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Citi's Bubble Meter for Australia
Topic Started: 12 Oct 2016, 02:40 AM (8,520 Views)
Khaderbhai
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Terry
13 Oct 2016, 12:19 AM
explain how can you calculate a z-score on a price / income ratio

explain how you calculate a z-score on an annual mining investment figure
You can calculate Z for any set of numbers Roddy, even if that set of numbers is a set of price/income ratios, or a set of mining investment figures.

Quote:
 
what is the point
The point would be to determine whether the current ratio is above or below its long-term average, and by how many SD.

Citi may use something other than price/income. It might be price/rent or real prices. But price/income would make the most sense.

Anyway, a high Z score for 'house price' would indicate increased risk. For example, if the house price to rent ratio is currently well above its historical mean, this would result in a high Z score, which may in theory indicate a speculative bubble. Alternatively, if the rent/price ratio (i.e. rental yield) is well below its historical mean, this would result in a low Z score, which may also in theory indicate a speculative bubble.

Quote:
 
You would get an E in high school maths.
I doubt you'd be capable of kindergarten-level maths Roddy. Your very limited understanding of statistics seems to come from book-reading, with no idea how to apply such concepts in the real world. Please read the article below, and educate yourself, for once in your life...

http://www.tradestation.com/education/labs/analysis-concepts/contrarian-zscore

"The z-score can be used to identify periods when an asset's price has deviated from its average.

If the z-score is positive, it means that the current price of the security is above its mean. Correspondingly, if the z-score is negative, the current price of the security is below its mean.

The further from zero the z-score, the further the current price is from its mean. Using a contrarian or mean-reversion strategy, you would take a position opposite the current z-score. If the z-score is positive (the current price of the security is above its mean), the strategy will take a short position. If the z-score is negative (the current price of the security is below its mean), the strategy will take a long position."


Citi simply look at five sectors of the economy to determine how far each sector is above or below its long term average. Then they most likely take the average of those Z scores and plot it on their silly "bubble meter".

Pretty straightforward really, at least for those of us who understand how to apply statistics in the real world. But as a predictor of bubble bursts, it's completely useless. The whole thing lacks rigor or practical application. It's simply a promotional tool designed to appeal to the emotions of the sheeple - hence why you posted it Roddy.
Edited by Khaderbhai, 13 Oct 2016, 09:26 AM.
Banks can't repossess your home simply because the market value falls. Australia's Consumer Credit Code says consumers aren't liable for things ordinarily outside their control and can't be held to obligations that could only be met by selling their home. Click for details.

"The truth is that there are no good men, or bad men. It is the deeds that have goodness or badness in them. There are good deeds, and bad deeds. Men are just men."
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Terry
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Khaderbhai
13 Oct 2016, 07:23 AM
You can calculate Z for any set of numbers Roddy, even if that set of numbers is a set of price/income ratios, or a set of mining investment figures.


The point would be to determine whether the current ratio is above or below its long-term average, and by how many SD.

Citi may use something other than price/income. It might be price/rent or real prices. But price/income would make the most sense.

Anyway, a high Z score for 'house price' would indicate increased risk. For example, if the house price to rent ratio is currently well above its historical mean, this would result in a high Z score, which may in theory indicate a speculative bubble. Alternatively, if the rent/price ratio (i.e. rental yield) is well below its historical mean, this would result in a low Z score, which may also in theory indicate a speculative bubble.


I doubt you'd be capable of kindergarten-level maths Roddy. Your very limited understanding of statistics seems to come from book-reading, with no idea how to apply such concepts in the real world. Please read the article below, and educate yourself, for once in your life...

http://www.tradestation.com/education/labs/analysis-concepts/contrarian-zscore

"The z-score can be used to identify periods when an asset's price has deviated from its average.

If the z-score is positive, it means that the current price of the security is above its mean. Correspondingly, if the z-score is negative, the current price of the security is below its mean.

The further from zero the z-score, the further the current price is from its mean. Using a contrarian or mean-reversion strategy, you would take a position opposite the current z-score. If the z-score is positive (the current price of the security is above its mean), the strategy will take a short position. If the z-score is negative (the current price of the security is below its mean), the strategy will take a long position."


Citi simply look at five sectors of the economy to determine how far each sector is above or below its long term average. Then they most likely take the average of those Z scores and plot it on their silly "bubble meter".

Pretty straightforward really, at least for those of us who understand how to apply statistics in the real world. But as a predictor of bubble bursts, it's completely useless. The whole thing lacks rigor or practical application. It's simply a promotional tool designed to appeal to the emotions of the sheeple - hence why you posted it Roddy.
OK MC. The price-to-income ratio for 2015 is 12. What is the z-score?

How can a z-score be negative? Would it mean that the price-to-income have to be lower than the long-term average?

So you're saying that a z-score for house prices could not be negative in the bubble meter.

That's the stuff of creepy clowns mother cat.

Let's say the total mining investment was AUD60 billion. What is the z score?

Also, what is a "high z-score"? 2.0? Why?

How do you calculate a bubble meter z-score for 2015 ans what is it relevance to the components?

If you can answer the final question, you should understand the what Citi has done. I'll give you another clue that might help you. It's a relatively simple acronym that gives you an idea as to the technique what Citi has done to calculate the z scores.

_ _ O _ _

It's not getting any more simple mother cat. If you don't know, just admit it.

Creepy clown repeertories.
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Khaderbhai
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Terry
13 Oct 2016, 09:58 AM
OK MC. The price-to-income ratio for 2015 is 12. What is the z-score?
If the current ratio is "12", then Z is the number of SD that "12" is above or below the mean.

Quote:
 
How can a z-score be negative?
Z is always negative when a value is below the mean. This is basic stuff Roddy.

Quote:
 
Let's say the total mining investment was AUD60 billion. What is the z score?
Z is the number of SD that "60 billion" is above or below the mean.

Quote:
 
How do you calculate a bubble meter z-score
Already explained in the previous post.

If you can't get your head around it, that's not my problem Roddy. You simply don't know how to apply statistical analysis in the real world.

For example, you claimed that it was "moronic" to calculate Z for a ratio, when in fact it's common practice to do so in many real-world applications. Calculating Z for a rent/price ratio or a price/income ratio is actually quite a good way to determine whether or not that ratio has departed significantly from its long-term average, and could be a reasonable indicator of an overvalued asset, depending on the timeframes analysed. Although Citi's subsequent combination of multiple z-scores into a single "bubble meter" is pretty silly.

But anyway, this is all well beyond your comprehension Roddy.

Perhaps you should waffle about trolls and creepy clowns for a while instead.
Edited by Khaderbhai, 13 Oct 2016, 10:20 AM.
Banks can't repossess your home simply because the market value falls. Australia's Consumer Credit Code says consumers aren't liable for things ordinarily outside their control and can't be held to obligations that could only be met by selling their home. Click for details.

"The truth is that there are no good men, or bad men. It is the deeds that have goodness or badness in them. There are good deeds, and bad deeds. Men are just men."
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Rastus2
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Khaderbhai
12 Oct 2016, 08:42 PM
Not interested in coming clean.
We know
Shadow - Defrauded his Bank ? 2015 I have 9 different loans and my bank had no idea which ones were personal and which were investment. They had half of them classed incorrectly. When this change came in they asked me to tell them if any personal loans were incorrectly classed as investment, which I did, and they switched them to personal for the lower rate. They also had a couple of investment loans incorrectly classed as personal. They didn't ask me about those. So they stay on the lower rate too. Worked out pretty well. :)
Shadow - 2008 Sydney Median House Price 1.25M by 2014-2015

Shadow : I think this boom has already begun in several cities. My prediction :
Peak of boom: 2014-2015. Sydney Median Price: $1,250,000 Bottom of bust: 2017-2018. Sydney Median Price: $1,100,000

Shadow's Original 2010 House Boom and Crash prediction http://s836.photobucket.com/user/rastus22/media/shady-orig-2010-chart.png.html?sort=3&o=0

Shadow's attempt to edit his 2010 chart in 2015 and replace it with one that does not show a crash in 2013 http://s836.photobucket.com/user/rastus22/media/Screen%20Shot%202015-06-06%20at%207.12.52%20pm_1.png.html
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Khaderbhai
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Rastus2
13 Oct 2016, 10:41 AM
We know
:z:
Banks can't repossess your home simply because the market value falls. Australia's Consumer Credit Code says consumers aren't liable for things ordinarily outside their control and can't be held to obligations that could only be met by selling their home. Click for details.

"The truth is that there are no good men, or bad men. It is the deeds that have goodness or badness in them. There are good deeds, and bad deeds. Men are just men."
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Terry
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Khaderbhai
13 Oct 2016, 10:06 AM
If the current ratio is "12", then Z is the number of SD that "12" is above or below the mean.


Z is always negative when a value is below the mean. This is basic stuff Roddy.


Z is the number of SD that "60 billion" is above or below the mean.


Already explained in the previous post.

If you can't get your head around it, that's not my problem Roddy. You simply don't know how to apply statistical analysis in the real world.

For example, you claimed that it was "moronic" to calculate Z for a ratio, when in fact it's common practice to do so in many real-world applications. Calculating Z for a rent/price ratio or a price/income ratio is actually quite a good way to determine whether or not that ratio has departed significantly from its long-term average, and could be a reasonable indicator of an overvalued asset, depending on the timeframes analysed. Although Citi's subsequent combination of multiple z-scores into a single "bubble meter" is pretty silly.

But anyway, this is all well beyond your comprehension Roddy.

Perhaps you should waffle about trolls and creepy clowns for a while instead.
OK mother cat. Let's put your creepy clown story into action.

The TOT has a z-score of approx -2. Based on the creepy clown story, that would show that the TOT is at a level that is 45% below the mean (across the distribution) and the probability that the TOT is as bad as it ever has been is now is approx 0.05.

Apply the creepy clown to mining investment, which has a z-score of almost -3. So that would imply that mining investment is the worst its ever been.

The "price to income ratio" is the highest its ever been, but the z-score is less than 2.

Looks like the creepy clown maths is lying in the excrement with the creepy clown.

OK, here's two more clues MC.

A _ _ _ A

Z-score = _ _ _ _ _ _ score - _ _ _ _ _ _ _ _ score

Here's a simple exercise

Component A

1, 7, 17 (values for 3 years)

Component B

5, 12, 19 (values for 3 years)

What's the z-score for A and B?
Edited by Terry, 13 Oct 2016, 11:46 AM.
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Khaderbhai
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Terry
13 Oct 2016, 11:38 AM
The TOT has a z-score of approx -2. Based on the creepy clown story, that would show that the TOT is at a level that is 45% below the mean
Nonsense Roddy. You have no idea what the standard deviation is.
Quote:
 
The "price to income ratio" is the highest its ever been, but the z-score is less than 2.
You don't know that either Roddy. The "House Price" Z score could be based on price/rent ratios or real prices. It's not stated.
Terry
13 Oct 2016, 11:38 AM
as bad as it ever has been...
No Roddy. You've made another rookie error. You need to consider the timeframe across which the mean is calculated.

It's highly unlikely that the data set goes back to the beginning of time.

Based on Citi's previous analysis of bubbles (which I assume you haven't seen or understood), they're probably looking at deviation from the 10-year mean.

You can revert to creepy clowns and stuff now.
Edited by Khaderbhai, 13 Oct 2016, 12:01 PM.
Banks can't repossess your home simply because the market value falls. Australia's Consumer Credit Code says consumers aren't liable for things ordinarily outside their control and can't be held to obligations that could only be met by selling their home. Click for details.

"The truth is that there are no good men, or bad men. It is the deeds that have goodness or badness in them. There are good deeds, and bad deeds. Men are just men."
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Terry
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Khaderbhai
13 Oct 2016, 11:50 AM
No Roddy. You've made another rookie error. You need to consider the timeframe across which the mean is calculated.

It's highly unlikely that the data set goes back to the beginning of time.

Based on Citi's previous analysis of bubbles (which I assume you haven't seen or understood), they're probably looking at deviation from the 10-year mean.

You can revert to creepy clowns and stuff now.
The data set is from 1997 to 2015 mother cat. Based on the creepy clown maths:

-- TOT has been better approx 95% of the time
-- Mining investment has been better approx 99% of the time
-- House to price income ratio is not at is highest ever (they've actually been higher up to 10-14% of the time)
-- Apartment approvals are also not at their highest ever

Another clue.

A _ O _ A
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Khaderbhai
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Terry
13 Oct 2016, 12:01 PM
The data set is from 1997 to 2015 mother cat
Not necessarily Roddy. You need to think outside the box here.

The data set used to calculate the z-score for each component for each year is not necessarily the entire data set for the 1997-2015 period.

Based on Citi's previous analysis of bubbles, it's more likely to be based on the 10-year average.

When Z is greater than two standard deviations above the 10-year average, Citi considers this to be a bubble indicator...

Posted Image
Edited by Khaderbhai, 13 Oct 2016, 12:13 PM.
Banks can't repossess your home simply because the market value falls. Australia's Consumer Credit Code says consumers aren't liable for things ordinarily outside their control and can't be held to obligations that could only be met by selling their home. Click for details.

"The truth is that there are no good men, or bad men. It is the deeds that have goodness or badness in them. There are good deeds, and bad deeds. Men are just men."
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Terry
Member Avatar


Khaderbhai
13 Oct 2016, 12:04 PM
Not necessarily Roddy. You need to think outside the box here.

The data set used to calculate the z-score for each component for each year is not necessarily the entire data set for the 1997-2015 period.

Based on Citi's previous analysis of bubbles, it's more likely to be based on the 10-year average.

When Z is greater than two standard deviations above the 10-year average, Citi considers this to be a bubble indicator...

[i

Based on the creepy clown maths,

-- The z-score for TOT is -2. Therefore, the probability it could be this bad is 0.05 (based on the creepy clown story).
-- The z-score for mining investment is almost -3. Therefore, on the creepy clown method, there is only a 1% chance it could be so far from the mean.
-- House prices has a z-score of approx 1.5. The z-score represents the distance from the mean. That means that approx 19% of the time, house prices have been higher. Not exactly what the creepy clown is saying, but it's clear that you don't understand basic maths.

Citi Research have build the z-scores from the components across a time period from 1997-2015. The z-scores are calculated using a simple process that should basically explained in most school text books (Z-score = _ _ _ _ _ _ score - _ _ _ _ _ _ _ _ score).

See if you can get your kids' school books and work it out.

Edited by Terry, 13 Oct 2016, 12:31 PM.
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