Do these charts concern anyone else?
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  Economics (Moderator: Torie)
  Do these charts concern anyone else?
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Poll
Question: What do you think?
#1
Very concerning
 
#2
Somewhat concerning
 
#3
I'm not sure
 
#4
Not very concerned
 
#5
Not at all concerned
 
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Total Voters: 13

Author Topic: Do these charts concern anyone else?  (Read 1151 times)
JA
Jacobin American
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« on: November 20, 2017, 01:42:29 PM »
« edited: November 20, 2017, 01:44:06 PM by Jacobin American »




Do these charts of the Dow Jones Industrial Average concern you? I'm absolutely not familiar with economics, so if anyone here is knowledgeable on the subject I'd love to hear your input. I can't help but think that we're currently in an extreme stock market bubble which, when it pops, could be very, very bad for the economy.

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Torie
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« Reply #1 on: November 20, 2017, 02:00:47 PM »
« Edited: November 20, 2017, 09:17:54 PM by Torie »

That is an interesting question, that I posed to myself a few days ago. What I rely on is dividend yield on the total stock market (US). Take a look at the chart below. As one can see, the market is a bit high, but not in bubble territory. If the yield drops down near 1.5% yield, then I would be more concerned. Anyway, I voted "not very concerned." The charts you use, and in particular the one projecting trends, to me is GIGO, and not helpful.



Oh, come to think of it, I am going to move this thread to the economics board.
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DC Al Fine
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« Reply #2 on: November 22, 2017, 07:12:38 AM »

Do these charts of the Dow Jones Industrial Average concern you? I'm absolutely not familiar with economics, so if anyone here is knowledgeable on the subject I'd love to hear your input. I can't help but think that we're currently in an extreme stock market bubble which, when it pops, could be very, very bad for the economy.

Your post contains a few different questions, so I'll break them out one by one:

Is the stock market overvalued, are we due for a bear market?
Yeah, probably. The market is increasingly expensive relative to earnings and the current bull market has been going on a looonngg time. We are due for a correction, although I am neither smart or dumb enough to take a guess when.

Are we in an 'extreme market bubble'?
No. People like to say 'bubble', but how does our situation compare to the bubbles of the past?
Take a look at this chart of the price to earnings ratio for the S&P 500.



If the stock market is overvalued, people will be paying more for one year's earnings. i.e. the PE ratio will go up. The market has a PE ratio of about 25 right now, which is admittedly on the high end. However, it isn't that high, when you compare it to the 1920's or the tech bubble, where the PE ratio reached nearly 40!

Getting away from the hard numbers, I haven't seen some of the 'anecdotal signs' of a bubble. No cabbies or shoe shine boys are giving me stock tips for example.

If the market crashes, what would the effect be on the economy?
Depends on why the market crashes. For example, when the tech bubble popped, the effect on the market wasn't that bad as the problem was largely confined to a particular sector. Compare this to 2008, when the market was crashing because a real estate bubble was popping, liquidity crunched, and the banking system nearly collapsed. That had all sorts of nasty, nasty effects on the economy. What's the cause of the market crash in your hypothetical?

Tl;dr: The market is overvalued but not in bubble territory. The effects of a crash on the economy will depend on the reasons for said crash.

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Southern Senator North Carolina Yankee
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« Reply #3 on: November 26, 2017, 04:55:57 AM »

If corporate earnings weren't so good, then yes I would be concerned. One thing to note is that the Dow by the numbers is going to be misleading at this point when graphed in that fashion because it exaggerates the current market and understates the run ups in the 1990's for instance and 2000's. In the 1990's, The Dow went from like 3,000 to over 13,000 before correcting. That is over a 400%. Even from the bottom in 2009, we are just under 300% currently. We also had a 10% correction in 2011-2012 and another one in 2015-2016.


One thing I would note though, is that aggressive efforts should be made to raise incomes and increase exports, so that corporate earnings remain high. Otherwise, the demand could run out of steam and then you run the risk of both a recession and a 20% or greater correction.
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Kingpoleon
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« Reply #4 on: November 26, 2017, 03:19:45 PM »

The only real risk is if inflation begins to outpace the rate of growth, or if the rate of growth significantly outpaces inflation when/if unemployment stops stabilizing. The former seems a bit more likely at this point.
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All Along The Watchtower
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« Reply #5 on: November 30, 2017, 05:31:35 PM »

My main concerns these days are rising interest rates, privately-held debt, stagnant wages (though granted, that's started to improve, for sure) and the low rate of savings in the US. This, though, is also a concern of mine.
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Maverick J-Mac
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« Reply #6 on: December 01, 2017, 06:53:29 PM »

The Dow Jones is strong and only those whose party is in the minority can find anything wrong with it.  Remember the 90's when Democrats threw the stock market in our faces?  Oh I love the hypocrisy when the shoe is on the other foot!  24,000!
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