The Most Important Economic Stories of 2013—in 44 Graphs

John Carney, CNBC: This chart really shows how the crisis transformed Wall Street. Investment banking and brokerage were brought down to what looks like permanently lower levels. Portfolio management, however, didn't crash as hard and is now the last growth business on Wall Street.

Iza Kaminska, FT Alphaville: This shows banks' price to book ratios, which, despite everything, have not recovered to pre-2008 levels. That chart is from the latest quarterly BIS review. I like it, because it shows "something" is happening in the US and the UK: banks' loan books are about to penetrate beyond the vital 1:1 ratio after a steady run up, meaning loan books are now expected to deliver performance by the market. Tangible equity in banks is being rebuilt. The last time these ratios traded near these levels was in the aftermath of the original QE programs, which had managed to move expectations notably. The question we must ask now, however, is will they continue trade above the 1:1 mark or are they just going to hover at 1:1 for the significant future. This is important because it has consequences for the distribution and fungibility of bank money as well as banks' ability to raise capital cheaply and to retain it.

Matt Zeitlin, Buzzfeed: This shows investment banks' return on equity. Now, complain all you want about the shortcomings of Dodd-Frank and Basel III, but one thing is clear: Investment banks haven't gotten close to generating the returns that their investors demanded before the crisis. While some banks are well above the 4% average return on equity (Goldman Sachs is at 10%), the industry really has gotten less profitable (driving down the numerator) and better capitalized (boosting the denominator). And if banks really can't generate that much on the capital they get from their investors and their earnings, they might even get smaller. Too bad for the bankers, though.

The Year in Investing: Bulls and Tapirs

Felix Salmon, Reuters: This chart suffices to explain why the markets care so much about the taper: central-bank buying accounts for $1.6 trillion—more than half—of the total demand for bonds in 2013. Meanwhile, private banks are taking the opposite side of the trade: while they were huge buyers of bonds in 2007 and 2008, they’re net sellers in 2013 and 2014, more or less completely negating the buying pressure from pension funds, insurance companies, bond funds, and retail investors. In 2014, it seems, substantially all the net demand for bonds is going to come from the official sector. So it matters a great deal when that demand is diminished.

What’s more, central-bank buying, overwhelmingly from the Fed and the Bank of Japan, accounts for the lion’s share of official-sector buying: Sovereign wealth funds and other foreign official institutions will buy just $364 billion of bonds this year, according to JP Morgan’s estimates, down from $678 billion last year. So the heavy lifting is very much going to be conducted by QE operations.

Joe Weisenthal, Business Insider: 2013 will do down as the year the financial crisis really came to an end. For the first time since 2008 there were very few moments when it felt as though things could unravel again. In markets, one of the characteristics of a crisis is extreme correlation between multiple asset classes: everything trades up or down together. Fund managers have lamented the "Risk On/Risk Off" environment that's dominated markets since 2008. With the crisis coming to an end in 2013, so too have these extreme correlations. This chart from Nomura measures the extent to which various asset classes move together. As you can see, in 2013, these correlations saw a dramatic fall.

Joshua Brown, The Reformed Broker: This is the one that I think best illustrates what 2013 was about for investors—the sudden realization that they weren't being fooled, that stocks were for real and the return to normalcy was a playable theme.

Corporate earnings grew by 6 percent or so this yea, but the multiple we were willing to pay on those earnings grew by almost 20%. Huge news and the best sign that America is regaining confidence in the institution of investing again.

Matthew Klein, Bloomberg View: This shows the price of December 2015 euro-dollar future contracts over the past 12 months. What you can see is the tremendous increase in implied future short rates from May-September followed by a remarkable return to March/April levels since the no taper decision. One interpretation is that, after a rough few months, the Fed has successfully convinced traders that its intentions over LSAPs are disconnected from its plans for short rates.

This interpretation is supported by the fact that the 10-year yield is not demonstrably lower than its peak in early September. (One could therefore ask what if anything the Fed accomplish for the real economy by delaying tapering but that's outside the subject of this chart...)

Sudeep Reddy, Wall Street Journal: The past year showed us more than ever the striking disconnect between financial markets and the economic environment most Americans are facing. Corporate profits as a share of the economy are at a post-World War II high, and companies are sitting on piles of cash, yet firms are more cautious than they've been during any stretch of recent history. Why consumers and businesses have been so unsettled for so long will be studied for decades.

Barry Ritholtz, Bloomberg View: One of the best ways to identify a market that is exhausted is to look for any divergences between Breadth (i.e, the Advancers vs Decliners) and Price (ie., New Highs). Market breadth remains good—we do not see any major divergence between A/D and equity prices. That strongly suggest that this current rally is not over.

Presented by

Matthew O'Brien

Matthew O'Brien is a former senior associate editor at The Atlantic.

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