Monday, September 20, 2010

December 2007 vs. Today

Using hindsight, I refer you to one of my better calls.

December 12, 2007
1973: The Seeds of Stagflation?

I refer you to the cover of Time Magazine for December 9, 1974. 1974 was one of the worst recessions in American history.

Now is probably not the best time in American history to go out and embrace risk. Just a hunch.

Stagflation did hit in 2008. Oil shot up to $145 per barrel. Inflation pressures did rise. It was short lived though.

I have updated those charts to show where we are now.

In order to be consistent, I would have to at least entertain the possibility that these current charts offer at least some hope. They do. I find them very encouraging.

I am not encouraged by our enormous deficits (both budgetary and trade) though nor am I encouraged by the lack of any new job creation ideas. I am therefore much more bearish than I should be if simply looking at these charts.

That said, at least it no longer feels like the 1970s. That's something I guess. Unfortunately, the data does not go back to the Great Depression. It might very well feel a bit like that.

Focus on that blue line in the last chart. Note its drop in recent years but also note its increasing volatility over the past 5 decades. It's the kind of escalating feedback signal you might get by placing a microphone directly in front of a speaker. It does not imply tangible asset price stability. Let's just put it that way.

Source Data:
FRB: Flow of Funds Accounts
St. Louis Fed: Population: Mid-Month
St. Louis Fed: CPI-U


watchtower said...

"Further, if anyone thinks tangible assets (i.e., real estate prices)"

^ from 12/12/07 link

I have a question, are 'tangible assets' only real estate when used in your chart, or does it include other items like autos and such?

Stagflationary Mark said...


It does include cars and also includes the tangible assets of nonprofit organizations. This is great news for me of course. If you create the Church of Watchtower I won't have to alter my charts. ;)

The data comes from Table B.100 in the flow of funds report.

FRB: Flow of Funds Accounts

Tangible Assets:

* Households' real estate
* Nonprofit organizations' real estate
* Equipment and software owned by nonprofit organizations
* Consumer durable goods

watchtower said...

Thanks Mark.