Thursday, August 25, 2011

Iffy, Piffy (3): Clonal's chart and what???

Clonal's, from earlier today:

Graph #1: Clonal's Chart

And the Dow Jones Industrial Average, from StockMarketTiming:

Graph #2: StockMarketTiming Chart

Graph #2 is an older picture. It stops at 2001. It also goes back 50 years farther than Clonal's. So, just look at the parts that line up by date.

Look at the part of the trend-line just above the "" label, from the early 1940s to the turn of the century. The trend line rises (at an 8.2% rate). Then it is flat from about 1965 to just after 1980. Then it starts going up again, faster than before.

Just like Clonal's chart. I think this is remarkable.

Here ya go:

Graph #3: Combo
The blue line is Clonal's trend line. The red line is the Dow Jones.

The Dow goes haywire after 2000. So I stopped the trend lines there. I'm trying to show an interesting similarity, not a haywire.

Looks like the Dow increased more slowly than Clonal's inflation-adjusted debt number, in the years before the mid-1960s. But it looks like the two trends increased about the same after the early 1980s. Until, you know, the haywire.

First thing that comes to mind to possibly explain the difference in the early years: Before the mid-1960s, the real economy was dominant. Less of the debt increase was going into finance, and more was going into production. After the early 1980s, the financial economy was dominant. So the real economy had less effect on the trend lines. Just a first thought, like I said.

The dominance of the financial sector would explain the haywire too, of course.

And I do find that flat spot intriguing. The struggle for dominance, I think.

The Jazzbumpa Addendum

Thanks Jazz. I think.

Two versions of the graph that run to most-recent data:

Graph #4
Graph #4 is the one that prompted my "haywire" description. Because it is not shown in a log scale (right axis) the lesser values are somewhat compressed... pushed down below Clonal's blue trend line. But the recent Dow is in spasms that simply do not appear on Clonal's.

Graph #5
Graph #5 is more comparable to my Graph #3 above. I used the log scale, as in Graph #3. Now it is the higher numbers that appear compressed... failing to show a rise comparable to Clonal's.

What does Graph #5 show, in the later years?  Perhaps it shows that even the steepest of increases in consumer debt was incapable of satisfying the beast Finance.


Jazzbumpa said...

Fascinating. I have never seen this kind of analysis before - anywhere.

Please show the continuation of the graph, post 2000. I am particularly interested in the haywire.


The Arthurian said...

There ya go.

Jazzbumpa said...

Real household debt per civilian worker and the DJIA. They join up around '67 and part company around '97.

Wait - I just noticed that one is linear and the other log. My keen powers of observation in play again.

I think that makes the whole thing bogus.

Graph 4 is fair, but then the two lines don't really have much to do with each other.

And why should individual debt relate to the stock market in any way? On the S%P 500 daily share volumes are well above 10^9. Households are not in that game.

Be that as it may, the view of personal debt is illuminating - and terrifying.

It's not a perfect correlation, but the debt decreases do tend to precede recessions - most easily seen in the original iffy piffy chart.

I suspect a lot of post 80's has to do with mortgages. Certainly since the 80's house prices went up much faster than CPI inflation - until the crash. I'll bet consumer credit is way up there, too. How else can people provide the dirty little secret of capitalism (spending) when wages have been stagnant for 40 years?

So - on the one hand, I don't think the DJI comparison tells us anything - unless you have a good narrative I haven't seen.

OTOH, Clonal's graph is thought provoking.

BTW, you might be interested in this.


Clonal said...

From - Causes of the United States housing bubble

1999 passage of the Gramm-Leach-Bililey Act allowed commercial and investment banks to merge. Combined with the Depository Institutions Deregulation and Monetary Control Act of 1980 (allowing similar banks to merge and set any interest rate) and the Garn–St. Germain Depository Institutions Act of 1982 (allowing Adjustable-rate mortgages) allowed many risky products to exist (such as Adjustable-rate mortgages) which contributed to the housing bubble and easy credit.

Most blame on deregulation is put on the Gramm–Leach–Bliley Act. Nobel Prize-winning economist Paul Krugman has called Senator Phil Gramm "the father of the financial crisis" due to his sponsorship of the act. Nobel Prize-winning economist Joseph Stiglitz has also argued that GLB helped to create the crisis.[4] An article in The Nation has made the same argument. Economists Robert Ekelund and Mark Thornton have also criticized the Act as contributing to the crisis. They state that while "in a world regulated by a gold standard, 100% reserve banking, and no FDIC deposit insurance" the Financial Services Modernization Act would have made "perfect sense" as a legitimate act of deregulation, but under the present fiat monetary system it "amounts to corporate welfare for financial institutions and a moral hazard that will make taxpayers pay dearly."

Post 2000, you see the effect of the housing bubble, as money shifted from the stock market to "investing" in a "safe" asset like Real Estate.

Clonal said...

The passage of these Acts also appear to account for the earlier interest rate nominal GDP relationships that I had talked about earler.

Clonal said...

Since my household graph is CPI adjusted, you may want to use the Real Dow Jones Industrial Average

The Arthurian said...

What caught my eye about the first two graphs is the flat spot they have in common, which is created by two turning-points they have in common.

Both log-versus-not-log and real-versus-not-real affect the shape of the overall trend. But neither affects the count or the timing of the turning-points. There are only two turning points between 1950 and 2000, and they are the same on both graphs.

Fancy footwork and frills aside, I think there must be much significance in those turning points.

Jazzbumpa said...

I think there must be much significance in those turning points.

To find common cause, let us then turn to socionomics - the study of trends in the collective psyche, known as social mood.

Society is bipolar, and alternates between periods of good-bad, expansive-contractive, exhuberant-melancholy moods.

The golden age - which we see ending around 1966, and the "Morning in America" which carried is from 1982 to 2000 are good mood times. The 70's and the naughts - not so much.

This lines up with Elliott Wave cycles, as mood shifts in great and small ways across the passage of time. By this reckoning, the price of the DJI is only loosely related to actual inherent value, and is largely the product of psychology in the speculating community.


The Arthurian said...

The golden age - which we see ending around 1966, and the "Morning in America" which carried is from 1982 to 2000 are good mood times. The 70's and the naughts - not so much.

This lines up with Elliott Wave cycles, as mood shifts in great and small ways across the passage of time.

Mood??? Okay. But what is the source of the mood shifts? I say: Economic conditions are at the root of it.

A lot of people pick a date later than 1966 for the end of the golden age. But I have been thinking 1966 also, since I saw this graph from mine of August 18th.