Click to enlarge.
The future's too bright.
Merriam Webster: Pretension
an allegation of doubtful value
This post inspired by robj's comment at Calculated Risk.
Source Data:
St. Louis Fed: Federal Surplus or Deficit [-] as Percent of Gross Domestic Product
This chart relationship of commodity to equities looks like parabolic/exponential relationship. Are we breaking down or are we still in trend?
ReplyDeletehttp://htmlimg1.scribdassets.com/6xhticluo01y5dic/images/37-9ef2a8bd37.jpg
jeff,
ReplyDeleteThat's a very interesting chart. It looks to me like we're still in the long-term trend channel.
That said (and for what it is worth), I'm not bullish on commodities or stocks right now. The markets seem to think both are sure things.
In theory, we could even stay in the channel during a crash if commodities fell more than stocks. Just a thought.
As for the trend itself, constant growth on a log scale would be seen as a straight line. That looks like a parabolic line to me though.
Put another way, it's like an exponential growth curve with a parabolically increasing growth rate. Don't see those everyday!
It is all but guaranteed to fail at some point. At the very least, our solar system will eventually run out of natural resources. My gut says it will fail well before that point though, perhaps well within in my lifetime.
The more I think about it the more it looks like exponential growth with an exponentially increasing growth rate. Doesn't change my conclusions.
ReplyDeletejeff,
ReplyDeleteThe following chart is interesting in the same way.
S&P 500 / Oil Price
Here is yet another thought concerning your chart.
ReplyDeleteWhat if there is a commodity bubble right now and it pops while we're in ZIRP?
When it popped in the early 80s, the Fed had a lot of room to lower interest rates to prevent deflation. There is no room to lower them now though.
I've read a lot about the deficit coming down too fast. Doesn't look that way to me, but I don't equate deficits with wealth.
ReplyDeleteRegarding stocks vs commodities, financial assets are being supported by an artificial $85 of money creation each month, about a trillion a year. Stocks seem way overpriced to me compared to commodities, but that doesn't make commodities a good investment, other than as finished goods.
Doh! $85 billion a month.
ReplyDeleteIf only we could edit comments like they do the Congressional Record.
Mr Slippery,
ReplyDeleteRegarding stocks vs commodities, financial assets are being supported...
Here's my take for what it is worth.
All assets are being supported and it is very unclear to me which assets are being supported most.
I believe that if the Fed stopped buying treasuries entirely then both commodities and stocks would get beaten up far more than treasuries.
Put another way, I believe it was the Fed's intention to lure investors into buying riskier assets. The big question then becomes...
Did each dollar that the Fed buy in treasuries convince other investors to risk more than a dollar elsewhere?
Hard to say, but I'd lean towards yes.
Did each dollar that the Fed buy in treasuries convince other investors to risk more than a dollar elsewhere? Hard to say, but I'd lean towards yes.
ReplyDeleteThat reasoning seems sound to me. The question is where. S&P 500 is up 20% YTD, GSCI commodity index is down 1.2% YTD. That leads me to believe those risk dollars are going into stocks, not commodities, at least recently.
Mr Slippery,
ReplyDeleteThat leads me to believe those risk dollars are going into stocks, not commodities, at least recently.
That seems sound to me as well.
On the other hand, perhaps the "crash" has started with commodities and stocks just haven't figured it out yet.
Stock prices fell before oil prices heading into the Great Recession.
ReplyDeleteNow we're seeing weakness in oil prices compared to stocks.
One could argue that we're not heading into a recession now and/or one could argue that the mechanism has changed.
I lean towards the latter being true. Not sure about the former yet.