Favorite Charts from Bogle, Wien, and Others

Business Insider recently asked a number of strategists to discuss their “favorite charts of 2012,” and some of the gurus participating offered some very interesting data. 

Byron Wien of Blackstone Partners, for example, provided a chart that showed the pace at which the money supply has expanded vs. the rate at which gross domestic product has grown. “For a long time money supply and GDP grew at about the same rate,” he says. “Since the subprime crisis, however, money supply growth has exceeded the growth of the economy. It has taken more and more money to keep the economy moving forward. With the fiscal drag of increased taxes and reduced entitlements, we will have to be relying more on monetary expansion than ever. Is the Fed up to the task?”

Vanguard founder Jack Bogle, meanwhile, offered a simple chart of 12-month price/earnings ratios. “When P/E ratios are historically low, (say, below 12 times) they have been highly likely (84 percent probability) to rise over the subsequent decade,” he explained. When they are historically high, (say, above 20 times) they have been likely to decline (87 percent probability), though in neither case did we know when the change was coming.” He says P/E ratios are “useful as a basis for reasonable expectations for the future.” His chart shows that P/Es are now right around 15 or 16 — neither very high nor very low.