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The latest Headline PCE price index year-over-year (YoY) rate of 1.62% is a relatively large increase the previous month’s 1.14% (a slight adjustment from 1.15%). The Core PCE index of 1.42% is up from 1.21% the previous month. The general disinflationary trend in core PCE (the blue line in the charts below) must be quite troubling to the Fed. After years of ZIRP and waves of QE, this closely watched indicator consistently moved in the wrong direction. Since April of last year has hovered in a narrow YoY range of 1.21% to 1.10%, although the April data point has broken above the range. Is this the beginning of a major trend reversal? This will be a closely watched series by the ongoing inflation/deflation debate.
The first chart below shows the monthly year-over-year change in the personal consumption expenditures (PCE) price index since 2000. I’ve also included an overlay of the Core PCE (less Food and Energy) price index, which is Fed’s preferred indicator for gauging inflation. I’ve highlighted 2 to 2.5 percent range. Two percent had generally been understood to be the Fed’s target for core inflation. However, the December 2012 FOMC meeting raised the inflation ceiling to 2.5% for the next year or two while their accommodative measures (low FFR and quantitative easing) are in place. I’ve calculated the index data to two decimal points to highlight the change more accurately. It may seem trivial to focus such detail on numbers that will be revised again next month (the three previous months are subject to revision and the annual revision reaches back three years). But core PCE is such a key measure of inflation for the Federal Reserve that precision seems warranted. For a long-term perspective, here are the same two metrics spanning five decades. (Source: Advisor Perspectives) |
The adjacent thumbnail gives us a close-up of the trend in YoY Core PCE since January 2012. I’ve highlighted the narrow 12-month range that appears to have been breached to the upside in April.
A monthly gauge of U.S. consumer sentiment fell in May as a gloomy view on income growth clouded an otherwise positive economic outlook, a survey released on Friday showed.
The Thomson Reuters/University of Michigan’s final May reading on the overall index on consumer sentiment came in at 81.9, down from 84.1 the month before.
It was also below the expectation of 82.5 among economists polled by Reuters. However it did show a slight increase from the preliminary reading issued on May 16.
(Source: Reuters)
Japan’s core consumer prices jumped 3.2 percent in April from a year earlier, government data showed on Friday, the fastest gain since February 1991 as an increase in Japan’s national sales tax boosted prices across the board.
The increase in the core consumer price index, which excludes volatile fresh food prices but includes oil products, compared with economists’ median estimate for a 3.1 percent rise, the Ministry of Internal Affairs and Communications said.
That followed a 1.3 percent increase in March, posting the 11th straight month of annual gains.
The Bank of Japan estimates that the sales tax hike – to 8 percent from 5 percent that took effect on April 1 – will add 1.7 percentage points to Japan’s annual consumer inflation in April, and 2.0 points from the following month. The internal affairs ministry does not provide official estimates.
The so-called core-core inflation index, which excludes food and energy prices and is similar to the core index used in the United States, rose 2.3 percent in April from a year earlier, the fastest annual gain since December 1997.
Core consumer prices in Tokyo, available a month before the nationwide data and seen as a leading indicator of nationwide inflation, rose 2.8 percent in May from a year earlier, posting the quickest rise since April 1992.
In the absence of any significant news, and with the Ukrainian situation easing somewhat, market volatility, as measured by the VIX has fallen to a 14 month low. Today VIX is trading just 0.65 above the March 14, 2013 low of 11.05, which was the low reached in this bull market. Many believe that a low VIX, which is sometimes called the “fear index,” indicates investor complacency, suggesting that the market is near its peak. Indeed the VIX hit a low of 9.36 in December 2006, 10 months before the peak of the stock market and the beginning of the greatest bear market in 75 years.
But the ability of the VIX to predict bear markets is spotty at best. The lowest level the VIX has ever reached since it was first computed in the mid 1980s, was 8.89 in December 1993. Although the onset of 1994 was rough because of the unexpected rate increase put in by Fed Chief Alan Greenspan, the secular bull market was still well intact. Another intermediate low for the VIX of 10.00 was reached on March 1995,
but that also did not mark a market peak. In fact the VIX continued to rise in the last five years of the great 1982-2000 bull market which peaked on March 2000.
The Chicago Board Options Exchange Volatility Index, or VIX, is widely considered to be stocks’ “fear gauge.” When things get wild, usually the VIX will increase in value. A portion of the investment community points to this as us being “lulled to sleep by complacency,” and the law of averages will bring us back to more volatile times. However, they may also have simply grown too accustomed to what could turn out to be a brief period in history when volatility was abnormally high. Whatever the case, the S&P 500 has traded in a tight range of only 4.5 percent since March 4, according to the Wall Street Journal. This calmness among stocks has been eerie to some, and surprising to almost everyone.
Is this the calm before the storm? Is Sell-In-May-And-Go-Away going to cause the VIX to go higher?
(Source: WSJ, etc.)
| Rank | School | Endowment | Change from 2012 |
|---|---|---|---|
| 1 | Harvard University | $32,334,293,000 | 6.2% |
| 2 | Yale University | $20,780,000,000 | 7.4% |
| 3 | University of Texas System | $20,448,313,000 | 12.0% |
| 4 | Stanford University | $18,688,868,000 | 9.7% |
| 5 | Princeton University | $18,200,433,000 | 7.4% |
| 6 | Massachusetts Institute of Technology | $11,005,932,000 | 6.8% |
| 7 | Texas A&M University System and Foundations | $8,732,010,000 | 14.3% |
| 8 | University of Michigan | $8,382,311,000 | 9.0% |
| 9 | Columbia University | $8,197,880,000 | 7.1% |
| 10 | Northwestern University | $7,883,323,000 | 10.7% |
| 11 | University of Pennsylvania | $7,741,396,000 | 14.6% |
| 12 | University of Notre Dame | $6,856,301,000 | 8.3% |
| 13 | University of Chicago | $6,668,974,000 | 1.5% |
| 14 | University of California | $6,377,379,000 | 7.0% |
| 15 | Duke University | $6,040,973,000 | 8.7% |
| 16 | Emory University | $5,816,046,000 | 6.5% |
| 17 | Washington University in St. Louis | $5,651,860,000 | 8.1% |
| 18 | Cornell University | $5,272,228,000 | 6.6% |
| 19 | University of Virginia | $5,166,660,000 | 7.9% |
| 20 | Rice University | $4,836,728,000 | 9.5% |
Note: The change in endowment value reflects investment returns, additions from donor gifts and other contributions, fee payments and university withdrawals during the fiscal year ended June 30, 2013.
Source: 2013 NACUBO-Commonfund Study of Endowments
Source: 2013 NACUBO-Commonfund Study of Endowments
First Published: January 28, 2014: 3:06 PM ET