Originally Posted by
turmeric
Hi Hoop,
Interesting thoughts. Just wondering if you could elaborate on your definitions of "business cycles" vs "economic cycles" and when you start talking about "bull business cycles" if that is a different thing all together? I'm having a little trouble following some of your post.
Traditional economics would define "business cycle" as something along the lines of the long term fluctuations of the economy - the typical sine curve, peaks and troughs where the duration of a single cycle is several years. "Economic cycle" is typically not used in economics, but if it were to be used I suspect it would be interchangeable with business cycle.Yep agree.. except and I'm probably wrong due to memory fade over the years but I thought the business cycle was the wave that always tilted upwards as expansions are longer periods than contractions within the economic framework diagram..(if the economic framework diagram was viewed as a cycle not a framework diagram it would be upward tilting as well)... I regard an economic full cycle as a 3D perception of one period from expansion to contraction back to the next expansion the same as traditionally viewed 2D framework diagram.. my "bull" mention is probably not the correct term either but I think the meaning is clear as I meant it to be the upward part of the tilted wave...so in effect the difference from textbook theory is the top of the business wave in a imperfect world doesn't always have to mach up with the top of the economic expansion period. Economists have their own view on things correct me if I'm wrong as I think the Economists view EPS growth as the same as GDP which is probably again textbook theory but in reality ESP although it closely trends with GDP over the longer term its more volatile and has short term fluctuations during boom times and times of depressions and the 2007 great recession....Lately the USA EPS has been very volatile within the USA GDP trend...suggesting the business cycle is out of sync, even though both are fundamentally linked and revolve around each other..This brings up the view in Sharemarket Research that the Nominal GDP is driven by the Economic cycle and the EPS growth is driven by the Business Cycle,,,even though both cycles are fundamentally very closely linked....This latest period is a good example with Country debt problems (a part of GDP) dampering down the economic growth rate*** and US businesses which have been showing record EPS pushing up the economic growth rate.
*** See Ref This Time Is Different by Kenneth Rogoff & Carmen Reinhart...(yes I know about the spreadsheet error)
Also from a non-TA perspective, I would disagree (partly in hope) that QE won't end when inflationary pressures start to appear, rather the Fed will maintain credibility and start pulling back QE once the the employment market is in check. Yes a gradual easing depending on the economy is the textbook theory. There is a feeling within some circles that this extreme unprecedented type of easing has a risk of creating sudden uncontrolled inflation...akin to pouring petrol as a last resort onto ashes of an old fire to make it burn again when all other lesser flammables have failed to relight it. This is partly why I pay close attention to jobs numbers coming out of the US. I agree with you that noise and signal need to be distinguished, but to identify a signal you MUST recognise all relevant data. In that same vien what interests me is not so much day to day reactions of equity markets to relevant economic news but what the long term trend will be to improved economic conditions vs. QE ending. Recognising we are in an unprecedented economic environment yes agree hence the uncertainties, identifying how addicted markets are to QE could be the key to knowing if and when to exit equities and hold more cash. There's a debate at the moment whether QE itself is a cause or whether the investors behavioural perception of QE is the cause...the answer is simply answered in Sharemarket theory the low inflationary environment is the causative...Inflation is the driver of PE Ratio which drives the sharemarket...simple really...huh...as I said in my previous post its best to ignore those more complex but lesser effects..otherwise you "cant see the forest for the trees"
Last night in my opinion was a very good sign. Hmmm ...as mentioned above, it all depends on inflation
Hoop have you read The Signal and the Noise? No, but I'm interested.. I'll google it and ..ahem.. I suspect you would find it very interesting. Silver is one of the leaders in this literature and his book is a very good read. I'm actually about to go out and buy it to re-read again as one chapter of my thesis is about identifying signal from noise in some health data in NZ. cheers Hoop