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John Early

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  • Stocks More Overvalued Than At 10 Of Last 18 Market Peaks [View article]
    Christopher
    As I understand it, when the interest rate and stock prices switch to a positive correlation the equity risk premium model does not work. For example the ERP would not work well during most of the 1950s.
    Apr 14 12:01 AM | Likes Like |Link to Comment
  • Stocks More Overvalued Than At 10 Of Last 18 Market Peaks [View article]
    ant21b
    What do you mean by "unit cost" in "unit cost vs unit labor cost graph"?
    Apr 13 09:39 PM | Likes Like |Link to Comment
  • Stocks More Overvalued Than At 10 Of Last 18 Market Peaks [View article]
    Cycling Tuscan
    Using "future earnings" is also like looking in the rear view mirror. They are projections of what happened in the past into the future. In 2001 and 2007 "as reported" earnings were about to plunge 54% and 92% respectively, but "future earnings" continued to estimate double digit earnings growth.

    At the crest of the hill "future earnings" show a continuing climb.

    In Burton Malkiel's "A Random Walk Down Wall Street" estimated future earnings were evaluated as having no ability to improve investment performance.
    Apr 13 11:12 AM | 2 Likes Like |Link to Comment
  • Why Progressives (And Everybody Else) Should Care About Corporate Profits And Stock Prices [View article]
    TAS what you say is likely true for some small percentage of progressives, but as a blanket statement is as silly as saying all conservatives want to do is concentrate wealth and power in the top 0.1% of society. There are some in both camps that should not be trusted.
    Apr 9 09:06 AM | 2 Likes Like |Link to Comment
  • Economy Knocking At Recession's Door [View article]
    dnorm1234
    Being two years too early or gasp wrong, does humble one and even occasionally lead to wondering about soundness of mind. I thought I had learned from previous mistakes, but apparently not yet. I was also two years too early on the 2000 peak and two and half years early on the 2007 peak. In the course of the full cycle clients ended up outperforming the market those times. The verdict is still out on this one and you are very right there has been some pain.
    Apr 5 04:34 PM | 9 Likes Like |Link to Comment
  • 192K New Jobs In March, Unemployment Rate Unchanged At 6.7% [View article]
    Interesting that the 1981 recession took longer to recover from than any previous recession and that each recession since has set a new record long recovery time. Not a very favorable trend.
    Apr 5 01:36 PM | 1 Like Like |Link to Comment
  • Missed Lesson Of Great Depression And Financial Crisis Blinds Economists To Bubble And Coming Recession [View article]
    AuCoaster
    Again we agree money does not disappear when a stock transaction is made. However, if trading were "efficient" there would be no bubbles and no crashes.

    The measure I use for real investment is fixed private non residential investment. This measure as a share of GDP averaged over 7 year periods to control for fluctuations of the business cycle has strong correlations with the top rate and especially the capital gains rate. When the marginal tax rates are cut to a level too low the share of GDP going to real investment as I measure it declines after the lag. It also rises after the increase in tax rates from levels that are too low.

    What is the measure of "real investment" that you use to support your premise that low marginal tax rates improve real investment?
    Mar 29 10:04 AM | 1 Like Like |Link to Comment
  • Missed Lesson Of Great Depression And Financial Crisis Blinds Economists To Bubble And Coming Recession [View article]
    AuCoaster
    You are obviously correct if we are talking public offerings. Perhaps not if we are talking existing securities.
    Mar 28 11:27 AM | Likes Like |Link to Comment
  • Missed Lesson Of Great Depression And Financial Crisis Blinds Economists To Bubble And Coming Recession [View article]
    Mr Hohn

    As I understand it a p value of 0.1 is significant at the 90% level. 0.01 is significant at the 99% level.

    The consistency of the data and the accuracy of the model appears to be better in the more recent period.

    Your example of a 100% tax rate with a $500k doesn't seem applicable since the article suggested 50% rate should probably have a $1.6 million bracket.

    I have experimented with the change in the marginal rate it had a slight negative correlation with a one year lead time as you suggest. However, when I controlled for the tax variables in the model it was no longer statistically significant.

    I believe the level is more important than the change. If the change in the rate was all that mattered. We could raise the top rate to 100% and there would be a one time negative impact and then it wouldn't matter anymore. As I understand it that would be a disaster, with the possible exception that the bracket was $1 billion or more.

    I will readily admit the model does not do a good job of predicting year to year fluctuations. I do believe it does a good job of estimating the long term growth rate.
    Mar 27 10:55 PM | Likes Like |Link to Comment
  • Missed Lesson Of Great Depression And Financial Crisis Blinds Economists To Bubble And Coming Recession [View article]
    dphofer
    you make some good points. I have pondered a way to combine the top rate and its bracket into one variable that would be more consistent over time and have not come up with a way to do it. Dividing the period into a high and low bracket era helps. Using both the bracket and the rate in a model helps.

    One part of the regime that is probably consistent across the whole time is that the 300 or so people with the greatest wealth and the greatest potential to grow the economy probably face the top bracket or potentially could take enough income to be in the top bracket regardless of how high it has been. The top marginal rate for them should be a consistent variable.

    Your comments may explain why the model has been the most accurate in the last few years. In the last 18 years the top bracket has only ranged from 9.5 to 7.5 times per-capita GDP. If I am understanding your perspective this makes the "definition" of the top rate and capital gains rate more consistent for this period. I would not bet against weak growth in the next couple of years.
    Mar 27 05:06 PM | Likes Like |Link to Comment
  • Missed Lesson Of Great Depression And Financial Crisis Blinds Economists To Bubble And Coming Recession [View article]
    Mattzn2
    The error bars on the model are pretty good. Especially on the long term growth. Should someone ignore a statistically significant variable just because it doesn't explain by itself most of the variation in another series?

    If the analysis is wrong the forecasts will eventually be wildly off. Since I started modeling this about 9 years ago it has worked quite well on the long term growth rate. I do not pretend it predicts the annual growth fluctuations in the business cycle.
    Mar 27 04:14 PM | Likes Like |Link to Comment
  • Missed Lesson Of Great Depression And Financial Crisis Blinds Economists To Bubble And Coming Recession [View article]
    AuCoaster
    Most everything you say sounds plausible. Was particularly curious about the supposition that there was an inverse leading relationship where lower growth led politicians to raise marginal tax rates on the wealthy. While there is obviously some anecdotal support for this position I just went and ran the regressions. The correlation remains positive with growth leading the top rate for all lead times between one and six years. None of the lead times appear to be statistically significant.

    Lots of logical sounding hypotheticals turn out to have no basis in reality.

    One other clarification higher average tax rates would make investment less attractive. Higher marginal tax rates make real investment, which reduces taxable income, relatively more attractive than financial investment which does not come with deductions. If you want growth rather than bubbles real investment is better.
    Mar 27 10:53 AM | Likes Like |Link to Comment
  • Missed Lesson Of Great Depression And Financial Crisis Blinds Economists To Bubble And Coming Recession [View article]
    Mr Hohn
    I agree with your data that the tax cuts in 2001 and 2003 (I would include the 1998 capital gains cut) resulted in high income individuals paying a larger share of the income tax than before. Despite having lower tax rates their income increased enough that they paid more tax. The same thing happened in the late 1980's after the top rate was cut to 28%.

    While reported income for those at the top went up cutting marginal tax rates corresponds with the share of GDP going to take home pay for workers to decline. The lagged effects of the tax cuts has pushed workers share to the lowest level since data began in 1947. Workers and capital have directly opposite interests in how high the top marginal tax rate should be. I think the settling factor should be what marginal rates and brackets best promote growth and prosperity.
    Mar 26 04:19 PM | Likes Like |Link to Comment
  • Missed Lesson Of Great Depression And Financial Crisis Blinds Economists To Bubble And Coming Recession [View article]
    Mr. Hohn
    It is very possible I do not have the complete or accurate explanation of why the top tax rate has the influence on growth that it does. Perhaps using the correlations above back in 2005 to accurately forecast the dismal growth that occurred a few years later was a fluke. So far the data since 2005 encourages me to think the correlations are valid.
    Mar 26 03:50 PM | Likes Like |Link to Comment
  • Missed Lesson Of Great Depression And Financial Crisis Blinds Economists To Bubble And Coming Recession [View article]
    S Scientist
    Thanks for the comment. Not mentioned in the article, but a few years ago I experimented with about 30 variables making millions of 7 variable regression models. The 3 tax variables (top rate, top bracket and capital gains) appear to be the most significant.
    Mar 26 03:29 PM | Likes Like |Link to Comment
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