Buffett's favorite leading economic indicator
July 9, 2009 11:37 AM Subscribe
Warren Buffett says his favorite economic indicator (last 30sec) is the FTSI or Freight Transportation Services Index (blue line). Since 1979, across four recessions, the index "shows a strong leading relationship to the economy", with an acceleration of freight leading the economy "by an average of approximately 4 to 5 months". Explanation of the index (recommend PDF version), most recent analysis (July 2009).
The May decline was the smallest of the three consecutive decreases.
The stimulus is working!
posted by Faze at 11:49 AM on July 9, 2009
The stimulus is working!
posted by Faze at 11:49 AM on July 9, 2009
Meanwhile, Jimmy Buffet prefers the Margarita Index, which isn't tracked very diligently and shows almost no correlation to other trending, but Jimmy doesn't care.
posted by Navelgazer at 11:54 AM on July 9, 2009 [12 favorites]
posted by Navelgazer at 11:54 AM on July 9, 2009 [12 favorites]
Less bad is the new good!
posted by diogenes at 11:54 AM on July 9, 2009 [9 favorites]
posted by diogenes at 11:54 AM on July 9, 2009 [9 favorites]
After you're dead, further lack of change in your pulse rate can be considered a good sign.
posted by ardgedee at 11:58 AM on July 9, 2009
posted by ardgedee at 11:58 AM on July 9, 2009
Less bad is about all we can hope for.
posted by anti social order at 11:59 AM on July 9, 2009
posted by anti social order at 11:59 AM on July 9, 2009
All-You-Can-Eat Buffet's favorite eating policy is that you finish your plate before going back for seconds.
posted by Blazecock Pileon at 12:00 PM on July 9, 2009 [1 favorite]
posted by Blazecock Pileon at 12:00 PM on July 9, 2009 [1 favorite]
The 14.8 percent decline in the Freight TSI from May 2008 to May 2009 was the largest May-to-May decline in the 20 years for which the TSI is calculated.
Ouch!
On the other hand, Planet Money tells me that the TED Spread is over 1, which is good for some reason that I don't recall.
posted by diogenes at 12:02 PM on July 9, 2009
Ouch!
On the other hand, Planet Money tells me that the TED Spread is over 1, which is good for some reason that I don't recall.
posted by diogenes at 12:02 PM on July 9, 2009
It measures passengers. Does it correct for people traveling less because of advances in communication? I'm currently working with software developers in Ukraine, Australia, Quebec and the Netherlands. I don't need to leave Seattle to do this. Five years ago, I probably would've been schlepping to all of these places.
posted by Cool Papa Bell at 12:08 PM on July 9, 2009
posted by Cool Papa Bell at 12:08 PM on July 9, 2009
That was more like "Reading Things About the TED Spread" than "Understanding the TED Spread" for me. Can someone explain via interpretive dance?
posted by Mister_A at 12:08 PM on July 9, 2009 [2 favorites]
posted by Mister_A at 12:08 PM on July 9, 2009 [2 favorites]
I'm dancing my ass off over here. Does it make sense yet?
posted by nebulawindphone at 12:13 PM on July 9, 2009
posted by nebulawindphone at 12:13 PM on July 9, 2009
I'm dancing my ass off over here. Does it make sense yet?
Move closer to the camera and take your shirt off.
posted by Cool Papa Bell at 12:17 PM on July 9, 2009 [3 favorites]
Move closer to the camera and take your shirt off.
posted by Cool Papa Bell at 12:17 PM on July 9, 2009 [3 favorites]
If the spread on toasted bread products offered at the TED conference is a nondairy substitute, the economy is doing POORLY.
If the spread on toasted bread products offered at the TED conference is organic butter, the economy is doing WELL.
doy!
posted by everichon at 12:18 PM on July 9, 2009 [1 favorite]
If the spread on toasted bread products offered at the TED conference is organic butter, the economy is doing WELL.
doy!
posted by everichon at 12:18 PM on July 9, 2009 [1 favorite]
It measures passengers.
The Passenger TSI measures passengers; the Feight TSI, which is what this post is about, measures freight.
posted by zsazsa at 12:23 PM on July 9, 2009 [2 favorites]
The Passenger TSI measures passengers; the Feight TSI, which is what this post is about, measures freight.
posted by zsazsa at 12:23 PM on July 9, 2009 [2 favorites]
Or, from the Econobrowser link:
One can break the TED spread down into separate components using the meow meow. Meow meow meow meow, meowmeow meow meow:
MEOW = (MEOW - MEOW)
meow meow meow meow:
(MEOW - MEOW) = (MEOW - MEOW) + (MEOW - MEOW) + (MEOW - MEOW)
Meow meow meow, meow meow meow, MEOW - MEOW, meow meow meow meow meow meow. Meow meow meow, meow meow meow meow meow meow. Meow meow meow:
(MEOW - MEOW) = PFFFFFFT
posted by everichon at 12:24 PM on July 9, 2009 [26 favorites]
One can break the TED spread down into separate components using the meow meow. Meow meow meow meow, meowmeow meow meow:
MEOW = (MEOW - MEOW)
meow meow meow meow:
(MEOW - MEOW) = (MEOW - MEOW) + (MEOW - MEOW) + (MEOW - MEOW)
Meow meow meow, meow meow meow, MEOW - MEOW, meow meow meow meow meow meow. Meow meow meow, meow meow meow meow meow meow. Meow meow meow:
(MEOW - MEOW) = PFFFFFFT
posted by everichon at 12:24 PM on July 9, 2009 [26 favorites]
Please note that I am not a professional economist.
posted by everichon at 12:26 PM on July 9, 2009 [2 favorites]
posted by everichon at 12:26 PM on July 9, 2009 [2 favorites]
Meow meow meow, meow meow meow, MEOW - MEOW, meow meow meow meow meow meow. Meow meow meow, meow meow meow meow meow meow. Meow meow meow:
Is that the Meow Mix?
posted by Blazecock Pileon at 12:38 PM on July 9, 2009
Is that the Meow Mix?
posted by Blazecock Pileon at 12:38 PM on July 9, 2009
everichon is my new mefi hero forever. thank you, everichon.
posted by verb at 12:53 PM on July 9, 2009
posted by verb at 12:53 PM on July 9, 2009
Well if I understand the Econbrowser article correctly, the TED spread (Treasury-bill EuroDollar) is the difference between the 3 month LIBOR rate and the 3 month T-bill rate. The greater the spread, the less sure Euro banks are about each other's ability to pay off loans in the short-term future. I don't know why a spread greater than 1% would be good though.
Or in more words, the difference between two rates, A and B, where A is the average cost of borrowing for a 3 month loan offered between London banks and B is the required rate of return on 3 month T-bills. T-bills are assumed to be the safest investment so it acts as the minimum market rate of return on any investment. Generally, loans between banks are assumed to be safe too so the LIBOR rate (A) should only be slightly above the T-Bill rate (B), the small spread accounting for the minimal risk.
If Euro banks question the ability of other banks to repay their loans in the short-term future (3 months), they will demand a greater interest rate to account for the increased probability of default. This pushes up the LIBOR rate and thus the TED spread. The implication is that the greater this spread, the less sure (Euro) banks are about the short-term economic future. I'm not sure what this says about US banks if the T-Bill rate remains that low relative to the LIBOR.
I'm not an economist either
posted by tksh at 1:53 PM on July 9, 2009
Or in more words, the difference between two rates, A and B, where A is the average cost of borrowing for a 3 month loan offered between London banks and B is the required rate of return on 3 month T-bills. T-bills are assumed to be the safest investment so it acts as the minimum market rate of return on any investment. Generally, loans between banks are assumed to be safe too so the LIBOR rate (A) should only be slightly above the T-Bill rate (B), the small spread accounting for the minimal risk.
If Euro banks question the ability of other banks to repay their loans in the short-term future (3 months), they will demand a greater interest rate to account for the increased probability of default. This pushes up the LIBOR rate and thus the TED spread. The implication is that the greater this spread, the less sure (Euro) banks are about the short-term economic future. I'm not sure what this says about US banks if the T-Bill rate remains that low relative to the LIBOR.
I'm not an economist either
posted by tksh at 1:53 PM on July 9, 2009
It's like, you have two numbers, right? And they used to be close together, so people would subtract them, to see how far apart they were. And then graph it, because even financial people just like to look at pictures. Well, when things went in the toilet, they got really far apart. They even had to change the scale on the graph! Bummer, dude. So if the numbers are getting closer, that's good, because we're getting back to the time before we all hated the economy. You know, when everything really was awful, but we didn't know about it yet. Ignorance = bliss, baby. Can't happen twice, I'm sure.
posted by smackfu at 2:01 PM on July 9, 2009
posted by smackfu at 2:01 PM on July 9, 2009
Cool Papa Bell: "It measures passengers. Does it correct for people traveling less because of advances in communication? I'm currently working with software developers in Ukraine, Australia, Quebec and the Netherlands. I don't need to leave Seattle to do this. Five years ago, I probably would've been schlepping to all of these places."
As others have pointed out, the index at issue is Freight, not Passengers; but even if it was pax numbers, I think it could still be a good indicator and that advances in telecommunication don't affect it that badly.
At least in my experience, people really only turn to telecommunication when they can't afford travel. So if they can afford it, they'll go (or send somebody) in person. It's only when they can't afford it that they'll start using videoconferences as an alternative.
I'm sure this isn't universally true — there are people and probably whole organizations who prefer teleconferencing to in-person travel — but I've seen corporations go from milquetoast anti-travel policies to iron fisted ones over the past year or so as the business climate has deteriorated.
So I do think there's probably an economic indicator in there, and you could probably also learn something by looking at the sales of 'travel alternatives' like videoteleconference equipment. My suspicion is that it goes up during two periods: 1) when business is down and there's a lot of belt-tightening going on, and 2) when travel costs are abnormally high for some reason (like during the oil price spike). If you adjusted business travel to compensate for fuel prices, my guess is that you'd get something that mirrors corporate discretionary spending.
posted by Kadin2048 at 3:04 PM on July 9, 2009
As others have pointed out, the index at issue is Freight, not Passengers; but even if it was pax numbers, I think it could still be a good indicator and that advances in telecommunication don't affect it that badly.
At least in my experience, people really only turn to telecommunication when they can't afford travel. So if they can afford it, they'll go (or send somebody) in person. It's only when they can't afford it that they'll start using videoconferences as an alternative.
I'm sure this isn't universally true — there are people and probably whole organizations who prefer teleconferencing to in-person travel — but I've seen corporations go from milquetoast anti-travel policies to iron fisted ones over the past year or so as the business climate has deteriorated.
So I do think there's probably an economic indicator in there, and you could probably also learn something by looking at the sales of 'travel alternatives' like videoteleconference equipment. My suspicion is that it goes up during two periods: 1) when business is down and there's a lot of belt-tightening going on, and 2) when travel costs are abnormally high for some reason (like during the oil price spike). If you adjusted business travel to compensate for fuel prices, my guess is that you'd get something that mirrors corporate discretionary spending.
posted by Kadin2048 at 3:04 PM on July 9, 2009
Whenever folks talk about economic indicators I'm always vaguely reminded of this bit from the IT Crowd.
posted by signalnine at 3:31 PM on July 9, 2009 [1 favorite]
posted by signalnine at 3:31 PM on July 9, 2009 [1 favorite]
A priest asked the Master, "What is fate?"
The Master answered:
"It is that which gives a beast of burden its reason for existence.
"It is that which men in formertimes had to bear upon their backs.
"It is that which has caused nations to build byways from City to City upon which carts and coaches pass, and alongside which inns have come to be built to stave off Hunger, Thirst and Weariness."
"And that is fate?" said the priest.
"Fate... I thought you said Freight", responded the Master.
"That's all right" said the priest, "I wanted to know about Freight too."
posted by weston at 5:40 PM on July 9, 2009 [5 favorites]
The Master answered:
"It is that which gives a beast of burden its reason for existence.
"It is that which men in formertimes had to bear upon their backs.
"It is that which has caused nations to build byways from City to City upon which carts and coaches pass, and alongside which inns have come to be built to stave off Hunger, Thirst and Weariness."
"And that is fate?" said the priest.
"Fate... I thought you said Freight", responded the Master.
"That's all right" said the priest, "I wanted to know about Freight too."
posted by weston at 5:40 PM on July 9, 2009 [5 favorites]
Mr. Buffett seems to be ahead of the curve when it comes to economic matters. I would take his advice seriously. The stock market may be recovering, but the real economy (jobs, wages) is still in shambles.
posted by ilrozo23 at 5:41 PM on July 9, 2009
posted by ilrozo23 at 5:41 PM on July 9, 2009
I'm not so sure the claims of further doom & gloom are justified. It may lead the economy in general, but it seems to be lagging this particular downturn. It appears to have led the 1990s boom; didn't really predict the magnitude of the dot-com bust, if it predicted it at all (there was a small drop in advance of it); and led the mid-00's boom. However, there was no sharp drop prior to the current crisis; it seems that the ongoing sharp drop in the FTSI is in response to it, so I question whether it's predictive of the months ahead.
Disclaimers: conclusions based on eyeballing the chart rather than any rigorous mathematical analysis; only goes back to 1990 since that's all the data available in the second link in the FPP, but I'd love to add in the 1979-1989 numbers if someone can find them.
posted by DevilsAdvocate at 6:16 PM on July 9, 2009
Disclaimers: conclusions based on eyeballing the chart rather than any rigorous mathematical analysis; only goes back to 1990 since that's all the data available in the second link in the FPP, but I'd love to add in the 1979-1989 numbers if someone can find them.
posted by DevilsAdvocate at 6:16 PM on July 9, 2009
Can someone explain via interpretive dance?
I'd say probably not, if I hadn't seen the Yield Curve Mambo.
posted by sfenders at 6:28 PM on July 9, 2009 [1 favorite]
I'd say probably not, if I hadn't seen the Yield Curve Mambo.
posted by sfenders at 6:28 PM on July 9, 2009 [1 favorite]
Maybe this helps:
http://www.wikinvest.com/wiki/TED_Spread
Anyway, the TED spread is nearly back to normal, so banks are willing to lend to each other again - well, at least overnight.
posted by apakabar at 12:58 PM on July 10, 2009
http://www.wikinvest.com/wiki/TED_Spread
Anyway, the TED spread is nearly back to normal, so banks are willing to lend to each other again - well, at least overnight.
posted by apakabar at 12:58 PM on July 10, 2009
DevilsAdvocate, predicting an upward trend is what matters at this point. It makes sense freight would do that.
posted by stbalbach at 8:07 AM on July 12, 2009
posted by stbalbach at 8:07 AM on July 12, 2009
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It doesn't look good.
posted by Mister_A at 11:47 AM on July 9, 2009 [1 favorite]