A recent miscellany

Does it make sense to plot multi-decade asset prices on a linear scale? How reliable are macro ‘profit’ estimates? Why is the curve flattening and what will a reduction in Central Bank reserve balances mean for assets?

S0me recent short snaps from my LinkedIn & Twitter feeds plus you can watch my latest update ‘China: Unbalanced’  here, on YouTube

Plot any exponential growth process over a linear scale for long enough and the top-right corner screams, ‘bubble’. No one denies the extraordinary valuations in equity markets or the risks they pose, but a more suitable log plot does lessen some of the angst.


Steady (!) as she goes.

We’ve been here before…

Come the quarterly release of the Fed’s comprehensive ‘Flow of Funds’ accounts, we chart-jockeys all rush in to conjure up all sorts of noteworthy scenarios – usually aimed at showing the overblown nature of current conditions. However, caveat scribillator! All is not necessarily as it seems.

What shall it profit a Man – if the error bars are too big?

Curve flattening is a particular bug-bear of ours. Yes, there are very good reasons why bear flatteners herald recessions – Hayek’s ‘Investment that raises the demand for capital‘, q.v.

But is there a much simpler reason behind recent moves in the US?

‘Savings glut’ – aka, ROW money surfeit

Another all-too common trope is the overlay plot of, for example, the Fed’s balance sheet with the post-Crisis trace of the S&P500 – a device usually followed with a cry of impending doom for the latter the instant the former starts to decline.

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Again, no-one in their right mind denies that asset prices are where they are today in good part because of the past decade’s financial ‘heterodoxy’, but that still does not imply a one-for-one correspondence, as the following two graphs clearly demonstrate.

Reserves already well down, but stock market smartly up

Disembarrassed of some surplus cash, bank expansion continues apace

Finally, the mountain of debt being piled up in pursuit of a college education – and its ominous economic import –  is never very far from the headlines these days. But what is not often appreciated is that – on some measures, at least – the position in the UK is every bit as bad and, moreover, is worsening even more rapidly.

‘Please, Miss, I need to go to the ATM’