Wednesday, October 17, 2012

Weekly Economic Indicators

The proprietors of the Weekly Leading Index (WLI) at the Economic Cycle Research Institute (ECRI) have been insisting for several months that a recession is imminent. The problem is that their index has risen sharply from a recent low of 121.3 during the week of June 15 to 127.7 during the week of October 5. I don’t know how they calculate their index because the components are top secret even for subscribers.

I do know how we calculate our Fundamental Stock Market Indicator (FSMI), which is highly correlated with both the S&P 500 and the ECRI-WLI. Our open-source formula is the average of the weekly Consumer Comfort Index (plus 100) and Tuesday’s readings of the CRB raw industrials spot price index divided by the four-week average of initial unemployment claims. Our FSMI has gone nearly vertical over the past seven weeks, significantly reducing its recent divergence with the S&P 500 and confirming the recent surge in stock prices.

My strong suspicion is that the ECRI-WLI includes two rather volatile financial variables, namely the S&P 500 and the yield spread between high-yield corporate bonds and 10-year Treasuries. Sure enough, it is highly correlated with the former as well as the inverse of the latter. In other words, the ECRI-WLI is providing the same information as can be gleaned gratis from these two financial variables. Neither one is signaling that a recession is imminent.
Today's Morning Briefing: Buybacks. (1) Weekly leading indicators are upbeat. (2) Fed’s policies distorting market-based signals. (3) More buybacks and more upside for stocks. (4) Record dividends boosting inflows into stocks. (5) Lots of cash in corporate income statements and balance sheets. (6) Why are corporations borrowing so much in the bond market? (7) Is Tech getting commoditized again? (8) Global demand for chips dropping. (More for subscribers.)


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