Monthly Archives: November 2010

Chicago PMI Highest Level Since April: Indicates Margin Pressure

The Chicago PMI released today came in at 62.5 (vs 60.6 prior and 61.0 consensus) which is the highest level since April.

PMI Components (via zerohedge):

  • Employment: 56.3 vs. Prev. 54.6
  • New Orders: 67.2 vs. Prev. 65.0, highest since May 2007
  • Prices Paid: 70.7 vs. Prev. 68.9, highest since April 2010
  • Production: 71.3 vs. Prev. 69.8, highest since April 2005

This is a mostly positive and better than expected report except for input prices that continue to rise. This indicates margin compression as it is obvious from CPI data that these higher prices are not being passed on to the end consumer.

More on the PMI from Econoday.

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Sentiment Update: Individual Investor Sentiment Continues to Yo-Yo

Both the NAAIM (active money managers) and AAII (individual investors) sentiment surveys released last week show an increase in bullish sentiment. The biggest increase in bullish sentiment came in the AAII survey where the bullish reading rose to 47% from 40% last week. The NAAIM survey showed a modest increase.

This week, active managers have, on average, a 67% allocation to equities. The median allocation rose to 85% while the top quartile of active managers have an allocation of 100% or greater to equities with the bottom quartile at a 50% or less equity exposure. The eight week moving is now at 68%. Read more of this post

Site Update

As you may have noticed, I have updated the theme of my site. This new theme allows for a wider content column. This means larger, hopefully easier to read charts and if you have followed the site a while, you know I like charts. In addition, the site allows for drop-down page menus. I have added a data dashboard page where I will attempt to keep current some of the key pieces of economic data I focus on. The data will be divided into three categories; economic data, sentiment data and valuation levels.

Lastly, I have updated the banner picture as the old one will not fit the new banner size.

I would be curious to know what everyone thinks. Hopefully, most see the new theme as an improvement.

Interview with Rogue Trader Jerome Kerviel

A fascinating interview with “rogue” Societe Generale trader Jerome Kerviel. Some of the best excerpts  are below (emphasis is mine) but the entire interview is worth reading. “I Was Merely a Small Cog in the Machine“.

Kerviel: Nobody knows everything that’s hidden in the balance sheets of banks. In fact, they are completely impenetrable. Read more of this post

Corporate Profits: What the Current Level Tells Us About S&P 500 Returns Over the Next Five Years

Last week, in his weekly market comment, John Hussman posted an interesting chart (see below) comparing the corporate profit to GDP ratio and the subsequent growth rate in corporate profits. I have previously posted on profit margins (see here and here) and will now further explore what profits margins at current levels imply about the next five years for the S&P 500 index.

But first a question: why is the current level of corporate profit margins so important?

When looking at the market through a P/E (Price divided by earnings) framework it becomes obvious that any price appreciation, by definition, must come from an expansion in the P/E multiple, an increase in earnings or both. Experts disagree on what, exactly cause an expansion or contraction in the P/E multiple but the general consensus is that it is due to the level of inflation, interest rates, investor sentiment or a combination of the three. Read more of this post