Posts filed under “Data Analysis”
Fed-Driven U.S. Stock Advance Leaves Grantham Waiting for Bubble
by David Wilson
(Bloomberg) — Adjusting U.S. stock-market indicators for Federal Reserve policy since the 1980s shows a bubble has yet to come, according to Jeremy Grantham, Grantham, Mayo, Van Otterloo & Co.’s chief investment strategist.
The attached chart highlights one gauge, Yale University Professor Robert Shiller’s cyclically adjusted price-earnings ratio, that Grantham cited yesterday in a quarterly letter to shareholders. The P/E is based on average earnings for the previous 10 years, rather than four quarters of profit.
Shiller’s ratio averaged 24.4 from August 1987, when Alan Greenspan was first appointed Fed chairman, through last month. The period was marked by “the Fed’s habit (as in ‘addiction’) of pushing the market up in order to get a wealth effect,” or growth in consumer spending that reflects higher asset values, Grantham wrote.
The average P/E for what the Boston-based money manager defined as “the Greenspan era” was well above the comparable readings for earlier periods. Stocks were valued at an average of 14 times profit from 1900 to July 1987, as the chart shows.
Using the more recent figure as a benchmark would suggest stocks are “well on the way to bubble-dom but, clearly enough, not there yet,” Grantham wrote. The latest reading was 27.1 as of yesterday, according to Shiller’s website.
Grantham reiterated a view that the Standard & Poor’s 500 would reach a bubble at about 2,250, or 7.9 percent higher than yesterday’s close. He added that the threshold may be 5 percent to 10 percent higher after accounting for the Shiller P/E and another gauge, known as Tobin’s Q.
Tobin’s Q is a ratio of companies’ market value to the replacement cost of assets. The indicator is named for its creator, the late James Tobin, another Yale economist.
Barry here: I know Invictus personally for more than a decade. I also know he works at a shop that does not allow its staff to publish economic and data analysis outside of their formal imprimatur. I would not allow his work to be published here if I was not confident about his respect for data, his integrity…Read More
Every year, right after the April 15 tax deadline, the U.S. Census releases its data on the prior year’s state tax collections. It is a fascinating document, filled with great data points for tax and policy wonks. It reveals a good deal about the state of local economies, economic trends and results of specific policies. In…Read More
@TBPInvictus When pushing his tax cuts for Kansas in July 2012, Governor Sam Brownback wrote: “Our new pro-growth tax policy will be like a shot of adrenaline into the heart of the Kansas economy.” Art Laffer and Stephen Moore wrote that “many states like Kansas, Missouri, and Oklahoma are seriously considering abolishing their income taxes…Read More
@TBPInvictus On Wednesday, I threw in my $0.02 about the controversy surrounding the increase in Seattle’s minimum wage. Unlike any of those who have been decrying the new law and its impact, I used some data to demonstrate the absence (as yet) of any ill effects. Specifically, I looked at restaurant permit issuance and found…Read More
@TBPInvictus Barry wrote yesterday about how political bias can corrupt economic analysis. It’s something he and I discuss all the time and are always on the lookout for. We’ve documented over the years how leaning too heavily on one’s politics is a recipe for disaster when it comes to asset management. In the wealth management…Read More
Benchmark Revisions Paint a Brighter Picture of (Most of) the Regional Economy Jason Bram and James Orr Liberty Street Economics, March 20, 2015 Every March, the Bureau of Labor Statistics releases benchmark revisions of state and local payroll employment for the preceding two years. While employment data are released monthly for all 50…Read More
Today’s employment report may be hard to read: The severe weather in the Northeast and Midwest affected the Labor Department’s data-collection process. The weather has been so disruptive that department employees can’t even get into the office on time to release this morning’s report. For the first time ever, it’s being released online. But as I…Read More