Weekly Cyclical Fundamental Indicator (WCFI)
The WCFI did tick up in the past week, but is exactly even with the Mar. 2 reading. Since that
point, the SPX has advanced 2%. The main reason the WCFI did not advance over the past month
is moderate weakness in cyclically sensitive materials prices (see 3/23 post for more). WCFI
flatness over the past four weeks challenges the uptrend underway since late 2011 and also
may reflect the pattern of stronger cyclical economic momentum seen over the 4Q / 1Q intervals
in recent years (see 4/6 post just below). The moral here is to watch industrial commodities
prices like copper in the period just ahead.
Quantitative Easing And Two Track Credit Results
The Fed has been cutting back the currency swap line to foreign CBs and its balance sheet has
retreated to levels seen at the end of QE2 on 6/30/11. Those players who have only wanted to
trade long with QE at their backs must now confront the recent retreat of Fed Bank Credit.
The banking system's real estate loan book has not grown over the past year, but lending
excluding real estate has advanced by 10.3 %, powered primarily by a sharp recovery in
shorter term business loans to fund rising working capital needs. The construction market is
turning around, so bank mortgage, lease and real estate development financing should eventually
improve, although the process is obviously still being impeded by writeoffs and foreclosures
in the still troubled housing sector.
When there is no QE, investors must satisfy themselves that private sector credit growth is
adequate to fund continuing progress for the real economy. That time is at hand now as well.
- Peter Richardson
- Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!