Did You Know That…?

Let’s Toast the Disappearing Deficit!

The most important number you won’t see waved around at year end by politicians of either party is $680 billion. That’s the US budget deficit in fiscal year 2013 (which ended September 30). This is a 38% decline from fiscal year 2012 and amounts to a respectable (and responsible) 4.1% of US GDP. From the perspective of the nation’s fiscal health, it’s excellent news.  The deficit is now 51% of 2009‘s record $1.4 trillion and headed lower. So why aren’t our elected leaders trumpeting these glad tidings from the rooftops? Die-hard Republicans don’t want to advertise this dramatic reduction for […]

Is the Cyclically-Adjusted P/E Ratio Now Unreliable?

We all know the familiar mantra:  buy low, sell high.  But how can we recognize “low” and “high”? One stock market valuation measure receiving some recent attention is the cyclically-adjusted price-earnings ratio (CAPE), which is computed by dividing the current price of the S&P 500 index by the annualized average real earnings-per-share of the S&P 500 constituent companies over the past ten years.  (The CAPE was developed by Robert Shiller of Yale University and is regularly updated on his website.) As John Authers noted in a column in the Financial Times (8/17-18/2013), Merrill Lynch’s head of U.S. Equity Strategy recently […]

Have the Markets Discounted the End of Quantitative Easing?

Conventional wisdom holds that stock and bond market prices reflect investors’ expectations about the future.  This is one of the key arguments against market timing:  not only does your view of what’s going to happen have to be right, it has to different from the consensus because that’s already priced into the market. For example, if you think rising interest rates will damage stock market prices, and therefore you should sell or reduce your stock holdings, it’s not enough to be correct, your expectation must also differ from that of most other investors. As the great British economist John Maynard […]