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Wednesday, January 30, 2013

Odds and ends

Here are a few interesting things I have run across lately.  Lets start with the Chinese debt.


During the crisis in 2008-09 I read that the Chinese government was forcing banks to lower lending standards and lend out more money.  Looking at the chart it would appear they achieved that goal.  However, debt vs GDP has now gotten up to levels that have been a problem for economic growth in other countries.  Will that also occur there?  I had heard there was a growing debt problem, but I did not realize the number was this high.  They are supposed to be the engine of growth for the world.  Is that really going to happen?  I think it will be difficult to maintain the growth they have seen in the past.

This chart is something completely different. The Economic Policy Uncertainty index is jointly published by Stanford University and the University of Chicago.  This is a summary of how it is constructed.

To measure policy-related economic uncertainty, we construct an index from three types of underlying components. One component quantifies newspaper coverage of policy-related economic uncertainty. A second component reflects the number of federal tax code provisions set to expire in future years. The third component uses disagreement among economic forecasters as a proxy for uncertainty.
The first component is an index of search results from 10 large newspapers. The newspapers included in our index are USA Today, the Miami Herald, the Chicago Tribune, the Washington Post, the Los Angeles Times, the Boston Globe, the San Francisco Chronicle, the Dallas Morning News, the New York Times, and the Wall Street Journal. From these papers, we construct a normalized index of the volume of news articles discussing economic policy uncertainty.
The second component of our index draws on reports by the Congressional Budget Office (CBO) that compile lists of temporary federal tax code provisions. We create annual dollar-weighted numbers of tax code provisions scheduled to expire over the next 10 years, giving a measure of the level of uncertainty regarding the path that the federal tax code will take in the future.
The third component of our policy-related uncertainty index draws on the Federal Reserve Bank of Philadelphia's Survey of Professional Forecasters. Here, we utilize the dispersion between individual forecasters' predictions about future levels of the Consumer Price Index, Federal Expenditures, and State and Local Expenditures to construct indices of uncertainty about policy-related macroeconomic variables.

Check out this chart.


Here is some more snippets from their web site.

As measured by our index, we find that current levels of economic policy uncertainty are at extremely elevated levels compared to recent history.

Since 2008, economic policy uncertainty has averaged about twice the level of the previous 23 years.

A significant dynamic relationship exists between our economic policy uncertainty index and real macroeconomic variables.
We find that an increase in economic policy uncertainty as measured by our index foreshadows a decline in economic growth and employment in the following months.

Employment and economic growth are the weakest in any recovery since WWII.  Is there a connection?  I believe uncertainty really is high these days.  This is far different then the mid 90s and 2000s when the VIX was low for a long period of time.  We don't seem to have the same environment now.  Will this foray into ultra low VIX readings last?

 Here is a chart of global economic growth.


I find this chart very interesting.  Clearly the BRICs are not growing like they were prior to 2008.  Global growth has been declining very consistently and is getting down to the rate it was just before the big crash in 2008.  I guess this is the year the pattern is going to change and growth is going to pick up.  At least that is what they keep telling me on TV.  Time will tell.

Here is an interesting chart on bull markets.


The current bull market just passed the median age.   There are five out of the previous fifteen bull markets significantly longer then this one.  How much longer will it keep going this time?  


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The information in this blog is provided for educational purposes only and is not to be construed as investment advice.