Stocks Off Sharply as Market Upheaval Grows(nytimes.com)
nytimes.com
Stocks Off Sharply as Market Upheaval Grows
http://www.nytimes.com/2015/08/25/business/dealbook/stocks-in-asia-fall-as-china-and-emerging-economies-lose-favor.html?module=Notification&version=BreakingNews®ion=FixedTop&action=Click&contentCollection=BreakingNews&contentID=45821187&pgtype=Homepage&_r=0
422 comments
Beyond the slow and steady recommendation, I also think this is a reminder that most people really shouldn't be paying attention to the day to day movement of the stock market. Even after all the panic, standard total market ETFs are currently down between 1-2%. It would look like a perfectly normal day on the market if you ignore the intraday prices. It is amazing how much of the market volatility disappears when you lower the number of data points you are recording. Just keep investing that X% of your paycheck and rebalance a few times a year if needed.
Yep. If you invest broadly enough, then shrug this off and consider that the market is on sale today. Your existing holdings will return to their yesterday prices at some point, and everything you buy in the meantime will have gone up.
Pardon my ignorance, but why will the : "existing holdings will return to their yesterday prices at some point" ? The way you put it seems so inevitable (although "at some point" may be 100 years from now). So, as you're not the only one to say that, I'd like to know what makes you think that the holdings will get back to their previous level ? Because, if they increase from their current position, then you certainly imply that they will increase indefinitely, which in turns mean (because you didn't frame that), that putting money on stock exchanges is always a good move, because holdings value increase...
It depends what you mean by holdings. If you mean a basket of holdings that is adequately diversified, then most people assume it is true because it has (almost) always been true. So while Apple may never again be as high as it is today, a portfolio including Apple and 50 other companies can reasonably be expected to go up in the long term. The simplest explanation for this is that the economy generally grows over the long term due to an increase in the productivity of the workforce due to both population growth and technological improvements.
This is what I meant. I'm making the "crazy" assumption that the market hasn't hit the highest peak that we'll see in the next 30 years
There is obviously nothing guaranteeing that will happen. However, it has done so every single time that a correction has happened in the past. This is where the word "faith" applies to the markets.
This is pretty much it.
Thinking 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).
Thinking 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).
It tends to fluctuate within a range but just to play devil's advocate, note that it took about 30 years to recover from the 1929 crash.
It's a good strategy to buy in over time to reduce the risk that you pumped all your money in at the peak of a bubble. It averages things out, so spikes and drops are not as big of a deal.
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.
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.
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> most people really shouldn't be paying attention
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.
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.
this is dangerous stuff because you're implying that a few success stories or missed opportunities are representative of what folks can expect
no...each should be very careful...in my case, I was dead right twice. The third was a wash, and is why I don't bother unless I'm 100% certain (which I wasn't, the third time)
Don't mislead the inexperienced: there is no such thing as 100% certainty unless you're peddling something or being peddled abd then it's gambling and luck and manipulation and a game of chicken.
The FTSE is where it was 17 years ago. Since this time everything has gotten way more expensive.
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.
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.
1) If you put all of your money in exactly 17 years ago, then, yes. You would be at the same place.
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.
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'm not sure point 3 is correct. Buying regularly would have seen you buy below today's price and above it.
Dollar cost averaging lowers risk and increases returns. If you can afford it, you may also want to have a look at value averaging.
It lowers risk making returns and/or losses less volatile. It does not increase returns. Of those dumping a lump sum in some lose more some win more and averaging them smooths it out. It's not a magic have your cake and eat it.
Yes, there was a bubble so if you invested all in one hit, all in equities, your timing was unlucky and you ignored the return from dividends then it doesn't look good.
Selective end points. Dollar cost averaging is a simple way of solving this particular problem.
The FTSE 100 total return index is at 5,898.87 i.e. the levels of November 2012: https://www.google.com/finance?cid=15424700
google finance for that goes back to 2012 and no further!
i don't know much about stocks but agree with your last line in general, encapsulated by patio11's tweet
I occasionally get asked for advice by students. Biggest one: resist following scripts which evolved to serve a world which no longer existsYou have to adjust for dividends.
Better: make a core position in Vanguard LifeStrategy.
best: buy $XIV today
Any particular reason?
It's cheap today, maybe not tomorrow when the panic will have worn off.
To algo market makers, inverse and leveraged indices are free money. They are bought almost exclusively by clueless traders with poor execution, making it easy for market makers to shave their pennies, and due to their dynamic leveraging requirements, bleed value during market gyrations like a puddle evaporating water.
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.
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.
Broadly speaking the US economy is quite healthy and people were expecting a correction in the stock market for some time. Within tech, it will have some negative impact on the plans of some companies as it will be harder to get lofty valuations based on 'fluff'... during such times investors want to see hard facts and real results to back-up value--but that's a broader trend thats been slowly developing for some time.
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.
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.
Regardless of your ideological background, you cannot possibly assert the U.S economy is healthy.
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.
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 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).
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).
QE is 'over'(for now), but it has shaped today's economy. There may have QE4.
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.
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.
>"Artificially low interest rates is the main cause of most malinvestment and inflating assets."
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?
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?
>Rates aren't "artificial" (there is huge demand for treasuries)
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.
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.
You are mixing up interest rates and government debt yields.
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.
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.
Government debt yields are a nearly 1 to 1 function of the interest rate, assuming there's confidence in the currency and the government's ability to tax and print money.
You mean "nearly the identity function". A 1-to-1 function is something different (((namely, a function f such that whenever f(a) = f(b), a = b))).
1-to-1 correlation, I meant to say. Anyway, I think my meaning was obvious.
"'Greece/Argentina/Brazil/Japan/...'"
... 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).
... 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).
>were all just barely over 100% debt / GDP when things went bad?
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.
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.
Actually, debt is held by the US Government, which has had historic average revenues of ~18% GDP. Therefore, to have 100% debt/GDP is actually the US Government borrowing 5.5x their annual income.
Perhaps those are not the same people?
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.
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.
I think that metaphor is useful for driving intuition about how it might not be a problem, if people aren't seeing that. I do worry about relying on it much beyond that. Households, companies, and governments all have balance sheets, but there are tremendous differences.
Not only that, but cause and effect isn't obvious either. Let's say there's some correlation between high ratios of debt / gdp (our proxy for "unsutainable levels of debt") and low growth. Is the low growth caused by the high debt or did the country get into high debt because they've had low growth (and thus lower than expected revenues)?
There was actually a very interesting discussion on econtalk that easily came to the conclusion that interest rates aren't artificially low. The primary, possible reasons they saw were that new industries in the West need fewer initial investments than traditional industries (compare the cost of starting a new refrigerator factory to starting a tech startup) and that Asian countries with much higher saving rates are making up a larger portion of the economy. One point they made is that interest rates were already very low before the recession and QE.
> these aren't the world's reserve currency. U.S could just pay its debt to China by 'printing money'
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.
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.
QE is not over. The balance sheet of the Fed hasn't gone down. What is over is QE expending.
Well... what maturity bonds did the Fed buy? How long ago did they start buying them? The Fed's current plan is to let them expire. If I recall correctly, a big part of what the Fed bought was 2-3 year duration (but I could be mistaken). Some of that should have already expired; more should do so soon.
> 0% interest rate for several years is not healthy
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.
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.
>> 0% interest rate for several years is not healthy
> That's not healthy or unhealthy. It's just a thing.
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
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
There's this general sentiment that it should be between 1-3%. But it's just a sentiment mostly based on historical experience. But the global economy is constantly evolving; China wasn't really even a blip on the radar 15-20 years ago. So whose to say what the right level is except the one that is attempting to balance inflation and employment goals.
The advantage is much more fundamental. Given the uncertainty that you're describing, removing a constraint on our actions is ceterus paribus a good thing. The same argument could have been made during the Bush years, when rates were kept low "unnecessarily" (according to conventional thinking), and the inability to lower rates after the crash tied our hands unnecessarily.
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>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.
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).
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).
You mean less optimal not unhealth .
Europe can't really do QE in the same way the US can because there isn't a central bank tied to a central government. In addition: http://www.cnbc.com/2015/08/18/st-louis-fed-official-no-evid...
Agreed. The stock market has been propped up by the FED for the past 6 years with free money from near-0% interest rates. Great for the folks close to the money supply (bankers, rich folks with lots of investments, etc), not so great for the middle/lower class. The best thing that can happen is to bite the bullet and raise interest rates.
>100+ % debt:GDP ration is not healthy
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.
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.
A vanishing middle-class is not healthy.
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...
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...
>>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
http://www.aei.org/publication/yes-the-middle-class-has-been...
--
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.
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.
You need to pick your sources a little more carefully.
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.
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.
>>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.
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-...
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-...
>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.
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...
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 started reading and after the second sentence was waiting for a reference to AEI. I was not disappointed.
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.
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.
When you actually look at the numbers, rather than simply believing the graphic, you will find that your data proves your opponent correct.
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 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.
I don't think you're saying anything different, you're just missing how it proves the point.
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)
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)
[deleted]
> Regardless of your ideological background, you cannot possibly assert the U.S economy is healthy.
Sure you can (note, I wouldn't, but that's a different issue); standards for "health" of an economy are deeply ideological.
Sure you can (note, I wouldn't, but that's a different issue); standards for "health" of an economy are deeply ideological.
If the economy picked up there wouldn't be a problem. It's apparently better than a total crash, because the economy has to go on either way. The problem is what products and services can we make to make the economy grow again and to employ people. Also you may get malinvestments, but that is what risk is all about. No risk, no gain, you know. You just need a few homeruns to cushion the bad ones and the big homeruns are the ones that create whole new markets and longer employment. How to function and survive in the economy is difficult for everyone and it's a big clusterfuck of complexity and short term thinking, so it's all related in many ways. I think QE and 0% interest rate is the smallest of our problems as far as long term goes
But at least home prices are back to bubble levels ... so there's that, right?
Honestly, I don't think you have a clue what you are talking about. You aren't wrong, per-say, you just list all things that have literally 0 to do with the actual problems. Its a very common political trick for an ideologue like yourself to grab a bunch of things they think are bad and argue they are the cause of all your ills. You are approaching things from a "this is good for people, it must be good for the country" point of view. A national economy is not a person and doesn't function on the same economic rules as a person does.
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.
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.
Excellent points. Most people confuse macroeconomics with microeconomics. You cannot apply the principles of personal finance to a national economy.
Macroeconomics is (in my opinion) the science of applying statistical analysis to microeconomics in such a way that it retroactively justifies whatever it is the power-elites are already doing. As such, there is a lot of hand-waving, misdirection, and misuse of language in it. Whenever someone says "deflation," I must immediately ask "of what?" Production costs? Retail prices? Wages? Quantity of circulating currency?
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.
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.
> 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%.
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.
> 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.
That's explicitly ad hominem. If you have something meaningful to add, do so. Otherwise, don't dismiss everything I said by claiming I am ignorant of some facts that you somehow failed to provide.
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.
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.
> 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.
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.
Now you're knocking down strawmen.
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.
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.
You are claiming they extract value, yet real returns increase. Therefore either one of the following is true:
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.
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.
Likewise, you can't show the effect of inflation on numbers where the effect of inflation has been explicitly removed.
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.
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.
You guys are arguing the same point: the government blew it in 2007, and has been blowing it for the past 30 years.
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.
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.
All of the damage has been by people making the same mistake as the person I replied to of misrepresenting the underlying causes/symptoms.
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.
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.
>> A vanishing middle-class is not healthy.
>By that logic, the US economy has in the shitter since the 1980s.
Yes, and?
>By that logic, the US economy has in the shitter since the 1980s.
Yes, and?
It's nearly unknowable what the optimum debt/GDP ratio is. This being said, GDP isn't growing fast enough.
And what inflation? Outside VC money and the stock market ( and the peripheral real estate markets to those ) there isn't any.
And what inflation? Outside VC money and the stock market ( and the peripheral real estate markets to those ) there isn't any.
Cherry picking much?
I keep trying to tell people, but they've drank the koolaid from the mainstream media, unfortunately... the facts as you have listed them are there for anyone to think about, but the rabid "EVERYTHING IS FINE, SHUT UP AND BUY MORE" crowd won't have the thought of weak fundamentals in their head.
Many of the problems are "easy" to fix with government action, but the consequences of the easy fixes are problematic.
Many of the problems are "easy" to fix with government action, but the consequences of the easy fixes are problematic.
> they've drank the koolaid
> 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 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.
It is probably out of frustration, because whatever language you use to argue something which is not supported by the mass media is rejected by most people as being 'fringe' or 'kooky' (Ron Paul being a well-known example).
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 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.
Yes, this is exactly it. You can use whatever technical indicators or statistics you want to create your alternative narrative, but if it isn't the MSM's narrative (which is frequently very poorly researched and extremely corrupted by outside interests) you won't be listened to because you're not "the authority" on the issue.
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.
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.
HN always reminds me of this comic: http://i.imgur.com/NIWnZgu.jpg
The post that I replied to contains sufficient rhetorical talking points that are typically used in this kind of discussion. Do you have a refutation of them?
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.
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.
>people were expecting a correction in the stock market for some time
"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.
"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.
I'm interested to hear other people's experiences.
I have a 100k trading portfolio and I have sold/bought nothing in the last week.
Thoughts on who's doing all this downward trading?
Thoughts on who's doing all this downward trading?
>Thoughts on who's doing all this downward trading?
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.
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.
I think this was due to a rogue market-maker with bad algos. Market data was all over the place this morning. Nobody had a clear view on what the market order book looked like. I'm pretty sure theres a market-making firm out there that may not be in business tomorrow.
Individual investors really don't impact prices. It's big funds that are able to do very large trades that have an impact on supply/demand.
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).
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'd actually be looking at buying with a big down move. Not with all my cash, because trying to time bottoms is a bad idea. Buy with 1/3 or 1/4 cash whenever there's a significant drop and you should average out pretty well without having to time.
I have about 1/4 as much, mostly from past employee stock purchase plans in big tech. I'm regretting not having sold 6 months ago, but I'm not inclined to sell now either.
I've placed orders to buy one of my favoured indices today (which should turn into an actual purchase on Wednesday), and I wish I had more cash to invest at the moment.
That isn't true. People expect a correction when there has been a long run up in prices and when those prices are high relative to, for example, earnings. This has been the case for quite some time. On the other hand when the S&P hit the 600s in 2008 (or was it 2007?) I doubt anyone was anticipating a correction
>high relative to, for example, earnings. This has been the case for quite some time.
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.
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.
Unfunded liabilities (money that is owed, but not currently on-hand) in the United States are said to be greater than $127T:
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.
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.
This is all pretty obvious and a long time coming. There are a lot of forces at play: aging of the population, greater returns to capital vs labor due to increasing productivity.
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.
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.
>Unfunded liabilities (money that is owed, but not currently on-hand) in the United States are said to be greater than $127T:
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.
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.
I suspect whatever fraction of it is to be paid will be stolen from the young / yet-to-be-born and given to others.
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.
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.
I'm far from a reflexive debt hawk, but when someone mentions something like this, aren't they usually referring to the instability inherent in unfunded liabilities (as opposed to what you seem to be assuming (s)he means, which is that the money is illusory)?
And let's not ignore the usa's role as a debtor of last resort: people actually need to save money for retirement, China and Norway needs to do something with their dollars so their economies don't overheat. Even if the interest rates suck, the US gov and financial system has always been will to take your dollars off your hands in a pretty safe way, which is part of the reason the dollar has been so successful.
The US government does not lie about growth, nor does it threaten money managers with prison time for selling stocks.
I've got maybe 70 more years to live, my unfunded liabilities spiral into the millions!!! And that's before children!
I must be bankrupt!
Interested to know which statistics you based this opinion of the US economy being "quite healthy" on. Anything deeper than top level unemployment rate?
Corporate profits have been good, GDP has been rising at a decent rate, consumer confidence has been looking OK. Statistically, the economy has been looking alright, although the distribution of benefits continues to be unequal.
Staggeringly unequal benefits distribution makes for an unhealthy economy. We don't describe the economy of Mexico or Brazil to be healthy even when they are at high employment and growing GDP mostly because the burgeoning economy doesn't produce a similar ripple in their societies.
>Basket case economies are reflected in bond yields. The US pays little to borrow money because it is a safe haven.
Or because it uses its huge military might to make sure it is so.
Or because it uses its huge military might to make sure it is so.
The market doesn't distinguish the root cause of safe-havenism. There's a reason people think military-industrial is a sensible use of financial resources.
>The market doesn't distinguish the root cause of safe-havenism.
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.
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.
and don't forget about the petrodollar that's financing this military superpower.
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 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.
There's no real reason a 'staggeringly unequal benefits distribution' should lead to an economic crisis, unless you believe in proletarian revolution or something.
> There's no real reason a 'staggeringly unequal benefits distribution' should lead to an economic crisis, unless you believe in proletarian revolution or something.
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.
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.
Let's say all the wealth in the world, minus a few percent, belonged to 400 people. Can you think of some ways that would wreak havoc on the economy, even without triggering a "proletarian revolution?"
No, because an economic crisis is a fall in economic output.
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.
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.
I don't recall high Gini coefficients being associated with economic stability. The massive reduction in marginal utility from most people focusing only on immediate consumption, coupled with the massive oligopolism and centralization leading to price distortions -- those alone don't imply economic stability to me. An extreme oligopoly would likely imply civil unrest, so all else would suffer.
Can you think of some ways that an economy where virtually all the demand for goods theoretically possible is coming from 400 people, would see a substantial drop in economic output? Assume everyone's participation in the economy aside from that 400 is limited to getting enough shelter that they don't die of exposure and enough food that they don't starve to death.
Basket case economies are reflected in bond yields. The US pays little to borrow money because it is a safe haven. That may not jive with your world view but people that invest on their ideological dogma are quickly separated from their money.
Debt to income ratios, capitalization of companies, worker productivity, oil prices, savings rates, more healthy housing prices (in most areas), foreclosure rates, industrial orders, housing starts, .... This isn't 2007-08.
Would you mind providing some color around these metrics, or pointing me towards a source that paints the picture in greater detail?
I don't mean to be snarky or sarcastic, I'm just generally uninformed and would like to develop a more nuanced opinion.
I don't mean to be snarky or sarcastic, I'm just generally uninformed and would like to develop a more nuanced opinion.
Note: I've been slow banned for this comment. Please read it, I'm sure a hell ban is coming next. Apparently having a different opinion politely expressed is not even allowed here anymore.
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.
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.
>having a different opinion politely expressed
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:
http://www.multpl.com/s-p-500-earnings/
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:
http://www.multpl.com/s-p-500-earnings/
That's not quite what MCRed asked for. He/she asked for "inflation adjusted against the real money supply". Elsewhere in the post MCRed also said something about the real money supply.
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...
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...
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?
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).
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).
Wages are shit for workers and thus consumption/demand are weak... this undermines the Chinese economy, which in turn undermines the US economy.
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.
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.
Capitalism at it's finest. The race to the bottom will eventually force someones (possibly everyones) hand. The mechanism that will drive change (either violent/non-violent) is just a matter of who blinks first.
> Capitalism at it's finest. The race to the bottom will eventually
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.
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.
Produced goods are always getting cheaper. All trends point towards moving towards a zero marginal cost society. Economic pressures and the need to compete are forever pushing prices down. We are also getting more efficient at producing goods in parallel to this trend (another side effect of capitalism). The only way this will stop is through organized price fixing cartels.
I'm amazed anyone can try to defend a system that has manic-depressive episodes built in as a feature.
Because it's the system that's pulled several billion people out of abject poverty in the last 30 years? I believe the system that was tried before that was called socialism, and didn't work as well as capitalism.
In Europe socialism created limited working hours, affordable health care, free public education all the way to university level - and beyond - and was also responsible for massive investment in infrastructure and R&D.
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.
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.
I'd hardly call Europe socialist. Socialism is the social ownership (state ownership) of the means of production. A welfare state is a state with large programs to ensure the welfare of the people, which better describes much of Europe.
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.
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.
Socialism is the social ownership (state ownership) of the means of production.
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.
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.
>(state ownership) of the means of production
That would be Communism, a very extreme form of Socialism. Many countries in Europe are very Socialist.
That would be Communism, a very extreme form of Socialism. Many countries in Europe are very Socialist.
Communism is state ownership of all property. The parent gave the proper definition of socialism. It is the state ownership of the means of production. Europe is not socialist. There were various attempts, but the means of production is still overwhelmingly private.
>What are you going on about? If capitalism is a race to the bottom, we would have reached it a long time ago.
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...
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...
Workers and their demands are part of capitalism, as one of the sides of the labor market.
Not if capitalists can prevent it, crush it, disallow it, etc -- along with their friends in the goverment, with "right to work" laws, etc.
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).
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).
> It's funny that for something supposedly pragmatic and empirical, as capitalism, there are people invoking the "no true capitalism" defense.
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!".
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!".
> 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).
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/
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/
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.
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...
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...
> 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.
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).
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).
[deleted]
Things like Taft-Hartley outlaw secondary strikes.
I am also interested in seeing the data which claims that the US economy is quite healthy right now.
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.
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.
The participation rate is down 3.3% from 2005 [1]. Given the huge shift in demographics over the last 10 years [2], I don't think that's a data point that screams "smashed."
[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.
[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.
The demographic shift angle doesn't make sense. The boomers are slowly exiting the workforce, sure-- on an individual basis, as they can choose to retire at different times. Many are having to defer retirement or not retire. This isn't an orderly mass exit, it's a trickle.
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.
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.
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.
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.
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.
> Jobs lost in the early depression haven't returned
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.
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.
> Millenials are a far larger generation than the boomers
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...
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...
PS... I don't deny that a subset of the US economy/workforce got hit really hard in 2008 and never recovered. But when you look at the US economy as a whole things are doing quite well.
> when you look at the US economy as a whole things are doing quite well
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)
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)
I think you're getting downvoted because you're bringing a bunch of paranoid conspiracy-theory drivel, but no data.
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.
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.
We have a democrat who is president, and who took over after a crisis during the term of a republican. (never mind that he was part of the cause of the crisis with his 1990s era "not lending to people who can't repay is racist" lawsuit against banks)... so the liberals of HN are highly motivated to believe that democrats are "responsible" and that they have "fixed the economy" after republicans "wrecked it".
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.
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.
America is the greatest economic engine the world has ever known. It's not because we're situated on a mountain of rubies, or that we are intellectually superior to other countries.
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.
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.
> America is the greatest economic engine the world has ever known. It's not because we're situated on a mountain of rubies, or that we are intellectually superior to other countries.
It's because of our system of government.
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.
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.
> America is the greatest economic engine the world has ever known. It's not because we're situated on a mountain of rubies, or that we are intellectually superior to other countries.
> 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".
> 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".
> if it weren't for government the bad banks would have failed in 2008-- and we would have had a real recovery afterwards.
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.)
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.)
[deleted]
Yeah, speaking the truth tends to get you downvoted. People are silly and emotional. But it's nice to see another independent thinker here. I've noticed you before.
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.
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.
"In the US, for starters, there's a huge bubble in stocks"
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.
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.
I assume you meant 14, not $14.
Anyway, it is false.
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...
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...
The Shiller CAPE is 24.41, the historical average is 16.62:
http://www.multpl.com/shiller-pe/table
http://www.multpl.com/shiller-pe/table
[deleted]
Bubble? http://i.imgur.com/lQt3Ylr.jpg
Utterly useless to show a growth graph spanning decades without a log scale.
Now extend the timeline 100 years into the past, it will look a lot more encouraging. Or a 1000 years, it will look positively sunny.
Central bank bubble.
You mean... something like this...
http://blog.milesfranklin.com/wp-content/upLoads/2014/12/US-...
But at a global scale?
http://blog.milesfranklin.com/wp-content/upLoads/2014/12/US-...
But at a global scale?
[deleted]
> Broadly speaking the US economy is quite healthy
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
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
If a 2008-style credit crunch takes out the likes of AGI in the next few weeks, causing rippling effects to spread throughout the economy in ways that no one understands... then we've reached a 2008 level crisis.
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.
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.
You cannot offer a different view. Go home. Sorry.
(And they won't even perceive the sarcasm).
(And they won't even perceive the sarcasm).
Can't wait till we link to this comment 5 years from now, laughing at how gullible we were – again.
>laughing at how gullible we were – again.
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.
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.
[deleted]
A whole lot of aphorisms in this commentary about falling knives and dead cats, but very little actual information.
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.
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.
Ah, but those quants are going to make a bunch of money...
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'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.
Someone really bit the dust this morning in ETF land. Lots of US ETFs were down 10,20,30% and were halted due to circuit breakers. There is some quant/market-making firm out there that is really paying for this today.
Could one make a bot to make money off crashes like these (like gp post suggested). It would seem circuit breakers would limit that possibility, and also, didn't they revert trades in the past during such flash crashes as well?
Yes - if you have better information than everyone else - or at least can extrapolate where the fair value of products are based on where other things are trading - then you would be able to make a bunch of money. On the other hand - many of these names kept flipping their circuit breakers on and off. So, not much volume may have traded at these "wrong" prices. I was expecting a lot of CEE (Clearly Erroneous Executions) to be raised this morning in all these ETFs - but I haven't seen it yet.
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.
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...
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...
"Historically speaking"
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.
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.
Historically we've always been in dark, uncharted territory.
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.
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.
Actually, I think it's fair to point out that the sophistication of the financial markets, vis-a-vis fiat currency, drastically outstrips the capabilities of regulators and financial decision makers to comprehend and/or manage with any believable outcome.
It's less fair, though, to say, "Nobody knows with what will happen next, therefore X will happen next," as the grandparent did. Surrounding the argument from uncertainty with a few popular talking points doesn't make it any less fallacious.
I see the grandparent as pointing out Cause-and-Effect more than one of uncertainty, or simply dismissing volatility as media-fodder "political gamesmanship" as your response seemed to imply. I think there is a significant amount of visible actions and structures in global and US finance which indicate that yes, we have entered into conditions that refuse to abide by 'traditional thinking' on how to solve problems. Thus, I agree with the initial postulation that it is appropriate to be fearful of the conditions at present, built up over many years of other decisions, which may not be solvable by the same actors thus far.
We were also in uncharted territory when the stock market collapsed in 1929. The market had never crashed like that before.
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).
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).
Exactly. This is why I don't follow the hypothesis that we're witnessing a crash due to unhealthy economic indicators/behaviors (debt ratios, QE, interest rates, etc). Of course those things matter, and they certainly suggest the economy is in bad shape (or at least on some pretty intense life support), but they don't seem to trigger crashes by themselves - the indicators and alarm signals have been painfully obvious for years now, and the market should have already taken them into consideration (at least to some degree).
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.
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.
Maybe this doesn't matter, but how did you leave out the long history of market crashes prior to 1929 [1], and how did you leave out the S&L crisis [2]? That is some really selective reading of history.
> 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...
[2] https://en.wikipedia.org/wiki/Savings_and_loan_crisis
> 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...
[2] https://en.wikipedia.org/wiki/Savings_and_loan_crisis
The crash (or correction) of 2015 might be because of student loans & labor participation rates of recent graduates. The load is such that many of them could not grow into the consumer role to the degree that the economy needed of them in order to grow. And reducing growth/recovery even further, stagnant wages further hold back consumption.
2008 and 2015 are economic events which feel to me like they're based in inequality manifesting in different ways.
2008 and 2015 are economic events which feel to me like they're based in inequality manifesting in different ways.
New graduates are a relatively small slice off the overall workforce and they have a long time to pay of their loans. I don't see any mechanism there which would cause a crash. We've seen quite clearly that over-subsidising their debt burden simply causes them to take on larger loans - it doesn't help.
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.
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.
It's not that they don't consume, it's that that don't consume to the same degree of past demographics (they simply can't). That consumption would have worked its way through many hands (businesses & employees) causing a multiplier effect vs going to pay back a loan. So larger scales of student debt, aren't just larger numbers on the balance sheets, it pulls money out of the active economy.
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.
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.
"Second, those fluctuations will be unwittingly used as a Rorschach test by everyone with a political axe to grind."
https://news.ycombinator.com/item?id=10110809
https://news.ycombinator.com/item?id=10110809
The difficult part of arguing economics is that it's a feedback loop - not even a clean loop but a messy cyclic network. One can point a myriad of direct relationships between elements of the network which are true, yet completely miss why the overall network is moving one way or another. It's not just political axe's being ground (and dismissing arguments as political is itself political), but schools of economic theory and social values. If we actually knew what to concentrate on as the root drivers of crashes - we wouldn't have crashes.
That's a ridiculous assertion. The trivialities may differ, but fundamentals are generally pretty close. Crashes happen when reality catches up to people's perceptions.
The phenomenon where lots of cheap capital causes junk companies to do dumb things fueled by debt isn't a new one.
The phenomenon where lots of cheap capital causes junk companies to do dumb things fueled by debt isn't a new one.
So whats the cause now? China being a big bubble??
Interest rates are nominal; they only matter relative to some equilibrium. The equilibrium interest rate is somewhere close to zero.
On earth, a zero interest rate indicates a sick or at least stalled economy. The rate cannot be held at zero for much longer without risking a deeper debt via evermore unhealthy credit expansion, yet the consequences of raising it, even a little, will likely crush global markets as investors react etc. There is no question this economy is quite sick and has been breathing with aid of the Fed's iron lung so long that it probably can no longer sustain itself without resetting (hard).
Also of note: US worker demographics do not substantiate the narrative that a recovery is going on. Jobs added are typically in the service industry, and a large percentage of those are part-time situations. Also the only age group that has added jobs since 2008 is the 55 and up cohort, which only further punishes the under-employed youth with significant student loan / other debt burdens and stalls the general progression into higher classes. I have my suspicions that the 55 and up group simply can't retire (no savings) or refuses to retire (standard of living).
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.
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.
We will retire and the Fed will end up bailing out the IOUs on the SS trust fund.
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.
http://www.interfluidity.com/v2/3212.html
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.
http://www.interfluidity.com/v2/3212.html
Look, even if the Baby Boomer cohort does retire and even if Social Security was funded properly, that leaves the stunning inflation of medical costs and significantly longer-than-forecasted life span of that population as yet one more entitlement economic choke-point that creates problems. There's also the closely held belief that "I paid into this system and I'm going to get everything I deserve!" which doesn't jibe with the decades of voting for people who mis-managed the finances. I don't forsee SS/entitlements "working out fine" barring drastic changes, such as collecting large swaths of destitute and poor Senior Citizens, busing them out to some reservation with centralized health care, and calling it a day.
The medical thing will resolve itself. The business model to handle it hasn't emerged yet. No manner of price jiggering is gonna add capacity to the medical system, so alternatives will be found.
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.
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.
>The problem is the closely-held belief that There Must Be Suffering or we're not being responsible adults.
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.
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.
The real-nominal confusion again. Zero interest rates wouldn't indicate a stalled economy if deflation was at 4%. They would be a terrible thing if inflation was high. Neither is true right now, though.
By unhealthy credit expansion you mean unhealthy Fed balance sheet expansion?
Very little of the credit created on the balance sheet has actually entered the market.
Very little of the credit created on the balance sheet has actually entered the market.
Well I think there's some pretty clear correlation that numerous large companies have been using cheap credit in the bond market to buy back shares at a rapid pace (billions) and further inflate the status of the equities market. That's the cheap credit that isn't doing anything other than fleecing the non-investor class. It's simply financial engineering dependent on access to cheap credit, from what I understand.
Yes, buy backs has been a large contributor to indices heading upwards. A lot of these companies issue their own bonds at rates lower than even their dividends.
In the public bond market, how is lending fleecing the "non-investor class"?
In the public bond market, how is lending fleecing the "non-investor class"?
How? Because the Federal Reserve enables the cheap credit pegged to a near-zero interest rate to institutions on Wall Street, who turn around and loan to large organizations through channels by which the Wall Street firms will receive compensation by way of financial transactions. If you add up all the pocketing that goes along before a single retail investor has a shot at a position, then you'll understand what I meant by the 'fleecing' comment. Well, that and go back to the first point that the Federal Reserve's ridiculously low interest rate for the past half-dozen years punishes Savers, who are not investors in the market directly (that's why they're called savers), and that's a very large population being taken advantage of by a sophisticated system.
No, savers are investors. And I agree that a low to zero interest rate is bad for savers.
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?
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?
> The equilibrium interest rate is somewhere close to zero
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.
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.
People ARE buying federal bonds at that rate, right? You can find a figure for the sales, look at the yield curve, and quantify exactly how many people are acting that way with their own money (or how much money, at least).
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.
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.
There are a ton of people out there who will lend the fed money at that rate. But the fed is in a rather special position.
They're not loaning it to the Fed, they're borrowing it from the Fed and loaning it to the Treasury. By doing it this way everyone gets to pretend that the Fed isn't the entity buying government debt, and so it's not "monetizing the debt" and therefore -- somehow miraculously -- it isn't outright theft.
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.
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.
> After pumping QE full throttle at $80B/mo?
They did for a while. That part's over, though.
They did for a while. That part's over, though.
As those bonds mature, the Fed is continually buying more to keep their balance relatively constant. Nothing is "over" until they manage to withdraw all that extra liquidity.
Which is the tricky part.
Which is the tricky part.
Exactly! It's happened in the past. Inflation starts to creep up, but the economy is still lagging. The Fed is then stuck between reining in inflation and potentially stunting future growth. Pull back too late and you end up with the Carter years: mediocre growth and an inflation in the teens.
The $xxxxB sat in banks as excess reserves that the Fed paid interest on. None of it hit the real economy.
This is my favorite part. This is how most keynesians react when confronted with the harsh realities of QE. This and "the consumers just aren't spending enough." Ofc it's never enough QE and never enough spending. Meanwhile that creaking sound....
Most Keynesians I've seen seem to think QE is a fairly weak tool, from a "complete control of policy" perspective, but that it remains, in certain circumstances, marginally better than the central bank doing nothing while the government also fails to execute fiscal stimulus when it is needed.
I'm a Market Monetarist, not a Keynesian.
"Over"... i see no fat lady on stage
You see the Fed no longer pumping QE at $80B/month.
For now... QE 4 is coming, there is no doubt. It's the only tool in the chest. 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 4 will happen, but it still won't work of course because the economy sucks and people won't spend it, it will find its way back into the banks after all.
> For now... QE 4 is coming, there is no doubt.
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.
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.
> QE 4 is coming, there is no doubt. It's the only tool in the chest.
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.
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.
> The market is going to collapse my friend ....
Put your $ where your mouth is.
Put your $ where your mouth is.
If you're just a regular person, you shouldn't be trying to make millisecond-timing decisions. But you can absolutely say "thus-and-such appears to be systematically underpriced" and make a decision to transition some funds toward bargains.
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.
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.
The only way quants can make money is from active traders on the other side. It's impossible for quants to make money off buy and hold index investors. If everyone took your advice (and I do), there'd be no such thing as quants
The typical self-described "buy and hold investor" I know is actually a "buy and hold then panic and sell" investor. Take a look at r/investing to see what I'm talking about. I'm not criticizing them per se; it's unnerving to imagine half your life savings or retirement being gone in a flash.
Since when is /r/investing a buy-and-hold type of place? Those guys live at /r/personalfinance.
So the assumption is that stock prices increase on an infinite time scale?
Seems a bit naive...
Seems a bit naive...
Probably as measured with fiat currency, which can be created out of thin air, yes, stock prices will "increase" infinitely.
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...
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...
Not necessarily, assuming there's still a whole lot of economic development, growth, and innovation left before we achieve stasis. I think we've got generations left to go before we shift into a new paradigm.
I think it's a bad sign when they can write an article and get it out in under 25 minutes...but by the time they release the article, the market has gone up by half the amount it fell on opening. This market is severely flawed.
The article was probably written after China closed. Someone simply filled in the numbers at the open.
Futures were off bad before the market opened. People look at futures, think the sky is falling, flood the market with sell orders that cannot be filled until market opens, price temporarily crashes, then quants and smart money bring them back.
Would you consider it less flawed if it hadn't rebounded after the drop? I thought being able to recover quickly from market shocks was considered a good thing.
I don't understand your critique. It's a good thing that the market rebounded but how does that make the article better? It's like writing an article about a guy falling out of a plane and how he's going to go splat when he hits the ground, and by the time you hit "publish" the guy has already opened his parachute and landed safely. It's great that he survived but the article is bad!
I wasn't defending the article. The poster I was replying to referred to the market as "flawed", so I suppose I was defending the market?
Right you are. I think I got mixed up somehow. Just apply my bad parachute analogy to the comment above, then!
I am considering it flawed in that we shouldn't have these drops, or gains,...this volatility, like we have today. The high frequency trading, the quarterly outlook, the amount of emotion, etc in the market is flawed.
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 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.
Why not?
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.
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.
> The average person should not have to worry about the market... ever.
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.
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.
I'm not rich enough to be an investor but I agree, some kind of cool down system should be required.
There is a cool down system if things become too volatile. They halt trading for 15 minutes or shut it down for a day. They mentioned that if S&P500 were to drop 7% they would halt trading for 15 minutes today.
> I'm not rich enough to be an investor
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.
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.
Why was this down voted?
Because it's ignorant. There are cool down systems in place if the stock market swings too wildly in a short period of time.
And downvoting instead of pointing out that there are cool down systems does nothing to reduce the ignorance.
If you've really got a problem with ignorance, do the grown-up thing and attack the ignorance rather than the person.
If you've really got a problem with ignorance, do the grown-up thing and attack the ignorance rather than the person.
> And downvoting instead of pointing out that there are cool down systems does nothing to reduce the ignorance.
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 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).
I am not an expert on the particular use, but I think it probably behooves people to disconnect a downvote of someones comment from an attack on 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.
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 appears a good portion of comments in this thread have been, many of them not obviously bad. HN seems to have developed a contingent of people who downvote anything they disagree with, without explaining why they disagree, and this thread is particularly heavy on them.
Many people down vote every post in a discussion if it seems off topic. Considering single day drops are the kind of thing you see plastered over CNN many people consider it off topic for HN.
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Unless you need to take your money out in the next couple of months (or unless you are facing a margin call) why not consider this as a fire sale? Your favourite stocks and mutual funds, ON SALE!
Exactly, I feel like this hits a good balance of prudence and pragmatism. It's kind of a double-edged sword for me since I happen to be heavily into liquid cash at the moment...but I also have higher cash needs because I quit my job a month ago and am planning on taking 6 mos to a year off.
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.
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.
Interestingly, the people I know who have had the most success in the markets (and who have been around for a while) have told me this, each independently.
I have taken their advice and have done quite well.
I have taken their advice and have done quite well.
The global panic might have a good reason, this is probably the first time China goes through a true financial crisis. Their ability to deal with such situation is by and large unknown to anyone.
China (as we know it) can't suffering economic down turn.
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.
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.
"Communists"
more like "obey or die"
That's more or less US anti-communist propaganda.
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?
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?
I think it's also important to understand that before the Communists took power, China had spent more than a century being trampled by various foreign powers, starting with the British and expanding from there, and finally ending with the Japanese rampaging through the country in the lead-up to WWII.
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.
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.
"Great Leap Forward"?
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.
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.
Well yes, I covered that in my last paragraph.
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.
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.
This quite true although they have case studies to follow from the west and Asia. This statement from the '97 Asian Crisis [0]
[0] https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#Ch...
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...
I find it fascinating how this discussion goes, Do we differentiate between "healthy" and "strong" ?
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.
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.
Doesn't it go the other way? If your currency decreases in value, exports go up because your goods priced in local currency can be had for less foreign currency.
It makes Apple happy, theoretically. But it also means Chinese goods and services are more competitive globally, which will, of course, hurt the competition.
It makes Apple happy, theoretically. But it also means Chinese goods and services are more competitive globally, which will, of course, hurt the competition.
> 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.
That sounds like it's the wrong way round.
That sounds like it's the wrong way round.
You are absolutely correct, complete brain fart on my part. If their pricing in RMB they take the currency hit.
It's only 10:21 Eastern Time on a Monday as I read this at 7:21 a.m. in the Pacific time zone. Like, wait for the trading to close, then tally up the damage.
I'm a Web Developer with a few years of experience on the East Coast. I do OK, salary wise. I missed the first bubble and am not on the East Coast. What should I expect from this? Layoffs mean more developer supply? Just trying to be cautious and prepared for worst case.
>What should I expect from this?
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.
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.
Basically if this is truly something ugly for the US economy and not just a temporary correction, which it doesn't seem to be.. yet.. based on my personal experience circa 2008 as a web developer, here's what I saw from my perspective -
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..
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..
Oh look, an opportunity to buy.
Warren Buffett says "If you're buying hamburger your whole life, do you want the price to be low or high?"
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?
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?
I know, anything even remotely non-permabull is nuked for bad feels about The Strongest Economy In Years.
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.
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.
When I saw the articles in my local newspaper over the weekend of this happening, I figured its almost time for me, a fresh college graduate, to jump into the markets.
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...
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...
Just start monthly investments into index funds / ETFs. Start with small sums if that makes it better, but do start with monthly (automated?) investments. I kind of hope someone would have pointed me to the right direction years earlier.
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/
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/
I'll tell you what I told my little sister (who is in your shoes, i.e. just starting to save after graduating from college): you won't be using the money you're investing for 30+ years. Just invest, stop trying to time markets.
It's going to be okay.
It's going to be okay.
The "ghost cities" stories are really popular on some sites but if you want another point of view:
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.
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.
Nothing to be surprised here.
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.
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.
https://en.wikipedia.org/wiki/Market_timing#Evidence_for_mar...
> 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.
> 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.
The biggest "secret" on Wall Street is that active money management is often worthless. The ability of someone to 'beat the market' on a long term basis is extremely limited. Most investors are better off just buying a few index ETFs and letting it ride for 30 years.
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.
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.
We see a lot of stories on HN about how so many medical studies are false positives, because when you set up your analysis to yield 95% confidence, and most of your studies are on things that have no effect, the 5% false positive chance translates to a much higher false positive rate.
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).
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).
Which completely falls apart if you are 'unlucky' and buy at the wrong time. So by its very nature, buying that index fund requires good timing as well.
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.
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.
> even the premise of index buying requires some smart timing
Or just investing a regular amount of new money on a regular schedule, which will even out the timing issues.
Or just investing a regular amount of new money on a regular schedule, which will even out the timing issues.
This is only true if your investment horizon is sufficiently long (I expect you know this, but it's important to point out for correctness).
(Not writing this for your benefit but for passer-by who may not be familiar)
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.
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.
Disclaimer: I don't know much about this.
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.
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.
As you near retirement, you shift your asset allocation to be more conservative (more bonds, less equity). You don't need all of your retirement funds the day you turn 65.
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.
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.
Which underscores the value of starting to save for retirement in your 20s...
And 'retiring' in your 30s
Yes, you can enter into the S&P 500...
Trying to time the overall market is just as ineffectual as trying to time individual stocks. A consistent investment schedule beats hanging on to money hoping for a drop.
Well you don't need to hope for a drop, there's one going on right now! I bought more SPY today, not sure about the OP.
I'm assuming the Fed will not raise interest rates now.
I'm struggling to think of what the Fed can even do in this situation.
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.
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.
Well, at this point everyone is expecting them to raise rates, so not raising would, in effect, be doing something.
About all they have left is more QE. My guess is that the next step in this bubble they've blown (along with the rest of the world's central banks) is massive deflation.
Honestly, I expected inflation for the last 6 years, but we haven't seen it. However, prices are creeping up nicely, in all the desirable places. Is that really that different?
The fed is paying interest to the banks for excess reserves they have parked at the fed. If they lower the interest rate they're paying out on the excess reserves, banks might move some of that money out of the fed and into other investments.
At the moment, there's nothing that they need to do. A one-week drop of 15% in the stock market is not actually something that the Fed needs to fix.
I think they can safely do nothing and go along with the correction narrative, whether or not that's true.
No one is going to raise interest rate right now, even if interest rate is raised in future it will be very minimal. This is the new normal, there is hardly any inflation and price of important commodities are falling off the cliff.
The answer (pains me to say it) is, if anything, government spending. This was actually the answer after the financial crisis too. We have come to depend far too much on monetary stimulus relative to fiscal stimulus.
>
The answer (pains me to say it) is, if anything, government spending.
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.
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.
It's beginning to sound like Frank Underwood is behind all of this.
Stocks are rebounding. Someone made it off like a bandit this morning.
Disney stock was down almost 10% this morning. HOW POSSIBLY can it be rational for Disney stock to drop 10% because of a single day of rough trading in the Shanghai market, especially given how much Disney has dropped already in the last few months? I considered that the buying opportunity of the year. (knock on wood...)
If you're gonna look at crazy swings, I have an S&P smallcap 600 index tracking ETF that was down 40% at open. The index itself was only down a few percent, just buy that, wait for liquidity to return, and bam 30% ROI in a few minutes. Just had to be quick enough to get in before the halt.
>HOW POSSIBLY can it be rational for Disney stock to drop 10%
People being forced to liquidate positions (margin calls, panic) and no buyers.
People being forced to liquidate positions (margin calls, panic) and no buyers.
Investors are not rational.
EDIT> Why would you choose Disney over Google, given the choice? FYI I own both.
EDIT> Why would you choose Disney over Google, given the choice? FYI I own both.
I'm actually prone to believe in EMH, so I agree there's very few "bargains" to be had. That said, bargain hunting has worked for me statistically in the past, and even if it's hard to justify rationally I will continue to attempt it, since EMH just argues that I'll likely break even if I'm wrong.
> 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)
> 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)
Interesting, thanks. I've seen and read about too much back-room dealing in various industries to believe EMH.
Well, it will really depend on how well Star Wars does.
Could be a dead cat bounce:
https://en.wikipedia.org/wiki/Dead_cat_bounce
https://en.wikipedia.org/wiki/Dead_cat_bounce
Plunge Protection Team doing its thing.
https://en.wikipedia.org/wiki/Working_Group_on_Financial_Mar...
https://en.wikipedia.org/wiki/Working_Group_on_Financial_Mar...
Seesawing pretty heavily at this point. It was back up to -500ish a few minutes ago, then back to -800ish.
How do oil prices factor into this? The price has already been diving in this last quarter. Oil stocks also make up a huge portion of the Dow formula.
All sectors are diving today. Energy, tech, healthcare, financials, telecom, even utilities.
It's a sympathetic response.
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.
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.
Oil prices are low both because demand is waning (relatively) but also because there is a glut of supply.
Excess supply of oil is great for most of the economy. Waning demand is a bad indicator, though.
Excess supply of oil is great for most of the economy. Waning demand is a bad indicator, though.
Best time to buy is when there's blood in the streets :D
I just can't decide if there will be more blood, or if this is just the start...
In 2008 I watched the market drop 5% every day for a week. That's blood in the streets. (And by Thur, it pretty much didn't matter what you bought, it was going to do great)
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.
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.
I just want to offer everyone a professional piece of advice. Large down moves in equity markets is exactly when you should buy equities because that's when expected returns are at their highest.
This got me thinking - is it possible to develop a profitable long-term investment strategy that takes advantage of stock market dips?
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...
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...
Large down moves Thursday, Friday, and now (early) today.
I'll counter with some amateur advice - things still seem historically overpriced.
stocks are not obviously cheap, I'll give you that. But you have to compare them to other investment alternatives. Cash, Real Estate, Govt Bonds.
"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."
https://mises.org/library/human-action-0/html/pp/818
https://mises.org/library/human-action-0/html/pp/818
There is absolutely zero political will for the voluntary abandonment of credit expansion. So, only the final catastrophe, the collapse of the dollar as the world's reserve currency, is the final outcome. It could be decades away however; there is just too much invested (literally and figuratively) in keeping the dollar afloat.
Maybe the failure of central banking bubble-blowing will finally be realized... I'm guessing not though.
I'm just injecting some alternative thought here but I think one major question that needs to be asked about the health of the economy is:
"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.
"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.
Weighted by what?
I was thinking of clustering. If you have a large group of people in a general income sub-group then it would weigh more than fewer people in another income subgroup. The point of weighing is that margin-based models depend heavily upon a large consumer base and only certain consumer bases are of any significant size.
So, in other words, just the average across the population?
Markets are green again thanks in part to move in AAPL worth over 80B in market cap.
This happened after Tim Cook's email to Jim Cramer, which may have violated Fair Disclosure regulations: https://mobile.twitter.com/carlquintanilla/status/6357996299...
This happened after Tim Cook's email to Jim Cramer, which may have violated Fair Disclosure regulations: https://mobile.twitter.com/carlquintanilla/status/6357996299...
There's a share buyback program ongoing for Apple. So, I am not really surprised that they are defending their stock in the market and bidding it up. Note also that APPL's cash reserves are YUGE and they can play this game for some time.
It's easy to get out, hard to get back in. I moved 401k money out June 30th. Planned to get back in at SP 1900. If we close down < 2% I'll call bottom and get back in at close prices today. > 2% loss and it signals real fear that is probably not over yet. Either way we'll get a bounce tomorrow.
[deleted]
From what I've heard from locals.. the recent chemical explosion triggered general fear of wide-spread corruption and an impending economic coup d'état from nationalists who want to disrupt the current power.
How about a more useful index than the Dow, which fails to account for basic stuff like market cap? S&P 500 % drop or something would be more meaningful.
EDIT: The page in question lists it actually, S&P 500 down 4.1%.
EDIT: The page in question lists it actually, S&P 500 down 4.1%.
The correlation between the indexes is pretty strong. Despite the DOW not being a statistically great thing, it's very rare it's doing something significantly different than the S&P 500.
I would recommend an article by George Magnus called "The Chinese model is nearing its end", which was printed in the FT on Friday. You can bypass the paywall if you Google for it.
In the grand scheme (meaning, 5+ years), this is a small blip. Buy more.
Usually happens before a big political shift. Buy the viix.
yeah, scratch your head, that's the best you could do.
That graph has become significantly less panic-inducing.
and now this headline isn't relevant. stocks are UNCH or ^. white knuckling it
I wonder if any of this could be related to recent tensions in Korea?
http://www.cnn.com/2015/08/21/asia/koreas-tensions/
http://www.cnn.com/2015/08/21/asia/koreas-tensions/
No. This is mostly about a bubble in China popping. Potemkin buildings have been a thing there for a very long time due to a series of perverse effects of policies by the Chinese government.
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 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.
It's hard for me to tell whether this is just a "correction" (massive deflation after exuberance) or an actual meltdown. I had predicted the actual meltdown for September of 2015, but I guess this is pretty close. I wonder how this will affect my life, if at all.
"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-...
"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-...
"I had predicted the actual meltdown for September of 2015, but I guess this is pretty close. I wonder how this will affect my life, if at all."
If you predicted it, then it should at least make you rich? :)
If you predicted it, then it should at least make you rich? :)
Thank you.
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.
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 predicted the 2008 crisis in 2001. (Well an article on http://mises.org made it clear it would happen.) This was before the housing bubble started to inflate, and was easy to expect due to the changes in the CRA and the artificially low interest rates.
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.
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.
Have you done analysis on:
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.
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.
The problem with a sample size of 1 is that you could well have just gotten lucky
I heard of a guy who made a lot of money in the stock market. Somebody asked him how he did it. He said, "I always sold too soon."
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.
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.
>downvoted across all of my comments
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?
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?
I think you're not thinking critically enough in interpreting what he had said.
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.
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.
I mean, if you want, you can hunt through my comments on this site and reddit/voat around 6 months ago and find me saying then that there would be a crash around this time.
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.
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.
I just skimmed your comments here between 118 and 250 days ago, and I don't see anything predicting a crash to come in September or any other time.
I'm guessing most HN commenters don't have the liquidity to become rich off a crash, unless they had knowledge in specific industries and companies that were set to get hit hardest. Not all Chinese sectors of industry are equally hurt by this collapse.
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.
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.
The problem is that many people are continously predicting a crash. If you grant that they're right now, you also have to grant that they've been wrong for years. Even a broken clock is right twice a day.
Not fair. A well-regulated system would NEVER crash. That this one does, and folks predicted it, has nothing to do with timing, and everything to do with cogent analysis of a flawed system.
Predicting market crashes is like predicting the end of the world.
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.
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.
Perhaps not. But by that definition, this isn't a crash, either. It is a rapid but orderly sell-off, and while we don't like it, it (by itself) does not indicate flaws in the system.
However, it is possible for a clock to be running but set to the wrong time, and therefore never right...
People have been saying the Chinese economy will crash for well over a decade. Wish I'd gone all in ten years ago...
I don't gamble and I don't have enough money to gamble, and, even if I did, I'd have been wrong by a few weeks anyway.
It's more of a morbid curiosity for me.
It's more of a morbid curiosity for me.
Yeah, it should. He should have known to short-sell pretty much everything if he really predicted it. I remind everybody that it takes no money to short sell. If you really think everything is gonna tank, do it. Put your skin in the game.
Note well, however: This is almost always terrible financial advice. Don't do it unless you're prepared to be bankrupt if you're wrong.
Yep. Short selling is usually very bad financial advice, outside of some very specific situations where you have solid reasons to believe that prices will fall. But if you're going to say financial catastrophe is right around the corner, put some skin in the game. Be prepared to go bankrupt if you're wrong.
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)?
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)?
> It's hard for me to tell whether this is just a "correction" or an actual meltdown.
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."
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."
It's not "fair", but it is a legal requirement.
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.
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.
> How is it fair that the markets get put on pause if they're failing? I really don't understand.
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".
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".
A pause makes sense, if you study this history of sell off's, they're often emotional... and sometimes technological. A pause gives the market time to recollect itself.
>> I wonder how this will affect my life, if at all.
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.
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.
It's fair in the same way banks closing when there's a run on them is fair; for the same reasons.
Basically to let cooler heads prevail and prevent worse consequences.
Basically to let cooler heads prevail and prevent worse consequences.
-markets get put on pause
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.
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.
Sorry but how do you know enough to "predict" a September 2015 meltdown and then um and ah about whether this might be a correction? It's 6 days short of September and you are not sure? Pardon my skepticism.
Hey man, I have an amateur's knowledge of the market, but I keep up with geopolitics.
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.
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.
Is this satire? Not sure. If it's genuine why post about your gut feelings where you have no skin in the game and can make calls for a crash over and over? Stopped clock and all that.
Can you elaborate on your prediction? I'm interested in the details.
A few factors that were extremely evident from 6+ months ago:
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.
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.
Why did you predict a meltdown?
> How is it fair that the markets get put on pause if they're failing? I really don't understand.
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.
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.
Just fuck my shit up fam, jesus... and I was thinking about shorting it friday. Oh well, gotta wait it out. Just hope it won't take 5 years not counting inflation
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.