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John Early

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  • Stocks More Overvalued Than 1929 [View article]
    Michael thanks for the good observations. While I have not shown it on Seeking Alpha yet the correlation between PEses and 17 year real return is even stronger just using the data since 1960. This will make a future article.

    Some of what I believe will be mechanisms for bringing massive price declines are in previous articles:

    I am expecting growth to be close to 0% in the next two years. as outlined in

    I believe interest rates are far below the optimal level for stock valuation as shown in

    I believe inflation is below the optimal level for stock valuation and for a few more months will head lower.

    I haven't discussed demographics yet but the main thrust is that at the peak late 1999 early 2000 the baby boom was coming into the years of peak earnings at any given time people about age 50 have the highest income and are the biggest purchasers of stock. On the flip side the biggest sellers are those who recently retired and think they should lighten up on stocks perhaps since they would not have time to recover from a major downturn. In 2000 the birth dearth of the Great Depression was headed into retirement. So sellers of stock were a major generational low while the number of buyers was at an all time high.

    We are headed into the exact opposite demographics where the birth dearth of the 1970s is headed into the peak buying years while the biggest number of sellers the retiring baby boom is entering the selling years.

    There is also the cycle in the concentration of wealth outlined in the book "The Fourth Turning." The cycle is roughly 80 to 100 years. In the third turn or phase of the cycle wealth becomes quite concentrated. The fourth turn is the crisis where wealth becomes dispersed. The book postulates the Revolutionary War, the Civil War, the combination of The Great Depression and W.W. II were fourth turnings. Back in the 1990s they postulated the climax of the next crisis would come between 2005 and 2025. If this premise is correct we have not had the climax of the crisis yet, because wealth and income is still highly concentrated.
    Feb 12 05:03 PM | 11 Likes Like |Link to Comment
  • Missed Lesson Of Great Depression And Financial Crisis Blinds Economists To Bubble And Coming Recession [View article]
    It is important to distinguish between real investment and financial investment. Real capital includes things like machine tools, industrial robots, tractors and computer servers. If the capital gains tax rate is too low financial investment goes up at the direct expense of real investment because you give the very wealthy a cheap way to pull money out of businesses. Over the course of a whole business cycle a too low capital gains rate leads to less real investment more financial investment and the inflating and popping of bubbles.
    Mar 24 02:48 PM | 10 Likes Like |Link to Comment
  • Economy Knocking At Recession's Door [View article]
    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
  • Missed Lesson Of Great Depression And Financial Crisis Blinds Economists To Bubble And Coming Recession [View article]
    As president of a small family owned pass through entity I understand that revenue spent on wages, supplies, training, equipment etc. reduces the income passed through to be taxed. The entity could be treated as a cash cow or used to build equity while generating losses that pass through to reduce taxable income. You don't hear this much any more, but when marginal tax rates were higher and you had a good year the accountant might say something like you'd better go buy some equipment or your going to be paying too much tax. Marginal tax rates influence the decision of how much income to take.
    Mar 24 02:38 PM | 8 Likes Like |Link to Comment
  • Taxes Don't Lie [View article]
    CB Pundit
    You say "economic growth averaged a solid 4% per year the latter half of the 1990s, thanks in part to lower tax rates." yet tax rates in the 90s were higher than in the 2000s.

    Consider the difference: capital gains went up in 1987 and there were tax increases in 1991 and 1993. GDP annualized 3.5% 1991-2000 vs capital gains rate was cut in in 1997 and there were tax rate cuts in 2001 and 2003. GDP annualized 1.6% 2001 to 2010.

    The best growth in the last 60 years came when the top rate was 50% under Reagan. The Great Depression and great recession came with the lowest combination of top rate and capital gain rate of the respective generation.

    Marginal tax rates can be too high; they can also be too low for prosperity.
    Aug 13 11:12 AM | 7 Likes Like |Link to Comment
  • Momentum Cracks [View article]
    You are correct post-1955 and pre-1935, but the four recessions starting between 1935 and 1955 did not come with a warning from an inverted yield curve. The warning is disconnected when T-bill yields are below 2%. The evidence is in this article.

    From Feb. 1937 to Apr 1938 stocks fell 45% with no inverted yield curve warning. The eventual decline into 1942 was 57%.
    Nov 4 12:11 PM | 7 Likes Like |Link to Comment
  • Buffett's Favorite Valuation Metric Goes Bullish [View article]
    Don't think copy editor who wrote the headline looked at the chart much.
    Jun 19 09:27 AM | 7 Likes Like |Link to Comment
  • Missed Lesson Of Great Depression And Financial Crisis Blinds Economists To Bubble And Coming Recession [View article]
    Unlike the Laffer curve the curves above are based on actual data. The Laffer curve is about maximizing revenue to the government which I consider a poor policy objective. Maximizing growth seems more worthy to me.
    Mar 24 02:29 PM | 6 Likes Like |Link to Comment
  • Missed Lesson Of Great Depression And Financial Crisis Blinds Economists To Bubble And Coming Recession [View article]
    You are right no business owner wants to pay more tax. All the money spent on wages, training, research, equipment and marketing are pretax dollars and reduce the amount of taxable income. Growing the value of the business reduces taxable income. When marginal tax rates are low business owners take more out of the business and have higher recognized personal income, but slower growing businesses. When most business owners are taking more income, but growing their business slower the economy stagnates.
    Mar 24 10:56 PM | 5 Likes Like |Link to Comment
  • Missed Lesson Of Great Depression And Financial Crisis Blinds Economists To Bubble And Coming Recession [View article]
    Mankiw expected growth to improve following the tax cuts in 1997, 2001 and 2003. He did not foresee long term growth plummeting as a result. Mankiw believes in the theoretically well supported, but empirically wrong "pink line" talked about in the article. He does not have any theory that explains the wide swings in the long term growth rate over the last 95 years.

    Mankiw has a good point that policy needs to be understood by who it benefits and who it harms. In the medium term low marginal tax rates benefit the wealthy at the expense of labor. In the long term when the bubble pops they harm everyone.
    Mar 24 04:32 PM | 5 Likes Like |Link to Comment
  • 4 Demographic Influences To Crash Stocks In 2014 [View article]
    Great Swami
    If you are consuming some of the interest and dividends from your investments rather than reinvesting all of them you are in effect a net seller. This is quite different than adding new dollars during the peak earning years. The reduced consumption you describe multiplied by millions of baby boomers will be a headwind to corporate earnings. While this almost certainly does not apply to you, the majority of people consume all their income producing assets by age 80 and are more or less down to social security.

    All it takes for the market to go down is people wanting to get one dollar more out of the market than others want to put in. The number of people at the peak of putting money in is in rapid decline. The number who will stop putting in and began consuming what was put in will increase in coming years and perhaps increase very rapidly next year.
    Dec 14 03:09 AM | 5 Likes Like |Link to Comment
  • Market Valuation Overview: Yet More Expensive [View article]
    Valuation has little correlation with price movement in the short term. It is not a market timing tool. if your time horizon is less than 5 years valuation is not too meaningful. Valuation has a lot of predictive ability as to what the return after inflation and dividends will be over the next 15 to 20 years. If you buy high you get a low return. If you buy low you get a high return. The market is high now and the return over the next 15 to 20 years will be low.
    Apr 2 10:34 AM | 5 Likes Like |Link to Comment
  • Levered To The Eyeballs [View article]
    Marco re: fighting the Fed-- From July 2007 to December 2008 the Fed dropped the Fed Funds rate from 5.25% to 0.16%. Anyone who fought the Fed in this period made a killing. Adjusted for inflation the stock market still hasn't recovered.
    Feb 5 09:41 AM | 5 Likes Like |Link to Comment
  • Marginal Tax Rates Killed Growth And Threaten Earnings [View article]
    Tony you make some interesting claims.

    "High tax rates do nothing to the guys that already have their pile at the expense of the up-and-comers." I see it exactly the opposite. The people growing businesses and creating jobs do not generate much taxable income. They are plowing money into wages, equipment, marketing and other things that grow the value of the business. Consequently they pay little tax. High marginal tax rates hit those who are not reinvesting in growing the economy. Gates and Buffet are a bit of an exception; they will put most of their billions into philanthropy rather than take it as personal income and pay tax on it. The people who want to live a life of ease off existing wealth hate high marginal tax rates.

    You seem to think President Reagan unleashed some kind of miracle. Granted when he had the top rate at 50% the economy had the strongest growth since the 1960s. However, growth in the 1970s and 1980s was about the same. Using quarterly data from 1970 Q4 to 1980 Q4 vs 1980 Q4 to 1990 the 1970s were a bit stronger. Using annual data 1971-1980 vs 1981 vs 1990 the 1980s were a bit stronger.

    You are right the 70% marginal tax rate collected very little tax revenue in the 1970s, but this wasn't because of over consumption. Fixed private non-residential investment reached its all time high as a share of GDP in the 1970s. Consumption as a share of GDP went up after Reagan's tax cuts. However Reagan was right we needed a tax cut; the $225,000 bracket was way too low for a 70% rate. It made much of the upper middle class fodder for tax shelter salesmen and we ended up with a lot of junk investment like empty office buildings. A growth friendly bracket might have been a least in the millions. The best might have been around $98 million.

    In the real economy contribution to society would be measured by productive effort that benefits society. Many of those not paying income tax are in fact working pretty hard. On the other hand, Hedge fund managers may be playing a zero sum game and contributing nothing while being clever enough to take wealth away from the rest of us.

    In a well run economy the biggest after tax rewards should attract the best and brightest into activities that benefit society the most.
    Oct 12 11:46 AM | 5 Likes Like |Link to Comment
  • Missed Lesson Of Great Depression And Financial Crisis Blinds Economists To Bubble And Coming Recession [View article]
    Real per-capita growth from 1871 to 1913 annualized 1.8%. From 1913 to 2013 it annualized 2.0%. If you don't account for population growth the earlier period was stronger: 4% vs 3.2% using the data I have. The economy prior to the Fed and income tax was not some magical period of wealth creation; the economy was in recession 48% of the time.
    Mar 24 02:26 PM | 4 Likes Like |Link to Comment