Stock markets

Price inflation data for May 2022 was released yesterday in the US. Over the full year to end May, the consumer price index increased by 8.6%. The AFR reports that this is the highest 1 year increase in 40 years. The stock markets reacted badly. The Dow Jones industrial average lost 2.7% and the NASDAQ lost 3.5% in value.

That stocks have been broadly overvalued is well accepted. Part of the reason supporting high valuations was low discount rates. A year ago, the average P/E ratio on stocks in the S&P500 was over 37. Today, it is 21.5. That reduction will have been largely driven by recent market sell offs and revaluations with higher discount rates as yields on debt markets increase. But 21 still looks expensive. I’m not sure I want to pay $21 to buy a future earnings stream of $1pa. With the high likelihood of further increases in discount rates plus risks to underlying earnings owing to economic malaise, the P/E ratios are under pressure both on the top line and bottom line.

I’d expect there is more red ink to come.

Give the customers what they want

The best way to succeed in business is to give the customers what they want. This announcement from Rio Tinto clearly pleases one campaigner from the Conservation Foundation, but I’d be surprised if she is a Rio customer.

Source: Australian Financial Review

Rio customers looking for a supply of aluminium that is high quality, reliable and low cost are unlikely to be pleased with the outcome of this decision.

It’s not about the virus

I can’t imagine that there is anybody left, anywhere in the world, who still believes zero COVID by lockdown, mass testing, contact tracing and so forth is possible.

Consequently, this latest action from the Chinese Communist Party cannot have anything to do with a pandemic response. It’s not about the virus. It’s much more likely to be about maintaining power and crushing dissent. The virus is just the excuse.

How multiple decrements and standard deviations affect Australia’s senior citizens

The ABS most recent publication on Australian mortality experience was released towards the end of May, with the rather noteworthy key point that for the first two months of 2022, all cause mortality is up over 20% compared to normal, Figure 1.

When it comes to vital statistics of mortality, departures of this magnitude are rare, indeed. This represents about two standard deviations (more on that below) over the baseline, which was measured over the seven calendar years to 2021 inclusive. So, I obtained the full set of data from the ABS website to review the results in more detail, given the data are broken down by state, age group, cause of death and by both sexes.

Figure 1. (Source: Australian Bureau of Statistics )
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20% increase in mortality?

I haven’t yet read the report properly. No doubt many statisticians, demographers and actuaries will be doing so now. It feels to my old actuarial bones that a 20% increase in mortality, relative to trend, is notable. That’s a big deviation. Worth reading in full.