Thursday, October 20, 2016

15 important charts

The craziest, most depressing election in my lifetime is less than three weeks away. Half of the country will be shocked, dismayed and depressed at the outcome, whoever happens to win. One candidate is an uncouth, xenophobic buffoon, the other a congenital liar who is deeply corrupted. The policies they are proposing, if implemented, could spark an international trade war, another recession, an economic boom, or pave the way for another four years of miserably slow growth. Meanwhile, the Middle East is in terrible shape, ISIS is attacking within our borders, Russia and China are making threatening advances, and North Korea is lobbing missiles our way while testing nuclear weapons.

With so much uncertainty out there, you would expect to see markets trading at depressed levels. Many pundits, however, argue that the world's central banks are inflating asset prices by keeping interest rates artificially low. Which is it?

As I examine the facts, as summarized in the 15 charts that follow, I find little or no evidence of distorted prices, looming deflation, or another recession in the making. I see more signs of caution and risk aversion than signs of exuberance. My contrarian instincts warn me that it's unwise to expect the trends of the past seven years—slow growth and low inflation—to continue indefinitely, yet that seems to be what the market is priced to. How to proceed?

Investors face an excruciating dilemma, which can be measured by the extremely low level of short-term interest rates—even below zero in Europe and Japan—versus the much higher level of yields on risky assets. If you can't stand the risks, of which there are many, you must pay a very high price for the safety of cash and cash equivalents. In many developed economies, yields on cash and cash equivalents are meaningfully negative in real terms: even cash is risky these days!


This first chart is arguably the most important. What it shows is that the world's demand for money (using M2—currency, retail money market funds, time deposits, checking accounts and bank savings deposits—as a proxy) has soared in unprecedented fashion since 2008. The world wants to hold more cash relative to nominal GDP than ever before. People everywhere are more risk averse; caution permeates our daily lives; uncertainty abounds. People worry about QE, about the risk of another financial collapse, about the direction of politics, about the rise of terrorism, about instability in the Middle East, about the proliferation of nuclear weapons; there is no shortage of things to worry about.

Another way to interpret this first chart is to see that it was the public's increasing demand for money that essentially forced the Fed to adopt Quantitative Easing. The Fed needed to increase the supply of money in order to satisfy the world's huge demand for money. Otherwise we would have experienced deflation, which is what happens when there is a shortage of money. 



The two charts above tell the inflation story. Headline inflation in the U.S. has been very low and even negative in the past few years, but that's entirely due to the plunge in oil prices. As the top chart shows, the ex-energy version of the CPI has been running at a 2% rate for the past 14 years. As the bottom chart shows, headline inflation, which reached negative levels last year, is now reversing and will likely return to 2% or higher shortly (all it would take is three more months of increases like the 0.29% increase we saw last month). It's very similar to what happened during the 1986-1988 period, when oil prices suffered a collapse and recovery of similar magnitude to what we've seen since mid-2014. The bond market already understands this: Based on the pricing of TIPS and Treasuries, the market expects CPI inflation to average between 1.6 and 1.9% per year over the next 10 years, which is very close to what we've seen over the previous 10 years.

One other important message here: since inflation has been relatively low and stable in the U.S. for a number of years, we can infer that the Fed has done a good job of balancing the supply of money with the demand for money. QE has not been inflationary. Although it might become inflationary should the public's demand for money start to decline and should the Fed fail to take timely, remedial action. That's an important and lingering source of uncertainty.


For all the talk about how oil is "cheap," the chart above shows that in real terms, today's oil prices are just about average from a long-term perspective. The chart above also shows that nearly every recession in the past 45 years has followed or coincided with a spike in real oil prices. Although oil prices have bounced significantly from their recent January lows, the operative trend that is impacting the economy is still one of cheaper prices: oil today is some 50% cheaper than it was in the 2011-2014 period. Oil prices, in other words, do not pose a threat to growth—more likely, they are supportive of growth.


I've long argued that swap spreads are excellent indicators of systemic risk and financial market health. When swap spreads are 40 bps or less, it's a sign that financial markets are liquid and systemic risk is very low. (See a longer explanation for the meaning of swap spreads here.) U.S. 2-yr swap spreads are just about perfect at current levels. Eurozone spreads are trading at the high end of what might be termed a "normal" range, but that probably reflects the fact that conditions in Europe are not as stable as they are here. In any event, swap spreads today are far less than what they have been during times of great economic stress and anxiety. Today's level of swap spreads is symptomatic of healthy liquidity conditions and an economy with relatively low systemic risk, and that adds up to a bulwark against recession.

I should further note that any Fed "tightening" in the current environment of huge excess bank reserves is not going to put the banking system under any significant degree of stress. The Fed used to tighten by reducing the supply of reserves, but this time around they will tighten simply by increasing the interest they pay on bank reserves. Liquidity is going to be abundant even as interest rates rise, and that should mitigate recession risk.


The chart above is a reminder that swap spreads are often good leading indicators of other credit spreads, and of the health of the economy. (Note how swap spreads rose in advance of the past two recessions and fell in advance of recoveries.) Earlier this year, when swap spreads were low but high-yield spreads were high because of concerns that cheap oil would bankrupt the oil patch, I argued that healthy financial market conditions would allow the economy and the markets to adjust to the oil price shock without disrupting the economy. That appears to have been the case.



Corporate credit spreads, shown in the chart above, have declined quite a bit from their recent and past spikes, but they are still meaningfully above their historical lows. The message: markets are still cautious, because investors demand a somewhat-higher-than-normal risk premium for accepting the credit risk of corporate bonds. 


As the chart above shows, the current PE ratio of the stock market is above average. This is not unprecedented, however, and we have seen much higher PE ratios in the past, although not on a sustained basis.


One problem with standard PE ratios is the way they are measured, typically by dividing current prices by profits over a trailing 12-month period. However, standard measures of earnings that conform to FASB accounting standards are not necessarily the same as "economic" profits. The chart above corrects for both these problems by dividing current prices by the most recent quarter's estimate of economic profits found in the National Income and Product Accounts. (HT to Art Laffer for pioneering this approach back in the 1980s.) Here we see that PE ratios today are only marginally higher than their long-term average. Considering how low interest rates and discount rates have been and continue to be, does it not make sense for PE ratios to be at least somewhat above average?

See here for a more detailed discussion of PE ratios and NIPA profits.


The chart above is a relatively arcane way of measuring whether stocks are "cheap" or "expensive." The Rule of 20 says that stocks are fairly valued when the sum of PE ratios and the year over year change in the Core PCE deflator equals 20. On this basis, stocks are somewhat expensive, but still nowhere near their past extremes.


The chart above shows the difference between the earnings yield on stocks (the inverse of PE ratios) and the yield on 10-yr Treasuries. It's been higher at times, but not often. Put another way, consider the difference between the PE ratio of the 10-yr Treasury today (i.e., 57, the inverse of its 1.75% yield), and the PE ratio of the S&P 500, which is just over 20. Investors today are willing to pay $57 for a dollar's worth of annual earnings on T-bonds, but only 20 or so for a dollar's worth of corporate earnings. Wow. If this isn't risk aversion I don't know what is. In effect, the market is saying that it is extremely unlikely for corporate profits to maintain their current levels for the foreseeable future. 


The chart above illustrates one tangible result of lower oil prices: people are driving more, after roughly 10 years of no increase at all. Prices do make a difference in people's behavior. Consider: if today's oil price has boosted the public's willingness and ability to use their vehicles, might it not also boost the economy's ability to grow?


As I've noted before, Chemical Activity has been picking up of late, and that is a good sign that industrial production is about to pick up, after almost three years of zero growth in manufacturing activity.


In the chart above, we see that the real yield on 5-yr TIPS tends to track the real growth rate of the economy. That makes sense, because the risk-free real yield on TIPS needs to compete with the ability of investors to achieve real returns in the broader economy. For years now, real yields have been trading at depressed levels and the economy has turned in its worst recovery ever. The current relatively low and stable level of real yields suggests the market holds out little or no hope for any meaningful improvement in economic activity in the foreseeable future.


The chart above is useful for several things. For one, we see that the real yield on cash and cash equivalents (using the Fed funds rate as a proxy) has been negative for the past 8 years. The purchasing power of cash has fallen by roughly 10% since 2008, and that's a huge price to pay for "safety." Second, we see that the effective stance of monetary policy has been "easy" for the past 8 years, and continues to be so. That's because real short-term interest rates have been very low, and the yield curve (the slope of which is shown in red) has been positively-sloped. As the chart illustrates, recessions have always followed periods in which monetary policy becomes very tight (i.e., high real yields and a flat or negatively-sloped yield curve). In short, monetary policy poses no threat to the economy.

The market fully expects the Fed to raise short-term interest rates, probably by 25 bps at the December FOMC meeting, and perhaps once more sometime next year. But even at 1%, the real funds rate would be zero or negative, and the yield curve won't become flat or negative until the market realizes that the Fed has tightened so much that its next move is likely to be to cut rates. Thus, tight monetary policy is still years in the future, barring an unexpected surge in economic growth and/or a surprising rise in inflation, either of which would force the Fed to become more aggressive.

– – – – –

Investors need to weigh all these considerations against their own appetite for risk. Personally, and despite all the negatives looming on the horizon, I don't find a compelling reason to exit risky assets. Going to cash is not without risk, and the extra yield available on risk assets is meaningful—and it compounds fruitfully over the years. If I saw evidence of widespread optimism in the market I might reconsider, but so far I see more caution than optimism, and that is encouraging from a contrarian point of view. Having said that, the current environment does not present a compelling opportunity to put one's financial future at serious risk.

23 comments:

steve said...

Great stuff Scott. Good dose of "reality". I always trade on two condtions; what I see asset prices doing and what I "expect" them to do. Being a bond market trader, I SEE at least a short term reversal of the downtrend in yields and an expectation that this may continue. I expect this because Hillary WILL be elected AND there is at least a decent chance the GOP could lose the house (which would be a freakin disaster). I EXPECT government to be a much larger presence in our lives and that means more debt and that could be why longer rates are starting to creep upwards. In any event, asset prices are backing me up right now and I am long bank loan funds which TEND to do better with rising rates.

Scott Grannis said...

steve: Thanks. I question your assumption that more debt will cause rates to rise. Under Obama, the federal debt has exploded in every sense (nominally and relative to GDP), yet yields have been in a declining trend. Perhaps things will change in the future. But as I see it, bond yields are a function of inflation and growth expectations. Rates will rise more than expected (i.e., relative to forward yields) only if inflation and/or growth exceed expectations.

naive investor said...

Scott, thanks a lot. Always waiting for your posts. As a canadian almost 100% investing in US economy, your analysis is very helpful, especially with additional complexity of currency exchange. I am mostly investing in technology, engineering background.., and stocks are not cheap today, Therefore despite of trying to avoid risk aversion, I am on a sideline with a significant cache.It will be interesting to read your professional insights in sectors of stock equities. Thank you again, you are almost only one, who so kindly shares your wisdom.

Benjamin Cole said...

Another great post by Scott Grannis.

Couple quibbles:

"The chart above also shows that nearly every recession in the past 45 years has followed or coincided with a spike in real oil prices."--Scott Grannis.

I think this is because the Fed, fearing inflation, tightens when oil prices rise. Ironically, the Fed is likely taking precisely the wrong action, amplifying the recessionary impact of higher oil prices. Loosening up to accommodate the higher prices is a better action.

The Fed should tighten when oil prices fall, without too-serious ramifications.

A lot of critics charge the Fed caused the 2008 recession by tightening to "fight" higher commodities prices. Well, the Fed won that fight, but everyone ringside got knocked out too!

"Meanwhile, the Middle East is in terrible shape, ISIS is attacking within our borders, Russia and China are making threatening advances, and North Korea is lobbing missiles our way while testing nuclear weapons."--Scott Grannis.

Actually, I think Americans are safer from foreign threats than any people in the history of man.

Even if there were any successful ISIS attacks inside US borders (I am unaware of any), they would not constitute much of a threat. More than 12,000 Americans are murdered every year….by drunk drivers. That is about 180,000 since 9/11. Let's keep perspective.

I can remember the 1962 Cuban Missile Crisis. Our own President put the odds of a nuclear war at 50/50. His Chiefs of Staff outlined plans a first nuclear strike, meaning about 100 million Russians would die and maybe 10 million Americans. Now, that was scary.

ISIS? Purely rinky-dink. I feel sorry for the Iraqis, Syrians, Turks etc.

In recent history we have seen a Soviet Union with a blue-water navy, supersonic bombers and many ICBMs, and millions of men in uniform. They loved tanks. They are now a shell of their former empire, and thank goodness.

In many, many ways, these are the best and safest of times ever. It may behoove some in the federal government to engage in permanent scare-mongering. Do not listen to them.

This election is rotten. Trump had a real chance, but his campaign devolved into mush.

We can hope a GOP'er in the future selects the best aspects of Trump's initial appeal---he is an outsider, non-interventionist, a business guy, an iconoclast---and carries the ball forward.






Hans said...

The Federal Reserve should become an investment
house, since this is their only accomplishment
over the past decade (or two or more).

They have driven the markets to all time highs
with only two corrections over the past seven
and a half years.

Wall and Board is in love with them, all the while
they undermine virtually every pension scheme in
America. The short falls are plying up, with a new crisis
for the taxpayer in less than a decade away.

America has systemic problems which will not be readily
fixed or may NEVER be properly addressed.

Many of these solutions will not be found in economic charts
but only after economic crisis have run their course.

Every general election cycle finds another Republic state turning
blue (see medical dictionary) furthering the cause of the Socshevik
movement.

And how will free enterprise prevail in this system, not well if past
performance is considered.

BTW, I am now long on CBO's new Corruption call options; they trade
under the symbol WDC. Go long, as I see this as a secular trend.

amritsari said...

Hopefully the GOP looses the senate and house and we can get back to the government actually getting things done. Their knee jerk opposition to Obama has completely stifled pro-active policy making. The threat of climate change will not be countered by self-interested corporations.

steve said...

Scott, re comment from amritsari, there is NO WAY that if dems sweep congress rates will not skyrocket. Prolific government spending relative to GDP will lead to more inflation (which is already picking up) and that leads to higher rates.
The average GOP voter is a complete dolt. The Left had their "Trump" candidate, Bernie Sanders but unlike the GOP, they knew he had no chance in a general election. We're stuck with Trump and I won't waste my time describing him other than to say he is NOT a Republican and most certainly NOT conservative. The GOP will get their comeuppance now. Good grief.

The Cliff Claven of Finance said...

"I finally have to drop my skepticism about this being a recession. Job losses reported today were the tipping point. Still, we're not any where near a depression. So far, this recession looks a lot like the last one as far as job losses, and the last one was the mildest on record."

Those were your words on November 7, 2008.

The recession had started in December 2007.

It appeared to take you until November 7, 2008
before you finally decided to drop your skepticism
that the US was in a recession (at least in print at this blog).

Source:
http://scottgrannis.blogspot.com/search?updated-min=2008-01-01T00:00:00-08:00&updated-max=2008-11-13T11:20:00-08:00&max-results=50&start=100&by-date=false

On November 7, 2008 you said the recession looked like the last one -- "The mildest on record"

You were wrong.

Since you had been a professional economist at a money management firm,
it was most likely expected that you would be almost perpetually optimistic about the
US economy.

Keep the customers optimistic so they will invest.

I am not criticizing you for doing your job.

However, economists as a group HAVE NEVER PREDICTED A RECESSION.

It appears you did not predict the last recession.

You should mention that now if I am correct about that.


Meanwhile, economic growth in 2016 is weak,
the NYSE Composite average is still where it was in mid-2014,
and the median Price to Sales Ratio of stocks was recently at record highs.
(and the P/S ratio it is a better valuation measure for investors than the P/E Ratio)

There are enough weak indicators to be concerned about a recession:

Examples from data reported in October 2016:

(1) Orders for Class 8 trucks – the big rigs -- plunged 27% in September to 13,791
It was the worst September since 2009.

(2) Year-over-Year Factory Orders were negative for the 22nd consecutive month

(3) Year-over-Year Industrial Production was negative for the 13th consecutive month

(4) Year-over-Year Construction Spending contracted for the first time in 5 years

(5) S&P reported subprime borrowers were behind by more than 60 days
on about 4.85% of auto loans in August 2016,
the highest level since January 2010.

(6) A shocking +34% spike in the US Government budget deficit in FY 2016, vs. FY 2015

Something is happening here.

What is is ain't exactly clear.

But the indicators above reflect too much bad news.


In the past, indicators released just before a recession
tended to get significant revisions up to a year later,
almost always negative (bad news) revisions.


I write an economic blog as a hobby.

The table below is from my blog:

Seven of the past nine recessions started on a month
that was part of a quarter that had positive Real GDP growth,
or just before a quarter that had positive Real GDP growth:

(1) August 1957 Recession
Q3 1957 Real GDP was up +4.0% (annual growth rate)

(2) April 1960 Recession
Q2 1960 GDP was down

(3) November 1970 Recession
Q4 1970 GDP was down

(4) November 1973 Recession
Q4 1973 GDP up +3.8%

(5) January 1980 Recession
Q1 1980 GDP up +1.3%

(6) July 1981 Recession
Q3 1981 GDP up +4.7%

(7) July 1990 Recession
Q3 1990 GDP up +0.1%

(8) March 2001 Recession
Q2 2001 GDP up +2.1%
(note that Q1 2001 was -1.1%)

(9) December 2007 Recession
Q4 2007 GDP up +1.4%

Scott Grannis said...

amritsari: The opposition to Obama was not knee-jerk, it was principled opposition to policies designed to expand government's powers while also reducing individuals' freedom. As for climate change, I suggest you do some more research. A good place to start would be Michael Cannon's book, "Lukewarming."

Scott Grannis said...

Cliff Claven: I started this blog in September 2008, and it was obvious then that things were going badly. I retired in late 2007, just before the recession started. But I can't claim to have predicted the recession. I initially called the recovery early (Nov/Dec '08), but in my year-end forecast (Dec '08) I thought the recovery was coming. In Jan or Feb '09 I predicted the recovery would start "before mid-'09" and that was an excellent call. I thought the stock market lows of Nov/Dec '08 were "the buying opportunity of a lifetime" and while the market dropped further, buying back then would have been a fabulous move.

I do think it's hard for an economist working at an investment firm to be objective, but not because clients want only to hear good news. Clients would much prefer that their money managers be right about whatever happens, good or bad.

Without the distractions of clients, client servicing, and colleagues with differing opinions, I think I have turned into a better economist now than I was when I retired. I try to be as objective as possible, because I have my own money on the line.

I rejected calls in (I think it was) late 2012 that the economy was entering a recession, and I was proved right.

Ever since the appearance of Obama and his big stimulus package I have been forecasting a tepid recovery precisely because of all the stimulus and regulations, and I think I have been very right on that score. And despite the tepid recovery I have been optimistic about the market and right to be optimistic.

It's obvious the economy has been struggling of late, but I don't see obvious signs of a recession. I could of course be wrong, and I am painfully aware of how lots of numbers get revised after the fact. That's why I try to rely heavily on market-based indicators (e.g. swap spreads, credit spreads, the shape of the yield curve, TIPS inflation expectations, equity valuations, the Vix, etc) since they are never revised.

I write this blog as a hobby; I don't make any money from it as you will have noticed. I also write it as a form of discipline, since I am managing my own money and that of family members.

Why don't you share with us the URL of your blog?

Hans said...

I am always surprised by leftist visiting
and commenting on economic websites, since
few of their thoughts, comments, or theories
provide NO practical solutions facing a modern
economy. The only thing being espoused by them
are personal biases and collectivist ideology.

Visit crackpot leftist economic websites such
as The Angry Bear and Mark Thoma's Economist's View,
to thoroughly understand the "rationale" behind their thinking.

BTW, if you have a Conservative platform, your tenure will be
short, as they will ban you in short order.

Everyone hear is lucky to have Mr Grannis as Owner and Operator!

Benjamin Cole said...

I double Hans sentiment.

I may or may not agree with Scott Grannis. So what? Grannis calls it as it he sees it, and tolerates other points of view. Hard to ask for more.

The world would be a lot more civilized with a lot more Scott Grannis-types out there.

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steve said...

THE most troublesome trend I see today is the turn AGAINST free trade. BOTH candidates agree! How any so called "conservative " be against what is so obviously beneficial policy is mind boggling UNLESS you assume it's all just politics and regaling to the ignorant.

Excellent piece here about the importance of FREE TRADE!

https://www.project-syndicate.org/commentary/free-trade-benefits-for-global-poor-by-bjorn-lomborg-2016-10

The Cliff Claven of Finance said...

Here is a full column from my economics blog,
much of which I left out of my first post here,
because I was still working on it:


11 examples of bad news from data
released during October 2016:


(1) September orders for Class 8 trucks – the big rigs --
plunged 27% from August, to 13,791
-- it was the worst September since 2009


(2) Year-over-Year Factory Orders were negative
for the 22nd consecutive month


(3) Year-over-Year Industrial Production was negative
for the 13th consecutive month


(4) Year-over-Year Construction Spending contracted
for the first time in 5 years


(5)
S&P reported subprime borrowers were behind by more than 60 days
on about 4.85% of auto loans in August 2016,
the highest level since January 2010.



(6)
There was a shocking +34% spike
in the US Government budget deficit
in fiscal year 2016 (ending 9/30/16)
vs. fiscal year 2015 (ending 9/3015)




(7)
The National Restaurant Association’s Restaurant Performance Index
fell below 100 in August
-- the first month below 100 since early 2010



(8)
GoBankingRates found 69% of Americans had less than $1,000
in their savings account, up from 62% last year.
(7,052 people surveyed in 2016, and over 5,000 surveyed in 2015)

For 2016:
34% had no savings at all
35% has less than $1,000
11% have between $1,000 and $4,999
4% have between $5,000 and $9,999
15% have more than $10,000




(9)
September US commercial bankruptcy filings soared +38% from a year ago, to 3,072.

September was the 11th month in a row of year-over-year increases.

For year-to-date 2016, filings jumped +28% compared to the same period in 2015, to 28,789.

November 2015 had been the first month since March 2010
when bankruptcy filings began rising year-over-year.

Source: American Bankruptcy Institute.




(10)
In August, commercial and industrial (C&I) loans outstanding
at all US banks in the US fell for the first time, month-to-month, since October 2010.

One monthly decline doesn't sound like much, but it was the first decline in almost six years.

The last credit bubble peaked In October 2008, with $1.59 trillion of C&I loans outstanding.

By July 2016, C&I loans were 30% above their prior bubble peak ($2.064 trillion).

In August C&I loans fell 0.3% from July, to $2.058 trillion (a 3.8% annual rate of decline).

Source: Federal Reserve Board of Governors




(11)

October 15 weekly US freight rail traffic -- intermodal units
(containers and trailers, which account for about 46% of total traffic),
were down 2.2% from the same week in 2015

October 8 weekly intermodal units were down 6.4% from the same week in 2015,
and down 6.5% from the same week in 2014.

Note: The decline of coal and oil shipments in the past few years,
due to increased use of natural gas, which is a commodity not shipped by rail,
does not affect the intermodal unit data.


The intermodal traffic decline
has been a problem
since 4Q 2015:
- Q4 2015 was down -9% year-over-year
- Q1 2016 was up +1% yoy
- Q2 2016 was down -5% yoy
- Q3 2016 was down -5% yoy
- Year-to-Date 2016, through October 15, was down -3.3% vs. 2015
- Month of September 2016 was down -4.2% vs. September 2015
- Week of October 8, 2016 was down -6.4% vs. same week in 2015
- Week of October 15, 2016 was down -2.2% vs. same week in 2015

Source: The Association of American Railroads

The Cliff Claven of Finance said...

Below is a much older short study of economic data revisions
(I have not checked to see if data were revised yet again, as is
very common with historical average temperature data!)


Final economic data revisions may be up to several years
after the original preliminary data were first released to the public.
.
Differences between preliminary and final data
tend to be largest in the months just before
and just after the start of a recession:

After revisions, good news morphs into bad news
-- that's why recessions are so hard to predict:
.
.
.
Q1 2001 (beginning of a recession):
Original data: +1.2% GDP growth (annual rate)
Final data: (-1.1)% GDP decline
(Note: Q2 2001 had positive GDP growth DURING the recession)
.
.
.
.
Q1 2008 (beginning of a recession):
Original data: +1.0% GDP growth (annual rate)
Final data: (-1.8%) GDP decline
(Note: Q2 2008 had positive GDP growth DURING the recession)
.
.
.
.
.
May through August 1990:
Original data: +480,000 job growth
Final data: (-81,000) job decline
.
.
.
January through April 2001:
Original data: +105,000 job growth
Final data: (-262,000) job decline
.
.
.
February through May 2008:
Original data: (-248,000) job decline
Final data: (-577,000) job decline



Hope I haven't taken up too much bandwidth with these multiple comments.

Scott Grannis said...

Cliff Claven: no offense, and no quibble at all with reminding people how government stats can and do get revised significantly after the fact. That's something I have pointed out here many times over the years, and it's why I try to focus as much as possible on market-based, real time data.

I am climate change skeptic as well, and one of the best books on the subject that I have run across is Michael Cannon's "Lukewarming."

Many years ago I worked for John Rutledge and the Claremont Economics Institute. He was fond of the argument that because we were based on the West Coast, we were able to maintain a certain independence from Wall Street groupthink. I have every reason to continue to believe that, and it doesn't hurt that I can spend time looking out at the Pacific, and a beach that is (currently) very sparsely populated, rather than the crowded jungle of Manhattan.

I've been wrong about many things over the years, but I have also been very right at times. Fortunately the "right" things have far outweighed the "wrong" things. I've also learned the value of patience and investing for the long haul. I don't try to time the market.

The Cliff Claven of Finance said...

In response to your comment, Mr. Grannis:

My original post was to report that I thought you were too optimistic.

While I associated that with your prior job, that speculation may not be true.

Then I looked at the picture of the view from your condo, and your wife,
and decided unless that is not really your condo, and the woman is
actually a professional model, then you have two reasons to be an optimistic person.

Remember that the perpetual optimist is right 8 or 9 years out of ten
(assuming 4 to 8 recession quarters every decade), so economists
tend to be optimists to be right 80% to 90% of the time.

As a group, economists have never predicted a recession !

I was lucky to have had an opportunity to speak to an investment
firm chief economist just before he retired.

A person in such a job could be terminated for predicting a recession
which did not come.

"Wall Street" is perpetually optimistic.

My economics blog, since 2008, is only a between issues supplement
for paid subscribers of my bi-monthly economics newsletter.
Your blog is much better.

But I do have a free climate change blog where I offer evidence that the climate in 2016 is wonderful,
and CO2 has never, in 4.5 billion years of climate history, been the "climate controller"

I get about 400 page views a month, with no advertising,
so someone out there must think I make sense!

Climate Change Blog:

www.elOnionBloggle.Blogspot.com

Scott Grannis said...

Cliff: That is indeed a photo of my wife, and she thanks you for the compliment!

amritsari said...

Looks like the Kansas tax experiment isn't working out too great :)
Governor cancels economic update since it didn't look good.

https://t.co/iAKy40uS7J

Meanwhile in our greatly taxed and regulated state of california, we have a surplus. Who would have thunk ?

Climate change is real. Deal with it. I'm quite qualified and familiar with the data. What is with it with the right wing - polls are skewed, media is biased against them, science is wrong. Always whining and playing the victim, instead of acting like winners (like Trump !).

Still, I like your analysis of the economic time series. Just not your political opinions. Real world data doesn't appear to match them (see Kansas above).

Scott Grannis said...

Correction: The book "Lukewarming" that is the best book on the issue of Climate Change that I have run across, was written by Patrick Michaels, no Michael Cannon. Sorry for the confusion!

Hans said...

amritsari, Socshevikes, whom have been operating
USA for nearly 5 decades are eliminating our freedoms
one by one but that has never been priority number one.

Who has hurt America more Rothan or The Donald??

Yes, Brownback's tax reductions have not helfed Kansas
nor has Walker's in Wisconsin. No one on the right would
suggest that each and every tax reduction is going to work,
nevertheless, the left has made this some type of litmus test!
Every major MSM has covered this issue of these two states, which
contribute less than 5% of the national GNP.

You can find almost weekly briefings on this issue on the very
fine leftwing website of the Econobrower.com; operated by
Professor Hamilton and Chinn.

Professor Chinn, is a right and honorable man, allowing for free
expression of thoughts and dialog.

Just like Cali, our state Maoisota or Calisota is enjoying a massive
surplus of 1.5 billion, due in part of very steep tax increases.
The North Star state in now rated six highest in the Republic (former).

Perhaps you should understand, that the wheels on economics do not
turn on a dime. It may and indeed does takes years to fully incorporate
policy changes.

amritsari said...

Hans - so you agree that tax cuts are not the only catalyst for economic growth ? Thanks for making my point. I find the arguments by the right so boring - tax cuts are always the solution for every problem !