Bull Market Hits a Milestone: 3,453 Days – Most Americans Aren’t at the Party
nytimes.com
nytimes.com
>According to this line of thinking, the moment to worry is when there is broad agreement that the market can only go higher. That would suggest there is little fresh money to drive stocks to new heights.
This is what I keep wondering about. It seems like everyone is just waiting for the crash to happen for the last 5 years. The slightest downtick seems to send people into a tailspin. Thus, possibly enacting it's own self balancing mechanism? I can't tell, but then, neither can anyone else.
Just one example of a way to stay fully invested while also timing the market.
See the site 'Bogleheads' for a gathering area for folks of this type. They make some strong arguments for their thinking.
At most, people I know have changed their asset allocation to include 5-10% more bonds. The stock market's index fund tailwind is still going strong.
Also, with low latency and algorithmic trading I suspect many large investors think that they can move out in time to avoid major losses. If so, they are sitting in while there is no correction and are not upsetting the bull market. Should things go badly they will likely try to move with lightning speed (getting out before most peers do). If enough money managers think this way they can create a pretty powerful shock when they try to outgun each other.
Thoughts from the armchair, I am not in the financial industry.
I haven't really read any good analysis on how the rise in index funds could affect the next crash. Does anyone know of any? (They may not have any negative effect)
Is it because 90% of Americans don't even have money left to invest after their cost of living? Otherwise, where are people investing, if not the stock market?
Most people's primary investment is their home.
In part, I think this is true. But "cost of living" is maybe a bit broad. Most of these 90% of Americans have a poor grasp of personal finance, and spend way more on unnecessary crap than they should (car loans, credit card debt, restaurants, alcohol, coffee, cell phone bills, cable tv, etc.). This isn't to say that there aren't systemic problems that increase wealth inequality (there are), but a big part of the problem is just good old fashioned consumerism.
From what i gather, most millionaires (not super wealthy) had relatively common jobs or business and became wealthy through savings.
Those that inherited their massive wealth aren’t that common.
Source?
With reference to "common jobs", that would be limited to high income professions, such as doctors and attorneys.
[1] https://smile.amazon.com/Millionaire-Next-Door-Surprising-Am...
[2] https://www.washingtonpost.com/wp-srv/style/longterm/books/c...
Most American households don't have disposable income, and even the ones that do it is modest. This whole "pull your bootstraps up!" talk about what is essentially under $6K/year of disposable income is pretty unrealistic.
And why shouldn't middle America enjoy creature comforts? The upper classes certainly do and aren't exactly great at financial planner either with their lifestyle often meeting their income.
The reality is that people at the top are taking a larger and larger piece of the pie since de-unionisation, and the middle class has almost vanished as a direct result.
> Most American households don't have disposable income
This is consistent with what I've said: much of their income could be spent much more efficiently. Transportation and food alone are two areas where a normal American could easily save $10k+/year without any real drop in quality of life.
> This whole "pull your bootstraps up!" talk about what is essentially under $6K/year of disposable income is pretty unrealistic.
1. Where'd $6k/year come from?
2. Even $6k/year invested at 7% annually nets $1.3M over a normal career.
> And why shouldn't middle America enjoy creature comforts?
Nobody's saying they shouldn't. Just they should be aware of their cost. At the end of the day, you trade your time for money. It's important to respect that money, and not frit it away on "creature comforts" that don't really bring you any joy.
> The reality is that people at the top are taking a larger and larger piece of the pie since de-unionisation, and the middle class has almost vanished as a direct result.
Hear hear! I'm with you. Again: this isn't an either-or situation. When you buy expensive high-margin things, you're voluntarily donating your money to the 1%ers. Don't do that.
[0] https://money.cnn.com/2018/05/22/pf/emergency-expenses-house...
10% owning 84% seems to be the expectation then. This reminds me of an Atlantic article lamenting the “9.9%” [1].
[1] https://www.theatlantic.com/magazine/archive/2018/06/the-bir...
It's because it doesn't take all that much to live on when you retire, and to have more money requires working longer. Especially, most retirees get big efficiencies from using tax-advantaged accounts, so you have less invested, but you get more out of it. Those accounts have contribution limits, so they don't scale up for the big investors.
I work on goal-based financial planning, and one of the key things people want is to retire sooner, which means saving less. If your financial plan was perfect, you'd drop dead with exactly the amount you want to bequest to heirs / charities in your portfolio and not a penny more.
> 10% own 84%
sounds more like simple power law. "A small wealthy % owns most of the X" is true for, well, almost everything. So when you ponder:
> Is it because 90% of Americans don't even have money left to invest after their cost of living?
The answer is "probably not." Because even if every american invested exactly 5% of their income in the stock market, or 50% of their income, you'd still expect to see ~10% own 84% of all stock. The 10% just have really high incomes/previous savings from incomes, etc.
In fact just ponder for a laugh, imagine if the 10% [richest people] only owned like... 15% of the stock market, or owned only like 15% of all real estate, etc. If that were true, you should be really worried about that thing as an investment!
Bitcoin might actually be the rare case where the top 10% don't actually own a huge share of a big valuable thing.
> Otherwise, where are people investing, if not the stock market?
The bottom 90% own most of the lotto tickets. The top 10% eschew these! The top 10% prefer index/hedge funds, which are basically lotto tickets with great odds and a totally lame ROI.
There is probably lots of value in convincing people to invest in the index fund lotto instead of the lotto lotto, but even if you did, about 10% would still own about 84% of all stock.
How is the stock market an exponential investment?
If you look at the growth of the stock since the beginning, and of most company stock, isn't it much more a linear growth?
So where would this power distribution come from?
It is trivially true in real estate (Pareto showed that approximately 80% of the land in Italy was owned by 20% of the population.) Why wouldn't it be true in a market where the returns have been higher than real estate?
This is only true if you play the market though. Just holding on stock is not a compounding interest rate.
I might be wrong, but that's my impression.
If I buy 1000$ of stock this year and make 10% return. At the end of the year I have 1100$. Now the next year, I need to make 10% off of 1100$ to be compounded and end up with 1210$.
Now if I hold onto my same amount of stock. If I end up with 1210$ the second year, that's not due to compound interest, but simply to good performance in the stock which grew by 21% in two years. Effectively allowing it to grow at an annual return rate of 10%.
To be compounding, I would need to sell my shares after year one. Thus pocket 1100$. And buy 1100$ worth of shares which again would make 10%.
I mean, in effect it's the same. If the shares truly grow by 10% year over year. But the point I'm making is that your ownership in total number of shares does not grow. So if I had 100 shares at 1000$ out of a total of 10000 shares, I still have 100 shares but they are worth more at 1210$.
So as you see, over time, I don't grow at the expense of others in my total ownership. Thus I feel this does not explain how 10% can own 84% of all stocks.
It would be true, if people play the market in a way that, every year, they sell to buy cheaper stocks, thus growing their share count. And it turns out the companies whose share they held prior years all go bust. Then they'd progressively own more and more at an exponential rate.
When I was a young programmer (nearly 30 years ago), a retirement-age colleague took me aside and told me that if I paid the maximum into my retirement plan (401k) and didn't use it as an ATM, when the time came to retire I would be very pleased with the result.
I'm not at that point yet, but I still have about a decade to go. If nothing extraordinary happens, my friend's advice will have been very good. The market has gone down, it has gone up, but always on an upward trajectory.
It's a crime that kids aren't taught this and other basic financial tenets from the very first grades.
Between the 2007 peak and the end of 2017 when he published this, his NYSE index gained only 20% (https://goo.gl/bWuBvQ), while the S&P 500 index, which is what people actually use and invest in (http://etfdb.com/compare/market-cap/), is up more like 70% (https://goo.gl/pFZW9X).
Inflation may have had an impact on his specially chosen index but the index most people use to invest is certainly worth a lot more than it was in 2008.
Rich people are likely to tell you that work is the most important, because they tend to have a heroic self image.
The problem is that most of what it comes down to is luck. Luck in the sense of time and place. People born into a wealthy family or even with two loving parents are lucky and way more likely to be wealthy than those that were born without.
Warren Buffett came of age in the greatest period of prosperity in American history. Bill Gates came of age right at the time that PCs became possible. Bezos was first to market on a new and unproven platform. Zuckerberg got lucky because he was able to get started when broadband penetration in developing countries was finally starting to get some traction.
No man is an island and teaching success as a skill is just silly in my opinion.
Bill Gates was actually famously asked a version of this question. (What would you do if you were poor with no education and lived in a third world country.) He responded "Buy Chickens".
And the answer is that most wealthy people, when reset to zero, would never be able to regain their wealth. The only way they may have a shot is by exploiting things from their formally wealthy life (e.g. contacts, connections, niche industry knowledge, or an ivy league degree).
The thing is the obsession trait doesn't necessarily scale. If you cloned a billion Gates', that would NOT give us a billion Microsofts. It's not a zero sum game, but pretty close to one. There's only so much room in any given niche.
Another thing, I've been using and following Microsoft for about 3 decades. They didn't do anything special or innovative in my opinion, at least not relative to their size. MS just did smart marketing, acquisitions, pricing, and packaging. MS mostly leveraged monopoly in one category to gain another category: not raw merit. If MS never existed, the world would be the same or even better off: more OS and office-software choice. I have a bit more respect for Steve Jobs: he spotted useful product configurations before any one else (with means). MS just copied/purchased trends after it was obvious they were catching on.
No doubt IBM would have led innovation if not kneecapped by M$.
Opportunity = hard work + luck
We as individuals should strive to learn how to be successful by looking at those who are successful, and many of those qualities are right in front of our faces. Hell just search for "discipline" or "confidence building" on youtube and one can find how to apply the correct qualities within a few hours. Try David Goggins if you don't know what I'm talking about.
For just one example, if you look at the average person's level of financial literacy today, the situation is appallingly bad. So statistically, it's true that you have to be lucky to be financially literate, but that doesn't mean it inherently requires luck to be able to learn these things. It's just not stuff that most people are even aware of, because nobody is teaching them. It's not an unfixable problem.
At the extreme end of the spectrum, yes, it requires a lot of luck to become as rich as Gates or Buffett, but I don't think that's what OP is trying to achieve. Helping everyday people achieve better financial outcomes is a very different goal from trying to break into the top 0.1%, and is much more achievable IMO.
Despite the notion of the "American Dream", in our country, if you are born poor you will most likely stay poor.
Isn't the market growth unequally benefit people? Isn't this a fundamental question that everyone should spend some time on?
In general, the best things that can be done to address inequality from a for-profit perspective is to reduce consumer costs. Now the obvious problem is that if you cut costs by paying your own people less - or by opting to get your business’s goods and services from suppliers that also pay poorly - then you have only moved inequality from one place to another. But if you invent a way to create goods or offer services at a lower cost without having to cut wages - perhaps by being more efficient with energy or input materials - then you can pass some savings along to the consumer while the rest go to the shareholders as profit. Competitors may go out of business, but new corporations and jobs will take their place. For example, almost everybody uses electricity for light; few use candles, and even then it is more of a luxury than a necessity (like a romantic bedroom scene).
Technological innovation, in my opinion, is the only way that a for-profit corporation can make money and reduce inequality.
A start up could do some mental trickery / game theory that benefits poor people. Say a start up takes 10% of every pay check, but buys all your groceries. They invest the difference into your 401k. The person gets groceries and a retirement fund, without having to know about investing.
Obviously this doesn't really make sense, but the idea is that poor people don't have financial knowledge, don't know where/how to save money, don't have the time to cut costs, etc.
I'd love to hear why you think this, and what information sources you're hearing this from? I've seen this line used equally by right wing political groups as well as left wing crypto anarchists who both seem to lack a basic understanding of how finance works.
https://fred.stlouisfed.org/series/LES1252881600Q
Maybe it hasn't in SF or NY or other insanely prices areas, but that is 100% because real estate policy in those areas is a disaster.
Finally, even if inflation exactly tracks nominal wage growth, i.e. real wage value is zero, that's not enough. You would expect that there are real returns to technological advancement that are a tide that makes all boats rise. If that's not the case it is indicative that the structure of modern economy is such that that a very disproportionate amount of returns to global social and technical innovation are sent to the already-wealthy.
Keep in mind that while "the news" reports only a single "inflation" number, the available data is quite granular and is available for a large number of geographic areas[1]
[1] https://www.bls.gov/regions/subjects/consumer-price-indexes....
Total compensation has been growing very steadily, but healthcare costs have been rising and eating much of that, so while compensation rises, much of it goes to healthcare and wage growth becomes anemic.
Real estate policy is the #1 issue in America in my opinion. We aren't building enough houses, we have too many policies designed to inflate home values (because for some dumb reason a house is considered an investment in america), we make rent seeking behavior too easy. This issue is politically unpalatable though, for both parties as it would require a shift away from the "house as an investment" idea that is doing so much damage to our country.
You're welcome to do so, but these are basically the same experts that have been disastrously wrong in the past.
In Canada it is, yet shelter inflation numbers are almost exactly inline with overall inflation in all regions, regardless of whether prices are up over 100% or not. Reality has no effect on the printed number.
Oh sure, this is explained somewhere, but the point is looking at the numbers as a reflection of reality is a poor idea
2. my healthcare bill
A currency can be devalued because cost of living can go up without any appreciate in quality of living—your USD buys less assets than it did in 2008.
Just because USD has been doing better than the Euro doesn’t mean inflation isn’t occurring.
If there was no inflation everyone would be incentivized to just hold cash under their mattress and not invest into the economy. When you put your money in a CD or money market account hoping to keep up with (or beat) inflation that money then goes to pay payroll for corporations via the commercial paper market. When you put your money into a savings account hoping to generate interest to keep up with inflation your money gets lent to local small businesses and other people to buy mortgages. Inflation creates inertia in the economy.
We don't have an inflation problem. What we have is a wage growth problem. Crypto nor gold bars will ever do anything to solve that. The issue has nothing to do with currency.
Inflation has barely been present in the US for the last 10 years compared to historical levels.
The reason your healthcare bill and your rent have increased much faster than inflation (I'm guessing you're in the bay area) is because of US federal government failings in the case of healthcare; and in terms of rent the geographic limitations, rapid growth, and local government failings of the area you've chosen to live in.
Goods and services costing more in my currency than they used to—and trust me, the housing hasn’t gotten any nicer, nor my healthcare services.
That is the definition of currency inflation.
Exchanging more for the same.
There is something called "asset inflation" but its not a correct terminology.
https://www.xe.com/currencycharts/?from=USD&to=EUR&view=10Y
This shows that USD is actually worth more than the Euro over the past 10 years.
What exactly is the USD devalued relative to that caused a stock market boom?
Sure but the original poster made a specific claim, how does this give us a huge bull market?
I mean currency devaluation leads to inflation which is how you cool a market and we are trying to explain why we have a bull market. So this fails a very simple first pass.
I was replying to the post with a claim about EUR and USD "relative values."
https://steemit.com/money/@dedicatedguy/shrinkflation-sellin...
You can also manipulate prices at scale where you raise the price of some goods in the CPI basket while lowering others keeping "inflation" or CPI "low." If the marginal profit on the goods you're lowering was already relatively high and the marginal profit on the goods you are raising was low, you could find a point of arbitrage where you come out ahead on profit without moving the needle on inflation.
In my layman opinion -- the western central banks are in cahoots continually "soft landing" (optimistic) or manipulating (pessimistic) and at an accelerated rate since 2008.
The marketing isn't booming up. The nominal metric is falling rapidly.
Your options pretty much boil down to "a crash is coming" (so says everyone for the last 5 years), or "it's different this time" (we all know the issue with that)