Posts filed under “Data Analysis”

James Altucher: “The Underlevered American Household”

Lets just look at what’s wrong with a few items in Jim Altucher’s column yesterday, “The Underlevered American Household.”

I may have to address the rest of the erroneous analysis in a full column — but for now, let’s stick with the first chart in the article. Jim believes the following chart is “mostly useless.”

click for larger graph

Source: BEA

We are consuming more than we are earning. I suspect the reason for this is the failure to adapt economically in the post crash environment. Despite Real Income being negative, as a nation, we have not adjusted our consumption habits. Cheap money ala Greenspan has allowed us to party like its 1999. Only its not — its a post crash world.

The Failure to recognize the significant shift in the wage environment is potentially worrisome, with consumer spending accounting for almost 70% of GDP.

Perhaps a little context might provide some utility. The United States, for the first time since the Great Depression, has a negative personal savings rate. Here’s what that looks like graphically:


77 year chart, Personal Savings Rate
click for larger graph

Sources: BEA, RR&A

The savings spike during WWII was aberrant — War Bonds, rationing, the lack of consumer goods (the industrial sector shifted to military production) explain why those five years were the all time savings highs.

And the rest of the time — why was savings rate so much higher throughout the rest of the century?

Jim dismisses it, claiming this “means that according to the way economists working for the government calculate income and expenditures, we are spending more than we make.”

That’s a snide dismissal of the data. This is not a seasonally adjusted, hedonically altered, absurdly core focused number. This is a simple series that measures savings, spending and income.

Jim also notes that “capital gains are not included in personal income.” But neither was it included during the prior three quarters of a century of data.  It is irrelevant to the question of “Are we spending more than we earn?”

I cannot so easily dismiss an data which represents an historical anomaly. Indeed, anytime something occurs in a long data series which has been a rarity historically, its worth sitting up and paying notice.


UPDATE: June 23, 2006 11:37am

Wow, this is a surprisingly popular post — both the WSJ and Dealbreaker picked it up:

WSJ Blog Roll — Morning Edition



The Underlevered American Household
James Altucher, 6/21/2006 2:30 PM

Category: Data Analysis, Economy, Retail

A Deceptively Simple Timing System

Category: Apprenticed Investor, Data Analysis, Earnings, Fixed Income/Interest Rates, Markets, Technical Analysis

Major Internet Site Web Traffic

Category: Data Analysis, Web/Tech

Stock Prices Adjusted for Inflation

Category: Data Analysis, Technical Analysis, Valuation

What Happens if Inflation Is Overstated?

Category: Data Analysis, Economy, Federal Reserve, Inflation, Markets, Real Estate

When Statistical Measures Fail to Capture Reality

Category: Data Analysis, Economy, Employment, Inflation, Psychology

Volatility History

Category: Data Analysis, Psychology, Technical Analysis

Will Cheap Stocks Get Cheaper?

Category: Data Analysis, Earnings, Investing, Markets, Trading

How Cheap is the Market?

Category: Apprenticed Investor, Data Analysis, Earnings, Investing, Markets, Psychology

Stephen Moore Gets Slick With the Data

Early this morning, I caught a few minutes of Stephen Moore’s Supply Side arguments on CNBC re Tax Cuts.

Rather than discuss what some have called Economic’s biggest mistake, and what the Chairman of President Bush Council of Economic Advisors Greg Mankiw described in the third edition of his book Principles of Economics textbook as the work of
"charlatans and cranks," I thought I would simply debunk his Capital Gains Tax Cut argument as increasing treasury receipts:

Moore is arguing that since tax reciepts went up after the Capital Gains Taxes were cut in 2003, it should therefore get all the credit. I would respond simply by going to the charts, and pointing out that THE ABSENCE OF CAPITAL GAINS FROM 2000-20003 is the primary reason.

This first chart shows the pre-tax cut period of October 2000 to March 2003; Gee, anyone want to hazard a guess for why Capital Gains Taxes paid were so low after the Nasdaq dropped 78%?


 Nasdaq 2000-03


The second chart shows what happened after the War began in March ’03. Note that the Nasdaq selloff was very similar in depth to the initial 1929 crash.


Nasdaq 2003-06


Gee, when markets rally, people pay more Capital Gains! Go figure . . .

(And this is before we even mention increased Housing sales due to half century low interest rates and the potential capital gains taxes there) 


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Category: Data Analysis, Markets, Politics