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CHART BANK - for GEI's Wealth Measurement Project

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CHARTS - for GEI's Wealth Measurement Project

"Secrets the wealth management experts do not know..."

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

 

Wealth management firms are seeing a big drop in their income.

This is not surprising after so many of their clients suffered big losses in 2008.

 

Might there be a better way to manage wealth than the so-called "experts" are using?

Many of them are nothing more that glorified salespeople, with little concern about the actual wealth of their clients.

 

On this thread, I want to examine some CHARTS which arise from a different way of looking at wealth, and how it can be assessed using different price tools, like Cycles, and Price Ratios.

 

= = = = =

LINKS:

About the WM project :: http://www.greenenergyinvestors.com/index....showtopic=10400

Databank for project. :: http://www.greenenergyinvestors.com/index....showtopic=10419

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THE DANCE BETWEEN INTEREST RATES & STOCK PRICES

 

Mostly stock prices and bond yields correlate, but the yields have often led at TURNS

 

Stock prices / SPX versus 10-year T-bond rates / TNX .. update

 

xxxe.gif

In general, they move in the same way, but TNX has led SPX.

 

A Timeline:

1- TNX Note yield peaks at

2- SPX peaks (x days later)

3- First low in TNX (xx% - xx% below high), SPX down only xx%

4- Bond yields bounce with stocks

5- SPX falls, makes new low for year on its way to SPX-xxx in Oct.xxx

6- Bond rates follow short term rates down to historic low (xx)

7- SPX bottoms at SPX-666, on March x, 2009

8- Big jump in TNX yields tops at xx (xx) as SPX completes first leg up (xx on xx)

9- SPX peaks at xx (xx), just after TNX makes double top (xx on xx)

 

But this is not the whole story.

Let's add into the mix, short term rates: IRX - ST Rate Index .. update : 2009-10

zzzzq.gif

B Timeline

Ultra-low short term rates (& huge stimulus spending), drove the big 2009-10 stock rally

a-

b-

c-

 

...more...

 

Have the Western Central Banks "painted themselves into a corner"

When they try to climb out of the low rate trap, asset prices may crash.

 

10yr.Rates /TNX - versus SPX and IRX ... update

tnx.gif

 

Marc Faber thinks this will not happen, and CB's will retain low rates (at negative interest rates) for years

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PROPERTY is a key driver of the economy

 

LESSONS:

+ Property tends to follow an 18 year cycle

+ Property stocks give an early warning to turns in Property prices (see post #7, below)

 

HONG KONG ... chart w/o Cycle labels

zzzzvs.png

 

UK

37607401.jpg

 

USA

zzzze.png

(temporary - until I can get the US-Household Income data)

 

Other markets - Do you have the Data please?

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FIGHTING AN OLD BUBBLE WITH A NEW BUBBLE - Has been Fed policy

(from another thread here):

 

A truly free market (even if fractional reserve banking is allowed) tends to smaller & shorter booms & busts. Instead, the agony is going on and on. It started already with LTCM in 1998 that should have failed properly.

Interesting observation.

A number of problems can be traced back to 1997-1998.

 

Inspired by a conversation with Robert Shiller, Alan Greenspan spoke about "Irrational exhuberance" as the stock market rammed into the top of its long term trading channel.

 

SPX ... update

xxx.gif

 

Then he proceeded to do nothing about the "exuberant" market. Instead, Greenspan kept rates down, and allowed the huge dotcom stock bubble to form. The excesses created at that time, represnted one of the biggest stock bubbles in history, and brought with it malinvestments, which were never properly liquidated in the 2000-2002 crash. Before they were allowed to be corrected, 9/11 happened, and Greenie brought rates down to even lower levels, which allowed a huge housing bubble to be blown up. The excesses are still with us today, as we seen Bernanke has copied Greenspan, and printed money and brought rates down to ultra-low levels, manufacturing a stock rally - although the housing bubble is continuing to deflate.

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Using the data and charts to back up points.

This posting was inspired by questions asked by Member100, on his thread:

When will "Bernanke's Folly" end? / It has already run nearly as long as Greenspan's

 

Right, GF.

"Bernanke: ‘Things Will Come Apart’ If Entitlements Are Not Reformed and Spending Controlled

“There are various ways you could address this – you can restructure entitlement programs [or] you can cut other things – but at some point you need to address the overall budgetary situation. If you don’t, you’ll get a picture like this one [pointing to a graph showing a steep rise in interest rates and debt] where interest rates are rising and debt outstanding is growing exponentially."

/see: http://www.cnsnews.com/news/article/67461

 

He knows that those needed reforms will never be made, so he lays the blame elsewhere.

 

As any good Austrian economist can tell you, the problems which create the potential for a crash get "baked into the cake" long before the crash arrives, and they are normally caused by unnaturally low interest rates. This is exactly what we have seen thanks to the policies of Mr Greenspan and Mr Bernanke.

 

xxxf.gif

 

Let's see where Rates and US House prices were at these past points in time:

 

(Greenspan's rate-cutting folly, was to counter Dotcom-bubble problems)

0 - Jan.2000 : $120,000 : TNX-6.67% / IRX-5.53%

1 - May2003 : $168,072: TNX-3.35% / IRX-1.09%

2 - Mar.2004 : $186,588 : TNX-3.84% / IRX-0.92%

3 - July 2006 : $247,824 : TNX-4.99% / IRX-4.94%*

 

(Bernanke's rate-cutting folly, was to counter Housing-bubble problems)

4 - Dec2008 : $180,792 : TNX-2.24% / IRX-0.12%

5 - Mar2010 : $172,020 : TNX-3.83% / IRX-0.15%

 

The really amazing thing here is how lower rates trigger rising house prices, and then they took on a bizarre momentum of their own, and powered up an astonishing 32.8% over 28 months, from $186,588 in March 2004, to the $247,842 peak level in July 2006. This corresponds with the "2 year Buyer's Curse" period that Fred Harrison talks about, which comes at the end of the 14 year up-cycle in housing prices.

 

I think that this 28 month period included all the worst excesses of the greed-induced sub-prime debt craze. Banks pushed out massive amounts of credit then, lending to "anyone with a pulse." And home buyers were convinced that buying houses was an easy way to create wealth. The reality was that their mal-investments in property were destroying wealth.

 

So far, the house price erosion that the US has seen has only brought prices back to where they were in mid-2003, when Long Term rates (TNX) bottomed. What remains to be seen is whether or not rising rates (in the years to come), will push home prices down further, and unwind all the price rises since 2000, and take price back down to $120,000 or lower. That may not be too surprising since the income levels of the average American worker are now below the levels of 1998-99.

 

I think this really show that high asset prices that are delivered through low interest rates, heavy gearing, and speculative hype are not sustainable unless incomes rise too. And so a key measure of real wealth in an economy must be the amount of real and sustainable income that is being generated within an economy. Why do we hear so little about this?

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Homebuilder stocks lead House prices

 

US : Case-Schiller Index (x$1200) vs. HOV & PHM, adjusted*

zzzzy.gif

 

UK : Nationwide/Halifax Average vs. BDEV & PSN, adjusted*

zzzzb.gif

 

In both cases, the Builder stocks peaked about one year earlier, and came crashing down

before the House Price Index peaked

 

*For the Builder stocks, I took the Square Root of the average price,

and multiplied it by: 40,000 in the US, and 7,000 in the UK

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LOOKING AT UK HOUSEHOLD INCOME, and the relationship to House Prices

 

Profile : source-BBC

family2006.gif

 

Statistics (2006) : Ave.Income (Pds.32,779) x No. of Families (17.1 mn.) = Pds.

Homeowners '06: No. of Families (xx mn.)

 

Ratio of UK House prices to Household Income

zzzzqj.jpg

 

Look at the massive rise in the Ratio to Household Incomes up to 2007 !

How was it possible? Why would the BofE ever allow such reckless lending ??

Are the incapable of running very simple figures like this:

 

Turn . . / Timing .... : Income*: HNindex x Base R: Interest (% Inc)

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

H: 3.23 / May 1989 : 19,617 : : 63,414 x 5.21% = 3,304 .(16.8%)

L: 2.42 / Jan. 1996 : 22,999 : : 55,579 x 6.25% = 3,474 .(15.1%)

H: 5.79 / July 2007 : 33,260 : 192,424 x 5.75% =11,064 (33.3%)

 

change 1996 to '07: 10,261 : 136,845 /-0.50% : 7,590

====== Percent . :. +44.6% :+146.2%/ +8.0% :+118.5%

Now: 4.79: May '10 : 35,289 : 169.183 x 0.50% = 0,846 .( 2.4%)

 

Equally, how can anyone think the latest figure represent a normal situation?

 

*Note: these are figures (HHI.v2) I have collected on the WM Databank

 

Notice that those who bought the average priced home in mid-2007 and did this with the average income, had to spend an enormous 33.3% (!) of their income on interest only (assuming 100% finance, and 25.0% if 75% finance.) That is a truly huge percentage of their income. So naturally, prices eventually headed lower, under the pressure of that ridiculous unaffordability. But you have the opposite situation today, especially for those who can borrow at today's ultra-low interest rates, or have savings in the bank, earning nothing. They may (mistakenly?) be driven to buy property, thinking they will receive a better return and that today's historically-low rates are somehow sustainable. They are not. Labor set-up a property-buyers con game, in the hope that the short-term blip it created in property prices would allow them to be re-elected.

 

uSwitch data

family2007.gif

 

... I have modified some of these figures, and compared them with my own HHI.v2 data...

 

INCOME - How it is spent

================== : -- 1997 - : -- 2007 - : change

Gr.Dom. H'hold Inc/Head : ++ n/a + : + 14,332 :

Est. No. per Household.. : ++ 2.??+ : + x2.35+ :

Gross Household Inc. #1 :+ 24,363 : + 33,632 : +38% - my HHI.v2

Gross Household Inc. #2 :+ 34,796 : + 53,835 : +55% - uSwitch

COSTS:

Income tax + Council tax : -- 9,194 : --16,678 : +81%

Before Rental or Housing :+ 25,602 :+ 37,157 : +45% -per uSwitch

 

House Prices . . . . . . . . . : + 76,103: 252,056 :+231%

Base Rates . . . . . . . . . . .: + 6.60% : + 5.50% : -17%

Int x 40%/30% est. Loan : -- 2,009 : -- 4,159 : +107%

Principle over 3/5 years. : - 11,588 : - 15,448 :

Total Housing Costs . . . : - 13,597 : - 19,607: + 44%

Ave. Rents / ARLA-jan'08: . . . n/a. . : - 11,604 / 4.6%yield?

Hse.Costs/ Hse.Prices. : + 17.9%: + 7.78% : - 10.1%

 

Net, After Housing Cost. : +12,005 :+ 17,550 : + 46%

Pct. Income Available. . . : + 34.5%: + 32.6% : - 1.9%

Less:

Foodstuffs . . . . . . . . . . . : -- 2,264 : -- 2,771 : + 22%

Petrol, Ins., Transport .... : -- 4,596 : -- 6,887 : +50%

Utilities & communication: -- 1,262 : -- 1,848 : +46%

=== Food, trans, utils. . . : -- 8,122 :- 11,506 : +42%

 

Net, After Housing Cost.. : + 3,883 : + 6,044 : + 56%

Pct. Income Available. . . : + 11.2%: +11.2% : same !

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LOOKING AT US HOUSEHOLD INCOME, and the relationship to House Prices

 

... coming ...

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SERENDIPITY !

I thought this was something that people here would like to see this

 

I stumbled across the FT-30 data, while looking for something else.

 

I hadn't seen anything in the UK going back so far, so I thought I should chart it:

zzzzq.png

 

zzzz.png

 

More here: FT-30 Historical Data

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Since HOUSEHOLD INCOMES are at the CORE of my analytic approach, this chart is interesting

 

OECD-factbook-2010.jpg

 

/source: http://www.finfacts.ie/irishfinancenews/ar...e_1019787.shtml

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I may do a Conference Call like this to discuss the charts that I will be creating

Looking back: LISTEN TO the March 2009 Podcast

 

GEI Call#2: Anticipating A March Low in Stocks

March 11th, 2009 ·

http://globaledge.podbean.com/2009/03/

JUMP IN - at 10 minutes into the Podcast for Stock talk

 

See Charts discussed here / Post#3

 

This GEI Conference call examined the case for an early March low in stocks. Michael Hampton (”DrBubb”) hosted, and gave his case for expecting a near term low in global stock indices. Comparisons were drawn with lows in 1974-75, and the point of the “big breakout” in late 1996, when Fed chairman, Greenspan, threw caution to the winds, and lightened up regulations for banks, touching off a speculative boom which lasted a decade. The world will take a long time cleaning up the mess from massive expansion of credit, a dotcom bubble, a housing bubble, and the resulting crash.

 

The Charts:

Baltic Freight Index / "biffex" .. update

001hx.gif

 

SPX .. update

zzzzc.gif

 

Gold / GLD .. update

zzzzi.gif

 

A key chart - to make my Call of the March Low ... update

"The most interesting and important way to look at the market."

"We will get a good rally to 1,000 or 1,200" (in the SPX.)

aa3sp1.gif

/thread about the Conference Call : http://www.greenenergyinvestors.com/index.php?showtopic=6075

 

== ==

Should we do another one of these someday ?

Any interest in such a conference call?

(This last one only had 128 downloads - very disappointing, for such an accurate prediction !)

Only 623 Channel Visits, so far.

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SERENDIPITY !

I thought this was something that people here would like to see this

 

I stumbled across the FT-30 data, while looking for something else.

 

I hadn't seen anything in the UK going back so far, so I thought I should chart it:

zzzzq.png

 

More here: FT-30 Historical Data

 

Thanks for posting this, interesting stuff. Just a shame it doesnt go back to the 1920s to pick up the 20s and subsequent crash. It has already retraced back to the last 4th wave of small degree (bottom of the 1987 crash) and looks like it is on its way back to what i suspect is the 4th wave of one larger degree, the bottom put in in the 1970s, 159.

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Wealth Waves - from GEI"s "Wealth Measurement Project"

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

 

UK Home buyers - Do you think Inflation will bail you out this time?

 

001zxm.jpg

 

The UK economy is not generating more jobs or wage rises, how do you

suppose buyers are going to find the money to push up home prices,

if the banks tighten again?

 

I don't think interest rates can go below the current ultra-low levels.

And the current level of Negative Real rates are helping other assets.

 

002yr.gif

 

Notice how a drop in Real Rates rarely helps a post-peak asset,

with UK property (blue line) being the glaring exception.

 

It seems some critical threshold, needed to destroy confidence of buyer and lenders

was not reached on a mere 20% selloff. But if prices start sliding again, will buyers

and banks be able to maintain the fiction that the UK is immune to the Housing Bust

that has hit : the US, Ireland, Spain, Eastern Europe, and in prior years: Hong Kong,

and Japan. I'm betting on the side of history, rather than for EA salaries.

 

(note: I am planning to push my Data and the chart window back to 1970.)

The chart (with lines added) shows that "Wealth Waves" get killed off by surges in

Real Rates. And that suggests to me that Gold's current slide is nothing more than

a dip in a bull market for Gold.

 

I think a surge in rates / fall in bonds / will be the next Giant-killer (for Gold), but it

may be too early to bet on that.

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Thanks for posting this, interesting stuff. Just a shame it doesnt go back to the 1920s to pick up the 20s and subsequent crash. It has already retraced back to the last 4th wave of small degree (bottom of the 1987 crash) and looks like it is on its way back to what i suspect is the 4th wave of one larger degree, the bottom put in in the 1970s, 159.

 

 

historicbullbear.GIF

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