Interesting chart from WSJ this morning

[Hatton]

https://blogs.wsj.com/dailyshot/2017/12/08/the-daily-shot-quantitative-tightening-begins/

This is a good graphic from the WSJ which pretty much shows we are in the "Goldilocks" phase of economic growth.

[Hatton]

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5. Where are we currently in terms of the financial and business cycles?

[hightower]

Goldilocks certainly sounds right.  The question is whether or not Goldilocks will be followed by "tougher times ahead" or not.  Or can it go straight to a bear market from the goldilocks stage?

I'm certainly no economist, so forgive me if I'm wrong, but I feel like the current state of our economy is all new territory from a historical perspective which makes predictions like this difficult to apply.  Our economy is much different from past economies.  Banks are much bigger and more powerful now than they were traditionally in the past.  Our economy is not based primarily in manufacturing anymore.  It seems like there's also a lot more cash concentrated at the top than ever before.  Our government is mostly controlled by special interest lobbyists, specifically corporate lobbyists.  All of these things are relatively new IMO (new as in the last 30-40 years).  So, I just don't take much comfort in studying how the economy has behaved in the past and trying to apply it to today's world.  I think we're in uncharted territory.

[Hatton]

I am no economist either.  The economy always cycles.  I thought the graphic was interesting because I remember Alan Greenspan (Fed chief in the 90s) talking about the Goldilocks economy but I never knew exactly what he meant.  Growth but not too fast is good.  If it gets too fast then the increasing interest rates derail the stock market.  At least that is one theory.

[ENT Doc]

The economy has cycled in this way even during the last 30-40 years, so I don't think those factors you mention are necessarily driving us into uncharted territory. BTW, economists are only right with their predictions half the time. Penn did a study on this a few years back.

[Zaphod]

The kicker is how long are the stages. I think we've been pretty goldilocks from an inflation standpoint for ages, but now its starting to be felt in broader economy finally approaching growth potential.

Not uncommon to take so long after such a large event like the GFC.

[Hatton]

I liked this visual.  The stages can vary in length.  The 90s goldilocks period lasted for several years.  I just hope the new fed chairman has a goldilocks touch ...not too much and not too fast when the inevitable tightening starts next year.

[Zaphod]

hatton1 wrote:

I liked this visual.  The stages can vary in length.  The 90s goldilocks period lasted for several years.  I just hope the new fed chairman has a goldilocks touch …not too much and not too fast when the inevitable tightening starts next year.

Click to expand...

I wish we would have kept Yellen. She was very adept and aware of the need to be very careful about that.

[Hatton]

I don't know much about the new guy.  I liked Bernacke.  I think the GFC would have been worse without him.  I am no economist.

[portlandia]

So is the WSJ finally coming around to the Austrian business cycle theory, without realizing it?

This easily observable boom/bust theory states that bubbles are created by malinvestment spurned by artificially low interest rates by the central bank (Zirp anyone?) which is necessarily followed by a correction to liquidate the malinvestments and a tightening of monetary policy.

This understanding of the machinations of the Federal Reserve allowed a sitting member of congress to predict the housing crisis 5 years before it happened. https://www.youtube.com/watch?v=mnuoHx9BINc

Other adherents of the Austrian business cycle made similar predictions that are easily googled.

[actuaryonfire]

Here is a really good visual on the current cycle from BlackRock [no affiliation].

They have re-based the time axis according to the position in the current cycle. Then they show the development of the current cycle relative to other cycles with many key metrics. I've never seen it presented like this before, and seemed pretty neat to me.

Their key conclusions:

- The cycle looks totally normal in this context

- The remaining lifespan can be measured in years rather than quarters.

 

Not sure about the new Fed Chair, apparently he is not an economist. I guess that would be a bit like the Surgeon General not being a doctor...

[jz]

Yes, seems like goldilocks phase.

I'm rereading A Diary of the Depression by Benjamin Roth.  He would have LOVED, LOVED, LOVED the quantitative easing post-great recession. He often wrote of money hoarding.  One of those charts shows the beginning of quantitative tightening.

[Zaphod]

actuaryonfire wrote:

Here is a really good visual on the current cycle from BlackRock [no affiliation].

They have re-based the time axis according to the position in the current cycle. Then they show the development of the current cycle relative to other cycles with many key metrics. I’ve never seen it presented like this before, and seemed pretty neat to me.

Their key conclusions:

– The cycle looks totally normal in this context

– The remaining lifespan can be measured in years rather than quarters.

 

Not sure about the new Fed Chair, apparently he is not an economist. I guess that would be a bit like the Surgeon General not being a doctor…

Click to expand...

The Fat Pitch/Calculated Risk are great macro blogs that go over this kind of stuff regularly. It does appear thats true sans any grave policy error (tax bill might hasten it of course, or make next recession harder to deal with), or some other externality. The slope of the recovery is very gentle thus far.