Wednesday, March 23, 2011

Stock Price Appreciation in a Low/No Growth Economy

I stumbed across this article put out by the "Center for Retirement Research" at Boston College:

In a nutshell it offers up some commentary and charts stating that the pattern of business cycles from 1950 until now gives a strong indication of average to above-average growth for the coming decade. I don't have an issue with making a guess about the future direction of stock prices. I suppose the "CRR" is as entitled as anyone to hypothesize on the future direction of equities.

The issue I have with the article is in this section:
Economic Growth and
Synthetic Growth
A closer look at recent experience, however, shows
that the appreciation of stocks is not necessarily anchored
to the expansion of economic activity. Corporations
can increase the assets backing each share of
their stock without installing new plant and equipment
by using their earnings to purchase equity in
other companies, to buy their own stock, or to retire

I disagree with the notion that over a longer term time frame, stock price performance is not correlated to a nation's economic performance. The authors reason that a corporation can avoid a declining stock price by directing earnings to other activites besides reinvestment in the company itself, but this puts the cart before the horse. In general, declining overall economic activity is going to reduce the amount of earnings, regardless of where those earnings are then subsequently redirected.

It's also interesting to me that in an article who's primary focus is discussing the future trend for real returns, never mentions the inflation component part of the calculation. The word 'inflation' only comes up in the article once, and that one time is in describing the definition of 'real return' (sorry, that doesn't count). No attempt is made a projecting the future trned of inflation nor is any commentary given regarding the dependency of the current earnings level on an expanding money supply.

Friday, March 18, 2011

Depends on your definition of 'free'

Our free market handlers have decided that a USDJPY below 80 is too low (apparently the same ones who claim that a 6.6 USDCNY rate is too hight). As a result, the Fed intervenes in the currency markets for the first time (as far as we know) in 11 years. One might scratch their heads thinking this goes contrary to the stated objective of the US to significantly increase exports over the coming years. Increasing exports must have gotten bumped down the priority list.

Thursday, March 17, 2011

GDP/Equity Index chart status

I wish I could report that the GDP/Equity Index chart was ready to be deployed but unfortunately it's not quite finished. Yesterday I noticed an issue with how the data was structured and had to reformat 2 million + rows in the database. So I'm now targeting this weekend for the initial deployment.

Crazy movements going on in the markets right now. There are a bunch of charts that I wish were already up and running so I could better track what's happening. Isn't that the way life typically goes. On the other hand, I can say with some degree of certainty that this won't be last episode of economic volatility in my lifetime.

I'm also working on a gainers/losers charts and tables for different asset classes: commodities,US equities, global equity indexes, as well as one that spans all asset classes. That 10% gain in CAT won't seem so impressive if the majority of commodities are up 15+% on the year.

Monday, March 14, 2011

Initial version of the gdp chart

Here's the latest version of the gdp chart (based on data from the IMF):

The top 5 rated for growth over the next 5 years were a little surprising: Mongolia, Eritrea, Kazakhistan, Haiti & Iraq. Looking deeper, Mongolia does appear to have high growth potential with a low GDP to begin with and a proximity to China. In fact all 5 have current relative low GDPs and of course it's going to be easier to grow at a high rate starting from a low base. Iraq should certainly do well if they can keep the oil flowing. I'll need to do a little more research on the other 3 to see what the story is with them.

Coming soon: charts that will track the gdp growth estimates, actual gdp growth and stock market performance.

Thursday, March 10, 2011

Someone else picked up a blip on their radar screen

Someone else just mentioned cotton prices:

GDP/Stock market chart

Right now I'm working on a chart to compare GDP estimates by country vs. stock market performance. I hope to having something up today. I'm using the motionchart gadget from the google visualization api.

Tuesday, March 8, 2011

Cotton Flying under the radar

Commodities are a hot topic right now but not too many people are talking about cotton. It's up 40% since the end of January.