quarter of 2010.

TAC - Traffic Acquisition Costs, the portion of revenues shared with Google’s partners, increased to $1.81 billion in the third quarter of 2010, compared to TAC of $1.56 billion in the third quarter of 2009. TAC as a percentage of advertising revenues was 26% in the third quarter of 2010, compared to 27% in the third quarter of 2009.

The majority of TAC is related to amounts ultimately paid to our AdSense partners, which totaled $1.52 billion in the third quarter of 2010. TAC also includes amounts ultimately paid to certain distribution partners and others who direct traffic to our website, which totaled $285 million in the third quarter of 2010.

Other Cost of Revenues - Other cost of revenues, which is comprised primarily of data center operational expenses, amortization of intangible assets, content acquisition costs as well as credit card processing charges, increased to $747 million, or 10% of revenues, in the third quarter of 2010, compared to $667 million, or 11% of revenues, in the third quarter of 2009.

Operating Expenses - Operating expenses, other than cost of revenues, were $2.19 billion in the third quarter of 2010, or 30% of revenues, compared to $1.64 billion in the third quarter of 2009, or 28% of revenues.

Stock-Based Compensation (SBC) – In the third quarter of 2010, the total charge related to SBC was $380 million, compared to $318 million in the third quarter of 2009.

We currently estimate SBC charges for grants to employees prior to October 1, 2010 to be approximately $1.4 billion for 2010. This estimate does not include expenses to be recognized related to employee stock awards that are granted after September 30, 2010 or non-employee stock awards that have been or may be granted.

Operating Income - GAAP operating income in the third quarter of 2010 was $2.55 billion, or 35% of revenues. This compares to GAAP operating income of $2.07 billion, or 35% of revenues, in the third quarter of 2009. Non-GAAP operating income in the third quarter of 2010 was $2.93 billion, or 40% of revenues. This compares to non-GAAP operating income of $2.39 billion, or 40% of revenues, in the third quarter of 2009.

Interest and Other Income (Expense), Net – Interest and other income (expense), net increased to an income of $167 million in the third quarter of 2010, compared to an expense of $7 million in the third quarter of 2009.

Income Taxes – Our effective tax rate was 20% for the third quarter of 2010.

Net Income – GAAP net income in the third quarter of 2010 was $2.17 billion, compared to $1.64 billion in the third quarter of 2009. Non-GAAP net income was $2.46 billion in the third quarter of 2010, compared to $1.88 billion in the third quarter of 2009. GAAP EPS in the third quarter of 2010 was $6.72 on 322 million diluted shares outstanding, compared to $5.13 in the third quarter of 2009 on 320 million diluted shares outstanding. Non-GAAP EPS in the third quarter of 2010 was $7.64, compared to $5.89 in the third quarter of 2009.

Cash Flow and Capital Expenditures – Net cash provided by operating activities in the third quarter of 2010 totaled $2.89 billion, compared to $2.73 billion in the third quarter of 2009. In the third quarter of 2010, capital expenditures were $757 million, the majority of which was related to IT infrastructure investments, including data centers, servers, and networking equipment. Free cash flow, an alternative non-GAAP measure of liquidity, is defined as net cash provided by operating activities less capital expenditures. In the third quarter of 2010, free cash flow was $2.13 billion.

We expect to continue to make significant capital expenditures.

A reconciliation of free cash flow to net cash provided by operating activities, the GAAP measure of liquidity, is included at the end of this release.

Cash – As of September 30, 2010, cash, cash equivalents, and marketable securities were $33.4 billion.

Headcount – On a worldwide basis, Google employed 23,331 full-time employees as of September 30, 2010, up from 21,805 full-time employees as of June 30, 2010. 

WEBCAST AND CONFERENCE CALL INFORMATION

A live audio webcast of Google’s third quarter 2010 earnings release call will be available at http://investor.google.com/webcast.html. The call begins today at 1:30 PM (PT) / 4:30 PM (ET). This press release, the financial tables, as well as other supplemental information including the reconciliations of certain non-GAAP measures to their nearest comparable GAAP measures, are also available on that site. 

• More disclosures and earnings tables here
  
• Google Post Market Price Quote
  (Currently up around $590 after closing today at $540.93)
  
• Google Charts and Current Price

Key Statistics:

• After hours Price as I type = $590
• Shares Outstanding = 318.71M
• Market Cap at $590 = $188B
• Cash per share = $33.4 billion / 318.71M = $105

Disclosure:  Long Google in my personal account and  in the "Explore Portfolio" in  "Kirk Lindstrom's Investment Letter" at a $310 entry price. 

George Soros Market Outlook - Says End Bush Tax Cuts

George Soros Expects Global Slowdown

Today Maria Bartiromo interviewed George Soros on CNBC's "Closing Bell."  Soros said he expects the global economic slowdown to continue into 2011 and we need more fiscal stimulus to avoid a second recession.  He also thinks extending the Bush tax cuts to the wealthy is a mistake.  Summary of his Key comments.

• The recession has been shorter and shallower than it would have been had the countries not worked together to provide economic stimulus.
• We are in danger of a second slowdown unless we get more fiscal stimulus which political debate is making near impossible.
• Extending the Bush tax cuts for the top two percent is a bad idea because in the long term "we need a prosperous economy." Short term, it would help him but he believes in the long term it is the wrong thing to do since we need to pay for fiscal stimulus.
• Extending Bush tax cuts to the middle class, those making under $250,000, is the "right thing to do."
• Governments need to prevent a "currency war."
• China has to move on its current currency position. Says China's capital controls allows it to control their currency and others. So China is now the dominant factor in how other currencies move so they can put pressure on Japan but Japan can not buy currency of China which makes it unfair.
• The developed markets and China are slowing down.
• Soros says it is "tragic" that the Republicans want to satisfy their contributors who want a tax cut rather than the general good of the public. He seems amazed "they managed to get the whole public to buy into it."
• "I follow Greece very closely." He says Greece is succeeding with very harsh steps.
• "The Euro is here to stay." Says a rescue mechanism, that they now have, was the missing ingredient.

Since 12/31/98 "Kirk's Newsletter Explore Portfolio" is UP 174% (a double plus another 74%!!) vs. the S&P500 UP a tiny 15.2% vs. NASDAQ  UP a tiny 9.6%   (All through 10/11/10) 
 

Subscribe NOW and get the October 2010 Issue of "Kirk Lindstrom's Investment Letter" for FREE!

(Your 1 year, 12 issue subscription will start with next month's issue.)

In 2009, "Kirk's Newsletter Explore Portfolio" gained 33.5% vs. the DJIA up 18.8%
2010 YTD the "Explore Portfolio" is up 6% YTD

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ECRI WLI Growth Rate Up Again

ECRI's WLI Up & WLI Growth Rate Up For Fifth Straight Week

The Economic Cycle Research Institute, ECRI - a New York-based independent forecasting group, released their latest readings for their proprietary Weekly Leading Index (WLI) this morning. (More about ECRI) 

For the week ending October 1, 2010

• WLI  is 123.8, up from the prior week's reading of 122.5.  
• The lowest reading for WLI this year was 120.4 for the week ending July 16.
• Since apparently bottoming at -10.3 for the week of August 27,  WLI growth moved higher for the fifth consecutive week to minus 7.0% from minus 7.8% a week ago.  
• The last positive reading for WLI growth was for the week ending May 28, 2010 when it stood at positive 0.1%. 

Two weeks ago with both the WLI and its growth rate lower, Lakshman Achuthan, managing director at ECRI said, "After a brief plunge in the late spring, the WLI has been fairly stable throughout the summer and into September, suggesting that it is still premature to predict a new recession." 

Chart of WLI and WLI growth vs GDP Growth

  Click to view full size chart

Since ECRI releases their WLI numbers for the prior week and the stock market is known in real time, you can often get a clue for next week's WLI from the weekly change in the stock market.

Chart of S&P500 vs ECRI's WLI 

 

More Charts:

• DJIA 
• S&P500 
• NASDAQ 
• NYSE Composite 

Notes: 

1. The WLI for the week ending 10/1/10 will be released on 10/15/10.
2. Occasionally the WLI level and growth rate can move in different directions, because the latter is derived from a four-week moving average.
3. ECRI uses the WLI level and WLI growth rate to HELP predict turns in the business cycle and growth rate cycle respectively. Those target cycles are not the same as GDP level or growth, but rather a set of coincident indicators (including production, employment income and sales) that make up the coincident index. Based on two additional decades of data not available to the general public, there are a couple of occasions (in 1951 and 1966) when WLI growth fell well below negative ten, but no recessions resulted (although there were clear growth slowdowns).

Before you claim understanding of ECRI's WLI, make sure you read the article  "ECRI Weekly Leading Indicators Widely Misunderstood."

"Bottom line, neither the “experts” predicting that the sky is falling based on the WLI, nor the other “experts” indulging in misinformed WLI-bashing in an effort to discredit the super-bears, have a real clue to what the WLI is all about...  A slowdown in U.S. economic growth is imminent, but a new recession is not." 

Disclosure:  I am long the exchange traded fund for the S&P500, SPY charts and quote, in my personal account and in the "Explore Portfolio" in  "Kirk Lindstrom's Investment Letter."

KEY ECRI Articles:

• Sept. 24, 2010 ECRI - Premature to Predict New Recession
• Dec. 04, 2009: ECRI Warns of Lasting High Unemployment Despite Economic Recovery
• July 31, 2009: ECRI Predicts End of Home Price Downturn
• July 21, 2009:  ECRI Predicts The End of the Recession is Imminent
• April 3, 2009: ECRI Says US Business Cycle Recovery Ahead
• March 28, 2008: ECRI Calls it "A Recession of Choice"

Vanguard Lowers Admiral Shares Minimum to $10,000

Vanguard Lowered Admiral Shares Minimum to $10,000 for Index Funds and $50,000 for Managed Funds.

This is great news for Vanguard investors, especially those who follow my core portfolios made of Vanguard Index funds.  Vanguard says:

"If any of your current Vanguard fund holdings qualify, we'll notify you by mail and provide additional details about what this change means for you. Then, over the next few weeks, we'll complete the change for you automatically."

I called Vanguard and immediately converted my accounts that were under $100,000 and qualified to the lower cost funds.  The gentleman I spoke to was not aware of the change and thanked me for alerting him.   They said they plan to convert accounts automatically but you can call or do it yourself online. 

Subscribe NOW and get the October 2010 Issue of "Kirk Lindstrom's Investment Letter" for FREE!

(Your 1 year, 12 issue subscription will start with next month's issue.)

Key Points:

• Effective today, Vanguard has reduced the minimum amount required to qualify for Admiral™ Shares to $10,000 for most of our broad-market index funds and $50,000 for actively managed funds, down from the previous $100,000 minimum. Admiral Shares cost significantly less than traditional fund shares, and their expense ratios are among the lowest in the mutual fund marketplace.
• Thanks to their low costs, Admiral Shares can reduce your expenses 18%–50% below the already low expense ratios of our standard Investor Shares. For example, if you invest $50,000 in a fund's Admiral Shares with a 0.07% expense ratio instead of its Investor Shares with a 0.18% expense ratio, you could keep approximately $1,200 more in net returns for your account over a 10-year period, assuming an average annual return of 8%.

Switching to Admiral Shares is easy:

• When you're promoted to Admiral Shares, you'll remain invested in the same Vanguard fund(s). Admiral Shares are just lower-expense shares of existing funds.
• All cost-basis information from your Investor Shares will be transferred to your Admiral Shares automatically.
• Changes from Investor Shares to Admiral Shares of the same fund are tax-free.
• Any check writing privileges you had with your Investor Shares account will transfer to your Admiral Shares account. You'll receive a new checkbook for your Admiral Shares account.

Vanguard Fund Comparison

Name and (Ticker Symbol)	Min Initial Investment	Total Expense Ratio	Annual Cost per $10,000
Vanguard 500 Index Investor (VFINX)	$3,000	0.18%	$18.00
Vanguard 500 Index Admiral (VFIAX)	$10,000	0.07%	$7.00
SPDR S&P 500 (SPY)	none	0.09%	$9.00
Vanguard Total Stock Mkt Idx (VTSMX)	$3,000	0.18%	$18.00
Vanguard Total Stock Mkt Idx Adm (VTSAX)	$10,000	0.07%	$7.00
Vanguard Total Stock Market ETF (VTI)	none	0.07%	$7.00

 
My core portfolios are made of Vanguard index funds and a CD. This great news means all funds become Admiral shares where they get the lower expense ratios to keep even more money in my portfolios!

1/1/1999 through 09/30/10
Total return - and - Compound annual return

My "50:50 Conservative Core Portfolio" was up 75.3% or 4.9% compound annual return.

==> $100,000 invested 1/1/99 became $175,279

==> 50:50 means half in equities and half in fixed income

My "80:20 Aggressive Core Portfolio" was up 62.2% or 4.2% compound annual return.

==> $100,000 invested 1/1/99 became $162,159

My "70:30 Explore Portfolio" was up 170.2% or 8.8% compound annual return.

==> $100,000 invested 1/1/99 became $270,186
=================================================

80% in “Core Aggressive” plus 20% in “Explore” was up 88.1% or 5.5% compound annual return.

==> $100,000 invested 1/1/99 became $188,053

95% “Core Conservative” plus 5% “Explore” was up 82.8% or 5.3% compound annual return.

==> $100,000 invested 1/1/99 became $182,831

100% in VTSMX was up 27.5% or 2.1% compound annual return.

==> $100,000 invested 1/1/99 became $127,508

VFINX (S&P500) was up 14.4% or 1.1% compound annual return.

==> $100,000 invested 1/1/99 became $114,372

Vanguard's Money Market Fund was up 41.4% or 3.0% compound annual return.

==> $100,000 invested 1/1/99 became $141,393

In 2009, "Kirk's Newsletter Explore Portfolio" gained 33.5% vs. the DJIA up 18.8%
2010 YTD the "Explore Portfolio" is up 4.8% YTD

 

Subscribe NOW and get the October 2010 Issue for FREE!

(Your 1 year, 12 issue subscription will start with next month's issue.)

Here is the full announcement from Vanguard:

• Vanguard lowers the cost of investing once again

ECRI WLI & Growth Rate Both Up Again

ECRI's WLI & WLI Growth Rate Both Up

The Economic Cycle Research Institute, ECRI - a New York-based independent forecasting group, released their latest readings for their proprietary Weekly Leading Index (WLI) this morning. (More about ECRI) 

For the week ending September 24, 2010

• WLI  is 122.5, up from the prior week's reading of 122.2.  
• The lowest reading for WLI this year was 120.4 for the week ending July 16.
• WLI growth moved higher to minus 7.8% from minus 8.7% a week ago.  
• The last positive reading for WLI growth was for the week ending May 28, 2010 when it stood at positive 0.1%. 

Last week with both the WLI and its growth rate lower, Lakshman Achuthan, managing director at ECRI said, "After a brief plunge in the late spring, the WLI has been fairly stable throughout the summer and into September, suggesting that it is still premature to predict a new recession." 

Chart of WLI and WLI growth vs GDP Growth

 
Click to view full size chart

Since ECRI releases their WLI numbers for the prior week and the stock market is known in real time, you can often get a clue for next week's WLI from the weekly change in the stock market.

Chart of S&P500 vs ECRI's WLI 
 

More Charts:

• DJIA 
• S&P500 
• NASDAQ 
• NYSE Composite 

Notes: 

1. The WLI for the week ending 10/1/10 will be released on 10/8/10.
2. Occasionally the WLI level and growth rate can move in different directions, because the latter is derived from a four-week moving average.
3. ECRI uses the WLI level and WLI growth rate to HELP predict turns in the business cycle and growth rate cycle respectively. Those target cycles are not the same as GDP level or growth, but rather a set of coincident indicators (including production, employment income and sales) that make up the coincident index. Based on two additional decades of data not available to the general public, there are a couple of occasions (in 1951 and 1966) when WLI growth fell well below negative ten, but no recessions resulted (although there were clear growth slowdowns).

Before you claim understanding of ECRI's WLI, make sure you read the article  "ECRI Weekly Leading Indicators Widely Misunderstood."

"Bottom line, neither the “experts” predicting that the sky is falling based on the WLI, nor the other “experts” indulging in misinformed WLI-bashing in an effort to discredit the super-bears, have a real clue to what the WLI is all about...  A slowdown in U.S. economic growth is imminent, but a new recession is not." 

Disclosure:  I am long the exchange traded fund for the S&P500, SPY charts and quote, in my personal account and in the "Explore Portfolio" in  "Kirk Lindstrom's Investment Letter."

KEY ECRI Articles:

• Sept. 24, 2010 ECRI - Premature to Predict New Recession
• Dec. 04, 2009: ECRI Warns of Lasting High Unemployment Despite Economic Recovery
• July 31, 2009: ECRI Predicts End of Home Price Downturn
  
• July 21, 2009:  ECRI Predicts The End of the Recession is Imminent
• April 3, 2009: ECRI Says US Business Cycle Recovery Ahead
• March 28, 2008: ECRI Calls it "A Recession of Choice"