Three scary economic charts

1. Plunging Tax Revenue

The government wants to bail out the economy. Who’s going to bail out the government? Their revenues are plunging, debts are soaring, and the cost of borrowing money is rising as bond buyers question long-term U.S. financial stability.

We’ve seen a number of economic indicators that are getting worse, but at a slower rate. However, the falloff in federal tax receipts is accelerating. From Matt Trivisonno: Federal withholding taxes fell off of a cliff last quarter, continuing a trend from the three previous quarters:

2. Debt Defaults

We’re in a severe debt deflation. There’s bad debt everywhere – mortgages, commercial real estate, credit cards, you name it. As more and more defaults occur it’s going to get harder and harder for the private sector to finance economic activity. With too many defaults the financial sector will simply collapse under all of the bad debt.

Debt Man Walking:

We are approaching losses of approximately $6 trillion based on a market basket of household debt equal to 100% of Gross Domestic Product (GDP) of $14 trillion (40% of $14 trillion = $5.6 trillion = Round to $6 trillion).

To put that number in perspective, I estimate the total equity held by the financial sector at the onset of the crisis equaled about $1.5 trillion ($15 trillion of assets * 10% = $1.5 trillion of equity). If $6 trillion disappeared in the financial sector, and granting my assumption of $1.5 trillion of initial equity, then the financial sector will go completely broke FOUR times. You only have to go bankrupt once to go bankrupt.

3. An Insanely Overpriced Stock Market

The traditional tool for evaluating a stock’s price relative to its performance is the Price/Earnings ratio. A high P/E ratio means that stocks are very expensive relative to the earnings of the companies. The historical average ratio for the S&P 500 is about 15 to 1. Right now the stock market is priced at P/E ratios so high they make the dotcom bubble of the 90s look sober and cautious by comparison. We’re headed for a big correction in the stock market.


At the end of last month the P/E ratio for the S&P 500 was 134! That is not cheap by any stretch of the imagination. When you put this on a chart it literally flies off the paper:

I don’t see any way we can avoid another leg down in the economy. We have deep structural problems to fix and it will take years to get all of that bad debt out of the system. The one thing you can do now if you haven’t already is to get your money out of the stock market while you can. The current levels are completely unsustainable.

5 Responses to Three scary economic charts

  1. Billll says:

    Duuuude, I just ordered a dime bag from my dealer and broker, and he tells me the P/E for the S&P 500 is somewhere between 14 and 17.

    I think you may have forgotten to divide by 500 somewhere along the line.

  2. Les Jones says:

    The Yahoo data below is using trailing ratios. In their case 12 months. See their definitions:

    Schiller’s stats at are for trailing 10 years, which really obscures the current problems.

    It’s when you look at current and forward P/E ratios you see the problem. See here:

    and here:

  3. Billll says:

    OK I did some more digging. Yahoo is currently saying:

    Earnings for the most recent quarter largely came out ahead of expectations, with 111 beats, 10 in-line and 21 misses. But the earnings beats were largely due to cost cutting measures, not upside surprises on the top line. Specifically, 72 companies posted revenue that failed to live up to expectations, and 102 reported year-over-year declines in revenue.

    So even though earnings are better than predicted for the 2Q09, over the long term (1 yr?) they are down, and not actually recovering at any reasonable pace.

    I can see why a 10 yr moving average would give a false impression in today’s economy, heck, I can see why it would give a false impression in any economy. I would think that a shorter average would be more realistic. I can also see why you wouldn’t want to get too short, as numbers that fluctuate around zero make for astronomical movement percentages.

    I’m not arguing with your basic premise. I’d like to see a recovery, of course, but all I can see looking heavenward is a series of shoes dropping.
    [rq=166176,0,blog][/rq]Pink Pistols Bikini Picture

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