71–80 of 338 posts
For market overvaluation, it says: 9.1 / 10 "DEFCON 4" DEFCON 5 is peacetime, DEFCON 1 is imminent nuclear war. For example, during the Cuban Missile Crisis, the US reached DEFCON 2. Should this say DEFCON 2 instead? Or is "above" normal readiness the intended meaning?
I love the idea, the simple design, and the humble tone of the byline ("no one knows for sure, but there are indicators that can help us guess. We can chart these indicators to give us the illusion of foresight."). However, I have two suggestions. First, the numeric rankings (such as "5.5 / 10") need context: why not say something like "10 is the highest value reached in the historical record"? Second, the explanatio…
Yeah seems like I might need to go into a bit more depth explaining the rationale behind each indicator. I'm open to including different indicators too.
Can someone with an actual economics degree explain to me whether it's a valid criticism of the "Market cap as % of GDP" metric that many US companies derive value from multinational labor and consumption, and if not, why not? Thanks in advance.
Indeed, it is a valid criticism. The market cap/GDP measure is mismatched, since market cap theoretically reflects investors' expectation of future cash flows globally while GDP is a measure for only one country. Also, GDP is problematic for a bunch of reasons, so even if all companies were only operating in the United States, GDP would still only be a crude measure of economic output.
Oh dang ! That household debt sure is scary. Where's the real time data sourced from? > U.S economic risk as of ... With the click of a button, may be also allow a view of where it was at a point in history...? i.e. U.S economic risk as of [insert point in history] Great work so far. Simple and usable.
But while the household debt is huge, isn't it naturally balanced by the equally massive collateral the banks have in the houses themselves? I mean, sure Joe America has a $500k mortgage, but the bank has first position on Joe's house which is worth $675k.
Only in a healthy housing market. In an economic downturn where a lot of people are defaulting, the bank will not be able to sell the house for anywhere near that price.
Got to respect the Author's humility in foretelling the future
Earlier quoted context omitted.
I wouldn't worry about student loan debt being a problem. It's very likely that they're going to get a bailout before a bubble bursts. Where on earth did I come up with this, you ask? Easy - I just paid my student loans off last week. It's only natural that everyone else will now get bailed out! Seriously, though, this is a real problem and we need to do something. Even if it doesn't have a direct effect any time soo…
> Seriously, though, this is a real problem and we need to do something the thing we have to do is not borrow money we can't repay. capitalism is a distributed system. borrowing money you can't repay is a broken local protocol. don't try to fix that with anything but fixing it locally.
What is broken with student loans is that the current scheme messes with almost every sensible market incentive out there: Colleges get more expensive for little to no reason, people can get into big loans for degrees that will never pay off, and the companies lending the money are, in practice, guaranteed repayment by the treasury, so ultimately the whole scheme leads to far higher prices than, say, college in Europe, but only provides better outcomes for some school+major combinations.
Let's not forget, the system leads to degrees that have low expected values to end up being unaffordable, while prices would go down if the system wasn't built with the silly guarantees that it has. Putting the blame on the borrower alone and ignoring the insane system design is just shortsighted.
If someone went to try to launch pets.com today, we'd not blame the founders alone for the VC's loss: They carry responsibility too for betting on a horse that had no chance of even finishing the race. A VC takes risks, but also expects losses. Anyone making loans should consider chances of delayed payments and of losing all the money completely.
Let's go back to your idea of protocols. Imagine we are making a requests over a network and expecting the network to not be lossy, and to never have long network partitions, or for other servers to go down. We can be angry at the network or the server on the other side, but in practice, what we do is understand that failures exist. Expecting everyone to pay you back all the time is like expecting a distributed database to be reliable all the time. I can scream at the network or the database vendor, but ultimately the joke is on me for expecting impossible things.
For market overvaluation, it says: 9.1 / 10 "DEFCON 4" DEFCON 5 is peacetime, DEFCON 1 is imminent nuclear war. For example, during the Cuban Missile Crisis, the US reached DEFCON 2. Should this say DEFCON 2 instead? Or is "above" normal readiness the intended meaning?
The movie Wargames guessed wrong. As a result, the public understanding is backwards from the real NORAD numbers.
1987: this crash was caused by automated trading systems which could run wild in the absence of any prevention regulations such as circuit breakers
2000: the collapse of the dotcom bubble
2008: start of the financial crisis caused mainly by opaque credit default swaps and packaged subprime loans
Of those 3, only the dotcom bubble seems to be a bit related to the market overvaluation metric. And even right before the dotcom bubble crash there were plenty of economic guru's who argued that classic overvaluation metrics were not valid anymore because we were now in a 'new economy'.
The other two crashes were caused by black swans; occurrences that nobody was aware of and that were only understood afterwards. Most likely the next crash will be a black swan as well.
Further, sustained periods of low volatility often are sometimes indicators of complacency among investors and indicators of higher chances of bubbles. Sustained periods of low volatility are at times indicative of higher future risk of a market crash, not a low predictor. I think you need to re-evaluate how you use volatility.
I've never seen market valuation expressed as market cap as % of GDP. I'm not an economist, so I'll leave the detailed arguments to them. But it would be at least useful to explain why you think this is a meaningful metric as compared to those typically used to measure market valuation (e.g. P/E ratios etc.). Your graph also ties your valuation metric to the 2000 peak and the 2008 peak. However, there were crashes in…
This metric makes little sense for this use case. Consider two countries. They are identical in every way except in Country A 90% of the companies are publicly-traded while in Country B 10% are. Country A will have a market cap to GDP 9x Country B's. Does that mean Country A is 9 times overvalued relative to Country B?
The objection works in-country, too. Saudi Aramco is going public in New York or London [1]. This will lift one of those market's aggregate capitalisation by up to $1 trillion. Does this mean that market will necessarily become overpriced?
The answer to both question is of course not. Market cap to GDP tells you the degree to which a country has developed public markets. Not anything interesting about the levels in those markets.
[1] https://www.bloomberg.com/view/articles/2017-04-05/aramco-ip...