Tag Archives: economics

Republican Presidents and Recessions

changeaheadroadsignMy Comments: As an economist, I readily acknowledge that political parties and recessions have little to do with each other. There are too many other variables that result in economic downturns.

But the records suggests they are somehow correlated. We are due for one, and if history is any indication, Trump will have the pleasure of navigating one in the next four years.

by Rich Miller – December 21, 2016

Here’s a frightening factoid for Donald Trump as he prepares to take office next month: Every Republican president since World War II has been in power during at least one recession.

Of course, as the saying goes, past performance is not necessarily indicative of future results and the billionaire developer may well avoid a downturn on his watch.

But with the economic expansion soon to become the third-longest on record, the risk of a contraction occurring during his time in office can’t be cavalierly dismissed.

“Republican presidents seemingly can’t do without” recessions, Joachim Fels, global economic adviser for Pacific Investment Management Co., wrote in a blog post dated Dec. 12.

The same can’t be said of Democrats. Outgoing President Barack Obama did preside over an economic downturn in his first six months in office – one he inherited from his predecessor, Republican George W. Bush. John F. Kennedy took office just before a recession ended. And the U.S. entered and exited slumps when Jimmy Carter and Harry Truman were in charge.

But it was recession-free during the tenures of Democrats Lyndon Johnson in the 1960s and Bill Clinton in the 1990s.

“The U.S. economy has performed better when the president of the United States is a Democrat rather than a Republican,” Princeton University professors Alan Blinder and Mark Watson wrote in a paper published in the American Economic Review this year.

The difference isn’t due to more expansionary fiscal and monetary policies under Democrats, according to Blinder, who served in the Clinton White House, and Watson.

Instead it appears to stem from less costly oil shocks, a more favorable international environment, productivity-boosting technological advances and perhaps more optimistic consumers, they wrote. Some of those disparities may be down to better policies, but luck also played a role.

Fels cautioned against overestimating the ability of presidents to prevent recessions – or to create them for that matter. After all, it’s often the Federal Reserve which determines the ups and downs of the economy through changes in interest rates.

What’s more, some Republican presidents just caught a bad break, Fels said. Dwight Eisenhower, for instance, took office in 1953 when the U.S. was still enmeshed in the Korean War.

Others inherited recession-prone economies from their Democratic predecessors. Inflation was running above 10 percent when Ronald Reagan took over from Carter in January 1981, and then-Fed Chairman Paul Volcker was determined to squelch it.

Trump said during the campaign that his plans would result in 3.5 percent annual growth, well above the 2.1 percent pace of the current expansion. Still, there’s no denying the Republican record when it comes to recessions.

If Trump wants to ensure himself a successful presidency, that might be another party tradition the unconventional leader-in waiting may have to break.

The Risks That Threaten Global Growth

changeaheadroadsignMy Comments: Readers of this blog will recall my observations about risk in general and in particular, those that will influence our economic well being in years to come.

With the new administration seemingly in favor of conflicts over trade between nations, and of retreating from the forces that have fostered global economic growth for the past 7 decades, these comments by Martin Wolff seem prescient.

Just as I tend to agree with Trump’s call to ‘drain the swamp’, or in my words, re-assess the assumptions on all levels that led us to where we are now, there are major forces at work over which we have virtually no control that demand a reassessment of economic assumptions. The next few decades are going to be tough for a lot of us.

by Martin Wolff, January 3, 2017

What is going to happen to the world economy this year? Much the most plausible answer is that it is going to grow. As I argued in a column published at this time last year, the most astonishing fact about the world economy is that it has grown in every year since the early 1950s. In 2017 it is virtually certain to grow again, possibly faster than in 2016, as Gavyn Davies has argued persuasively. So what might go wrong?

The presumption of economic growth is arguably the most important feature of the modern world. But consistent growth is a relatively recent phenomenon. Global output shrank in a fifth of all years between 1900 and 1947. One of the policy achievements since the second world war has been to make growth more stable.

This is partly because the world has avoided blunders on the scale of the two world wars and the Great Depression. It is also, as the American economist Hyman Minsky argued, because of active management of the monetary system, greater willingness to run fiscal deficits during recessions and the increased size of government spending relative to economic output.

Behind the tendency towards economic growth lie two powerful forces: innovation at the frontier of the world economy, particularly in the US, and catch-up by laggard economies. The two are linked: the more the frontier economies innovate, the greater the room for catch-up. Take the most potent example of the past 40 years, China. On the (possibly exaggerated) official numbers, gross domestic product per head rose 23-fold between 1978 and 2015. Yet so poor had China been at the beginning of this colossal expansion that its average GDP per head was only a quarter of US levels in 2015. Indeed, it was only half that of Portugal. Catch-up growth remains possible for China. India has still greater room: its GDP per head was about a 10th of US levels in 2015.

The overwhelming probability is that the world economy will grow. Moreover, it is highly likely that it will grow by more than 3 per cent (measured at purchasing power parity). It has grown by less than that very rarely since the early 1950s. Indeed, it has grown by less than 2 per cent in only four years since then — 1975, 1981, 1982 and 2009. The first three were the result of oil price shocks, triggered by wars in the Middle East, and Federal Reserve disinflation. The last was the Great Recession after 2008’s financial crisis.

This is also consistent with the pattern since 1900. Three sorts of shocks seem to destabilise the world economy: significant wars; inflation shocks; and financial crises. When asking what might create large downside risks for global economic growth, one has to assess tail risks of this nature. Many fall into the category of known unknowns.

For some years, analysts have convinced themselves that quantitative easing is sure to end up in hyperinflation. They are wrong. But a huge fiscal boost in the US, combined with pressure on the Fed not to tighten monetary policy, might generate inflation in the medium term and a disinflationary shock later still. But such a result of Trumponomics will not occur in 2017.

If we consider the possibility of globally significant financial crises, two possibilities stand out: the break-up of the eurozone and a crisis in China. Neither is inconceivable. Yet neither seems likely. The will to sustain the eurozone remains substantial. The Chinese government possesses the levers it needs to prevent a true financial meltdown. The risks in the eurozone and China are unquestionably real, but also small.

A third set of risks is geopolitical. Last year I referred to the possibility of Brexit and “election of a bellicose ignoramus” to the US presidency. Both have come to pass. The implications of the latter remain unknown. It is all too easy to list further geopolitical risks: severe political stresses on the EU, perhaps including the election of Marine Le Pen to the French presidency and renewed inflows of refugees; Russian president Vladimir Putin’s revanchism; the coming friction between Mr Trump’s aggrieved US and Xi Jinping’s ascendant China; friction between Iran and Saudi Arabia; possible overthrow of the Saudi royal family; and the threat of jihadi warfare. Not to be forgotten is the risk of nuclear war: just look at North Korea’s sabre-rattling, the unresolved conflict between India and Pakistan and threats by Mr Putin.

In 2016, political risk did not have much effect on economic outcomes. This year, political actions might do so. An obvious danger is a trade war between the US and China, though the short-term economic effects may be smaller than many might suppose: the risk is longer term, instead. The implications of the fact that the most powerful political figure in the world will have little interest in whether what he says is true are unknowable. All we do know is that we will all be living dangerously.

An important longer-run possibility is that the underlying economic engine is running out of steam. Catch-up still has great potential. But economic dynamism has declined in the core. One indicator is falling productivity growth. Another is ultra-low real interest rates. Mr Trump promises a resurgence of US trend growth. This is unlikely, particularly if he follows a protectionist course. Nevertheless, the concern should be less over what happens this year and more over whether the advance of the frontier of innovation has durably slowed, as Robert Gordon argues.

A good guess then is that the world economy will grow at between 3 and 4 per cent this year (at PPP). It is an even better guess that emerging economies, led yet again by Asia, will continue to grow faster than the advanced economies. There are substantial tail risks to such outcomes. There is also a good chance that the rate of innovation in the most advanced economies has slowed durably. Happy New Year.

Income Inequality Is Off The Charts

My Comments: The greatest economic threats to the health and welfare of the world I will leave to my grandchildren will arise from the disparity between the haves and the have-nots.

One side of this argument arises from the contempt that was pervasive across the planet toward a political movement driven by what came to be known as communism. This arose in Russia and the Soviet Union as a philosophy and embraced the notion of ‘to each according to his needs’. It was a rejection of free enterprise and the notion that every individual member of society have the ability to rise above the others and receive ‘more than what he needs’.

We’ve long established that any system that denies individuals the opportunity to win or lose the economic game of life is going to fail. Without the ability to dream of success, people simply fail if there is no motivation to excel.

The other side of this argument hinges on the unfettered ability to succeed with total disregard to the aspirations and dreams of others playing the same economic game. Any barrier imposed by society is deemed contemptible and must be removed. And yet we live with barriers and have done for millenia and survived. And survived well. How many of us argue against the notion that you should drive your car on just one side of the street, and not whichever side you choose on any given day?

These and similar rules are imposed by society on it’s members and we’ve long since become comfortable with them and don’t see them as a barrier to be railed against. But suggest that bankers and stock-brokers be required to act in the best interest of their clients, with rules and regulations and penalties if you don’t and before you know it, the wailing starts.

It’s known as the DOL Fiduciary Standard rule. It goes into effect on April 1, 2017. I believe there are valid and rational reasons why society should impose this rule on those of us who act in a professional capacity to help others grow their money. Right now the rule is coming from the Department of Labor and is directed toward anyone who acts in an advisory capacity with respect to money being accumulated for retirement. Naturally, there are exceptions which no one is talking about.

I think this rule should be expanded. Yes, it will be disruptive and will no doubt have unintended consequences. But I see income inequality as the canary in the coal mine. If we don’t take steps to correct it, the coal mine will fill with noxious gas and everyone who enters will die.

With Trump in the White House, there’s going to be shouting all up and down Wall Street to get rid of this rule. NO. Amend it here and there, phase in the penalties if you will, but it’s a very necessary step, among many, that are necessary to diminish the growing economic disparity between members of our society. It’s not about denying some the opportunity to succeed any more than it’s about making sure none of us ‘has more than we need’. It’s about doing the right thing without resorting to stealing to make sure I succeed and you don’t. We all have the right to be successful, and society has an obligation to keep us playing on a level playground.

Theo Anderson | December 29, 2016

The income gap between the classes is growing at a startling rate in the United States. In 1980, the top 1 percent earned on average 27 times more than workers in the bottom 50 percent. Today, they earn 81 times more.

The widening gap is “due to a boom in capital income,” according to research by French economist Thomas Piketty. That means the rich are living off of their wealth rather than investing it in businesses that create jobs, as Republican, supply-side economics predicts they would do.

Piketty played a pivotal role in pushing income inequality to the center of public discussions in 2013 with his book, “Capital in the Twenty-First Century.” In a new working paper, he and his co-authors report that the average national income per adult grew by 61 percent in the United States between 1980 and 2014. But only the highest earners benefited from that growth.

For those in the top 1 percent, income rose 205 percent. Meanwhile, the average pre-tax income of the bottom 50 percent of workers was basically unchanged, stagnating “at about $16,000 per adult after adjusting for inflation,” the paper reads.

It notes that this trend has important political consequences: “An economy that fails to deliver growth for half of its people for an entire generation is bound to generate discontent with the status quo and a rejection of establishment politics.”

But the authors also note that the trend is not inevitable or irreversible. In France, for example, the bottom 50 percent of pre-tax income grew by about the same rate — 32 percent — as the overall national income per adult from 1980 to 2014.

The difference? In the United States, “the stagnation of bottom 50 percent of incomes and the upsurge in the top 1 percent coincided with drastically reduced progressive taxation, widespread deregulation of industries and services, particularly the financial services industry, weakened unions and an eroding minimum wage,” the paper reads.

Piketty and Portland

President-elect Donald Trump’s administration promises at least four years of policies that will expand the gap in earnings. But a few glimmers of hope are emerging at the local level.

The city council of Portland, Oregon, for example, recently approved a tax on public companies that pay executives more than 100 times the median pay of workers. The surtax will increase corporate income tax by 10 percent if executive pay is less than 250 times the median pay for workers, and by 25 percent if it’s 250 and over. The tax could potentially affect more than 500 companies and raise between $2.5 million and $3.5 million per year.

The council cited Piketty’s “Capital in the Twenty-First Century” in the ordinance creating the tax. Steve Novick, the city commissioner behind it, recently wrote that “the dramatic growth of inequality has been fueled by very high compensation of a few managers at big corporations, as illustrated by the fact that 60 to 70 percent of people in the top 0.1 percent of income in the United States are highly paid executives at large firms.”

Novick said that he liked the idea when he first heard about it because it’s “the closest thing I’d seen to a tax on inequality itself.” He also said that “extreme economic inequality is — next to global warming — the biggest problem we have in our society.”

Investing in children

There is also hopeful news in the educational realm. James Heckman, a Nobel Laureate in economics at the University of Chicago who has spent much of his career studying inequality and early childhood education, recently published a paper that lays out the results of a long-term study.

In “The Life-cycle Benefits of an Influential Early Childhood Program,” Heckman and others report that high-quality programs for children from birth to age 5 have long-term positive effects across a range of metrics, including health, IQ, participation in crime, quality of life and labor income.

Predictably, perhaps, the effects of the programs weren’t limited to children. High-quality early childhood education also allowed mothers “to enter the workforce and increase earnings while their children gained the foundational skills to make them more productive in the future workforce,” a summary of the paper reads.

“While the costs of comprehensive early childhood education are high, the rate of return of [high-quality programs] imply that these costs are good investments. Every dollar spent on high quality, birth-to-five programs for disadvantaged children delivers a 13 percent per annum return on investment.”

The research is important because early childhood education has bipartisan support. Over the summer, the Learning Policy Institute released a report that highlighted best practices from four states that have successful early childhood education programs. Two of them — Michigan and North Carolina — are swing states in national politics. The others are Washington and a solidly red state, West Virginia.

Although it isn’t a substitute for other policy tools to address inequality, like progressive taxes, early childhood education has strong bipartisan support because it produces measurable payoffs for both children and the economy. One study found, for example, that the economic benefit of closing the educational achievement gaps between children of different classes would be $70 billion each year.

Early childhood education fosters an “increasingly productive workforce that will boost economic growth, provide budgetary savings at the state and federal levels, and lead to reductions in future generations’ involvement with the criminal justice system,” the Economic Policy Institute recently noted. “These benefits will, of course, materialize only in coming decades when today’s children have grown up. But the research is clear that they will materialize — and when they do, they are permanent.”

Welcome to the Exponential Age

18 years ago, the Eastman Kodak company sold 85% of all photo paper on the planet and employed 86,200 people, 46,300 of them in the US. By 2015, they employed 6,500 people and surrendered what was left of the photo paper business so they could emerge from bankruptcy.

You may recall digital cameras were invented in 1975 and the first images had only 10,000 pixels. But with Moore’s law and as with most exponential technologies, it was only a disappointment for a short time. It soon became far superior and today it’s the dominant technology when it comes to recording images.

A similar transition will now happen with Artificial Intelligence, health, autonomous and electric cars, education, 3D printing, agriculture and jobs. Welcome to the 4th Industrial Revolution. Welcome to the Exponential Age.

Over the next 10 – 20 years, what happened to Kodak will happen in a lot of industries and most people won’t see it coming. Did you think in 1998 that by 2002 you would never use film again to take pictures?

Software will disrupt most traditional industries in the next 5-10 years.

Uber is just a software tool, they don’t own any cars, and are now the biggest taxi company in the world.

Airbnb is now the biggest hotel company in the world, although they don’t own any properties.

Artificial Intelligence. Computers become exponentially better in understanding the world. This year, a computer beat the best Go player in the world, 10 years earlier than expected.

In the US, young lawyers already don’t get jobs. Because of IBM Watson, you can get legal advice (so far for more or less basic stuff) within seconds, with 90% accuracy compared with 70% accuracy when done by humans.

So if you study law, stop immediately. There will be 90% fewer lawyers in the future, only specialists will remain.

Watson already helps nurses diagnose cancer 4 times more accurately than human nurses. Facebook now hasgoo.gl/9j56eH pattern recognition software that can recognize faces better than humans. In 2030, computers will become more intelligent than humans.

Autonomous cars: In 2017 the first self driving cars will appear for the public. Around 2020, the complete industry will start to be disrupted. You don’t want to own a car anymore. You will call a car with your phone, it will show up at your location and drive you to your destination. You will not need to park it, you only pay for the driven distance and can be productive while driving. Our grandchildren will never get a driver’s licence and will never own a car.

It wiIl change the city landscape, because we will need 90-95% fewer cars for that. We can transform former parking spaces into parks. 1.2 million people die each year in car accidents worldwide. We now have one accident every 60,000 mi (100,000 km), with autonomous driving that will drop to one accident in 6 million mi (10 million km). That’s a million fewer car accident deaths each year.

Most car companies will probably become bankrupt. Traditional car companies will try the evolutionary approach and just build a better car, while tech companies (Tesla, Apple, Google) will do the revolutionary approach and build a computer on wheels.

Many engineers from Volkswagen and Audi are completely terrified of Tesla.

Insurance companies will have massive trouble because without accidents, the insurance will become 100x cheaper. Their car insurance business model will disappear.

Real estate will change. Because if you can work while you commute, people will move further away to live in a more beautiful neighborhood.

Electric cars will become mainstream about 2020. Cities will be less noisy because all new cars will run on electricity. Electricity will become incredibly cheap and clean: Solar production has been on an exponential curve for 30 years, but you can now see the burgeoning impact.

Last year, more solar energy was installed worldwide than fossil. Energy companies are desperately trying to limit access to the grid to prevent competition from home solar installations, but that can’t last. Technology will take care of that strategy.

With cheap electricity comes cheap and abundant water. Desalination of salt water now only needs 2kwh per cubic meter (@ 0.25 cents). We don’t have scarce water in most places, we only have scarce drinking water. Imagine what will be possible if anyone can have as much clean water as he wants, for nearly no cost.
Health: The Tricorder X price will be announced this year. There are companies who will build a medical device (called the “Tricorder” from Star Trek) that works with your phone, which takes your retina scan, your blood sample and you breathe into it.

It then analyzes 54 biomarkers that will identify nearly any disease. It will be cheap, so in a few years everyone on this planet will have access to world class medical analysis, nearly for free. Goodbye, medical establishment.

3D printing: The price of the cheapest 3D printer came down from $18,000 to $400 within 10 years. In the same time, it became 100 times faster. All major shoe companies have already started 3D printing shoes.

Some spare airplane parts are already 3D printed in remote airports. The space station now has a printer that eliminates the need for the large amount of spare parts they used to have in the past. At the end of this year, new smart phones will have 3D scanning

possibilities. You can then 3D scan your feet and print your perfect shoe at home.

In China, they already 3D printed and built a complete 6-storey office building. By 2027, 10% of everything that’s being produced will be 3D printed.
Business opportunities: If you think of a niche you want to go into, ask yourself, “in the future, do you think we will have that?” and if the answer is yes, how can you make that happen sooner?

If it doesn’t work with your phone, forget the idea. And any idea designed for success in the 20th century is doomed to failure in the 21st century.
Work: 70-80% of jobs will disappear in the next 20 years. There will be a lot of new jobs, but it is not clear if there will be enough new jobs in such a small time.

Agriculture: There will be a $100 agricultural robot in the future. Farmers in 3rd world countries can then become managers of their field instead of working all day on their fields.

Aeroponics will need much less water. The first Petri dish produced veal, is now available and will be cheaper than cow produced veal in 2018. Right now, 30% of all agricultural surface is used for cows. Imagine if we don’t need that space anymore. There are several

startups who will bring insect protein to the market shortly. It contains more protein than meat. It will be labeled as “alternative protein source” (because most people still reject the idea of eating insects).

There is an app called “moodies” which can already tell in which mood you’re in. By 2020 there will be apps that can tell by your facial expressions, if you are lying. Imagine a political debate where it’s being displayed when they’re telling the truth and when they’ re not.
Bitcoin may even become the default reserve currency. Of the world.

Longevity: Right now, the average life span increases by 3 months per year. Four years ago, the life span was 79 years, now it’s 80 years. The increase itself is increasing and by 2036, there will be more that one year increase per year. So we all might live for a long, long time, probably way more than 100.

Education: The cheapest smart phones are already at $10 in Africa and Asia. By 2020, 70% of all humans will own a smart phone. That means everyone has the same access to world class education.

Every child can use the Khan Academy for everything a child learns at school in First World countries. The software is already released in Indonesia and will soon be available in Arabic, Swahili and Chinese. The potential is staggering. They will give the English app away for free, so that children in Africa can become fluent in English within half a year.

For the record, Khan Academy is a non-profit educational organization created in 2006 by educator Salman Khan with a goal of creating an accessible place for people to be educated. The organization produces short lectures in the form of YouTube videos.

Please note: The title I gave this post, the reference to explain the Kahn Academy, and considerable additional editing, is my product. The idea itself arrived on my computer several days ago from an unknown source. I was intrigued by the idea, frustrated by not knowing the original source, but decided to check some of the claims and found several factual mistakes. I didn’t want to promote errors so began an editing process before sharing it. The Kodak numbers were clearly wrong so I corrected those and expanded on what happened to Kodak. A significant number of other edits were necessary, some just syntax or grammer and context. The image that accompanies the article was my contribution. My guess is that about 30% of this is mine, and 70% from someone/somewhere else. My apologies for not making this attribution comment before sending it out as a blog post. I was called on this by Dale Smith, for whom I thank for catching what was not an effort to mislead, but a rush to get something done between phone calls.

Surprise! The Economy Is Looking Pretty Good Right Now

US economyMy Comments: Is it OK to be cynical from time to time? I hope so.

The primary message that came out of the Trump campaign for the White House was that no one in Washington gave a damn about the working poor of America. That a large group of Americans had been left behind and that it was time to ‘drain the swamp’.

I agree that from time to time it is necessary to ‘drain the swamp’, or more accurately re-assess the assumptions that put us where we are today. However, nothing I’ve seen or heard so far suggests there will be any attempt to resolve the economic tensions that exist between rural and urban populations, between the educated and less educated, between black, white and hispanic Americans.

The folks being appointed to key positions have zero inclination to help those on the lower end of the economic spectrum rise, and by extension, expand the middle class. There is every indication that economic disparity will increase, largely because those on the low end are easily persuaded that opportunities for success are just around the corner.

I voted for Hillary despite her lack of charm. For me, the existential threat posed by increased economic disparity coupled with the erosion of democratic values, is far greater than the threat posed by possible corruption in the lives of Democratic Party leaders. Do you seriously believe there is no corruption within the Republican Party leaders?

By Ben Eisen | Dec 13, 2016

The Federal Reserve is likely to be pretty happy with the recent slew of data as it assesses the economic outlook this week.

The Citigroup Economic Surprise index, which measures how closely data match up to forecasts, has been climbing recently. The U.S. index had a reading of 32.6 on Tuesday, close to its 2016 high of 43.1 from the end of July. Before that, one has to go back to 2014 to find a higher reading.

The higher the reading, the bigger the margin by which data are beating expectations. When the index turns negative, it means the numbers are missing expectations. After a prolonged period below zero for much of 2015 and 2016, the U.S. index has popped higher.

And it’s not just in the U.S. where data are getting stronger. The euro-area version of the index was at 66.1 on Dec. 6, the highest since early 2013. It had a reading of 59 on Tuesday. The global index had a reading of 24.5 on Dec. 6, its highest since early 2014, and was near that level on Tuesday.

Fed officials have often-times stated that they are data dependent, with slow economic growth and low inflation causing them to lift rates at a more leisurely pace than they might otherwise. But forecast-beating readings on gross-domestic product growth, consumer confidence, manufacturing, the labor market, and other big data releases have all boosted the U.S. index in recent weeks.

Stronger data outside the U.S. is also likely to help boost the Fed’s outlook, since the central bank has at times said in past statements that it is monitoring “international developments.”

Additionally, stronger data is likely to help support the jubilant market tone that’s pushed major U.S. stock indexes to record highs. Many investors are betting on quicker growth and higher inflation when President Donald Trump takes office. The data are one sign it’s already here.

One group of indexes, of course, doesn’t capture everything going on with the global economy. Surprise indexes tend to be both a reflection of the data and of expectations, meaning weak data can pull down forecasts and make it easier for those numbers to top expectations.

But it’s one way of showing that the economy has been doing well recently, giving the Fed more room to lift rates on Wednesday, and a signal a faster pace of increases next year.

Last seen in 1929, in 2000, and 2008

Stocks have only been this expensive during the crash of 1929, the tech bubble of 2000, and the last financial crisis in 2008-09

My Comments: Economics 101 teaches us that owning shares of a stock means you own a piece of the company that issued the shares. It’s value on any given day is what someone else will pay you for those shares. That an offer by someone to buy your shares is based on what they think the shares will be worth in the future.

A way to measure the relative value of those shares to calculate the Price/Earnings ratio or P/E. This simply means that if I can buy another share for $20, and the earnings attributable to that share last year was $1, then the P/E ratio is 20:1. Simple isn’t it?

When you add in the historical norms for the industry to which your company belongs, and the general economic outlook going forward, you can make a decision whether to keep your shares, sell your shares or buy some more. Right now we are in deep water, far from land, and the boat is leaking.

by Bob Bryan | December 9, 2016

Stocks are getting a bit pricey.

All three major indexes break though their all-time highs on a seemingly daily basis, and this has pushed earnings multiples higher and higher.
The current 12-month trailing price-to-earnings ratio of the S&P 500 sits at 25.95x, while the forward 12-month price-to-earnings is roughly 17.1x, according to FactSet data. Each of these is higher than its long-term average.

In fact, based on one measure of valuation, the market hasn’t been this expensive anytime other than before a massive crash.

The cyclical adjusted price-to-earnings ratio, better known as Shiller P/E, which adjusts the price-to-earnings ratio for cyclical factors such as inflation, stands at 27.86 as of Friday. There have only been a few instances in history when stocks have been this expensive: just before the crash of 1929, the years leading up to the tech bubble and its bursting, and around the financial crisis of 2007-09.

This does not necessarily mean that a crash is imminent — during the tech bubble, the Shiller P/E made it well into the 30s before coming back down. Additionally, there are some criticisms that Shiller P/E is generally more backward-looking since it adjusts for the cycle, so it may not be as accurate.

Another caveat is that, during the three previous instances, investors have been incredibly bullish on stocks (there’s a reason Robert Shiller’s book is titled “Irrational Exuberance”) and most indicators of sentiment — from the American Association of Individual Investors to Bank of America Merrill Lynch’s sell-side sentiment indicator — are still depressed.

Still, an elevated level for the Shiller P/E certainly isn’t going to make it any easier to sleep at night.

The Alienation Of America’s Best Doctors

stiegler-tired-doctorMy Comments: For those of us in our mid 70’s, access to competent medical help is critical to our peace of mind. Here in Gainesville, we take it for granted, provided you have the ability to pay for it.

As an aging member of American society, I hope there is no disruption of the existing system that provides this access. As an active participant in society, I hope to be able to influence the powers that be to provide the same access for those coming behind me, especially my children and grandchildren.

A critical element for those following is a supply of comptetent physicians who are appropriately paid for their time and expertise. Here’s an interesting commentary that points to a problem that needs a solution.

11/13/2016 – Melinda Hakim MD

I grew up in the ‘80s in awe of my dad who was a talented general surgeon. As a kid, I used to make rounds with him at the local hospitals in Los Angeles and had the opportunity to witness the overwhelming appreciation his patients had for his work. Our home was inundated with dozens of homemade baked goods, knitted scarves, gift baskets, and colorful “thank you” cards carefully prepared by his patients. He never complained about his job. Even if he had to leave a family event or wake up in the middle of the night to do a trauma case ― he was never resentful. He felt invigorated by saving thousands of lives. He was grateful to be well compensated for his sacrifices. He worked extremely hard (sometimes putting in over one hundred twenty hours a week), but he was able to do his work the way he felt was best since he ran his own private practice. He was beloved, respected, and couldn’t imagine pursuing any other profession that offered greater rewards.

Unfortunately times have radically changed. The best and the brightest simply don’t want to become doctors anymore. Physicians are burning out. They are leaving the profession. They are going bankrupt. They are selling their private practices to big hospitals. They are retiring early. We are facing a growing doctor shortage. Doctors no longer want to be a part of a health care system that doesn’t value them after decades of sacrifice, debt, and brutal training. Physicians now have the highest suicide rate of all professions.

As an undergraduate at Harvard University, I was fortunate to be surrounded by some of the country’s most talented students. Back then (in the ‘90s), many of the students were on the fence as to whether to apply to medical school or join the dozens of consulting and financial companies that aggressively recruited us. After speaking to the new generation of Harvard seniors at networking events — I realize that they are no longer on the fence. Our country’s brightest graduates are simply not choosing to become physicians anymore.

Of course, we cannot deny that we need to focus on curtailing health care costs. But we absolutely cannot cut health care at the expense of alienating physicians. Our talent pool is rapidly shrinking. Nearly every month now, another one of my most brilliant physician colleagues (from Stanford, Yale, Johns Hopkins, UCLA, and Harvard) leaves his medical practice. This is real. This is palpable. These talented physicians are quitting to join startup ventures, “concierge” practices for the ultra-wealthy, pharmaceutical companies, or the ranks of corporate America where they feel they are better compensated and respected for their brain power and sacrifice.

Let’s look at some of the facts to help explain why becoming a physician in America is rapidly losing its appeal.
1. Private practice medicine is increasingly unsustainable due to rising overhead costs and declining reimbursements
2. Doctors spend more than two-thirds of their time on paperwork rather than taking care of patients
3. Medicare reporting incentives do not reward over 99 percent of doctors
4. The average debt doctors face after medical school is $183,000
5. Many new doctors earn barely more than minimum wage when accounting for hours worked per week
6. State governments are passing laws to limit the compensation of “out of network” physicians

Doctors are hurting, and they don’t have the time to reach out. They don’t have the time to lobby Congress. They are far too busy trying to help their patients and keep their practices afloat.

Our country needs to figure out solutions to help preserve and encourage physician autonomy― not continually restrict it. With rapidly increasing government reporting regulations, new plans to move away from fee-for-service payments, growing patient complaints about high deductibles, Medicare audits, more complex documentation mandates, increasingly complicated coding requirements, payment denials, time-consuming prior authorizations, expensive Electronic Health Records mandates….why would our country’s top talent go through years of debt and brutal training to face over-regulation and exhaustion?

We also need to continue to compensate physicians at a fair level that matches their skills, high level of education, and sacrifice ― not figure out ways to “bundle away” what they make. Should health care dollars be shifted away from those who are waking up in the middle of the night to save lives, who are spending countless hours researching cases after work, who are neglecting their families to study for re-credentialing boards, who are saddled with inexorable debt, or who are spending thousands of dollars to attend meetings all over the world to find out the best way to care for patients? Contrary to popular belief, physician reimbursements comprise only a small proportion of our country’s total health care expenditures.

Whether we like it or not, we will all be patients at some point in our lives. What will our country be like if we have to rely on health care professionals who are not high achievers and have little incentive to go the extra mile for our care? Will we be satisfied seeing our doctor for five minutes because he will face a pay cut should he spend 20 minutes with you? Won’t we get frustrated when we cannot get an appointment with a quality internist for two months because so many great doctors have left their practices?

America, this is serious. The brightest minds in this country are running away from careers in health care. Many of our best doctors are being forced out of business. We must start an open dialogue with doctors ― the individuals who are the most influential in advancing our health care system. The success of our health care system absolutely depends on the caliber of talent we attract to become and remain our nation’s physicians. Short-changing the individuals who are sacrificing everything to save lives will lead to the biggest threat to our nation’s health care system.

Want to make health care great again? We must all reach out to doctors and do everything in our power to demonstrate that we value our country’s physicians before it’s too late.