"Macro" Musings

[frommi]

I think its adjusted to the recent past and since the last 3 years were not very volatile, it goes to the extremes with very little volatility. Like all indicators its not very useful as a tool to time the market. I bet that when the market goes sideways the next 3 days its in the "normal" range again.

[Liberty]

http://basehitinvesting.com/the-stock-market-a-look-at-the-last-200-years/

[peter1234]

The United States stock market looks very expensive right now. The CAPE ratio, a stock-price measure I helped develop — is hovering at a worrisome level

 

http://www.nytimes.com/2014/08/17/upshot/the-mystery-of-lofty-elevations.html?_r=1&abt=0002&abg=0

 

http://www.cnbc.com/id/101930841

[Valuebo]

How does CAPE look without 2008-2009?

[ERICOPOLY]

The United States stock market looks very expensive right now. The CAPE ratio, a stock-price measure I helped develop — is hovering at a worrisome level

 

http://www.nytimes.com/2014/08/17/upshot/the-mystery-of-lofty-elevations.html?_r=1&abt=0002&abg=0

 

http://www.cnbc.com/id/101930841

 

 

Interestingly, he doesn't mention the elevated profit margins anywhere in the story... which I find strange considering it's sort of like the core reason why some people argue that the market isn't all that high relative to earnings (as well as the core reason why people argue the earnings will fall)

 

Yet valuations remain high, and it would be comforting if they made sense. So I’ve been trying to come up with a theory to explain today’s elevated stock prices — and maybe convince myself that they could remain lofty for some time. One factor to consider is that bond prices are high, too.

 

 

 

[ERICOPOLY]

From one of the "leading deflationists", A. Gary Shilling. 

 

I believe he went to the Fairfax dinner in Toronto a year ago, and was hailed as one of the economists they respect:

 

 

The Boom Is Coming, and Sooner Than You Think

 

http://www.bloombergview.com/articles/2014-07-18/the-boom-is-coming-and-sooner-than-you-think

 

I disagree with the economic pessimists who believe, as I outlined in yesterday’s column, that persistently slow growth will be the norm for years to come.

 

[obtuse_investor]

How does CAPE look without 2008-2009?

The data is freely available to play with: http://www.econ.yale.edu/~shiller/data.htm

[Guest]

Wasn't Shilling a big bear not too long ago?

 

We had the bitcoin buying hedge fund manager turn from bear to bull and now this guy.

 

Now, if Hussman turns, that'll be the top. ;)

[giofranchi]

Charles Gave and "The Cantillon Effect"

 

Conclusion

The big central banks seem to believe that printing money creates wealth.

What such policies, in fact, do is ensure a different distribution of wealth

that increases leverage and favors not legitimate risk takers, but groups

which are politically well connected such as the too-big-to-fail banks.

As such, the current approach is a clear expression of a policy captured by

a crony class, and needless to say it is defended by the same group. This is

not to engage in conspiracy, or to claim malfeasance by particular

individuals. But what cannot be doubted is that even as those closest to the

money source have made out like Cantillon, the outcome for pretty much

everyone else has been awful.

Looking forward, this cannot go on and I would hence avoid financials

everywhere.

 

 

Gio

The-Cantillon-Effect.pdf

[ni-co]

How does CAPE look without 2008-2009?

The data is freely available to play with: http://www.econ.yale.edu/~shiller/data.htm

 

Barry Ritholtz has a nice weekend reading list on the whole CAPE ratio discussion:

http://www.bloombergview.com/articles/2014-08-22/your-weekend-reading-on-the-cape

 

Especially enjoyed Cliff Asness's take on it:

https://www.aqr.com/Portals/1/ResearchPapers/ShillerPECommentary_AQRCliffAsness.pdf

[ERICOPOLY]

Wasn't Shilling a big bear not too long ago?

 

We had the bitcoin buying hedge fund manager turn from bear to bull and now this guy.

 

Now, if Hussman turns, that'll be the top. ;)

 

Yes, Shilling predicted a decade of deflation.

 

He made that prediction in 2003.  So, maybe I should consult Madame Tarot.

[ERICOPOLY]

I saw the news of the S&P500 crossing 2,000 today.

 

It's up 4% annualized since the 2007 peak.

 

 

 

[JEast]

Maybe FFH will at least get their money back on the inflation hedges.  Spain inflation came in at negative 0.5% for the most recent data.

 

http://www.marketwatch.com/story/spains-economy-sinking-as-deflation-deepens-2014-08-28?dist=beforebell

[Liberty]

http://bovinebear.blogspot.ca/2014/08/s-500-triples-in-5-years.html

 

Putting the past 5 years in historical context.

[yadayada]

It seems that lack of jobs and automation is going to be a problem. With fewer earners, who is going to buy all that stuff to prop up the economy? Why would this magically turn around all of a sudden? Seems like you had new technology, and that created loads of jobs. And now that technology is replacing those jobs with itself. S&P went up  a bunch and then since this started to  happen barely went up anything. They had to create this housing boom to create the illusion of wealth for the bull market ending 2007.

 

It is going to be interesting to watch for sure!

 

http://www.technologyreview.com/sites/default/files/images/destroying.jobs_.chart1x910_0.jpg

[JEast]

As this thread is about 'musings' or contemplation, are the last few weeks in the macro world a tipping point to use an over used phrase?  Started with Bunds at negative rates last year, then the ECB went negative, followed by BOJ going negative a few days ago, and today Swiss National Bank has gone negative. Topsy/Turvy indeed. 

 

 

Currency wars in the race to the bottom anyone?

 

[Liberty]

http://brooklyninvestor.blogspot.ca/2014/09/buffett-on-market-valuation.html

[wisdom]

http://www.businessweek.com/articles/2014-09-10/is-china-another-japan-in-the-making?campaign_id=yhoo

 

In line with Watsa's call on China.

[Vish_ram]

It is stunning to watch the median income graph. I wonder how long this can go before we see a revolution. This is bad news for Republicans.

 

It seems that lack of jobs and automation is going to be a problem. With fewer earners, who is going to buy all that stuff to prop up the economy? Why would this magically turn around all of a sudden? Seems like you had new technology, and that created loads of jobs. And now that technology is replacing those jobs with itself. S&P went up  a bunch and then since this started to  happen barely went up anything. They had to create this housing boom to create the illusion of wealth for the bull market ending 2007.

 

It is going to be interesting to watch for sure!

 

 

[ERICOPOLY]

It is stunning to watch the median income graph. I wonder how long this can go before we see a revolution. This is bad news for Republicans.

 

It seems that lack of jobs and automation is going to be a problem. With fewer earners, who is going to buy all that stuff to prop up the economy? Why would this magically turn around all of a sudden? Seems like you had new technology, and that created loads of jobs. And now that technology is replacing those jobs with itself. S&P went up  a bunch and then since this started to  happen barely went up anything. They had to create this housing boom to create the illusion of wealth for the bull market ending 2007.

 

It is going to be interesting to watch for sure!

 

 

 

I suspect the Democrats are behind the median income statistics.

 

They give all these working poor subsidies, and that takes away wage pressures.  So then wages stagnate and corporate profits rise -- they are just externalizing their payroll costs to the government.

[Vish_ram]

The income inequality is also muddled by wealth inequality. The risk takers (those having higher equity exposure) have been handsomely rewarded. I'm seeing many high income earners (docs making 300K+) afraid to invest and end up with less wealth.

 

Bottomline, low wage earners got a double whammy. Productivity and politics on income side and FED on wealth side.

[ERICOPOLY]

You could look at after-tax income (the real world) to make the income disparity more realistic. 

 

That would narrow the gap.

 

Second, you could add in the working-poor subsidies/benefits to further decrease the gap.

 

Then you'd have a more accurate picture.

 

You've got high earners being taxed at 50% in Cali, and people are acting like 100% of it is "personal income".  That's bull sh**.

[Rabbitisrich]

As this thread is about 'musings' or contemplation, are the last few weeks in the macro world a tipping point to use an over used phrase?  Started with Bunds at negative rates last year, then the ECB went negative, followed by BOJ going negative a few days ago, and today Swiss National Bank has gone negative. Topsy/Turvy indeed. 

 

 

Currency wars in the race to the bottom anyone?

 

For developed nations with large gross trade volumes, and international scale industries, the gains and losses of currency depreciation are muted: http://libertystreeteconomics.newyorkfed.org/2014/07/why-hasnt-the-yen-depreciation-spurred-japanese-exports.html

 

"The new finding in our study is that the incomplete pass-through is the most pronounced for exporters with large import shares—each additional 10 percentage points of imports in total variable costs reduces exchange rate pass-through by over 6 percentage points. We also show that large exporters are import-intensive, have high foreign market shares, set high markups, and actively move them in response to changes in their marginal costs. Thus, the prices of the largest firms, which account for a disproportionate share of trade, are insulated from exchange rate movements both through the hedging effect of imported inputs and through active offsetting markup adjustment in response to cost shocks."

 

 

 

You might also enjoy this David Glasner post: http://uneasymoney.com/2014/08/11/misunderstanding-totally-competitive-currency-devaluations/

 

'The benefit that a country derives from the depreciation of its currency is in the rise of its price level relative to its wage level, and does not depend on its competitive advantage. [There is a slight ambiguity here, because Hawtrey admitted above that there is a demand shift. But there is also an increase in demand, and it is the increase in demand, associated with a rise of its price level relative to its wage level, which does not depend on a competitive advantage associated with a demand shift. -- DG] If other countries depreciate their currencies, its competitive advantage is destroyed, but the advantage of the price level remains both to it and to them. They in turn may carry the depreciation further, and gain a competitive advantage. But this race in depreciation reaches a natural limit when the fall in wages and in the prices of manufactured goods in terms of gold has gone so far in all the countries concerned as to regain the normal relation with the prices of primary products.'

[giofranchi]

Common sense by Seth Klarman

 

http://www.viewfromtheblueridge.com/2014/09/12/common-sense/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+viewfromtheblueridge%2FJkgK+%28The+View+from+the+Blue+Ridge%29

 

 

Gio

[obtuse_investor]

Thanks Gio. Curious that that excerpt is from 2004.