Economists often seem to be living in a different world, not least when their forecasts of future recessions – or more precisely the lack of them – are examined.
Now two economists have confirmed that economists are on a quite different plane to the rest of the population, by exploring their views on policy issues facing America. Two Chicago-based finance professors, Paola Sapienza of Northwestern and Luigi Zingales of Chicago Booth, tried to identify issues on which economists generally agreed.
Only two issues garnered complete agreement: every single economist questioned (as part of a regular survey) said it was hard to predict share prices, and not one thought US healthcare was sustainable.
By contrast only a small majority of Americans (55 per cent) agree that share prices are tough to forecast, and two-thirds think US healthcare is financially sustainable.
This might just suggest that the average American hasn’t paid enough attention, since shares are patently hard to forecast (not necessarily impossible, as the efficient market theory beloved of so many economists posits, but certainly very difficult). Equally, even America’s politicians agree that healthcare spending at the current level is unsustainable; part of the original justification of Obamacare was to reduce costs, after all.
But the general pattern is continued on many other topics: the views of economists are furthest from the general public on those issues where the economists agree the most. Read more
Much to the frustration of journalists, all we know officially about the Twitter IPO is this:
https://twitter.com/twitter/status/378261932148416512 Read more
1997 was not a great year for music lovers. True, Daft Punk burst on to the English speaking world (or at least the British top 10), and Texas, Blur and Jamiroquai were all going strong, but March alone saw Ant & Dec, Boyzone, Wet Wet Wet and the Spice Girls all near the top of the charts.
It was a far worse year for emerging markets investors, and one which is now being resurrected for comparisons like a bad best-of album. Back then, EM investors lost their shirts, and now some are losing them again, as the US Federal Reserve talks about “tapering” its bond purchases.
First, a chart for those who doubt the impact of the taper: this shows shares for each Asian emerging market, with the grey bars showing the weekly rise or fall in Treasury yields (treat this as indicative: I left off the bond yield axis as it was already looking pretty confusing).
Okay, not quite. But the current account tells you most of what you need to know. Since May, emerging countries which need to attract international capital – those with current account deficits – have seen their currencies and share prices slide and their bond yields jump. Those with a surplus have been hit much less hard.
John Authers has put up a nice chart from HSBC showing this for equities already. This chart from Keith Fray (usually on the FT Data blog) shows the close link between rising yields and a current account deficit (the outlier in the bottom left is Chile, running a current account deficit but a massive government surplus). Read more
Christmas has come early for US traders – Christmas trading levels, that is. Volumes in the benchmark S&P 500 index are down to levels only seen in the last five years in Christmas week. Perhaps investors are just determined to enjoy their time at the beach after having to deal with a crisis every summer for the past three years.
Whatever the cause, the volumes are miserable. The thick line here shows the five-day moving average, smoothing out the daily swings in the thin line. The five-day average has just dropped below the low point of last August and is now the lowest apart from Christmases since Bloomberg’s data series started in 2008. Read more
Value investors are getting excited about emerging markets again after their terrible performance over the past few months.
The problem, as Arjun Divecha, chairman of Boston’s GMO, says, is that mostly what’s cheap is commodity-related stocks set to suffer from the slowdown of demand in China. Domestically-oriented companies are down, but aren’t that cheap.
There are a couple of really cheap areas, though. He points to Russian oil shares, and Chinese banks.
Both have horrible fundamentals. Russia is stuck between recession-hit Europe and slowing China, and has some of the worst corporate governance in the world.
Chinese banks are directly exposed to the slowdown in the country’s economy, are being told to lend less (hurting profitability), face higher funding costs (hurting profitability) and risk the bursting of the credit bubble (which would expose the bad debts from their relaxed lending decisions of the past four years).
Given all that, shares would need to be very very cheap to consider buying them. And they are. Charts showing just how cheap Chinese stocks have become follow after the break. Read more
Americans have been wondering if the housing market is in a double bubble for a little while, since Professor Robert Shiller, co-creator of the Case-Shiller house price indices, raised the danger.
The real action has been in housebuilders, though. Their valuations, based on price to estimated book value, peaked in May above where they stood at the height of the property bubble in 2005/6. Prices look very much like the rebound bubble in the Nasdaq, in the Dow Jones Industrials in the late 1930s and in the Nikkei 225 (although it wasn’t quite so big). This chart shows the Nasdaq and Nikkei time-shifted so the peaks overlap with the 2005 peak in housebuilding shares:
I’ve circled the point where the rebound went wrong again: seven to eight years later for both Nasdaq and, less spectacularly, the Nikkei (the Dow’s second depression-era boom-bust came in 1937, also eight years after the original bubble).
More fab charts, including one must-see on why US housing isn’t as affordable as everyone thinks, after the break. Read more
Shocking news from Bloomberg for goldbugs (as if they weren’t hurting enough):
Gold dropped 23 percent this quarter, heading for its biggest loss since at least 1920 Read more
Okay, if you have a spare second after liquidating your portfolio, here’s a quick dive into ancient history (pre-taper, or the week up to last Wednesday).
It turns out all that selling in the build-up to last week’s Federal Reserve meeting was flooding not just back into the US, but mostly back into US equities. Here’s a lovely chart of mutual fund flows courtesy of Orrin Sharp-Pierson at BNP Paribas: Read more
Amid the post-Bernanke rubble, there are probably a few people sparing time from hedging their interest rate risk to look for bargains.
Look no further: the gold miners are cheap! I mean, really cheap. Gold has tumbled a long way from its peak, but miners have fallen much further – and are now trading at an extraordinarily low multiple of the gold price. This chart shows the ratio of the Market Vectors Junior Gold Miners index of small miners, and of the Arca Gold Bugs index of larger miners, to the gold price.
Larger miners are now the cheapest relative to gold they’ve been since the aftermath of the dotcom bubble, when they proved a serious bargain. The index of junior miners only started in 2004, but their prices are testing the low relative to gold reached after Lehman Brothers collapsed – after which they offered some of the best returns of any stocks anywhere. Read more