Author Topic: Great Rotation in 2015?  (Read 5060 times)

TropicNebraska

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Great Rotation in 2015?
« on: March 26, 2014, 12:18:13 PM »
The general consensus among economists is that the Fed will finish up their mad money printing scheme (QE) and start to raise interest rates by sometime in 2015 (if unemployment figures look good). Any thoughts if QE has blown into a stock bubble ready to pop and crash when people start noticing better returns on bonds and CD's and rotate money out of equities and into fixed income assets?

matchewed

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Re: Great Rotation in 2015?
« Reply #1 on: March 26, 2014, 12:30:00 PM »
My thought is I will still keep investing per my asset allocation. That short term turbulence in the markets due to things outside of my control are a blip in my investment time frame.

But if my armchair financial analytical mood sticks around for the next few seconds I'd venture that CD and bond market returns generally will not compete against equity returns. That yes people will move to them as their returns improve but it won't be a titanic like shift that causes massive disruption in the markets.

And HAHAHAHAHhaahahahhahhahah...heh... economists have a general consensus.

KingCoin

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Re: Great Rotation in 2015?
« Reply #2 on: March 26, 2014, 12:37:13 PM »
While that line of thinking certainly isn't crazy, I'd make the following comments:

1) If the Fed takes rates meaningfully higher, that probably means the economy is continuing to hum along, which is good for equities.
2) Everyone knows that QE tapering is here and rate hikes could be around the corner. This information should be reasonably priced into the market.
3) The Fed is talking about moving short rates +1% in 2015. I'm not sure if that really makes treasuries and bonds wildly more appealing. Will 5yr treasuries at 2.5% instead of 1.5% really cause a mass exodus from the stock market?

msilenus

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Re: Great Rotation in 2015?
« Reply #3 on: March 26, 2014, 02:20:43 PM »
The general consensus among economists is that the Fed will finish up their mad money printing scheme (QE) and start to raise interest rates by sometime in 2015

I don't think this premise is correct.  DeLong, Krugman, and Summers are Economistis, and influential ones at that.  They probably wouldn't agree, so this isn't likely a consensus.  Yellen has a lot in common with them, in terms of thinking, and chairs the Fed.  So they might be a bit more likely to be correct than people who disagree with them on this point.

Look up Summers' secular stagnation hypothesis.  It's getting traction in liberal policy circles, and argues for very low rates for potentially a very long time.  Thinking about employment might also be wrong.  Inflation might be the real trigger.  >= 2% at current targets, but there's some thinking that the current targets might be too low.

End of QE will not necessarily mean a rate hike is imminent.

BTW, economists disagree about whether or not it is a valid role of the Fed to try to pop bubbles.  Yellen is suspicious of the notion, on the grounds that it's hard to identify a bubble with a high degree of confidence.  I mention that because bubble vigilantism is another reason one might think the Fed would want to raise rates.

wickemt

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Re: Great Rotation in 2015?
« Reply #4 on: March 27, 2014, 08:09:41 AM »
The general consensus among economists is that the Fed will finish up their mad money printing scheme (QE) and start to raise interest rates by sometime in 2015

I don't think this premise is correct.  DeLong, Krugman, and Summers are Economistis, and influential ones at that.  They probably wouldn't agree, so this isn't likely a consensus.  Yellen has a lot in common with them, in terms of thinking, and chairs the Fed.  So they might be a bit more likely to be correct than people who disagree with them on this point.


Krugman was an economist, and a good one at that. Then he traded his credibility for a column at the New York Times. Now he spouts whatever the editorial board wants him to spout, even when it conflicts with microeconomics 101.

Nobel prizes should be revocable.


KingCoin

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Re: Great Rotation in 2015?
« Reply #5 on: March 27, 2014, 08:14:28 AM »
The general consensus among economists is that the Fed will finish up their mad money printing scheme (QE) and start to raise interest rates by sometime in 2015

I don't think this premise is correct.  DeLong, Krugman, and Summers are Economistis, and influential ones at that.  They probably wouldn't agree, so this isn't likely a consensus.  Yellen has a lot in common with them, in terms of thinking, and chairs the Fed.  So they might be a bit more likely to be correct than people who disagree with them on this point.


Krugman was an economist, and a good one at that. Then he traded his credibility for a column at the New York Times. Now he spouts whatever the editorial board wants him to spout, even when it conflicts with microeconomics 101.

Nobel prizes should be revocable.

While Krugman's views may be more or less in line with the NYT's, I doubt very much that he's just a sockpuppet. You don't think he believes what he writes?

I'm going to go ahead and assume you're not much a fan of Keynesian economics.

GutsGloryRam

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Re: Great Rotation in 2015?
« Reply #6 on: March 27, 2014, 10:23:24 AM »
If there is a market crash, i would be happy. since i just started investing (i am 30, and thanks to you all who made me realize that its never too late) i should have some bear markets as well. So i will be just keep investing in my vanguard taxable account...If possible might even increase the amount....:-)

nawhite

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Re: Great Rotation in 2015?
« Reply #7 on: March 27, 2014, 03:35:36 PM »
If there is a market crash, i would be happy. since i just started investing (i am 30, and thanks to you all who made me realize that its never too late) i should have some bear markets as well. So i will be just keep investing in my vanguard taxable account...If possible might even increase the amount....:-)

Yeah I could use a crash in 2015 and a rebound in 2017, that sounds pretty good for me. Any takers?

Vjklander

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Re: Great Rotation in 2015?
« Reply #8 on: March 27, 2014, 07:10:47 PM »
Right now, all I recommend is to buy good dividend aristocrats. My basic philosophy is to craft an account that keeps gaining in value but more importantly creates a steady cash flow.  If I didn't have rather substantial holdings in Gold and Silver already, I might consider buying in. I'm trying to learn more about bonds ... may invest there.

horsepoor

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Re: Great Rotation in 2015?
« Reply #9 on: March 27, 2014, 07:25:38 PM »
If there is a market crash, i would be happy. since i just started investing (i am 30, and thanks to you all who made me realize that its never too late) i should have some bear markets as well. So i will be just keep investing in my vanguard taxable account...If possible might even increase the amount....:-)

Yeah I could use a crash in 2015 and a rebound in 2017, that sounds pretty good for me. Any takers?

I should be all positioned to buy, buy, buy in 2015!

dcheesi

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Re: Great Rotation in 2015?
« Reply #10 on: March 28, 2014, 05:22:23 AM »
My thought is I will still keep investing per my asset allocation. That short term turbulence in the markets due to things outside of my control are a blip in my investment time frame.

But if my armchair financial analytical mood sticks around for the next few seconds I'd venture that CD and bond market returns generally will not compete against equity returns. That yes people will move to them as their returns improve but it won't be a titanic like shift that causes massive disruption in the markets.

And HAHAHAHAHhaahahahhahhahah...heh... economists have a general consensus.
I think the key point will be when the safer traditional options start keeping up with the nominal 3-4% inflation number that most folks are familiar with. A lot of risk-averse people are perfectly happy to stuff their money in the proverbial mattress, so long as they don't feel they are actively losing money.

Of course it's hard to say how many of those folks will actually move back their traditional investments now that they've had a taste of the higher returns to be had in stocks, etc.

matchewed

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Re: Great Rotation in 2015?
« Reply #11 on: March 28, 2014, 06:50:21 AM »
My thought is I will still keep investing per my asset allocation. That short term turbulence in the markets due to things outside of my control are a blip in my investment time frame.

But if my armchair financial analytical mood sticks around for the next few seconds I'd venture that CD and bond market returns generally will not compete against equity returns. That yes people will move to them as their returns improve but it won't be a titanic like shift that causes massive disruption in the markets.

And HAHAHAHAHhaahahahhahhahah...heh... economists have a general consensus.
I think the key point will be when the safer traditional options start keeping up with the nominal 3-4% inflation number that most folks are familiar with. A lot of risk-averse people are perfectly happy to stuff their money in the proverbial mattress, so long as they don't feel they are actively losing money.

Of course it's hard to say how many of those folks will actually move back their traditional investments now that they've had a taste of the higher returns to be had in stocks, etc.

Fair enough but that moves outside of the scope of coming up with an asset allocation that you're comfortable with and getting into the feeling portion of investing. Which inevitably leads to mistakes in investing and acting according to events and not according to a plan that you've already outlined for yourself; aka market timing.

I can understand people wanting conservative options for the AA but just like other investment options they have to realize the risks, one of the risks we can demonstrate in today's atmosphere is that they may provide dismal returns. That is not to say don't invest in them but looking out to 2015 and pretending to predict the future and react according to that prediction is probably a bad idea.