Category Archives: Economics

The Shiller 10-year PE Ratio

Posted on by

The Shiller 10-year PE ratio is currently around 39.2 as of November 15, 2025, and the market is the second most expensive in history!  

The Shiller 10-year PE ratio (also known as the CAPE ratio), developed by Robert Shiller, is calculated by dividing the current price of the S&P 500 by the average inflation-adjusted earnings over the past 10 years. It smooths out earnings fluctuations and is used to gauge whether the market is overvalued or undervalued relative to historical levels.

Right now, the CAPE ratio has climbed to around 39-40, making the market extremely expensive compared to historical standards. A higher ratio such as this generally indicates overvaluation and predicts lower future returns, while a lower ratio would suggest undervaluation and higher potential future returns.[lynalden +2].

To put this in perspective, the long term average is closer to 16-18, so today’s levels are more than double historical average. It means that you’re paying a high price in the market

When the Shiller 10-year PE show values around 35.2 to 39.2, thus indicates a relatively high market valuation compared to historical averages. Historical data from Shiller has shown that when this ratio is high, subsequent long-term returns on the stock market tend to be lower than average.

Capitalism Failing Younger Americans

Posted on by

Capitalism is failing younger generations, particularly millennials, because of debilitating student loan debt and lack of affordable housing. 

Peter Thiel, co-founder of PayPal, Palantir Technologies, and  the first outside investor in Facebook, warned about capitalism failing younger generations, stating that many young Americans, particularly millennials, are turning toward socialism due to economic hardships rather than ideological reasons.

In a 2020 email to tech leaders, Thiel explained that high student debt and unaffordable housing have left young people with “negative capital” for too long. Without a stake in the capitalist system, they are more likely to turn against Capitalism and consider the false promises and myths of socialism as an alternative.

He warns that this economic disillusionment and disenfranchisement is driving young people toward socialism. Despite socialism’s historical record of repeated failures to deliver democratic governance, economic prosperity, and social justice, with authoritarian implementations and economic inefficiencies leading to widespread shortages of goods and services, and to an abundance of human suffering.

In his commentary following the 2025 election of democratic socialist Zohran Mamdani as New York City’s mayor, Thiel stated that capitalism isn’t working for many young Americans, and that housing failures—such as strict zoning laws that benefit property-owning older generations—are fueling this political shift.

He predicted the rise of socialism among young people due to these economic pressures but also pointed out that if the U.S. moves toward socialism, it might resemble “old people’s socialism,” focused more on free healthcare for an aging population rather than a youth-led revolution.

Thief’s analysis emphasizes understanding the reasons behind the millennial shift toward socialism rather than dismissing it. He argues that rent control policies actually reduce housing supply and worsen affordability issues.

Ultimately, Thiel sees socialist leanings among young people as a response to systemic economic issues, not as genuine advocacy for socialism’s traditional ideological tenets.

Thiel cautioned that “if you proletarianize the young people, you shouldn’t be surprised if they eventually become communist.”

Socialism Failures

Posted on by

Socialism fails because it goes against fundamental human nature and economic incentives. It relies on centralized control of the means of production, leading to mismanagement and economic collapse.

Young Americans are increasingly embracing socialism, driven largely by concerns about economic inequality, perceived failures of capitalism, and a desire for more social justice and economic fairness.

Recent surveys show a significant portion of younger Americans view socialism positively, with polls indicating that around 60-70% of adults under 30 hold favorable views of socialism, and many even favor democratic socialist political candidates.

This trend seems rooted in frustrations with economic challenges they face, such as student debt, unaffordable housing, and stagnant wages, which they often attribute to a rigged economic system benefiting the privileged and well-connected through cronyism, rather than free markets and merit.

Many young people see socialism less as a call for full government control like traditional socialism, and more as a way to promote equality, social justice, and “democratic” reforms in the economy.

Yet, efforts to create a socialist society have always fail, as these systems frequently evolved into authoritarian or totalitarian states (e.g., North Korea) with restricted freedoms and tragic consequences, including mass starvation, political purges, and mass migrations.

Socialism involves government ownership and central planning of the means of production, which lead to inefficiencies, lack of incentives, and resource shortages.

As an economic system, socialism fails because it goes against fundamental human nature and economic incentives.

Socialist governments rely on centralized control rather than market mechanisms, leading to mismanagement and economic collapse. Examples include the Soviet Union’s economic stagnation and eventual collapse, Mao’s disastrous Great Leap Forward and Cultural Revolution in China causing millions of deaths, and the North Korea and Cuba failed economic systems.

In short, socialism leads to severely underperforming economies, loss of individual freedom, political oppression, and often disastrous humanitarian outcomes.

Thus, while the idea of socialism may hold theoretical appeal for economic equality, its worst historical implementations have resulted in tyranny, poverty, starvation, and widespread human misery.

In summary, socialism fails due to its economic inefficiencies, tendency towards authoritarian governance, and the inability to fulfill its promises of equality and improved living standards for all. These outcomes have been repeatedly observed across different continents and historical periods, making socialism historically a failed system in practice despite its ideological aspirations.

Chinese Communist Government Economic Strategies Baffle Economists

Posted on by

In the capital city of Beijing, the Chinese Communist authoritarian regime is grappling with the harsh reality of self-inflicted economic struggles.

The ongoing real estate crisis in China presents a significant challenge to the Communist Party, with industry giants like Evergrande and Country Garden facing liquidation orders. Chinese citizens heavily were invested in real estate, with approximately 70 percent of their investments allocated to this sector, twice the amount seen in the United States.

The long-term real estate fundamentals have changed — China’s population has likely peaked, urbanization is slowing and home ownership is already very high.

Moreover, official economic figures released by the People’s Republic are often met with skepticism from experts, who believe gross domestic product (GDP) numbers are fantasy. For example, Foreign Policy reported that China’s economic growth in 2023 may have been significantly lower than the stated 5.2 percent, possibly around 1.5 percent.

China’s overall debt-to-GDP ratio is about 300% and rising, which is the highest among emerging markets and higher than most advanced economies. While China’s central government debt is relatively small at just above 20% of GDP, debt at the local government level is estimated to be more than 70% of GDP.

A debt crisis is typically a liquidity crisis  

Additionally, China’s government has substantial assets that can help pay debt. More importantly, a debt crisis is typically a liquidity crisis, and in the case of China, high domestic saving kept by capital controls at domestic banks means that more than 95% of China’s debt is domestic debt, financed by relatively stable domestic deposits and not subject to sentiment change of international investors.

Despite the Chinese Communist regime’s message of China being “open for business” to the global business community and financial elites, the reality paints a different picture. Beijing’s autocratic government enacted a draconian law that requires domestic and international companies operating in China to share business secrets and intellectual property with the Communist Party. This policy has raised concerns about the country’s investment and business environment. While the intention behind such measures may be national security and autocratic control related, it also poses challenges for companies operating in China.

Bottomline, the Chinese economy is plagued by a litany of challenges.

Local governments are struggling with financial difficulties after three years of pandemic spending and declining land sales. Some cities in China can’t repay their debts and have hadto cut basic services or reduce medical benefits for seniors.

The real estate crisis has deepened. Plunging home sales have pushed developers like Country Garden to the brink of collapse. The crisis has spilled over to the massive shadow banking sector, causing defaults and sparking protests across the country.

Youth unemployment has become so bad that the government stopped publishing the data.

Foreign companies have grown wary of Beijing’s rising scrutiny and are pulling out of the country. In the third quarter, a measure of foreign direct investment (FDI) into China turned negative for the first time since 1998.

Foreign investors beware when investing capital in an communist and autocratic country.

References:

  1. https://www.msn.com/en-us/news/world/xi-s-economic-strategies-baffle-even-chinese-economists/ar-BB1jpZa9
  2. https://www.npr.org/2023/08/16/1193711035/china-economy-tao-wang-interview
  3. https://www.cnn.com/2023/12/27/economy/china-economy-challenges-2024-intl-hnk/index.html

Economics for the Citizen by Dr. Walter E. Williams

Posted on by

“The first lesson in economic theory is that we live in a world of scarcity. Scarcity is a situation whereby human wants exceed the means to satisfy those wants. Human wants are assumed to be limitless, or at least they don’t frequently reveal their bounds. People always want more of something, be it: more cars, more food, more love, more happiness, more peace, more health care, more clean air or more charity. Our ability and resources to satisfy all those wants are indeed limited. There’s only a finite amount of: land, iron, workers and years in a lifetime.” – Dr. Walter E. Williams

“The first lesson in economic theory is that we live in a world of scarcity,” explains Dr. Walter E. Williams, an American economist, commentator, academic, and the former John M. Olin Distinguished Professor of Economics at George Mason University, “Scarcity is a situation whereby human wants exceed the means to satisfy those wants.”

Economics is the study of how we use our limited resources (time, money, etc.) to achieve our goals. This definition refers to physical scarcity.

Americans always want more of something, be it: more cars, more food, more love, more happiness, more peace, more health care, more clean air or more charity. Our ability and resources to satisfy all those wants are indeed limited. There’s only a finite amount of: land, iron, workers and years in a lifetime.

Scarcity produces several economic problems: What’s to be produced, who’s going to get it, how’s it to be produced, and when is it to be produced?

There’s simply not enough resources to meet all the competing wants and uses. That means there’s conflict over limited resources and its uses. Basically, there are several methods of conflict resolution.

  • Market mechanism — let the highest bidder be the one who owns and decides how the land will be used.
  • Government fiat, where the government dictates who gets to use the land for what purpose.
  • Gifts might be the way where an owner arbitrarily chooses a recipient.
  • Violence has always been a way to resolve the question of who has the use rights to the coastline — essentially people get weapons and physically fight it out.

Many Americans would say, “Violence is no way to resolve conflict!” On the contrary, the decision of who had the right to use most of the Earth’s resources was settled through violence (wars). Who has the right to the income you earn has been partially settled through the threats of violence. In fact, violence is such an effective means of resolving conflict that most governments want a monopoly on its use.

The pertinent question that arise is what is the best method to resolve conflict issues surrounding the questions of what’s to be produced, how and when it’s produced, and who’s going to get it…is it the market mechanism, government fiat, gifts or violence, ask Dr. Williams.

Federal, state and local tax levies represent government claims on private property of American citizen, explains Dr. Williams.  In other words, taxes represent the government’s legal confiscation and theft of the private property of American citizens.

References:

  1. https://www.capitalismmagazine.com/2005/01/economics-for-the-citizen-part-1/

Dividend Growth Stocks

Posted on by

Dividend-growth stocks typically exhibit stable earnings, solid fundamentals and strong histories of profit and growth.

Dividend Growth companies are companies that have consistently grown their dividends over the long-term, such as for at least 15 consecutive years. According to ProShares, these companies generally come with attributes of quality that investors have come to expect:

  • Durable competitive advantages, solid fundamentals, and management teams that are committed to returning capital to shareholders.
  • Higher gross and net profit margins than the broader index, with more consistent levels of earnings growth through the market’s ups and downs.
  • Lower levels of debt than companies in the broader market index.

Dividend growers have also demonstrated a history of weathering market turbulence over time. They’ve done so by delivering most of the market’s upside in rising markets with considerably less of the downside in falling ones—a valuable feature in times of uncertainty.

“Dividend growth stocks have outperformed in various market environments,” according to global investment management firm Nuveen. “Dividend growth stocks have provided an attractive combination of earnings and cash flow growth potential, healthy balance sheets and sustainable dividend policies. These stocks have historically offered compelling performance during up markets and provided a buffer during market drawdowns and in volatile environments.”

When the Federal Reserve shifts from an accommodative monetary easing policy to a restrictive monetary policy, there is often an initial period of market volatility and uncertainty.

Dividend growth has been a desirable trait for equities immediately before, during, and after past cycles of less accommodative Fed policy.

Many investing gurus recommend strong dividend payers as the way to weather dual challenges of inflation and recession, noting that the dividend stocks’ income streams are capable of offsetting inflation – even when inflation is running higher than 8%.

“Dividend growth is one of the few things that has kept up with inflation as you go back and look over the decades. So when you go back and you look at the ’70s, ’80s — which is the last time you can actually find any notable inflation — what you see is dividend growth pretty much kept pace with it,” explained Sharon Hill, the co-leader of Vanguard’s Equity Income Fund.

With the three challenges facing investors today—rising interest rates, slowing economic growth and income scarcity–dividend growth stocks could make a better choice for the current economic and market environment.

Source: ProShares, Bloomberg. Data from 12/31/05 to 12/31/21. Past performance does not guarantee future results. Index calculations do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged, and one cannot invest in an index.

High-quality companies that have consistently grown their dividends tend to have stable earnings, solid fundamentals and strong histories of profit and growth. As a result, they have been generally better positioned to weather potentially slowing growth.

References:

  1. https://finance.yahoo.com/news/investing-whiz-sharon-hill-says-155244449.html
  2. https://www.fidelity.com/insights/investing-ideas/10-dividend-growth-stocks
  3. https://www.proshares.com/browse-all-insights/insights/three-reasons-dividend-growth-may-be-the-right-approach
  4. https://www.proshares.com/browse-all-insights/insights/why-dividend-growth-mid-caps-may-belong-in-your-portfolio

U.S. Has Vast Quantities of Untapped Oil

Posted on by

Prioritizing climate change and green energy means that Democrats actually like high gas and fossil fuels prices. ~ American Enterprise Institute

The United States is sitting on 264 billion barrels of untapped oil — more than any other country on the planet, according to a new report from Rystad Energy. The vast quantity includes oil in existing fields, new projects, recent discoveries as well as projections in undiscovered fields.

More than half of America’s untapped oil is unconventional shale oil, according to Rystad. Thanks to fracking and the shale oil boom, the U.S. is sitting on more oil reserves than Russia.

Yet, the Biden Administration’s vow to make Saudi Arabia a pariah nation, to reduce the world’s dependence, and to curtail domestic fossil fuels production has made the United States more dependent on energy from foreign sources, writes Marc A. Thiessen, Senior Fellow, American Enterprise Institute. The hostility towards domestic hydrocarbons has also resulted in higher gasoline prices at the pump and in higher prices to generate electricity with natural gas.

Since taking office, the Biden Administration has leased fewer acres of federal land for oil and gas drilling, suspended all oil and gas leases in Alaska’s Arctic National Wildlife Refuge, and announced plans to block new offshore oil drilling in the Atlantic and Pacific oceans.

And the Biden Administration might be preparing to implement a ban on exports of gasoline, diesel and other refined petroleum products — a move that energy groups warn would backfire by reducing domestic refining capacity and further raising prices for U.S. consumers, explains Thiessen.

Prioritizing climate change and green energy means that Democrats may actually prefer high gas and fossil fuels prices. Higher gas and fossil fuels prices would encourage Americans to abandon fossil fuels. Rising gas and hydrocarbon prices would theoretically curb and ultimately end Americans use of fossil fuels.

References

  1. https://money.cnn.com/2016/07/05/investing/us-untapped-oil/index.html
  2. Marc A. Thiessen, With So Much Untapped US Oil, Why Does Biden Beg Dictators to Add Production?, The Washington Post, October 08, 2022

Simple Truths about Inflation

Posted on by

Five simple truths embody most of what we know about inflation, according to Milton Friedman, Ph.D, American economist and a Nobel Prize in Economic recipient:

  1. Inflation is a monetary phenomenon arising from a more rapid increase in the quantity of money than in output (though, of course, the reasons for the increase in money may be various).
  2. In today’s world government determines – or can determine – the quantity of money.
  3. There is only one cure for inflation: a slower rate of increase in the quantity of money.
  4. It takes time – measured in years, not months – for inflation to develop; it takes time for inflation to be cured.
  5. Unpleasant side effects of the cure are unavoidable. 

 

The money supply

The money supply is the stock of money in the economy. It is determined by the roles and uses to which certain physical and financial assets are put.

Money performs a number of roles in our economy. Money functions

  1. as a medium of exchange;
  2. as a unit of account;
  3. as a store of value; and
  4. as a means of making payments inter-temporarily, i.e., over time. Its most obvious role, the one everyone is familiar with, is as a medium of exchange

The Money Aggregates (M1, M2 and M3) are money supply measures are that are meant to reflect differing roles of money;

Money Stock M1 — M1 is made up of notes and coin and several other financial instruments that the general public may not consider to be money. However, the Federal Reserve includes them because they are used as a medium of exchange and thus, on that account, perform a monetary function. Consequently, M1 is composed of currency in the hands of the public, checking accounts at commercial banks, deposit accounts against which checks can be written, and traveler’s checks issued by institutions that are not banks.

Money Stock M2 — M2 is a broader measure of the money supply than M1. It counts as money not only those financial instruments that generally act as a medium of exchange but also act as a store of value, another important function of money. Therefore, M2 includes M1 plus three other types of financial assets. These are (i) savings deposits, including money market deposit accounts; (ii) fixed deposits less than $100,000; and (iii) and retail money market mutual funds.

Money Stock M3 — M3 consisted of time deposits $100,000 and over, repurchase agreements (RPs) larger than $100,000 and longer than one day (called term RPs), and institutional money market mutual fund accounts.

Sometimes, M0 is used to denote central bank money, which consists of coin and currency in circulation, cash in bank vaults, and balances held in reserve accounts at the central bank by commercial banks and other depository institutions. In the U.S., M0 is called the “monetary base (MB).”

MI measures money used as medium of exchange, while M2 measures money used as store of value.

References:

  1. https://corporatefinanceinstitute.com/resources/knowledge/economics/milton-friedman/
  2. https://businessterms.org/money-supply/

Recession and Political Silly Season

Posted on by

The U.S. has entered the official political silly season which is when analysts interpret monthly and quarterly economic reports and data through a highly biased political lens, writes Brian Wesbury, Chief Economist, First Trust. Unfortunately, he submits that the real unbiased analysis of economic reports and data rarely emerges.

Wesbury opined that the silly season started with politicians from the right proclaiming that the country was in a recession because real GDP declined in both of the first and second quarters of calendar year 2022. These individuals purposely overlooked that the unemployment rate has dropped 0.4 percentage points so far this year. And they fail to notice that payrolls are up an average of 471,000 per month, while industrial production is up at a 5.2% annual rate over the first six months of the year. Never mind that “real” (inflation adjusted) gross domestic income was up in the first quarter.

Although, two quarters of negative real (inflation-adjusted) gross domestic product (GDP) growth is commonly viewed as a strong sign that a recession is underway, it is not the official definition.

***Recession are foremost and always a “broad based decline in economic activity”.***

The National Bureau of Economic Research (NBER), a private non-profit research organization that focuses on understanding the U.S. economy, views a recession as a monthly concept that takes account of a number of monthly indicators—such as employment, personal income, and industrial production—as well as quarterly GDP growth. Additionally, “a recession is the period between a peak of economic activity and its subsequent trough, or lowest point,” the NBER says on its website.

Therefore, while negative GDP growth and recessions closely track each other, the consideration by the NBER of the monthly indicators, especially employment, means that the identification of a recession with two consecutive quarters of negative GDP growth does not always hold.

Thus, the economy is currently not in a recession since the NBER’s defines officially a recession as “a significant decline in economic activity that is spread across the economy and lasts more than a few months.”

“Our view is that a recession is coming, that monetary policy will have to get unusually tight for the Federal Reserve to bring inflation back down to its 2.0% target,” states Wesbury. “In turn, tighter money should induce a recession. But that takes time and the recession hasn’t started yet.”

References:

  1. https://www.ftportfolios.com/Commentary/EconomicResearch/2022/8/15/silly-season
  2. https://www.bea.gov/help/glossary/recession

The War on Fossil Fuels

Posted on by

“Solar and wind power aren’t reliable sources of energy, simply because there are nights, clouds and windless days.” Bjorn Lomborg

“The developed world’s response to the global energy crisis has put its hypocritical attitude toward fossil fuels on display,” writes Bjorn Lomborg. Wealthy countries continue to admonish developing ones to cut their fossil fuels consumption and increase their use renewable energy, he states.

Last month the Group of Seven went so far as to announce they would no longer fund fossil-fuel development abroad.

Meanwhile, in response to the current energy supply constraints, Europe and the U.S. are begging Arab nations, specifically Saudi Arabia, to expand crude oil production. Germany is reopening coal power plants, and Spain and Italy are spending big on African gas production.

Over the past century, the developed world became economically wealthy through the pervasive use fossil fuels, which still overwhelmingly powers most of their economies. Fossil fuels still provide three fourths of wealthy countries’ energy consumption, while solar and wind provide less than 3% combined.

The reality is that solar and wind power aren’t reliable sources of energy, simply because there are nights, clouds and windless days. And, improving battery storage won’t help much: There are currently enough battery storage in the world today only to power global average electricity consumption for 75 seconds. By 2040, the battery storage capacity would cover less than 11 minutes of average global consumption.

The assault on fossil fuels has shrunk U.S. refining capacity and the refinery shortage is driving up fuel prices. Basic economics should inform politicians that “prices rise when supply doesn’t meet demand”.

With oil and gas prices on the New York Mercantile Exchange are at five-year highs, you would expect that it would be in oil and natural-gas companies interest to ramp up production, given the current high prices,.

But, oil and gas companies expect that as soon as the current energy turmoil subsides, the Biden administration will shift back to hostile rhetoric, anti-energy legislative proposals, and oppositional regulatory policies.

By forcing up the price of fossil fuels, policymakers have put the proverbial cart in front of the horse. Instead of driving up fossil fuel prices higher, policymakers need to make green energy much cheaper and more effective.

Humanity has relied on innovation and technological breakthroughs to solve other big challenges. We didn’t solve air pollution by forcing everyone to stop driving but by inventing the catalytic converter that drastically lowers pollution.

References:

  1. https://www.wsj.com/amp/articles/the-rich-worlds-climate-hypocrisy-energy-fossil-fuel-wind-solar-panel-india-poverty-power-battery-storage-11655654331
  2. https://www.wsj.com/amp/articles/is-6-a-gallon-gasoline-next-gas-prices-refining-shortage-fossil-fuels-11654806637
  3. https://www.wsj.com/amp/articles/why-energy-companies-wont-produce-oil-natural-gas-biden-administration-fossil-fuel-inflation-prices-11654720932
  4. https://nypost.com/2022/06/19/fossil-fuel-price-spikes-are-causing-pain-but-little-climate-payoff/