GDP and Earnings : driving stock Valuations

[drbubb]

GDP versus Stocks : a good historical measure of Value

 

Will China stocks bottom as US stocks peak ? (in August)

 

"Get your minds into this material - There's deep material here.

Surely GDP growth relates to levels of Stock Indices. But people rarely look at this 'Big Picture.'"

 

GDP versus Stocks : a good historical measure of Value - I will look at this in several countries

Stocks - US, China, Japan : 10 years : 1-yr / All Data : INDU, CN, JP / 1Year: INDU, IWM, CN:SHcomp, JP:1330

 

Index------- : 12/'95- : 12/'00 : 12/'02 : 12/'05- : 12/'10- : 12/'12 : '02-'12% / Latest (26-Jul)

==========

(Stocks)

INDU (US)-- : 5,117. : 10,869 : 8,333 : 10,718 : 11,578 : 13,104 : + 57.3% / 15,556

JP:1330 ---- : --n/a-- : --n/a-- : 8,560 : 16,260 : 10,300 : 10,640 : + 24.3% / 14,410

CN:SHcomp : 555.29 : 2,073 :: 1,358 :: 1,161 : : 2,808 : : 2,269 : + 67.1% / 2,010.8

==========

(GDP in US$)

GDP- US --- :$7.338 : 9.898 : 10.590 : 12.564 : 14.419 : 15.685 : + 48.1% / 15.984 - Q1.2013

GDP- Japan :$5.334 : 4.731 : $3.981: $4.656 : $5.495: $5.960 : + 49.7% /

GDP- China :$0.728 : 1.198 : $1.454: $2.257 : $5.931 : $8.227 : + 466.% / +7.5% - Q2.2013

==========

 

GDP Historical Data- ::

SPX Historical Prices :: http://finance.yahoo...storical

US Corporate Profits :: http://ycharts.com/i...rporate_profits

 

LINK / to here: http://tinyurl.com/GEI-GDP .. (30 jul. 150H)

[drbubb]

US Stocks Historical Valuation : two methods - versus Earnings, and vs GDP

 

(1) PE Ratios

: PE Now : History

 

(2) GDP - grew steadily, and stock prices ran up fast after 1987, as US debts exploded in Greenspan's fiat currency world

 

. . . . .

 

I applied the concept of relalting the US GDP to the US stock market

... the US market is reaching towards the Higher band ... once again ... w/o-Label

: 12/1996: Irrational exuberance speech

 

The lower line (in Light Blue) is the historical stock low ... escalated year-by-year by the annual growth in Nominal GDP.

 

The upper light blue line is calculated to hit the 2007 high, escalated using the same growth rates. The chart shows how crazily high prices got :

 

+ At the 2000 peak (11,750) for the US, INDU was above the GDP band (xx,xxx) by xxx%

 

+ The "excess" started years earlier during Greenspan's time as Fed Chairman, and it jumped the trendlines around the end of 2006, when Greenspan gave a speech about the stock market trading at levels that represented "irrational exhuberance".

. . .

The red line is each year's annual low in stock prices (while the dark blue line is the high, and the black line is the year-end price.)

 

(Here's some extracted data from the spreadsheet for the US- still a work in process):

 

Year : Yr-Low- : Yr.End Yr-High / GDPgrew lower upper

US

1995 : 04,708 : 05,117 : 05,526 / + 4.93 % : 2,786 : 7.462 : width 168%

1996 : 05,000 : 06,448 : 06,600 / + 5.63 % : 2,943 : 7.882

1997 : 06,400 : 07,908 : 08,350 / + 6.53 % : 3,135 : 8,397

. . .

2012 : 12,030 : 13,104 : 13,660 / + 4.63% : 5,955 : 15,951

2013 : 13,000 : ? -?- ? : 15,600 / + 4.00% : 6,193 : 16,589

 

(3) Earnings vs GDP : source

 

 

/ 2nd chart: SPX earnings vs GDP starting from 1928: source

 

 

This suggests that corporate profits are falling versus GDP, but maybe smaller co's outside the 500 in the SPX. are growing their earnings faster than the index co's.

[drbubb]

WILL THE REAL P/E PLEASE STAND UP?

 

/ Latest Hard figure: 12 mos. "Trailing" PE : 17.89 at 3/31/13 /

 

July 3, 2013 / Chad Karnes, Chief Market Strategist

 

Financial analysts it seems are always playing games. If you ask ten of Wall Street’s analysts what is the market’s P/E ratio, you are likely to get ten different answers. You also will no doubt notice that most of their answers will suggest the market is currently "fair" or even "undervalued".

 

 

Which of these S&P 500 P/E ratios is correct? 18.2x, 15.5x, or 12.9x?

. . .

The primary driver between the two extreme P/E ratios is the date assumed. By using earnings from Dec 2014, an analyst can instantly drop the P/E ratio over 30% (from 16.2x to 12.9x). No big surprise, whichever period provides the lowest P/E is typically the P/E ratio that is quoted by the media, justifying why stocks (NYSEARCA:SDY) are indeed cheap (the long term average P/E ratio is around 15x).

 

The difference between the GAAP and Management earnings makes a difference, but not near as much as the time frame assumed. By pushing out the earnings horizon, P/E ratios drop over 4 handles based on GAAP.

 

Think this discrepancy is extreme?

The difference of the P/E on the Russell 2000 (NYSEARCA:IWM) dwarfs this discrepancy. The current Russell 2000 P/E based on trailing 1Q 2013 GAAP earnings is 58.7x, but the P/E expectation one year from now is only at 17.2x

.

What if small cap (NYSEARCA:UWM) earnings don’t grow next year? That will mean next year’s P/E in reality is much higher than 17.2x. Don’t worry though, by that time analysts will have you focusing on the expected growing 2015 earnings, again trying to justify a low P/E and time to buy.

===

 

/more: http://www.etfguide....ease-Stand-Up?/

[drbubb]

PE's : How much has loose Fed money helped US profits?

 

- article from Today's SCMP / source

 

"Lower rates account for almost 40 per cent of total profit growth, which does not include savings from lower leasing or rental costs because of the low rates."

 

: Source

 

'The result is that corporate America has seen a substantial decline in its cost of capital and it has greatly benefited its bottom line.'

 

Interest paid by US businesses peaked in 2007 at $2.83 Trillion, falling sharply to $1.34 Trillion in 2011, the last year the data is available."

 

 

Year : GDP-Tr. : %GDP : %GDP2 : CpProf*: -Growth : SPXeps : -Growth : ShillerE : SPX- : P/E: eYield: Shil.PE

2000 : $09.898 : 1X.X% : 04.92% : $0.487 : - 10.48% : $50.00 : +03.80% : $35.69 : 1320 : 26.4 : 3.8% : 36.98

2001 : $10.234 : 1X.X% : 04.59% : $0.470 : - 03.49% : $24.69 : - 50.62% : $37.91 : 1148 : 46.1 : 2.2% : 30.28

2002 : $10.590 : 1X.X% : 06.13% : $0.649 : +38.09% : $27.59 : +11.75% : $38.44 : 0880 : 31.9 : 3.1% : 22.89

2003 : $11.089 : 1X.X% : 06.56% : $0.727 : +12.02% : $48.74 : +76.66% : $40.22 : 1112 : 22.8 : 4.4% : 27.65

2004 : $11.798 : 1X.X% : 08.15% : $0.962 : +32.32% : $58.55 : +20.13% : $45.60 : 1212 : 20.7 : 4.8% : 26.58

2005 : $12.564 : 1X.X% : 10.35% : $1.301 : +35.24% : $69.93 : +19.44% : $47.17 : 1248 : 17.8 : 5.6% : 26.46

2006 : $13.315 : 1X.X% : 09.99% : $1.330 : +02.23% : $81.51 : +16.56% : $52.13 : 1418 : 17.4 : 5.7% : 27.20

2007 : $13.912 : 1X.X% : 09.40% : $1.308 : - 01.65% : $66.18 : - 18.81% : $61.14 : 1468 : 22.2 : 4.5% : 24.01

2008 : $14.219 : 1X.X% : 04.53% : $0.644 : - 50.76% : $14.88 : - 77.52% : $59.53 : 0903 : 60.7 : 1.6% : 15.17

2009 : $13.898 : 1X.X% : 09.75% : $1.355 : +110.4% : $50.97 : +242.5% : $54.34 : 1115 : 21.9 : 4.6% : 20.52

2010 : $14.419 : 1X.X% : 10.18% : $1.468 : +08.34% : $77.35 : +51.76% : $54.77 : 1258 : 16.3 : 6.1% : 22.97

2011 : $14.991 : 12.1% : 10.45% : $1.566 : +06.68% : $86.95 : +12.41% : $59.31 : 1258 : 14.5 : 6.9% : 21.21

2012 : $15.865 : 12.4% : 11.18% : $1.774 : +13.28% : $86.51 : - 00.51% : $65.11 : 1426 : 16.5 : 6.1% : 21.90

====

 

S&P 500 Earnings "per share" since 1871 : less lines

 

/ source: http://www.multpl.co...p-500-earnings/ :: /chart: Shiller PE

 

 

US CORPORATE Profits > SPX Earnings > PE Ratios, Year-End

 

US Corporate Profits - annualised - : S&P500 Earnings, per sh :

Year- : - Q1- : - Q2- : - Q3 - : - Q4 - : x Pct= : spxEPS : SPX-yrE : PE-yrE : ErYld : TNX : RY-Gap

(Trillions)

1998 : 0.483 : 0.478 : 0.475 : 0.462 : 8.16% : $37.71 : 1229.23 : 32.60 : 3.07% : 4.64%: (1.57%)

1999 : 0.499 : 0.520 : 0.523 : 0.544 : 8.85% : $48.17 : 1469.25 : 30.50 : 3.28% : 6.44%: (3.16%)

2000 : 0.521 : 0.514 : 0.508 : 0.487 :10.27%: $50.00 : 1320.28 : 26.41 : 4.90% : 5.11%: (0.21%)

2001 : 0.524 : 0.547 : 0.496 : 0.470 : 5.25% : $24.69 : 1148.08 : 35.27 : 3.79% : 5.03%: (1.24%)

2002 : 0.505 : 0.548 : 0.590 : 0.649 : 4.25% : $27.59 : 0879.82 : 31.89 : 3.14% : 3.82%: (0.68%)

2003 : 0.627 : 0.621 : 0.663 : 0.727 : 6.70% : $48.74 : 1,111.92 : 22.81 : 5.65% : 4.26% : 1.39%

2004 : 0.860 : 0.912 : 0.960 : 962.0 : 6.09% : $58.55 : 1,211.92 : 16.74 : 5.97% : 4.22% : 1.75%

2005 : 1.176 : 1.196 : 1.238 : 1.301 : 5.38% : $69.93 : 1,248.29 : 17.85 : 5.60% : 4.40% : 1.20%

2006 : 1.355 : 1.345 : 1.368 : 1.330 : 6.13% : $81.51 : 1,418.30 : 17.40 : 5.75% : 4.71% : 1.04%

2007 : 1.264 : 1.316 : 1.284 : 1.308 : 5.06% : $66.18 : 1,468.36 : 22.19 : 4.51% : 4.04% : 0.47%

2008 : 1.188 : 1.208 : 1.163 : 0.644 : 2.31% : $14.88 : $ 903.25 : 60.70 : 1.65% : 2.24% (0.59%)

2009 : 1.010 : 1.087 : 1.232 : 1.355 : 3.76% : $50.97 : 1,115.10 : 21.88 : 4.57% : 3.84% : 0.63%

2010 : 1.434 : 1.405 : 1.465 : 1.468 : 5.27% : $77.35 : 1,257.64 : 16.26 : 6.15% : 3.31% : 2.84%

2011 : 1.402 : 1.454 : 1.477 : 1.566 : 5.55% : $86.95 : 1,257.60 : 14.46 : 6.91% : 1.87% : 5.04%

2012 : 1.671 : 1.665 : 1.742 : 1.774 : 4.88% : $86.51 : 1,426.19 : 16.48 : 6.07% : 1.76% : 4.31%

2013 : 1.750 :

==== : ===== : ==== : ===== : ==== :

%Chg 4.72% : XX.X% : x.xx % : x.xx %

GDP

2010 : 14.27 : 14.41 : 14.58 : 14.74 : $14.736

2011 : 14.81 : 15.00 : 15.16 : 15.32 : $15.321

2012 : 15.48 : 15.59 : 15.81 : 15.86 : $15.864

2013 : 15.98 : ==== : ===== : ====. : $15.984

==== : ===== : ==== : ===== : ==== :

%Chg 3.22% : X.XX% : x.xx % : x.xx %

CPI-d. 1.42% :

Real : 1.80% : 0.60%? (John Williams predicts : 0.59%)

SPX

2012 : 1,408 : 1,362 : 1,441 : 1,426 : $1,426 = PE: 16.48

2013 : 1,569 : 1,606 : ===== : ==== : $1,606 = PE: 18.31

==== : ===== : ==== : ===== : ==== :

%Chg 11.4% : 17.9% : x.xx % : x.xx %

EPS

2011 : ===== : ==== : 22.63 : 20.64 : $86.95

2012 : 23.03 : 21.62 : 21.21 : 20.65 : $86.51

2013 : 24.22 : ==== : ===== : ==== : $87.70 = EY: 5.46%

==== : ===== : ==== : ===== : ==== :

%Chg 5.17% : XX.X% : x.xx % : x.xx %

====

/source...... :: http://ycharts.com/i...rporate_profits : StLouis Fed data

/chart, both :: http://www.macrotren...arnings-history

/SPX - EPS :: http://www.multpl.co...-earnings/table : http://ycharts.com/i...tors/sp_500_eps

/Alt., P/E- 1 :: http://www.investors...x valuation.htm

/Alt., P/E- 2 :: http://financeandinv...tios-for-s.html

/Shiller PE- :: http://www.multpl.com/shiller-pe/table : chart: http://www.multpl.com/shiller-pe/

[drbubb]

CHINA :

 

Shanghai Composite / CN:SHcomp : LT-chart : LT-Log : fewer lines : 1-year

 

 

The same type of chart for the Shanghai Composite

 

 

I don't think the Drop is done yet,.. I can see it retesting the 2013 lows soon, and may retest the important

support level below 1,800 (1,777?). The Lower band for 2013 is 2,788, and 1,777 is 63.7% of that.

 

CN: SHcomp / Shanghai Composite Index ... update

 

 

As you can see for the last few years stock prices have moved BELOW the lower light blue line in China:

(figures will be revised for China):

================

Year : Yr-L- : YrEnd Yr-H- / GDPgrew lower upper

1999 : 1,050 : 1,367 : 1,750 / + 00.00% : 0,450 : 1,900 : width 322%

2000 : 1,400 : 2,073 : 2,100 / + 10.63% : 0,498 : 2,102

2001 : 1,500 : 1,646 : 2,240 / + 10.53% : 0,550 : 2,323

2002 : 1,350 : 1,358 : 1,750 / + 09.73% : 0,604 : 2,549

2003 : 1,300 : 1,497 : 1,650 / + 12.87% : 0,682 : 2,878

2004 : 1,260 : 1,267 : 1,780 / + 17.71% : 0,802 : 3,387

2005 : 1,000 : 1,161 : 1,325 / + 15.67% : 0,928 : 3,918

2006 : 1,180 : 2,675 : 2,700 / + 16.96% : 1,085 : 4,583

2007 : 2,500 : 5,262 : 6,124 / + 22.88% : 1,334 : 5,632 // H: 1??% of Upper band*

2008 : 1,650 : 1,821 : 5,500 / + 18.14% : 1,576 : 6,653

2009 : 1,800 : 3,277 : 3,460 / + 08.55% : 1,711 : 7,222

2010 : 2,320 : 2,808 : 3,300 / + 17.78% : 2,015 : 8,507

2011 : 2,120 : 2,199 : 3,070 / + 17.83% : 2,374 :10,023

2012 : 1,949 : 2,269 : 2,480 / + 09.77% : 2,606 :11,003

2013 : 1,850 : ?-?-? : 2,445 / + 07.00% : 2,788 :11,773

================

Low'13 1,850 / Lower band: 2,788 : 66.36%

[drbubb]

JAPAN :

 

Nikkei 225 Index / JP:1330 : LT-chart : LT-Log : 1-year

 

[drbubb]

Shiller PE Ratio : US Stocks are not cheap !

 

(Shiller PE Ratio = SPX / Average of 10 years Earnings) ... source

 

 

Timing----- : SPX- : -- EPS : Shiller* / Prem.- / P/E : Shiller /

====

2012-YrEnd : 1258 : $86.95 : $59.31 / +46.6% / 14.5 : 21.21 :

2012-YrEnd : 1426 : $86.51 : $65.11 / +32.9% / 16.5 : 21.90 :

2013- Qtr. 1 : 1569 : $87.70 : $69.0e /+27.4% / 17.9 : 22.73 :

2013- Qtr. 2 : 1606 : $87.50e $70.0e /+25.0% / 18.3 : 22.94 :

2013-ye Est : 1400 : $87.00e $70.0e /+24.3% / 16.1 : 20.00 :

2014-ye Est : 1050 : $60.00e $70.0e /- 14.3% / 17.5 : 15.00 :

=====

2013-Latest : 1692 : $87.50e $70.0e /+25.0% / 19.3 : 24.17 : At july-26-2013

-- altern..est : 1692 : $87.50e $69.0e /+25.0% / 19.3 : 24.52 :

=====

*e = Estimates: calculating Shiller figures: per my spreadsheet

I think that it is possible that SPX could make new highs in Q1-2014,

and then drop sharply over the rest of the year

[drbubb]

The China Conundrum (strong GDP growth vs weak stock prices) is hitting the papers here in HK

 

 

Two articles stand out in today's Saturday's SCMP:

 

(1) China Growth slow down, but a Target has been set : (pg. B8)

 

Premier Li Keqiang gave a speech - on July 16th, only being reported now that a transcript has come to light.

 

Li set 7.0% as a "bottom line" for China's growth in 2013 (down from widely-reported 7.5%).

 

Li still targets 7.5% growth, and 3.5% inflation, and if growth looks set to go below 7.0%, he is said to be ready to add short term stimulus to the economy. The fact that the transcript was leaked shows that Li is beginning to respond to criticism that he has not explained much about his plans for China's economy. Many are wondering why he has not responded already to slower than expected growth. He is now quoted as saying, his job is: "to maintain a stable economy between the 'ceiling' (of low inflation), and the 'floor' (of job-securing growth)." Since inflation is not presently a problem in China, the slow growth - threatening to break below 7% - would appear to need some attention.

 

(2) Puffed-up IPOs to blame for languishing Chinese stock market : (pg A11)

 

"China's equity market has been around for 20 years, and its performance has been very disappointing," begins the article:

 

Bulletpoints:

===

+ The Hang Seng China Enterprises Index is up only 44 percent since 1994, but China GDP has grown almost ten-fold

 

Why the discrepancy?

+ Many Chinese companies "cooked their books" before going public, sometimes assisted by government

+ Special assistance took the form of cheap land grants from govt, low-interest loans, asset injections : all one-off items boosting ST profits

+ After the IPO they used the economic growth to "wash-away" the early excess valuations

 

But inflation has been described as a "swindle" for equity holders (by Warren Buffett), since it hurts businesses through higher costs, and higher discount rates being applied to Chinese companies.

 

Also, Chinese H-shares (ie those quoted in HK, and in the HS-China Enterprises Index) once had a scarcity value, and that is no longer true.

 

Other reasons give by Joe Zhang, author of: Inside China's Shadow Banking and an independent corporate adviser:

 

+ Managers are often political appointees, and do not work to maximize profits

+ Political interference hurts goal setting, strategy, and day-to-day management

+ Lack of accountability, allows costs (and corruption) to get out of control

+ Chinese co's are often to eager to issue new shares, dilluting shareholder value

=== ===

 

The fact that people are now opening talking about these issues could be a good thing

- since there is great potential in China stocks at the current low prices

 

Perhaps the Shanghai Index can return to the level of :

The 2008 Low (1,707) or 2004 High (1,777) ... update : 6mos-SHcomp : 6mos-HK2823

 

 

Shanghai Comp. vs. HK-2823

======

Timing : SH-comp : HK2823 : Ratio : HKD/Y : S-hkd : R-#2 :

End'10 : 2,808.08 : $ 12.74 : 220.4 : 1.175 : 3,300 : 259.0 :

End'11 : 2,199.42 : $ 10.34 : 212.7 :

End'12 : 2,269.13 : $ 11.14 : 203.7 : 1.243 : 2,820 : 253.2 :

01/31 : : 2,385.42 : $ 11.78 : 202.5 : 1.246 : 2,972 : 252.3 :

02/28 : : 2,365.58 : $ 11.42 : 207.1 : 1.246 : 2,948 : 258.1 :

03/29 : : 2,236.30 : $ 10.42 : 214.6 : 1.250 : 2,795 : 268.3 :

04/26 : : 2,177.91 : $ 10.18 : 213.9 : 1.258 : 2,740 : 269.1 :

05/31 : : 2,300.59 : $ 10.52 : 218.7 : 1.265 : 2,910 : 276.6 :

06/30 : : 1,979.21 : $ 09.01 : 219.7 : 1.264 : 2,502 : 277.7 :

07/31 : : 1,990.00 : $ 08.93 e222.8 : 1.264 :

Target : 1,777.00 :

HK2823 : /225: $7.90, /220: $8.08, /215: $8.27, /210: $8.46

======

HKDperCNY : http://fx-rate.net/CNY/HKD/

[drbubb]

Will China stocks bottom as US stocks peak ? (in August)

Maybe.

I am watching the individual indices, and also watching this Ratio:

 

FXI (China 25 stocks) / SPY (etf for S&P 500)

 

 

Individual Components

Index... : Last - : Yield% : 1year-Range--- : Points-- : within range

FXI- ... : $34.22 : 2.45% : $31.35 - $41.97 : $10.62 : $2.87 : 27.0%

SPX ... : 169.11 : 1.98% : 134.70 - 169.86 : $35.16 : 34.45 : 98.0%

====

Ratio : R 20.2% : 0.47%:

 

The Big Trend - has been for FXI and SPX to move in Inverse directions - so I thought I should Chart FXI against SH (which is the 1X Bear Inverse of SPX) and see how well they correlate with each other. The chart below shows the result. They have both moved within very similar channels, but the day-to-day detail is different. In fact, within the Big Channel, they tend to move in opposite directions:

 

FXI versus SH (the inverse of SPX) ... update

 

This makes me thing that FXI will not bottom on the same day that SPX peaks (and SH bottoms.)

[drbubb]

Why

US GDP

Will Fall Sharply In The Second

Quarter

• ETF Daily News (blog) ‎- 10 hours ago
  Michael Lombardi: BLOG:
  
• ======
  
• In the first quarter’s revised U.S. gross domestic product (GDP) numbers, we found consumer spending in the U.S. economy was slow, dragging U.S. economic growth lower. Going forward, I can’t help but to expect more of the same.
  

• We are already getting warnings from major financial institutions that U.S. GDP growth in the second quarter will be dismal. The Goldman Sachs expects the U.S. economy to grow at only 0.8% in the second quarter. The Royal Bank of Scotland Group plc and Barclays PLC both expect U.S. GDP growth to come in at 0.5%. (Source: Wall Street Journal, July 15, 2013.)
   
  It shouldn’t go unnoticed: consumer spending makes up about two-thirds of the GDP in the U.S. economy. If consumer spending declines, or remains stagnant, then it would be foolish to expect the U.S. economy to experience any growth.
  . . .
  Aside from a slowdown in retail and food services sales and rising real unemployment, the U.S. housing market remains depressed, as real homes buyers stay away from the market. Right now, we have institutions fueling home purchases. First-time home buyers fuel the economy as they buy lawnmowers, appliances, and furniture to fill their homes. Recently, I’ve heard stories of big institutions buying homes in bulk (to rent out) and filling them with appliances they are buying directly from overseas in bulk.
   
  All this happened during the second quarter of 2013, as the key stock market indices continued to rally.
   
  In the first half of this year, key stock indices like the S&P 500 rose roughly 13%. Is this sustainable when the U.S. economy is struggling? I seriously doubt it.
  
• ====
  
• GDP
  2011 : 14.81 : 15.00 : 15.16 : 15.32 : $15.321
  2012 : 15.48 : 15.59 : 15.81 : 15.86 : $15.864
  2013 : 15.98 : ==== : ===== : ====. : $15.984
  ==== : ===== : ==== : ===== : ==== :
  %Chg 3.22% : X.XX% : x.xx % : x.xx %
  
• CPI-d. 1.42% :
  
• Real-: 1.80% : 0.60%? (John Williams predicts : 0.59%)
  
• ===
  /source : http://research.stlo...red2/series/GDP
  http://www.tradingec...ates/gdp-growth
  
• The Gross Domestic Product (GDP) in the United States expanded 1.80 percent in the first quarter of 2013 over the previous quarter. GDP Growth Rate in the United States is reported by the Bureau of Economic Analysis. The United States GDP Growth Rate averaged 3.23 Percent from 1947 until 2013, reaching an all time high of 17.20 Percent in March of 1950 and a record low of -10.40 Percent in March of 1958.
  ===========
  
  
  

[drbubb]

CHINA's BIG OUTFLOW : Capital, once flowing in, is now leaking out

 

It must be remembered that China changes it leadership every 10 years, and the last time was the second half of 2012. I think the outwards flows in 2012 are more than a mere coincidence.

 

Perhaps the money "leaking" because some wealthy people with connections to China's OLD leaders fear that they will be less able to continue their (corrupted?) ways under the NEW Leadership of Xi and Li?

 

If so, once this outward flood ends, the capital may stabilise, and even begin to flow back in.

 

If so, that could be a good omen for China's stock market in the 2nd half of 2013, and in 2014. Meantime, the downwards pressure on the exchange rate seems to have ended,

 

 

An article ( Jake's View: ... To Bolster a Tiring Currency ) in today's SCMP talks about this.

 

+ HKMA, now the world's chief Yuan cheerleader, making a valiant effort to inspire a tiring currency

 

Yuan Deposit Base - in Trillions

 

China------ : 100.03 Tr. / 6.13 = US$ 16.3 Trillion : 3X bigger than in the US !?*

Hong Kong : 000.70 Tr. / 6.13 = US$ 114. Billion (up 10X in 3 years)

 

*(compare: USD Deposit base: $5.37 Trillion / 314 mn. people : $17,100 per capita ):

Source of the US figure:

"­The first week of January 2013 has seen $114 billion withdrawn from 25 of the US’ biggest banks, pushing deposits down to $5.37 trillion, according to the US Fed. Financial analysts suggest it could be down to the Transaction Account Guarantee [TAG] insurance program coming to an end on December 31 last year."

=== === ===

Read more at http://www.nakedcapi...Wp2VtuMYoI86.99

 

As of 10 July 2013, the monetary base in the United States was USD 3,245,570,000,000 ($3.25 Tr) : source

 

How does that compare with what leaked out of China in 2012 ??

=== === ===

 

RMB in US$

 

China Net Capital Flows, have shown a huge shift from:

 

2011 : Rmb 1,545 bn = US$ 252 bn

2012 : Rmb 0,595 bn = US$ - 97 bn / a huge US$ 349 bn shift

2013 : Still Negative

 

In 2012, the outflow was = 9.5% of the Deposit base.

 

No wonder the Shanghai index is weak !

[drbubb]

GDP and Debt

 

 

What Is Known And Not Known

 

Two things are known:

 

So long as borrowing increases faster than GDP, the ability to repay diminishes.

 

That has been occurring for more than forty years and the differential growth rates have widened dramatically in recent years.

Not borrowing at this pace would likely have decreased reported GDP dramatically. While that may have been a proper economic response, it is now politically impossible (or highly unlikely).

 

Continuing to increase debt at a rate greater than GDP ensures financial collapse. Stopping or slowing down at this point likely leads to the same point. This country has maneuvered itself into a no-escape situation.

 

What would happen to GDP and the standard of living if borrowing were dramatically reduced? How much of the last $10 trillion in debt borrowed between 2000 and 2009 went directly into reported GDP? Is it possible that reported GDP for this period could have been $10 trillion lower? If there is indeed a monetary/fiscal multiplier as Keynesians insist, then results would have been worse.

 

Answers to these questions are speculative. Those in favor of more debt argue that a calamity would have occurred had the massive rise in debt and its accompany stimulative effects not happened. For the Paul Krugmans of the world, more debt and stimulus is always the answer. All problems look like nails when you own only a hammer.

 

Rapidly increasing amounts of debt since 1965 have been accompanied by falling rates of growth. One may speculate what this growth would have been with different rates of debt expansion. Whether the rate of debt expansion increased or decreased the rate of real GDP is moot. Economists can use their competing paradigms to duel over this issue, but cannot come to a conclusion that is acceptable to most.

 

Debt Death Spiral

Mathematics, on the other hand, is definitive. There are mathematical limits that control the ability to service debt. Once these limits have been breached, some amount of the debt will be defaulted on. The breach point is referred to as a debt death spiral. The US has passed this mathematical point and is in a death spiral.

 

The political class in America, either via misguided economic policies or a deliberate attempt to hide the true condition of the country, has put us here. They will continue to employ whatever policies they believe will keep things going for a while longer. The tragic ending has been cast. Economics cannot trump mathematics.

 

More: http://www.zerohedge...ump-mathematics

[drbubb]

CHINA NEEDS A REBOOT - to get away from its "addiction to investment"

 

In his MONITOR column in today's SCMP, Tom Holland talks about how:

"To achieve sustainable growth, Beijing needs to rein in investment and encourage consumption despite resistance from corporates and banks)

 

China's OLD MODEL was :

 

+ High domestic savings (in post #11 above, it shows Rmb $100 Trillion = $16.3 Trillion) to fund investment,

+ With low rates paid to savers, and cheap capital being channeled to favored sectors,

 

But now that model has problems:

 

+ Individual savers are robbed to benefit big SOE's who can easily get cheap loans,

+ This "theft" diminishes their ability to consume

+ SOE's have continued to invest, even though returns are poor : in property speculation, and shadow banking

 

When returns fall to below the level needed to service debts (as now? maybe), then China is in real trouble.

 

China knows it needs to Shift, and make a Reboot towards more consumer spending - But that is not easy to do:

 

+ Interest rates (to savers and borrowers) need to rise, to discourage mal-investments.

+ Bank spreads will probably narrow too.

 

Those who would lose (banks and borrowing corporations) are fighting the needed changes

[drbubb]

When you see DEBT-to-GDP charts like this - you should think again:

 

This chart makes it look like China is miles away from a Debt problem - but look again:

 

/source: http://www.macrobusi...t-to-gdp-ratio/

 

China's credit boom, which pulled the world out of a possible depression in 2009, has pumped up the debt levels. But that's not just debt in the banks, it is also debt in the shadow banking system, and debts owe by local governments.

 

Here's what the writer says:

 

"We’ve mentioned before that shadow financing, as well as tending to be more expensive than bank loans, also seems to generate less growth.

A couple of commenters were wondering why credit-to-growth ratio (or credit-to-GDP if you prefer) is important anyway.

We think there are a few good reasons as to why. One is that those financing costs keep rising. Another is that China’s economic growth appears to be increasingly derived from credit growth and therefore if the credit growth stops, it might have some ugly effects on growth."

 

Look at this chart he provides:

 

: see NOTE*

 

From Another source:

/source: http://www.businessi...rts-2013-7?op=1

 

The BIG problem is that the financing cost of this "extra" debt is high, and rising fast, while the RETURNS of the new investments that the debt is financing are falling.

 

 

Credit growth is outstripping GDP growth, suggesting that Debt Servicing capacity is falling (fast)

 

=== ===

* NOTE : What an interesting contrast :

- in China: Overall financing cost has risen from maybe 9% in 2007, to 14% of GDP in 2012.

 

Compare that with

- in the US: Corporate Interest paid was $2.83 / $13.912 Tr. (20.3%) in 2007, and has fallen to $1.34 / $14.991 Tr. (8.94%) in 2011.

 

Mainly, that is due to lower interest rates (thanks to QE) in the US.

But you can see that China was an emerging Debt crisis.

[drbubb]

BEIJING ORDERS a Massive Debt Audit on Local governments

 

Yesterday's newspapers here carried the story

 

China's National Audit office has been ordered to "send representatives to provinces and cities next week to get a handle on the alarming level of local government debt"

 

Now estimated to exceed : 10 Trillion Yuan = US$ 1.6 Trillion - that's about 20% of China's GDP

 

This order came from the State Council, under Premier Li Keqiang

 

Estimates are that local govt debts are up 13% in two years, and some provinces have seen 20% rises.

 

Fitch has higher estimates: 12.85 Trillion, or 25.2% of GDP in 2012, up 23.4% on the previous year.

 

(Fitch cut China's long term local currency credit rating to A-plus from AA-minus)

 

Former China Minister of Finance, Xiang Huatcheng said in April that Debt may have exceeded 20 trillion yuan - double official figures.

[drbubb]

US DEBT to GDP RATIO, now over 100%

 

Year- : -Ratio : --GDP- : -Debt- : added :

2004 : %61.3 : $11.798 : $7.232 : $ ? ? ?

2005 : %62.7 : $12.564 : $7.878 : $0.646 :

2006 : %63.3 : $13.315 : $8.428 : $0.550 :

2007 : %63.9 : $13.912 : $8.890 : $0.452 :

2008 : %64.8 : $14.219 : $9.214 : $0.324 :

2009 : %76.0 : $13.898 : 10.562 : $1.348 : !!

2010 : %87.1 : $14.419 : 12.559 : $1.997 :

2011 : %95.2 : $14.991 : 14.271 : $1.712 :

2012 : %99.4 : $15.865 : 15.770 : $1.499 :

2013 : 101.6 : $16.300e 16.560e $1.790e :

 

(Note: this does NOT include the debts of State and Local governments)

 

From 2009 forward, the US added: $1.5-2.0 trillion of new debt per annum,

pushing Govt-Debt to GDP up from 65% to over 100% of GDP.

At the same time, Private-Debt-to-GDP fell somewhat

 

PRIVATE Debt to GDP is even higher, but has come down somewhat

 

[drbubb]

JUMPING AHEAD - Where does this Rising Debt-to-GDP lead ?

 

/ #1. to #6. : In the article /

 

7. U.S.A.: United States of Addiction – Our Insatiable Appetite for Debt

16 point 7 trillion dollars. That is our current national debt. 12 point 8 trillion dollars. That is the amount households carry in mortgage and consumer debt. We are now addicted to debt to lubricate the wheels of our financial system. There is nothing wrong with debt per se, but it is safe to say that too much debt relative to how much revenue is being produced is a sign of economic problems. At the core of our current financial mess is how we use debt as a parachute for any problem. [unfortunately,] addictions are never easily cured and we have yet to come to terms with our insatiable appetite for debt. / Words: 850 Read More »

 

8. Gov’t Debt Will Keep Increasing Until the System Implodes! Are You Ready?

Why are so many politicians around the world declaring that the debt crisis is “over” when debt-to-GDP ratios all over the planet continue to skyrocket?

The global economy has never seen anything like the sovereign debt bubble that we are experiencing today. This insanity will continue until a day of reckoning arrives and the system implodes. Nobody knows exactly when that moment will be reached, but without a doubt it is coming. Are you ready? / Words: 1270

 

9. A Practical Assessment of the U.S. Debt Problem Shows It to Be Absolutely Absurd

The U.S. debt situation when broken down to one of family statistics really seems absurd. Yet it’s true. It’s a slow motion train wreck that can be seen coming miles away but which, like deer paralyzed in the headlights, everyone is unwilling to face up to and to take any meaningful corrective action – and it will be the downfall of them all. / Words: 550

 

10. Finally! Someone With the Balls to Face Reality and Outline the Probable Outcome & Utter Hopelessness of America’s Debt Problems

Many articles are being written these days that more or less scope the dire financial circumstances the U.S. is in. That being said, I had not been able to find one “analyst” – even one – who had the guts to outline the probable outcome and general hopelessness of the situation and to offer any meaningful prescription for investors to survive this coming catastrophe – until now. / Words: 710

 

===

/more: http://www.moneynews...-way-heres-why/

 

Arnold Bock's Prescription ?:

 

I have no fix on the time and magnitude of the crash, but I do know for certain that the debt debacle is inevitable.

The only assets worth having are tangibles, commodities, unmortgaged real estate and the only real money – precious metals bullion. Oh yes, should some of us be so fortunate as to ‘cash in’ with these kinds of assets, an Executive Order under existing legislation designed to adjust the tax rate on ‘windfall profits’ will cause our gains to evaporate.

[drbubb]

CHINA: Give the people a bigger slice - Growth may slow, but overall health will improve.

 

/source: http://www.stats.gov...9_402914953.htm

 

Last reported China GDP growth: Q1: +7.7% / Q2: +7.5% /

 

 

Michael Pettis: "Chinese GDP Has To Drop Even More"

 

MAMTA BADKAR JUL. 29, 2013 / Reuters

 

The latest economic data out of China has confirmed concerns of an economic slowdown.

 

In a new Financial Times column Michael Pettis, China expert and professor at Peking University, thinks GDP growth needs to slow much further.

He also argues that many China experts are wrong to assume that slower growth will cause social unrest.

 

Instead, he believes the number that everyone should watch and that is important for China if it is to rebalance it's economy is median household income.

From FT:

"The consumption rate is low mainly as a consequence of policies that systematically transferred resources from the household sector to subsidize rapid growth. This forced down the household income share of GDP which, at about 50 per cent, is among the lowest ever recorded in the world.

 

There is no sustainable way to boost household consumption without boosting household income.

 

"This suggests that consumption growth of 10-11 per cent requires similar growth in household income. In principle China could have this by paying workers much higher wages and sharply raising the deposit rates paid by banks. But since low wages and cheap capital are at the heart of China’s growth model, raising wages and deposit rates enough to rebalance the economy would cause growth to collapse. Only a continued, and ultimately self-defeating, surge in debt can get household income to grow quickly enough to accommodate both high GDP growth rates and a rebalancing economy. ..This is why GDP growth rates must drop further."

 

If China is to avoid social unrest while rebalance its economy, it is median household income that needs to grow. Real disposable income has been climbing at over 7% a year on average, and needs to keep going at this pace or stronger to prevent social unrest. "If China is to rebalance meaningfully, GDP must grow by “only” 3-4 per cent."

===

/more: http://www.businessi...7#ixzz2abAtkS9h

 

[drbubb]

The Fed's QE programs are hurting workers

 

Here's a chart from John Mauldin:

 

 

Wages did not immediately respond to commodity price changes; therefore, there was an approximate 3% decline in real average hourly earnings in both instances. It is true that stock prices also rose along with commodity prices (S&P plus 36% and 24%, respectively, in QE1 and QE2), however, median households hold a small portion of equities, and thus received minimal wealth benefit.”

 

“When the Fed actions lead to higher food and fuel prices, the shock wave reverberates around the world, with many foreign economies being hit adversely. When prices of basic necessities rise, the greatest burden is on those with the lowest incomes since more of their budget is allocated to the basic necessities such as food and fuel.”

 

Conclusion

The next few years are not going to be pretty. We’re looking right into the teeth of a rolling global deleveraging recession—the End Game, I’ve called it – and the decisions we make in the next couple years about how to handle our debts and budget deficits here in the U.S., in Europe, in China, in Japan, and elsewhere, are going to be absolutely crucial.

===

/more: http://www.munknee.com/john-mauldin-the-next-few-years-are-not-going-to-be-pretty-heres-why/

[drbubb]

Is GDP GROWTH unrelated to Stock Returns?

 

(I have already seen a reaction to a thread on AX about the relationship of GDP to stock prices):

 

(Posted by hkxxxpat ):

Maybe there is no conundrum, as there is no connect so no disconnect.

http://www.valuewalk...-stock-returns/

 

=== ===

 

 

Jeremy Grantham of GMO is out with his latest white paper. There is a belief that countries with higher GDP growth also provide better returns. This has been proven false over and over, but Grantham gives further data here to drive home the point. Below is a brief excerpt from the paper titled ‘Investing in a Low-Growth World’, followed by the full document embedded in scribd:

GDP growth by country along with their market returns. This is shown for the last 30 years only and for developed countries only, but in earlier work (which can be found on our website1) we went back a hundred years for some developed countries and looked at emerging country equity markets as well and all had the same negative correlations.

 

When I asked my colleague Ben Inker if this was for the same reason that growth companies underperform – that they are overpriced – Ben came up with another completely sufficient explanation (in about 10 seconds): the faster-growing countries, at least for the last 30 years, have simply had more slowly-growing earnings* per share.

 

*(If that is true, then Corporate Earnings would SHRINK as a percentage of GDP, wouldn't they? Do the Data support this?)

=== ===

 

(Here's my reaction to the above post):

 

I think that chart is the wrong way to look at it, since it is probably a snapshot taken at one point in time.

 

IMHO: What appears as "noise" or uncorrelation on that chart, is actually very useful information on cycles. The folks who do work like that, throw out the baby with the bathwater - a very frequent practice for academics. No wonder they may lousy traders.

 

You need to look at the relationship as a time-series over a long period of time.

 

So:

First look at the relationship of Earnings to GBP - I think that you will see a clear and useful correlation:

 

 

And then look at the relationship between Stock prices and LT Earnings: (ie the Shiller PE ratio)

 

 

Also Meaningful IMHO.

 

If A and B above are both meaningful, then putting them together into C, or Stock prices versus GDP should also be meaningful.

 

More Charts and Arguments here: http://tinyurl.com/GEI-GDP

[drbubb]

(Here's another study - suggesting no meaningful connection):

 

Why GDP Growth Should Only Really Matter To Economists

Apr 11 2013

: Jeroen Blokland

EXCERPT:

 

Using the 'Triumph of the Optimists' database compiled by Dimson, Marsh & Staunton (2001), which contains over a hundred years of economic and market data for nineteen different countries, they concluded that the relationship between stock markets and GDP growth was predominantly negative. Their findings are irrespective of the time horizon over which this relationship is measured. Analysis of both shorter and longer intervals demonstrates that economic growth and equity returns are negatively correlated.

 

In a similar study, using the same database, Goldman Sachs related GDP growth to actual returns. They calculated that, if you had invested only in those countries with the highest economic growth, your return would, on average, have been 3% per year lower than if you had invested in the countries with the poorest growth. Interestingly enough, if you only look at the emerging countries from the data sample, the 'slow growers' would have earned you as much as 5% more per year.

===

 

/more: http://seekingalpha....r-to-economists

 

I should look for it, to see what flaws I may spot, since I simply do not believe it.

IMHO, this is another "Baby-with-Bathwater thrower".

The Charts and Data I have shown shows something different, at least for the US*.

I get meaningful signals from my work, and so did Professor Robert Shiller from his.

 

Maybe if I look at more data for China, Japan, and other countries, I will slowly change my mind.

[drbubb]

Some interesting responses received by email, including a Link to this chart:

 

INDU with labels : http://KimbleChartin...utions.com/Blog ... INDU-from-1987

 

 

RUT

 

/source: