Kirk Lindstrom's  Instablog

Disclosure: Long SPY, individual TIPS and TIPS plus REIT mutual funds for inflation protection

Original charts and post at ECRI's WLI Growth Rate Inches Higher

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 October 8, 2010

• WLI  is 122.4, down from the prior week's reading of 123.7.  
• The lowest reading for WLI this year was 120.4 for the week ending July 16.
• Since apparently bottoming at -10.3 for the week of August 27,  WLI growth moved higher for the sixth consecutive week to minus 6.9% from minus 7.0% a week ago.  
• The last positive reading for WLI growth was for the week ending May 28, 2010 when it stood at positive 0.1%. 

Three weeks ago with both the WLI and its growth rate lower, Lakshman Achuthan, managing director at ECRI said, "After a brief plunge in the late spring, the WLI has been fairly stable throughout the summer and into September, suggesting that it is still premature to predict a new recession." 

1. The WLI for the week ending 10/15/10 will be released on 10/22/10.
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).

Disclosure:  I am long the exchange traded fund for the S&P500, SPY charts and quote, in my personal account and in the "Explore Portfolio" in  "Kirk Lindstrom's Investment Letter."

KEY ECRI Articles:

• Sept. 24, 2010 ECRI - Premature to Predict New Recession
• Dec. 04, 2009: ECRI Warns of Lasting High Unemployment Despite Economic Recovery
• July 31, 2009: ECRI Predicts End of Home Price Downturn
• July 21, 2009:  ECRI Predicts The End of the Recession is Imminent
• April 3, 2009: ECRI Says US Business Cycle Recovery Ahead
• March 28, 2008: ECRI Calls it "A Recession of Choice"

Disclosure: Long SPY

This is great news for Vanguard investors, especially those who follow the core portfolios I recommend in my newsletter that are made of Vanguard index funds.  Vanguard says:

"If any of your current Vanguard fund holdings qualify, we'll notify you by mail and provide additional details about what this change means for you. Then, over the next few weeks, we'll complete the change for you automatically."

I called Vanguard and immediately converted my accounts that were under $100,000 and qualified to the lower cost funds.  The gentleman I spoke to was not aware of the change and thanked me for alerting him.   They said they plan to convert accounts automatically but you can call or do it yourself online.

• Effective October 6, Vanguard has reduced the minimum amount required to qualify for Admiral™ Shares to $10,000 for most of our broad-market index funds and $50,000 for actively managed funds, down from the previous $100,000 minimum. Admiral Shares cost significantly less than traditional fund shares, and their expense ratios are among the lowest in the mutual fund marketplace.
• Thanks to their low costs, Admiral Shares can reduce your expenses 18%–50% below the already low expense ratios of our standard Investor Shares. For example, if you invest $50,000 in a fund's Admiral Shares with a 0.07% expense ratio instead of its Investor Shares with a 0.18% expense ratio, you could keep approximately $1,200 more in net returns for your account over a 10-year period, assuming an average annual return of 8%.

• When you're promoted to Admiral Shares, you'll remain invested in the same Vanguard fund(s). Admiral Shares are just lower-expense shares of existing funds.
• All cost-basis information from your Investor Shares will be transferred to your Admiral Shares automatically.
• Changes from Investor Shares to Admiral Shares of the same fund are tax-free.
• Any check writing privileges you had with your Investor Shares account will transfer to your Admiral Shares account. You'll receive a new checkbook for your Admiral Shares account.

Name and (Ticker Symbol)	Min Initial Investment	Total Expense Ratio	Annual Cost per $10,000
Vanguard 500 Index Investor (VFINX)	$3,000	0.18%	$18.00
Vanguard 500 Index Admiral (VFIAX)	$10,000	0.07%	$7.00
SPDR S&P 500 (SPY)	none	0.09%	$9.00
Vanguard Total Stock Mkt Idx (VTSMX)	$3,000	0.18%	$18.00
Vanguard Total Stock Mkt Idx Adm (VTSAX)	$10,000	0.07%	$7.00
Vanguard Total Stock Market ETF (VTI)	none	0.07%	$7.00

 
My core portfolios are made of Vanguard index funds and a CD. This great news means all funds become Admiral shares where they get the lower expense ratios to keep even more money in my portfolios!






Disclosure: Long vtsmx, vtsax,vfinx, vfiax, spy

Disclosure: Long vtsmx, vtsax,vfinx, vfiax, spy