Pit & Quarry, September 2016
1 year CMI 20 15 10 5 0 5 10 15 20 25 30 07 20 15 08 11 15 10 16 15 09 02 15 11 09 15 09 24 15 CMI DJIA S P 500 07 15 16 05 10 16 04 18 16 06 23 16 06 01 16 01 18 16 03 02 16 02 09 16 03 24 16 12 01 15 12 23 15 CM INDEX DJIA S P 500 10 Year 348 672 714 1 Year 183 65 52 YTD 243 83 81 Source FMI CapitalIQ continued optimism for construction markets in the U S However looking back over 10 years the CMI has underperformed the DJIA and S P 500 by 324 percent and 366 percent respectively perhaps indicating the sector has continued room to grow MACRO FACTORS LOOM BUT DO THEY FAVOR THE U S International economic drivers were particularly bearish in the second quarter The United Kingdom voted to exit the eurozone Chinas gross domestic product growth continued to stagnate and Brazils economic decline continues to be news with the Olympics In the U S interest rates remain at historic lows However as Figure 6 demonstrates the velocity of money or U S GDP divided by the M2 Money Supply is at a 50 year low a clear demonstration that cheap and available money is not driving additional economic growth While low interest rates are an economic challenge they are not a U S specific issue In July Germany also became the second country in the G7 behind Japan to issue 10 year bonds with a negative yield ample evidence that monetary policy is losing its influence as MARKET INSIGHTS Figure 5 Historical CMI Performance 10 year CMI 100 80 60 40 20 0 20 40 60 80 100 09 24 07 04 25 08 07 19 06 02 21 07 07 01 09 11 26 08 CMI DJIA S P 500 01 04 16 08 19 13 01 15 13 06 12 12 11 09 11 04 08 11 10 24 14 03 24 14 06 01 15 02 03 10 09 07 10 YTD CMI 30 25 20 15 10 5 0 5 10 15 20 01 04 16 01 15 16 02 10 16 01 28 16 02 23 16 CMI DJIA S P 500 07 12 16 06 16 16 06 29 16 05 10 16 05 23 16 06 03 16 04 14 16 04 27 16 04 01 16 03 18 16 03 07 16 Figure 6 Velocity of M2 Money Stock vs 23 22 21 20 19 18 17 16 15 14 M2 Velocity of Money 01 01 66 01 01 68 Fed Funds Effective Rate 01 01 74 01 01 76 01 01 72 01 01 70 01 01 78 01 01 80 01 01 82 01 01 84 01 01 86 01 01 88 01 01 92 01 01 94 01 01 90 01 01 96 01 01 98 01 01 00 01 01 02 01 01 04 01 01 06 01 01 08 01 01 12 01 01 10 01 01 16 01 01 14 Fed Funds Effective Rate Velocity of Source Federal Reserve Bank of St Louis 25 20 15 10 5 0 Fed Funds Effective Rate 92 PIT QUARRY September 2016 pitandquarry com
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