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We are decidedly in interesting times. Precisely which times those may be is highly dependent on what information one is considering at the moment.
Tacitus has dug into the Federal Reserve databases seeing what might rear its head. One the surface, the Fed’s economists are quite upbeat, predicting a robust recovery in several sectors. But then, their job is to function as official cheerleaders, as much as they can get away with.
Looking at the Fed’s own official background radiation detector for hints of inflation and deflation, the venerable CFNAI (Chicago Fed National Activity Index), we do see an energetic rebound from the recent low. However, the index remains in potentially deflationary territory, which means, cheerleading or not, the Fed definitely plans on erring on the inflationary side.
We’ve done a little deeper analysis of CFNAI, this time taking the entire data series going back to 1967 and applying a Fourier Transform to see if there are any internal cycles that might help us anticipate the comings and goings of the economy. Indeed, we did find two cycles, roughly a 5 year cycle that coexists with roughly an 8 year cycle. This did a nice job of picking up the last major cycle and seems to suggest a moderate rebound as the 5 and 8 year cycles are out of sync this time.
Contemplating the year over year percentage change in retail sales (which can be unpredictable) it looks like business has snapped back to normal levels. This may have been a relief rally of holiday buying though, as it suspiciously coincided with the Christmas shopping season.
Under the circumstances, it would not be surprising if government economists were cooking the books as a confidence sustaining measure. They have been known to do such things. The “financial media” are often surprisingly gullible, taking statistical releases at face value. We’re not so sure. It’s a little TOO pretty for our comfort.
On the other hand, when we look at housing starts, as opposed to toaster ovens, the picture doesn’t communicate the same brio. As a matter of fact it looks downright miserable. The Chicago Fed insists we’re do for a nice springy real estate rebound in 2010. Judging from the data, anything will be able to qualify as a rebound off of this base!
And for the grand finale, we have a chart of the federal Surplus/Deficit going all the way back to 1895. Right. That’s not a typo. Not 1995 (ancient history by most standards) but no, 1895, when Grover Cleveland was president. Many people never heard of Grover Cleveland. He probably was responsible for this statistical series. A toast to President Cleveland!
You may notice that the gross federal deficit looks, well, downright bizarre compared to its entire history. As in absolutely, breathtakingly monstrous. In case you were wondering just how much it cost to, ummmm, underwrite this magnificent recovery we are currently enjoying, you might begin with this.
For some final thoughts… in the following video Marc Faber discusses his perspective on the medium term investment environment and the concern that the market may be fully priced for now.
