Warning Signs [Economic health indicators]

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Para45
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Re: Warning Signs [Economic health indicators]

Post by Para45 »

I also look for indicators , but do little about it since my investment is in Vanguard's 2020 target.
But watched a video by James Davidson, the sovereign investor, and he has some compelling thoughts/charts
showing 'doom' is closer than 'we' think. Has anyone else heard of him or watched his video, or read his book(s) ?
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Clearly_Irrational
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Re: Warning Signs [Economic health indicators]

Post by Clearly_Irrational »

Para45 wrote:I also look for indicators , but do little about it since my investment is in Vanguard's 2020 target.
But watched a video by James Davidson, the sovereign investor, and he has some compelling thoughts/charts
showing 'doom' is closer than 'we' think. Has anyone else heard of him or watched his video, or read his book(s) ?
Lots of people claiming "doom around the corner" most of them want to sell me a newsletter.
TareNeko
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Re: Warning Signs [Economic health indicators]

Post by TareNeko »

Would like to see an update on this after today's close.
Leeraar
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Re: Warning Signs [Economic health indicators]

Post by Leeraar »

Just heard on the radio: "Investors are rushing to safe havens like gold".

There you go, news you can use.

L. :twisted:
You can get what you want, or you can just get old. (Billy Joel, "Vienna")
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Clearly_Irrational
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Re: Warning Signs [Economic health indicators]

Post by Clearly_Irrational »

TareNeko wrote:Would like to see an update on this after today's close.
Still no signal. Remember, this is along the lines of an avalanche warning, it won't tell you prior to the start of the decline or even identify the top, but once the snow starts coming down the mountain you'll get a bit of warning before it hits the slopes. My personal IPS doesn't allow me to make any changes at this point.
Crow Hunter
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Re: Warning Signs [Economic health indicators]

Post by Crow Hunter »

Leeraar wrote:Just heard on the radio: "Investors are rushing to safe havens like gold".

There you go, news you can use.

L. :twisted:
They are getting a good deal too, since gold is down so far today, and so is silver.

Which is lucky for me because my wife is going to be buying me a ATB 5oz coin for my birthday! :mrgreen:
TareNeko
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Re: Warning Signs [Economic health indicators]

Post by TareNeko »

Clearly_Irrational wrote:
TareNeko wrote:Would like to see an update on this after today's close.
Still no signal. Remember, this is along the lines of an avalanche warning, it won't tell you prior to the start of the decline or even identify the top, but once the snow starts coming down the mountain you'll get a bit of warning before it hits the slopes. My personal IPS doesn't allow me to make any changes at this point.
I do understand that. I was just wondering the effect of today's decline on your warning sign calculation.
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Clearly_Irrational
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Re: Warning Signs [Economic health indicators]

Post by Clearly_Irrational »

TareNeko wrote:I do understand that. I was just wondering the effect of today's decline on your warning sign calculation.
Current stock prices have only minimal effect since it's mostly an economic indicator. PE10 is about the only component impacted and it actually went down (though that can be a bad sign coming off a top that's not something I watch for in a passive indicator like this).

Component readings are as follows:

Fed Changes: Green
USSLIND: Green
FRED Recession: Green
CFNAI-MA3: Green
Shiller PE10: Yellow
Yield Curve Inversion: Green
Dividend Cuts: Yellow

Numeric total is 14.29/100 (over 30 is generally bad).

There is some underlying weakness and the market has been frothy but it's been like that for a while. If you're using a passive strategy then there is no evidence to suggest a change in course would be warranted.
TareNeko
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Re: Warning Signs [Economic health indicators]

Post by TareNeko »

Thank you for the details. I do follow a passive, buy & hold strategy. I will also TLH probably today.
Leeraar
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Re: Warning Signs [Economic health indicators]

Post by Leeraar »

Crow Hunter wrote:
Leeraar wrote:Just heard on the radio: "Investors are rushing to safe havens like gold".

There you go, news you can use.

L. :twisted:
They are getting a good deal too, since gold is down so far today, and so is silver.

Which is lucky for me because my wife is going to be buying me a ATB 5oz coin for my birthday! :mrgreen:
I agree, that some gold and silver objects are beautiful.

But, I would not buy them with the expectation that someone will pay me more for them in the future.

L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")
letsgobobby
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Re: Warning Signs [Economic health indicators]

Post by letsgobobby »

The cumulative AD line and the Dow transports have been headed down for months. OP does not use these indicators, but others do.
Crow Hunter
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Re: Warning Signs [Economic health indicators]

Post by Crow Hunter »

Leeraar wrote:
Crow Hunter wrote:
Leeraar wrote:Just heard on the radio: "Investors are rushing to safe havens like gold".

There you go, news you can use.

L. :twisted:
They are getting a good deal too, since gold is down so far today, and so is silver.

Which is lucky for me because my wife is going to be buying me a ATB 5oz coin for my birthday! :mrgreen:
I agree, that some gold and silver objects are beautiful.

But, I would not buy them with the expectation that someone will pay me more for them in the future.

L.
I agree as well. I just like to collect the ATB coins for the national parks that we have visited and enjoyed. I don't plan on ever getting rid of them. Just getting them out of the gun safe periodically and admiring them.
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Clearly_Irrational
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Re: Warning Signs [Economic health indicators]

Post by Clearly_Irrational »

letsgobobby wrote:The cumulative AD line and the Dow transports have been headed down for months. OP does not use these indicators, but others do.
I paid more attention to them when I was actively trading. I do still look at the Baltic dry index and rail traffic now and then but more as a confirmation type of thing than something predictive.
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Clearly_Irrational
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Re: Warning Signs [Economic health indicators]

Post by Clearly_Irrational »

Massive spike in corporate dividend cuts reported today, from 15 in August to 43 in September! (anything over 30 is quite bad) Other signals are still muted but they're on more of a reporting lag so it's possible they'll start deteriorating soon. No action to take at the moment, it's still too early to tell. I suppose it could be mostly related to the VW scandal rather than an indication of something larger.
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Re: Warning Signs [Economic health indicators]

Post by Grt2bOutdoors »

Clearly_Irrational wrote:Massive spike in corporate dividend cuts reported today, from 15 in August to 43 in September! (anything over 30 is quite bad) Other signals are still muted but they're on more of a reporting lag so it's possible they'll start deteriorating soon. No action to take at the moment, it's still too early to tell. I suppose it could be mostly related to the VW scandal rather than an indication of something larger.
Dollars to donuts, most of the dividend cuts came from Energy based companies. Nothing to see here, keep investing.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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Clearly_Irrational
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Re: Warning Signs [Economic health indicators]

Post by Clearly_Irrational »

Grt2bOutdoors wrote:Dollars to donuts, most of the dividend cuts came from Energy based companies. Nothing to see here, keep investing.
Hadn't looked at the breakdown by sector. That's interesting, I thought most of the energy company carnage was over at this point. Apparently some of them must have been more optimistic till recently. The other signals are still fine so I'm busy twiddling my fingers. IPS says hands off the wheel.
michaelsieg
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Re: Warning Signs [Economic health indicators]

Post by michaelsieg »

It would be interesting to know, if any of the previously discussed warning signs were showing an increased likelihood of this current downturn before it happened- of course it is hindsight now, but it would be interesting to check it out and might help to validate (or dismiss) some of these indicators.
Has anyone looked into them?
long_gamma
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Re: Warning Signs [Economic health indicators]

Post by long_gamma »

Here is the update of Maynard's chart.

Image

Chicago Fed index is been week pretty much last year. I like GDP now from Atlanta Fed. This is updated weekly, compared to 3 month lag of other series.

Image
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long_gamma
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Re: Warning Signs [Economic health indicators]

Post by long_gamma »

Another recession probability index from Atlanta Fed, with 2 month lag

Image
"Everyone has a plan 'till they get punched in the mouth." --Mike Tyson
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Clearly_Irrational
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Re: Warning Signs [Economic health indicators]

Post by Clearly_Irrational »

The indicators I'm using for crash detection aren't necessarily the best ones for predicting stock market moves that don't involve crashes. For general use, I usually look at this model:

http://politicalcalculations.blogspot.c ... qEEa_FnT68

Image
garlandwhizzer
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Re: Warning Signs [Economic health indicators]

Post by garlandwhizzer »

It is quite difficult to consistently predict when a market crash/recession/depression is going to occur in actionable time before it occurs. The so called financial experts and the media talking heads and the purveyors of funds, efts in either active or passive management failed as a group to predict the tech bubble collapse in 2000. Rather their prevalent opinion was that we had entered a new era in which old measures of valuation like PE and PB were no longer applicable. The same groups also almost universally failed to see beforehand the real estate-financial bubble collapse in 2007 - 2009. Instead the financial firms posted massive profits as the economy and the stock market boomed. After the catastrophe is underway they all figure it out, but beforehand as a group they use lead glasses when looking into the future just as we all do. These two equity collapses were the worst since the Great Depression which likewise was unanticipated by the "experts". If the wise guys and chartists miss such huge obvious catastrophic events that in retrospect after the damage is done seem so apparent and so easy to predict, why should we believe that they now have actionable foreknowledge in our the current rather mild correction?

I think it's simple. If we and the world go into a global recession (which is typically known only after it has been going on for 6 months plus) the market will go down further from where it is now. If instead we avoid global recession and go on a path of increasingly stable economic growth, the market will go up from where it is now. Unfortunately choosing which is going to occur in the future amounts to a bet and like a bet, you can win or lose based on factors beyond your control. Personally I believe that a US or global recession is an unlikely eventual outcome and that our current fears will dissipate over time given sufficient patience. I do not have sufficient confidence in that view however to increase my current portfolio risk profile.

Garland Whizzer
mad_max
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Re: Warning Signs [Economic health indicators]

Post by mad_max »

Clearly_Irrational: Would you consider posting your full investment statement sometime? Thank you for your posts, they are very informative.
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patrick013
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Re: Warning Signs [Economic health indicators]

Post by patrick013 »

Here's a conflicting indicator.

Corp EPS is down - Bond prices are up - Bond volumes are up.......

All clues of slowed growth. One proof of that would be decreased
Corp bond issuance as additional debt funding would not be needed
to fund future expected growth for companies that fund growth to some
percentage thru debt issuance. Well Corp bond issuance has increased
thru the 1st quarter. Enough to nullify the idea that a drastic reduction
in expected growth has drastically reduced debt issuance. It hasn't.

TRSY debt volume sales and issuance has decreased so the flight to quality
may be maturing and some increase in TRSY yields may return in coming months.
As the saying goes, prices must go up before they go down, so they have
gone up and must have to go down then.

Can't find that certain clue except EPS where growth is adversely highlighted.
A profit recession with some growth is hard to fathom.
age in bonds, buy-and-hold, 10 year business cycle
Leeraar
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Re: Warning Signs [Economic health indicators]

Post by Leeraar »

patrick013 wrote:Here's a conflicting indicator.

Corp EPS is down - Bond prices are up - Bond volumes are up.......

All clues of slowed growth. One proof of that would be decreased
Corp bond issuance as additional debt funding would not be needed
to fund future expected growth for companies that fund growth to some
percentage thru debt issuance. Well Corp bond issuance has increased
thru the 1st quarter. Enough to nullify the idea that a drastic reduction
in expected growth has drastically reduced debt issuance. It hasn't.

TRSY debt volume sales and issuance has decreased so the flight to quality
may be maturing and some increase in TRSY yields may return in coming months.
As the saying goes, prices must go up before they go down, so they have
gone up and must have to go down then.

Can't find that certain clue except EPS where growth is adversely highlighted.
A profit recession with some growth is hard to fathom.
Maybe if you have another cup of tea the leaves will provide new information.

L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")
fortyofforty
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Re: Warning Signs [Economic health indicators]

Post by fortyofforty »

Was on a long road trip yesterday, so ended up listening to a radio show I hadn't heard in a while. The host was predicting not just an economic downturn but a catastrophic, worldwide economic collapse the likes of which we haven't seen since the Great Depression. If it comes, I won't be as prepared as I need to be. I am ready for a rainy day, and even for a rainy week or month, but not forty days and forty nights of torrential downpours. I hope he's wrong. :beer
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blueblock
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Re: Warning Signs [Economic health indicators]

Post by blueblock »

fortyofforty wrote:...not just an economic downturn but a catastrophic, worldwide economic collapse the likes of which we haven't seen since the Great Depression.
Anything's possible, I suppose, but The Economist Global Forecasting Service's most recent report (March) talks about "sluggish growth," not catastrophe.

http://gfs.eiu.com/
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patrick013
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Re: Warning Signs [Economic health indicators]

Post by patrick013 »

Leeraar wrote:
patrick013 wrote:Here's a conflicting indicator.

Corp EPS is down - Bond prices are up - Bond volumes are up.......

All clues of slowed growth. One proof of that would be decreased
Corp bond issuance as additional debt funding would not be needed
to fund future expected growth for companies that fund growth to some
percentage thru debt issuance. Well Corp bond issuance has increased
thru the 1st quarter. Enough to nullify the idea that a drastic reduction
in expected growth has drastically reduced debt issuance. It hasn't.

TRSY debt volume sales and issuance has decreased so the flight to quality
may be maturing and some increase in TRSY yields may return in coming months.
As the saying goes, prices must go up before they go down, so they have
gone up and must have to go down then.

Can't find that certain clue except EPS where growth is adversely highlighted.
A profit recession with some growth is hard to fathom.
Maybe if you have another cup of tea the leaves will provide new information.
Well I finished my Barron's this morning. Energy sector is holding the place
down. Currency rates are holding the place down. But, the put/call ratio
is bullish. Somebody for some reason thinks the 500 is worth a 22 PE
where the value of the output and quality of earnings will continue to be
prime factors in the near future. Future growth can be pricey in valuation
with a high PE that displays so.

About as far as I can go metric wise.
age in bonds, buy-and-hold, 10 year business cycle
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Clearly_Irrational
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Re: Warning Signs [Economic health indicators]

Post by Clearly_Irrational »

fortyofforty wrote:The host was predicting not just an economic downturn but a catastrophic, worldwide economic collapse the likes of which we haven't seen since the Great Depression.
There are certainly some weird things going on with the economy but I don't claim to have enough knowledge to back a prediction of that magnitude. I work pretty hard just to be able to tell when things have started declining and aren't done going down yet. There are a few knowledgeable people I listen to and none of them are saying the sky is falling so I'm not too stressed about that at the moment.
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Clearly_Irrational
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Re: Warning Signs [Economic health indicators]

Post by Clearly_Irrational »

Dividend cuts are red but everything else looks the same.

Dividend Cuts in the last six months:
OCT 2015: 22
NOV 2015: 35
DEC 2015: 40
JAN 2016: 55
FEB 2016: 64
MAR 2016: 70

Anything over 20 is usually unhealthy with over 30 being a very bad sign. For comparison the worst part of the housing crisis peaked out at 81 dividend cuts in Mar 2009 one month after the market bottom. Still, the lack of confirmation from the other signals means there is no action to take at the moment. A possible interpretation is that it's a continuation of the energy market bloodbath plus wage pressure from a strengthening labor market, but since it's so easy to create stories that explain the data I don't put much weight on that.
Leeraar
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Re: Warning Signs [Economic health indicators]

Post by Leeraar »

Clearly_Irrational wrote:Dividend cuts are red but everything else looks the same.

Dividend Cuts in the last six months:
OCT 2015: 22
NOV 2015: 35
DEC 2015: 40
JAN 2016: 55
FEB 2016: 64
MAR 2016: 70

Anything over 20 is usually unhealthy with over 30 being a very bad sign. For comparison the worst part of the housing crisis peaked out at 81 dividend cuts in Mar 2009 one month after the market bottom. Still, the lack of confirmation from the other signals means there is no action to take at the moment. A possible interpretation is that it's a continuation of the energy market bloodbath plus wage pressure from a strengthening labor market, but since it's so easy to create stories that explain the data I don't put much weight on that.
It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness,
L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")
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patrick013
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Re: Warning Signs [Economic health indicators]

Post by patrick013 »

A picture tells a thousand stories. These are all actual year-end numbers.

Image
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Valuethinker
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Re: Warning Signs [Economic health indicators]

Post by Valuethinker »

fortyofforty wrote:Was on a long road trip yesterday, so ended up listening to a radio show I hadn't heard in a while. The host was predicting not just an economic downturn but a catastrophic, worldwide economic collapse the likes of which we haven't seen since the Great Depression. If it comes, I won't be as prepared as I need to be. I am ready for a rainy day, and even for a rainy week or month, but not forty days and forty nights of torrential downpours. I hope he's wrong. :beer

There is a distinguished record of doom mongers, in each generation. I remember the same well in the 1980s. Ravi Bahtra. Joe Granville etc.

(aside
American talk radio is pretty wretched stuff-- all owned by a couple of conglomerates that syndicate the same content everywhere-- AFAIK there aren't really "local" radio stations.. I wouldn't rely on it for my news. If you want radio news either listen to the BBC World Service or your own (excellent) NPR, if you can.

It's really sad the way radio, once a vibrant heart of American culture and music, has declined in the last 2-3 decades. end aside)

The reality is that very few people say 2008 coming. And almost no one predicted the gravity of it-- it wasn't predictable that the Treasury and the Fed would allow a major US financial institution (ie Lehman Brothers) to go bust- -that was, in retrospect, a gross policy error that took a bad situation and made it extreme.

The next world crisis will, almost by definition, come from something we are not expecting. A war in the Middle East leading to another oil crisis. A collapse of the Eurozone, US domestic political earthquake, etc.

The reality is the world economy is hardly strong, and China is struggling (and maybe digging itself into a deeper hole by expanding capital spending and credit to fight the recession). But it's not crippling at the moment. We can conjure horror stories (Brasil!) but things are ticking along at the moment.

Similarly although there are a lot of issues in the world financial system (and maybe diminished appetite/ capacity for governments to bail it out) the banks have a lot more capital than they did in 2008, and there's more regulatory scrutiny. You can see pockets of trouble (Sub Prime Car Loans, for example) but not a general sense of mania that we had in 2007, say.

More likely is we are in a kind of quasi Japan. Eurozone worst, but the Anglosphere struggling to generate growth.

The good news is that government borrowing rates (investment grade) are probably the lowest in world history. Now that's a sign the patient is not well (insufficient private sector demand for capital) but it also offers alternatives to the present state of affairs. Prepare for a helicopter drop. And if Japan tries that, and it looks like it is working, it won't be the last country to try it.

A very good point to me was made about the 1970s. The 1970s saw stagflation, but it also saw widespread urban guerilla movements-- SLA and some of the SDS spinouts in the USA, Baader Meinhof and Red Army Faction in Germany, IRA in the UK (469 people died of terrorist incidents in 1973 in the UK, the worst year), Japanese Red Army (remember Lod Airport in Israel?), PLA etc.

It really did feel as if western society and the postwar consensus was under attack, and the Soviet Union and Marxist-Leninism were there to pick up the pieces. Combined with stagflation it felt like an existential crisis. The threat of nuclear war was arguably greater (it's more diffuse now in that the possible pairings are much wider than USA-USSR).

This time, although terrorism is frightening, and the risk of them acquiring a dirty bomb or another weapon of mass destruction, is very real, it comes from very isolated minorities within our own society and the Middle East. ISIS itself is facing the problem of territorial and military stagnation-- it's OK to seize power, but how do you rule when your policies make mortal enemies of all your neighbors?

Terrorism ex 9-11 has killed a lot fewer people in western societies this time than it did in the 1970s. The arguments now are about how fast China will become a developed nation, and India behind it, rather than whether they will follow a totally different economic model.

So, in fact, the world is in better shape, all in all, than it was in the 1970s. Both economically and politically.
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Frugal Al
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Re: Warning Signs [Economic health indicators]

Post by Frugal Al »

Valuethinker wrote: If you want radio news either listen to the BBC World Service or your own (excellent) NPR, if you can.
Although I enjoy some NPR programming, it is far from excellent. If I understand you correctly, Vt, you're saying one should carefully choose their biased news source. And (I'd add) they should carefully understand the nature of their bias--whether it is investment/finance/economics porn, or whatever.
Comhaltas
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Re: Warning Signs [Economic health indicators]

Post by Comhaltas »

Clearly_Irrational wrote:Dividend cuts are red but everything else looks the same.

Dividend Cuts in the last six months:
OCT 2015: 22
NOV 2015: 35
DEC 2015: 40
JAN 2016: 55
FEB 2016: 64
MAR 2016: 70

Anything over 20 is usually unhealthy with over 30 being a very bad sign. For comparison the worst part of the housing crisis peaked out at 81 dividend cuts in Mar 2009 one month after the market bottom. Still, the lack of confirmation from the other signals means there is no action to take at the moment. A possible interpretation is that it's a continuation of the energy market bloodbath plus wage pressure from a strengthening labor market, but since it's so easy to create stories that explain the data I don't put much weight on that.
I always enjoy Clearly_Irrational's "predictions", but have not seen any recent postings... If you are still around, I would love to read your latest thoughts.
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