Posts
Click to enlarge.
As seen in the chart, we were slightly above the trend line in Q2. The stock market has sold off since then as GDP figures once again came in a bit disappointing (to say the least).
Also note that zero real GDP growth probably won't lead to zero real DJIA growth. The stock market should actually behave worse than that. This goes counter to the opinion of Jeremy Siegel, but what's new?
To be sure, real growth since 2000 has been a much lower 1.3%, but there have been two recessions over the past decade, the last one being the most severe since the Great Depression.
That is supposed to bring me comfort? And what will happen if we enter the next recession with unemployment at a level near where it is now? Then what?
Now let's turn our attention to the DJIA to GDP (in billions) ratio. As some of you may know, I'm a big fan of ratios around here.
Click to enlarge.
This is a chart for those who value safety and bargain hunting.
As of Q2, we were slightly above the median. Knowing all that you know now, would you expect it to be doing that well? I for one would expect it to be far below the median. Perhaps these things just take time (as seen in the blue trend line).
Let's discuss that median trend line. In order for a median to make sense, you must spend about as much time below it as you do above it. The time above it can be seen in yellow on the chart. The time below it can be seen in orange on the chart.
Where is the missing orange to balance our bubbles over the last decade? How much more orange are we going to see in the years ahead? Perhaps the answer is none. I suppose it could happen. Perhaps Bernanke can magically prop things up for all eternity. I'm certainly not willing to risk my nest egg on that outcome though. Further, if Ben Bernanke really did wield that much power over all time and space then why wasn't he propping up our markets earlier? Who wouldn't have enjoyed some bonus prosperity?
Oh. Here's a crazy thought. Maybe the Fed was propping it up earlier! Maybe we really did have some temporary bonus prosperity. Crazy thought. Crazy.
This is yet another example why I am willing to hold long-term inflation protected treasuries. I respect that blue trend line since it backs my personal belief in the illusion of prosperity.
And lastly, please note the purple trend line. It began in 1964. That was the last year we decided to put silver in our junk coins. In hindsight, how well did that work out for us in the decades that followed?
I guess free lunches aren't really free. Eventually we pay for them. As I see it, we will also be paying for the free lunches we're being served today. It is only a matter of time. Sigh.
Source Data:
St. Louis Fed: GDP
St. Louis Fed: DJIA
St. Louis Fed: CPI
16 comments:
Further, if Ben Bernanke really did wield that much power over all time and space then why wasn't he propping up our markets earlier?
Stag,
Bernanke and Greensham (as well as Bush and Obama) were/are doing what they were hired to do - look the other way on what was obviously financial fraud and then legitimize the fraud and looting that occurred.
Consider two scenarios and decide which is more plausible.
First, the Fed "accidentally" ignores its actual mandate to regulate money & credit commensurate with output and then "dupes itself" and the public into believing that extractive and usurious debt is actually "wealth". Despite mind boggling incompetence, the regulators and bankers are further rewarded for their incompetence.
Second, money (political influence) is used to put agents (knowing agents or even ideologues) of financial thieves in key positions at the Fed, SEC, CFTB, GSEs, OTC, etc. to corrupt the financial system and enable looting.
Interestingly, both are theories, but only one is a CONspiracy theory. Which is more believable?
>>It began in 1964. That was the last year we decided to put silver in our junk coins.<<
LOL--that is so funny I am on the floor. Yep "junk" is relative--jshaef1
http://iamafuturestrader.blogspot.com/2011/05/deep-pockets-there-was-comment-posted.html
Further, if Ben Bernanke really did wield that much power over all time and space then why wasn't he propping up our markets earlier? <<
I provide a link (at least paste to your browser) above not because I think Mark wants to become a futures trader, but because of the discussion there about the Fed's activity in 2008-early 2009. It is sobbering to think if that was "supporting" the market what happens when the support program ends :). I am actually betting on the support program ending, but that is my bad.
jshaef1
mab,
Interestingly, both are theories, but only one is a CONspiracy theory. Which is more believable?
I offer you two similar competing theories as an indication of my preference.
1. The annual purchase limit of I-Bonds was reduced 83% in December 2007 due to a breathtaking display of mind boggling competence. Not only was it announced the very month our strong resilient economy entered recession but it is also true that real I-Bond yields are now scaping along the 0.0% floor. Since real yields are now seriously negative on 5 year TIPS, hindsight shows this *proactive* move to be 100% pure genius on the part of government. In other words, someone knew!
2. The annual purchase limit of I-Bonds was reduced 83% in December 2007 in order to get Americans to enjoy a festive Christmas and celebrate the "no housing bubble to go bust" economy in all its glory. Consumers would therefore be free from the guilt that comes with saving too much money during a period of such prosperity. It was only bad luck that things turned out like they did. Nobody could have seen any of this coming. In other words, nobody knew!
"Junk" is getting harder and harder to classify.
It would pain me to think that hoarders of true junk coins (state quarter collections with little to no melt value) could actually outperform the stock market if we continue to slide into Japan's deflationary mess!
That alone makes me keep stagflationary name, if only out of spite, lol. Sigh.
From your link...
Logic can kill you trading.
That sums up why I prefer to leave trading to others.
If I don't think I'd feel comfortable holding an investment to maturity (or 10 years) then I really don't want to own it.
If I don't think I'd feel comfortable holding an investment to maturity (or 10 years) then I really don't want to own it.<<
A real good example of logic killing your trade is what has happened since the RE bust here in the USA--some of the highest fliers have been REITs--look at REACX--tripled from its low in early 2009. The extent to which the gov't has gone to make bankstas whole and to try to stick save the 401Ks is monumental. My guess is we'll end up on the Dow lower trend line that you so ably drew anyway, but more people will be hurt because they'll be waiting for the Fed or the Prez or somebody to save them. We always get saved, correct?
In this kind of environment I like US dollars--people gotta use 'em even if they hate 'em. There might be a perky demand if all the leverage in the world collapses, because that is what it is built on.
Good luck--jshaef1
We always get saved, correct?
Absolutely! Politicians and bureaucrats *always* have our backs. That's why the approval rating of Congress is so high! ;)
What is it that makes a complete stranger dive into an icy river to save a solid-gold baby? Maybe we'll never know. - Jack Handey
Mark, it's my understanding (and I'm wrong a lot) that the DJIA removes poorly performing companies and replaces them with better perfomers.
If this is true, wouldn't that skew the ratio somewhat?
Mark,
your observation on the timing of the investment limits on i-bonds is truly insightful. I was buying then, but I assumed it was just another move to herd savers into equities...I never thought thru the timing in this manner.
Thank you.
That top graph looks like a connect the dots puzzle done by my autistic godson.
And I'd trust him with my money before the Fed.
WV: sychle
Wall Street and DC are no longer concerned with the business cycle, they are now more concerned with the monetary (p)sychle.
Watchtower,
Mark, it's my understanding (and I'm wrong a lot) that the DJIA removes poorly performing companies and replaces them with better perfomers.
If this is true, wouldn't that skew the ratio somewhat?
This is my opinion for what it is worth.
On the one hand, there seems to be survivor bias. Clearly all 30 companies in the index survived.
On the other hand, are the people who decide the companies within the DJIA actually able to outperform the market?
October 26, 1999
Microsoft, Intel added to Dow index
Four of the 30 stocks changed today; along with Microsoft and Intel, Home Depot and SBC Communications were brought on to replace Chevron, Goodyear Tire & Rubber, Sears Roebuck, and Union Carbide, according to the editors of the Wall Street Journal, who choose the stocks.
In hindsight, one questions the wisdom of adding Nasdaq heavyweights in late 1999 while simultaneously removing Chevron.
As a side note, we apparently no longer need tires in our new economy. They almost got that one right. Without jobs, people are driving less. Sigh.
fried,
In December 2007 I-Bond rates were 1.2%. Sigh.
Charles Kiting,
That top graph looks like a connect the dots puzzle done by my autistic godson.
And I'd trust him with my money before the Fed.
I don't even know your godson and I probably would too!
Actually, the top graph looks like a dog lying on its back with its feet in the air.
Cheers!
JzB
Oh crap.
I do see the legs but I don't see the dog. What I see instead are two arms to the sides and the outline of a head just above the 10% mark.
I think I am witnessing a stock broker taking the quick way down from a large skyscraper. This isn't the Great Depression though so that makes little sense!
Post a Comment