We’re slowly posting our favourite selections from Matt Boesler’s “MOST IMPORTANT CHARTS IN THE WORLD” feature.
We just wrote up the “Sotheby’s indicator” from Jim Chanos which suggests run-ups in the auction house’s stock price presage bubble bursts — and that we may be in the midst of a bubble now.
Another comes from Neil Dutta of Renaissance Capital, who takes an opposing view: that the U.S. economy has plenty more room to grow if one looks at durable goods spending and private investment relative to GDP. He writes:
“First, companies and consumers have been quite cautious since the recession ended in 2009. Eyeballing the figure, the cyclical sectors of the economy are still operating at levels that prevailed after the 1991 recession.
Second, the risk of a recession in the U.S. is microscopic. In the last two cycles, for example, bubbles in financial markets morphed to bubbles in the real economy — tech investment in the ’90s and residential investment in the 2000s. There is little excess in the U.S., making it hard to see what would get cut if a recession were to ensue.
Finally, the cycle has a long road ahead. Expansions do not die of old age. This expansion is five years old but from a cyclical perspective, it’s still young at heart.”
This makes intuitive sense: Everyone has become hyper aware of bubbles and have thus become extremely circumspect about investing. Meanwhile, anyone with cash to burn apparently has so muchthey’re prepared to burn a ton of it. For example: the entire Bitcoin experience. More than $US100 million has now been poured into something completely unprecedented and experimental — and the backers say they have mentally reckoned with the prospect that they could lose everything.
Anyway here’s the chart: