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Bears, Bulls And The 1950s Parallel
The profit recession for corporate America ended in Q3.
EPS growth was around 4% last quarter. Excl
I found Ms Subramanian’s analysis from the other day very interesting but one thing to be careful of is the behavior of percentages when looking at time series behavior. When any metric falls from 100 to 90, say, that is a 10% drop. When/if it returns to 100, that is an 11%+ increase. The return percentage always exceeds the rate of decline. The net change over time is nothing. When any measure falls any amount, its return to the base is always at an increased rate. Moreover it doesn’t actually matter. If I start the coming year with a $1 mil and end up ten years later with $2 mil, the average annual compound return is 7.18%, no matter what takes place with those ten years. Only the beginning and ending numbers matter to the average. The way traders and algos see it is perhaps different in the short run, but over the ten year period, even their gains and losses will still create the same 7.18% average return. It’s all just math associated with rates of change.
Primary problem with this comparison is government spending and unemployment – it spiked in the 1953 recession (leading to rate cuts from 2.8 and 1.2 FFR)
Is anyone expecting a spike next year in either category ?
~https://en.wikipedia.org/wiki/Recession_of_1953#/media/File:US_1950s_unemployment_rate.png