NFT: Dumb Economics Question

on the % of wages in GDP...I get that.

Obviously, the 1970s is complex and yet, again, internet search, it is just so typical to write it off as a sucky time and not give the complexity of the high rates and job growth.

''I just want a lesson ;-{ ugh''

hahaha (crying / whining sounds, hehe)

I was referring to the author of the article you linked.

The response of an awful lot of economists to this topic is "la la la la la, I can't hear you."

to how people invest their time and adjust lifestyles and worldview that we are overlooking, that is correlated with savings return rates, job growth rates, national debt...all that

now we are getting somewhere. expound on that before I start whining again.

Lets go full contrarian here, yo.

In comment 12304225 ctc in ftmyers said:

Quote:

In comment 12304193 idiotsavant said: Quote: may also explain why baby boomers are so insufferable, since they 'thought their shit did not smell' during that long expansion in weekly earnings growth, a long party basically, in some sectors, which has been nudged into forgotten history by simplistic views on econ and society then. (the death of the inner city and all that, true, truem but...the 1970's were much much more complex than that, it was gravy for many, again, the chart and anecdotally from family, and no, we were not rich) Well if you want to go back to gas rationing and 16% mortgage rates, go for it.

Along with a recession that many of today's recent college grads would find (except for the level of student loans) very familiar. Boomers who got out of school from '74-'76 (and in '79-'83 outside of the 70-76 time frame)learned in no uncertain terms that their shit did indeed stink.

And as far as labor participation rates go, I'm sure it looked better than the previous 20 years, but that's mostly due to the increasing participation of women.

when the retail price index no longer relates to the average weekly wage growth, we may have become the punks of the universe

- if a guy in China gets a pay increase, and we pay increased retail prices, and get zero benefit to OUR wages.

its been talked bout, but now the chart is starting to look scary. that seems new.

.

You asking good questions. I'm learning too. That's why I enjoy these discussions.

If the economy was simple, there never would be these discussions.

but the charts don't always reflect the narrative.

I am NOT trying to be a Carter apologist, haha, its just looking at charts and trying to get people to 'splain 'em.

River. Your comments about fly fishing hurt and make me wonder what I am doing instead of the great things in life.

And agree that a thread takes a village.

Savant: to understand what you are looking for you have to go back to the unholy hell of debt and transfer payments set up in the sixties, the peace effect post Vietnam which set up the inadequate ability to respond even if we wanted to response to the early round of Me nonsense of the late 70s. But most of all you would have to look up the impact on certain industries by the oil shocks of the seventies. The impact on certain but not all industries was significant. However the timing of the impact is delayed om the industrial side for the operational logistics of distribution grind down over 18 to 36 months. And once lost logistical scale needed for profits takes a long time to reach. For example, in the 1970s food, textiles, Hardware shoes and health and beauty aids were widely distributed from many small retail outlets. The top 25 companies dedicated to food outlets distributed 26% of the food. New costs of fuel took out whole middle layers until now the top 25 companies distribute almost 75% of the food. Wal mart was a major master of cross docking, or technology, JIT instead of inventory backwards integration, Ppf pricing power calculations, location operation research and all of the other innovations possible before 1973 but not yet necessary. Ditto fuel eating industries like steel who absorb enormous amount of electricity and then cost a lot to transport. The successive and lesser shocks to the operational profit economics of many an unconsolidated supply chain caused by shocks of the 1979, 1981, 1986 and 1990 me production behavior made technologies long ago developed by the Navy in ww2 useful for other reasons in the 1970 and 80s. I think you will find the factor analysis and causation vs correlations very tricky. A veritable gold field for those selling magic bullets and conclusions. ..like politicians and anyone who might extract rent from the argument. There is even rent extraction in composing arguments others use. Lots of people with graduate degrees are employed for this very essential value creating purpose.

In comment 12304249 manh george said:

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I was referring to the author of the article you linked. The response of an awful lot of economists to this topic is "la la la la la, I can't hear you."

I am not as well-read on this as you, by any stretch, but I think there's a difference between those who are truly unwilling to acknowledge something different might be happening and those who are apt to contextualize it amidst other, more traditional explanations for particular phenomena. And frankly, it's a bit fatalist to suppose that things like increased inequality are essentially inevitable. I think, perhaps I prefer to think, that inequality is at least partly attributable to various policy decisions that we've made, and thus that can be changed or reversed.

And cultures can change thier values, except in assymetric democracies where laws like Citizens United permit assembly of fortified voting blocs.
Inequality - ( New Window )

so...of course it would take me a while to really digest all that, your discourse on the 1970's.

I guess the, getting back to this, what is the language, the economy, the flow of capital, disposable income spending, was less clumpy back then,

In one sense, anyway,

with so many individuals (wage earners) able to spend with discretion, and such a more diverse retail environment in terms of food and stuff, (that you mentioned),

but then, on the other hand, there was probably much less capital, (a much, much less vibrant and complex and able investment world), so there is that, of course, nobody wants to loose the good part; the incredible fluidity and awesome ability of the modern capital markets to fund growth

...IF and WHEN there is any real demand uptick.

Of course, if most people cannot figure out this stuff, how can I?

...so I am not going to try to dump on the whole revolution in investable money, on the contrary.

BUT...what Dune may have been getting at, we cannot just be fatalistic about the demise of the wage earner as part of the business cycle.

I guess the conversation starter would be:

"IS it a worthwhile goal to increase the % of GDP that comes from simple wage earnings and IF so HOW to do it"

(and it does not appear that such is even a goal right now)

Enter the populists (getting back to Santorum)...or pretenders at populism, in both parties, getting back to Bills point about people who make rent on data, if I got that correctly.

and

"How to make it more likely that people who rely only on wages will have disposable income"

"...IS that a worthy goal, and IF so how to make steps in that direction?"

Perhaps this is what Dune meant as well, it is a bit cynical to just assume that people proposing policy changes are just in it for short term gain or political hay

...there are plenty of people out there who would love to make a living by dint of labors alone once again, and it would do wonders for the capital markets, since they would have a less abstract place to put money...regular old growth lending to start...then...more of all the above.

I don't know what to grab onto from that post. But I will say these two items:

Capital markets made much more sound and long term investments of the accumulated national wealth so future generations were more likely to be stable and generational wealth transfer at a national level was enormously safer with checks and balances and hugely different rewards and time lines and perspectives.

All you need as factoid evidence is the day the partners at Goldman went from personal wealth based on the sound investments of the partners money at the time they retired to annual bonuses based on returns from transactions completed that year using other people's money. 1986. If you seriously think that politicians and the FIRE sector makes better decisions now than 1810 to 1985 I don't know where to start. "Sophisticated sounding" and "sound investment" begin with s but that's about it. Imho.

Some of the smartest guys in the world going public, selling "high" when the Dow was somewhere around 2000!

I recall each partner got about 50M, which is chump change compared to the opportunites lost. 50M shuts alot of people up, but I still bet, in a moment of honesty, they would admit the fallacy of their short-sightedness.

There is a cadre of senior partners ex and current that see it that way. And see the phenomenon as the national interest tragedy it is. In every profession the very very top fraction are truly remarkable and more like others at the very top of their field than the rung below.

when Goldman went public.

Wide Rights point about the market trading point reminded me that I got Solomon and Goldman mixed up. First the Philbro merger and then going public in as pure memory hopes is right in 1986; showed a path the old line IB'S could not resist, claiming Goldman in 1999. What I do remember is being overseas and seeing the announcement in the WSJ and knowing that day was going to come back and haunt us all. Misalignment and twists on John Nash work and computing power all formed a witches brew of "innovation" and inability to manage risk inside and outside institutions that the nation relies on to be the adults in the room.

your last post prior had me understanding you much better! :-)

Given Goldman held out as long as they did, I wonder if the repeal of Glass Steagall was the game changer.

trend:

(dailyfinance '1.2 quadrillion derivatives market dwarfs world GDP)



''One of the biggest risks to the world's financial health is the $1.2 quadrillion derivatives market. It's complex, it's unregulated, and it ought to be of concern to world leaders that its notional value is 20 times the size of the world economy. But traders rule the roost -- and as much as risk managers and regulators might want to limit that risk, they lack the power or knowledge to do so.

A quadrillion is a big number: 1,000 times a trillion. Yet according to one of the world's leading derivatives experts, Paul Wilmott, who holds a doctorate in applied mathematics from Oxford University (and whose speaking voice sounds eerily like John Lennon's), $1.2 quadrillion is the so-called notional value of the worldwide derivatives market. To put that in perspective, the world's annual gross domestic product is between $50 trillion and $60 trillion.''

you have wages as a smaller and smaller ...and smaller part of GDP,

and GDP in turn is dwarfed by the derivatives market

(which ....who the fuck knows if and how that is counted back into the above or if it should be, or where, or why or anything)

holy crap this is a very weird world we live in, at what point are we just in a virtual reality built by and for investors?

maybe I should wear a clown hat today ...all day...in public, as an expression of how absurd this seems

and I mean huge pool of cash, with no where to go (new factories, not needed right now, thank you) which puts the whole cheap money thing in perspective, as if we need any more of that medicine.

but...are we in position for the other medicine, or caught in a trap?

I think so. I was not close to privy to the internal dialog but I imagine it set up a run on talent for them if they did not change with the writing on the wall. In the end the glib but second tier of their potential ( Rubin, Corzine) won outside in. Imho.

but the idea that derivatives have "quadrillions" in value is to misapprehend what derivatives are. They are options, often mutually conflicting (an option to buy a stock at a set price and an option to sell it at a lower price are not going to be exercised in concert because the incentive to do one is necessarily the rationale for not doing another - the movement of the stock price up or down).

it would be like a shared growth economy, all sorts of manufacturing needed and expanding every which way. 100% employment.

even if it is 80% smoke (or, each dollar having 4x possibilities attached to it) , there is real money attached to the market in some way, shape or form,

and, to me it would not have been invented if there was a better place for that cash. so it shows that the pool of cash is still plenty big enough. what we lack as a planet is demand for real goods growth in line with the pool of cash.

so a % that cash can be deployed to people who build robots

(I am loosing it)

In comment 12305528 idiotsavant said:

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even if it is 80% smoke (or, each dollar having 4x possibilities attached to it) , there is real money attached to the market in some way, shape or form, and, to me it would not have been invented if there was a better place for that cash. so it shows that the pool of cash is still plenty big enough. what we lack as a planet is demand for real goods growth in line with the pool of cash. so a % that cash can be deployed to people who build robots (I am loosing it)

Oh it is serious, I'm not suggesting that they present no risk, I'm just saying that looking at the notional amount of all the derivatives outstanding in the world at a given time is something people do when they want to sensationalize, and I don't think that's what you're trying to do.

1. to hide something

2. because simplicity was not enough (the real econ shrank relative to the un-deployed pool of cash, loans and straight equity being relatively simple ways to deploy in growth)

3. some people love complexity (but would that be enough to make it happen without the top 2 reasons?)

but, the trend I am pushing is to look at

cheap money vs expensive money

and the effects of that on the wage earners sector.

and the complexity of the derivatives (and size, in some degree) seems like a distortion in and of itself, that may be rhetorical,

at least, a symptom of that the real econ never caught up even closely to the pool of cash (which the cheap money was supposed to increase, that pool of cash)

the problem has not been raising capital into your fund, the problem has been, for every $10m deal, there are 8x that $10 looking to get in.

so, people keep inventing new things to do with money (the 'distortions') and waiting for someone to come knocking who wants to build a factory....and waiting...and waiting.

(why everyone loves Elon Musk, and why not love him?, we need 10,000 more like that)

In comment 12305459 njm said:

Quote:

when Goldman went public.

Thank you for the correction. I forgot the year as well.

About twice that of the Dow.

So that ~50M capital each partner took would be 100M. Thats an awful lot of $$ for smart people to give up. Along with future earnings and appreciation.

And its likely if they had remained private during the financial crisis they could have profitted considerably more. A major opportunity lost.

.

In comment 12305607 WideRight said:

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About twice that of the Dow. So that ~50M capital each partner took would be 100M. Thats an awful lot of $$ for smart people to give up. Along with future earnings and appreciation. And its likely if they had remained private during the financial crisis they could have profitted considerably more. A major opportunity lost.

I wouldn't be so certain. The unanswered question is whether the management team would have been the same one that would have run the show if they had stayed private.

as well as probably crossing the line ethically and legally, and to this day, people seem to forget that.

Goldman was the biggest player in AIG CDS, that Geithner decided had to be paid off 100 cents on the dollar. The case is also made in the linked article that Goldman bought protection on AIG while holding information that the sellers didn't have.

If they didn't come out of that mess smelling like a rose, the decision to go public and let a lot of people cash out would look less dumb.

To be sure, Goldie has been a kickass competitor since then. But they could easily have fallen into a deep, dark abyss if Geithner wasn't so chickenshit.

In addition, of course, a confluence of events since 2010 have led to an impressive rise in equity prices which goosed the value of the firms with the most leveraged exposure to that rise. Goldy would be high on that list. It's not reasonable, imo, to compare boomtime stock value on GS to what was going on when they went public.
Link - ( New Window )

as a private concern, their liquidity issues would not be subject to the same regulations and reporting. They could have doubled down.

The point about AIG is spot on, but would have been handled the same.

but happened to be reading "Winning the Loser's Game" by Charles Ellis, 5th Edition - and came across the following excerpt on page 92:

Quote:

We may be able to see that in theory our long-term interests are best served by lower stock prices, so we can all buy at bargain prices. But who among us can honestly say that he or she is delighted by falling markets? And who does not feel a warm glow of affection for stocks and markets that have gone up, even though we know it means that stocks are more expensive to buy and future rates of return on additional investments at these price levels will surely be lower? By contrast, who among us would close our pocketbook and turn away from the store that puts its most attractive wares on sale at 10, 20 or even 30 percent off its recent prices? None of use would say, "I don't want to buy these things when they're on sale; I'll wait until the price goes back up and buy then." But that's exactly how most of us behave toward investments. When the market drops - putting stocks "on sale" - we stop buying. In fact, the records show that we even join in the selling. And when the market rises, we buy more and more enthusiastically. As Jason Zweig of Money magazine puts it, "If we shopped for stocks the way we shop for socks, we'd be better off." We are wrong when we feel good about stocks having gone up, and we are wrong when we feel bad about stocks having gone down. A falling stock market is the necessary first step to buying low.

That supports your initial post shows you have no idea what the difference of opinion even was.

Dollar cost averaging is a perfectly acceptable strategy, which of course your last post suggests (correctly) should not be abandoned based on sentiment. It in no way endorses your assertion that a declining market every year during your accumulation phase is a good thing. In fact, you suggested it was the preferred outcome.

In comment 12308508 Rob in CT/NYC said:

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That supports your initial post shows you have no idea what the difference of opinion even was. Dollar cost averaging is a perfectly acceptable strategy, which of course your last post suggests (correctly) should not be abandoned based on sentiment. It in no way endorses your assertion that a declining market every year during your accumulation phase is a good thing. In fact, you suggested it was the preferred outcome.

The quoted section isn't discussing dollar cost averaging. It is talking about the accumulation phase of investing (of course, dollar cost averaging is undoubtedly a part of regular accumulations - but it is most certainly NOT the focus of the quoted section.

Go ahead and ignore the following quote:
"... in theory our long-term interests are best served by lower stock prices..."

"We are wrong when we feel good about stocks having gone up, and we are wrong when we feel bad about stocks having gone down. A falling stock market is the necessary first step to buying low."

My first post was that long term investors should cheer when their portfolios get devastated. I stand by that. The quoted section stands by that. And it isn't surprising to me that you don't understand that. But I'm not posting to you. I'm posting to all those who read your posts to warn them to ignore you and do their homework [to read the ACADEMIC studies on their own] before listening to you or me.

Holy fuck...

to a person with a proven track record in finance, rather than a guy who read a book.

In comment 12308532 kicker said:

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to a person with a proven track record in finance, rather than a guy who read a book.

That shows how much you know. EVERY academic study has proven that the one place you should NEVER trust your money is with anyone who works for a living on wall street. Active management of stock mutual funds - no less buying and selling of individual securities - is a losers game. After transaction costs, it has been proven over and over and over again that wall street "experts" can't beat the market and do worse than someone selecting stocks blindfolded throwing darts at the financial section.

So for anyone reading this thread, it is important for their own financial future to read the one group of people who have no axe to grind - the academic community (and the first thing the academic community will tell you is TO PUT YOUR HANDS ON YOUR WALLET AND TOTALLY IGNORE ANYONE WORKING FOR A STOCK BROKERAGE OUTFIT OR OTHERWISE WHO PRETENDS TO HAVE YOU BELIEVE YOU CAN BEAT THE MARKET BY PAYING HIM)

shoud listen to me?

Good to know.

By the way, you realize that finance is much larger than active money management? Or, is that not in the books?

In comment 12308543 kicker said:

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shoud listen to me? Good to know. By the way, you realize that finance is much larger than active money management? Or, is that not in the books?

No. They should not listen to you. They should listen to Burton Malkiel. David Swensen. Eugene Fama and certified financial planners approved by Dimensional Fund Advisors.

And Charles Ellis. And the quotes from Ellis I just made. This is pretty simple stuff. Markets to up and future returns are lower. Markets go down and future returns are higher. Buy an entire stock market index and add to it regularly for your 60 years of investing (assuming you live until you are 80) and you will beat every single wall street "expert" in existence. And, of course, you will do better if you happen to CHEER market drops and buy more on the way down - and DECRY new market highs which mean every penny invested at that time will end up being your worst performing investment over your lifetime.

But they most certainly should NOT listen to you. That's clear from your posts on this thread. You make fun of the 100 or so books I've read on investing - but it's pretty clear that you have read none of them.

I'll take my track record. But really don't care if a dolt believes me. Your posts talk for themselves.

There is great deal wrong with aggressive stupidity, and it is very unrewarding to try and discuss anything with an individual such as yourself - life is too short.

Here is wishing you success and happiness.

100% invested in stocks ... my reference to a total stock market fund was to make the simplistic point - irrefutable point - that index funds beat actively managed funds hands down. And that there is nobody in history who has been able to successfully time the market.

So index funds are the only way to invest. And appropriate asset allocation is the single most important determinant of return over a long period of time.

And that the second most important determinant of return are fees. The more you pay the lower your returns. Index funds win for that basic reason. Vanguard's total stock market fund can be held while paying 5 basis points per year. No stock picker is going to beat that over time.

The last thing is luck. When you are born. What the returns are like during your 40-60 years of investing. And are you investing during market highs or market lows.

Today - for example - one of the worst times to be investing in the stock market. SCHILLER PE is over 27. It's only been there three other times. I'll let you guess when those three times have been. This is a great market for those who are already retired and living off of their portfolio - because the growth has been great for them.

For everyone else (i.e. those of us still accumulating assets), these prices suck. Future returns for money invested now are miserable - by definition. It is only when the market falls (and regression to the mean requires that it will fall), that investors will be able to once again have hopes for high future returns from the stock market.

Worse, right now the bond market is at an all time low. So there aren't really a lot of good alternatives. But, I digress. The real point is that the OP talked about HIGH PRICES being good and LOW PRICES being bad. The truth is that is a misunderstanding of basic investing principles. It is a true statement for those who have already retired and are SELLING to live off their assets. But it is a FALSE statement for the rest of us who are still BUYING.

But - again - my time here isn't being spent for you. For you, I leave you to go ahead and put your money into stocks now. Perfect time for YOU to invest. But for the rest of BBI, read the academic literature. Understand that high markets should NOT make you happy. LOW MARKETS should make you happy and are the time to invest.