Posted by David Chandler on October 29, 2008
I was poking around on the Federal Reserve’s very useful collection of data, and came across these interesting graphs:
This one I’m guessing is the total reserves of Fed member banks. I wonder where all the money in the stock market went?
This one is roughly equivalent to the money supply. Inflation? What inflation?
Ooh. Ooh. Found another one. Total borrowings of banks from the Fed.
Liquidity problem? What liquidity problem?
Now, I’ve seen the line at the right of all these graphs somewhere before. Oh yes, electrical engineering, control systems theory. It’s an impulse function, the theoretical input to a feedback loop. Expect some economic oscillation ahead…
Posted in Economics | Comments Off on Graphing the Economy
Posted by David Chandler on October 14, 2008
Once upon a time, I subscribed to Business Week with about-to-expire FF miles. The best thing in it was the figures page, now available online for free:
Minus signs everywhere, even the best-performing mutual funds in the last month earned negative returns. I’m sorry, but I think it’s funny that almost every number on the page is negative, even when it’s my money 🙂
I note that the S&P trailing P/E ratio is 19, hardly cheap by historical standards, and certainly not bear market standards. Forward P/E is supposedly 10, which I find really hard to believe, as that assumes company earnings almost doubling in the next year!
Curiously, trailing P/E was about the same a year ago, which means company earnings must have already fallen a lot in the last year since stocks are a lot lower today. This possibly helps explain why we see long valuation waves. At the top of a peak, earnings have already begun to decline, but the market’s momentum carries it to ever higher P/E ratios. At the bottom, the denominator (earnings) has already begun to recover, but market momentum is still negative, so you get P/Es in the single digits.
Here’s the scary part: even if earnings coming out of the recession are equivalent to today’s earnings, single-digit P/Es imply much lower prices ahead. Assuming anyone cares about fundamentals, that is, which I’m not sure they do 🙂
By the way, if you want to see what recedes in a recession, check out the Fed’s economic data at http://research.stlouisfed.org/fred2/. Most charts have the recessions clearly marked.
Posted in Economics | Comments Off on whole lot of minus signs
Posted by David Chandler on September 17, 2008
The Fed cannot create value. Causation runs from sound assets to sound credit. Causation does not run from credit creation to sound assets.
If you’ve never heard of Lew Rockwell or Austrian economics, now would be a good time to start studying.
Posted in Economics | Leave a Comment »