Stocks Off Sharply as Market Upheaval Grows
nytimes.com
nytimes.com
My own view is this, and it is based on a lifetime of having made all the typical mistakes.
Steady is the best way to go for your investable funds. That means, go with stocks for a decent segment of your investments but temper this with investments that will help preserve capital when things get rocky. Keep a ratio between the two that is age-appropriate. There is a rule of thumb floating about among advisors that your stock percentage should be 110 minus your age. This may or may not be a good ratio for you but some method that helps discipline you in these decisions will help you and this is not a bad one for many people. The other major factor is to avoid impulse buying or selling and to keep transaction costs at a very low level - and this usually means going with broad-based no-load index funds for much of the ride.
Doing the above will not make anyone rich. It will, however, ensure that you have the best chances of getting decent, normal returns on average over time while helping to preserve your capital as you go. If you want extraordinary returns, get them through your startup or by doing extraordinary things in your work. For your investments, the rule is different. You do not "underperform" by hitting averages with your investments. You simply meet the goal that should be the defining goal for most people in that area.
Don't buy indices with a coefficient other than 1 unless you think Wall Street is a noble cause to give money to. If you want to short volatility, use options on major indices. Better yet, don't short volatility at all unless you know what you're doing.
Anyone in the UK following this advice from age 20 to 35 is staring down the barrel of working forever.
The problem is they have a share in growth in the UK over the past 15 years and that growth is next to nothing.
IMHO the old advice needs to be taken with caution. This is not your dad's market.
2) It still would've been paying you dividends that entire time
3) If you, rather than investing an imaginary lump sum at the top of the market 17 years ago, invested slowly as your savings accumulated over time, you would be ahead.
The FTSE hasn't exactly been sitting still all those 17 years.
I occasionally get asked for advice by students. Biggest one: resist following scripts which evolved to serve a world which no longer existsThinking rationally, we can see pretty obviously that this is a case of using the past to predict the future. It's never guaranteed to work, but since it tends to be the common sentiment shared among so many investors, it does become somewhat self-perpetuating. At the end of the day, the market does move based on sentiments, after all.
However, it probably is a good idea to try to shield yourself from potential downsides when this sentiments changes in the future (and it certainly can).
Your stocks from 1929 would not have recovered for quite a long time, but your stocks from 1925 would only take 6 years to get back in the black.
eh, IDK about that. I was cooping at a company that bottomed to $2.50 ~February 2008. I had been reading everything I could get my hands on regarding the Fed, their history, and general fiscal policy. I had about $7k in cash I was planning to dump into the company's ticker.
But in February, when it was $2.50, I wasn't quite confident of my analysis.
In May or so I had completed my replica-painting of the full picture, I was sure enough to make a jump. Unfortunately the stock had rebounded to ~$9 by then. I'd missed my chance, Fed had already moved, markets were assured, life was continuing on as normal. They later got bought out (4 years later) for $22/share. Would have wiped out my student debt.
Note, this was not trading on any special insider information I had, it was simply my personal analysis of the stability of the company's business model in a rough economic environment, combined with confidence in Bernanke's unwillingness to permit much of any form of market turmoil (he received his PhD for his analysis of what the Fed did wrong that lead to the great depression-- conclusion: not nearly enough).
off topic: my next BUY recommendation was ARMH in 2010 ~$12.50. I figured nobody could be so much dumber than me and my expertise to not also see the imminent growth of the smartphone market at a time when half of everyone I knew were still on flipphones. So then I checked later and they'd made it all the way to $30-something.
so then I said to myself 'no more' and bought NVDA at $16, but had to sell at $12 for other reasons. Lol.
Internationally, China is clearly having a hard time dealing with the realities of 'the market.' People have long since suspected a lot of the figures coming out of China were not accurate and everyone knows the place is rampant with corruption and such. Things are going to get a lot uglier there before it gets better.
The unemployment rate is a juked stat; check out the labor force participation rates if you want the full story. A primer: labor force participation got smashed in the Great Financial Crisis, and still hasn't recovered.
[1] http://data.bls.gov/timeseries/LNS11300000
[2] Lost of baby boomers retiring and Gen X being such a small demo compared to the boomers and the millennials.
Millenials are a far larger generation than the boomers, and are rapidly leaving college and attempting to enter the workforce-- 100% of them are trying to enter the workforce at the same time, immediately after graduation day. The fact that labor participation rates haven't stabilized or even increased in response to their population level attempts to enter the workforce shows that there really are not enough jobs to go around.
Jobs lost in the early depression haven't returned, and there are many more people out and about looking for them now than there were before. Boomers are retiring, but their children are desperate to take their place, which isn't actually possible.
I'm not sure the data bears this out. If they're looking they're in the labor force, and we'd see a commensurate rise in unemployment for age groups 20-24. That's clearly not the case, as unemployment is down ~1.5% for that demo since mid-2014:
http://www.bls.gov/web/empsit/cpseea10.htm
I don't have demo-level participation data available but that would clarify whether rates are lower bc of millenial LF dropout or millenial employment success.
Depends on your definition of "far larger".
- The Millennial cohort is 83.1 million
- The Boomer cohort is 75.4 million, 90% the size of the Millennials.
Source: https://www.census.gov/newsroom/press-releases/2015/cb15-113...
There are actually more jobs now then there were in 2005:
- January 2005: 132,752,000
- January 2015: 140,793,000
Source: http://data.bls.gov/pdq/SurveyOutputServlet?request_action=w...
Obviously the _type_ of jobs have changed, and this doesn't factor in population growth directly, but I don't think the statement "jobs lost in the early depression haven't returned" isn't grounded in the data.
Labor force participation is also garbage. Savings rates are a bit moot when tons of people are living paycheck to paycheck, also.
It's not 2007-2008, but it's not quite 1998 either.
What are you going on about? If capitalism is a race to the bottom, we would have reached it a long time ago.
Capitalism isn't new. It's been around for a while.
Modern social democratic states wouldn't exist without it.
You might want to understand what the word means before running down a political system you seem to know nothing about.
As for abject poverty - there's more of that around than ever. Just because you choose to ignore it doesn't mean it's not there.
And after this week, there's more on the way, too.
As for extreme poverty, China has seen a 90% reduction in extreme poverty since 1981, and India has seen a 60% reduction since 1981, and Sub-Saharan Africa has seen a 12%. The Indian and Chinese reductions coincided with a relaxation on state owned industry and introduction of free market economic policies.
Hate the corruption, hate the corporatism, but according to the world bank (and nearly every other NGO), capitalism has reduced human misery on this planet like no other force.
Social ownership != state ownership. That's only one manifestation of it. Socialism has historically been about common ownership, which implies decentralized, democratically structured worker cooperatives. One existing example today is Mondragon.
That would be Communism, a very extreme form of Socialism. Many countries in Europe are very Socialist.
The commons is a very old concept in Europe. In the UK for example common ownership of agricultural land was the norm until the tragedy of the commons in the early/mid 1800's.
Today Europe is largely a social democracy which aims to walk the line between socialism and capitalism. Again social ownership of the means of production does not necessarily mean state ownership. As vezzy-fnord pointed out Mondragon is a cooperative who came about from the anti-Franco socialist movement in Spain in the mid 1900's. This is most definitely a socialist philosophy operating within a capitalist framework.
Socialism has had a major impact on European politics. The Nordic countries have an immensely strong welfare states due to this, the labour party in the UK (the blip of Tony Blair is an anomaly and they are swinging back to the left now), Sinn Fein (IRA political wing) in Ireland, François Hollande's Socialist party etc etc. Sure Europe operates within a capitalist framework but there is not such a fervent religious belief in unbridled capitalism as one would find in the States. All one needs to do is look at all the anti-trust lawsuits we have in the EU, against the likes of Google and Microsoft, to see how Socialist philosophy manifests itself in contemporary times.
Since when is Lenin an authority on communism? He was a thug, same as Stalin.
> cottage industries (local farmers and makers etc) existing and operating in a free market.
To his credit, they did do some very interesting things in the 20s. Then Stalin came to power and that ended.
> Again social ownership of the means of production does not necessarily mean state ownership.
Yes, it does.
The USSR was NEVER communist. United Soviet SOCIALIST Republics.
It was a truly socialist state. All the means of production were state controlled, but private property did exist.
The GOAL was to eventually reach communism.
> Today Europe is largely a social democracy which aims to walk the line between socialism and capitalism.
Ok, but the line between socialism and capitalism isn't socialism. As previously mentioned, a welfare state seems a more apt description.
> Socialism has had a major impact on European politics.
Agreed.
> there is not such a fervent religious belief in unbridled capitalism as one would find in the States
There is no "fervent religious belief in unbridled capitalism" in the US. Zero.
Capitalism is a mixture of free market and government subsidy. The government doesn't manufacture anything, but does get heavily involved in the markets through subsidies, regulations, financial instruments, outright purchases of goods, etc. Generally a 70/30 split is considered the norm, where 30% of all market activity is government controlled.
Nobody is excited over this.
There is a "fervent" belief in the free market and the idea that capitalism isn't ideal and that we should tweak that split and reduce government involvement. That we should move toward a free market. That gets people excited.
Serious question. How is this any different than unbridled capitalism? No government involvement and a laissez-faire approach to the market is exactly what unbridled capitalism looks like in my understanding.
Just because Socialism is in the name USSR doesn't necessarily mean anything. If we are to look at the name Nazi which was the National Socialists Party and their Italian counterpart was a major proponent (even father of) of Corporatism, a rather extreme form of capitalism (though in the case of USSR it might be true, as I said earlier Communism is a form of Socialism).
The Welfare State has it's roots in Socialism. Socialism is an umbrella term. Anarchism is a main branch of Socialism (the other two being reformism and Marxism) and to be fair extreme Anarchists don't want a State at all so Socialism cannot and does not mean State ownership. This is one of the major confusions into what Socialism means and kills any possible meaningful discussion around the topic, especially in the USA where Communism and Socialism are used interchangeably. The spectrum of allowable political ideology in the USA is so narrow that only center-right and far-right exist. This is a very unhealthy situation as there are great ideas to be found from across the political spectrum. Just to be clear I'm not saying this to say Europe is better or anything but I do find it an unfortunate state of affairs.
Also Lenin didn't kill 50m+ people just because he was paranoid. You can't lump them together. Stalin was arguably worse than Hitler. While Lenin was certainly not a saint, he was an intellectual with brilliant ideas, operating in an extremely difficult environment.
If you are so attached to ideology, rather than the results those ideologies bring, we can't have a serious conversation.
> Serious question. How is this any different than unbridled capitalism?
"Unbridled capitalism", no matter how unrestrained, denotes heavy government involvement by virtue of the second word in there.
> No government involvement and a laissez-faire approach to the market is exactly what unbridled capitalism looks like in my understanding.
Your understanding is wrong.
Capitalism requires the accumulation of substantial capital in private hands and its application. And not just any hands, very specific hands, where that capital is magnified.
You can't have that kind of distribution and application of capital without government involvement.
Eminent domain, government contracts, grants, regulations, etc. all direct the flow of capital to the few individuals blessed to wield it.
In short, the government controls and directs the flow of capital. That's capitalism.
> Just because Socialism is in the name USSR doesn't necessarily mean anything.
Yes, it does. It means those who were at the center of the creation of the state saw the enterprise as a socialist one. Even your friend Lenin.
> If we are to look at the name Nazi which was the National Socialists Party and their Italian counterpart was a major proponent (even father of) of Corporatism, a rather extreme form of capitalism
https://en.wikipedia.org/wiki/Nazism#Economics
"Nazis also promised social policies like a national labour service, state-provided health care, guaranteed pensions, and an agrarian settlement program."
"To tie farmers to their land, selling agricultural land was prohibited."
"Farm ownership was nominally private, but business monopoly rights were granted to marketing boards to control production and prices with a quota system."
Sounds like state controlled means of production to me. I can go on, but you get the point. They were clearly socialist.
> The Welfare State has it's roots in Socialism.
Yes.
> Socialism is an umbrella term.
No. We defined it a few posts above.
> Anarchism is a main branch of Socialism > to be fair extreme Anarchists don't want a State at all so Socialism cannot and does not mean State ownership
You're skipping steps there. Socialism -> Communism -> Anarchism.
Communists aren't fans of government either. They believe(d) that once all private property is out of the picture, there would be no need for government, since there would be no disputes over private property to mediate ... which would lead to a state without government. Leading to anarchism.
> his is one of the major confusions into what Socialism means and kills any possible meaningful discussion around the topic, especially in the USA where Communism and Socialism are used interchangeably.
What? The front-runner for the Democratic nomination openly calls himself a socialist ... that's clearly not true.
> Also Lenin didn't kill 50m+ people just because he was paranoid. You can't lump them together.
https://en.wikipedia.org/wiki/Vladimir_Lenin#Red_Terror
Ok, so he didn't kill 50m+, maybe 1m?
How do you differentiate between a thug who was responsible for the murder of 50m and one for who was responsible for 1m?
> While Lenin was certainly not a saint, he was an intellectual with brilliant ideas, operating in an extremely difficult environment.
I'm glad to hear he's your hero, but at the end, he's just another murderer. An honest, decent man wouldn't be capable of what he did.
Being intelligent, well spoken, even brilliant ... doesn't excuse you from being a shitty human being.
Stalin was also quite brilliant. That doesn't excuse him either.
Only for a long time it had internal pressure (workers demands) and external pressure (the Cold war etc). Else we'd be still with child labor, 14 hours work day and such...
It's funny that for something supposedly pragmatic and empirical, as capitalism, there are people invoking the "no true capitalism" defense.
I mean when they say that in "true capitalism" the government would not interfere and the market would adjust itself etc, where in real life (and in all know historical cases), the government is in the pockets of powerful moguls and big business lobbys).
This is hugely disingenuous. It's about as fair as crying "no true socialism" if someone were to say "moving towards socialism leads to mass famine! Just look at Mao!".
I think part of what makes conversations like this so frustrating for everyone involved is that people are using vastly different definitions. Those decrying capitalism are usually defining "socialism" as a mixed-market economy and capitalism as an unfettered "pure" Randian market economy. (In conversations critical of socialism, you usually see the opposite dynamic).
The fact of the matter is that mixed-market economies are basically ubiquitous at this point, and for good reason. It's a lot easier to find a common understanding on which to debate when everyone is clear what the actual disagreement is: the market is good at certain things and bad at others, and gov't action is a sensible alternative in the areas it's better at (of which there are quite a few, not least dealing with externalities) or a damaging hindrance in the areas where it's worse than the market mechanism (explicitly setting prices, in most cases). The disagreement is over which things go in which category, which is a far less flame-baity way of thinking of it than "capitalism/socialism is just bad!".
I don't think that's actually true[1]:
>Two German microeconomists tested the “widely accepted” hypothesis that “prices in a planned economy are arbitrarily set exchange ratios without any relation to relative scarcities or economic valuations [whereas] capitalist market prices are close to equilibrium levels.” They employed a technique that analyzes the distribution of an economy’s inputs among industries to measure how far the pattern diverges from that which would be expected to prevail under perfectly optimal neoclassical prices. Examining East German and West German data from 1987, they arrived at an “astonishing result”: the divergence was 16.1% in the West and 16.5% in the East, a trivial difference. The gap in the West’s favor, they wrote, was greatest in the manufacturing sectors, where something like competitive conditions may have existed. But in the bulk of the West German economy — which was then being hailed globally as Modell Deutschland — monopolies, taxes, subsidies, and so on actually left its price structure further from the “efficient” optimum than in the moribund Communist system behind the Berlin Wall.
Or in other words, mixed economies can easily operate just as far from the Efficient Market Hypothesis as centrally-planned economies. The Efficient Market Hypothesis should probably be considered more like a Carnot engine than like a real internal combustion engine: some substantial degree of inefficiency is probably an inevitable result of operating in the real world.
[1] -- https://www.jacobinmag.com/2012/12/the-red-and-the-black/
That's a specious conclusion; the paper explicitly says that the inefficiency is due to the degree of management present in West Germany, which was significant.
It's not like the EMH says the market prices are theoretically perfect; it only says they're better than whatever individual or group can calculate. And the paper you cite provides evidence for that.
"To sum up, the unexpected similarity of overall deviance between actual prices and eigenprices in East and West does not warrant the conclusion that East German pricing behaviour was not so bad after all and more or less guided by relative scarcities. In those sectors where market forces prevail in the West, East German actual prices deviate significantly more from eigenprices. However, the similarity of the overall indicator testifies to the fact that a sizeable part of West German GNP is not produced under competitive market conditions. It obviously is the case in sectors with predominant public ownership rights and strong government influence."
(Emphasis mine)
https://www.europa-uni.de/de/forschung/institut/institut_fit...
This isn't really contradicting what I said. As they say, the gap in the West's favor was greatest in the places where the market was relied upon in contrast to a system full of "monopolies, taxes, and subsidies". Neither West Germany nor East Germany had particularly market-oriented economies.
To wit, the market mechanism efficiently provides a price level but that doesn't mean you can't mess it up by poorly planned gov't intervention in the economy (and to be clear, I mean "gov't intervention that is poorly planned", not that gov't intervention is per se ill-advised).
I don't mean to be snarky or sarcastic, I'm just generally uninformed and would like to develop a more nuanced opinion.
Debt to Income- yes everyone and their dog walker is not out there buying condos hoping to flip them in 3 years, so we are less leveraged than we were. Hard to tell how much of this is because people have more money coming in or are more responsible having just gotten burned 7 years ago.
Capitalization of Companies-- well we've had significant monetary inflation, have you accounted for that? Ok, now have you accounted for that using the real money supply?
Productiivty- this is the result of technology, should continue to increase.
Oil Prices- Oil prices are shockingly low, especially when you account for inflation. This is good as energy drives the economy... but it hasn't been this way long enough to see real economic effects that are lasting, yet.
Savings Rates-- well, compared to 2006 when everyone was leveraged to the hilt to buy just one more condo, sure they are better. But are they actually good?
Housing Prices-- "healthy" is also what they said in 2006. The monetary inflation that drove the housing bubble in 2000-2008 was only amped up after 2008. The spigot is open even wider now, and while we're clearly not in the mania we were in 2006, it's not obvious that these prices aren't also.... quite artificial.
I'd like a stat that was EBIDTA of the S&P 500, inflation adjusted against the real money supply, over the past 30 years. I think that would be a good indicator.
Do you honestly think you're expressing a different opinion by stating that everything is mostly bad? I'd say you're comfortably in the internet majority.
>I'd like a stat that was EBIDTA of the S&P 500, inflation adjusted against the real money supply, over the past 30 years.
Okay:
I think the background idea is that "real inflation" = "change in the real money supply". But that's wrong, because the economy changes size, too. That is, if I start a company and make some stuff, the economy is now bigger than it was. If the number of dollars doesn't increase, then the value of each dollar has to increase, so prices go down - deflation. What the Fed is trying to do is keep the value of the dollar (relatively) constant, rather than keep the number of dollars constant.
So I think MCRed's request (to the degree that it differed from your answer) is based on a mistaken idea...
Well they're higher now than they were 15 years ago:
https://research.stlouisfed.org/fred2/series/PSAVERT
and just slightly off the average over the last two contractions (highlighted in gray).
To be more accurate, when you look at the propaganda spewed by the mainstream media, everything seems to be fine, because they keep spinning everything in a positive light.
In the US, for starters, there's a huge bubble in stocks, and an echo bubble in housing. There's a massive property bubble in Canada and Australia, and so on.
With interest rates already at roughly zero, they don't have room for lowering them to "stimulate" the economy (to avoid the inevitable crash that's coming).
Of course, getting people to spend money they don't have and businesses to start projects they shouldn't, isn't exactly good for the economy but hey.. whatever keeps the show going for a while longer.
(Downvoters? It's at the very least possible that you just don't know that I'm right.. :) Do your homework, but not from mainstream media sources)
So when you point out that the king has no clothes, naturally you get downvoted.
The current mess of the US economy is due to the choices of many politicians, in congress and the presidency, from both parties. Neither party should get a passing grade in this regard.
This is why we need the government out of the economy, and let it work. Hell if it weren't for government the bad banks would have failed in 2008-- and we would have had a real recovery afterwards.
Don't pay much attention to the political circus though, the false choice between "Demopublicans". That's all smoke and mirrors to make you think you have a say in how you're "governed" (i.e. coerced).
> The current mess of the US economy is due to the choices of many politicians, in congress and the presidency, from both parties.
It's much deeper than that. The dollar was detached from the gold standard in 1971, and that was the beginning of "the real end". Before that, the establishment of the Federal Reserve in 1913 set the scene for all the economic trouble to come, and so on. Check out: https://www.youtube.com/watch?v=5IJeemTQ7Vk
> This is why we need the government out of the economy, and let it work.
You're on the right track, but take it further. We need the government out of existence: https://www.youtube.com/watch?v=ngpsJKQR_ZE .. it is based on extortion, after all.
What maintains governments is the belief in political authority: http://spot.colorado.edu/~huemer/Contents.pdf
> Hell if it weren't for government the bad banks would have failed in 2008-- and we would have had a real recovery afterwards.
That's certainly true.
We would - but at the price of a much worse crash. (Which doesn't mean that the result, today, would have been any better - the further down the bottom was, the better the recovery has to be to reach the same point.)
It's because of our system of government. This talk about the government being the problem, causing harm to the economy, really irritates me - the American economy owes its very existence to the American government and the private property protections it offers in the forms of regulations, legal system, social welfare programs, public education, military, etc etc etc.
If you can't stomach the sausage making in the US without losing respect for all the greatness it permits, just stop paying attention and vote for whoever says what feels right, that's the American way.
Your italicized real recovery sounds like another adrenaline boost in the arm, rather than the robust, sustainable recovery that is actually occurring.
I'm not taking any position against your overall point, and I do think there are many (relatively) uniquely American policies that historically have paid wonderful dividends; but you're vastly underestimating the exogenous geographic advantages of America (and I'm not sure if you're doing this, but most people tend to overestimate how long global American hegemony has existed).
We're sitting on 50% of the world's navigable internal waterways, overlaid over by the world's largest piece of contiguous farmland[1]. We've got ports that allow easy direct shipping access to most of the rest of the world's economy (Western Europe and China/Japan/India; We also have easy direct shipping access to South America and Africa, but those have naturally been less important). We've got enormous natural borders with the rest of the powers that were most recently useful in the fact that we've had the luxury of staying out of the incredibly catastrophic wars of the rest of the world more or less until we decided to enter[2] (and to the degree that we decide to enter). Those also enabled us to escape essentially 100% of the physical destruction of those wars.
[1] https://www.stratfor.com/analysis/geopolitics-united-states-... This is an excellent article with a lot more depth than the couple of stats I referenced; there's also a part 2 that I recommend reading.
[2] Obviously less true for Pearl Harbor, but still true to an extent: consider the impact of a surprise attack for Germany -> France as opposed to for Japan -> US. Crossing the Pacific is infinitely harder than crossing Belgium.
> It's because of our system of government.
No, it's because of the relative freedom you enjoyed in the past. Strangely enough, the less of the fruits of people's labour you forcefully take away from them, the more motivated they are to produce.
The easier it is to do business, the more business will be done. Go figure.
There's a reason people were flocking to America from all over the world, and it wasn't to get horribly oppressed by filthy capitalist "Robber Barons".
I mean, if you at least supplied some links to the data that you think support your view, that would make for a much more worthwhile post.
The median PE ratio of S&P 500 stocks at the moment is $14. That's certainly not "bubble" territory. The current market correction is surprising nobody, but I don't think many people consider this a bubble (at least for the US markets).
Now there are certainly subsectors within the US that could be in bubble territory and could get hit really hard... unrealistically valued tech stocks being one of them. But again, across the whole US economy things are alright.
S&P 500 P/E ratio was (until last week) around 19. The more accurate Shiller P/E was closer to 27.
Way above the historical median.
http://www.bloomberg.com/news/articles/2015-06-26/the-s-p-50...
Or because it uses its huge military might to make sure it is so.
Of course. The market only cares for the bottom end.
I'm saying it though for those pretending the market is some victimless activity, that's not about power at all, etc, and "hard working people" (and countries) prevail.
The USD enjoys an unfair competitive advantage over its peers and this distorts the financial markets immensely and more importantly the balance of power in international relations esp. in times of political crises and military conflicts.
The point is that "undesirable wealth distribution" is not what an economic crisis is. If 400 people controlled everything, the world wouldn't be a great place to live, but the economy would probably be more stable.
There's plenty of reason to believe in proletarian revolution [0] as a thing that happens, whether or not one believes in it as a thing which is an ideologically desirable response to certain conditions.
[0] At least, revolution in which the lower classes are actively involved and where their dissatisfaction is a key lever used by the revolutionary leadership, even if the leadership itself is often from disaffected factions of the elites, either in government, military, academia, or private wealth.
In reality, it's the exact opposite of "quite healthy". Here's a good overview of what's up: http://www.oftwominds.com/blogaug15/bear8-15.html
(And they won't even perceive the sarcasm).
We don't have record numbers of people flocking to mobile homes as their subprime mortages jack up the rest of the economy.
Your article is crap because it ignores everything that was bad about 2008. Record layoffs, hundreds of thousands of people losing their homes and jobs. Major manufacturers (the _entirety_ of the "big three" car companies) almost went bankrupt.
Financial controls are arguably in a worse state than they were in 2008. But beyond that, the core economy is doing much better than back then. Furthermore, financial controls in 2007 prevented us from seeing any issues. The subprime mortgages getting wrapped up in CDOs and all that stuff was occurring in a non-regulated "shadow economy" manner.
Is there a shadow economy that is about to crash today? I don't think so. But that was the conditions of 2007/2008 financial crisis.
http://blog.milesfranklin.com/wp-content/upLoads/2014/12/US-...
But at a global scale?
"People" are expecting a correction 100% of the time, so the forecast is pretty much useless. If it was truly anticipated, it wouldn't happen. Action, like that which occurred at opening this morning, is sheer panic.
Well, the Shiller CAPE has been "relatively high" (above the mean) since about 1998. So, I guess we agree that people have been calling for corrections the whole time. And it's useless.
Thoughts on who's doing all this downward trading?
And I'd also point out that nothing has to be bought/sold for prices to move, although volume does spike when prices move downwards.
I'm curious about your terminology. 100k is quite a bit for most people. Is that your 'trading' portfolio or your 'investing' portfolio? If it's the latter, I suggest you keep doing what you are doing (i.e. nothing).
I imagine at least some of it is hedgies being crushed by oil sub-$40 as well as the AAPL correction (which was the #1 holding for a lot of funds). Lots of paper being re-positioned.
It was absolutely nuts this morning. VIG, which is the dividend growth ETF, composed of large-stock US companies, was down 18% at one point! I couldn't get any buys filled, though.
What exactly are we "falling for"? The economy ebbs and flows, as it has for centuries.
The real gullibility is thinking that these cycles somehow represent the end of the world.
0% interest rate for several years is not healthy.
QE is not healthy.
100+ % debt:GDP ration is not healthy.
Inflating assets is not healthy.
A vanishing middle-class is not healthy.
QE is over (though, I wouldn't be shocked to see more).
>0% interest rate for several years is not healthy.
Why not?
>100+ % debt:GDP ration is not healthy.
Why not?
I mean, I wouldn't call the US economy "flourishing" or anything. But it's not sick, and relative to the rest of the world it's looking pretty good (as the strong dollar and low rates imply).
Artificially low interest rates is the main cause of most malinvestment and inflating assets. Usually ends with a pretty rough recession.
For debt, I could just say 'Greece/Argentina/Brazil/Japan/...', but(yes) these aren't the world's reserve currency. U.S could just pay its debt to China by 'printing money'
Still, it also severely hurt Americans and is probably the main problem for the middle class. Wages don't keep up with inflation and assets are inflated, so their purchasing power is smaller and citizens usually get indebted themselves.
... were all just barely over 100% debt / GDP when things went bad? I don't recall that being the case.
It is surely true that there can be unsustainable levels of debt. You have not made the case that those are anywhere near 100% GDP. I would be surprised if there were any fixed number of GDP where it goes from good to bad - it's going to at least depend on the cost of borrowing that money, and that also looks much different between the US and many other countries (very much including the countries you listed).
Indeed. It's amazing to me that people don't blink an eye at borrowing 8-10x their annual income to buy a home in California, but think the US economy, which can print its own currency, is going to fold with debt levels at 1x income and rates at historic lows.
Bear in mind that printing currency is not without consequences either. It's not like each printed (and used) dollar is worth exactly as much as the previous one - otherwise hyperinflations could not happen.
Rates aren't "artificial" (there is huge demand for treasuries) and malinvestment occurs at any time. Sure, it makes it "cheaper" to spend money stupidly, but it's also cheaper to spend money "smartly" -- to take risks and chances to do big things. You know, what places like SV are all about. I'm agnostic as to what the rates are, because our economy requires lenders and borrowers. Right now it favors borrowers.
>"Wages don't keep up with inflation and assets are inflated"
Who owns all these inflated assets, the houses, the stocks?
Of course they're "artificial." There may be huge demand for treasuries, but not enough to maintain a constant ~0% interest rate - that's the Fed's doing. The Fed certainly is not allowing treasuries to drop to their true market value, as Volcker did.
Interest rates are set artificially by the Fed. Because they are set almost at zero, this causes run on government debt as the only "safe" source of interest income, lowering yields thus making it inexpensive for the government to acquire even more debt.
The result (in the US) is skyrocketing government debt (from 64% of GDP in 2008 to 103% in 2015)
We. Are. So. Fucked.
China isn't the entity which holds the US debt, the US citizens do. Besides, printing money doesn't make you able to pay debt, it just devaluates the money you already have. The early 20th century has shown us all that printing money won't help you.
Many of the problems are "easy" to fix with government action, but the consequences of the easy fixes are problematic.
> the rabid ... crowd won't have the thought of weak fundamentals
If you've been telling people using the same level of rhetoric and the same amount of facts as in this comment, I wouldn't be surprised if they don't listen to you, regardless of whether you're actually right or not.
The public is only slowly waking up to the fact that mass media ownership has been consolidated among 5-6 major corporate/industrial conglomerates.
Slowly, hence the frustration.
The media has been on the bullhorn about "the recovery" for years now, trying to make it happen by repeating that it's already happening. It's no surprise that this language rings hollow for many people; the GDP of a country and the stock valuations on an index do not necessarily mean that there is a genuinely healthy economy. These kinds of discussions never take into account labor force participation, only rarely QE, geopolitics, actual volume of consumer goods moved, actual market liquidity, etc.
You can state the facts as impartially as you like; people will not hear them because it contradicts the "recovery is here and the economy is strong" narrative.
The real problem in this country, frankly, is the Federal Government has been badly mismanaging economic & tax policy for 30+ years. They've repeatedly used short term solutions and short-changed everything from highways to R&D in the name of military, taxes, & social spending. Many long term investments in physical goods [e.g. buildings] are really only rated for a 30ish year timeline for depreciation for a reason.
That combined with the demographic shifts, labor market arbitrage, massive private debt load are the actual problems. Did you bitch when the private debt to gdp was over 120%? Did you even think about it, honestly?
I'd list sources but I honestly think you wouldn't believe me.
----
> A vanishing middle-class is not healthy.
By that logic, the US economy has in the shitter since the 1980s.
> Inflating assets is not healthy.
Actually, inflating prices is the definition of healthy and has been for a long time in economic theory. No economist argues we should have deflation.
> QE is not healthy. & 0% interest rate for several years is not healthy.
Having deflation would be less healthy than 0% interest and QE.
QE is also over.
> 100+ % debt:GDP ration is not healthy.
That isn't a serious issue as long as the US is considered the reserve currency. National debt doesn't have a direct correlation with economic growth.
http://www.theatlantic.com/business/archive/2014/09/governme...
> Government Debt Isn't the Problem—Private Debt Is
> What was the big problem? Look at the line representing private debt. It clearly is not parallel to the GDP line and, indeed, reflects a rapid growth of private debt relative to GDP.
> Look familiar? Time and again, that’s the story we found: A major financial crisis is preceded by a runup in private debt relative to GDP. In fact, there seems to be only one other ingredient required for a crisis: that the absolute level of private debt is high to begin with. We found that almost all instances of rapid debt growth coupled with high overall levels of private debt have led to crises.
Most of the time, an unqualified "deflation" means "a trend of declining retail prices, as measured by non-adjusted currency." And I know why economists in the employ of monetary authorities hate it. It means that there was a missed opportunity for that authority to steal more from the economy by inflating the money supply at a faster rate.
Ordinary price deflation is beneficial [for the working class]. It allows you to buy more stuff with less of your own labor. You can buy a computer today that is vastly more capable than one from 1995, at maybe 20% the cost, as measured by your own labor. You might have spent two weeks of gross wages back then. Now, you might spend 2 days of your work.
Working people usually spend at least 2000 hours of their own labor per year, for a span of about 50 years. They have to budget that 100000 hours out for everything they will ever want or need. They can't get more stuff for free just by printing off a few more bills or raising taxes. So everybody loves it when they can all get more stuff with the same amount of work, and everybody hates it when they have to work twice as hard to only get the same amount of stuff their parents had.
The economy hasn't just been in the toilet since the 80s. Real wages for working class families have been in decline since 1970. And the cause (in my opinion) was economists who pretended that macroeconomics was something other than a simple summation of many thousands of individual microeconomic models. They pretended that "government" was some magical economic actor that could defy the laws of microeconomics, by gradually moving numbers from the "truth" column of the ledger into "lies", from "lies" to "damned lies", and finally putting them into "statistics", where they could safely be explained away, hidden in margins for error, or redefined into nothing.
This is what monetary authorities and their pet macroeconomists have given us since 1970. The ordinary march of human progress--which has steadily given us an approximate annualized return of 1.5% per year, failing only temporarily due to wars, plagues, or other catastrophes--now goes directly into an annual inflation of the money supply of at least 1.5%. This has transformed global commerce from an ever-rising tide that floats all boats, into one where only the yachts float higher as the canoes, coracles, skiffs, and dinghies get swamped.
You can and should apply the principles of personal finance to national economies. You may learn something about macroeconomics that you didn't suspect before.
> This is what monetary authorities and their pet macroeconomists have given us since 1970. The ordinary march of human progress--which has steadily given us an approximate annualized return of 1.5% per year, failing only temporarily due to wars, plagues, or other catastrophes--now goes directly into an annual inflation of the money supply of at least 1.5%.
Someone hasn't heard of the various inflation-caused panics of the 1800s or deflationary economic problems pre-1900. applauds Read some history books.
Please, just stop. You have no clue what you are talking about.
I am claiming that the problems caused by central banking are worse than the those supposedly solved by central banking. Some people that are far more knowledgeable about economics than I have claimed that the greatest single cause of the Great Depression was the monetary policy of the Federal Reserve.
The first panic of the 19th century was created or worsened by the Second Bank of the United States, a Hamiltonian central bank. I loathe that guy. They should have run him out of Philadelphia in a wheelbarrow in 1783. If ever there was a man who loved money more than freedom, it was him. Unfortunately, there are plenty of others like him, and someone would have tried multiple times to institute a central bank in the U.S. After all, we got saddled with the Fed long after he was dead.
The second panic was caused mostly by massive fraud by a single financial company, but also the fear of legal slavery in the western territories.
The third was a combination of a bubble in railroads and the government ending the bimetallic standard, due to the 16:1 fix getting very unbalanced by silver mining. And oh, look, another "too big to fail" bank overinvested in the railroads bubble and failed. Again, it was Hamilton that fixed the silver:gold ratio at 15:1 in the first place instead of letting the market work. That jerk.
The fourth? Oh, shit. Another railroads bubble, and more bank failures from overinvestment in it. And more stupid government intervention in the silver market.
Did I miss any? Investment bubbles and the silver standard, all the way. Do I need to include the greenback crisis during the Civil War, where Lincoln paid for the Union war effort with inflationary fiat paper that went all the way up to one gold dollar costing 2.5 greenback dollars just a few scant years after the first print run?
And are you referring to the deflationary period from 1870 to 1890, which correlates with one of the strongest periods of sustained growth, industrialization, and prosperity in the history of the U.S.? That deflation in consumer prices of about 2% per year? The only economic problem there was that businesses had a harder time achieving economic profits--that is, a greater return than other possible investments--because more things were becoming commoditized. If you wanted to make real money, you had to innovate and invest in useful capital. ~Sounds like a real problem to me.~
Do you dispute that central banks pursue an explicit economic policy of routine monetary inflation to offset price deflation? Do you dispute that this practice transfers wealth away from the producers of value in the economy to the printers of money, and those who get to spend that new paper first? Do you dispute that any institution that is too big to fail is also too dangerous to continue to exist?
I have several clues about what I am talking about, and I haven't needed to impugn your knowledge of this subject to do it. Please do me the courtesy of arguing with facts, rather than dismissing my claims with the rhetoric of ad hominems and appeals to authority.
Sure. That is because you don't.
> Most of the time, an unqualified "deflation" means "a trend of declining retail prices, as measured by non-adjusted currency." And I know why economists in the employ of monetary authorities hate it. It means that there was a missed opportunity for that authority to steal more from the economy by inflating the money supply at a faster rate.
> This is what monetary authorities and their pet macroeconomists have given us since 1970. The ordinary march of human progress--which has steadily given us an approximate annualized return of 1.5% per year, failing only temporarily due to wars, plagues, or other catastrophes--now goes directly into an annual inflation of the money supply of at least 1.5%. This has transformed global commerce from an ever-rising tide that floats all boats, into one where only the yachts float higher as the canoes, coracles, skiffs, and dinghies get swamped.
https://www.cibcwg.com/c/document_library/get_file?uuid=1308...
7.7% according to this one is "real returns" from 1913-2012.
http://efinance.org.cn/cn/fm/The%20Equity%20Premium%20Stock%...
> Over the period from 1802 through 1990, equity has provided returns superior to those on fixed income investments, gold or commodities. Most strikingly, the real rate of return on equity held remarkably constant over this period, while the real return on fixed income assets declined dramatically. Over the subperiods 1802-70, 1871-1925 and 1926-90, the real compound annual returns on equity were 5.7, 6.6 and 6.4 per cent, but the real returns on shortterm government bonds dropped from 5.1 to 3.1 and, finally, 0.5 per cent.
Real returns are basically the same before and after the Federal Reserve and sure as hell hasn't had a 1.5% change to the negative in real returns.
Real returns were higher after the Federal Reserve was created over an extended period of time. You can't really go earlier than 1802 because there just isn't enough records available. So where is this magical 1.5% real return loss coming from?
So please, provide a 50+ year period that doesn't include the Federal Reserve, in which your statement beats the market under the Federal Reserve. I'm willing to even eat the Great Depression since you think its caused by the Federal Reserve. I'm even willing to let you pick a period about half the size! So all you need is to show a 9.2% return in the US for 51+ years. Can you do it? [Hint: You can't.]
> I am claiming that the problems caused by central banking are worse than the those supposedly solved by central banking. Some people that are far more knowledgeable about economics than I have claimed that the greatest single cause of the Great Depression was the monetary policy of the Federal Reserve.
Okay, well I'm willing to eat the Great Depression in either of the time periods I offered you. Hell, I'm willing to start in 1926, during the run up to the Great Depression, and let you cherry pick a period that is over a decade smaller than mine.
http://www.merrilledge.com/Publish/Content/application/pdf/G...
> 1879: US stocks record their best year ever, returning 57%*
Hell, take Jan 1 1871 to Dec 31st 1912
http://www.moneychimp.com/features/market_cagr.htm
7.64% / 8.59%; real returns
Jan 1926 to Dec 31st 2009 [hell, lets take near a market top to near a market bottom over 80 years!]
6.63% / 8.72%; real returns. That is a 1.01% gap, not a 1.5% gap. So I really have no clue what time periods you use to get a 1.5% gap and I'm super curious. Hell, I took the worst possible timeframe I could think of and gave you the best year on record.
So please enlighten me to this special time frame where you find this 1.5% gap.
http://fee.org/freeman/the-great-depression-according-to-mil...
> The Great Depression created a widespread misconception that market economies are inherently unstable and must be managed by the government to avoid large macreconomic fluctuations, that is, business cycles. This view persists to this day despite the more than 40 years since Milton Friedman and Anna Jacobson Schwartz showed convincingly that the Federal Reserve’s monetary policies were largely to blame for the severity of the Great Depression. In 2002 Ben Bernanke (then a Federal Reserve governor, today the chairman of the Board of Governors) made this startling admission in a speech given in honor of Friedman’s 90th birthday: “I would like to say to Milton and Anna: Regarding the Great Depression, you’re right. We did it. We’re very sorry.”
Yeah, that is what you mean?
> Friedman and Schwartz argued that all this was due to the Fed’s failure to carry out its assigned role as the lender of last resort. Rather than providing liquidity through loans, the Fed just watched as banks dropped like flies, seemingly oblivious to the effect this would have on the money supply. The Fed could have offset the decrease created by bank failures by engaging in bond purchases, but it did not. As Milton and Rose Friedman wrote in Free to Choose:
> The [Federal Reserve] System could have provided a far better solution by engaging in large-scale open market purchases of government bonds. That would have provided banks with additional cash to meet the demands of their depositors. That would have ended—or at least sharply reduced—the stream of bank failures and have prevented the public’s attempted conversion of deposits into currency from reducing the quantity of money. Unfortunately, the Fed’s actions were hesitant and small. In the main, it stood idly by and let the crisis take its course—a pattern of behavior that was to be repeated again and again during the next two years.
The problem with using that as part of argument is that. Yes, the single greatest cause of the Great Depression was the monetary policy of the Federal Reserve precisely because they do what you advise and let nature take its course.
The taking by inflation does not impact investment returns that are adjusted by inflation. That's the whole point of adjusting for monetary inflation. When you take out that inflation, you are comparing the equities against all the other uses of that money that are also adjusted for inflation. The loss from inflation becomes invisible, because everyone is affected by the same amount of it. The impact can still be seen in the change of ownership, from those who held real assets and old money to those who printed and spent the new money.
The 1.5% is the increase in total productivity. It comes from every laborer on the planet using, on average, slightly better tools every year than were available the previous year. That's an estimated average over a very long period of time--about 500 years. The average worker today can produce about more of whatever it is they make than the average worker in 1500, and there are a lot more workers to do it all. The rate of productivity increase has itself been increasing, thanks to universally useful inventions like steam engines, modern steel, and computers. So in the last century, the average annual increase in productivity has been closer to 4%.
The Bank of England was founded in 1694, as the first national central bank. Others followed. But it wasn't until around 1870 that it, and other national central banks, decided that they could lend in excess of commodity reserves in response to financial crises. This expanded the monetary power of central banks. It wasn't really until Bretton Woods that they started to really break free of the gold standard (coincidentally increasing in total global supply at about 1.5% per year). Had countries remained on the gold standard, the money supply could only increase by 1.5% while national productivity was increasing at 0% to 10%. Monetary crises where the amount of new money did not match the increase in available goods and services would have become increasingly common. So they started fudging the numbers, and the Fed was the lucky one that got to issue the reserve currency, so they could cheat more than any other central bank.
This all fell apart in 1971, when Nixon ended redemption in gold. The Fed had abused its dominant position from Bretton Woods too much, and other banks were calling them on it. So Nixon gave them the finger, and told them to sit on it. Nice guy. After the gold window closed for good, central banks were now free to inflate their money supplies at a greater rate, with the only check being how fast the other central banks were inflating, rather than how fast new gold could be mined and vaulted. And not coincidentally, this is when incomes started stagnating for the middle class.
Those historical returns on investments in equities are completely orthogonal to what I am talking about. The productivity dividend should, for the most part, be distributed to those who invest in research and development, and those who buy capital goods based on new technology. So, pretty much everyone, in a wide variety of businesses, across all industries. Everybody gets x% more stuff for the same amount of work. The central banks, by inflating the money supply by y%, takes some of those gains. They are not destroying the additional production. They are taking it. That percentage is not being subtracted. It is going to a different recipient. When y equals x, everyone who works labors just as hard for the same amount of stuff, and some people get a lot of stuff for no work at all. Free lunch.
But monetary inflation is a large and unwieldy hammer. You can't fine tune it for different industries. Businesses that can gain more productivity than x% can actually come out ahead. Those that cannot find it more difficult to stay in business. Tech companies often manage to pull off greater gains.
That's all this is. The power to control the money supply is the power to take a percentage of the entire economy circulating your currency. If you believe that central banks and their bank clients do not exercise that power for their own gains, at the expense of everyone else, you are a fool.
Persistent inflation of a fiat currency monetary base puts everyone on a technology treadmill, where if you do not increase your productivity faster than everyone else, you fall off. And the whole time, the spinning wheels are powering some banker's margarita mixer.
A) The Federal Reserve actually increases real returns on investment, thereby masking the extraction.
B) Your statement that they are extracting money from the system is false since real returns have improved, not declined.
Like, I get you want to believe there is some massive extraction going on here but it just isn't the case. Inflation existed before the Federal Reserve.
If I have $100,000 today and $106,000 in a year, I'm not having money "taken" from me via inflation if in an earlier time I'd have only ended up with a $105,000.
You can't prove something like what you claim exists without showing an impact on the real return on investment.
If I buy an equity at $100 a share, and I sold it at $110 a year later, and got $1 in dividends during that year, I earned 11% on it, without accounting for inflation. There are two effects that may occur due to inflation. First, the $111 I now hold can only buy an amount of stuff that could have been purchased for $106 the previous year (or the amount of stuff that cost $100 then now costs $105). The second effect is that someone close to the monetary authority, perhaps a government agency or one of their contractors, could outbid someone else for that $110 equity, because they have newly inflated money.
The return remains the same. The ownership of the equity is different. Without the monetary inflation, someone could have bid a lower amount for the equity in order for me to achieve the same real rate of return. The equity does not cease to exist. It does not perform more poorly. It does not change its own length if the measuring stick is now longer. Those who benefit most from the monetary expansion (i.e. those who can spend the new cash first) can more easily afford to take ownership of it from those who benefit least.
Do you understand now why real rate of return is irrelevant to the value extracted from the economy via monetary expansion? Some fraction of corporate dividends are now going to different people. They do not grow or shrink based on who gets them.
Granted, you definitely give a more in-depth account of how we got to the end points that OP cites, but still I don't see the need for such hostility.
Repeating the reasons people use to justify things like:
"If we just lowered taxes"
"If we just cut the deficit"
Isn't helping. Especially when they aren't the underlying cause.
>By that logic, the US economy has in the shitter since the 1980s.
Yes, and?
By itself, there's no reason it's unhealthy if it's spent on solid investments in the country. After WWII when it was last way above 100%, the composition of that spending had a much better effect on the country. Now? What's the nature of the current debt? I'd agree that it's not so wisely spent.
Sure you can (note, I wouldn't, but that's a different issue); standards for "health" of an economy are deeply ideological.
Everyone's been picking at all your claims except this one, so let me jump in on this part.
You've been drinking too much of the kool-aid. It's certainly fashionable for talking heads to spout platitudes about the middle class, but it doesn't match the real world. The picture that's being painted is that the vast majority of us will be living lives as serfs, while a group of oligarchs (the arbitrarily mythical 1%) determine our fates while eating grapes and being fanned. That's not what's happening.
In fact, the VAST majority of Americans are better off than they ever have been. Check out this [1], for example, based on US census data.
Yes, the middle class has been disappearing, but they haven’t fallen into the lower class, they’ve risen into the upper class
Further, in the demographics where we have seen increases in inequality, the lion's share of the change has been the result of lifestyle choices made by the individual. Imagine a social order - call it "A" - in which most people are paired off and raising a family. In that world, a large portion of the families have two incomes, which are going to pay for a single rent or mortgage bill, a single set of utility expenses, etc. Imagine another society, "B", in which many of the folks corresponding to those paired adults have instead decided to go it alone, either by way of divorce, or even deciding to have a family with no mate.
Isn't it obvious that in society "B", the un-paired "families" are going to have far less aggregate income ('cause there's not a second breadwinner earning that income), and are going to have much greater expenses at the same time ('cause there's not a mate to share housing and utilities, and in fact other things like dining may need to be outsourced, that being the result of not having a mate to cooperate with)? And compared to those families that are following the "A" model, it'll appear that the "B"s have a disadvantage?
It doesn't apply for every case, but for most "B"s, a decline in purchasing power for the family is directly explainable by their own choices. We might wish that our choices had fewer side effects, but we can't blame it on others who made different choices.
[1] http://www.aei.org/publication/yes-the-middle-class-has-been...
There's something very ironically Soviet about certain sectors of the American right. I'm sure at the height of Communism there were official mouthpieces that talked bout how everything was getting better, and I'm sure reading them was just as bizarre and vertigo-inducing like "what parallel universe do these people inhabit?"
Ideologies die hard. You can cherry pick statistics to attempt to argue anything, but the scenario you describe does not match the real world.
You need to pick your sources a little more carefully. The organization whose article you cited is an ExxonMobil-funded conservative thinktank that was involved in some notable controversies, such as trying to bribe scientists with $10,000 to critique the International Panel on Climate Change.
http://www.theguardian.com/environment/2007/feb/02/frontpage...
I'll be more specific with my criticism: the alleged increase in upper-middle class membership tracks extremely closely to women entering the workforce. Note that the data they use is family income, although the author has conveniently omitted that keyword from the graph title.
I'm always annoyed at the invocation of the logical fallacy that the source of an argument renders it inadmissible. Not only is it a fallacy, but it's typically (but not in your case, especially since you're offering a specific criticism!) invoked by someone simply assuming that their own source is sacrosanct. That said...
You may have a point, but it's not fatal to my argument. It maybe renders mine less strong.
Why would you think that women entering the workforce must be treated exogenously? I think it's proper to consider this part of the overall improvement.
For the years shown in my chart, the shift of women into the workforce was well underway. Even in 1950, women accounted for about 30% of the workforce [1]. So by my thumbnail estimation, the increase from ~1965 (when my original chart began) on is nowhere near large enough to account for the effect I showed.
Further, women entering the workforce is central to my second point about it finding oneself in the lower income tiers is significantly a personal choice. If the rest of the world has passed you by, it's still your own choices that are holding your back.
Without making any moral claims at all, purely based on mathematics, the two-income family has advantages beyond simply having double the income. As I alluded to, by sharing tasks and specializing within the family (e.g., I cook while my wife does the laundry), we're able to lower total expenses because we save enough time between us that more can be done without outsourcing work. It also offers better risk management. One partner can pursue a riskier but potentially more lucrative job, without fearing losing the family's only income. I have several friends doing this kind of thing, with one spouse running a small business while the other has a corporate job (including the medical care it implies). And if one spouse does lose their income, the consequences are much less dire, as there's some semblance of a buffer protecting them.
Thus, even aside from the simple doubling of family income as women entered the workplace, they shifted the picture so that more wealth could be created in total by protecting against greater risks.
But this is all endogenous to the question. Through their own means (in many cases, that being the decision of a woman to enter the workforce), Americans have transformed their demographics such that incomes have shifted strongly toward the higher end of the scale.
[1] http://www.bls.gov/opub/mlr/2002/05/art2full.pdf page 2 (PDF warning)
EDIT: I'd stupidly left the parens in para 4 empty; went back to fill them in.
Because "improvement" normally refers to something like growth in productivity, or growth in income-per-labor-hour. Doubling the family's income by just doubling the total hours worked isn't actually an improvement at all, especially when it just results in doubled competition for certain zero-sum assets[1].
[1] -- http://slatestarcodex.com/2014/06/28/book-review-the-two-inc...
I didn't say it is inadmissible. I simply pointed out that it is significantly biased as a source, and proved it by pointing out the author's willful omission of important information and misrepresentation of facts.
Another issue with the AIE article is that defining the middle class purely by income is fallacious. Paul Krugman explained this wonderfully [1]. He makes the point that being middle class is really about two things: security and opportunity.
http://www.truth-out.org/opinion/item/21841-paul-krugman-red...
So a $60,000 family with good health insurance, high labor mobility and job security can be middle class, whereas a $90,000 family with no health insurance and terrible job security may not be.
Economist Miles Corak also elaborated on the opportunity aspect:
http://milescorak.com/2013/06/18/income-inequality-equality-...
The income levels that fell during the studied period:
15,000-24,999
25,000-34,999
35,000-49,999
50,000-74,999
75,000-99,999
Income levels that grew:
100,000-100,000+
100k + increased by 6%
75k-99k decreased by 1.1%
50k-74k decreased by 3.1%
But sure, you could make up your own categories for the data to make 75,000+ look like it went up, when in reality it was only 100,000+ that showed an increase.
The fact is that the middle class is shrinking, and wages are stagnant or falling.
I encourage you to actually check the sources linked in articles - when you find different categories of data in the article than the study, its likely something is being misrepresented.
The key is that the number of people in the higher tiers increased, while the membership of the lower tiers went down. That's exactly what you said. But what it shows is people were shifting into those higher tiers.
You're right that in all groups below $75K, the percentage of people in the group went down. While from $75K and up, the membership of each group increased (you've read that part of the data wrong, as the $75l-$99K group also increased.). That's precisely what my linked article says, and exactly what we'd like to see: people are shifting from lower groups into higher groups, across the board.
EDIT: here's the spreadsheet from the census bureau I was working from: http://www.census.gov/compendia/statab/2012/tables/12s0696.x... (Excel spreadsheet)
And what inflation? Outside VC money and the stock market ( and the peripheral real estate markets to those ) there isn't any.
That's not healthy or unhealthy. It's just a thing.
> QE is not healthy
Ask Europe that didn't do quantitative easing (or did too little too late) which economy they'd rather have right now. And it's no longer a thing - because it ran its course and largely worked.
>Inflating assets is not healthy
Some classes of assets are inflating. Some are deflating. Again it's a little vague.
> 100+ % debt:GDP ration is not healthy.
It was never higher than right before the boom of the 50's and 60's so...
Agree with you on the impact on the middle class.
But I think you can assert on the balance of things that the economy is healthy vs not. You've obviously ignored a lot of positive stats around employment growth and economic growth.
I agree with you generally, but this response is a little silly. What does "it's just a thing" even mean? Given that there's no ironclad economic consensus on this question yet, it's more comfortable to not spend too much time sitting on the ZLB. Now that doesn't suggest anything specific about what costs should be incurred to get away from the ZLB[1], but all else held equal, it's not unreasonable to suggest that staying near zero for so long is a bit more uncomfortable than having a bit of a buffer to lower rates.
[1]i.e., I'm not taking the oft-heard position that we need to do what it takes to raise rates NOW before it's too late
This isn't an excluded-middle sort of question. QE is indeed very unhealthy, precisely because it's a solely monetary stimulus, pumping up finance while households and public services starve. Fiscal stimulus works far better when you actually want a stimulus (but requires that Congress be willing to act).
http://www.forbes.com/sites/realspin/2014/01/17/you-think-th...
This does not account for unfunded liabilities owed by the states. The situation there is very difficult as well.
You also mention that China is rampant with corruption. In my view, with respect to politics and cronyism, I think the United States government is also highly corrupt.
I would like to share your optimistic outlook, but unfortunately, I'm not able to do so given all that I see going on around me.
As an absurd conclusion, birthrates drop to ~1 per couple, 2/3rds of the population retired, and robots put most people out of work.
Is it really so surprising that taxes would have to go up massively on the owners of the robots and other capital to provide all of the retirees a basic income?
Hans Moravec, who ran the CMU robotics department, pointed out these trends in his 1988 book _Mind Children_ and what the end game would be.
My fear about the unfunded liabilities argument is that it appears to be the new talking point of Trump and Fox News, and rather than see the writing on the wall with respect to the long term trends in the labor market and demographics, it'll just be more arguments about slashing federal social programs, pensions, and the liabilities themselves, which will make us all the less prepared when the real devil comes knocking.
This is classic one-sided accounting. That money is not vaporized, never to be seen again when it's paid out. It is paid to US citizens as income. Out one pocket, into another.
That strikes me as extremely corrupt. Politicians steal from the young / unborn and use the money to advance their careers.
But to your point, yes, it's from one American to another, strictly speaking. I don't see that as making it moral.
If you're trying to time the bottom you may as well take your money to the blackjack table. The quants are probably going to make a bunch of money, but if you're just a regular person, you should probably just continue making your regularly scheduled 401k contributions and diversified investments. Historically speaking, all the movement is going to average out in the long run to modest gains.
Historically speaking, when has the Fed kept interest rates at ZERO for 7 years? After pumping QE full throttle at $80B/mo? The economy has been in continuous "recovery" mode since '08, but not much has actually recovered. The market is going to collapse my friend because, historically speaking, we are in dark, uncharted territory and have lost our way back.
Basically what I see are indicators the collapse will come around by way of massive defaults on student load debt. This will be combined with Federal Government idiocy promising Baby Boomers that the benefits will aways be there for them as a pandering for votes. Everybody knows full well the lower tiers of society and the working population are forced to make do with unapologetically low wages which aren't condusive to a healthy tax system, but there's no end to people voting against self-interest because they're clouded ideologically.
I'm not sure a total reset is this time or this year but probably next summer it'll be the focus of all the Presidential candidates.
This is not a problem so long as it's done once. All SS money ends up strengthening the metric formerly known as M3, so it'll work out just fine.
The problem is the closely-held belief that There Must Be Suffering or we're not being responsible adults. The economy has been liquidity constrained ( outside of bubbles ) since 1980, with the odd 24 or 12 month period off.
Medicare will be a second-tier service. That's nearly inevitable. But nobody will do anything about this until they have to.
And frankly, longevity of Baby Boomers doesn't seem as likely to work out as it did for the WWII and Silent Generations.
I agree wholeheartedly about "mismanaged the finances" but this is the world we live in.
While this is quite true, there are underlying demographic factors to take into account. Namely, insofar as voting means anything at all, Generations X and Y together now outnumber the Baby Boomers among voting, working adults. This means that there is now an active, demographically-driven political conflict between the interest of incumbent creditors and the interest of an increasingly large majority of the voting, working adult public.
Very little of the credit created on the balance sheet has actually entered the market.
In the public bond market, how is lending fleecing the "non-investor class"?
Again, much of the money printed is just sitting on the balance sheets and haven't made it's way into the market.
You're saying that lenders who borrow from the Fed then lend to large organizations who do buybacks. Why does this hurt non-investors?
Really? Who are all these people who -- with their own money -- are willing to lend $100mm today for $100.05mm in a decade?
If there are people willing to lend OTHER PEOPLE's money for near-zero rates, that doesn't count. Because ostensibly all money has to be someone's money. And if it's not -- like say if it's the Fed's money -- then that's clearly some kind of forcing function that can totally disturb the natural equilibrium.
The only way that interest rates accurately reflect people's true time preference for money (which is what it's supposed to be, really) is if all money loaned is money owned by a real human being, somehow, somewhere, who has actual influence over what is being done with it. If there's money in the system that doesn't fit that criteria, you're screwing with the interest rate in a non-natural way and suggesting that this artifice is reflective of the aggregate time-preference for money is totally bonkers.
Looking at http://www.treasury.gov/resource-center/data-chart-center/in..., the yield for 10 years is actually more like 2%. Less than a year is very close to 0, so there are apparently a ton of people out there who will lend you money for 1 year at 0.33% interest.
Ultimately though it's not as though banks are making the decision to loan to the Treasury at very low rates all by themselves. It was coordinated how the money flows would happen and it would do two things: allow the banks to repair their balance sheets through "free money" loans and also help the government out of a bind where there was nobody to buy their debt that they desperately needed in order to fund expansions of social services during the downturn.
Personally I think that it's pretty immoral to steal from savers to bail out borrowers, but that's because I'm a saver who's been locked out of the housing market by not having gotten in prior to prices going 2x, 3x, 5x or whatever. Ultimately I think the whole thing is going to end very badly, but of course I have no idea how long it'll take. It might take another 2-3 years, it might take another 20-30. No way to know how long the speculative mania will last.
There are only two things you can guarantee about the market: First, it will fluctuate. Second, those fluctuations will be unwittingly used as a Rorschach test by everyone with a political axe to grind.
The market had also never crashed like 2000 because the internet tech sector had never existed like that before.
The market had also never crashed like in 2008 because home loans had never been so lax in terms of lending such highly-leveraged loans to such low quality lenders.
Every new crash lies within dark, uncharted territory because no one can predict the future and a crash could only come about from a set of new circumstances we couldn't have predicted before (or else it wouldn't have crashed).
> a crash could only come about from a set of new circumstances we couldn't have predicted before (or else it wouldn't have crashed)
This claim isn't actually correct. Economic history is full of crashes and recessions where nothing new happened.
[1] https://en.wikipedia.org/wiki/List_of_recessions_in_the_Unit... https://en.wikipedia.org/wiki/List_of_stock_market_crashes_a...
As you say, we can't predict future crashes or the circumstances that trigger them, and I'm not entirely sure we've seen the trigger for a crash now. Perhaps we've set ourselves up for one, but it's doubtful that the indicators themselves will "pop the balloon".
In personal finance, you can use a variety of tricks to hide your bad finances for a while, but it's not usually your debt-to-income ratio (or any other technical indicator) that triggers bankruptcy; more often than not, people keep digging themselves deeper until the bank actually knocks on the door to repossess the house. Governments have historically shown that they can keep the game going far longer than any bank might allow (there are no real terms attached to their debt when they can literally print their own money).
We probably won't know the trigger this time (or any other time) until a collapse is already well underway, if it's indeed happening.
2008 and 2015 are economic events which feel to me like they're based in inequality manifesting in different ways.
The problem for those younger people entering the market is not that they don't consume - in fact, they consume readily - but that they can't afford property and don't receive adequate pensions or other benefits.
If they can't afford to buy a property, a whole cascade of secondary 'new place' purchases don't happen.. it's a symptom of not enough circulating money at the center of society to sustain the economy.
The crash part comes when investors look at falling activity in China, and falling commodity prices as strong indicators that global demand is falling.
The phenomenon where lots of cheap capital causes junk companies to do dumb things fueled by debt isn't a new one.
They did for a while. That part's over, though.
Actually, I doubt that.
But if you're going to classify even tax breaks as QE4, then, sure, sooner or later there's going to be some tax breaks to somebody for something. Big enough to really classify as QE4? I doubt it.
Only if -- as you apparently do -- you redefine "QE" so broadly as to include not only every tool in the chest, but tools in completely different chests, as well.
> This time around though it won't be parked directly in the banks, but more likely it will be helicoptered directly to consumers, probably in the form of tax breaks, directly or indirectly.
QE is a kind of monetary policy, tax breaks are fiscal policy (and QE is specifically monetary stimulus by central bank purchase of financial assets from financial institutions.) These differ in kind (not degree) and authority -- the Federal Reserve can do monetary policy like QE, but not tax breaks; only Congress can do fiscal stimulus.
Which is the tricky part.
Put your $ where your mouth is.
There's a cottage industry forming around finding market distortions caused by bad algos. You'd think that there wouldn't be a bunch of bots running around making stupid decisions, but there are a lot of bots that haven't been updated in some time and were put in place according to some idealized rule-based model in some esoteric area of finance that one guy came up with.
It's kind of like asking yourself seriously how many computers out there are running outdated software. The less fundamentals matter, the more computers handle various activities that have a more or less direct impact on prices of marketable securities, the more this is a valid strategy. It's basically anomaly detection on very messy data.
If transaction costs keep coming down and data becomes cheaper (both of which seem likely), trading as an independent might become less ludicrous than it is. And to be clear, it is currently ludicrous. Transaction costs will eat up any potential gains on the retail side unless you're operating with very large amounts of money.
There are other reasons why stupid decisions are being made by bots.
For example, response times matter. Often you have a tradeoff between making a bad decision quickly, or a good decision more slowly. It isn't clear that being smart is worthwhile...
Seems a bit naive...
Measured against an actual real-world asset such as gold, oil etc., probably not. http://www.macrotrends.net/1378/dow-to-gold-ratio-100-year-h...
I recognized there were bargains to be had in March of 2009. I didn't hit the exact bottom (March 6), but I got some pretty nice deals on March 12.
Right now, I wouldn't go out of my way to make excess contributions. The signal isn't strong enough. But sometimes it is.
If you've really got a problem with ignorance, do the grown-up thing and attack the ignorance rather than the person.
A wildly ignorant comment (that could be remedied by a simple reading of the comments on this story) probably deserves downvotes as it doesn't add to the discussion at hand at all.
That said, this whole comment section probably deserves a big downvote as it is largely not very good from top to bottom.
It reduces the ignorance in those who read the comments and draw conclusions from what is upvoted and what is downvoted (even though most people won't admit that they do it even to themselves).
It doesn't take much money to invest in the stock market. Do you consider yourself thrifty? That's the major criteria for becoming an investor. Living below your means and saving. I have been in the working world for ~8 weeks now and already have some investments lol.
The average person should not have to worry about the market... ever. It shouldn't be the massive, speculative thing that it is today. Short term trading, as it is, needs to stop. Business does not work like that and their stock prices should not either.
This is a very surface level explanation, I could write a paper and go on forever. To sum it up, we shouldn't have huge corrections because we shouldn't have 'cheer-leader'ed it up in the first place.
The point of a market is that the price signal reflects all publicly available information available at an instant in time. If more information becomes available, or if the information is uncertain and can be interpreted many ways, the price should jump around. That's what makes it an effective market.
The average person doesn't have to worry about the market - they can park their money in an index fund, buy when they have spare money, sell when they retire, and forget about the price in the intervening years.
And they don't. The market, the real-time market, is there for those that need it. If you're not one of those, just ignore it.
Either way, beyond a bit of an "emergency fund" on steroids, this is actually how I'm taking it: a good starting point for some conservative DCA.
I have taken their advice and have done quite well.
Unlike investments of many of the Southeast Asian nations, almost all
of China's foreign investment took the form of factories on the
ground rather than securities, which insulated the country from rapid
capital flight.
[0] https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#Ch...
The Communists largely maintain power though the threat of Its us or chaos. Which before and during the communist rise China was pretty bad off. This is more or less the social contract we make your life better, you give up your rights.
If it becomes clear the central government can't control the economy. We'll likely see a rise in anti-government protests.
I've been to china once, lived with Chinese Nationals for several years, and currently telecommute with partners in China. There is wide spread support for the party. People do understand that the chinese system is unique, and not necessarily the only government system. They simply believe it is better.
Which from a socio-economic outlook it kind of has been for the past ~30 years in terms of industrialization and infrastructure construction. People have lived their entire lives where the idea of questioning the party seemed stupid simply because the party was, and has been right for their whole life. Not because of life or death punishment. Simply looking around and seeing the cities and lights were the only proof needed.
The party ties its sucess to the sucess of the nation. Which is really what all political parties do, lest we forget Bill Clinton's, Its the Economy Stupid. Economic downturn is a crack in that armor. Proof the Party isn't by itself responsible for the economy, proof the party doesn't have absolute control of the up turn. If the party is wrong on the economy, what else could they be wrong on?
Under the Communists, China put a stop to all of this and became a major power again. There are certainly problems in China, but the average person is way better off today than before the Communists took over, and not just because of economic growth.
Now, one can argue that the Communists weren't necessary to make this happen, or that they even impeded progress. (Fighting a civil war and the Japanese at the same time certainly wasn't very helpful.) But the fact remains that they were the ones in charge while this change took place, and they get a lot of credit for that.
Improvements only came when they abandoned communism, and came up with a fig leaf of 'mao was 80% correct'
It is hard to rewrite history with a different set of rules, but I think it's fair to say that given the experience of Hong Kong, China would have been better off without 30-40 years of communist rule.
I am biased towards Hong Kong having visited and loved the place, so it's always the first one I think of.
It may well be fair to say that. But it doesn't change the fact that the Chinese Communist Party presided over a period which took China from the world's punching bag to a strong, independent power. Maybe they made it happen, maybe it happened despite them, maybe it's a mix, but they get a lot of credit from the population for being the ones in control while it happened.
Its the older generations (I assume who got more propaganda growing up) that carry the parties line a bit more firmly.
The US economy is, as far as I can tell, tethered in a macroeconomic sense, to the bill of the very expensive land wars it recently fought. The cost to the economy both in terms of government spending and workforce depletion as national guard troops were mobilized for duty in Iraq and Afghanistan.
American worker productivity has remained high, which has kept real wage growth low, as employers leverage they "be thankful you even have a job" meme over the heads of employees who perhaps just scraped by in the great recession or spent months or even years unemployed.
America's largest trading partner, China, is running a partially managed economy with a fiat currency that is priced more on government policy than market realities. That pricing has lead to some unsustainable conditions in the Chinese economy which are being "addressed" by some pretty big moves (currency devaluation is not something you do lightly in the worlds second largest economy).
So the interesting question is how does the world see it? And how will it play out? Everyone has their bets, but and you can read about some of them in Barron's or the Economist or the WSJ.
The current disaster is Chinese. By devaluing their currency they are effectively "taking value" from people who were trading with them relative to the partner's home currency. So lets say someone like Apple contracts to buy 10 million iPhone 6 baseboards, in Rmb at an exchange rate of $100 per board, and now when it comes time to actually take delivery and buy the boards they cost Apple the equivalent of $150 each. Apple needs to pony up an additional half billion dollars for their phones. This then will hit their bottom line in terms of revenue, which means their stock price will go down (they won't be as profitable a company) and so funds holding Apple will lose their value in proportion to their Apple stock. And China has done this by devaluing its currency.
It doesn't change how strong Apple's market presence is, or that they can sell a phone for a ton of money, but it changes the cost/value equation faster than Apple can respond and so there is a disruption in their earnings. That will ripple across a lot of companies.
But is that a 'health' issue for the American economy? Not really. Rather it puts pressure to restructure the costs of the economy into a different place. People still buy iPhones and will for the forseeable future. So the economy is still strong, but if the price of those iPhones doubles their volume will likely fall and so Apple's earnings might be 'weak'.
The stock market is responding to the adjustments in China, internalizing the lack of fiscal oversight in that economy, and pricing it into the value of companies that do a lot of business there. I expect a hell of a correction and some interesting new markets opening up (like India, Vietnam or Thailand if the Thai can get their governance under control) as the cost of doing business in China begins to more accurately reflect the real costs of doing business there.
EDIT: As folks have pointed out the currency hit is reversed, Apple would get its parts for less if they priced them in RMB vs Dollars. Any RMB they were holding in their cash pile would have lost value, so to the extent that their sales in China have not been moved into Euros (we know they aren't repatriated into Dollars for tax reasons) are going to buy less than they did before.
It makes Apple happy, theoretically. But it also means Chinese goods and services are more competitive globally, which will, of course, hurt the competition.
That sounds like it's the wrong way round.
Well, Chinese consumers lose, because the phones Foxconn is assembling now cost more renminbi. Samsung (in Korea), TSMC (in Taiwan), and Intel (in the US and Israel) lose, because their competition in Mainland China was just able to lower their prices. In the long run, possibly Apple loses because Foxconn is in a better position to stop being a mere OEM and start competing with Apple directly, just as Microsoft did in the 1980s.
And that's why people have been worried about the RMB devaluation sparking a wave of currency devaluations as governments and central banks attempt to stay competitive with China by applying whatever leverage they have.
As of right now? Nothing. This is mostly paper being moved around. Economic tides are shifting and there are always people caught with their pants down.
In the long run? Who knows? We just finished a massive bull-market run, now there's been a commodity crash and global growth prospects look bad. It could be business-as-usual or completely uncharted territory. Don't fret over what you can't control.
First, older businesses, who have survived other crashes, start tightening their budgets ASAP, pulling back on expensive tech investments. So there's a contraction in big outsourced tech projects with bigger businesses that can start within weeks. If you have big things planned with these guys, close the deal right.now.
Then, many startups who have been too reliant on investor capital for survival get into a pickle when investors stop being as generous dishing out venture and angel rounds. Any company dependent on raising a round of financing in the next 6 months is in a tough place. If you work for any of these guys, polish your resume.
So you start to see layoffs at big consulting firms, then startups start to fail when funds get antsy. This puts a lot of engineering talent on the market, first at job interviews and later for freelance after they've been on the market for a few months. Increased supply means lower salaries and freelance rates. Last time around the big tech cos like Google and Facebook went on a feeding frenzy and drove the supply down, and the mobile thing happened. So salaries bounced back and then went bezerk
I have a feeling if this is another big one, this time around there will be less feeding frenzy and more pruning - the tech giants can use this as an excuse to lay off engineers hired on inflated salaries and not performing. The mobile bubble popped already, and the current bubble is in AI and big data which needs more more specialized brainpower and probably won't pick up a lot of the supply
We also have tons of very junior developers swamping the market with training from coding bootcamps right now. So at the low end of the developer spectrum there's potentially a huge surplus. If things get sour in the market this will be a very tough time for an entry level developer, a pay cut for a mid level developer, and a minor worry for a good developer. For companies with healthy cash reserves, it's a big win though..
For me, the situation is such a mess that I don't think we're close yet to what I would consider a buying opportunity.
One saying is "buy when there's blood in the streets"... but I don't think we're there yet.
Downvoted and slow banned. Why do I even contribute to this site?
But considering how profound the issues of Chinese Real Estate bubble are - they were paying people to make it look like empty, recently-built, luxury apartment complexes had people actually living in them - I think the worst is yet to come and I'm still waiting.[0] [1]
[0] RE Homes: http://www.wsj.com/articles/more-than-1-in-5-homes-in-chines...
[1] RE Apartments: http://www.economywatch.com/economy-business-and-finance-new...
It's going to be okay.
In case you're worrying of buying at the top: it's still a good idea. There's a very nice article [0] of what would have happened to an imaginary investor if he always bought at market peaks only, and held between the peaks.
[0] http://awealthofcommonsense.com/worlds-worst-market-timer/
https://www.youtube.com/watch?v=AyBBQ-wF87M
I do believe that Chinese real estate is in a bubble but the markets there work very, very differently than they do in the West so it's best not to try to infer too much from 10:00 news stories.
Alright, as a fellow traveller, let me help you. I'm going to make some observations and then give you my magic key to dealing with this market:
- Picking individual stocks is very difficult unless you are Buffett-tier
- The low-cost index funders have a very strong argument
- That being said, there are obvious long term momentum trends in the broad market, the efficient market guys are a joke
- Daily and even weekly movements have too much noise to be worth looking at
- Monthly is actually pretty good though
- Sitting in cash for any extended period is almost impossible for most investors and flat out impossible for funds (competitive advantage alert!)
So, putting that all together, you have the following thought:
"What if do index investing and I use momentum measurements of the broad market on a monthly basis to try to avoid the shit-show pullbacks."
I use the monthly MACD of the S&P 500, and it has worked very well: invest when MACD is positive, get more conservative as it goes to zero, start selling when it goes negative, sit in cash and wait for the faster moving average to reverse on a monthly basis.
No one believes me, and you shouldn't either. But there it is.
Anyway, finally this might be the perfect time to consider a market entry again after a lost year so far. Lost if you were refusing to buy at much too high prices. Let it go down some more days and invest then.
> Studies find that the average investor's return in stocks is much less than the amount that would have been obtained by simply holding an index fund consisting of all stocks contained in the S&P 500 index.
Just ask Japanese investors.
Or Chinese investors from 2007. They went sideways for eight years, and after their bubble deflates will likely see 20 total sideways years.
Or the Nasdaq from 1999 to 2012.
Point being, even the premise of index buying requires some smart timing or your returns - if any - will be extremely poor.
Or just investing a regular amount of new money on a regular schedule, which will even out the timing issues.
The unwritten context of "buy and hold an index fund" is that it's for retirement—people with 20, 30 or 40 years before they actually need the money. That's enough time to ride out swings in the market.
If you need the money to buy a house or start a company in a few years, keep it in cash.
Let's say I'm 30 and want to save for retirement and let's imagine these crashes keep happening at around the same frequency (every 8 years or so?). This means when I reach my retirement age I might have to wait around 8 years for the market to rebound if I'm not lucky enough to buy my shares on the bottom of the charts, right?
The reason I'm asking is because I keep reading about how an index fund will eventually, given time, be worth it, even with these frequent crashes of late, but when I'm 60 it might not be possible for me to wait for a better time to cash out, in particular given my country's (men) life expectancy of around 75. In my view, this doesn't seem as safe as it sounds but I might be missing something.
Let's pretend I have my own retirement fund as a savings acount at around 1%, a very slow but pretty much safe growth. This way I might end up having with a more stable outcome when actually retiring which I believe is what most people would be looking like. I hate reading a market crash could wipe out poor and middle class retirement funds and have a hard time understanding the point besides greed or lack of knowledge.
Again, I'm most probably the one with lack of knowledge on this, just sharing my doubt as a very very conservative investor, if at all.
http://www.bogleheads.org/wiki/Bogleheads%C2%AE_investment_p...
Unless you're able to make huge contributions, a savings account is unlikely to provide the funds you need for retirement.
Given that many banks have gotten out of prop trading and are now shifting into "wealth management" shops (hey we lost all our money when we tried that game... why don't we try it with your money!) there's clearly a lot of effort to convince people otherwise... but the numbers don't lie.
Active management is subject to the same thing. Everyone hammers on the idea that "past results do not guarantee future returns" but that's all anyone ever looks at, what with it being very difficult to observe the future. Some active managers will be successful simply by luck. They'll tout their results and get more customers from it. And then eventually their luck stops and they'll revert to the mean, minus their fees. Because of the proportions involved, lucky managers will heavily outnumber those who are actually good at it (if there are any).
I guess they can either 1) dig themselves deeper into a hole and issue another round of QE to inject liquidity into the markets or 2) do absolutely nothing. Though they are probably loathe to do nothing as then it would seem like they don't have a solution.
Whatever happens, it will be an interesting/exciting time in non-traditional monetary policy that will generate a ton of academic papers going forward.
That's not something the Fed can do.
That's something Congress can (in theory) do, but hasn't shown much interest in doing.
> We have come to depend far too much on monetary stimulus relative to fiscal stimulus.
I don't think anyone has a preference for monetary stimulus so much as the fact that the only place where there are sufficient people with interest in stimulus to effect anything is at the Fed, where the only lever they have is monetary stimulus.
EDIT> Why would you choose Disney over Google, given the choice? FYI I own both.
> Why would you choose Disney over Google, given the choice?
My three big buys early this morning were Disney, Google, and Sony... I certainly think this is a good time to own Google. (Caveat emptor)
People being forced to liquidate positions (margin calls, panic) and no buyers.
https://en.wikipedia.org/wiki/Working_Group_on_Financial_Mar...
Some of it is going to be people selling assets to cover margin calls if they are overly leveraged.
Some of it is people selling because everything's declining and the want to wait it out.
Excess supply of oil is great for most of the economy. Waning demand is a bad indicator, though.
As of right now, the S&P 500 is down a little over 2%, that's pretty normal. I'm not even sure this is a paper cut.
For example, say I have $1000 to invest every month. I'll take that $1000 and put $500 into an index fund and $500 into a savings account. Then, once the market dips 10% from its previous high, all the accumulated money in the savings accounts is invested over 4 weeks.
I made a simple google doc to back-test the strategy 5 years on the DJIA. It's very rudimentary, but I'd love to see if anyone tries a different approach.
https://docs.google.com/spreadsheets/d/18-2rBonJPPlg8n6YkpAj...
"How much of the weighted average person's day is that person spending on survival".
I don't see how slow shift to a 60-hour instead of a 40-hour work week is indicative of a healthy economy but I could be wrong. To me it seems that survival is taking more and more time when it should be taking less and less if the economy were actually growing. This is probably just a "correction" but I think we will be seeing more and more of these here soon. I've been looking at the robotics industry and I can see them going into full public view within the next decade. The results will be interesting.
This happened after Tim Cook's email to Jim Cramer, which may have violated Fair Disclosure regulations: https://mobile.twitter.com/carlquintanilla/status/6357996299...
EDIT: The page in question lists it actually, S&P 500 down 4.1%.
The Korea business is pretty much business as usual there.
The good news for the US is that we're a Chinese consumer, and they're not a major customer for our goods. Additionally, they're a competing consumer for resources. Basically, this means that the prices for American imports will drop, making the USD stronger internationally and encouraging international investment in the US economy.
The one thing to worry about is that the drop in import prices will likely cause a drop in the prices of domestic goods.
"The New York Stock Exchange said it will halt trading for 15 minutes if the Standard & Poor’s 500 Index drops 7 percent." [0]
How is it fair that the markets get put on pause if they're failing? I really don't understand.
[0]:http://www.bloomberg.com/news/articles/2015-08-24/nyse-will-...
You should definitely remove the idea that markets are "fair" from your mind. If they were "fair" that would be a lottery not a market.
If you predicted it, then it should at least make you rich? :)
This cognitive fallacy of "I knew" and "I was saying it long ago" etc... really irks me.
Especially in something like stocks you are 100% right, put your money where your mouth is and spare us the story of your grand predictive prowesses.
I profited from the bubble quite well, decided the top had been hit when things got really wonky and got out of the market in 2007. I was a year early, but I'm not complaining.
It's not a fallacy, you can do it, if you understand economics. The problem is, most people involved in stocks are more interested in technical analysis and tea reading than fundamentals of economics.
It's the fundamentals of economics that drive "black swan" events.
From 2001-2007 I constantly saw people claim there was no bubble, I constantly saw people say things like the economy is good and healthy. I constantly saw people pretend like the fed wasn't blowing up a balloon. Article after article was published spinning tales to pretend like up was down and down was up.
And then in 2008 when it popped, I constantly saw people claim there was no way to see it coming. I saw it blamed on Wall Street. And since then I've seen article after article published to misdirect and mislead about what was going on, saying up was down and down was up, to service the narrative.
The key indicator of a science is the ability to make predictions... yet the "dismal science" of economics is portrayed by politicians as incapable of saying anything, because they use it to pitch self serving narratives.
But the reality is, good economics has predicted every major crash, and its reasons. You can't necessarily know the timing-- I was off by a year, and I have no clue when the next one is coming.
-------
I see I've been slow banned and am getting brigade downvoted across all of my comments. This harassment is typical on hacker news when you think for yourself and don't tow the party line. Jesus, what draconian filter bubble. That's fine, my time here was largely wasted anyway.
Here's the comment I was going to make below, but now am not allowed to:
I've been slow banned so I expect a hell ban is coming, I don't know why, but I guess its because I'm not on the praising obama bandwagon. So this may be my last post, if I'm ever able to post it.
Yes, if I'd just stayed in with everything for 6 months or a year I would have been worse off. I was pretty close to the top, in what I was investing in. I did sense that the market got weird- the response was not what it should have been based on the macro events. When things stopped making sense, I got out...
If I hadn't gotten out at all I would have lost a lot of money - whether you measure to 2008, 2009, 2010, 2011, 2012, 2013, 2014, 2015.
Those investments were plays on the bubble... not investments that make sense after the bubble.
It's difficult to do long horizon investing when the market is so manipulated- by the government and by the messed up regulation-inhibited outdated exchanges. But you can know the fundamentals.
The problem is, a lot of people emotionally don't want to face reality, and a lot more people get rich selling them fantasy.
No, the US economy is not doing well. Hell, the US government can't even sell bonds, it's selling them to itself with the Fed fabricating money to buy them.
a) what would have happened had you stayed in for an extra month? An extra 6 months? The full year?
b) what would have happened if you hadn't gotten out at all?
The only reason I ask, is that most of the studies I've seen show that being able to predict macro level shifts in the market up to and including within 1 year time frames are largely less valuable than people would think. Especially for people doing long horizon investing.
Maybe you're being down-voted because you're just a guy on the internet, bragging about how you saw it coming (7 years in advance!), timed it perfectly, made a bunch of money, and are now lecturing us on how it's "easy"...without a shred of evidence?
More or less, he had said 'I felt it was unhealthy 7 years in advance'. The actual 'prediction' was only a year or two from the event in question; 'the market didn't make sense' and reacting to that.
Don't kick yourself for getting out a year early. It's way better than half a year too late.
However:
> the US government can't even sell bonds, it's selling them to itself with the Fed fabricating money to buy them.
That part is over, and has been for months. And yet US bond prices are still only at 2%. I've been watching that number pretty closely - US bond auctions failing would be a huge red light for me. But even without the Fed as a buyer, the US government is having very little trouble selling bonds at top prices.
I'm not going to claim that I have any deep technical knowledge of the stock market, but the writing has been on the wall for quite a while.
It's more of a morbid curiosity for me.
Besides, it wasn't just this commenter who predicted it. Many have before. In fact, even the laypress TV news like 60-Minutes have pointed out issues that will cause major growing pains to China. Run a Google search, click "Search Tools", and query the date range from the beginning of last year to end of Spring this year.
When it actually happens (in both cases), there will be some subset of people whose published prediction is close to or even exactly matches the date when it finally did happen, and those people will gloat about it.
But for every one of those people there are thousands, possibly millions or more others whose prediction dates came and went with no catastrophe occurring. Given the huge number of people who publish their predictions, then, we have to ask which of these is more likely:
1. The people who got the date right -- either exact, or within a certain small window of the actual date -- had some genuinely deep insight missed by others, which allowed them and only them to make a correct prediction, or
2. Given a large enough segment of people making predictions, some subset of them will have their predicted date match the actual date purely by chance. For example, predicting market trends five years out only gives five years in which something can happen, or twenty quarters, or sixty months, or 260 weeks, or 1,826 days to peg your predictions onto. If the number of people making predictions is large enough, all dates are likely be covered by at least one prediction.
It's easy to say "I saw it coming!" after it's happened. But if you saw it coming, why didn't you do something to take advantage of the situation (given that doing something about it is pretty much impossible)?
That just means the ruling class is in panic mode, trying to prevent the inevitable from happening, just like their peers in China recently.
In China they managed to temporarily stem the tide, but the real crash is still coming, of course, just like it is all over the West.
I didn't make this call based off of technical knowledge, more of an unscientific gut feeling based off a ton of factors I probably can't even name in detail.
1. US stock market is massively overvalued due to being propped up by QE for years
2. China's growth rate is largely fabricated
3. Russia's oil economy is finished as a result of sanctions
4. European troubles with Greece are undermining confidence in the EU
5. Japan's economy is weak due to demographic slide
6. Nigeria's growth is weakened due to instability
7. Consumer demand in the US and much of Europe is weak due to poor wages and high real unemployment
8. US stocks are being pumped as much as possible by hollowing out companies for short term gains, handicapping their long term capacity to keep providing gains
The actual date was picked "7 years-ish after the last financial meltdown" because sometimes these things follow roughly 7 year cycles.
You can't really anticipate the exact timing of plunges, but feels like the start of the financial crash that many people has been expecting for this September. This has been talked during months in non-mainstream financial websites like ZH. So it shouldn't really come as a surprise to anyone that follows the markets closely...
> How is it fair that the markets get put on pause if they're failing? I really don't understand.
Deutsche Bank said this morning:
"The fragility of this artificially manipulated financial system was exposed over the last couple of days of last week. It all ended with the S&P 500 falling -3.19% on Friday - its worst day since November 9th 2011."
Basically to let cooler heads prevail and prevent worse consequences.
The day to day stock market has limited liquidity. Most of the time people have enough buy and sell limit orders to keep the price reasonably stable. (Sell if price reaches X, or buy if it falls to Y.) But, if the price falls say 10% more people not actively looking at stock prices are going to get in on the action.
Depends on where you invested your money. A lot of 401K's lost close to 40% of their value after the 2008 crash. A lot of people near retirement had high exposure since most of their investments were in equities (90% or more) and lost even more.
I'm pretty sure this is just a correction. You should get concerned when the market goes down and stays down. As pointed out earlier, the market has already gained back most of the losses already.
The "circuit breaker" was put in place in response to the 1987 "Black Friday" event. It was the early days of automated trading, and computers got the lion's share of the blame. The "circuit breaker" is intended to shut down machines that can drive the market downward faster than people can react. It also shuts out people making panic decisions without thinking at all.
Basically, everyone gets a "time out".