Macroeconomic Analysis

Transcription

1 Macroeconomic Analysis September Bee Caves Road Building 2, Suite 100 Austin, Texas Fax

2 Stocks Risk Premium: Stocks vs. Bonds Compounded Annual Rates of Return excluding war years Bonds Stocks less Bonds S&P 500 Dividend Yield less Bonds Capital Gains Differential GDP Deflator Beginning Period PE Ratio Beginning Period Dividend Yield Beginning Period Treasury Bond Yield % 3.7% 1.5% % 4.2% % 5.1% 4.1% -0.9% % % % 5.5% 3.9% -1.7% 5.6% 2.6% % 3.7% % 4.5% 2.9% 2.2% 0.7% -0.2% % 4.2% % 5.3% -2.6% 7.9% 3.5% % % 4.6% % -0.2% -0.6% % 4.2% Source: Bureau of Economic Analysis, Bureau of Labor Statistics, Standard and Poor's, A Half Century of Returns on Stocks and Bonds by Fisher and Lorie, History of Interest Rates; Homer & Sylla, N.S. Balke & R.J. Gordon, C.D. Romer, Robert Shiller - Yale University, Peter L. Bernstein Inc., HIMCO. page 1

3 Initial Period PE Ratio at Base Years, average Current Period Source: Bureau of Economic Analysis, Bureau of Labor Statistics, Standard and Poor's, A Half Century of Returns on Stocks and Bonds by Fisher and Lorie, History of Interest Rates; Homer & Sylla, N.S. Balke & R.J. Gordon, C.D. Romer, Robert Shiller - Yale University, Peter L. Bernstein Inc., HIMCO page 2

4 CAPE to its Own Average q to its Own Average With Statistical Discontinuities annual CAPE overvalued q Sources: Shiller, Wright, Smithers, Federal Reserve. Through December q is the ratio of the market values of equities to the net worth of the companies. CAPE is the cyclically adjusted price/earnings ratio which uses the average for the past 10 years of earnings per share. q measures only nonfinancial companies, but includes nonquoted companies, while CAPE measures all quoted companies. Both expressed as log numbers. page 3

5 Dividend Yield vs. Treasury Bond Yield at Base Years, average 7% 6% Initial Period Dividend Yield Current Period 7% 6% 5% 4% Bond Yield 5% 4% 3% 3% 2% 2% 1% 1% Source: Bureau of Economic Analysis, Bureau of Labor Statistics, Standard and Poor's, A Half Century of Returns on Stocks and Bonds by Fisher and Lorie, History of Interest Rates; Homer & Sylla, N.S. Balke & R.J. Gordon, C.D. Romer, Robert Shiller - Yale University, Peter L. Bernstein Inc., HIMCO. page 4

6 S&P Dividend Yield annual average = % below historical average Sources: Standard and Poor's, Robert Shiller, Yale University. Through December page 5

7 1 9% 7% 6% 5% 4% 3% Capital Gains Differential vs. Inflation Rate compounded annual rate of return for period excluding war years Entire Period Cap. Gains Diff. Post-War Period 1 9% 7% 6% 5% 4% 3% 2% 1% Inflation Rate Deflation 2% 1% -1% Source: Bureau of Economic Analysis, Bureau of Labor Statistics, Standard and Poor's, A Half Century of Returns on Stocks and Bonds by Fisher and Lorie, History of Interest Rates; Homer & Sylla, N.S. Balke & R.J. Gordon, C.D. Romer, Robert Shiller - Yale University, Peter L. Bernstein Inc., HIMCO. -1% page 6

8 Aggregate Demand and Supply Curves Price level (M*V = GDP = Agg. Demand) B B1 (Aggregate Supply Curve) A A1 AS1 AS2 Classical Normal P 0 Keynesian Real GDP Y 0 page 7

9 1 16% 14% 12% 1 6% 4% 2% -2% -4% Consumer Price Index: Total and Core y-o-y percent change, monthly Average time from the end of recession to the low in CPI and Core CPI is 29 months. Core CPI: thick line '02 '06 '10 Source: Bureau of Labor Statistics. Through July CPI: thin line Lowest since October % 14% 12% 1 6% 4% 2% -2% -4% page 8

10 = U.S. Debt as a % of GDP annual 1933 = = Total 2009 = = Private Federal Sources: Bureau of Economic Analysis, Federal Reserve, Census Bureau: Historical Statistics of the United States Colonial Times to Through Q page 9

11 M2 Money Multiplier and the Monetary Base monthly M2 money multiplier: left scale thin line 1 16% 14% 12% 1 6% 4% 2% M2 Money Stock 6 % change, a.r. y-o-y % change '07 '08 '09 '10 6 y-o-y 1 16% 14% 12% 1 6% 4% 2% Monetary Base: right scale thick line '08 '09 '10 $ bil Source: Federal Reserve. Through August 23, Monetary base through August 25. (Multiplier is ratio of M2 to the monetary base.) The money multiplier or m is determined by the currency, time deposit, Treasury deposit and excess reserve ratios page 10

12 3 25% 2 15% 1 5% -5% -1-15% -2 Nominal GDP annual % change GDP = M*V 3 25% 2 15% 1 5% -5% -1-15% -2-25% % -3 Sources: Bureau of Economic Analysis. Through page 11

13 3 M2 Money Stock annual % change 3 25% 25% % 15% 1 1 5% Avg. = 6.6% % -5% -1 Cumulative decline in Great Depression = 31% -5% -1-15% -15% Sources: Federal Reserve Board. Bureau of Labor Statistics; Monetary Statistics of the United States. Through (Last plot through August 23, 2010, y-o-y) -2 page 12

14 2.25 Velocity of Money Equation of Exchange: GDP(nominal) = M*V annual 1997 = = avg to present = = 1.5 avg to 1980 = = 1.17 Cumulative decline during Great Depression = -22% % change 2009 level to 1.17 = Sources: Federal Reserve Board; Bureau of Economic Analysis; Bureau of the Census; Monetary Statistics of the United States. Through ; V = GDP/M, GDP = 14.3 tril, M2 = 8.4 tril, V = page 13

15 Composition of $14.1 Trillion GDP in % Government (federal, defense, nondefense and state and local) ($2.9 trillion) C B A 79.4% Private page 14

16 22% 21% 2 19% 1 Gross Federal Debt Held by the Public and Government Expenditures as a % of GDP annual Govt. Expenditures as % of GDP left scale Debt as % of GDP right scale % Sources: Federal Reserve, Office of Management and Budget including projection. Through Government Expenditures as % of GDP is 5 yr mvg. Avg. 2 page 15

17 Aggregate Demand and Supply Curves Price level (M*V = GDP = Agg. Demand) B B 1 (planned expenditures) (Aggregate Supply Curve) A A1 AS1 (planned costs) AS2 Classical Normal B 2 P 0 Keynesian Real GDP Y 0 page 16

18 Government Debt as a % of GDP, Long Term Treasury Rates and S&P 500 annual average Debt as % of GDP left scale Interest Rates 1929= 3.6% 1941 = 1.9% right scale S&P 500 right scale Sources: Historical Statistics of the United States. Census Bureau, Standard and Poors SP500 down 62% for entire period. From 1932 to 1936 SP500 up 123.2%. Rates and SP500 indexed 1929=100. index page 17

19 Japan: Government Debt as a % of GDP, Long Term Government Rates and Nikkei Stock Average Interest Rates 1989 = 5.7% 2009 = 1.3% right scale annual Debt as % of GDP left scale Downgrade from AAA rating, 11/28/2001. Nikkei right scale Sources: Bank of Japan, Nihon Keizai Shinbun (Nikkei). Through Nikkei down 73% for entire period. Nikkei up 17.4% from 1992 through Nikkei up 100. from 2002 through Nikkei and rates indexed 1989=100. index page 18

20 14% 12% 1 Long Term Treasury Rate yearly average Onset of Iron and Bamboo Curtains Fall of Berlin Wall 14% 12% 1 Interest rate avg. = 2.9% Inflation rate avg. =.9% Interest rate avg. = 6% Inflation rate avg. = 4% 6% 6% 4% avg. = 4.3% 4% 2% Global market Restricted market Global market 2% Sources: Federal Reserve Board, Homer & Sylla. Through Initial global market period interrupted by WWI. page 19

21 Real Yield Treasury rates less change in CPI, annual 25% 2 15% 1 5% -5% -1-15% -2 avg. = 2.2% 25% 2 15% 1 5% -5% -1-15% -2-25% -25% Sources: Board of Governors of the Federal Reserve System, Bureau of Economic Analysis, History of Interest Rates; Homer & Sylla, N.S. Balke & R.J. Gordon, C.D. Romer. Through Q page 20

22 Appendix page 21

23 Total Reserves and Currency monthly level bil. bil. Currency Total Reserves '02 '05 '08 Source: Federal Reserve Board. Currency through August 23, total reserves through August 25, page 22

24 Nonfederal Debt and Federal Debt change from a year ago, quarterly tril tril. Total Debt change from a year ago, quarterly tril Nonfederal tril '01 ' Federal '01 '08 Source: Federal Reserve Board. Through Q page 23

25 Total Commercial Paper Outstanding weekly, billions 1.7Tril 2.2 Tril Lehman SIV implosion Financials melt down Jan-01 Dec-01 Dec-02 Nov-03 Nov-04 Oct-05 Oct-06 Sep-07 Sep-08 Aug-09 Aug-10 Source: Federal Reserve Board. Through 4th week in August Tril page 24

26 Japan Monetary Base and M2 Money Growth monthly tril Yen Monetary Base left scale % M2 right scale 4% 2% 500 '00 '02 '04 '06 Source: Bank of Japan. U.S. Monetary Base and M2 Money Growth monthly bil. 400 M2 200 right scale 0 '06 '07 '08 '09 '10 Source: Federal Reserve. Through August 16, Monetary Base left scale 14% 12% 1 6% 4% 2% page 25

27 Long Term U.S. Treasury Rates and Inflation 16% 16% 14% 14% 12% 12% 1 Bond Yield 1 6% 1 6% 4% 3 4% 2% 2 2% Inflation '02 '06 '10 Quarterly averages of long-term U.S. Treasury rates. Inflation: annual percent change in GDP deflator, annual percent change in Core PCE deflator from 1996 through 1999, market based Core PCE deflator from 2000 to present. Through Q page 26

28 Total Debt as a % of GDP and the Employment/Population Ratio quarterly Employment/Population ratio right scale Debt as % of GDP left scale '04 '10 Source: Federal Reserve, Bureau of Labor Statistics. Debt through Q1 2010, employment/population through Q3(July/Aug avg.) % 64% 63% 62% 61% 6 59% 5 57% 56% page 27

29 1 17% 16% 15% 14% 13% 12% 11% 1 9% 7% 6% U6 Unemployment Rate monthly '02 '06 '10 Source: Bureau of Labor Statistics. Through August U-6 is unemployed plus all marginally attached workers plus total employed part time for economic reasons as % of the civilian labor force plus all marginally attached workers. 1 17% 16% 15% 14% 13% 12% 11% 1 9% 7% 6% page 28

30 20000 thousands Federal and U.S. State and Local Employment monthly thousands State and Local left scale Federal right scale '00 '02 '04 '06 '08 '10 Source: Bureau of Labor Statistics. Through July page 29

31 New and Existing Home Prices real median home price, monthly thousands thousands New and Existing Home Prices median home price, monthly '01 '05 '09 thousands New thousands Existing '01 '05 '09 Source: National Association of Home Builders, Census Bureau. CPI adjusted. Through July page 30

32 Total Mortgages Past Due quarterly 5 millions millions '00 '07 Source: Mortgage Bankers Association. Through Q page 31

33 Vacant Units For Sale or Rent quarterly 7 millions millions '01 '08 Source: Census Bureau. Through Q page 32

34 19% 1 17% 16% 15% 14% 13% 12% 11% 1 9% Percentage of Population in Their 20s and 50s annual 20s 50s 19% 1 17% 16% 15% 14% 13% 12% 11% 1 9% Sources: Census Bureau. Through page 33

35 Working Age Population % Change 2030 vs India % U.S % China % Eurozone 218-5% Japan 74-17% Retired Population as % of Total 2010 Retired Population as % of Total 2030 India 3% 5% U.S. 6% 11% China 9% 14% Eurozone 13% 1 Japan 16% 24% page 34

36 1 6% 4% 2% -2% -4% Real Inventory Investment as a % of Real GDP quarterly, a.r. Avg. = 1.6 Avg. Since 1990 = 1% 1 6% 4% 2% -2% -4% -6% '04 Source: Bureau of Economic Analysis. Through Q % page 35