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That's not the only place that shape appears.
September 7, 2010
Home Equity vs. The Trade Deficit
These charts are certainly well correlated and I do not believe it is a coincidence.
We know for a fact that the trade deficit is unsustainable long-term. So what might that say about Jeremy Siegel's much-loved dividends long-term?
If and when things fall apart again we'll be told all about the black swans. We'll be told how nobody could have seen them coming again. What swans? All I see are crows!
Cheat the odds that made you
Brave to try to gamble at times
Well I feel like dirty laundry
Sending sickness on down the line
Source Data:
FRB: Flow of Funds Accounts
5 comments:
Re: Siegel, at the link. Of course, the highest yielding stocks will outperform the broader index. Until the last few years, dividends have been a significant part of total return. It's pretty simple. More recently, with elevated stock prices, dividend yield has been pretty low - though the dividends themselves are high.
Also, over a span like 1957-2005, that portfolio would have to be rebalanced many times, as companies enter and leave the high dividend realm.
Your charts are fascinating. The inflection points at '76 and '84 are easy to pick out. Would you mind if I posted them on my blog?
Do you have a theory that correlates dividends/wages with the trade deficit?
Good job!
JzB
Jazzbumpa,
Feel free to post anything you find on my blog as long as you link back to me. :)
"Of course, the highest yielding stocks will outperform the broader index."
It was easier to heckle Siegel when he first did his dividend weightings, if only because it weighted the unsustainable banking sector so high. We are once again back to that point. You've inspired me to put up a chart of the domestic financial profits to domestic nonfinancial profits ratio. Coming soon to this blog!
"Do you have a theory that correlates dividends/wages with the trade deficit?"
Here it is in a nutshell.
1. Our trade deficit applied downward pressure to our wages. We outsourced jobs.
2. Our trade deficit also applied upward pressure to dividends as companies reduced costs by hiring cheaper foreign labor.
It makes me really wonder what the "dividends / wages" chart would look like if we didn't have a generally expanding trade deficit. I don't think it would be spiking like it is.
That said, I don't think it would necessarily apply in the future as much as it has in the past. Rising import prices would not seem to have the same effect on dividends as rising import volumes.
In other words, if we were to start importing the same amount of Chinese goods but at significantly higher prices then I'm not sure that would help corporate dividends all that much. In theory, it should actually begin to hurt them I would think.
Mark -
Thanks. I always link back, and always credit my sources.
Can you elaborate on trade deficit putting downward pressure on wages? I don't see a straight line connection there.
Cheers!
JzB
Jazzbumpa,
"Can you elaborate on trade deficit putting downward pressure on wages? I don't see a straight line connection there."
Thanks for asking! I was mostly just going with my gut. I don't see the straight line connection either, but I do think I see an indirect one.
Higher Trade Deficit -> Higher Unemployment -> Downward Wage Pressure
I would not have found the following article if you hadn't asked.
September 29, 2010
Trade Deficit Countries Have Higher Unemployment Rates–Balanced Trade is Needed
We find a 60 to 72% correlation between the balance of a country’s trade and its overall Unemployment Rate. That is, countries with Trade surplus have lower Unemployment Rates while countries with Trade deficits tend to have higher unemployment.
Good catch. I put that article in my reading queue.
Cheers!
JzB
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