Give us time. Essentially, the equity propaganda is based upon faulty models. The whole framework looks at the winners (one side of near-zero). In actuality, that very much larger set of non-winners (no, not losers - it is not a closed situation) is more important on the whole.
In essence, someone of Janet's ilk needs to realize the importance of a reasonable interest rate applied to instruments that are safe and sound (in so far as is humanly possible to attain). To bring that about will require a re-look at the current basis of belief (of course, the accouterments that accompany the big pockets and "winners" in the current system make it difficult to get the conversation going in a proper manner - worse than a catch-22, if you would).
Now, to be technical, for a moment, there are all sorts of analyses going on everyday. Much of this it yapped about ceaselessly all day (Lord, deliver us - yes, Cramer, you, too).
One that came to mind was Tobin's q (he is the Nobel winner). Skirting for the moment all of the questions of defining, and determining, value (about which we have been writing: 7oops7, Tru'eng, FEDareated), Tobin would have us relate the total sum of assets to the current market value. If the ratio is above 1, then things are (may be) puffy (as we see now, where bubble is more appropriate).
But, you know, the magical multiplier would have to be collapsed in order to get the proper market value. And, that, then, would settle the issue.
|Tobin's q and|
Market Cap / GDP
The VectorGrader site provides a graph of Tobin's q since 1950. But, notice all of the other valuation charts that are offered, like Market Capital to GDP which looks similar. For each, there is a brief description of how the chart is calculated.
Also, dshort.com provides a nice summary and discussion.
So, let's back up. The motivation for this was a BloombergBusiness report about Tobin: Nobel Winner's Math is Showing S&P 500 Unhinged From Reality. The report discusses the case that the markets may be frothy. In doing so, it covers the following topics:
- Dissenting Views - one of these says that worrying about the "q" would have kept one out of this market. Oh yes, that is the point being made here (if you got in, you have accumulated ill-begotten gains (enjoy them, quiet (if you can) your conscience) - not available to everyone).
- Slow Spending - and we know about this; cutting costs (removing workers - working the remaining to an inch of their health) and hoarding money (also, buying your own stock to keep the price up) and ... What is equity for, anyway? The basis for gaming (financial manipulations) or a means to support real economic decisions?
- Mean Reversion - Ah, investors? What about the people being screwed who are those with their hands in the dirt, who are keeping things afloat for the fat cats (riders of the system's magic carpet - coddled to the max), ...?
- Bond Yields - oh yes, no where else to go but equity markets? Not. Somehow, a real economic view needs to be expressed here (Janet, et al, are too much of the game as defined to try to grasp the issues - Ben could not see the last downturn when it was starting to happen right under his nose -- but, he showed us that he had not run out of bullets - did we really say that?).
Too, we need to look at whether markets can be fair or not. Oh, sure. that argument reverts back to the fantasy of "efficient" market. While people argue and nitpick about that, others slave away or starve.
Remarks: Modified: 05/20/2015