How Sick Is the Stock Market?
bloombergview.com
bloombergview.com
Any idea if it's available? I suspect that Time's treatment of it is not as nuanced as the original authors would have liked, and even then, the Time article doesn't actually concur that "Greed is good". They just have that phrase in the headline.
What the actual article says is that in social groups with well defined hierarchies, higher ranking members tend to contribute more than average to the common good (though this might be biased due to their role in defense against external threats). This old fashioned notion that the rich are expected to hit above their weight level is called Noblesse Obligue, and it's almost the exact opposite of Gecko's doctrine.
What reasons there might be to have come up with such a title/conclusion given the information available? I can only think of one: Assholeness apologetics.
1. https://secure.marketwatch.com/story/twitter-trading-influen...
So if you don't plan on retiring off your investments in the next 10 years, just enjoy the ride. If you do want your money in the next few years, it shouldn't be in stocks.
Recently in baseball, all 30 teams played on the same day, and all 15 home teams won on the same day. That hasn't ever happened before. Why hasn't it happened before? Not because of how unlikely it is. It hadn't happened before because it hadn't happened before. Because it happened now doesn't mean it's more or less likely to happen in the future. It doesn't mean baseball is changing. It doesn't mean anything. But a long term downward trend in the stock market? Means death for a nation's economy. Even a short term downward trend does significant damage.
Football and the stock market are not as closely related as you may think.
I think the parent's ultimate point is that no country (by which I mean under the same constitution, monetary system, or de facto political arrangement) has lasted longer than a few hundred years.
Even if everything seems economically fine right now and for the foreseeable future, at some point all countries and their associated economies go away and are replaced by something else entirely, at which point the stock market index within said structure goes to at or near zero.
You just need to take a longer time horizon than "when I retire".
Yes, that was the basis of my analogy. I do indeed think those situations are similar for that reason.
> But a long term downward trend in the stock market? Means death for a nation's economy.
Well, you're forgetting the idea of a steady-state stable non-growing non-shrinking economy, which is one possibility (see spain: https://www.google.com/finance?q=MADX%3AIND&ei=p5LcVYr0EI6S2...)
But even talking about down-trends, I think "death" is a bit strong. It could also indicate a gradual transition to a lower stable position. Plenty of economies survive at small sizes.
What is the scientific basis by which we can expect this to continue indefinitely? In fact, all evidence points to the contrary.
I saw this data on how fast China's economy had grown recently and thought it relevant: https://en.wikipedia.org/wiki/Historical_GDP_of_China
What evidence is contrary?
I do imagine this growth will be asymptotic though on a longer timespan as we need to slow down population growth due to the environmental impact. But who knows? At some point maybe we will be mining asteroids and finding wealth (and places to spend it) outside of Earth.
So the population growth rate of the U.S. is declining, and many developed nations now have negative population growth rate.
> I do see that some nation economies will be hurt and others helped as everything will probably revert to a mean to some degree.
Right, so would you expect the U.S. economy to be helped or hurt by the decline of its economic dominance and a reversion to the mean?
> What evidence is contrary?
No nation, empire, or civilization in history has managed to sustain global economic dominance indefinitely.
There are probably many events that could cause the U.S. economy to contract. But even if the U.S. economy continues to grow, though at a much slower pace than competitors or the global economy, I just don't expect the U.S. markets to continue rising in a meaningful way. People in this thread are claiming that local markets always rise as though they're stating a law of physics, and it's absurd.
The US stock market is made up of mostly multi-national companies. Its a financial center for earth, not an isolated economy.
If we talk about civilization at this point in time then its the global civilization of earth we are talking about.
This is true currently. But again, there's no reason to assume this will continue forever.
> If we talk about civilization at this point in time then its the global civilization of earth we are talking about.
Nice idea, but I'm unconvinced. What does "the global civilization of earth" even mean? The world always seems more connected than the day before. Of course, in 1914 it seemed more connected than ever before. In 1939 too. Yet our global civilization split apart at the seams and we were thrown into two of the most devastating wars ever. And both hugely impacted the economies of the nations involved. The U.S. has been at war almost continuously for the last 25 years. With whom? The global civilization of Earth?
Even if you restrict your perspective to purely economic matters, to a "global economy," this seems dubious. If we truly have a global economy, it's one disproportionately controlled by a single nation -- a situation many nations are probably unsatisfied with, but currently unable to change.
So you've reached the conclusion that other nations are now content to sit back and let the U.S. run the global economy forever. Where's the evidence? Just because no other country has been able to challenge the U.S.'s dominance over the world economy in the past 50 years, doesn't mean they've accepted this as the natural state of affairs.
This is why its a pretty safe bet that over 15 year+ time periods that the stock market will go up.
I understand increases in productivity enable support for a larger population- but that's not a bottomless well. There are insurmountable practical limitations.
The U.S. population growth rate has also been in decline for the past 50 years, dropping from 1.7 percent to 0.7 percent, heading towards negative growth if this trend continues.
So much for "an ever increasing population" to bolster a market that always goes up.
We've enjoyed the repercussions of the United States' rapid ascent from a fledgling colony to a world superpower. If we look at the stock market during this period of remarkable growth, it's very easy to conclude that markets will always go up. Of course, this would be a very foolish conclusion.
Are you suggesting that because the U.S. stock market has risen during the tiny blip in history that the U.S. has been an uncontested world superpower, we can expect it to rise forever?
No, for all practical purposes, go ahead and expect it to rise forever. Anything that would make that untrue would make your investment balance unimportant.
(And I have my own well and produce my own solar power to boot.)
I wouldn't expect unsubstantiated claims that have no basis in reality to be stated as plain fact, as in:
> the trend over a decade or more will always be "up".
This statement is demonstrably falsifiable since we've had several decades where the inflation-adjusted returns of the stock market are negative.
> Anything that would make that untrue would make your investment balance unimportant.
I'm sorry, but reframing your false statement in terms of a false dichotomy (the either the U.S. stock market is going up, or your investments are worthless) does not make things right. The double-negative rule doesn't apply here.
That would be an accurate assessment of the situation. We have big problems, getting bigger.
This is a growth based analysis (in effect a form of pyramid scheme), and it increasingly simply isn't true, as many in Japan are discovering. As populations flatten and eventually decline, most of the established dogma will fall.
The attitude that the market had nowhere to go but up, and $1 invested this year was assured to be $1 + $X ten years from now, is the exact attitude that investors in 1929 had (or 1999 for that matter).
Also, the DJIA is a pretty terrible index.
It opened 1969 at 102. It opened 1979 at 99.71.
Adjusted for inflation, the SP500 had a peak in 1968, then dipped and did not return to this real level until 1992. 22 years.
The S&P 500 entered 2000 at 1425. Not until 2013 would it open the year at or above that. Adjusted for inflation, it did not hit its 2000 level until the turn of this year. It has been tanking the past few days.
Considering that the time period you're talking about saw: the Dust Bowl, the rise of Fascism, a global conflict on a scale never before seen, industrial genocide, and the start of the Atomic Age and with it the threat of nuclear war and the annihilation of our species... the fact that a 20 year-old could have made the insane investment choice you've presented, and still managed to break even by the age of 45, is actually quite remarkable.
(And I'll just ignore that you've not accounted for dividends.)
First, public companies tend to be very large. They are the companies that grew at the expense of their competitors. Second, the companies in the major indexes tend to be the winner among public companies. Third, a lot of these larger companies expand overseas, sometimes in higher growth emerging economies.
Finally, IIRC, the long-term growth rate of the S&P 500 is 7% or 8% per year. That's about a 2% to 3% premium over GDP growth + inflation. That premium is the "winner" premium.
A much more interesting analysis could be had from speculating on why it's leveling off. What happens when there's no more debt to buy?
In reality, nothing has been fixed since 2008, and Western economies are in shambles behind the scenes. It's a confidence game. At this point, investors are close to losing confidence, and when they do, a big crash will happen.
Go here and click on 'all' in the zoom menu https://www.google.com/finance?q=INDEXFTSE%3AUKX&ei=qlLcVZHi...
In short I think that over long time periods stock markets show some degree of predictability. They are not perfectly disordered because the they are bound to systems operating in the real physical world which display predictable behaviour.
This is no place for this kind of tea leaf reading nonsense.
Chart reading is not voodoo, but bad chart reading is worse than voodoo.
I would fully expect real estate to go down in drain within next 6 months if stock market doesn't improve. This might cause all the private funds that had been buying up tons of properties to take a flight. This would accelerate the downturn in real estate more severely. Lot of people might get badly burned by this but this time it would be mostly private investors as opposed to people who got subprime.
Sure, there are ups and downs, and a decent broker here or an ok hedge fund there may get you a reasonable return during the good years. That's not the point though.
The real point is that it is a massive ponzi scheme that feeds off of the misery and ineptness of the small players, not only that, but the market itself is manipulated as a way to gain much more substantial power in areas such as actual land ownership and commodities.
It's a cycle. Eventually, a few big players who know they have the ability to move entire markets, on a downturn cut losses and on the upturn amplify gains, do so, and then use their gains to grab exponentially more wealth, and power, enabling them to do it even better next time.
It's generally the classic Rothschild-Waterloo move. Nathan Rothschild heard back about Waterloo before even the British gov, caused a panic based off his reputation to get the market to plummet, and then turned around and bought it all up for pennies on the dollar. Market manipulation based on secret knowledge the rest of the market didn't have.
Then of course my other favourite example is the crash of 1907, (also a perfect example of the power elite rewriting history) The way they teach it is that United Copper was the instigator of the crash and JP Morgan was the generous saviour of the day, but the reality is much different. The panic really didn't kick off until Knickerbocker crumpled... and right as it started to, Morgan was the one who removed lines of credit to Knickerbocker in the first place! They were competitors, and Morgan got rid of them.
Then the Treasury intervened and suspended obligatory payments in the large Chicago and NY banks and that was that, the crash was inevitable at that point. Despite that fact, the crash was used to claim that a lack of a central bank was the problem (it wasn't), the National Monetary Commission was formed, which then toured Europe for insight into "proper banking methods".
They came back, had the Jekyll island meeting, and shortly after proposed the Aldrich plan, which got shot down because the public was up in arms against the "money trusts". The big bankers then pushed the Aldrich plan with a new name, aka the Federal Reserve Act, financed some groups to tout how much it was needed while pretending to hate it, and then got it passed on December 23 and signed by Woodrow Wilson the same day!
I could go on about the reasons why I think it was one of the worst things to ever have happened to the US, especially as it has spectacularly failed in its charge to prevent other crashes/panics, but what are the solutions?
I think we need to nationalize the federal reserve, and put control of monetary policy back under the congress where it constitutionally belongs.
Until then, we will continue to see Libor scandals, bailouts, hidden bailouts, crashes and fluctuations. We must address the fundamental problems of our economy before we can even begin to address the ponzi scheme that is the stock market.
edit: To keep it more on topic, I would be interested in seeing papers on the relationship between the Fed and the stock market, which I guess would be centred around interests rates, the federal funds rate, and dollar exchange rates on foreign markets.
It didn't prevent 1929. It didn't prevent 2008. But nothing else in the time since has been on the level of 1907, let alone 1879. Two crashes in a century, instead of an average of one real crash every 7 years or so, is still a massive improvement.
What's the solution? It's actually very simple. Heavily tax any short term gains. Something like 90% if you sell in 1st year, 45% if 2nd year and so on. Make dividend income completely tax free. This will force people to use stocks as actual investment and companies to actually share earnings with shareholder (who are by definition partial owner). This can put an end to lot of speculation because your gains would simply be taken away if you do so. It might even end boom bust cycles because there won't be massive sell offs to cash out or algorithm day trading. It will give security to companies so they don't have to live in constant fear of stock tanking next quarter just because it happened to be little bad.
"You have some good points but you are edging on to alien abduction conspiracy mode."
I respect all the points you have made except for this one. I very clearly stated things that are fact based, with some speculation and broad-generalization, but to then equate that with "edging on to alien abduction conspiracy mode" is very frustrating to see. I understand the trepidation of even coming close to "conspiracy theory" subjects for fear of being somehow tainted by the crazy, but the history of the world was built on conspiracy, so to ignore the factual and everyday conspiracy that is verifiable under the banner of lumping it in with the crazier stuff is doing your own ability to critically think about a subject a disservice. Again, I understand the reaction, but I think it is one we need to guard against, as it is some strange form of logical fallacy that combines ad hominem and strawman.
To encase my point, did you know that the CIA really pushed the term "conspiracy theory" as a discrediting technique in 67 after outcry grew that the Warren Commission didn't do it's job? (which it didn't..).
"2. This trend of opinion is a matter of concern to the U.S. government, including our organization.
The aim of this dispatch is to provide material countering and discrediting the claims of the conspiracy theorists, so as to inhibit the circulation of such claims in other countries. Background information is supplied in a classified section and in a number of unclassified attachments.
3. Action. We do not recommend that discussion of the [conspiracy] question be initiated where it is not already taking place. Where discussion is active addresses are requested:
a. To discuss the publicity problem with and friendly elite contacts (especially politicians and editors) , pointing out that the [official investigation of the relevant event] made as thorough an investigation as humanly possible, that the charges of the critics are without serious foundation, and that further speculative discussion only plays into the hands of the opposition. Point out also that parts of the conspiracy talk appear to be deliberately generated by … propagandists. Urge them to use their influence to discourage unfounded and irresponsible speculation.
b. To employ propaganda assets to and refute the attacks of the critics. Book reviews and feature articles are particularly appropriate for this purpose. The unclassified attachments to this guidance should provide useful background material for passing to assets. Our ploy should point out, as applicable, that the critics are (I) wedded to theories adopted before the evidence was in, (II) politically interested, (III) financially interested, (IV) hasty and inaccurate in their research, or (V) infatuated with their own theories."
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