Bottom of economic crises: Are we there yet?

11:09 AM Posted by Baris Sanli
One of my friends has shared the following article from New York Times which I enjoyed reading. The article tries to find out whether we reached the "bottom of recession", using several indicators. It looks to three indicators:

1. Stocks:
"Price to earning ratio. History shows that the stock market usually hits bottom before the economy does.The price-to-earnings ratio — which investors use to gauge how much they are paying for each dollar of corporate profit — is around 13, about 20 percent lower than the average of the last 130 years."

2. Home prices: "Barry Ritholtz, a professional investor who writes the popular economics blog The Big Picture, has a simpler, more subjective, approach: Assume a young couple earning two modest incomes is looking to buy a two- or three-bedroom starter home in a middle-income neighborhood in your city. Can they qualify for a mortgage and afford to buy it?“If the answer is no, then you are not at a bottom in housing,” said Mr. Ritholtz, who estimates that the decline in national home prices is only half-complete. "

3. Consumer spending:" The savings rate — the amount of money consumers did not spend — jumped to about 3 percent late last year, from practically zero, still far below its postwar average of 7 percent. ... In a study of economic cycles, Edward E. Leamer, an economist at the Anderson School of Management at the University of California at Los Angeles, found that auto sales and home building tended to lead recoveries."


Also, mentioned in the article is the 12% shrinkage of imports and exports of US in January.

Take that and compare with the news about Chinese exports appeared in EconBrowser.com.


According to Wang Qian, a Hong Kong-based economist at JPMorgan Chase & Co. :
"There's no hope for export demand to recover any time soon. ... How fast imports recover depends on how soon the government's stimulus package kicks in and creates real demand in major industries." (Bloomberg)

I think the most amusing part of the story is also from New York Times : "Tobias Levkovich, chief United States equity strategist at Citigroup, has another indicator for spotting when we have hit bottom: When we stop behaving like children in the backseat of the car asking their parents, “Are we there yet?” "
Sources:
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