Some Sobering Charts

Tyler Durden's picture

Even a traditionally optimistic Michael Darda, of MKM Partners, is having trouble discovering the silver lining among the flotsam and jetsam that is the global macro-economic ocean currently. The Japanification theme continues with five charts offering too-correlated-to-be-ignored perspectives on equities, money supply/velocity, valuations/multiples, and demographics.

An updated chart of Japan versus U.S. equities is breathtakingly grim. This chart originally ran as a Bloomberg “Chart of the Day” back in August. The chart may tell us what is in store if eurozone policymakers fail to forestall a collapse of Italy/Spain. The ECB's reluctance to even take back the errant rate hikes imposed earlier this year—the least it could do, in our view—is not encouraging in this regard.


A high ratio of liquidity doesn’t guarantee a rise in risk assets or nominal income, as Japan has found out over the last two decades. Tightening credit markets are an ongoing threat to the velocity of money.

Low long rates have not led to higher P/E ratios in Japan. Moreover, long rates tend to move with expected nominal growth prospects, which is why they have been closely correlated to movements in equity prices over the last several years.

Like Japan, the U.S. is facing demographic challenges, albeit not to the same degree (i.e., we are not headed for negative population growth). However, the Federal Reserve Bank of San Francisco has done work on equity multiples and societal age distribution (middle-aged cohort versus the old-age cohort) and has found a stunningly close relationship that does not bode well for a rise in earnings multiples from here. Indeed, the researchers note that, “the actual P/E ratio should decline…to 8.3x in 2025 before recovering to about 9x in 2030.”

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
RebelYell's picture

holy bit shatman   


thanks zh.  beacon of light in dark times  

X.inf.capt's picture


this is not going to be pretty....

Storch's picture

They live four years longer, build better cars and have cooler phones. Also have a stronger currency and better trains. But their real estate prices and equities went down... Um what was lost during the lost decade other than inflated fake bubble pricing? Their only mistake was drawing it out so slowly. Then again they do have an extra half decade each.

FEDbuster's picture

Plus, when their business and political leaders fuck up, there is a good chance they will commit harakiri.

rocker's picture

 Rumor has it this is extremely Bullish.  While I think not, what I think matters not.

 The HFTs will be determined to run the market up under instruction of the Bernanke.

They will burn shorts for that Jolly Xmas sales season to make all feel well.   /sarc for sure.

Panic Panic Panic's picture

Everything will be fine if we pass the turd in cheif's jobs boondoggle.  Be of good cheer!  Four more years!

Ethics Gradient's picture

Four more years is a little optimistic.

The issue is that yesterday it was Japan, tomorrow it will be the world.

Sub Dude's picture

Demographics rule - this guy's premise for several years:

El Viejo's picture

Yes, this guy is full of hype, but demographics IS a big player in the overall scheme of things. Advisor to multiple presidents, Peter G. Peterson also predicted a turbulent future over ten years ago in his book: "The Gray Dawn". I read it several years ago and keep shaking my head in amazement as his scenarios keep playing out around the world. He predicted chaos in Japan, US, and Europe, and finally China. The Chinese demographics are the worst. Remember when tennis champ Bjorn Borg was the spokesperson for population growth in scandinavian countries ?? Some of the countries that PGP said to watch were: Spain, Italy and Scandinavia.


And yes PGP is full of it sometimes, but face it, the Boomers are retiring or at least buying less to save for retirement and they are the biggest voting block in the equation.

Are you kidding's picture

It's the "greatest unwind".  Boomers grew the economy and now are starting to draw it down as they retire.  Without the boomers growth, the economic growth slows.  Oh, and sorry...we used up all the cheap oil too.

rocker's picture

Tomorrow on CNBC Neel Kashkari, (the X-Goldman Sachs employee), who with Hank Paulson engineered the 700 Billion dollar no questions asked Bailout of Goldman Sachs, AIG, JPM, Lehman, BearStearns, BAC, Morgan Stanley, and all the other banks, foreigns included has news for America.

Watch the Weasel tell Americans they must not have Social Security and Medicare, while at the same time tell Amercans that Europe needs a bazooka bailout that will be funded by: Guess Who ?  America. 

This guy, Neel Kashkari belongs in Jail with Lloyd Blankfein. Because what he did was pay Lloyd Blankfien's 100 million dollar bonus with that same bailout.  Loyalty has no shame.  This is why Goldman Sach rules the world. They get away with it.

jekyll island's picture

The Fed already bailed out European banks once in 2008, you mean they are going to do it again?  

rocker's picture

You have not seen anything yet. They will funnel more money equal to the last bailout.

jekyll island's picture

That's the problem:  we won't see it.  It will be kept off balance sheet.  

rocker's picture

Good for you jekyll island.  You get it.  We won't see it. But it will be done.

Occupy Wall Street has no idea who they are fighting.

JPMorgan gave the COPS, (Cheap Offending Protector Slaves), big money to hold the public at bay.

jeff montanye's picture

it's so insulting.  they don't even seem to care that the people on the sidelines are starting to hoot at them (at this stage, really more at their apparatchiks like erin burnett and herman cain).

El Viejo's picture

Duh, I thought the bailout was paid back.

J 457's picture

ES 900 by Nov.

pettolicious's picture

Correlation...Schmorelation...Japan didn't have the POMO thingy.

lizzy36's picture

Japan has had ZIRP since 1999. QE since 2001. Eventually extending the program to buying equities. Everytime the Nikkei falls 1% intraday, the Government steps in and picks up some bargins.

Twelve years of Zirp and ten years of QE. Quite the success story.

pettolicious's picture

Lizzy - I guess you didn't pick up on the sarcasm...I concur - it's pretty eerily similar.

lizzy36's picture

Sorry. My bad ;) I should have known better.

DeadFred's picture

But at least they have glowing rice. Or maybe they say it's 'growing'.

jekyll island's picture

Yeah we know it looks like shit, but this time it will be different. 


Timmy and Ben

spiral_eyes's picture

the key difference is social and political. japanese are a controlled, moderate, deferential, self-negating and united nation. america is individualistic, greedy, bitchy and will blow up into civil unrest and secessions before they go through japan's experience.  

jekyll island's picture

No we won't!  We are kind, brave, thrifty, generous, reverent, sleepy, miss the big picture sometimes, loyal, misinterpreted, sometimes confused with our government handlers by other countries, hardworking sometimes, hate lazy asses and will eventually throw out all the politicians after we have tried everything else possible.

spiral_eyes's picture

i hope you're right. throwing out all the politicians is something the japanese certainly cannot do. but the parasites and the bankers have so much to lose. they won't let go. america will disintegrate.

seek's picture

I think I just spotted another former boy scout...

The4thStooge's picture

and last but not least... WW3

Beam Me Up Scotty's picture

You forgot the part about how Fat america is.

Bazooka's picture

Dear Tyler:

You consistently try to connect an exogenous event to each inflection of equities (attempts at tying rumors to equity events).....with all due respect, it's very amusing. Mostly because per the social mood theory, all market events are a fractal that occurs at all degrees...thus, fractals project news (exogenous events) and not the other way around (per your attempts).

Would you consider the following? I will project exognous events based on Elliot Wave analysis and social mood compass:

1. We are currently in a scary rally of wave 2, which will temporarily revive the mania mood. Rumors will become even more believable...imagine that!

2. Rumors and inuendos of EU rescue will become more frequent and perhaps even tangible (maybe a Euro Tarp will bring S&P to 1275??)....further stoking the current ripfest (however, not before a retrace down of about 61% fib to near 1120).

3. Post the onset of wave 3 down, economic and political news will become very sour....Obama will become even more inept, Bernake wil be more ridiculed, Greek will actually default......this will be by early November 2012....S&P will exceed March 2009 lows.

4. Unemployment, ISM, Fed Data, etc will all plung by March 2012....BAC will be near bankruptcy.....$2 per share?

5. What precedes exogenous events......thought, then sentiment, then event. 

6. All guilt is projected...(Freud or ACIM?); all thought precedes event, all guilt, blame, fear...projected....and those who are unaware of what precedes, only see what happens as exogenous.

7. Think abstract.

bob_dabolina's picture

Approach the ledge and step forward

WonderDawg's picture

I'm pretty much in agreement with everything, although #6 is a little deep for me to consider at this time of night. My only reservation is I'm not positive we're in wave 2, this could be a sub-wave correction to M3 down. I'm sitting tight until we correct this bounce, see how far down it goes before the next bounce. 1120 looks like a good number. We bounce from there and I'll get long for wave 2.

Your count is still my top count though.

rocker's picture

I like the way you think WonderDawg. From what I saw EWI showed a much lower wave 5 down.

Which, if true, has not been reached yet. 

The real thing to consider is always: When will one of the little PIGS Blow Up ???  The Banks are freezing up now.

WonderDawg's picture

They did show the potential for a much lower wave 5, but they also said we could be in minor 2, so Hochberg is on the fence. Another waver I follow is Daneric, and he's been calling it pretty tight for weeks now. His top count is minor 2 started this week. Lots of variables at the moment, so I'm just going to sit tight til I get a good feeling one way or the other. My gut's been getting it right lately, and it's not really saying anything at the moment.

rocker's picture

I like Daneric too. Good Stuff.

rocker's picture

Dear Bazooka,

 If you are referring to Robert Prechter's EWI principal, remember he failed his subscribers three years in a row with bad reads.

While I do not think you are wrong because the markets are manipulated. Wave what ever does not carry water all the time.

One thing I would say is the HFT's, Mutial Funds, Hedge Funds and TPTB in the markets are really not feeling comfortable at night.

There is a lot of supply in uneasy hands wishing they could dump on any rally. Fake or Not.

That supply is why they can manipulate any single stock at any time. It is not a good time to own anything in mass.

I do agree with much that you say. Buy for the Christmas season, Right ????  I'll buy Physical Metals First.  

WonderDawg's picture

I followed his advice in 2007 and got out of equities, saved me a bunch of money and heartache. I got back in March 2009 on his call for a bottom, and was nicely rewarded. I got out early in 2010 and missed out on some gains, but the market is pretty close to being where it was when I got out, so I call that a wash. Making good bets on the way down now, so it's working again and has been since July.

I'll take my gains over what my ex-financial guy would have done for me, and if I listened to him I'd be puking right now.

WonderDawg's picture

But I'll be the first to admit I wouldn't trade strictly on EW analysis. I take in a lot of info from different sources, including ZH, to compose my personal forecast. EW is one element, but I find it to be a good one for understanding the bigger picture and why news doesn't always affect the market in the manner you would expect from conventional analysis.

RebelYell's picture

His models are based on humans.  The computers have him beat, me thinks.

Missiondweller's picture

You, kind sir, are a douch-bag.

bigwavedave's picture

This is good stuff. What is missing is credit growth and the much overlooked impact of consumer spending by ITEM not by VALUE. Most of the data on consumer spending is raw $ when it should be # items. It strips out that Tiffany ring and iPad impulse buy. While in Japan in the 1990's I noticed that while the $ value stayed roughly the same the # items was dramatically reduced. 

Bazooka's picture

Ohhhhhh! The best boobies yet! Oooo Laaahhh Lahhh!

Bazooka's picture

More Social Mood Projecting Exogenous Events:

1. By about 2015, Dr. Bernanke will be indicted for negligence! Guilt and fear leads to projection! So, the extreme negative social mood will need a projection of guild target...why not Bernanke!!! or Hank Paulson! Geithner....these three suicide financial bombers! Don't forget Dudley!

1.1: Perhaps, if Dr. Greenspan is still alive, he will also be hauled into Congressional hearings and court and indicted! The pissed off public will scream for the guilty! France will rejuvenate the guillotine (not physically but emotionaly)

2. Squid Face (Woe to thee: CEOs of BAC, GS, MS and Citi, Country Wide, Wamu) will be indicted for crimes against society (2016 or earlier?)

Your rear ends will be very un-lubed!

3. CNBC will become a Sports Channel......ha ha ha! (Cairo National Basketball Conference)

4. I will be very rich with all my fucking silver ace trades! (Better than Reggie, Tyler, MHFT, Phoenix, and every other major donater to Zero Hedge). By 2016, i will trade every fucking 10x dollar bill for gold and silver.....we must first cross the valley of deflation before hyperinflation!

5. Robert Prechter wil become a demi God....President Paul will defer to his advice! ( I don't think Paul will win until 2016)

6. Steve Hotchberg will no longer be ridculed for being so fucking wrong in not spotting the Sept. 2010 turn up!!!!! What a fucking moron he was in missing that...a fucking herder!

7. WW III will start by 2013 or a bit earlier (fuck!) My prayers to all who are about to die!

8. My family and neighbors who make fun of me for being a BEAR and BULL based on squigly elliot lines will respect me and envy my $Millions! Fuck you you fucking fucks! (except my wife)

9. Binve will apologies for his horrible calls! ( If he has the balls!)

10. All Gold Bugs will cry howls of pain as Gold goes to $490!!! Eric King will no longer "lead" his interview candidates by "ascerting" that gold and silver are still good buys (or good byes). 

11. Silver bugs like Celente will retrack his shitty deals! They will genuflect to the alter of deflation before hyperinflation! Look at the fucking global, public, private and corporate debts loads! It's a fucking ponzi! debt destruction anyone?

12. Delinger will be proven right on his DOW 3k call but wrong a little later as it will beyond that to perhaps DOW 1k!

13. All economists will remain positive until S&P 500 and what a WTF moment it will be for the public with the bank runs! YOU WON"T HAVE ACCES TO YOUR FUCKING CASH!!!!

14. Cash will be king and its buying power wil increase by 10x....look at the yen! 

15. At the bottom, nearly 98% of the public will know the exact meaing of DEFLATION.

16. Whe 98% know the meaning of DEFLATION: BUY EVERY FUCKING Precious Metal, equities for Largest Pharma, GE, MMM or any reliable company with dividend yield of 25% or more! 

This will be 2013 (then again in 2017)

Good Luck and may those who are about to die salute the Ego emperor!

My advice is FREEEEEEEEEE! With zero price stabeeeleeetteeeee!