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Kirk Lindstrom has an engineering degree from the University of California, Berkeley. Following 20 years of research and development as a scientist and engineer at Hewlett Packard, Kirk turned his attention to investments where he edits "Kirk Lindstrom's Investment Letter," that... More
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  • US Inflation Pressure at 9-Month High According to ECRI
    The Economic Cycle Research Institute, ECRI - a New York-based independent forecasting group, released their latest readings for their proprietary monthly Future Inflation Gauge  (USFIG) this morning. (More about ECRI)

    ECRI’s U.S. Future Inflation Gauge (USFIG) rose again in January. The value of the USFIG lies in its ability to measure underlying inflationary pressures and thereby predict turning points in the U.S. inflation cycle.

    The USFIG advanced to 101.6 (1992=100) in January from 100.5 in December, as did its smoothed annualized growth rate to 4.4% from 2.7%.


    Commenting on the data,  ECRI's Co-Founder, Chief Operations Officer and author of "
    Beating the Business Cycle", Lakshman Achuthan said: " With the USFIG climbing to a nine-month high, underlying inflation pressures are starting to simmer."

    KEY ECRI Articles:


     



    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Tags: Economy
    Feb 04 10:23 AM | Link | Comment!
  • ECRI's WLI Growth Rate at 34 Week High
    From ECRI's WLI Back to 36 Week High

    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 January 14, 2011
    • WLI  is 128.9 up from the prior week's reading of 128.1 and equal to the reading for the week ending December 24, 2010.  These are the highest readings since 36 weeks ago  on May 7, 2010 when WLI was at 131.9.
    • The lowest reading for WLI on record was 105.3 for the week ending March 6, 2009.
    • Last week's ECRI WLI Update for January 14, 2011
    • Since apparently bottoming at -10.3 for the week of August 27,  WLI growth moved higher or was flat for the 21st consecutive week to plus 3.1% from plus 3.6% a week ago.  
    • WLI growth of 4.1% is a 34-week high.
    • The last time WLI growth was higher was the reading for the week ending May 21, 2010 when it stood at positive 4.9%
     
    On November 30, 2010 we reported in "ECRI Calls for Revival of US Economic Growth" that ECRI said "with a lot of conviction, that there is a revival in growth right ahead of us."  Since then, the economic data continues to slowly improve.

    Commenting on the January 14th release, ECRI's Co-Founder, Chief Operations Officer and author of "Beating the Business Cycle", Lakshman Achuthan said: " With WLI growth rising for ten straight weeks to a 33-week high, U.S. economic growth will soon begin to revive."
    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 sometimes get a clue for next week's WLI from the weekly change in the stock market. Notably, in the lead-up to the last two recessions, the WLI turned down months before the stock market did.
    Chart of S&P500 vs ECRI's WLI
    I want to point out that a correction in the stock market now would not necessarily change ECRI's call for an economic growth rate revival.  It takes a "pervasive" (for the majority) change of direction of their indicators in a "pronounced and persistent" way for ECRI to call for a turn in the economic cycle. These indicators and the trigger levels are proprietary.  I have found no one who has duplicated them or ECRI's success in calling business cycle turns based on their reading of their indicators.
    Note that the chart above of the S&P500 vs. WLI shows a breakout above the dashed blue line that represents the neckline for a "Head and Shoulders Bottom" pattern.  This is a very bullish development.  A correction to test the pattern from above with a bounce to a higher high would be even more bullish, but not necessary for a continued market advance.
    Chart of WLI from 1973 to 2010
     
    Chart courtesy of ECRI
     
     
     
    Notes: 
    1. The WLI for the week ending 1/21/11 will be released on 1/28/11
    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).  
    4. For a better understanding of ECRI's indicators, read their book, Beating the Business Cycle.
    KEY ECRI Articles:



    Disclosure: I am long SPY.

    Additional disclosure: I also have a long position in SPY in my investment letter.
    Tags: SPY, economy
    Jan 21 11:22 AM | Link | Comment!
  • Ed Hyman & Dennis Stattman: Avoid Bonds & Buy Stocks, especially Citi & IBM
    Original article at Ed Hyman & Dennis Stattman's Outlook for 2011

    This article summarizes Consuelo Mack's interview with Wall Street's long-time number one ranked economist, Ed Hyman of ISI Group, and BlackRock's star Global Asset Allocation Fund manager, Dennis Stattman. You can watch the full video interview here

    State of the US Economy:

    Ed Hyman:
    The economy is not very healthy because we are doing quantitative easing.  About 3 months ago, it looked like the economy was going into a double dip. Since then, the economy is looking "much, much better."
     
    Dennis Stattman:
    Chronic problems will be with us for a long time. We have too much debt.  We are not producing enough in our economy compared to what we are consuming.  Harder to get employment going due to higher costs of employment.  But, compared to expectations of three or six months ago, the economy on the short-term is doing better.  The big problems will be there for years.
     
    Ed Hyman's expectations
    • 3% Real GDP in 2011.  
    • 10-year Treasury at 4.0%
    • Fed Funds Rate of near zero percent for the full year.
    6 quarters of 3% growth and unemployment last month was 9.8% so 3% is not enough to grow jobs. Thus believes the Fed and the president want 4% GDP growth to grow jobs.  Like Clinton, he believes Obama is doing his version of a move to the center to grow jobs and get reelected in 2012.
     
    Dennis Stattman:  Believes the monetary policy is near the level of "desperate."  Spending has been very aggressive but little has been done to address the  production side of the economy.  Regulation and tax uncertainty is hurting small businesses.  Politicians will have to move to address this or they won't get reelected.
     
    Ed Hyman: Believes focus will shift to 2012 with Q1-2011 GDP coming in at a "new high."
     
    Dennis Stattman:   "Stocks in the US are quite reasonably priced."  Many US stocks benefiting from higher growth rates outside the US but are selling at low PE ratios due to US troubles.  Blackrock's Global Allocation fund is at 36% of fund in US Equities, the highest exposure in a long time.  Fixed income exposure is lowest ever and thinks bond market is dangerous to investors.
     
    Ed Hyman: Believes the US stock market "is going up."  Adding to Dennis`s picture, Ed believes the Fed introduced QE2 to increase the value of stocks, to drive investors into riskier assets, to increase confidence with higher stock prices and thus lead to increased hiring.  Ed agrees "completely" with Dennis on bonds and believes that the bond market (10-year yield) is heading towards 4.0%.  To go above that would be "epic."
     
    On the US Dollar.

    Dennis Stattman:  Has about a market weighting in the dollar or 60%.  Most investments are in dollar but that also means 40% are in non-dollar investments.   "I would be very nervous to be 100% US Dollar."
     
    Ed Hyman: "Being neutral sounds like a reasonable position. "Agrees with Dennis and believes the emerging currencies like the Yuan will go up.  Not bullish or bearish on the dollar.
     
    Stocks:

    Dennis Stattman: Likes IBM (Charts & Quote).  Get a very solid growth investment with a 1.7% yield. Thinks IBM has a good "blueprint" to get earnings per share to $20 by 2015.
     
    Ed Hyman:  "I would put my money in Dennis's fund."  The one stock that sticks out to him is Citigroup (C charts and Quote).  He likes emerging economies and Citicorp or Citigroup has done a better job than the other banks in the emerging markets.  He also believes Vikram Pandit is "an emerging markets person" and is a great leader.  If Citi gets over $5, then the stock can be bought by more institutional investors.  If I had to pick one stock, I'd pick that stock.

    You can watch the full video interview here

    Disclosure:  I own both IBM and C


    Disclosure: I am long C, IBM.
    Tags: C, IBM, dollar, bonds
    Jan 10 10:58 AM | Link | Comment!
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