Interesting article below on how the economy has deteriorated over the past 2 years...
Regards - VHF
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Then and now – what a difference 2 years make
TSG
Sunday, July 19, 2009
In his July 17 Breakfast with Dave newsletter, economists David Rosenberg from Gluskin, Sheff performed an interesting comparison of some key economic and market metrics now versus then – July 2007 when the current credit crunch began to unwind.
We summarize his list and add a few of our own.
|
Indicator
|
July 2007
|
July 2009
|
|
Fed fund rate
|
5.25%
|
0%
|
|
Federal budget deficit
|
2% of GDP
|
13% of GDP
|
|
Total federal gov’t debt
|
$8.95 trillion
|
$12.9 trillion (2009 est)
|
|
Total federal gov’t debt/GDP
|
65.5%
|
90.4%
|
|
Mortgage rates
|
6.5%
|
4.7%
|
|
Fed balance sheet
|
$850 billion
|
$2 trillion
|
|
Unemployment rate
|
4.7%
|
9.5%
|
|
S&P500
|
1550
|
940
|
|
“Official” CPI
|
3.0%
|
-1.4%
|
|
Original (Real) CPI
|
10.09%
|
6.05%
|
|
Treasury international capital flows
|
+$100. 8 billion
|
-$66.0 billion
|
|
Total credit market debt/GDP
|
340%
|
375%
|
|
Average U.S. PEs
|
30.43
|
125.37
|
|
Average U.S. EPS
|
$0.97/share
|
$0.16/share
|
|
Gov’t/Fed stimulus committed
|
< $10 billion
|
> $13 trillion
|
Things have certainly changed in two short years. Metrics like total credit market and government debt, unemployment numbers, government and Federal Reserve stimulus commitments (that so far roughly equal annual U.S. GDP) and average Price/Earnings ratios have all gone through the roof while CPI (both official and real), GDP and average earnings per share have plunged.
In July 2007 troubles had begun to emerge – Bear Stearns had already required emergency intervention to try to save it. But two years of stimulus, a new president and more than $14 trillion later, the economy is still in a shambles. As Dave pointed out, someone at the Fed is forecasting that the unemployment rate will hit 10.6% which is within striking distance of the 10.8% peak reached in November-December 1982.
It is an unfortunate irony that this last comparison is flawed. If we calculate the unemployment rate using the 1982 calculations, today’s unemployment rate is currently 20.6% not 9.5% which makes it a far more challenging period than the 1980s – one which more accurately rivals the 1930s during the Great Depression.
It is another example of why relying on current government stats can be hazardous to your financial health. But no matter which data upon which you rely, the world we live in today is very much different than it was two summers ago.
