Introduction

1. “The Transition from Academic to Policymaker,” Bernanke’s remarks on a panel discussion, January 7, 2005.
2. I also email my daily “What I Am Reading” to our accounts, most of whom find this to be very helpful.

Chapter 1: Predicting the Past

1. R-squared is a statistical measure of how close the data are to the fitted regression line. It is also known as the “coefficient of determination,” or the “coefficient of multiple determination” for multiple regression.
2. For more information, visit the Federal Reserve Bank of New York’s webpage “About the Building.”
3. The Federal Reserve Bank of New York’s website states: “Gold custody is one of several financial services the Federal Reserve Bank of New York provides to central banks, governments and official international organizations on behalf of the Federal Reserve System. The New York Fed’s gold vault is on the basement floor of its main office building in Manhattan. Built during the construction of the building in the early 1920s, the vault provides account holders with a secure location to store their monetary gold reserves. None of the gold stored in the vault belongs to the New York Fed or the Federal Reserve System. The New York Fed acts as the guardian and custodian of the gold on behalf of account holders, which include the US government, foreign governments, other central banks, and official international organizations. No individuals or private sector entities are permitted to store gold in the vault.”
4. GDP is the most commonly used measure of the market value of all goods and services produced in an economy. It is limited to production in the United States, while GNP measures the production of American or American-owned entities anywhere in the world.
5. “About as Low as They’ll Go,” Barron’s, November 26, 2001.
6. The parenthetical abbreviations after the names of US senators and members of the House of Representatives mentioned in this book indicate their political party affiliation if not already mentioned (D for Democrat, R for Republican) and home state.
7. “Wall St. Securities Firm Files for Bankruptcy,” The New York Times, August 13, 1982.
8. For more information, refer to James M. Boughton’s Silent Revolution: The International Monetary Fund 1979–1989, Chapter 7, “The Mexican Crisis: No Mountain Too High?”
9. Market index values have been rounded to the nearest whole number at most mentions throughout the book. Notable exceptions are Chapter 15 and elsewhere that percentage performance numbers calculated using unrounded numbers are provided.
10. The bottom was made on Black Monday for the DJIA, which was the 55th day of the bear market, with the DJIA down 36.1% from the peak. However, that bottom was retested on December 4, 1987, which I view as the end of the bear market. That’s confirmed by the broader S&P 500 stock price index, which bottomed on December 4 with a drop of 33.5%. For the year, the DJIA rose 2.3% and the S&P 500 increased 2.0%.
11. For more details, see Mark Carlson’s “A Brief History of the 1987 Stock Market Crash,” Board of Governors of the Federal Reserve, November 2006.
12. “A Computer Lesson Still Unlearned,” The New York Times, October 18, 2012.
13. Refer to the article “Triggering the 1987 Stock Market Crash,” in the September 1989 Journal of Financial Economics, by Mark L. Mitchell and Jeffrey M. Netter.
14. In my Topical Study “Dow 5000,” dated May 9, 1990, I predicted that the DJIA could nearly double, from 2700 to 5000 by 1993, if earnings and the valuation multiple each rose by 50%, as I expected. It took a little longer than I expected. The Dow rose to 5000 on November 21, 1995. I then wrote another Topical Study, “10,000 in 2000,” dated November 6, 1995. This time, it happened a bit ahead of schedule: the Dow rose to 10,000 on March 29, 1999.
15. See YRI’s Topical Studies archive.
16. See my Topical Study (co-authored with David Moss) “The New Wave Manifesto,” October 5, 1988.
17. See my Topical Study “The Triumph of Capitalism,” August 1, 1989.
18. See my Topical Study “The Collapse of Communism Is Bullish,” September 4, 1991.
19. See my Topical Study “The End of the Cold War Is Bullish,” September 10, 1993.
20. The SEC form 10-Q is a comprehensive report of a company’s performance that must be submitted to the SEC quarterly by all public companies. In the 10-Q, firms are required to disclose relevant information regarding their financial position. There is no filing after the fourth quarter, because that is when the 10-K is filed.
21. “Why Ed Yardeni Is an MVP in the Victory over Y2K Bugs,” Businessweek, January 5, 2000.
22. The original Cyrus J. Lawrence & Sons was founded in 1864 and thrived as an independent investment and research firm until it was acquired 1986 by the London-based Morgan Grenfell Group, which was, in turn, acquired by the Frankfurt-based Deutsche Bank A.G. in 1989.
23. “Congress Helped Banks Defang Key Rule,” The Wall Street Journal, June 3, 2009.
24. See my movie review webpage at yardeni.com/movies.

Chapter 2: Predicting the World

1. “Getting It Straight,” Cornell Alumni Magazine, March 3, 2009.
2. Jones has been a director of Altria Group, trustee of The Economic Club of New York, and trustee emeritus of Cornell University. Past board positions included Vice Chairman of the Federal Reserve Bank of New York, Freddie Mac, Travelers Group, Pepsi Bottling Group, Eastern Enterprises, Thomas & Betts Corporation, and Investment Company Institute.
3. “Sykes–Picot: The Map that Spawned a Century of Resentment,” BBC News, May 16, 2016.
4. The full August 4, 1997 Barron’s article “Wall Street Seer” is reproduced in Appendix 1.3.
5. The Reagan Record on Trade: Rhetoric vs. Reality, Cato Institute Policy Analysis No. 107, May 30, 1988.
6. See my Topical Study “The Protectionist Road to Depression,” September 9, 1985.
7. See John Maynard Keynes’ The Economic Consequences of the Peace (1919).
8. “Smoot–Hawley Tariff: A Bad Law, Badly Timed,” Gordon’s article in Barron’s, April 21, 2017.
9. “The Gold Standard, Deflation, and Financial Crisis in the Great Depression,” Bernanke’s NBER Working Paper No. 3488, October 1990 (co-authored with Harold James).
10. Again, as a reminder: GDP is the most commonly used measure of the market value of all goods and services produced in an economy. It is limited to production in the United States, while GNP measures the production of American or American-owned entities anywhere in the world.
11. “The Recession of 1937–38,” federalreservehistory.org.
12. “The Lessons of 1937,” The Economist, June 18, 2009.
13. Gold Sterilization and the Recession of 1937–38, Douglas Irwin’s September 9, 2011 paper.
14. “Reconsidering Expectations of Economic Growth After World War II from the Perspective of 2004,” Robert W. Fogel, NBER Working Paper No. 11125, February 2005.
15. See my Topical Study “The Economic Consequences of the Peace,” May 7, 1997.
16. See my Topical Study “A Bullish Post-War Scenario,” February 4, 2003.
17. See my Topical Study “China for Investors I: The Growth Imperative,” November 7, 2003.
18. See my Topical Study “China for Investors II: The Games,” January 21, 2004.
19. An Aging World: 2015, the United States Census Bureau, March 2016.
20. Composite, manufacturing, and services PMIs are available for numerous countries on IHS Markit’s website.
21. See the European Commission’s webpage “Business and Consumer Surveys.”
22. See Eurostat’s webpage “Retail Trade Volume Index Overview.”
23. Refer to the CESifo Group’s webpage “ IFO Business Climate Index.”
24. Refer to the International Monetary Fund’s World Economic Outlook.
25. An Aging World: 2015, the United States Census Bureau, March 2016.
26. “How Are Populations Shifting within Developed Countries?” Federal Reserve Bank of St. Louis, August 11, 2016 blog post.
27. An Aging World: 2015, the United States Census Bureau, March 2016.
28. “Why Stagnation Might Prove to Be the New Normal,” Larry Summers’ op-ed in the Financial Times, December 15, 2013.
29. “Debt Supercycle, Not Secular Stagnation,” Kenneth Rogoff’s April 22, 2015 commentary.
30. “Short-Run Effects of Lower Productivity Growth: A Twist on the Secular Stagnation Hypothesis,” Peterson Institute for International Economics Policy Brief, February 2017.

Chapter 3: Predicting Technology & Productivity

1. Access the Federal Reserve Bank of St Louis’ “FRED Economic Data” website.
2. See my Topical Study “The High-Tech Revolution in the US of @,” March 20, 1995.
3. Chapter 13 explains forward earnings.
4. “Cramming More Components onto Integrated Circuits,” Moore’s article in Proceedings of the IEEE, January 1998, reprinted from his original April 19, 1965 study.
5. Professor Nordhaus explained in his August 30, 2001 paper The Progress of Computing that “the simplest version of MIPS is defective in several respects. First, it does not specify the size of the word or the nature of the instruction. Long words have more computational value than short words. Some instructions (such as division) require much more computer power than simple instructions (such as addition). The definition does not consider the mix or the number of instructions. In short, it violates the central rule of index numbers by failing to consider an invariant bundle of characteristics.” He noted that complex sets of performance benchmark tests can better assess the speed of real-world applications that depend upon memory, input-output speed, and the instruction mix. MIPS is limited to the speed of the central processing unit.
6. “The World’s Technological Capacity to Store, Communicate, and Compute Information,” Science, April 1, 2011.
7. Again, see “The World’s Technological Capacity to Store, Communicate, and Compute Information,” Science, April 1, 2011.
8. Two Centuries of Productivity Growth in Computing, Nordhaus’ January 2007 study.
9. “The Rise of the Intangible Economy: U.S. GDP Counts R&D, Artistic Creation,” Bloomberg, July 18, 2013.
10. For an explanation of how the Bureau of Economic Analysis calculates deflators for software, refer to “Private Fixed Investment,” pp. 30–31.
11. “The Challenge of Central Banking in a Democratic Society,” Greenspan’s December 5, 1996 speech.
12. See my Topical Study “The Technology Lottery,” November 22, 1999.
13. See my Topical Study “The Baby Boom Chart Book 1991,” October 9, 1991.
14. “In Search of Productivity,” Roach’s article in the Harvard Business Review, September–October 1998.
15. “Alternative Hours Data and Their Impact on Productivity Change,” Bureau of Labor Statistics, July 2003, p. 9.
16. See Laurence H. Meyer’s book A Term at the Fed: An Insider’s View (2006), pages 6 and 16.
17. Refer to Meyer, page 18.
18. Refer to Meyer, page 38.
19. Refer to Meyer, page 135.
20. Refer to Meyer, page 132.
21. Refer to Meyer, page 126.
22. “The Productivity Mirage,” Cassidy’s article in The New Yorker, November 27, 2000.
23. “Bundesbank Mocks US IT Book-Cooking,” Grant’s article in the Financial Times, September 4, 2000.
24. “A Note on the Impact of Hedonics and Computers on Real GDP,” in the Bureau of Economic Analysis (BEA) Survey of Current Business, December 2000.
25. “Who’s Afraid of Stephen Roach?” Barron’s, December 6, 2004.
26. “Silicon Valley Doesn’t Believe U.S. Productivity Is Down,” The Wall Street Journal, July 16, 2015.
27. “Does the United States Have a Productivity Slowdown or a Measurement Problem?” Brookings Papers on Economic Activity, Spring 2016.
28. The Coming Productivity Boom: Transforming the Physical Economy with Information, Technology CEO Council, March 2017.
29. Robert J. Gordon, The Rise and Fall of American Growth: The U.S. Standard of Living Since the Civil War (2016).
30. “Why Innovation Won’t Save Us,” Gordon’s article in The Wall Street Journal, December 21, 2012.
31. See my November 27, 2012 Morning Briefing, “Woe Is Us!”
32. Philippe Harelle was quoted in the November 23, 2016 Bloomberg article “Solar-Panel Roads to Be Built on Four Continents Next Year.”
33. Rethinking Transportation 2020–2030, May 2017 report by James Arbib and Tony Seba.
34. “Daddy, What Was a Truck Driver?” The Wall Street Journal, June 23, 2013.
35. “Terry Gou: Managing ‘1m Animals’ [updated with Foxconn statement],” Financial Times, January 20, 2012.
36. Watch the robot “Baxter” at work on YouTube.
37. “A Revolution in the Making,”  The Wall Street Journal, June 10, 2013.
38. “A San Francisco Startup 3D Printed a Whole House in 24 Hours,” March 7, 2017 article on engadget.com. Don’t miss the embedded video.
39. “How 3-D Printers Could Erase a Quarter of Global Trade by 2060,” Bloomberg, October 3, 2017.
40. George Gilbert, “Wikibon Trip Report from IBM’s Watson Developer Conference: Keep It Simple, Geniuses,” blog post, SiliconANGLE, November 15, 2016.
41. “Quantum Computers Ready to Leap Out of the Lab in 2017,” Scientific American, January 4, 2017.
42. Moore’s Law at 50: The Performance and Prospects of the Exponential Economy, American Enterprise Institute, November 10, 2015.
43. I am including employment in: publishing; motion picture and sound recording; broadcasting; telecommunications; data processing, hosting, and related services; computer and electronic products manufacturing; and other information services.
44. “A Warning from Bill Gates, Elon Musk, and Stephen Hawking,” freeCodeCamp, February 18, 2017.
45. “The Robot that Takes Your Job Should Pay Taxes, says Bill Gates,” Quartz Media, February 17, 2017.
46. “Why Taxing Robots Is Not a Good Idea,” The Economist, February 25, 2017.
47. Draft Report with Recommendations to the Commission on Civil Law Rules on Robotics, European Parliament Committee on Legal Affairs, May 31, 2016.
48. “Robots Are Wealth Creators and Taxing Them Is Illogical,” Summers’ article in the Financial Times, March 5, 2017.

Chapter 4: Predicting Inflation

1. Cost-of-Living Adjustment Clauses in Union Contracts: A Summary of Results, July 1983 study by Ronald G. Ehrenberg of Cornell University, Leif Danziger of Tel Aviv University, and Gee San of Cornell University.
2. Stuart E. Weiner, “Union COLA’s on the Decline,” Federal Reserve Bank of Kansas City, Economic Review, June 1986.
3. See my Topical Study “Economic Consequences of the Internet,” October 22, 1996.
4. “Deflation: Making Sure ‘It’ Doesn’t Happen Here,” Bernanke’s November 21, 2002 speech.
5. See my Topical Study “The Economic Consequences of the Peace,” May 7, 1997.
6. The quote appears on p. 150 of Ron Chernow’s Titan: The Life of John D. Rockefeller, Sr. (1998).
7. The Bank for International Settlements compiled in October 1998 a list of sound banking practices. See Basle Committee on Banking Supervision, “Sound Practices for Loan Accounting, Credit Risk Disclosure and Related Matters.”
8. Countries that have the best legal protection for investors tend to have the biggest capital markets and the least concentration of share ownership. See Rafael La Porta, Florencio Lopez-de-Silanes, Andrei Shleifer, and Robert W. Vishny, “Law and Finance,” NBER Working Paper No. 5661, July 1996. See also their NBER Working Paper No. 5879, “Legal Determinants of External Finance,” January 1997.
9. Sheryl WuDunn wrote an interesting article, “In Asia, Firms ‘Fail’ but Stay Open,” in the International Herald Tribune dated September 9, 1998 (the link no longer is available). She discussed the systems that allowed “failed” Asian corporations to remain in business nonetheless. “[G]overnments and legal systems routinely protect tycoons from their own incompetence, setting the stage not for a Darwinian struggle but for the survival of the flimsiest.” In many countries in Asia, the legal framework for bankruptcy is vague and loosely formed.
10. Yellen’s March 19, 2014 press conference.
11. “The ‘New Normal’ and What It Means for Monetary Policy,” Brainard’s September 12, 2016 speech.
12. Refer to the Bureau of Labor Statistics’ latest JOLTS release.
13. In 1977, country singer Johnny Paycheck popularized a song titled “Take This Job and Shove It.” It’s about the bitterness of a man who worked long and hard with no apparent reward. However, he quit not for a better job but because his “woman done left and took all the reasons” for working.
14. See the latest monthly Employment Situation release from the Bureau of Labor Statistics.
15. “Opening Pandora’s Box: The Measurement of Average Wages,” Ritter’s article in the Federal Reserve Bank of St. Louis’ Review, March/April 1996.
16. See the latest Employment Cost Index report from the Bureau of Labor Statistics.
17. Again, see “Opening Pandora’s Box: The Measurement of Average Wages.”
18. See the latest Productivity and Costs report from the Bureau of Labor Statistics.
19. “Reconciling the Divergence in Aggregate U.S. Wage Series,” BLS Working Paper No. 486, January 2016.
20. See the Federal Reserve Bank of Atlanta’s “Wage Growth Tracker” website.
21. See the first footnote in the Federal Reserve Board’s Monetary Policy Report submitted to Congress on February 17, 2000.
22. “Transparency in Monetary Policy,” Greenspan’s October 11, 2001 speech.
23. “Federal Reserve issues FOMC statement of longer-run goals and policy strategy,” January 25, 2012 press release.
24. Final Report of the Advisory Commission to Study the Consumer Price Index, the December 1996 report of the US Senate Committee on Finance.
25. “Price Measurement in the United States: A Decade After the Boskin Report,” Monthly Labor Review, May 2006.
26. See the first footnote in the Federal Reserve Board’s Monetary Policy Report submitted to Congress on February 17, 2000.
27. “How the CPI measures price change of owners’ equivalent rent of primary residence (OER) and Rent of primary residence (Rent),” factsheet prepared by the Bureau of Labor Statistics.
28. According to the Bureau of Labor Statistics, “These include fees (not recouped through health insurance) that consumers paid directly to retail outlets for medical goods and to doctors and other medical providers for medical services, as well as health insurance premiums that consumers paid (including Medicare Part B). To arrive at the consumer out-of-pocket medical expense, the [Consumer Expenditure Survey] nets out direct insurance reimbursements to the consumer from the total amounts paid by the consumer. Since medical care only includes consumers’ out-of-pocket expenditures (and excludes employer provided health care), its share in the CPI is smaller than its share of gross domestic product (GDP) and other national accounts measures.” See “Measuring Price Change for Medical Care in the CPI.”
29. “Comparing the Consumer Price Index and the Personal Consumption Expenditures Price Index,” the Bureau of Economic Analysis’ Survey of Current Business, November 2007.
30. The Bureau of Labor Statistics discusses this perception discrepancy in “The Consumer Price Index—Why the Published Averages Don’t Always Match An Individual’s Inflation Experience.”

Chapter 5: Predicting Business Cycles

1. The BEA switched in 1991 to emphasizing GDP rather than GNP. GDP is the most commonly used measure of the market value of all goods and services produced in an economy. It is limited to production in the United States, while GNP measures the production of American or American-owned entities anywhere in the world.
2. Real GDP is the broadest measure of the goods and services produced in an economy, while real GDI measures the total income generated by that production. In theory, the two should be equal, though in practice, there is a small statistical discrepancy.
3. For more information, see the NBER’s webpage “Business Cycle Dating Procedure: Frequently Asked Questions.”
4. See the Federal Reserve Bank of Atlanta’s “GDPNow” webpage and the Federal Reserve Bank of New York’s “Nowcasting Report” webpage.
5. The six financial indicators of the Leading Credit Index are: 2-year swap spread (real time), 3-month LIBOR less 3-month Treasury-Bill yield spread (real time), debit balances at margin account at broker dealer (monthly), AAII Investors Sentiment Bullish (%) less Bearish (%) (weekly), Senior Loan Officers C&I loan survey’s bank tightening credit to large and medium firms (quarterly), and securities repurchases (quarterly) from the Total Finance-Liabilities section of the Federal Reserve’s flow of funds report. See the Conference Board’s December 2011 Working Paper No. 11-05, “Using a Leading Credit Index to Predict Turning Points in the U.S. Business Cycle.”
6. Irving Fisher was prominent among the 1,028 economists who in vain petitioned Herbert Hoover to veto the Smoot–Hawley tariff of 1930. He was adamant that ending deflation required abandoning the gold standard.
7. “The Debt-Deflation Theory of the Great Depression,” Fisher’s 1933 article.
8. “The Financial Accelerator and the Flight to Quality,” NBER Working Paper No. 4789, July 1994.
9. “The Financial Accelerator and the Credit Channel,” Bernanke’s June 15, 2007 speech.
10. For more background on this, see federalreservehistory.org’s webpage on the “Full Employment and Balanced Growth Act of 1978,” commonly called the “Humphrey–Hawkins Act.”
11. “The Great Moderation,” Bernanke’s February 20, 2004 speech.
12. See the May 9, 1939 meeting transcript from the Franklin D. Roosevelt Library’s online “Henry Morgenthau Diary.”
13. The Job Impact of the American Recovery and Reinvestment Plan, the January 9, 2009 report by Christina Romer and Jared Bernstein.
14. See the BEA’s website for links to Measuring the Economy: A Primer on GDP and the National Income and Product Accounts and Concepts and Methods of the U.S. National Income and Product Accounts.

Chapter 6: Predicting Consumers

1. The US Census Bureau reckons that the Millennials were born between 1982 and 2000. See the Bureau’s webpage “Millennials Outnumber Baby Boomers and Are Far More Diverse, Census Bureau Reports.”
2. The Pew Research Center divides the generations in the same way as I do; see “Comparing Millennials to Other Generations” on Pew’s website.
3. See the latest JOLTS release from the Bureau of Labor Statistics (BLS).
4. Total separations includes quits, layoffs and discharges, and other separations. Total separations is referred to as “turnover.” Quits are generally voluntary separations initiated by the employee. Therefore, the quits rate can serve as a measure of workers’ willingness or ability to leave jobs. Layoffs and discharges are involuntary separations initiated by the employer. Other separations include ones due to retirement, death, disability, and transfers to other locations of the same firm.
5. See the “Employment Situation Technical Note” on the BLS website.
6. According to the BLS: “People are classified as employed if they did any work at all as paid employees during the reference week; worked in their own business, profession, or on their own farm; or worked without pay at least 15 hours in a family business or farm. People are also counted as employed if they were temporarily absent from their jobs because of illness, bad weather, vacation, labor-management disputes, or personal reasons. People are classified as unemployed if they meet all of the following criteria: they had no employment during the reference week; they were available for work at that time; and they made specific efforts to find employment sometime during the 4-week period ending with the reference week. Persons laid off from a job and expecting recall need not be looking for work to be counted as unemployed. The unemployment data derived from the household survey in no way depend upon the eligibility for or receipt of unemployment insurance benefits.” Again, refer to the BLS’s latest “Employment Situation Technical Note.”
7. Again, see the “Employment Situation Technical Note” on the BLS website.
8. See the BLS’s “CES Net Birth/Death Model.”
9. The authors of a fall 2016 Brookings Institution paper attributed more than half of the increase in labor force participation over the past decade to retirees; see Stephanie Aaronson et al., “Labor Force Participation: Recent Developments and Future Prospects,” Brookings Papers on Economic Activity, Fall 2014.
10. For more information, refer to the BEA’s detailed explanation of “Compensation of Employees.”
11. Refer to the BEA’s detailed explanation of “Nonfarm Proprietors’ Income.”
12. See the BEA’s explanation of “Housing Services in the National Economic Accounts.”
13. “Alternative Measures of Personal Saving,” BEA, Survey of Current Business, March 2012.
14. “This Is Your Brain at the Mall: Why Shopping Makes You Feel So Good,” The Wall Street Journal, December 6, 2005.
15. “Shopping, Dopamine, and Anticipation,” Psychology Today, October 22, 2015.

Chapter 7: Predicting Demography

1. See, for example, “People Around You Control Your Mind: The Latest Evidence,” The Washington Post, December 4, 2014.
2. “Mother’s Little Helper” was released in 1966 on the album Aftermath.
3. “State-Specific Healthy Life Expectancy at Age 65 Years—United States, 2007–2009,” Centers for Disease Control and Prevention, July 19, 2013.
4. “Technical Notes: International Comparisons of Annual Labor Force Statistics, 1970–2012,” BLS.
5. “Boomers Spend Their Kids’ Inheritance—on Supporting Them,” Barron’s, June 26, 2015.
6. See the Fed’s October 3, 2016 study, “Understanding the New Normal: The Role of Demographics,” Finance and Economics Discussion Series 2016-2080.
7. “The Effect of Population Aging on Economic Growth, the Labor Force and Productivity,” NBER Working Paper No. 22452, July 2016.
8. See the December 28, 2015 report by Arlene Wong, Population Aging and the Transmission of Monetary Policy to Consumption.
9. “Why Are Interest Rates So Low? Causes and Implications,” Fischer’s October 17, 2016 speech.
10. As I note in the previous chapter, the US Census Bureau defines the Millennials as people born between 1982 and 2000. See the Bureau’s June 25, 2015 press release titled “Millennials Outnumber Baby Boomers and Are Far More Diverse, Census Bureau Reports.” On the other hand, the Pew Research Center divides the generations in the same way as I do; see “Comparing Millennials to Other Generations.”
11. “Mean Age of Mothers Is on the Rise: United States, 2000–2014,” NCHS Data Brief, No. 232, January 2016.
12. The Changing Economics and Demographics of Young Adulthood: 1975–2016, Census Bureau, April 2017.
13. Student Debt and the Class of 2015, The Institute for College Access & Success, October 2016.
14. Quick Facts about Student Debt, The Institute for College Access & Success, March 2014.
15. “Are Student Loans as Big of a Problem as People Think?” USA Today, July 7, 2017.
16. “Singles, Mingles and Wedding Jingles: Partnerships and Living Arrangements from 1967 to 2014,” Census Bureau blog, July 13, 2015.
17. “Definitions and Explanations,” Census Bureau.
18. “About Income,” Census Bureau.
19. The Census Bureau uses the research series of the Consumer Price Index (CPI-U-RS), provided by the BLS, to adjust for changes in the cost of living. See Appendix A in Income and Poverty in the United States: 2016. Also see the BLS statement on “Updated CPI-U-RS, All items and All items less food and energy, 1978–2016.”
20. See the Census Bureau Current Population Survey’s “Income Definitions.”
21. See the IRS’s “2017 EITC Income Limits, Maximum Credit Amounts and Tax Law Updates.”
22. Alternative Measures of Household Income: BEA Personal Income, CPS Money Income, and Beyond, BEA and Census Bureau study, November 2004.
23. More information can be found in the Census Bureau report Income and Poverty in the United States: 2016.
24. See Table 3 on p. 30 of “A Consistent Data Series to Evaluate Growth and Inequality in the National Accounts,” the National Poverty Center’s Working Paper 16-04, July 2016.
25. Productivity and Costs, BLS report.
26. A June 2017 BLS study titled Understanding the Labor Productivity and Compensation Gap concluded: “A full 83 percent of industries studied here had productivity–compensation gaps when the same deflator was used for output and compensation. These gaps came from a declining labor share of income. Sectors with the strongest declines in labor share included manufacturing, information, retail trade, and transportation and warehousing. Although the causes of the decline in labor share are still unclear, focusing on industries may help to isolate and understand the causes unique to each industry.”

Chapter 8: Predicting Real Estate

1. The Monthly New Residential Construction releases are issued jointly by the US Census Bureau and the US Department of Housing and Urban Development.

2. The Monthly New Residential Sales releases are issued jointly by the US Census Bureau and the US Department of Housing and Urban Development.

3. “Center for Microeconomic Data,” New York Federal Reserve Bank webpage.

4. See the Federal Reserve’s latest Financial Accounts of the United States.

5. A good source of information on US housing policy and mortgage lending from the early 20th century through the late 1980s is a paper by Marc A. Weiss, Marketing and Financing Home Ownership: Mortgage Lending and Public Policy in the United States, 1918–1989.
6. For more information, refer to the report of the Federal Housing Finance Agency (Office of Inspector General) titled A Brief History of the Housing Government-Sponsored Enterprises.

7. “Tax Break May Have Helped Cause Housing Bubble,” The New York Times, December 18, 2008.

8. Wayne Barrett, “Andrew Cuomo and Fannie and Freddie,” Village Voice, August 5, 2008.
9. Following a lengthy investigation, the Senate Ethics Committee concluded in 1991 that Cranston, DeConcini, and Riegle had improperly interfered with the FHLBB’s investigation of Lincoln Savings. Senators Glenn and McCain were cleared but were chastised for their “poor judgment.” Keating’s convictions were overturned in 1996.
10. The SAIF and its sister fund for banks, the Bank Insurance Fund, were administered by the FDIC until 2006, when they were merged by the Federal Deposit Insurance Reform Act of 2005 to create the Depositor Insurance Fund.
11. “25 People to Blame for the Financial Crisis,” Time magazine’s website.
12. “Citi’s Creator: Alone With His Regrets,” The New York Times, January 2, 2010. The article reported that Citigroup CEO Sandy Weill hung in his office “a hunk of wood—at least 4 feet wide—etched with his portrait and the words ‘The Shatterer of Glass-Steagall.’”
13. On this subject, The Financial Crisis Inquiry Report (2011) stated, “The Commission concludes the CRA was not a significant factor in subprime lending or the crisis. Many subprime lenders were not subject to the CRA. Research indicates only 6% of high-cost loans—a proxy for subprime loans—had any connection to the law. Loans made by CRA-regulated lenders in the neighborhoods in which they were required to lend were half as likely to default as similar loans made in the same neighborhoods by independent mortgage originators not subject to the law.” See p. xxvii.
14. “Zero Down Payment,” HUD’s January 19, 2004 press release.
15. See “Fannie Mae and Freddie Mac Invest in Democrats” on opensecrets.org.
16. “Lawmaker Accused of Fannie Mae Conflict of Interest,” Fox News, October 3, 2008.
17. “Federal Reserve Board’s Semiannual Monetary Policy Report to the Congress,” Greenspan’s February 16, 2005 congressional testimony.
18. “Deflation: Making Sure ‘It’ Doesn’t Happen Here,” Bernanke’s November 21, 2002 speech.
19. See the US Commodity Futures Trading Commission Handbook.
20. “Joint Statement” by Rubin, Greenspan, and Levitt, US Treasury, May 7, 1998.
21. “Regulatory Responses to Risks in the OTC Derivatives Market,” Born’s November 13, 1998 speech.
22. “Who’s in Charge? Agency Infighting and Regulatory Uncertainty,” The New York Times, December 15, 1998.
23. Hedge Funds, Leverage, and the Lessons of Long-Term Capital Management, President’s Working Group on Financial Markets report, April 28, 1999.
24. Over-the-Counter Derivatives Markets and the Commodity Exchange Act, President’s Working Group on Financial Markets report, November 9, 1999.
25. “Securities Regulation After Glass–Steagall Reform,” SEC Commissioner Norman S. Johnson’s March 3, 2000 speech.
26. The Financial Crisis Inquiry Report, specifically Figure 7.2 on p. 116, Figure 8.1 on p. 128, and Figure 8.2 on p. 144.
27. The Financial Crisis Inquiry Report, p. xxii.
28. Check out the cover of the February 15, 1999 issue of Time, featuring Robert Rubin, Alan Greenspan, and Larry Summers, and the corresponding article, “The Three Marketeers.”
29. For more on the housing GSEs’ conservatorship, see the Federal Housing Finance Agency’s “FHFA as Conservator of Fannie Mae and Freddie Mac.”
30. “Regulator Shopping,” editorial in The New York Times, May 20, 2009.
31. “What the Financial Crisis Commission Concluded About AIG’s Failure,” Insurance Journal, January 27, 2011.
32. See my Topical Study “After Alan: HELs To Pay?” May 3, 2005.
33. “The Subprime Mortgage Market,” Bernanke’s May 17, 2007 speech.
34. “Do Not Destroy the Essential Catalyst of Risk,” Blankfein’s Financial Times op-ed of February 8, 2009.
35. The Financial Crisis Inquiry Report, p. xxv.
36. “Debt Watchdogs: Tamed or Caught Napping?” Morgenson’s article in The New York Times, December 6, 2008.
37. “Testimony Concerning Oversight of Nationally Recognized Statistical Rating Organizations,” Cox’s April 22, 2008 congressional testimony.
38. “How Moody’s Faltered,” Financial Times, October 17, 2008.
39. “AIG Trail Leads to London ‘Casino’,” The Telegraph, October 18, 2008.
40. “AIG Said to Pay $450 Million to Retain Swaps Staff (Update1),” Bloomberg News, January 27, 2009.
41. Again, see “AIG Trail Leads to London ‘Casino’.”
42. “Bernanke Blasts AIG for ‘Irresponsible Bets’ that Led to Bailouts,” The Washington Post, March 4, 2009.
43. “The Goldman Two-Step,” The Wall Street Journal, April 15, 2009.
44. See “Testimony of Dr. Alan Greenspan,” October 23, 2008, before the US House of Representatives’ Committee of Government Oversight and Reform. The Q&A portion is available in an October 24, 2008 Washington Times article titled “He Found the Flaw?”
45. Again, see Greenspan’s October 23, 2008 testimony and the October 24, 2008 Washington Times article for the Q&A.
46. “Deregulation and the Financial Panic,” Gramm’s op-ed in The Wall Street Journal, February 20, 2009.
47. “Henry Kaufman on Financial Reform: He Told Us So,” The Economist, August 27, 2009. Kaufman did have more to say about Lehman in Tectonic Shifts in Financial Markets (2016). However, rather than recounting his experiences at Lehman as board director, he blamed US Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke for letting the firm fail. See Appendix 8.3, Bernanke’s Fed and the Lehman Bankruptcy.
48. “Clinton: I Was Wrong to Listen to Wrong Advice Against Regulating Derivatives,” ABCNews.com, April 18, 2010.
49. “How the Bailout Bashed the Banks,” Fortune, June 22, 2009.
50. The Financial Crisis Inquiry Report, p. 142.
51. “Temporary Liquidity Guarantee Program,” FDIC factsheet.
52. “Credit and Liquidity Programs and the Balance Sheet,” Federal Reserve Board webpage.
53. “Chronology of Fed’s Quantitative Easing,” YRI webpage.

Chapter 9: Predicting the Fed

1. “Federal Reserve Act,” Federal Reserve Board webpage.
2. The 12 district banks are headquartered in Atlanta, Boston, Chicago, Cleveland, Dallas, Kansas City, Minneapolis, New York, Philadelphia, Richmond, San Francisco, and St. Louis.
3. For more information on the Employment Act of 1946, see federalreservehistory.org.
4. “The Federal Reserve’s ‘Dual Mandate’: The Evolution of an Idea,” Federal Reserve Bank of Richmond, Economic Brief, December 2011.
5. By law, Federal Reserve Board appointments must yield a “fair representation of the financial, agricultural, industrial, and commercial interests and geographical divisions of the country,” and no two governors may come from the same Federal Reserve District.
6. “Who are the Members of the Federal Reserve Board, and How Are They Selected?” Federal Reserve Board webpage.
7. The rotating seats are filled from the following four groups of Federal Reserve Banks, with one bank president from each group: Boston, Philadelphia, and Richmond; Cleveland and Chicago; Atlanta, St. Louis, and Dallas; and Minneapolis, Kansas City, and San Francisco.
8. The Fed district presidents are chosen by a search committee composed of the regional banks’ directors. Once a candidate is formally appointed, he or she must be approved by the Board of Governors.
9. See the The Wall Street Journal’s “Fed Statement Tracker.”
10. “A Short History of FOMC Communication,” Dallas Federal Reserve Bank article, September 2013.
11. For more information, refer to the “FOMC Meeting Calendars, Statements, and Minutes.”
12. Again, see the “FOMC Meeting Calendars, Statements, and Minutes.”
13. In 1993, Representative Henry B. Gonzalez (a Democrat from Texas and Chairman of the House Banking Committee) attacked the FOMC’s disclosure policy on the grounds that the public deserved more detailed coverage of FOMC meetings. In response, the Federal Reserve instituted its current minutes policy and subsequently released historical transcripts, after light editing, with a five-year lag.
14. FOMC Statements since 1997,” YRI webpage.
15. Martin Zweig,  Winning on Wall Street (New York: Warner Books, 1986), pp. 42–43.
16. “Yalies Yellen-Hamada Put Tobin Twist Theory to Workin QE,” Bloomberg, October 31, 2013.
17. The model was developed by John Hicks in 1937 and later extended by Alvin Hansen. It remains the leading framework shown in macroeconomic textbooks, as it has been since the 1940s.
18. “Rahm Emanuel on the Opportunities of Crisis,” The Wall Street Journal, November 18, 2008.
19. If Rahm’s advice seems Machiavellian, well, it is. Sixteenth-century Italian political theorist Niccolò Machiavelli advised in his famous treatise The Prince: “Never waste the opportunity offered by a good crisis.” However, it was Winston Churchill who reputedly popularized the sentiment.
20. “Meet the Economists,” Federal Reserve Board webpage.
21. “How Economics PhDs Took Over the Federal Reserve,” Harvard Business Review, February 3, 2014.
22. “The Treasury-Fed Accord: A New Narrative Account,” by Hetzel and Leach, in the Federal Reserve Bank of Richmond Economic Quarterly, Winter 2001.
23. See the transcript of Martin’s “Address before the New York Group of the Investment Bankers Association of America,” October 19, 1955.
24. Refer to the 1946 book Measuring Business Cycles, written by Burns and Mitchell and published by the NBER.
25. See former Fed Chairman Arthur Burns’ obituary, The New York Times, June 27, 1987.
26. Transcript of Carter’s televised speech “Crisis of Confidence,” delivered on July 15, 1979.
27. “Jimmy Carter’s ‘Malaise’ Speech Was Popular!” The Washington Post, August 9, 2013.
28. For more on Volcker’s impactful October 6, 1979 monetary policy announcement, see the Federal Reserve Bank of San Francisco’s December 3, 2004 Economic Letter titled simply “October 6, 1979.” Also, see the collection of articles on this subject in the Federal Reserve Bank of St. Louis’ Review, March/April 2005.
29. “Fed Squeezes Credit, Raises Lending Rate,” The Washington Post, October 7, 1979.
30. “A Talk With Paul Volcker,” The New York Times, September 19, 1982.
31. “What Remains of Milton Friedman’s Monetarism?,” Hetzel’s Federal Reserve Bank of Richmond working paper, July 13, 2017.
32. “Senate, by 91 to 2, Backs Greenspan as Fed Chief,” The New York Times, August 4, 1987.
33. “Dr. Greenspan’s Amazing Invisible Thesis,” Barron’s, March 31, 2008.
34. “Looking at Greenspan’s Long-Lost Thesis,” Barron’s, April 28, 2008.
35. According to Wikiquote.com, there’s no hard evidence that Greenspan said the following, although it is often attributed to him: “I know you think you understand what you thought I said, but I’m not sure you realize that what you heard is not what I meant.” Nevertheless, it did apply to many of his public pronouncements, especially when he testified in Congress.
36. “The Challenge of Central Banking in a Democratic Society,” Greenspan’s December 5, 1996 speech.
37. “Deflation: Making Sure ‘It’ Doesn’t Happen Here,” Bernanke’s November 21, 2002 speech.
38. See the Federal Reserve Board of Governors’ statement “Application of the Commodity Exchange Act to Transactions in Over-the-Counter Derivatives,” submitted before the House of Representatives Agricultural Committee’s Subcommittee on Risk Management and Specialty Crops on June 10, 1998.
39. “The Regulation of OTC Derivatives,” Greenspan’s July 24, 1998 congressional testimony.
40. “Over-the-Counter Derivatives,” Greenspan’s February 10, 2000 congressional testimony.
41. See the transcript of the congressional “Testimony of Lawrence H. Summers,” June 21, 2000.
42. “Understanding Household Debt Obligations,” Greenspan’s February 23, 2004 speech.
43.  “Risk Transfer and Financial Stability,” Greenspan’s May 5, 2005 speech.
44. See Greenspan’s February 17, 2009 speech before the Economic Club of New York.
45. “The Great Moderation,” Bernanke’s February 20, 2004 speech.
46. “The Political Economy of the Smoot-Hawley Tariff,” Eichengreen’s NBER Working Paper No. 2001, August 1986.
47. “The Federal Reserve and the Financial Crisis Origins and Mission of the Federal Reserve,” Bernanke’s March 20, 2012 lecture. Also see Appendix 8.1, Hollywood’s S&L Cautionary Tale: It’s a Wonderful Life.
48. See Roger Lowenstein’s article on Bernanke, “The Villain,” The Atlantic, April 2012.
49. “Deflation: Making Sure ‘It’ Doesn’t Happen Here,” Bernanke’s November 21, 2002 speech.
50. “Japanese Monetary Policy: A Case of Self-Induced Paralysis?” Bernanke’s January 9, 2000 speech.
51. “Chronology of Fed’s Quantitative Easing,” YRI webpage.
52. “The Economic Outlook and Monetary Policy,” Bernanke’s remarks at the August 27, 2010 Jackson Hole symposium.
53. “The Outlook, Policy Choices and Our Mandate,” Dudley’s October 1, 2010 speech.
54. “What the Fed Did and Why: Supporting the Recovery and Sustaining Price Stability,” Bernanke’s op-ed in The Washington Post, November 4, 2010.
55. “How the Fed Saved the Economy,” Bernanke’s op-ed in The Wall Street Journal, October 4, 2015.
56. “Yale Economics in Washington,” Yellen’s April 16, 1999 speech.
57. See the transcript of Yellen’s March 19, 2014 press conference.
58. “What the Federal Reserve Is Doing to Promote a Stronger Job Market,” Yellen’s March 31, 2014 speech.
59. “Janet Yellen’s Human Message Gets Clouded,” The Wall Street Journal, April 1, 2014.
60. See the July 21, 2014 New Yorker profile of Janet Yellen, “The Hand on the Lever,” by Nicholas Lemann.
61. George Akerlof won the 2001 Nobel Prize in economics mostly for his work on asymmetrical information in an article titled “The Market for ‘Lemons’: Quality Uncertainty and the Market Mechanism,” published in the Quarterly Journal of Economics in 1970. He shared the prize with Michael Spence and Joseph Stiglitz for their research related to asymmetric information.
62. “Macroeconomic Research After the Crisis,” Yellen’s October 14, 2016 speech.
63. The speaker is unknown, but Snopes.com asserts that it definitely wasn’t Yogi Berra, to whom the comment is commonly attributed.
64. “Inflation, Uncertainty, and Monetary Policy,” Yellen’s September 26, 2017 speech.
65. “The U.S. Economy and Monetary Policy,” Yellen’s October 15, 2017 speech.
66. See “Monetary Policy Rules and Their Role in the Federal Reserve’s Policy Process,” pp. 36–39 in the Monetary Policy Report, July 2017.
67. “Whatever It Takes,” Draghi’s July 26, 2012 speech.
68. “Chronology of ECB Monetary Policy Actions: 2014–Present,” YRI webpage.
69. See the BOJ’s April 4, 2013 press release on its QQE program: “Introduction of the ‘Quantitative and Qualitative Monetary Easing.’”
70. See the BOJ’s October 31, 2014 press release on the expansion of its QQE program: “Expansion of the Quantitative and Qualitative Monetary Easing.”
71. “Bank of Japan’s Kuroda Channels Peter Pan’s Happy Thoughts,” The Wall Street Journal, June 4, 2015.

Chapter 10: Predicting Bonds

1. In 1948, Kaufman received a BA in economics from New York University, followed by an MS in finance from Columbia University in 1949 and a PhD in banking and finance from New York University Graduate School of Business Administration in 1958. Kaufman worked in commercial banking and served as an economist at the Federal Reserve Bank of New York. After the Federal Reserve, he spent 26 years with Salomon Brothers, where he was the managing director, a member of the executive committee, and in charge of the firm’s four research departments.
2. You can find the latest version of the Federal Reserve Board’s comprehensive quarterly data release online in the Financial Accounts of the United States. The report provides full balance sheets, including net worth, for households and nonprofit organizations, nonfinancial corporate businesses, and nonfinancial noncorporate businesses—with supplemental details as well.
3. Annual data for outstanding levels start in 1945, and flows start in 1946.
4. For example, in May 1984, Continental Illinois National Bank and Trust Company experienced a bank run after troubles that originated with nonperforming loans purchased from the failed Penn Square.
5. See my Topical Study “The Coming Shortage of Bonds,” June 20,1988.
6. “Outlook for the Federal Budget and Implications for Fiscal Policy,” Greenspan’s January 25, 2001 congressional testimony.
7. “Bond Vigilantes and Inflation,” Federal Reserve Bank of San Francisco’s August 2015 Working Paper, p.25.
8. Have Gun—Will Travel was an American Western television series from 1957 through 1963. It starred Richard Boone in the lead role as Paladin, a mercenary gunfighter who would provide his services for a fee, or for free to those who had a good cause but not enough money.
9. See the US Treasury’s “Timeline of Treasury Inflation-Protected Securities (TIPS).”
10. See the FOMC October 27–28, 2015 meeting minutes.
11. “The Economic Outlook and Monetary Policy,” Yellen’s December 2, 2015 speech.
12. “Monetary Policy in a Low R-star World,” Williams’ August 15 , 2016 commentary.
13. “The ‘New Normal’ and What It Means for Monetary Policy,” Brainard’s September 12, 2016 speech.
14. “Low Interest Rates,” Fischer’s October 5, 2016 speech.
15. The Conference Board added the difference between the 10-year Treasury note yield and the federal funds rate to the LEI in 1996 in a revision that also deleted two components of the LEI, the change in the index of sensitive materials prices and the change in manufacturers’ unfilled orders for durable goods.
16. The New Treatment of the Yield Spread in the TCB Composite Index of Leading Indicators, Conference Board 2005 report.
17. “Federal Reserve Board’s Semiannual Monetary Policy Report to the Congress,” Greenspan’s February 16, 2005 congressional testimony.
18. “The Global Saving Glut and the U.S. Current Account Deficit,” Bernanke’s March 10, 2005 speech.
19. “Why Are Interest Rates So Low, Part 3: The Global Savings Glut,” Bernanke’s April 1, 2015 blog post.
20. “Deflation: Making Sure ‘It’ Doesn’t Happen Here,” Bernanke’s November 21, 2002 speech.
21. “The Bond Vigilantes,” The Wall Street Journal, May 29, 2009.
22. A Google search for the phrase “bond vigilantes” on January 18, 2018 yielded approximately 64,500 links.
23. “What the Fed Did and Why: Supporting the Recovery and Sustaining Price Stability,” Bernanke’s op-ed in The Washington Post, November 4, 2010.
24. “Chronology of Fed’s Quantitative Easing,” YRI webpage.
25. “Whatever It Takes,” Draghi’s July 26, 2012 speech.
26. “Chronology of ECB Monetary Policy Actions,” YRI webpage.
27. “What Tools Does the Fed Have Left? Part 3: Helicopter Money,” Bernanke’s April 11, 2016 blog post.
28. See the Fed’s Financial Accounts of the United States. Also see outlines of the financial instruments and sectors included in this database in Appendix 10.1 and Appendix 10.2.
29. The video of Greenspan’s interview is embedded in the article “Greenspan: Bond Bubble About to Break Because of ‘Abnormally Low’ Interest Rates,” CNBC, August 4, 2017.

Chapter 11: Predicting Commodities

1. See my Topical Study “China for Investors: The Growth Imperative,” November 7, 2003.
2. At the end of 2017, the following countries were members of OPEC: Algeria, Angola, Ecuador, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates, and Venezuela.
3. See my Topical Study “The Case for Lower Oil Prices,” December 12, 1984.
4. See the report Nuclear Energy and the Fossil Fuels by M. King Hubbert, dated June 1956.
5. World Energy Scenario 2016: The Grand Transition, World Energy Council.
6. See “The Forgotten Benefactor of Humanity,” The Atlantic, January 1997.
7. “The New Face of Hunger,” The Economist, April 17, 2008.
8. “Whatever Happened to the Food Crisis? It Crept Back,” The Economist, July 2, 2009.
9. Critical Materials Strategy, US Department of Energy’s report, December 2010.
10. See my Topical Study “China for Investors: The Growth Imperative,” November 7, 2003.
11. S&P GSCI Methodology, S&P Global, April 2017.

Chapter 12: Predicting Currencies

1. S&P 500® 2016 Global Sales, S&P Global report, July 2017.
2. “Burgernomics: A Big Mac™ Guide to Purchasing Power Parity,” Federal Reserve Bank of St. Louis’ Review, November/December 2003.
3. A “trade deficit” is the gap between the values of imports and exports when imports are greater; when the value of exports exceeds that of imports, a country is said to have a “trade surplus.”
4. The JP Morgan Nominal Broad Effective Exchange Rate reflects the currencies of Hungary, India, Indonesia, Israel, Italy, Japan, Korea, Kuwait, Malaysia, Mexico, Morocco, New Zealand, Nigeria, Norway, Pakistan, Panama, Peru, Philippines, Poland, Romania, Russia, Saudi Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Taiwan, Thailand, Turkey, Ukraine, the United Kingdom, Uruguay, Venezuela, and Vietnam.
5. For more about MSCI (formerly known as “Morgan Stanley Capital International”) and its global stock market indexes, see “Our Story” on MSCI’s website.
6. Joseph B. Treaster, Paul Volcker: The Making of a Financial Legend (2004), p.39.
7. The dollar doesn’t have to weaken if foreign capital inflows from private sources are large enough to offset the US trade deficit. This might happen if foreign investors were attracted by rising returns in a rebounding US economy. Indeed, it is conceivable that the dollar might even strengthen in value if enough foreign capital were attracted by investment opportunities in the United States. However, the actual experience over the past three and a half decades has been that the dollar has weakened as the US economy has recovered from recessions.
8. “The ‘New Normal’ and What It Means for Monetary Policy,” Brainard’s September 12, 2016 speech.
9. “Cross-Border Spillovers of Balance Sheet Normalization,” Brainard’s July 11, 2017 speech.

Chapter 13: Predicting Corporate Earnings

1. The SEC still allows company managements to meet privately with investors, and that special access has raised questions about whether some continue to have an advantage in obtaining material information.
2. The 11 S&P sectors are Consumer Discretionary, Consumer Staples, Energy, Financials, Health Care, Industrials, Information Technology, Materials, Real Estate, Telecommunication Services, and Utilities. Prior to September 1, 2016, when Real Estate was split from the Financials sector to become a sector in its own right, there were 10 sectors.
3. See YRI’s Stock Market Briefing: S&P 500 Earnings Squiggles Annually & Quarterly.
4. The different time series lines in our Blue Angels charts would collide if forward earnings turned negative, but this rarely happens for the broad market averages we track.
5. The NIPA profits measures are based on data from sources that provide information on a financial-accounting basis and on a tax-accounting basis. Several adjustments are made in the source data to meet the criteria for measuring profits on a NIPA basis. The IRS provides accounting measures, but this information, based on federal corporate income tax returns, is only published annually and with a two-year lag. Other more current sources are the Census Bureau’s Quarterly Financial Report and the Federal Deposit Insurance Corporation’s report on insured institutions, in the Quarterly Banking Profile. Any gaps in coverage are filled with estimates based on surveys of financial accounts from publicly available sources.
6. See the Internal Revenue Service’s “SOI Tax Stats — Corporation Tax Statistics” webpage.
7. Receipts by all US residents (including both corporations and persons) includes dividends from foreign corporations and US corporations’ share of the reinvested earnings of their incorporated foreign affiliates, and the earnings of unincorporated foreign affiliates, net of corresponding payments. The profits component of domestic income excludes the income earned abroad by US corporations and includes the income earned in the United States by foreign residents. See the BEA’s explanation of Corporate Profits, available on its website.
8. “Comparing NIPA Profits with S&P 500 Profits,” BEA Briefing, March 2011.
9. “Employee Stock Options and the National Economic Accounts,” BEA Briefing, February 2008.
10. S&P 500® 2016: Global Sales, S&P Global report July 2017.
11. See my Topical Study “Earnings: The Phantom Menace, Episode I,” August 16, 1999.
12. “The ‘Numbers Game’,” Levitt’s September 28, 1998 speech.
13. See Buffett’s March 1, 1999 letter to shareholders.
14. Sarbanes–Oxley Act of 2002.
15. The private, non-profit FASB replaced the American Institute of Certified Public Accountants’ Accounting Principles Board in this role on July 1,1973.
16. “Corporate Governance,” Greenspan’s March 26, 2002 speech.
17. Quoted from p. 6 of Thomson Reuters’ proprietary Methodology for Estimates, A Guide to Understanding Thomson Reuters Methodologies, Terms and Policies for I/B/E/S Estimates Databases, dated July 2015.
18. See Buffett’s February 27, 2016 letter to shareholders.
19. For more information, read the March 2016 report Skin in the Game: The Activities of Buy-Side Analysts and the Determinants of Their Stock Recommendations, by Lawrence D. Brown, Andrew C. Call, Michael B. Clement, and Nathan Y. Sharp.

Chapter 14: Predicting Valuation

1. “The Challenge of Central Banking in a Democratic Society,” Greenspan’s December 5, 1996 speech.
2. “Economic and Financial Developments in 1997,” the Fed’s Monetary Policy Report, Section 2, July 22, 1997.
3. The model can be updated weekly from March 1994, when I/B/E/S started to compile weekly forward earnings data for the S&P 500.
4. “Testimony of Chairman Alan Greenspan,” the Federal Reserve’s semiannual monetary policy report to Congress, July 22, 1997.
5. See my Topical Study “Fed’s Stock Market Model Finds Overvaluation,” August 25, 1997.
6. “Rules vs. Discretionary Monetary Policy,” Greenspan’s September 5, 1997 speech.
7.  Weekly data are available from January 19, 2006.
8. See my Topical Study “New, Improved Stock Valuation Model,” July 26,1999.
9. “Profits Without Prosperity,” Harvard Business Review, September 2014.
10. “Economic and Financial Developments in 1997 and Early 1998,” Fed’s Monetary Policy Report, Section 2, February 24,1998.
11. Fight the Fed Model: The Relationship between Stock Market Yields, Bond Market Yields, and Future Returns, Asness’ December 2002 study.
12. “Burning Up. Warning: Internet Companies Are Running Out of Cash—Fast,” Barron’s, March 20, 2000.
13. “Economic and Financial Developments in 2000 and Early 2001,” Fed’s Monetary Policy Report, Section 2, February 13, 2001.
14. As I noted at the beginning of this chapter, the forward P/E of the S&P 500 peaked at a record 24.5 during July 1999, up from 15.6 at the end of 1996, when Greenspan raised the valuation question. It fell to 21.9 by the end of 2000 and to 9.5 by November 2008. The forward P/E of the Technology sector peaked at a record 48.3 during March 2000, up from 13.9 at the end of 1995. It plunged to 31.2 by the end of 2000 and recovered to 47.8 in December 2001 before declining steadily over the next seven years to a record low of 10.4 in November 2008. The Technology sector’s share of the market capitalization of the S&P 500 soared from 8.9% during March 1995 to a record high of 32.9% during March 2000. Industry analysts who collectively had increased their long-term earnings growth expectations  from 17.0% during March 1995 to 28.7% in March 2000 subsequently proceeded to curb their enthusiasm.
15. “The Mystery of Lofty Stock Elevations,” The New York Times, August 16, 2014. By the way, Robert Shiller and John Campbell on December 3, 1996 presented to the Fed’s Board of Governors their research showing that stocks were running well ahead of earnings. One week later, Greenspan gave his “irrational exuberance” speech.
16. “Warren Buffett on the Stock Market,” Fortune, December 10, 2001.
17. “Buffett Calls Pessimists about United States ‘Out of Their Mind’,” Reuters, September 19, 2017.
18. Refer to Table B.102 Balance Sheet of Nonfarm Nonfinancial Corporate Business. Net worth at market value includes real estate (i.e., land and structures) at market value and equipment, software, and inventories at replacement cost.
19. Visit the website for Valuing Wall Street: Protecting Wealth in Turbulent Markets.
20. Stock Prices and Fundamentals in a Production Economy, Kiley’s January 2000 paper.
21. A Reality Check for Stock Valuations, Apruzzese’s study, November 2017.
22. With rare exceptions, the marginal individual tax rate on dividends had always exceeded the marginal tax rate on capital gains until July 2003, when the dividend and long-term capital gains tax rates were lowered to 15%. Short-term capital gains are still taxed the same way as personal income.
23. “Corporate Governance,” Greenspan’s March 26, 2002 speech.
24. “Monetary Policy and the Economic Outlook,” Greenspan’s June 17, 1999 congressional testimony.
25. “Economic Volatility,” Greenspan’s August 30, 2002 speech.
26. “Risk and Uncertainty in Monetary Policy,” Greenspan’s January 3, 2004 speech.

Chapter 15: Predicting Stocks

1. While I have rounded stock market index numbers to the nearest whole number throughout most of this book, for this chapter alone I am providing the unrounded index numbers on which all of the performance percentages are calculated.
2. Daily S&P 500 price data start during January 1928.
3. See my “Next: Dow 8000?” article, Barron’s, September 6,1999.
4. See my “Global Synchronized Earnings Boom” article, Barron’s, April 19, 2004.
5. Lloyd C. Blankfein, Goldman Sachs’ chairman and chief executive, stated: “While accelerated by market sentiment, our decision to be regulated by the Federal Reserve is based on the recognition that such regulation provides its members with full prudential supervision and access to permanent liquidity and funding.” See the September 21, 2008 Goldman Sachs press release “Goldman Sachs to Become the Fourth Largest Bank Holding Company.”
6. “Should the Government Nationalize U.S. Banks?” The New York Times, January 22, 2009.
7. See YRI’s chart book S&P 500 Panic Attacks: 2009–2017.
8. “Lifting the Odds for a Market Melt-Up,” my Barron’s interview, November 9, 2013.
9. “Yardeni: No U.S. Recession in Sight,” my Barron’s interview, February 6, 2016.
10. “Yardeni: It’s Official. The Earnings Recession Is Over,” Barron’s, August 22, 2016.
11. “Ed Yardeni Sees Upside of 10% for U.S. Stocks,” my Barron’s interview, February 4, 2017.
12. “Wilshire 5000 Family: Wilshire 5000 Total Market Index.”
13. “S&P Dow Jones Indices Announces Changes to U.S. Indices and Updates to U.S. Indices Methodology and Market Cap Guidelines,” S&P Global, March 10, 2017 press release.
14. Annual Survey of S&P Indexed Assets: As of December 31, 2015, S&P Global.
15. S&P US Indices Methodology, S&P Global report.
16. For more information, visit MSCI’s website.
17. Institutional investors consist of property-casualty insurance companies, life insurance companies, private pension funds, state and local retirement funds, and federal government retirement funds. Foreign investors are classified as the “rest of the world” in the Fed’s Financial Accounts of the United States.
18. “The Death of Equities: How Inflation Is Destroying the Stock Market,” Business week, August 13, 1979.
19. “The Fascinating Theory that ‘The Economist’ Magazine Covers Are Like Cabbies Offering Share Tips,” Business Insider, October 31, 2016.

Chapter 16: Predicting the Future

1. See the BEA’s NIPA and the Fed’s Financial Accounts of the United States.
2. See “2012 Comprehensive Revisions to The Conference Board Leading Economic Index (LEI) for the United States.”
3. “Econometric Policy Evaluation: A Critique,” Lucas’ paper in Brunner and Meltzer (eds.), The Phillips Curve and Labor Markets (1976).
4. “Macroeconomic Priorities,” Lucas’ January 4, 2003 speech.
5. “Mathiness in the Theory of Economic Growth,” Romer’s 2015 article in American Economic Review.
6. “The Trouble With Macroeconomics,” Romer’s working paper, September 14, 2016.
7. “This Experiment Shows the Danger in Black-Box Investment Algorithms,” Smith’s article at Market Watch, August 31, 2017.
8. See “The Superiority of Economists,” by Marion Fourcade et al., in Journal of Economic Perspectives, Winter 2015.
9. John Maynard Keynes, Essays in Persuasion (1931).
10. “Immigrant Population Hits New High in Germany,” Reuters, August 1, 2017.
11. See the Voluntary Human Extinction Movement’s website.
12. See YRI’s Global Demography chart book Fertility Rates.
13. See YRI’s Global Demography chart book  Urbanization.
14. For more on this subject, see the UN’s 2014 report World Urbanization Prospects, and iied’s December 2013 working paper “Urbanization and Fertility Decline: Cashing in on Structural Change.”
15. “China’s Population Boom: Nation Sees 18 Million Babies Born after Dropping One-child Policy,” Express, January 23, 2017.
16. “Why Many Families in China Won’t Want More than One Kid Even if They Can Have Them,” The Washington Post, October 30, 2015 blog post by Ana Swanson.
17. See the YRI Global Demography chart book Children vs. Seniors, Percent of Population.
18. See YRI’s Global Demography chart book Elderly Dependency Ratios.
19. “China Considers Financial ‘Rewards’ for Second Child after Baby Boom Fails To Materialise,” The Telegraph, February 28, 2017.
20. “Monetary Policy Without a Working Theory of Inflation,” Tarullo’s October 4, 2017 speech.
21. “Through the Looking Glass,” Borio’s September 22, 2017 speech.
22. According to blackswanevents.org, “The term Black Swan originates from the (Western) belief that all swans are white because these were the only ones accounted for. However, in 1697 the Dutch explorer Willem de Vlamingh discovered black swans in Australia. This was an unexpected event in (scientific) history and profoundly changed zoology. After the black swans  were discovered, it seemed obvious that black swans had to exist just as other animals with varying colors were known to exist as well.”
23. See Bernanke’s May 17, 2007 speech, “The Subprime Mortgage Market,” and Greenspan’s January 13, 2000 speech, “Technology and the Economy,” which began as follows: “We are within weeks of establishing a record for the longest economic expansion in this nation’s history. The 106-month expansion of the 1960s, which was elongated by the Vietnam War,  will be surpassed in February. Nonetheless, there remain few evident signs of geriatric strain that typically presage an imminent economic downturn. Four or five years into this expansion, in the middle of the 1990s, it was unclear whether, going forward, this cycle would differ significantly from the many others that have characterized post-World War II America. More recently, however, it has become increasingly difficult to deny that something profoundly different from the typical postwar business cycle has emerged. Not only is the expansion reaching record length, but it is doing so with far stronger-than-expected economic growth. Most remarkably, inflation has remained subdued in the face of labor markets tighter than any we have experienced in a generation. Analysts are struggling to create a credible conceptual framework to fit a pattern of interrelationships that has defied conventional wisdom based on our economy’s history of the past half century. When we look back at the 1990s, from the perspective of say 2010, the nature of the forces currently in train will have presumably become clearer. We may conceivably conclude from that vantage point that, at the turn of the millennium, the American economy was experiencing a once-in-a-century acceleration of innovation, which propelled forward productivity, output, corporate profits, and stock prices at a pace not seen in generations, if ever.”

Epilogue

1. See the Federal Reserve Board’s “Beige Book” webpage.
2. See YRI’s chart book Regional Business Surveys.
3. The Fed’s website explains: “The Federal Reserve generally conducts the survey quarterly, timing it so that results are available for the January/February, April/May, August, and October/ November meetings of the Federal Open Market Committee. The Federal Reserve occasionally conducts one or two additional surveys during the year. Questions cover changes in the standards and terms of the banks’ lending and the state of business and household demand for loans. The survey often includes questions on one or two other topics of current interest.” See the Fed’s “Senior Loan Officer Opinion Survey on Bank Lending Practices.”
4. Of course, I’m referring to decisions based on your beliefs about the direction of the overall market; if you are a socially conscious investor, limiting your investing to companies that meet ethical or moral standards, that’s your choice.
5. The quote is the last line of a 1985 classic movie, Back to the Future.