Ben’s Charts of the Week, 1/4-1/8/16

As a new addition to our website, Ben is going to be posting weekly charts that Treece Investments have been taking note of, and what that data could mean for markets moving forward. Here are the charts that piqued our interest the most this week.

Treasuries

Purchases of US Treasury bonds by foreign officials have declined significantly in the last 18 months, down $189 billion. Foreign demand and QE have been supporting the the price of government bonds following the financial crisis in 2008. If foreign officials stop buying, yields may begin to rise, and prices fall.

According to the latest NBC poll, Donald J. Trump holds a commanding lead over Senators Cruz and Rubio. While it is still early, those surveyed seem to have made up their minds…

At these numbers, love him or hate him, Trump seems to be the most viable candidate going in to the RNC.

ShillerPE

This image shows us the Shiller PE Ratio, which measures cyclically adjusted stock prices to earnings (measured using the S&P500). As the data shows, the historical average for this ratio is 16.65 dating back to 1880, with the lower bound being just under 5 and the upper bound near 44. The current ratio is at 25.23. If this ratio reverted back to it’s historical mean, that would put the S&P 500 at 1270 and the Dow Jones Industrial Average at under 11,000.

DXY

The US Dollar (as measured by DXY, the US Dollar Index) has been on a tear since 2014. While a stronger dollar helps consumers, it can be catastrophic to producers, as foreign consumers lose demand for US produced goods and services due to losses on currency exchange. We are keeping a close eye on earnings of companies with global exposure as well as the US Balance of Trades.

DJT-1024x554

The Dow Jones Transportation Index, a leading economic indicator, has been on the decline. If goods are not being shipped, it is only a matter of time until goods stop being produced, which can lead to unemployment and eventually recession. Combating the strong USD should be the Fed’s number 1 priority at this time.

crude2

Crude inventories have been rising over the last year due to increased production in the US as well as in the Middle East. Oil prices can be volatile for many reasons, including geopolitical unrest, however the prices are also a function of supply and demand, and as the supply rises…

Crude-768x552

The prices inevitably fall. Falling prices hurt refiners as their margins shrink, however the economy typically benefits as discretionary spending rises. Unfortunately, consumers have been using cost savings to pay down debt, and the economy has seen little benefit.

baltic

Lastly and perhaps the most unique of charts today is the Baltic Dry Index. The BDI is an index that tracks the price to ship raw materials by sea. It also just hit an all time low this last week. Much like oil prices, lower costs typically transcend to the consumer, however we have not been noticing a major global benefit, as manufacturing data continues to come in soft and retail sales are reported as weak.

Ben Treece is a partner with Treece Investment Advisory Corp (www.TreeceInvestments.com) and licensed with FINRA (www.Finra.org) through Treece Financial Services Corp. The above information is the opinion of Ben Treece and should not be construed as investment advice or used without outside verification.
« Back to the blog.