Happy Halloween (excerpt)

October can be a scary month for stocks. It hasn’t been this year, though we still have to get through the last day of the month today, which also happens to be Halloween. The S&P 500 is up 4.9% so far this month following a gain of 3.0% during September. Apparently, investors have decided that they won’t allow themselves to get spooked by bad news anymore.

As a result, there hasn’t been a significant correction since June of 2012. The last time that the S&P 500 was down to its rising 200-day moving average was on November 16, 2012. It’s had lots of encounters with its rising 50-day moving average since then. That spooked some of the more bearish technicians, but it’s bounced back repeatedly. They’ve also been scared that stocks have been rising on ever-declining NYSE volume. However, that might be because the big buyers of stocks have been corporate managements buying back their own shares.

Nevertheless, today is Halloween and a good time to review some scary stories that might trip up the bull.

Today's Morning Briefing: Happy Halloween. (1) Bad news doesn’t spook investors. (2) Bearish technicians have been too panic-prone. (3) Four scary stories for Halloween. (4) Iran’s nuclear “breakout” may be imminent. (5) Israel is rattled and saber-rattling. (6) Was Obamacare designed to fail, but not so fast? (7) Reid’s confession. (8) Havoc in health care industry could depress economy. (9) No deal-makers in DC to make deals. (10) Too many bulls. (More for subscribers.)

Are stocks cheap or bonds rigged? (excerpt)

I’m the fellow who observed that the Fed’s staff seemed to answer Greenspan’s question about whether the stock market was “irrationally exuberant” in the second section of the Fed’s Monetary Policy Report of July 1997. I noted that it included a chart comparing the 12-month forward earnings yield of the S&P 500 to the 10-year Treasury bond yield. I named it the “Fed’s Stock Valuation Model,” as noted in the Wikipedia article about it. Back then, the Fed’s ambiguous conclusion was that stocks were somewhat overvalued, but that might be justified by the rise in analysts’ consensus expectations for earnings growth over the next three to five years.

The Fed Model actually worked quite well in the late 1990s. It showed that the S&P 500 was 21% overvalued during the week of July 4, 1997. It was then undervalued by 16% during the week of October 9, 1998 as a result of the meltdown of LTCM. It didn’t take long after that for the market to be overvalued by a record 69% during the week of January 14, 2000. Greenspan got his answer. The bubble burst, and so did the usefulness of the Fed Model.

Since the start of the previous decade, the Fed Model has signaled that stocks were cheap relative to bonds. They got much cheaper during the last bear market from October 2007 through March 2009. Currently, the model shows that stocks are 63% undervalued relative to bonds. Or is it that bonds are overvalued relative to stocks because the Fed is keeping yields artificially low with its ultra-easy monetary policies?

Today's Morning Briefing: Detecting Irrational Exuberance. (1) Greenspan’s unanswered question about irrational exuberance. (2) The Maestro says stocks are cheap. (3) Fink says investors may be “overzealous.” (4) How to recognize irrational exuberance. (5) Why has the Fed Model been useless? (6) How much should we pay for subpar growth? (7) Bad news is good news until it isn’t. (8) S&P 500 diverging from fundamentals thanks to Fed. (9) A melt-up portfolio: betting that the first shall continue to be first. (10) Focus on market-weighted S&P 500 Retailers. (More for subscribers.)

Weak Dollar Isn’t Boosting Commodity Prices (excerpt)

The price of copper sagged during the spring on concerns about a slowdown in economic growth in both the US and China, while Europe seemed to be mired in a long recession. It rebounded slightly during the summer and fall on signs of a recovery in Europe and better growth in China.

However, our trusty CRB raw industrials spot price index--which includes copper and 12 other commodities--has been sagging since the summer, gradually declining recently to the lowest reading since November 28, 2012. That’s despite the recent weakness in the trade-weighted dollar, which should be providing some lift to the commodity index.

Today's Morning Briefing: Global Tour. (1) Muddling along still path of least resistance for global economy. (2) Headwinds in US, Europe, and China. (3) Industrial commodities index drifting lower despite weaker dollar. (4) Flash PMIs uninspiring on balance. (5) Global output at new high, as US production edges higher. (6) Euro area credit still shrinking. (7) Forward earnings at record highs in US, recovering elsewhere. (8) Focus on overweight-rated S&P 500 Information Technology. (More for subscribers.)

The Knowledge-Based Economy (excerpt)

During the second half of the previous century, the US economy evolved from manufacturing to services. Since 1950, payroll employment in services increased 90 million to a record 117.6 million during September. Manufacturing employment peaked at a record 19.6 million during June 1979, and is down to 12.0 million now.

In recent years, the economy has been evolving into a knowledge-based one. The number of adults with a college degree has increased from 21.7% of the labor force in 1992 to 31.6% currently. They tend to have the lowest unemployment rates. Currently only 3.7% of them are jobless. In other words, today’s structural unemployment problem is mostly among workers without a college degree.

Here’s the thing: Many knowledge workers are tasked with the job of eliminating the jobs of other workers, including well educated ones! They are constantly looking for ways to use technology to increase productivity. Many of them have their heads in the Internet Cloud and other technologies, and are using them to produce more goods and services with less labor. They are doing so in manufacturing, services, and even in information technology. Payroll employment in all information industries peaked at a record 3.7 million during March 2001. It dropped to 2.7 million during mid-2010, and has remained around that level since then.

Today's Morning Briefing: Pushing on a Cloud. (1) Yellen’s footnote. (2) Is unemployment cyclical or structural? (3) Fed’s liquidity lifting all stocks, not all jobs. (4) What is Yellen watching out for? (5) Involuntary part-timers, U-6, median time unemployed, permanent job losers, and the participation rate. (6) Five reasons why unemployment is structural. (7) The trauma of 2008 and business caution. (8) Policy uncertainty boosting unemployment. (9) Knowledge workers have their heads in the Cloud. (10) Working to put us out of work. (11) The government is subsidizing unemployment, and getting more of it. (12) Latest US data confirm all of the above. (More for subscribers.)

Record Number of Labor Force Dropouts (excerpt)

Over the past three months through September, payroll employment is up only 143,300 per month, on average. That’s the weakest pace since August 2012. The household employment survey shows average gains of just 81,600 over the latest three-month period. On the other hand, our Earned Income Proxy, which is highly correlated with wages and salaries in the private sector, rose 0.2% last month to a new record high, following a gain of 0.7% during August.

While the recent weakness in the US labor market may be worrisome to economists, investors are bulled up by the prospect that the Fed won’t rush to taper QE. Fed officials have been dismayed that all of the drop in the unemployment rate from 10% during November 2009 to 7.2% last month can be attributed to the drop in the labor force participation rate, as I noted yesterday. The number of people who are “not in the labor force” rose by 136,000 during September to a record 90.6 million.

Today's Morning Briefing: Slim Pickings. (1) Let’s stay rational. (2) The worry list is short. (3) Employment disappoints as labor force dropouts hit record high. (4) China’s known unknown will soon be known. (5) China’s old normal way of growing. (6) Too many bulls? (7) Greenspan is bullish. (8) S&P 500 earnings edging lower, but remain bullish. (More for subscribers.)

The Fed & Unemployment (excerpt)

In a melt-up scenario over the next three months, Janet Yellen would be starting her new job with a bubble in the stock market. In addition, January’s unemployment rate, which will be released on February 7, could be down to 7.0%, which isn’t that far down from September’s 7.2% reported yesterday. At his press conference on June 19, Bernanke outlined a playbook that would terminate QE at 7%. He downplayed that game plan at his September 18 press conference. Yellen’s first FOMC meeting as chair of the committee will be on March 18-19. After that meeting, she will hold her first press conference. That should be interesting.

It’s certainly conceivable that even a 7% unemployment rate won’t cause the Yellen-led Fed to start tapering. The doves dominate the FOMC, and most of them are on the record as believing that the fall in the unemployment rate is exaggerating the improvement in the labor market. That’s because lots of people have simply dropped out of the labor market.

Indeed, the jobless rate would be closer to 10% right now if the labor force participation rate were at 65%, as it was during November 2009, rather than September’s 63.2%, which was the lowest reading since August 1978. The FOMC’s doves also typically observe that the employment-to-population ratio has been stuck near the 2009 low for the past five years.

Today's Morning Briefing: Thinking About A Melt-Up. (1) Worrying more about less to worry about. (2) Deep in the heart of Texas. (3) Smaller stocks with higher P/Es beating the bigger ones with lower valuations. (4) Three months til Yellen replaces Bernanke. (5) Record liquidity and margin debt. (6) A market for momentum players. (7) An impressionistic picture of stock prices that may continue to go vertical. (8) How will we recognize irrational exuberance? (9) Yellen will have lots to talk about at her first press conference on March 19. (10) Labor force dropouts continue to push jobless rate lower. (More for subscribers.)

Not Much Bang per Buck or Yen (excerpt)

Now that Washington’s latest fiscal impasse has passed, federal debt is also gushing. According to figures posted online by the Treasury Department on Friday, US debt jumped $328 billion Thursday, the first day the federal government was able to borrow money under the deal President Obama and Congress sealed last week. That shattered the previous record high of $238 billion set two years ago. Debt now equals $17.075 trillion, well exceeding the official, but temporarily suspended, debt ceiling of $16.699 trillion.

Friday’s Washington Times reported: “The giant jump comes because the government was replenishing its stock of ‘extraordinary measures’--the federal funds it borrowed from over the past five months as it tried to avoid bumping into the debt ceiling. Under the law, that replenishing happens as soon as there is new debt space. In this case, the Treasury Department borrowed $400 billion from other funds beginning in May, awaiting a final deal from Congress and Mr. Obama. Usually Congress sets a borrowing limit, or debt ceiling, that caps the total amount the government can be in the red. But under the terms of this week’s deal, Congress set a deadline instead of a dollar cap. That means debt can rise as much as Mr. Obama and Congress want it to, until the Feb. 7 deadline.”

Of course, all this debt hasn’t boosted bond yields because the Fed continues to purchase $85 billion per month in US Treasuries, Agencies, and MBS. As a result, the monetary base continues to gush. It soared to a record $3.6 trillion during the week of October 16, up $2.1 trillion since the first round of QE started on November 25, 2008. There hasn’t been much bang per buck in all this “high-powered money.” That’s because as it soared, the M2 money multiplier plunged and so did the velocity of money (i.e., nominal GDP divided by M2).

Today's Morning Briefing: Not Much Bang per Buck or Yen. (1) Texas is gushing oil. (2) Washington is back to gushing debt. (3) Monetary base is gushing, but both M2 multiplier and velocity are falling. (4) Stocks getting most of the bang per DC bucks. (5) Krugmanomics here and Abenomics over there. (6) Weaker yen boosting the cost of imports more than lifting exports in Japan. (7) Focus on underweight-rated S&P 500 Energy. (More for subscribers.)

Flying High Into the Wild Blue Yonder (excerpt)

As I’ve noted before, I don’t expect that the current Q3 earnings season will have much of an impact on earnings expectations for 2014 and 2015, which remain quite bullish at $122.38 and 134.56 per share, respectively. So forward earnings, currently at a record $119.73, should continue to gain altitude, which is bullish for the flight plan mapped out by Blue Angels for the S&P 500, depending on forward P/Es, of course.

The forward P/E of the S&P 500 jumped to 14.6 at the end of last week, the highest since January 19, 2010. The S&P 400 MidCaps and S&P 600 SmallCaps spiked to nose-bleed P/Es of 16.8 and 18.3. All three market cap indexes are at record highs.

Today's Morning Briefing: The Sky Is the Limit. (1) The huddled masses vs. Washington’s elite. (2) The streets are paved with gold in DC. (3) Unlimited opportunities for fiscal and monetary policies. (4) A suspended ceiling. (5) Evans: Only the Shadow knows when QE will be tapered. (6) Another relief rally to record highs. (7) Nothing to fear but nothing to fear. (8) Nose-bleed valuations. (9) Flying high with the high flyers. (10) No more pain in Spain? (11) “Wadjda” (+ +). (More for subscribers.)

The Trauma of 2008 Has Been Bullish (excerpt)

The Trauma of 2008 threatened the existence of many companies. Credit conditions froze in the commercial paper market. Banks stopped lending. The capital markets were shut to all but prime borrowers. Inventory-to-sales ratios spiked, forcing businesses to liquidate their stocks while firing workers and canceling capital-spending plans.

As a result of that searing experience, business managers remained very cautious about hiring and expanding their capacity even as their sales recovered. Many remain cautious, preferring overtime, part-timers, consultants, and outsourced vendors to increasing full-time payrolls. Rather than expanding their facilities, they've increased shifts if possible. The primary focus is on using technology to increase productivity and profitability.

This certainly explains why the current economic expansion has been one of the weakest on record for real GDP, employment, and capital spending. On the other hand, it's been one of the best recoveries in corporate profits and margins.

The bottom line is that the Trauma of 2008 has been bullish. It should continue to be so. However, let’s not get too complacent just because stocks have performed so well recently despite the shenanigans in DC. After all, the latest deal just postpones the fiscal fistfight for a few months. Earlier this month, House Majority Leader John Boehner (R-OH) said that the government shutdown isn’t a game. Kicking the can down the road certainly is a game.

In any event, maybe now we should fear that we have nothing to fear for the next few months. My concern is that the bears have stopped growling. The immediate risk is a melt-up in stock prices as investors overcome their trauma. If greed trumps fear, then soaring stock prices to new record highs might be imminent. The problem with melt-ups is that they tend to be followed by meltdowns, or at least very nasty corrections.

Today's Morning Briefing: The Trauma of 2008. (1) No serious correction since last June. (2) Bad news doesn’t faze the bull. (3) Fretting but not selling. (4) A unified theory of the bull market. (5) Near-death experience. (6) People don’t do pain very well any more. (7) All together now: “No more Lehmans!” (8) Profitable businesses running scared. (9) Investors showing signs of anxiety fatigue. (10) Subpar growth is bullish. (11) Nothing to fear but nothing to fear. (12) High flyers. (More for subscribers.)

Less Bang Per Yuan (excerpt)

China’s latest trade data for September showed a slight decline in exports and a slight increase in imports on a seasonally adjusted basis. Both have been in relatively flat trends for the past year.

Another troubling development is that China’s total social financing rose rapidly again during August and September after a brief slowdown during the previous three months. Why is this troubling? It seems that China is getting less bang per yuan of debt, as the current pace of borrowing is about the same as since 2009 yet real GDP growth has clearly slowed over this period. One more troubling development is that the CPI inflation rate may be picking up, led by food prices.

The good news out of China for stock investors is that the China MSCI stock index is up 22.4% since the year’s low on June 25, with forward earnings rising to a new high in early October. Forward revenues also have risen to new highs, and the forward profit margin has been recovering over the past year.

Today's Morning Briefing: Waiting for Godot. (1) Depressing dysfunction. (2) Private study finds that fiscal uncertainty boosted unemployment rate by 0.6 ppt. (3) Fed study estimates that jobless rate would be at 6.5% but for fiscal and monetary policy uncertainty. (4) Fed president says $600 billion of QE lowered jobless rate by just 0.25 ppt! (5) The government is here to help. (6) Beckett’s absurd drama is our script. (7) US is under review. (8) Industrial commodity prices drifting lower. (9) China getting less bang per yuan of borrowing. (10) Earnings and margins rising in China. (11) Europe has hit bottom, and struggling to recover. (12) Output remains flat in most EMs. (13) Focusing on overweight-rated fun-related stocks. (More for subscribers.)

Blissfully Ignoring the Headlines (excerpt)

S&P 500 forward earnings rose to a record high of $119.73 last week. It tends to be a great year-ahead indicator of actual earnings when the economy is growing. However, it doesn’t provide a heads-up for recessions. The forward earnings of the S&P 400 MidCaps and S&P 600 SmallCaps also rose to new record highs last week.

As I’ve noted often in the past, industry analysts have blissfully ignored all the bearish headline news since the start of the bull market. They’ve been right to do so. I have been following their bullish lead as they raised forward earnings to new cyclical highs from 2009-2010 to new highs since then.

Today's Morning Briefing: Blissful Ignorance. (1) Known unknowns. (2) FOMC is data-less and clueless. (3) Ode to Ignorance. (4) Stocks remain blissfully complacent. (5) Where have you gone, Joe? (6) Mind-boggling complexity of Obamacare in one flow chart. (7) Ode to bullish forward earnings and revenues. (8) Refiners weighing down Q3 earnings. (9) Not much gas in gasoline recently. (More for subscribers.)

Fed Governor Communicates (excerpt)

Fed Governor Jerome Powell presented a short speech defending the FOMC on Friday titled, “Communications Challenges and Quantitative Easing.” He noted that the labor market has improved significantly since QE3 was launched in September 2012. He admitted that it is “unclear” how much the program contributed to the progress in the labor market. However, he claimed that “there is evidence that it played a role, lowering long-term interest rates and raising equity prices and home prices, effects that have supported household and business spending.”

In other words, the Fed has succeeded in inflating asset prices, which somehow created more jobs. The market capitalization of the Wilshire 5000 is up $11.3 trillion, or 165%, to a record $18.4 trillion since March 9, 2009. The median existing single-family home price is up 37.3% through August since it bottomed during January 2012. It is just 8.1% below its record high during July 2006.

Housing starts are up from a low of 478,000 units during April 2009 to 891,000 units through August of this year. Yet residential construction jobs are up only 162,000 since they bottomed during January 2011, to 2.1 million in August. They are still 38% below the record high during the spring of 2006. So far, the so-called "wealth effect" hasn't created too many construction jobs.

Powell acknowledged that there has been a failure in communicating Fed policy recently, but mostly blamed it on trigger-happy fixed-income traders, who “began to lose touch with Committee intentions” since Bernanke first hinted at tapering in his May 22 congressional testimony. He said that his decision at the last meeting was a “close call” and that he would have been comfortable with a tiny taper, though he voted against it. He dismissed the notion that the meeting “damaged the Committee's communications strategy.” In his opinion, “market expectations are now better aligned with Committee assessments and intentions.”

Today's Morning Briefing: Another Cliffhanger. (1) No news is bullish news. (2) An early 2014 timeline for the FOMC. (3) Jobless rate of 7.0% could be Yellen’s threshold for tapering, and 6.5% for terminating QE. (4) Fed Gov. talks about the failure to communicate. (5) Another “close call” on FOMC. (6) Melt-up, then go away next May? (7) Will McConnell be the McFixer again? (8) Market discounting a happy ending. (9) Guidelines for a deal. (10) The Bates Motel. (11) Obamacare “IPO” bombs badly. (12) Compromise: Delaying Obamacare may be the only viable option for both sides. (13) “Captain Phillips” (+ +). (More for subscribers.)

Europe’s Recovery (excerpt)

The OECD Leading Composite Index for Europe is confirming the region's recovery. It is up for the past 11 consecutive months to August’s 100.5, the highest reading since July 2011. Leading the way up have been some of the more distressed countries in the euro zone, particularly Spain. The UK is also looking very strong. Here is August’s ranking: Spain (102.0), Ireland (101.9), Greece (101.8), Portugal (101.4), UK (101.2), Italy (100.7), Europe (100.5), Germany (100.4), Belgium (100.2), Netherlands (100.0), and France (99.7).

Yet the IMF is expecting that the euro zone’s real GDP will grow by only 1.0% next year after falling 0.4% this year. The organization’s latest report challenges the notion that the region is out of the woods. It sees potential for a renewed financial crisis, and is critical of the slow pace of banking and economic reforms. Labor markets remain mostly uncompetitive in the peripheral countries. Bank credit continues to shrink.

Today's Morning Briefing: Growing Pains. (1) Back to (law) school. (2) Multiple unconstitutional options. (3) The IMF is globally gloomy. (4) OECD leading indicators are upbeat. (5) Europe has hit bottom. The question is, Will it recover? (6) German indicators are mixed. (7) Emerging markets face some challenges. (More for subscribers.)

Earnings Season Should Be Unsurprising (10/8 excerpt)

Earnings season has just started. I’m not expecting that it will add to stock investors’ angst caused by Washington’s latest fiscal fiasco. For quite some time, earnings seasons have been marked by a very predictable and weird ritual as better-than-expected earnings for the latest quarter cause industry analysts to lower their expectations for the next quarter by about as much. That certainly happened during both the Q1 and Q2 earnings seasons.

Since the start of the previous earnings season, Q2 earnings turned out to be $0.70 per share better than expected, while Q3 estimates were lowered by $0.89. This ritual is likely to continue, with actual Q3 results exceeding expectations while Q4 estimates are lowered. None of this matters very much unless the latest results cause industry analysts to significantly change their estimates for 2014 and 2015, which is very unlikely.

Today's Morning Briefing: It’s Starting To Hurt. (1) The prioritization question. (2) Gallup poll shows plunging consumer confidence. (3) Shutdown already bad for some businesses. (4) Strengthening euro can’t be good for Europe. (5) Bad timing and execution for Obamacare’s IPO. (6) A curse on both their Houses. (7) They should soon feel our pain. (8) Stocks losing complacency and altitude. (9) A very ugly auction. (10) We’ve seen this scary movie before. (More for subscribers.)

Default Is Not A Constitutional Option (excerpt)

It’s a sad day when Beijing has to tell Washington to get its fiscal act together. That’s exactly what happened yesterday when a Chinese official said “the clock is ticking” and urged US officials to “ensure the safety of the Chinese investments.” Of course, if the fiscal stalemate continues and the debt ceiling isn’t raised, there are more than enough tax revenues to cover the interest payments on the federal debt. As I noted yesterday, a section of the 14th Amendment of the Constitution says that the public debt of the US “shall not be questioned.”

The current statutory debt limit is $16.7 trillion and must be raised by October 17, according to US Treasury Secretary Jack Lew. Over the past 12 months through August, net interest paid by the US federal government totaled $219.5 billion. Over the same period, tax receipts totaled $2.7 trillion.

Let’s for expository purposes assume that the debt ceiling isn’t raised over the next 12 months and that tax receipts and interest payments remain the same over the next 12 months. That would leave $2.5 trillion in tax receipts after interest is paid. Outlays, at $3.4 trillion over the past 12 months, would have to be cut by nearly a trillion dollars to match revenues after interest payments. That would still cover all federal entitlements spending, but would leave us literally defenseless, and park-less.

If the President decides to default on the federal debt rather than cut other outlays, he would be violating the 14th Amendment. These may be extreme times, but such an extreme measure is highly unlikely. The President could also interpret the Amendment as giving him the power to unilaterally raise the debt ceiling. So the Chinese can rest assured that their investment in US debt is safe.

Addendum (Wednesday, October 9, 2013):

I am considering going back to school to get a law degree specializing in constitutional law. This seems to be a skill necessary to assess Washington’s looming debt ceiling crisis. As noted above, the 14th Amendment of the US Constitution states that the public debt of the US “shall not be questioned.” That implies that the President could unilaterally raise the debt ceiling if Congress doesn’t do so.

Today, Bloomberg reported: “President Barack Obama rejected calls for him to invoke the Constitution’s 14th Amendment to skirt Congressional approval for issuing new debt, as both political scholars and legal experts said such a crisis-aversion plan would be risky and potentially illegal. ‘If you start having a situation in which there’s legal controversy about the U.S. Treasury’s authority to issue debt, the damage will have been done even if that were constitutional, because people wouldn’t be sure,’ Obama said in a news conference with reporters yesterday. ‘It’d be tied up in litigation for a long time. That’s going to make people nervous.’”

The President should know since he taught a course in constitutional law at the University of Chicago Law School. In any event, the article concludes: “Among lawyers studying the president’s options is a third view, which argues that without a deal, Obama will be left to choose among multiple unconstitutional options-- unilaterally raising taxes, unilaterally cutting spending or ignoring the debt ceiling with the issue of new bonds.”

Today's Morning Briefing: Cabin Fever. (1) Beijing tells Washington to shape up. (2) The 14th Amendment says default is not a constitutional option. (3) Plenty of tax revenues for everything but defense and parks. (4) An angst-free earnings season ahead? (5) Revenue expectations are rising. (6) Stay Home or Go Global? (7) Going abroad to get away from Washington. (8) More good happenings in Europe. (9) ECB official likes banks. (10) Abe’s missing arrow. (11) Labor unrest and stalled commodity prices weighing on EMs. (12) Focus on overweight-rated S&P 500 Transportation. (More for subscribers.)

Blue Angels Flying High For S&P 500 (10/3 excerpt)

While Washington is flying blind, our Blue Angels analysis shows that S&P 500 forward earnings is flying to new record highs. In our analysis of P/E x E, I multiply forward earnings by forward P/Es of 10.0-15.0 in increments of 1.0 to derive hypothetical flight paths for the stock market. Like the Navy’s Blue Angels fighter pilots, the paths never cross. Then I track the S&P 500 as the stunt plane flying among the blue vapor trails of our Blue Angels.

The US has one of the best-looking Blue Angels formations in the world. I’ve just compiled a new publication, Global MSCI Blue Angels, showing this analysis for all the major global MSCI stock price indexes. It includes a chart showing the World MSCI excluding the US. Unlike for the US, forward earnings for that measure isn't even close to a new record high. Instead, it peaked in mid-2011 well below the previous peak in 2008. It dipped during the second half of 2011 and has been basically flat-lining since then.

In the past couple of weeks, forward earnings seem to be turning up outside the US, particularly in both Europe and Emerging Markets. Our new publication covers 44 countries. Like the US, China is one of the few countries where forward earnings is rising to fresh record highs. However, China’s forward P/E is only 9.0, well below the 14.2 in the US. That’s weighing on the World ex-US P/E, which is currently 12.6.

Japan’s Blue Angels have put on a good show since late last year. Forward earnings was flat-lining only slightly above the 2009 cyclical low during 2011 and 2012. The introduction of Abeconomics boosted forward earnings by 36.4% since late last year, though it is ascending at a slower pace in recent weeks and is still below its previous cyclical peak. The forward P/E rose from just north of 10 to just south of 15.

Today's Morning Briefing: Binary Outcome. (1) On the verge of either a meltdown or a melt-up. (2) Tailwinds from October to April. (3) Obama said buy on March 3, 2009. Now he says sell! (4) The 14th Amendment. (5) Boehner may have to fall on his sword. (6) Hastert Rule may not rule on debt ceiling. (7) Right-wing vs. left-wing conspiracies. (8) Fed remains clueless and is now data-less. (9) Talking Fed heads. (10) QE’s bang per buck is tiny. (11) “Gravity.” (+ +). (More for subscribers.)

M-PMIs Better In Advanced Than Emerging Economies (excerpt)

Among the major advanced economies of the world, the US had the second best M-PMI during September, with a reading of 56.2. The UK led with a reading of 56.7, though that was a downtick from August, while the US was an uptick. Despite all the stimulus from Abeconomics, Japan registered 52.5 on the M-PMI scale, only slightly better than the euro zone’s 51.1. The major emerging economies (Brazil, China, India, and Russia) were all around 50 last month.

Today's Morning Briefing: Blue Angels. (1) The Rosengren rehash. (2) Focusing on payroll data, which may be postponed. (3) ADP shows lackluster job gains. (4) Wasn’t QE supposed to create more jobs? (5) Is it the Fed’s job to counter fiscal recklessness? (6) Flying in circles inside the Beltway. (7) Doing remarkably well despite Washington. (8) US has best-looking Blue Angels profile in the world. (9) Analysts say profit margins have more upside in the US. (10) Rising labor costs squeezing margins in emerging economies. (More for subscribers.)

Gold & Commodity Prices (excerpt)

It was a bad day for gold yesterday. It has been a bad year for gold. The precious metal is less precious, having dropped $403 since the start of the year and $35.75 yesterday to $1,290.75 an ounce. The price is down from a record high of $1,895.00 on September 6, 2011. That’s despite the implementation of QE3 in the US during September of last year and Abeconomics in Japan at the beginning of this year.

On September 19, after the FOMC decided not to taper QE the day before, the gold price did spike a bit to $1,365.50, but it is now $74.75 below that level. Yesterday, gold dropped despite the partial shutdown of the US government and the ongoing fiasco of fiscal recklessness in Washington.

I view the price of gold as an indicator of the underlying trend in the CRB raw industrials spot price index. That index has been flat-lining since the spring after falling at the start of the year. It remains at a relatively high level matching the previous cyclical peak during 2007, but it is 19% below its record high on April 11, 2011.

The industrials spot price index didn’t rally on the FOMC’s decision not to taper. Surprisingly strong manufacturing PMIs around the world for August and September also haven’t boosted the index. We continue to believe that the path of least resistance for industrial commodity prices is sideways. The action in the gold pits suggests that it certainly isn't likely to be higher. The same can be said for the Brent price of crude oil. Gold has been an indicator of the underlying trend in this price as well.

Today's Morning Briefing: Gold, Inflation, & Profit Margins. (1) Bad days for gold. (2) QE isn’t working for gold anymore. (3) Gold is negative indicator for other commodity prices. (4) Path of least resistance. (5) Gold suggests that emerging markets have lost their groove. (6) A hedge against reckless monetary and fiscal policies? (7) Inflation in assets rather than in CPI. (8) The 2008 trauma is keeping a lid on inflation. (9) All good for profit margins. (10) Focus on market-weight-rated S&P 500 Autos. (More for subscribers.)

US Oil Production Is Gushing (excerpt)

While Washington is mired in gridlock, the High-Tech Revolution, which started in the early 1990s, is evolving into a New Industrial Revolution. Innovations produced by the IT industry are revolutionizing lots of other ones including manufacturing, energy, transportation, health care, and education.

High-tech tools certainly have contributed to the extraordinary productivity of the US energy industry. Gushers in the oil patch could more than offset gridlock inside the Beltway. In just the past two years, US crude oil field production is up 40% from 5.8mbd to 8.1mbd through the week of September 20. That’s the highest since October 1988. US exports of petroleum products rose to a record 3.3mbd. Net imports are down to 6.5mbd, half as much as at the record peak during 2005.

America isn’t on the brink of energy independence, but it is heading in that direction at a faster pace. The Naysayers say it won’t happen because much of the surge in production is attributable to fracking of old oil wells that deplete in a few months after they are tapped for a second time. Maybe so, but let’s not underestimate the ability of entrepreneurs to use both high-tech and low-tech to boost oil production.

Today's Morning Briefing: Gushers vs. Gridlock. (1) America to Washington: DO NO HARM! (2) This too shall pass. (3) Might the Fed expand rather than taper QE? (4) Jobs survey suggests jobless rate heading for 7% soon. (5) Q3 earnings expected to be up 4.2% y/y. (6) Negative surprises among Financials? (7) The year after next is expected to be another good one for earnings. (8) New Industrial Revolution comes to the oil patch. (9) Heading towards energy independence at a faster pace. (10) Fracking with gas. (More for subscribers.)