So the Dow was down triple digits this morning if I understand correctly because of improving economic news fueling fears of an interest rate hike. In emphasizing 401Ks, thrift savings plans and the like we probably have the largest class of people in the US that are stock holders than ever before. So have we gotten to the point where you root for bad economic news so that your stock holdings go up at the expense of the overall health of the economy?
Does this system we seem to have created make sense to anyone any more? It just seems like a house of cards.
All that this proves is that you need to consistently and continuously contribute to your 401k, IRA, 529, or whatever stock based investments you are holding. By doing so, Dollar Cost Averaging, you will invest when stocks are cheap and even out when they are expensive.
Anecdotally, one of the smartest moves I made was in the heart of the recent recession I increased my contribution amount and let it ride out until late last year at the same number. I was buying more stocks at a cheaper price and when they eventually came back up my retirement portfolio came up with it.
I wish I had been smart enough to buy the corresponding funds in taxable accounts. Would have made a pretty penny.
It's expectations and animal spirits. A lot of people are close to being "market makers", where their words are given undue influence.
If we didn't have a stock market, it would be likely we would see a return to earlier methods of preserving and keeping wealth; land speculation, finery, gold, etc. Those were subject to similar boom-bust-boom cycles.
An interest rate hike isn't inherently "good", as it can slow down growth, increase borrowing costs, and lead to problems in the labor market.
It's expectations and animal spirits. A lot of people are close to being "market makers", where their words are given undue influence.
If we didn't have a stock market, it would be likely we would see a return to earlier methods of preserving and keeping wealth; land speculation, finery, gold, etc. Those were subject to similar boom-bust-boom cycles.
Not to mention, tulips
Asset prices have becoming detached from underlying drivers of value.
He showcased that a strong will can bend the economy in the short-run. The Fed has taken this further and uses it as prima facie evidence that their actions are justified.
umm wrong
historic PE is 20.55
a bit higher than historic average (15.54) but no way "Detached from underlying drivers of value"
that said
if Interest rates do get raised in summer as anticipated
then Stock market will be considered very overvalued and expect a sharp pull back.
The correct answer is not what they are now, but what they would be in the absence of extreme intervention by central banks.
But you have to consider the source. Media has to be able to explain EVERYTHING so today its consumer confidence. Tomorrow it'll be up and its Apple buying General Motors. For any other traders on the forum they know its simple....today there are more sellers than buyers in the market as a whole (or is that hole). As we get further into the summer, days like this happen more frequently on Fridays and Mondays(today being a quasi monday).
I do agree with your premise that EVERYONE is in a 401k and thus more money than ever is in the Stock market. Part of me has this doomsday mentality that says take half of it out and put it under my mattress!
of course, I don't know your answer, however, these two gents are highly regarded and engaging in a very enlightening debate.
On the other extreme is stagflation, whereby the Fed has to tighten even though the economy isn't all that impressive.
As a continuing believer in the benefits of accelerating technological change for owners, I think that we can see very modest inflation and decent growth continue a very long time without the Fed having to do much. I get nervous about the "out years" when technology supersedes demand for labor. I also worry if central bankers do more than they really need to, to protect against inflation.
The big risk is the future erosion of the consent of the governed. As the sparrow said: There are few and there are many. When the many get that...all kinds of trouble might brew.
the market rises on a wall of worry
this is what has happen in the past 6 years
as long as people talk about market being in a bubble we will continue to rise.
the market rises on a wall of worry
this is what has happen in the past 6 years
as long as people talk about market being in a bubble we will continue to rise.
It's abundantly clear you have no idea what the impact of central bank intervention in the markets has been. Let me guess - you think the collapse in crude oil prices was because of excess supply?
IE Apple makes a trillion dollars, stock goes down, because the traders were looking for 2 trillion.
Let me guess you have all money in gold hidden under your bed
An interest rate hike isn't inherently "good", as it can slow down growth, increase borrowing costs, and lead to problems in the labor market.
This is the equivalent of taking the punch bowl away (should it happen, and I'll believe it when I see it). The Keynesian corollary to the stimulative approach in lean times that no one is ever comfortable with. Now the issue is whether we're in fact in anything approaching a boom, but the idea of continuing with near-zero (effectively negative) interest rates in perpetuity presents a host of problems too.
I'm of the belief we are playing a competing waltz, where central bank intervention is our way to fight to keep currency on our terms. The Russians and Chinese can utilize a media, rather than their central banks, and have been clamoring for their ticket into the currency party.
We've hedged ourself into a position that raising rates could squeeze us out of, with disastrous results.
I don't see this anymore as stimulative. I see it as combat. Gone are the days you flood the market with Confederacy currency. We have a much sharper scalpel.
Quote:
Asset prices have becoming detached from underlying drivers of value.
Let me guess you have all money in gold hidden under your bed
Of course not, but I am neither so deluded or indoctrinated as to be believe that the Fed's decision to inflate yet another asset bubble is investable in the long-term.
In the end the US will be worth .30 cents but the rest of the world will be worth .06 cents.
- Oliver, 2008
I guess the new definition of too low simply means "low enough to generate asset bubbles, even if not accompanied by rising inflation?"
She was completely ignored.
Years ago, Greespan would say something like and the market would drop 1-2% in a day.
Fed has a credibility issue. Asset bubbles are considered part of the witches brew.
maybe its not as much about the short term (2 to 3 years) bubbles and etc. pricing, the market and fluff/air or not, but more about fundamentals.
maybe a interest rate increase will help address the fundamentals, maybe not, how the heck would I know, acting in other ways, making the economy less about the markets and investing broadly, and more about other activities.
in other words, if the market has been divorced from the real economy, how will putting dampers on the market, or not, help, or not the real economy?
not to crap on all the good it did for 30 years or whatever it was, not at all, the cheap money changed the entire world and in many great, mind boggling, and lasting ways,...but maybe its time for a slight change.
Just suggesting, (and I have no idea and am not in favor of tax increases) that that horse ran out of room to run after 30 years.
Rates - ( New Window )
which. I have really no idea here, darts in the dark, but Brazil has very high prime rate? and has had? (inflation also I guess)
Is that true?
2) It's my understanding that Obama's wall street "reforms" are strictly cosmetic and that nothing at all has been done to either punish those who caused the recent crash or to prevent it from happening again tomorrow.
So why is anyone happy about investing in the market?
But, since people are risk averse, they are willing to lose investment income to protect the downside. Bond purchase, in part, reflect this aversion.
of course, I don't have any idea here if there is a correlation other than people live in poverty and get paid low wages in those places, which obviously sucks, but...is there another correlation.
Or the measure of inflation is for the birds and no one has pricing power anymore for their are so few barriers to entry when rates are so low for so long?
Have to think about it.
But we do know that Summers and Greenspan wrote about this kind of policy after the 87 crash and we as a nation followed that playbook ever since Bush I.
1) Labor's share of total national income has been shrinking for reasons starting with globalization and expanded by ATC. Owner's share has been increasing, sharply. That is consistent with high equity valuations.
2) ATC has been and will continue to put downward pressure on price changes. The energy story in the US is partly technological.
3) Inflation just isn't going to grow, if the technologists/futurists are at all correct. So, need for Fed tightening will be extremely limited, and the glide-path to higher short-term rates will be exceedingly slow.
4) This also feeds back to lower long-term rates while giving debt investors such as pension funds and insurance companies nowhere to go to get higher rates. It also feeds higher equity valuations, because the after-tax cost of borrowing cost of is low enough to incent companies to borrow in stockholder-friendly ways (e.g., buybacks).
4) Inflation is already mis-measured on the upside, because productivity is mis-measured on the downside.
Don't believe #4? OK, where is the ubiquitous availability of low-cost cell phones in the productivity numbers? (It isn't.)
Martin Ford, in his depressingly excellent book "The Rise of the Robots" gives another example. A company specializing in complex calculations estimated that a given calculation would have taken 260 years on a single computer. Now, it goes to a cloud service provided by Amazon, and uses tens of thousands of massively parallel computers via the cloud, to do the entire calculation in 18 hours. Where is that in the productivity numbers? (It isn't.)
Moore's law, which has at least 10 more years to go before shifting to new technologies (which will exist in time), AI, machine learning, deep learning, big data, software that is improving vastly faster than Moore's law, collapsing prices on sensors, robotics, and on and on and on are going to eat away at jobs, while also giving bigger shares to winners/owners, and keeping massive downward pressure on the inflation rate. This model explains an awful lot, including high-priced stocks and low interest rates, neither of which Yellin can change--even though most economists don't believe it yet, because they can't measure it very well yet.
How we as a society handle this, I have no idea, and it scares the shit out of me. I just believe strongly from everything I read and the technologist/futurists I know that it's happening. There are upsides, like exploding longevity and collapsing deaths from most major diseases. However, the downsides seem much worse, for at least the next 10-20 years.
This that all of the things ATC explains are from correlation, not causation? Fine, but keep up with the changes that are happening.
On Ford's book, in the NYT book review:
It isn't really just Robotization, btw. It's automation and AI writ large. The share of US jobs in manufacturing is already down from 30% in 1950 to about 8% now.
The Amazon page is linked.
Link - ( New Window )
As the author notes, what appears to be different this time is that we are now undergoing a transition from an analog world with digital inputs, to a digital world. As others have described it, we may now be seeing digitization unfold as the first true general purpose technology since electricity. And, like electricity, it doesn't change things much...until it does. Electricity took about 50 years. Things move a lot faster now.
1) Learn to make white shirts; and
2) Transfer that primitive learning to 10,000 other robots...
then the world has truly changed--in my view.
I have a co-worker comes out of the biotech AI field, and now runs a trading department while also designing the technology for our entire division. No dummy, he. He has been my mentor on all of this, and I wouldn't be nearly as confident about the correlation part without his teachings.
I strongly encourage the Martin Ford book.