The ALFFI is an index of inflation of intermediate goods which, in the past, has been
a good predictor of changes in Fed policy. 
As the chart on the left shows Consumer Debt has grown twice as fast as nominal
GDP over the last thirty years. But this fails to show the magnitude of the
problem because the distribution of income has become more skewed and the growth
in debt-to-income is dominated by low income households.
The severity of HH (household) indebtedness surfaces in bankruptcy filings.
Over 2 million households filed for bankruptcy in 2005 but that number is larger
than otherwise since many HHs filed prior to the 17Oct05 deadline before the more restrictive bankruptcy law went into effect.
The number of households filing in 2004 was approximately 1.6mil or
400,000/quarter, up from 287,000/year in 1980 when data was first gathered. The numbers for 1993
(812,898) and 2003 (1,625,208) suggest a doubling time of approximately
once/decade, or, equivalently, 7%/yr. If US population growth (immigration +
births) is approximated as 1%/yr over this period, then the most relevant
statistic, HH-bankruptcies/population, has been growing about 6%/annum with a
doubling time of slightly less than 12yrs. So ... in the last quarter of century
when US bankruptcy data has been assembled, the US HH-bankruptcy/population ratio has
grown twice as fast as the Consumer_Debt/GDP ratio. This is the
world that Greenspan left with the new Fed chairman, Bernanke.
www.prudentbear.com/Bear%20Case%20Library/chart_library_images/chart_library/HHD_GDP.html
The ALFFI is an index of inflation of intermediate goods which, in the past, has been
a good predictor of changes in Fed policy.
The ALFFI was suggesting tightening two years before the current tightening cycle and ... following the guide of inflation alone, it suggests that the current (Aug06) 5.25 FedFunds should go higher.
I suggest that FedFunds will not be raised until after the mid-term election at which time
the Fed will be weighing their concern for HH bankruptcies vs inflation.
www.sterneagee.com/PDFs/Equity%20Trading/Commentary/FI_Commentary.pdf#search=%22alffi%20%20argus%22
Another graphic from Argus:
Note that capacity utilization was brought down by the 6.5% FedFunds
from 16May00 to 01Jan01. I.e., the 2000 pre-election policy was unambiguously tight.
The question is whether FedFunds will follow capacity utilization up (as Argus suggests)
or the reverse.
www.sterneagee.com/PDFs/Equity%20Trading/Commentary/FI_Commentary.pdf#search=%22alffi%20%20argus%22
Note that real FedFunds was very high (given the plummeting world equity
markets) through most of the 2000 election year -- the rapid fall began the 1st day of Jan01 with a surprise drop
in nominal FedFunds from 6.5 to 6.
www.sterneagee.com/PDFs/Equity%20Trading/Commentary/FI_Commentary.pdf#search=%22alffi%20%20argus%22 >