The Economy, In Charts

[nostatic]

Originally Posted by Chuck Moreland

Yes, a bar chart. Candle chart specifically means vertical bars.

If the intent was to relate the gravity of the situation, then the data would have been portrayed accurately. Instead the intent was to exaggerate the situation.

It is technically correct but highly misleading, and obviously intentionally so.

This is similar to the common trick of exaggerating differences by using a candle chart that doesn't start at zero. Technically correct, but misleading.

I agree, and I think the data is bad enough that it didn't need the help (note: I didn't generate the chart).

Another trick is using log scales instead of linear (or vice versa depending on the data) or arbitrarily changing the scale mid-axes. Data manipulation is a fine art, and sadly most people don't realize it is happening. Visualization of data however *always* has a POV. There really isn't a non-biased way to present things. The point is to influence and you present it in a way that most effectively does that. Supposed "scientific data" has the same issues...but they generally do it with less style.

I am a huge fan of Tufte wrt this stuff.

http://www.edwardtufte.com/tufte/books_vdqi

[Chuck Moreland]

You're right, it didn't need help.

There are lies, damn lies, and statistics.

[mjohnson]

Originally Posted by nostatic

I am a huge fan of Tufte wrt this stuff.

http://www.edwardtufte.com/tufte/books_vdqi

I took Tufte's one day course/presentation yesterday in Albuquerque. While I'm already one of the converted, it was beyond really really great. For an engineer/6-sigma blackbelt nerd like me I suppose it would be like a normal person getting to meet Brad Pitt or something (though ET is much cooler than Pitt).

[jyl]

More reasons for deflation.

[the]

Originally Posted by Dottore

Well let's face it, there are a lot of people who made a lot of money on the bubble.

So not everyone was a fool.

Simple point.

Of course, that is true. I was talking about normal people, who bought a house and are still holding it.

Although for flippers, a poster above makes a good point. For any given flipper who bought a house in 2003 and sold it for a huge profit in 2006, I bet odds are good it didn't turn out well in the end.

I know of one who did a classic flipper move. They live in California, bought a house or two in Phx in 2004 or so, saw the values rise dramatically over the next year. After dipping a toe in the water and seeing how great it was, they went all in in late 2005 through 2006, buying 9 or 10 more.

This is an ongoing disaster for them.

[jyl]

Three charts to put this recession in historical perspective - how bad (so far) versus mild recessions of recent decades, versus severe recessions of last 50 years, and versus the one depression of last century.

YOY pct chg in industrial production index since 1920 (Federal Reserve data)


YOY pct chg in real (inflation-adjusted) personal consumption expenditures since 1947. Chart doesn't include depression, but I recall from some reading that retail sales fell roughly 50% from peak to trough during Great Depression - don't quote me on that.


Civilian unemployment rate since 1944. Chart doesn't include depression, but I recall reading that UE reached >25% during Great Depression.

[MRM]

Originally Posted by Jim Richards

John, have we hit the trough, or are we still sliding down towards it?

Jim, I work with some large companies and get to see and hear some interesting stuff.

The answer to your question is no, we are not at the bottom of the trough yet, and it is not yet in sight. Things were bad until October when it went from merely a downturn to someone turning the spigot off. Fourth quarter numbers are just being published and are starting to bear that out. That's why the big layoffs are being announced.

But the number from January are still dropping. They dropped badly enough in January that companies just don't know where the bottom is. That's why the "anticipatory" layoffs are hapening; companies see their own raw data and can't react to it by cutting fast enough. Major companies, in the GE class (but not specifically GE, I know nothing of them other than what I read) are seriously questioning their survival. The standard ditty is that we think we'll survive, but we've never been in a situation where we've had to question our survival. We'll see some 100 year old blue chip companies die out before this is over. Conventional wisdom used to be that the bottom would hit mid summer. Now no one I know says they know when we'll hit bottom.

[nostatic]

we'll hit bottom when tabs says we hit bottom.

Pretty much the only industry I see doing well right now is the MIC and I'm betting those wells will start to have issues by FY10. I hope we're renewed, but we're also a pretty lean organization so we have our fingers crossed that we'll be positioned ok.

[Dottore]

Originally Posted by the

Of course, that is true. I was talking about normal people, who bought a house and are still holding it.

Although for flippers, a poster above makes a good point. For any given flipper who bought a house in 2003 and sold it for a huge profit in 2006, I bet odds are good it didn't turn out well in the end.

Well I just took issue with the bald statement that "anyone who bought between 2003 and 2006 was a fool, period". That simply isn't the case.

I bought and sold some real estate between 2000 and 2007 and did very well by it. Yes I have lost money on my stock portfolio in the past few months, but nothing like what I made in real estate during the past few years.

It seems to me also that a large number of the people we know did very, very well in real estate in a very short span of time, and that the profits made on this bubble far exceed their losses today, and in fact now form a large percentage of their current net worth.

Maybe its a different demographic—but in this town, the bubble created a huge amount of wealth for a lot of people. Of course those who got into the game too late got burned. But I can tell you, I know a hell of a lot of people who pocketed a lot of money.

[jyl]

What industry or sector? Just curious.

Originally Posted by MRM

Jim, I work with some large companies and get to see and hear some interesting stuff.

[Jim Richards]

The only thing more depressing is being in my office on a Sunday....oh, wait...

[jyl]

[turbo6bar]

From Mike Shedlock's blog:

[Jim Richards]

that'll buff right out.

[Aurel]

The Baltic Exchange dry index (BDI) measures the amount of goods being in transit on international maritim freight routes.
It is down 93%, indicating that the World Economy is virtually frozen .

[competentone]

Originally Posted by Aurel

The Baltic Exchange dry index (BDI) measures the amount of goods being in transit on international maritim freight routes.
It is down 93%, indicating that the World Economy is virtually frozen .

------


Or maybe the rise from 2003-2008 was all just a bubble (driven by a culture that was borrowing and spending like there was no tomorrow) and now the trade has just returned back to normal, pre-bubble levels.

Expect us to drop below pre-bubble levels as we need to pay for all the excessive consumption during the bubble.

[turbo6bar]

[jyl]

The blue line is a survey of bank senior lending officers, their willingness to lend to consumers. This has taken a sharp turn up, which normally leads a recovery in consumers' big ticket spending, which is the green line.

This is positive. You'd want to see confirmation in banks' actual lending to consumers, in case the respondents are simply telling the Fed what it wants to hear.

You'd also want to see stabilization/recovery in securitization of consumer loans, as a large pct of consumer lending is now funded by the capital markets through securitizations, rather than by direct bank lending. Consumer credit cards, auto loans, etc are examples.

I believe that, for all the current public lynching of the banks, the bigger factor in today's credit crunch is the capital markets-funded lending.

[GDSOB]

Originally Posted by jyl

I'm trying to figure if this is good or bad. Looks like deflationary trend. What is the significance of the dated points?

[jyl]

Each dot represents a year. The dot's position on Y-axis is the stock market's valuation, measured by the SP500's trailing price-earnings ratio, in that year. The dot's position on X-axis is inflation, measured by the Consumer Price Index, that year.

This sort of chart is called a scattergram. The shape of the scattered dots is a rough fit around a curve, which shows a relationship between stock market valuation and inflation. High inflation tends to be associated with lower valuation. Low inflation tends to be associated with higher valuation.

The R^2 = 0.61 means someone did a regression of PE and CPI and found that level of fit. Which is about right, I didn't do this chart but I have done that regression before.

The significance of this chart, to me, is that in periods of very low inflation, you would normally expect the stock market to have a higher valuation.

So if someone expects the market to fall until it reaches a PE of 10X (or I've heard some say 6X), either he expects inflation to rise substantially, or he expects something different from the historical relationship between inflation and valuation. Or, he expects outright deflation, for which there is not enough historical data because it is so rare.

The inverse relationship between valuation and inflation has some basis in finance theory. Low inflation usually means low interest rates, means a low discount rate used in net present value calculation, means a higher NPV. All other things being equal. If you do a NPV model and chart the different values for different discount rates, you get a curve that looks like the curve in the chart above.