As can be seen, the spurt in base metal index coincides with the ballooning of the Fed’s balance sheet size. Similar phenomenon is visible in the next slide. Only this time, it is the S&P 500 index.
The next chart is interesting.
Here there are three trough to peak instances. The first lasting for nearly a decade. During these 115 months, the S&P 500 rose by 364% and average GDP growth was 3.6%. Next upmove lasted 61 months, the index rose by 90% and GDP growth averaged 2.7%. The recent rise is more than 80% from trough in 25 months and average GDP growth of 0.6%.
The 4th chart is on corporate profits. US corporate profits are at an all time high while unemployment rate remains at a highly elevated level. Even as a percentage of GDP, corporate profit is very near its previous peak. What is also important is to note that in 2010, US output (not value) is virtually the same as 2007, this time with more than 6 million less employees. Clearly, the surge in corporate profit has a lot to do with productivity growth.
It is not a surprise, therefore, that the consumers sentiments are quite low. I also believe that housing wealth is more widely distributed than stock wealth. While the rising stock wealth might have to a great extent offset the falling housing wealth, it means that the purchaisng power of the less well off has declined while that of the higher echelons of the society remains robust.
Interestingly, this rise in corporate profit also coincides with some serious debasement on the USD.
Let me now throw this debate open to the readers. How do you think will things pan out, going forward?