This year marks a historic occasion – 10 years ago we had the crisis in the subprime mortgage market in the USA, which as we all know, triggered the collapse of the worlds financial markets through into mid 2009.
I was recently thinking about that GFC period after I read a new report stating that the Dow Jones had cracked the 20,000 mark. I haven’t really been keeping track of the US market (mainly because I don’t live there or invest in it), but it did pique my interest as the local market hasn’t been doing so well ever since the GFC was seen to be over.
Take a look at the chart below. The Green line is the Aussie market, the Orange/Brown is the US. It’s really interesting to me to see how closely they tracked each other and then completely break away. The local Aussie market still hasn’t reached the highs of 2007, while the US market is considerably higher.
I’m not going to get into the specifics of why I think there is such a marked difference, other than to say that the Aussie market was terribly over valued back in 2007, and that the US market is currently overvalued now.
Something else I thought I would share is the US Real GDP percentage change numbers overlayed with US recessions. Throughout history the average period of time between recessions is about 10 years. Sure there are periods of time that go longer, but when I look at the chart below, I can’t help but feel another big grey bar is just around the corner.
The only way I see a longer period of time between recessions being a reality here is if things have gotten better. The chart below tells me that despite the Dow Jones reaching all time highs, the US economy is not healthy. Debt to GDP is almost double what is was and no matter how much faith many business people have in this new president, he isn’t a magician and he can’t magically fix this problem without a lot of pain first.