Disposable Personal Income as a % of GDP

How has this Glassman guy become so famous? Did he tell people to get out of equities in 2000? I haven’t seen CNBC in a while but didn’t Bernstein cohost this week or a few days this week?

Even though he reduced his bond exposure and dumped that into stocks and cash, he’s still underweight stocks and likely upped his equity allocation because of pressure from management as so many indices are making cycle or all time highs. Because his statements don’t jive with his actions. He recently made the statement the earnings are the most cyclical based in 50 years and he thought we were at the earnings top. No revelation of earnings top. But quite a revelation in the cyclicality of the earnings.

That means earnings quality sucks and could also collapse instead of just tail off somewhat. And the market PE is likely artificially inflated short term. Throw in the unfunded pensions, options expensing and a few other pretty pictures including below average returns in pension investments over the next few years and you have a market that isn’t so cheap.

I’m being a little facetious here, but saying things look like 1982 makes me want to rush out and buy stocks. I do see, though, that in ’82 it crossed this threshold on the way up and now is doing so on the way down. Perhaps extending the chart back a few more years to see the last time there was a reversal toward declining DPI?

B-
since you are such a big fan of the transport valuations i wonder if you have an opinion on how the narrowing trade deficit will affect the sector.. i happen to believe they have been a prime beneficiary of the trade deficit despite our declining manufacturing sector. someone has to move all that imported crap across the country. i think if the deficit continues to narrow it could be a short signal for DJT.
sliding disposable income also not good and could be causing the trade deficit to narrow… at least imo

I’ve changed my mind. I think the Transports are going to 36,000. This is my “Garzarelli” call. I want my moment of fame, even if it paints me as an idiot.

I think we are in the midst of a blow off. I’m not convinced it is over but maybe we are finally seeing volatility return until it is over. I don’t think the bulls will give up so easily as to just capitulate because we had two down days from new highs. It ain’t that easy. But, the top may be in. Picking it is silly but fun.

I don’t know that I have any insight you don’t. But, I keep harping on this China thing because I don’t think people realize how big it is. Currency, Treasuries, Trade, Prosperity, Profits, Commodities, Equities. They are all tied to this China situation. I think this past trade deficit reduction is a nit. It really is because consumer demand slowed rather than some transformational shift.

Alot of bears on here like to think we have this big problem and China is going to eat our lunch. It isn’t going to happen. And while I type faster than Superman flies, I’m not going to blabber forever as to why. This is a GLOBAL issue with all developed nations. Especially Europe and the US. But, more than that. 70+ percent of the world’s wealth lies in Europe and the US. While I harp from a US perspective, the Europeans are now following the same trend as us. They didn’t have the trade imbalances with China. But, now they are developing significant imbalances and they are on trend to be where we are in the not to distant future. Now, they are starting to squawk and join the chorus coming from the US.

So, China refuses to move more quickly to address the imbalances. They need to be concerned and they know moving faster could put their economy in crisis. It isn’t that they are hell bent on global domination. It is fear of collapse with many imbalances of their own. So, after the US and Europe sell China infrastructure to build out their economy with machine tools, industrial equipment, etc, what do we have left to sell them? The flow of goods out of China is a never ending stream as opposed to the western flow of goods in which are industrial. And the kicker is China now wants to target industrial goods as well. So, there is a reasonable chance exports from the US and Europe will abate at some point. That makes the imbalances worse.

Europe and the US are now left with a tremendous imbalance. How does it end? I’ll tell you how it ends. The dollar is revalued, mostly against Asian currencies. The Euro follows. Both have the potential to rock the world’s economies and financial markets. If China doesn’t make major structural changes and the imbalances don’t go away, the US and Europe shut them off.

This isn’t a silly game of dropping the dollar 10%. This is the biggest political and economic crisis “in brew” in 40 years. There is no way China can win. The world’s wealth will eventually turn on them without reform. There will be a change. It might be reasonable or it might be very unsavory. It might be two years. It might be five years. It might be next year. China will be forced to reform or collapse. That is why I laugh at these people saying it is the Asian century. It could be, but it isn’t setting up that way. In the modern era, no one has moved from an export driven to consumer driven economy. The odds of China making the shift are not with them IMO. Europe and America consume the world’s goods and when we start to see a mess develop in our economies because of it, there will eventually be hell to pay. And, while it will effect everyone negatively, we hold the cards because we have the consumers and we hold nearly all of the world’s wealth.

That is what I think about the Transports.

Finally, the bond market goes down when the stock market goes down. Now that’s the way to control inflation and commodity prices. But they won’t stay down unless short and long term interest rates go up some more and we see a collapse of the housing bubble. At least then, the next generation will not have to leverage themselves to afford a house, and we can buy less foreign products. The dollar will have to go down some, but let’s put our people to work building things other than houses and roads.

Some commentary on today’s market:

http://biz.yahoo.com/tm/060512/14299.html

This kind of remnds me of October 16-19, 1987, where a 100+ point drop on Friday was followed by Monday’s crash. I’m not saying it will happen, and keep in mind, I know nothing about technical analysis. But I note that we are post-Hindenberg.

At an opportune time, it would be interesting to hear what BR thinks about the current market environmnet/technicals.

I like the idea of you having your very own show. Now that is something I would watch. I can’t stand Kudlow and do not watch him, ever, even to see you. I watch CNBC in the morning, sort of, catch to see what the close is… and then I’m out of there. Can’t stand Maria or Cramer either.

But I love this blog. My first stop for things economic.

PU. What a steamer. Everything down. They sold the loser yesterday and the winners today.

If everyone keeps saying “1987” then that means the opposite will happen on Monday?

1999? What happened in 1999? (I have been out since spring of 1930)

Debts are forever – unless it’s debt with a fixed coupon in an accelerating inflation environment. The present value of the cashflow and principle repayment declines, meanwhile the price of the asset tends to increase in proportion with replacement costs. Not that an opportunistic government would ever think of engineering such an environment. Nah. Couldn’t happen.

I really hate to be so shrill, but I just see no choice. In the earlier thread, I said Stephen Moore is an idiot. Well, Glassman is an idiot as well.

There is a saying for people like him: knows just enough to be dangerous.

WSJ opinion page. Tech Central Station. Propaganda and advocacy. Not truth.

I guess the idea is that poverty will cure inflation. I think inflation would be the lesser of two evils in this case.

Mark:

Yes. If everyone else’s income declines but yours!

There is that other sense of “disposable” as in “not worth keeping beyond a single use” –like those cameras that are the bane of thieves looking for a good Canon.

So think trashy people.

And here, looking at income normalized over the past 3 decades , it’s important (maybe trashy) to note the volatility illustrated esp by the RH scale. Is this information, disposable income/GDP the lowest in 25yrs, the chunk you should take home? (How much more volatility would it take to draw attention to that aspect?) [ Maybe a pussy-cat figure starting in the last decade…]

Zeph asks (ignoring most of that volatility):

What was different about the 1990s that made personal income a lower share of GDP than during the decade before and after?

forcing me to reconsider my trashy views about this ratio ‘disposable income/ GDP’ in a non-normalizing fashion (the whole point of referencing income away from $, no?). The exponential growth of the financial component of GDP starting in the 80s and the surge in imports during the last decade? It is in the denominator whatever it is.