Excerpt: Global Boom-Bust Barometer

I track a very simple Global Boom-Bust Barometer by averaging the CRB raw industrials spot price index and the price of a barrel of Brent crude oil. Yesterday, it rose to 112.0, the highest since May 2, 2012, and up 17.6% from last year’s low of 95.2 on June 28. The S&P 500 Transportation Index, which is highly correlated with the CRB index, has gone vertical this month, making daily new record highs, though it edged down yesterday for just the second time in the past 12 trading days. The MSCI World Share Price Index is up 5.7% ytd to a new cyclical high. 

Today's Morning Briefing: Silver Linings Playbook. (1) King of Prussia. (2) Silver linings in Philly. (3) The new hot topic: An inflationary boom. (4) The Success Scenario. (5) Global Boom-Bust Barometer looking up. (6) Not so fast: What about all that fiscal drag? (7) Putting the air back in the housing bubble. (8) If labor market continues to tighten, wage inflation will rise. (9) Bond yields rising along with inflationary expectations. (10) No boom in revenues yet. (11) Margin expectations may be too optimistic. (More for subscribers.)

Excerpt: US Leading Indicators

The ECRI’s Weekly Leading Index jumped 3.3% during the first three weeks of January. It is up 7.9% from its low last year during the week of June 15. The Conference Board's monthly Leading Economic Index jumped 0.5% in December to a new cyclical high. Interestingly, the ECRI index is highly correlated with our Fundamental Stock Market Index (FSMI). Our index is less volatile than the Institute's. Both closely track the S&P 500 and also the yield spread between corporate junk bonds and 10-year Treasuries. Both the stock index and the yield spread are signaling more economic growth is ahead, certainly not a recession.

Today's Morning Briefing: Too Much Good News? (1) Jeremiah was bearish. (2) Today’s bears: Prophets or spoilsports? (3) A misleading leading index. (4) S&P 500 forward earnings confirms good economic news on orders and sales. (5) What’s troubling consumers? (6) No surprises in economic surprise index. (7) Regional surveys don’t jibe with upbeat national PMI. (8) Draghi’s “whatever it takes” triggers “positive contagion.” (9) Euro-TARP winds down. (10) TARGET2 balances less imbalanced. (11) Lending still falling in euro zone. (More for subscribers.)

Excerpt: US Equity Mutual Funds

Equity mutual funds tend to reflect the sentiments and activities of retail investors. Here are some observations:

(1) Cumulative net inflows rose $2.7 trillion from the end of 1991 to peak at a record high during December 2007. Since then, the net outflow from equity mutual funds has been $247 billion. These flows suggest that the individual investor participated in the previous two bull markets, but did not do so during the current bull market, which has been driven mostly by corporate cash flows.

(2) Net inflows on a 12-month basis tell the same story and show an interesting correlation with the S&P 500. Such inflows rose dramatically from close to zero during 1991 to peak at $366.6 billion during September 2000. They then plunged and turned negative during the second half of 2002 and the first half of 2003. They were back in solid positive territory until turning extremely negative again during the second half of 2008 and the first half of 2009.

The swings in these flows clearly contribute significantly to the movements in equity prices from 1991 through early 2009. Since then, there has been a huge divergence, with net outflows on average, yet with the S&P 500 rising nearly back to its record high.

Today's Morning Briefing: Nothing to Fear but Nothing to Fear. (1) Fully invested bears worrying about too many bulls. (2) A red flag signaling that the bull will be gored? (3) Bull makes front page of NYT. (4) The fourth phase of the bull: Exuberance. (5) Worrying about missing a melt-up. (6) Corporate cash flows, not investor flows, driving bull up to now. (7) S&P 500 tracking buybacks plus dividends. (8) Retail investors may be ready to join the party. (More for subscribers.)

Today's Excerpt: US Oil Production

An article in the 1/18 WSJ reported that US oil production “grew more in 2012 than in any year in the history of the domestic industry, which began in 1859, and is set to surge even more in 2013. … The shale drilling boom was first directed at natural gas production, but when a glut of natural gas drove down prices for the fuel, exploration companies redirected their efforts toward oil.”

On November 12 last year, the International Energy Agency (IEA) released its widely followed World Energy Outlook. The report projected that around 2020, the US could become the largest oil producer in the world. IEA's projections show US oil production rising to 11.1mbd in 2020. Within a decade, US oil imports could drop in half to just 4.0mbd according to IEA.

I track the four-week averages of US crude oil field production and imports:

(1) Crude oil production soared to 7.0mbd during the week of January 18. That’s the highest since early 1993. It is up nearly 1.0mbd over the past 19 weeks!

(2) Crude oil imports are down roughly 1.0mbd over the past seven months through the week of January 18 to 8.0mbd. That’s the lowest since March 1998.

Today's Morning Briefing: Energy Independence Dividends. (1) Declaration of energy independence. (2) Independence dividends include less spending on oil imports and defense. (3) Reshoring of manufacturing and a secular bull market in stocks are also big dividends. (4) Chinese can defend Saudis. (5) US oil output soaring. (6) US is the new Saudi Arabia of oil and gas. (7) Matt Damon’s dry hole. (8) Obama will fix the climate. (9) Carbon tax? (10) “Quartet” (+). (More for subscribers.)

Today's Excerpt: Home Prices

Home prices may be starting to melt up. That means that fewer homeowners will have negative equity in their homes and more of them will have less of it. That could do a lot to boost consumer confidence and spending, and boost bank profits too. The median existing single-family home price rose 10.9% y/y during December, the best performance since January 2006. This is happening because the supply of existing homes available for sale dropped last month to the lowest since January 2001.

Today's Morning Briefing: Secular Bull or Bear? (1) Is the end near for the cyclical bull, or for the secular bear? (2) Show time. (3) Fully invested bears should be happier. (4) Bear market in multiples and bull market in earnings. (5) Over a decade of dog days for the S&P 500. (6) The case for the secular bull. (7) Fiscal fight rescheduled. (8) Less negative equity in real estate. (9) Longer fuse in the Persian Gulf. (More for subscribers.)