Here are some charts that provide valuable perspective for some of the world's more important economic variables.
Crude oil prices have dropped by half in the past six months, so everyone tends to think that oil is suddenly very cheap. But as the chart above shows, the inflation-adjusted price of crude today is almost exactly equal to its average since 1970. Oil was really expensive six months ago, and now it's simply average. Fracking and horizontal drilling technology have erased the shortage of crude relative to global demand that persisted for most of the past decade, giving us reasonably-priced oil.
I note also that the recent decline, which is certainly huge, is actually smaller in magnitude than the decline that occurred in the first half of 1986. Back then, prices plunged from $28.75/bbl in early 1986 to (briefly) $8.60/bbl. Prices subsequently rebounded to close the year at $18/bbl. It didn't spell the end of the world then, and unlike the situation today, the plunge in oil prices in 1986 was accompanied by a sharply weaker dollar: the dollar peaked in early 1985 and by the end of 1986 had fallen by 30%.
The chart above shows the inflation-adjusted, trade-weighted value of the dollar as calculated by the Fed. Here again we see that the sharp increase in the dollar over the past six months has simply restored the dollar to its long-term average against both a broad basket of currencies and a relatively narrow basket of major currencies. The dollar is no longer cheap, but neither is it expensive.
Stocks have zoomed skywards in recent years, but the PE ratio of the S&P 500 today is only 10% above its 55-year average. That's not too scary, considering that after-tax corporate profits are at record highs both in nominal terms and relative to GDP (see chart below). Relative to GDP, profits are 70% above their long-term average.
The message of PE ratios is not that stocks are overvalued, it's that investors are still unwilling to believe that profits can maintain current levels. The earnings yield on stocks (the inverse of the PE ratio) is 5.5%. That's the expected return on an equity investment at current prices assuming no further gains in earnings. That the world is content to hold massive amounts of cash (e.g., $7.6 trillion in retail bank savings accounts) when the yield on equities is far higher than cash and 10-yr Treasury yields can only mean that earnings are perceived to be very much at risk. Put simply, there's still lots of pessimism out there.