Author Topic: Signs of a Downturn in Stocks  (Read 19397 times)

dividendman

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Re: Signs of a Downturn in Stocks
« Reply #50 on: September 13, 2016, 03:41:24 PM »
S&P 500 at 2500 by end of year

LordSquidworth

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Re: Signs of a Downturn in Stocks
« Reply #51 on: September 13, 2016, 06:01:05 PM »
It's coming, this bull run has been unnaturally long. It's part of the market cycle. The sky won't fall for ever but all bull markets must end, only to be reborn soon after the bear departs. Cash will be king beforehand and those who can stomach it knowing it doesn't last forever will be the ones to profit.

** personally cashed out of market early this year to provide funds for two new businesses, not because the sky might fall. Funds will be returned to an equities account start of summer 2017 along with a sizable flow of new funds from the businesses. Will wait for lower valuations to put it back in equities because it will start with a lump sum and we are too far into a bull cycle. This could be tomorrow, next month, next year, in two years. Nobody really knows. Statistically though it's more close than far. In the mean time the funds were better utilized in a business in real estate and another in the fastest growing industry in America.

What if the market goes up 20% in two years and then drops by 25% and you buy in thinking you did a great job, but lost out on dividends, all the while inflation ate away as well? Is that a win for you? Technically, you lost money on that particular deal. That's why market timing is looked down on.

Inflation is insignificant right now.

Dividends are a part of total return and one shouldn't separate them out like you are.

The probability of a > 25% drop are high.

- The FED will be extremely hamstringed due to their lack of action the last couple years. They have to raise rates and still continue to stand there and do nothing. The next recession they won't have the ability to lower interest rates like they typically do. There won't be any brakes to put on the drain.

- The US won't be the only one in the above situation. Many Western European nations will also be short on cards to play.

- The high probability of China being the epicenter will have a large shockwave around the world. It's natural in maturing economies, except China is so big.

- Due to the prolonged low interest rate environment, investors have inflated some historically rather stable investments by a great degree chasing yield. The example in my last post here regarding XOM is a prime example. XOM should be somewhere in the $3X.00 range. It's a staple stock held by a lot of mutual funds, index funds, retirees... etc etc. It might go up another 20%, 30%, 40% whatever. Post next recession, FED raises rates like they are supposed to... XOM doesn't return to todays valuation and reverts to it's historical one.
     
            - You're focused on returns over a couple years, that is fine. When it comes to investing in something with a decade + time horizon price is more       important. An expensive asset is an expensive asset. You'll make more over that decade + time horizon as long as you buy it at a good price, based off valuations of the actual company itself.

The world made a decent recovery after 2008, though government inaction continues to plague it. Had governments reacted better interest rates would be higher and everybody would be back in a position to deal with the next recession.

But...

Nobody is and it's coming. We're at 8+ years of the bull cycle and it naturally has to end. It's already overdue in terms of average lengths of bull markets.

Ever since Greenspan lost his spine when the FED went from a respectable independent institution to a political football who makes decisions based on appeasing peoples feelings instead of what really needs to be done, the trend for recessions is that they get increasingly... volatile... With central banks around the world not reloading their hand and maintaining the low interest rates, we're in unchartered territory.

Monkey Uncle

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Re: Signs of a Downturn in Stocks
« Reply #52 on: September 14, 2016, 04:41:50 AM »
The world made a decent recovery after 2008, though government inaction continues to plague it. Had governments reacted better interest rates would be higher and everybody would be back in a position to deal with the next recession.

But...

Nobody is and it's coming. We're at 8+ years of the bull cycle and it naturally has to end. It's already overdue in terms of average lengths of bull markets.

Ever since Greenspan lost his spine when the FED went from a respectable independent institution to a political football who makes decisions based on appeasing peoples feelings instead of what really needs to be done, the trend for recessions is that they get increasingly... volatile... With central banks around the world not reloading their hand and maintaining the low interest rates, we're in unchartered territory.

The last secular bull market lasted over 17 years (Aug 1982 - Jan 2000), so no, the current bull cycle doesn't naturally have to end just because we're 8 years into it.  It will end when market participants judge that the earnings growth is no longer there to support it.  As I noted above, it already ended for US small caps and many non-US markets.  The earnings slowdown in those markets was more than the market participants could stomach.  Will the current earnings slow-down in US large caps sink the bull?  Maybe, maybe not.  Is the earnings slow-down just a soft patch or the precursor to the next recession?  Who knows?

As to your comments about the FED, if they had started raising rates back in 2010 or 2011, the next recession would have happened then, and the FED would have been just as ill-prepared to deal with it then as they are now.  Although they do have their backs against the wall should growth turn down from here, it makes no sense to say they should have raised rates back when the economy was way too fragile to handle it.  You act as if they could have magically raised rates without cratering the economy and suddenly everything would have been back to normal.  The economic data simply haven't supported a case for raising rates.

LordSquidworth

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Re: Signs of a Downturn in Stocks
« Reply #53 on: September 14, 2016, 04:53:48 AM »
Guess you missed the 90/91 recession.

2010 and 2011 were a while back. Almost a whole 5 years after that.

Monkey Uncle

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Re: Signs of a Downturn in Stocks
« Reply #54 on: September 15, 2016, 04:39:03 AM »
Guess you missed the 90/91 recession.

2010 and 2011 were a while back. Almost a whole 5 years after that.

Yes, brief cyclical downturns have occurred during most long-term bull markets.  But the party was just getting started in the early 90's.

And during that 5 years since 2011, the inflation and employment data simply have not indicated that rates should be raised.  You raise rates when the economy needs to be cooled off.  It didn't need to be cooled off.  Had the FED raised rates at any point along the way, they almost certainly would have thrown the economy into recession.  I certainly see your point about the FED being caught without any ammunition if the economy turns down from here, but it's not like they could have done anything differently.


DavidAnnArbor

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Re: Signs of a Downturn in Stocks
« Reply #55 on: September 15, 2016, 06:34:30 AM »

And during that 5 years since 2011, the inflation and employment data simply have not indicated that rates should be raised.  You raise rates when the economy needs to be cooled off.  It didn't need to be cooled off.  Had the FED raised rates at any point along the way, they almost certainly would have thrown the economy into recession.  I certainly see your point about the FED being caught without any ammunition if the economy turns down from here, but it's not like they could have done anything differently.

I agree.
The responsibility at this point for boosting the economy lies with the Republican controlled Congress who refuse to do anything, though the bond market is begging the Federal government to borrow more money. A boost in infrastructure spending , science research, child care, etc. would go a long way toward GDP growth, productivity, and bringing inflation toward a normal level which would facilitate the Fed to raise interest rates.

tyleriam

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Re: Signs of a Downturn in Stocks
« Reply #56 on: September 15, 2016, 09:15:07 AM »
OP here.

Maybe I am just 'sky is falling'...I thought everyone would more or less agree stocks are over valued, guess not.  I am all in on the low cost, index investing/MMM strategy and intend to continue on that path with the vast majority of my retirement funds.

At the same time I can't help but to feel that this economy and country is not in the same position it has been in the past.  I don't feel like we recovered from 2008 at a base level.  I think a lot of the baby boomers who are making decisions are in denial about the fundamental changes that have taken place since 2008.

Oh well.  Just my thoughts.  I was just curious if anyone had any predictors of a drop.  If I had to make my best guess it would be deflation.  Read up on the grocery business right now.  They are screaming about deflation and it does not seem like anyone listening.

Tyson

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Re: Signs of a Downturn in Stocks
« Reply #57 on: September 15, 2016, 09:19:44 AM »
OP here.

Maybe I am just 'sky is falling'...I thought everyone would more or less agree stocks are over valued, guess not.  I am all in on the low cost, index investing/MMM strategy and intend to continue on that path with the vast majority of my retirement funds.

At the same time I can't help but to feel that this economy and country is not in the same position it has been in the past.  I don't feel like we recovered from 2008 at a base level.  I think a lot of the baby boomers who are making decisions are in denial about the fundamental changes that have taken place since 2008.

Oh well.  Just my thoughts.  I was just curious if anyone had any predictors of a drop.  If I had to make my best guess it would be deflation.  Read up on the grocery business right now.  They are screaming about deflation and it does not seem like anyone listening.

So if a downturn was coming, what would you do?

tyleriam

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Re: Signs of a Downturn in Stocks
« Reply #58 on: September 15, 2016, 10:00:18 AM »
OP here.

Maybe I am just 'sky is falling'...I thought everyone would more or less agree stocks are over valued, guess not.  I am all in on the low cost, index investing/MMM strategy and intend to continue on that path with the vast majority of my retirement funds.

At the same time I can't help but to feel that this economy and country is not in the same position it has been in the past.  I don't feel like we recovered from 2008 at a base level.  I think a lot of the baby boomers who are making decisions are in denial about the fundamental changes that have taken place since 2008.

Oh well.  Just my thoughts.  I was just curious if anyone had any predictors of a drop.  If I had to make my best guess it would be deflation.  Read up on the grocery business right now.  They are screaming about deflation and it does not seem like anyone listening.

So if a downturn was coming, what would you do?

If I felt confident a 2008 level, or close to it, decline was coming I would seriously consider moving my 401k into the cash account earning 2% interest and buy back in after everything had been hammered.  That or I would take some outside retirement funds and place some bets with options.  Note I said bets, not investments.

Yes I could easily be wrong, yes the market could continue to rise and I miss out on it.  At the same time I could accelerate my freedom by a decade or more.  Risk is risk and I would be willing to take some risk to have a chance at having freedom while my son in still in my house.  As it is I have no path to have any freedom while he is young.

I know everyone here likes to chant the MMM mantra's but at the same time I work in an an industry with a lot of bright, ultra wealthy people.  I see them take risk consistently and build massive, generational wealth from it.  Not only in our primary business but just for fun in side bets.  I recently watched a couple guys place a $40,000 bet on the Brexit and make more than I would need to FIRE in 24 hours.  Yes they could have just as easily lost $40K but they would just do it again and again, they do it all the time.  They win some they loose some but they make sure the bets are weighted in their favor and the winners pay for a LOT of losers.

Slow and steady is the way to go but it's not the only way.  Plenty of people take risk and are rewarded handsomely for it. 
« Last Edit: September 15, 2016, 10:05:33 AM by tyleriam »

Telecaster

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Re: Signs of a Downturn in Stocks
« Reply #59 on: September 15, 2016, 10:02:48 AM »
OP here.

Maybe I am just 'sky is falling'...I thought everyone would more or less agree stocks are over valued, guess not.

I agree more or less that stocks are overvalued.  I disagree that implies a drop will necessarily follow.  It makes sense to me that higher than average valuations imply lower than average future returns.   That could express itself in the form of some future drop or it could be because of slow rates of price growth.  Both have happened in the past.   Unless you are in the withdrawal phase it doesn't much matter which happens.   And even then it doesn't much matter. 

dragoncar

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Re: Signs of a Downturn in Stocks
« Reply #60 on: September 15, 2016, 11:43:13 AM »
OP here.

Maybe I am just 'sky is falling'...I thought everyone would more or less agree stocks are over valued, guess not.  I am all in on the low cost, index investing/MMM strategy and intend to continue on that path with the vast majority of my retirement funds.

At the same time I can't help but to feel that this economy and country is not in the same position it has been in the past.  I don't feel like we recovered from 2008 at a base level.  I think a lot of the baby boomers who are making decisions are in denial about the fundamental changes that have taken place since 2008.

Oh well.  Just my thoughts.  I was just curious if anyone had any predictors of a drop.  If I had to make my best guess it would be deflation.  Read up on the grocery business right now.  They are screaming about deflation and it does not seem like anyone listening.

So if a downturn was coming, what would you do?

If I felt confident a 2008 level, or close to it, decline was coming I would seriously consider moving my 401k into the cash account earning 2% interest and buy back in after everything had been hammered.  That or I would take some outside retirement funds and place some bets with options.  Note I said bets, not investments.

Yes I could easily be wrong, yes the market could continue to rise and I miss out on it.  At the same time I could accelerate my freedom by a decade or more.  Risk is risk and I would be willing to take some risk to have a chance at having freedom while my son in still in my house.  As it is I have no path to have any freedom while he is young.

I know everyone here likes to chant the MMM mantra's but at the same time I work in an an industry with a lot of bright, ultra wealthy people.  I see them take risk consistently and build massive, generational wealth from it.  Not only in our primary business but just for fun in side bets.  I recently watched a couple guys place a $40,000 bet on the Brexit and make more than I would need to FIRE in 24 hours.  Yes they could have just as easily lost $40K but they would just do it again and again, they do it all the time.  They win some they loose some but they make sure the bets are weighted in their favor and the winners pay for a LOT of losers.

Slow and steady is the way to go but it's not the only way.  Plenty of people take risk and are rewarded handsomely for it.

What did you do in 2008 and how did it work out?

Tyson

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Re: Signs of a Downturn in Stocks
« Reply #61 on: September 15, 2016, 01:10:13 PM »

If I felt confident a 2008 level, or close to it, decline was coming I would seriously consider moving my 401k into the cash account earning 2% interest and buy back in after everything had been hammered.  That or I would take some outside retirement funds and place some bets with options.  Note I said bets, not investments.

Yes I could easily be wrong, yes the market could continue to rise and I miss out on it.  At the same time I could accelerate my freedom by a decade or more.  Risk is risk and I would be willing to take some risk to have a chance at having freedom while my son in still in my house.  As it is I have no path to have any freedom while he is young.

I know everyone here likes to chant the MMM mantra's but at the same time I work in an an industry with a lot of bright, ultra wealthy people.  I see them take risk consistently and build massive, generational wealth from it.  Not only in our primary business but just for fun in side bets.  I recently watched a couple guys place a $40,000 bet on the Brexit and make more than I would need to FIRE in 24 hours.  Yes they could have just as easily lost $40K but they would just do it again and again, they do it all the time.  They win some they loose some but they make sure the bets are weighted in their favor and the winners pay for a LOT of losers.

Slow and steady is the way to go but it's not the only way.  Plenty of people take risk and are rewarded handsomely for it.

Why would you only take your money out of the market?  Why not short everything and 'really' cash in?

tyleriam

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Re: Signs of a Downturn in Stocks
« Reply #62 on: September 15, 2016, 02:44:59 PM »
OP here.

Maybe I am just 'sky is falling'...I thought everyone would more or less agree stocks are over valued, guess not.  I am all in on the low cost, index investing/MMM strategy and intend to continue on that path with the vast majority of my retirement funds.

At the same time I can't help but to feel that this economy and country is not in the same position it has been in the past.  I don't feel like we recovered from 2008 at a base level.  I think a lot of the baby boomers who are making decisions are in denial about the fundamental changes that have taken place since 2008.

Oh well.  Just my thoughts.  I was just curious if anyone had any predictors of a drop.  If I had to make my best guess it would be deflation.  Read up on the grocery business right now.  They are screaming about deflation and it does not seem like anyone listening.

So if a downturn was coming, what would you do?

If I felt confident a 2008 level, or close to it, decline was coming I would seriously consider moving my 401k into the cash account earning 2% interest and buy back in after everything had been hammered.  That or I would take some outside retirement funds and place some bets with options.  Note I said bets, not investments.

Yes I could easily be wrong, yes the market could continue to rise and I miss out on it.  At the same time I could accelerate my freedom by a decade or more.  Risk is risk and I would be willing to take some risk to have a chance at having freedom while my son in still in my house.  As it is I have no path to have any freedom while he is young.

I know everyone here likes to chant the MMM mantra's but at the same time I work in an an industry with a lot of bright, ultra wealthy people.  I see them take risk consistently and build massive, generational wealth from it.  Not only in our primary business but just for fun in side bets.  I recently watched a couple guys place a $40,000 bet on the Brexit and make more than I would need to FIRE in 24 hours.  Yes they could have just as easily lost $40K but they would just do it again and again, they do it all the time.  They win some they loose some but they make sure the bets are weighted in their favor and the winners pay for a LOT of losers.

Slow and steady is the way to go but it's not the only way.  Plenty of people take risk and are rewarded handsomely for it.

What did you do in 2008 and how did it work out?

In 2008 I was minimally saving (auto investing in 401k) and spending everything else I earned.  I did not have a MMM mindset whatsoever.  I was more concerned with my next consumer purchase than investing.

Some of the folks I work with shorted bank stocks and loaded up on everything else near the bottom.  They own all the finest things in life, children have trust funds, own multiple businesses, you name it.  These guys also have more passive, normal retirement funds for the get rich slow path...but that is not the only hand they play.

tyleriam

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Re: Signs of a Downturn in Stocks
« Reply #63 on: September 15, 2016, 02:51:54 PM »

If I felt confident a 2008 level, or close to it, decline was coming I would seriously consider moving my 401k into the cash account earning 2% interest and buy back in after everything had been hammered.  That or I would take some outside retirement funds and place some bets with options.  Note I said bets, not investments.

Yes I could easily be wrong, yes the market could continue to rise and I miss out on it.  At the same time I could accelerate my freedom by a decade or more.  Risk is risk and I would be willing to take some risk to have a chance at having freedom while my son in still in my house.  As it is I have no path to have any freedom while he is young.

I know everyone here likes to chant the MMM mantra's but at the same time I work in an an industry with a lot of bright, ultra wealthy people.  I see them take risk consistently and build massive, generational wealth from it.  Not only in our primary business but just for fun in side bets.  I recently watched a couple guys place a $40,000 bet on the Brexit and make more than I would need to FIRE in 24 hours.  Yes they could have just as easily lost $40K but they would just do it again and again, they do it all the time.  They win some they loose some but they make sure the bets are weighted in their favor and the winners pay for a LOT of losers.

Slow and steady is the way to go but it's not the only way.  Plenty of people take risk and are rewarded handsomely for it.

Why would you only take your money out of the market?  Why not short everything and 'really' cash in?

I wouldn't short the market but I would consider buying puts on whatever I thought was going to decline.  That's what these guys I am talking about did on the Brexit.  They bought puts on European bank stocks.  In 24 hours they made enough to FIRE on while risking $40K.

So the question becomes, if there was another Brexit event, something with basically 50-50 odds.  Would you be willing to bet $40K - 50% chance you lose it all, 50% chance you wake up the next morning and are FIRE.

Retire-Canada

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Re: Signs of a Downturn in Stocks
« Reply #64 on: September 16, 2016, 01:44:05 PM »
So the question becomes, if there was another Brexit event, something with basically 50-50 odds.  Would you be willing to bet $40K - 50% chance you lose it all, 50% chance you wake up the next morning and are FIRE.

So say I need $1M to FIRE if you want to give me a 1:25 payoff for $40K on a 50/50 bet I'll take it...maybe even twice. ;) That is as they say "Too good to be true."

Show me the math behind your Brexit investment that adds up to this ^^^ or something close.

tyleriam

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Re: Signs of a Downturn in Stocks
« Reply #65 on: September 16, 2016, 03:57:26 PM »
So the question becomes, if there was another Brexit event, something with basically 50-50 odds.  Would you be willing to bet $40K - 50% chance you lose it all, 50% chance you wake up the next morning and are FIRE.

So say I need $1M to FIRE if you want to give me a 1:25 payoff for $40K on a 50/50 bet I'll take it...maybe even twice. ;) That is as they say "Too good to be true."

Show me the math behind your Brexit investment that adds up to this ^^^ or something close.

I don't need a million to retire and I already have some of it so that concept of FIRE in one day was applicable to me.

The math as it was explained to me was $40,000 in puts on a few European banks.  If the value fell 10% they stood to make $350K.  As I understand it they closed the position when the values were down at or near 20%.  I do not know where they ended up but I know it was a lot more than the initial estimate.

Later I saw this on reddit.  This is not who I am talking about, I don't know this guy or if this is true.

https://www.quora.com/What-does-it-feel-like-to-be-secretly-rich/answers/24560786

Retire-Canada

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Re: Signs of a Downturn in Stocks
« Reply #66 on: September 16, 2016, 05:15:33 PM »
I don't need a million to retire and I already have some of it so that concept of FIRE in one day was applicable to me.

The math as it was explained to me was $40,000 in puts on a few European banks.  If the value fell 10% they stood to make $350K.  As I understand it they closed the position when the values were down at or near 20%.  I do not know where they ended up but I know it was a lot more than the initial estimate.

Later I saw this on reddit.  This is not who I am talking about, I don't know this guy or if this is true.

https://www.quora.com/What-does-it-feel-like-to-be-secretly-rich/answers/24560786

10,000 euros to 2.2M euros is even better. That's 1:220 pay off. So you think that was a 50/50 bet? I'd love to hear how that works. So far we have your claim and a claim by a guy on Reddit. Neither provides any clear explanation of how to convert a 50/50 bet into the million needed to FIRE.

My own guess is that it's not a 50/50 bet. So your strawman argument gets a lot less attractive when it's a 1:25 pay off for 1:25 odds of winning. It's easy to look back at something and say "Ya it could have gone either way 50 - 50." When it was not possible to do so the day before it happened. A binary event like Brexit doesn't translate to equal odds of occurring neither does the post-event conditions that get you your high ratio pay off.

Monkey Uncle

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Re: Signs of a Downturn in Stocks
« Reply #67 on: September 16, 2016, 07:02:58 PM »
As I recall, most of the political pundits were predicting the UK would vote to stay.  So those who bet on Brexit were betting against the odds.  Hence the high payoff (although I have no idea if the numbers being thrown around here are accurate).  Basically, those who bet on Brexit got extremely lucky.

ulrichw

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Re: Signs of a Downturn in Stocks
« Reply #68 on: September 16, 2016, 07:37:55 PM »
[...] I work in an an industry with a lot of bright, ultra wealthy people.  I see them take risk consistently and build massive, generational wealth from it.  Not only in our primary business but just for fun in side bets.  I recently watched a couple guys place a $40,000 bet on the Brexit and make more than I would need to FIRE in 24 hours.  Yes they could have just as easily lost $40K but they would just do it again and again, they do it all the time.  They win some they loose some but they make sure the bets are weighted in their favor and the winners pay for a LOT of losers. [...]
I suspect there's heavy confirmation and selection bias that goes into this statement.

The confirmation bias is your desire to want this to be true, so you see/remember the examples that support your hypothesis, but not the examples that don't.

The selection bias is on the part of the people who made the bet - people who win bets are usually vocal about it - people who lose bets tend to be quiet about it. This means that an outsider sees much more of the results of wins vs. losses.

In order to win when you're gambling, you need an "edge". In general, in gambling games (the options market qualifies) with large participation, the edges people have are not large.

If they bet the way you say ("the wins pay for a LOT of losses") they're betting on long shots. I can virtually guarantee that even though the wins pay for a lot of losses, if they "do this all the time", the have more losses than the wins pay for.

Compulsive gamblers think this way - the celebrations you probably witnessed are what keep them going. They discount the value of the losses, and don't track their long-term ROI because they live for the high they get from a big win. It's particularly wins like the one you describe that they thrive on - the long shot that shows they got something right that "everyone else" got wrong.

Slow and steady is the way to go but it's not the only way.  Plenty of people take risk and are rewarded handsomely for it.
Yes - it's better to be lucky than to be smart or good - however, casinos make money on this kind of thinking. If you want to get lucky, make a small number of bets - if you lose them, stop. If you win, stop.

The casinos know few people will do that - they just go back over, and over, and over again until they lose. Eventually all of the money will end up with the house.

My suggestion is - set aside some play money if you feel tempted to act on your urges. Promise yourself you'll never spend any money outside of this account on your gambling. See how you do. If you get lucky a few times, you may be able to make your dreams come true.

If you're unlucky - you'll still have the "slow and steady" strategy to fall back on.

BTW: Asking for and following somebody's opinion on a public forum of when to place a bet in a "partial information" game like options sounds like an inherently flawed strategy. You need to get information that no one else has to build your "edge."

tyleriam

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Re: Signs of a Downturn in Stocks
« Reply #69 on: September 17, 2016, 06:59:01 AM »
[...] I work in an an industry with a lot of bright, ultra wealthy people.  I see them take risk consistently and build massive, generational wealth from it.  Not only in our primary business but just for fun in side bets.  I recently watched a couple guys place a $40,000 bet on the Brexit and make more than I would need to FIRE in 24 hours.  Yes they could have just as easily lost $40K but they would just do it again and again, they do it all the time.  They win some they loose some but they make sure the bets are weighted in their favor and the winners pay for a LOT of losers. [...]
I suspect there's heavy confirmation and selection bias that goes into this statement.

The confirmation bias is your desire to want this to be true, so you see/remember the examples that support your hypothesis, but not the examples that don't.

The selection bias is on the part of the people who made the bet - people who win bets are usually vocal about it - people who lose bets tend to be quiet about it. This means that an outsider sees much more of the results of wins vs. losses.

In order to win when you're gambling, you need an "edge". In general, in gambling games (the options market qualifies) with large participation, the edges people have are not large.

If they bet the way you say ("the wins pay for a LOT of losses") they're betting on long shots. I can virtually guarantee that even though the wins pay for a lot of losses, if they "do this all the time", the have more losses than the wins pay for.

Compulsive gamblers think this way - the celebrations you probably witnessed are what keep them going. They discount the value of the losses, and don't track their long-term ROI because they live for the high they get from a big win. It's particularly wins like the one you describe that they thrive on - the long shot that shows they got something right that "everyone else" got wrong.

Slow and steady is the way to go but it's not the only way.  Plenty of people take risk and are rewarded handsomely for it.
Yes - it's better to be lucky than to be smart or good - however, casinos make money on this kind of thinking. If you want to get lucky, make a small number of bets - if you lose them, stop. If you win, stop.

The casinos know few people will do that - they just go back over, and over, and over again until they lose. Eventually all of the money will end up with the house.

My suggestion is - set aside some play money if you feel tempted to act on your urges. Promise yourself you'll never spend any money outside of this account on your gambling. See how you do. If you get lucky a few times, you may be able to make your dreams come true.

If you're unlucky - you'll still have the "slow and steady" strategy to fall back on.

BTW: Asking for and following somebody's opinion on a public forum of when to place a bet in a "partial information" game like options sounds like an inherently flawed strategy. You need to get information that no one else has to build your "edge."

That is a very logical post and I think there is truth in everything you said.  Your strategy is exactly what I plan to do.  Also next time these guys are betting on something I am going to offer to go in.  I guess that trade chaps mybass because I could have easily got in on it.

The pundits were saying it wouldn't happen but the polling was around 52-48 with a error of +/- 2 or 3 as I remember.  These guys saw that as 50-50 odds essentially.

As I remember it the puts were about $1.00 so I believe they bought 40,000 puts and therefore would have gotten 40,000 x the drop in value of the stocks the outs were on.  IE if the stock dropped $9 when they exercised they would get 9x40,000 - $360k.

dragoncar

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Re: Signs of a Downturn in Stocks
« Reply #70 on: September 17, 2016, 12:58:16 PM »

The pundits were saying it wouldn't happen but the polling was around 52-48 with a error of +/- 2 or 3 as I remember.  These guys saw that as 50-50 odds essentially.


52-48 +/- 2 is not anywhere near 50/50 odds because it's a binary decision, and the markets likely reflected this.  I'm no statistician, but I think you have to integrate over the possibilities.  Something like:

+2 = 54-46 = stay
+1 = 53-47 = stay
+0 = 52-48 = stay
-1 = 51-49 = stay
-2 = 50-50 = exit (I'll assume it tips in favor of exit just for illustration purposes)

So assuming the error bands are equally likely, it's really an 80% change of stay.  But that doesn't consider all the fractional error possibilities either.  I'd guess based on the math it was higher than 80% objective chance of stay.

Of course, if you have information nobody else does -- for example, you have access to better polls that nobody else is considering, you can take advantage in the market

thd7t

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Re: Signs of a Downturn in Stocks
« Reply #71 on: September 18, 2016, 07:18:59 AM »

The pundits were saying it wouldn't happen but the polling was around 52-48 with a error of +/- 2 or 3 as I remember.  These guys saw that as 50-50 odds essentially.


52-48 +/- 2 is not anywhere near 50/50 odds because it's a binary decision, and the markets likely reflected this.  I'm no statistician, but I think you have to integrate over the possibilities.  Something like:

+2 = 54-46 = stay
+1 = 53-47 = stay
+0 = 52-48 = stay
-1 = 51-49 = stay
-2 = 50-50 = exit (I'll assume it tips in favor of exit just for illustration purposes)

So assuming the error bands are equally likely, it's really an 80% change of stay.  But that doesn't consider all the fractional error possibilities either.  I'd guess based on the math it was higher than 80% objective chance of stay.

Of course, if you have information nobody else does -- for example, you have access to better polls that nobody else is considering, you can take advantage in the market
This is even more complicated than that. Polling error is applied to each answer, so it's integrated between 48%+/-3% and 52%+/-3%. Leading to larger possible swings than are initially apparent.

Kaspian

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Re: Signs of a Downturn in Stocks
« Reply #72 on: September 19, 2016, 09:38:45 AM »
At the same time I can't help but to feel that this economy and country is not in the same position it has been in the past.  I don't feel like we recovered from 2008 at a base level.  I think a lot of the baby boomers who are making decisions are in denial about the fundamental changes that have taken place since 2008.

"Feelings" have absolutely no business in investing.  It's a trap.  Math and economy don't care about your feelings.

tyleriam

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Re: Signs of a Downturn in Stocks
« Reply #73 on: September 19, 2016, 10:37:17 AM »
At the same time I can't help but to feel that this economy and country is not in the same position it has been in the past.  I don't feel like we recovered from 2008 at a base level.  I think a lot of the baby boomers who are making decisions are in denial about the fundamental changes that have taken place since 2008.

"Feelings" have absolutely no business in investing.  It's a trap.  Math and economy don't care about your feelings.

I am an INTJ personality type so my "feelings" have a lot to do with how I process information.  I do a lot of concrete research and then ultimately develop feelings for how things are.  I do believe feelings have everything to do with everything in life though.  Why do people work hard?  They want the feeling of achievement, the feeling of having lots of money, the feeling of fulfillment, or they don't want to feel hungry, scared, etc.  A lot of individuals feeling one way or the other add up to how the economy reacts.  I also believe the stock market is VERY emotional.

If it was all just math someone could figure it out, write a program and beat it every time.

F

Jack

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Re: Signs of a Downturn in Stocks
« Reply #74 on: September 19, 2016, 11:10:29 AM »
I am an INTJ personality type so my "feelings" have a lot to do with how I process information.

The T in "INTJ" stands for "Thinking." "Feeling" would be INFJ.

If it was all just math someone could figure it out, write a program and beat it every time.

Not necessarily. Besides, even if modeling the economy were a decidable problem, it's entirely possible for it to be complex enough to be intractible (i.e., impossible to compute the solution given the time and space constraints of the universe), or even simply difficult enough to figure out that nobody's managed it yet.

dragoncar

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Re: Signs of a Downturn in Stocks
« Reply #75 on: September 19, 2016, 01:02:29 PM »
I am an INTJ personality type so my "feelings" have a lot to do with how I process information.

The T in "INTJ" stands for "Thinking." "Feeling" would be INFJ.


That's what you think, but I personally feel that the T stands for "feeling"



Edit: seriously, I think he meant that he uses iNtuition
« Last Edit: September 19, 2016, 01:04:40 PM by dragoncar »

Kaspian

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Re: Signs of a Downturn in Stocks
« Reply #76 on: September 19, 2016, 07:58:20 PM »

If it was all just math someone could figure it out, write a program and beat it every time.


That's the thing--a program which automatically buys a specific asset allocation of index funds like clockwork on every paycheck, rebalances on a set schedule, and doesn't let you mess around with it DOES beat the feeling, emotional investor.  It is math.  People are better off getting their emotional jollies anywhere other than their portfolios.

tyleriam

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Re: Signs of a Downturn in Stocks
« Reply #77 on: September 20, 2016, 08:57:18 AM »
Yes I was relating intuition to feelings as being similar not math based approached.

I agree for long term investing with low risk index funds automatically and unemotionally balanced is a great approach for retirement investing. 

However that is not the only way to make money.  In fact most people I know that are wealthy without a doubt did not build their wealth that way.

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Re: Signs of a Downturn in Stocks
« Reply #78 on: September 20, 2016, 11:07:41 AM »
Guess you missed the 90/91 recession.

2010 and 2011 were a while back. Almost a whole 5 years after that.

Yes, brief cyclical downturns have occurred during most long-term bull markets.  But the party was just getting started in the early 90's.

And during that 5 years since 2011, the inflation and employment data simply have not indicated that rates should be raised.  You raise rates when the economy needs to be cooled off.  It didn't need to be cooled off.  Had the FED raised rates at any point along the way, they almost certainly would have thrown the economy into recession.  I certainly see your point about the FED being caught without any ammunition if the economy turns down from here, but it's not like they could have done anything differently.

Being in charge of the FED must be the easiest job ever! I've hardly every seen, in real life or on the internet, any one who doesn't have an absolute, firm opinion how the FED should act. Usually nothing like what they actually do. All these people could do a much better job. The people there now are just PhDs and and they can't figure it out! Sigh, if Yellen would just ask the yahoo commenters she would have her answer.

My favorite must be that the FED is "meddling" in the market, and it's "artificial". What does that even mean? What is a "natural" interest rate? Either the FED drive it down or up, there's no "unmeddled" situation. And how could the government have no affect on the market. Does that mean zero government spending? Has that ever happened?

Kaspian

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Re: Signs of a Downturn in Stocks
« Reply #79 on: September 20, 2016, 12:59:55 PM »
My favorite must be that the FED is "meddling" in the market, and it's "artificial". What does that even mean? What is a "natural" interest rate? Either the FED drive it down or up, there's no "unmeddled" situation. And how could the government have no affect on the market. Does that mean zero government spending? Has that ever happened?

Hahaha... This is a great point!  Sort of like ordering a burger but asking the cook not to "meddle" with it.  What does that even mean?  Raw hamburger on a plate?  It has to be meddled with to even work in the first place.  To not meddle the FED has to just shut its doors.  Then what?  Outside of taking backroom loans from one of the Sopranos does an interest rate even exist?

dividendman

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Re: Signs of a Downturn in Stocks
« Reply #80 on: September 20, 2016, 01:29:33 PM »
My favorite must be that the FED is "meddling" in the market, and it's "artificial". What does that even mean? What is a "natural" interest rate? Either the FED drive it down or up, there's no "unmeddled" situation. And how could the government have no affect on the market. Does that mean zero government spending? Has that ever happened?

Hahaha... This is a great point!  Sort of like ordering a burger but asking the cook not to "meddle" with it.  What does that even mean?  Raw hamburger on a plate?  It has to be meddled with to even work in the first place.  To not meddle the FED has to just shut its doors.  Then what?  Outside of taking backroom loans from one of the Sopranos does an interest rate even exist?

I think a natural interest rate means what would be an interest rate without a federal reserve at all. That is, what would people charge each other for loans in a free market? What would banks charge each other for overnight loans if there was no fed window to use? That is the natural rate.

Scandium

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Re: Signs of a Downturn in Stocks
« Reply #81 on: September 20, 2016, 01:38:34 PM »
My favorite must be that the FED is "meddling" in the market, and it's "artificial". What does that even mean? What is a "natural" interest rate? Either the FED drive it down or up, there's no "unmeddled" situation. And how could the government have no affect on the market. Does that mean zero government spending? Has that ever happened?

Hahaha... This is a great point!  Sort of like ordering a burger but asking the cook not to "meddle" with it.  What does that even mean?  Raw hamburger on a plate?  It has to be meddled with to even work in the first place.  To not meddle the FED has to just shut its doors.  Then what?  Outside of taking backroom loans from one of the Sopranos does an interest rate even exist?

I think a natural interest rate means what would be an interest rate without a federal reserve at all. That is, what would people charge each other for loans in a free market? What would banks charge each other for overnight loans if there was no fed window to use? That is the natural rate.

And people want this? When was the last time this was used, how that that work out? A modern, complicated, interconnected market without fed backstop or lender of last resort...? Yikes..

dividendman

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Re: Signs of a Downturn in Stocks
« Reply #82 on: September 20, 2016, 01:44:17 PM »
And people want this? When was the last time this was used, how that that work out? A modern, complicated, interconnected market without fed backstop or lender of last resort...? Yikes..

I don't know if people want this. I was simply answering the question from above: "What is a 'natural' interest rate?"

Scandium

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Re: Signs of a Downturn in Stocks
« Reply #83 on: September 20, 2016, 01:48:30 PM »
And people want this? When was the last time this was used, how that that work out? A modern, complicated, interconnected market without fed backstop or lender of last resort...? Yikes..

I don't know if people want this. I was simply answering the question from above: "What is a 'natural' interest rate?"

Understood.
Guess this was directed at the crowd I hear complaining about "market meddling" by the fed. Not many of those here though. Seems to be common in the Ron Paul/gold hording/anti-fiat currency crowd. Like the Trader Joes flyer; the argument appear be that natural=better, without much reasoning why.

dividendman

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Re: Signs of a Downturn in Stocks
« Reply #84 on: September 20, 2016, 01:54:55 PM »
Understood.
Guess this was directed at the crowd I hear complaining about "market meddling" by the fed. Not many of those here though. Seems to be common in the Ron Paul/gold hording/anti-fiat currency crowd. Like the Trader Joes flyer; the argument appear be that natural=better, without much reasoning why.

Yeah, who knows. Reminds me of an Alfred Newman quote for some reason: "We live in a world where lemonade is made from artificial flavor and furniture polish is made from real lemons."

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Re: Signs of a Downturn in Stocks
« Reply #85 on: September 21, 2016, 04:37:44 AM »
Guess you missed the 90/91 recession.

2010 and 2011 were a while back. Almost a whole 5 years after that.

Yes, brief cyclical downturns have occurred during most long-term bull markets.  But the party was just getting started in the early 90's.

And during that 5 years since 2011, the inflation and employment data simply have not indicated that rates should be raised.  You raise rates when the economy needs to be cooled off.  It didn't need to be cooled off.  Had the FED raised rates at any point along the way, they almost certainly would have thrown the economy into recession.  I certainly see your point about the FED being caught without any ammunition if the economy turns down from here, but it's not like they could have done anything differently.

Being in charge of the FED must be the easiest job ever! I've hardly every seen, in real life or on the internet, any one who doesn't have an absolute, firm opinion how the FED should act. Usually nothing like what they actually do. All these people could do a much better job. The people there now are just PhDs and and they can't figure it out! Sigh, if Yellen would just ask the yahoo commenters she would have her answer.

My favorite must be that the FED is "meddling" in the market, and it's "artificial". What does that even mean? What is a "natural" interest rate? Either the FED drive it down or up, there's no "unmeddled" situation. And how could the government have no affect on the market. Does that mean zero government spending? Has that ever happened?

Um, did you notice that I was actually defending the FED's actions?

Scandium

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Re: Signs of a Downturn in Stocks
« Reply #86 on: September 21, 2016, 05:15:48 AM »
Guess you missed the 90/91 recession.

2010 and 2011 were a while back. Almost a whole 5 years after that.

Yes, brief cyclical downturns have occurred during most long-term bull markets.  But the party was just getting started in the early 90's.

And during that 5 years since 2011, the inflation and employment data simply have not indicated that rates should be raised.  You raise rates when the economy needs to be cooled off.  It didn't need to be cooled off.  Had the FED raised rates at any point along the way, they almost certainly would have thrown the economy into recession.  I certainly see your point about the FED being caught without any ammunition if the economy turns down from here, but it's not like they could have done anything differently.

Being in charge of the FED must be the easiest job ever! I've hardly every seen, in real life or on the internet, any one who doesn't have an absolute, firm opinion how the FED should act. Usually nothing like what they actually do. All these people could do a much better job. The people there now are just PhDs and and they can't figure it out! Sigh, if Yellen would just ask the yahoo commenters she would have her answer.

My favorite must be that the FED is "meddling" in the market, and it's "artificial". What does that even mean? What is a "natural" interest rate? Either the FED drive it down or up, there's no "unmeddled" situation. And how could the government have no affect on the market. Does that mean zero government spending? Has that ever happened?

Um, did you notice that I was actually defending the FED's actions?
Yes I agreed with you. It wasn't directed at you

Sent from my Nexus 5X using Tapatalk


nobodyspecial

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Re: Signs of a Downturn in Stocks
« Reply #87 on: September 21, 2016, 07:06:34 AM »
Why can't the market set interest rates?

There is already quite a spread around the FED rate between what the government pays on treasury bonds and what your credit card charges so why not let the market set all of them?

The supposed purpose of the fed is to control the growth of the economy and their only tool is exchange rates but this doesn't see to work anymore at current low rates. In fact the whole idea that the Fed can or should control US economy sounds a bit like a Soviet era collective farming plan and is about as effective.

Tyson

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Re: Signs of a Downturn in Stocks
« Reply #88 on: September 21, 2016, 08:46:59 AM »
Why can't the market set interest rates?

There is already quite a spread around the FED rate between what the government pays on treasury bonds and what your credit card charges so why not let the market set all of them?

The supposed purpose of the fed is to control the growth of the economy and their only tool is exchange rates but this doesn't see to work anymore at current low rates. In fact the whole idea that the Fed can or should control US economy sounds a bit like a Soviet era collective farming plan and is about as effective.

Wow, you can look at the explosive growth of the past century (when the Fed was in charge) and say that it wasn't effective?  Wow, just wow.

nobodyspecial

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Re: Signs of a Downturn in Stocks
« Reply #89 on: September 21, 2016, 09:37:41 AM »
Why can't the market set interest rates?

There is already quite a spread around the FED rate between what the government pays on treasury bonds and what your credit card charges so why not let the market set all of them?

The supposed purpose of the fed is to control the growth of the economy and their only tool is exchange rates but this doesn't see to work anymore at current low rates. In fact the whole idea that the Fed can or should control US economy sounds a bit like a Soviet era collective farming plan and is about as effective.

Wow, you can look at the explosive growth of the past century (when the Fed was in charge) and say that it wasn't effective?  Wow, just wow.
Look at the explosive growth in US industrialization in the century before the Fed!

I don't think even the Fed believes that the Fed controlled the US economy in the C20

Scandium

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Re: Signs of a Downturn in Stocks
« Reply #90 on: September 21, 2016, 09:46:04 AM »
Why can't the market set interest rates?

There is already quite a spread around the FED rate between what the government pays on treasury bonds and what your credit card charges so why not let the market set all of them?

The supposed purpose of the fed is to control the growth of the economy and their only tool is exchange rates but this doesn't see to work anymore at current low rates. In fact the whole idea that the Fed can or should control US economy sounds a bit like a Soviet era collective farming plan and is about as effective.

The market should set the overnight rate the Fed pays banks? Since it's the Fed holding the money I think it's fair they set this rate. After all couldn't banks just not place their money there if they don't like that rate? (I'm no economist so maybe that would cause issues with cap requirements. Could they hold that in gold or piles of bills in their own vaults instead? I don't see how the fed would have an issues with that, but what do I know)

You made me want to read up on the stated purpose of the Fed. But I do know that the crises of the 1800s and early 1900s look pretty bad compared to what we've had since, with a lender of last resort and banking "control", soviet or not.. 2008 was bad, steep drop but lasted how long? Compared to great depression that lasted almost a decade

nobodyspecial

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Re: Signs of a Downturn in Stocks
« Reply #91 on: September 21, 2016, 10:12:14 AM »
The fed was necessary as a lender of last resort in the 1920s to avoid having to rely on Mr Rothschild and chums in a smoky room.
But that was before banking insurance, before massive international banking flows and an economy where very little of the nations wealth is held in bank account. It was also an era of gold standard and fixed international exchange rates.

In 2008 the Fed wasn't the backstop to the financial meltdown, the government was - unless somebody is planning on giving Prof Yellen the power to spend several $Tn without congressional approval.  Most of the stimulus spending responsible for the recovery wasn't directed at financial institutions, I don't think the founders of the Fed would envisage it having to make the call about which car makers or steel mills to bail out.

With current interest rates the direct relationship between borrowing and growth is gone. No factory owner is sitting there thinking - I would love to build a new $Bn plant but I just can't risk it at 0.5%, if only the fed cut to 0.25% I would employ 100,000 more people.
The only real effect of Fed rate changes is to send a political message about whether consumers should believe things are getting better or worse - and you cant help feeling a superbowl commercial would be cheaper and more effective.

If the Fed believed that there was a real fiscal link then instead of this game of Kremlin watching and guessing about the significance of commas leading upto a quarterly meeting - change the rate daily by a few basis points in response to real market data and let the rate float like the currency.




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Re: Signs of a Downturn in Stocks
« Reply #92 on: September 21, 2016, 10:34:45 AM »
The supposed purpose of the fed is to control the growth of the economy and their only tool is exchange rates but this doesn't see to work anymore at current low rates. In fact the whole idea that the Fed can or should control US economy sounds a bit like a Soviet era collective farming plan and is about as effective.

Boy, talk about glass half empty!   

We are now in the 86th month of continuous economic expansion---the longest in the history of the country. 

Inflation is almost non-existent, which is great!

Unemployment is below 5%, which is great!

Real wages are up for every income quintile. 

And our economy has been doing better for long than virtually any other first world country (waves at Europe)

At some point, you can't be greedy.  You just have to accept that things are pretty well. 







nobodyspecial

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Re: Signs of a Downturn in Stocks
« Reply #93 on: September 21, 2016, 11:03:10 AM »
Boy, talk about glass half empty!   

We are now in the 86th month of continuous economic expansion---the longest in the history of the country. 

Inflation is almost non-existent, which is great!

Unemployment is below 5%, which is great!

Real wages are up for every income quintile. 

And our economy has been doing better for long than virtually any other first world country (waves at Europe)

At some point, you can't be greedy.  You just have to accept that things are pretty well.
And all that is only due to the fed interest rate?
In which case why couldn't the fed have done this at any other point in history by simply making interest rates = 0.5%?
Did it get better when they doubled rates form 0.25% in december, would it get even better if they doubled them again next week ?
 

Tyson

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Re: Signs of a Downturn in Stocks
« Reply #94 on: September 21, 2016, 11:10:00 AM »
Boy, talk about glass half empty!   

We are now in the 86th month of continuous economic expansion---the longest in the history of the country. 

Inflation is almost non-existent, which is great!

Unemployment is below 5%, which is great!

Real wages are up for every income quintile. 

And our economy has been doing better for long than virtually any other first world country (waves at Europe)

At some point, you can't be greedy.  You just have to accept that things are pretty well.
And all that is only due to the fed interest rate?
In which case why couldn't the fed have done this at any other point in history by simply making interest rates = 0.5%?
Did it get better when they doubled rates form 0.25% in december, would it get even better if they doubled them again next week ?

Haha, so if things go badly, it's the fault of the Fed, but if things go well, then the Fed doesn't get credit - is that pretty much your stance here?

nobodyspecial

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Re: Signs of a Downturn in Stocks
« Reply #95 on: September 21, 2016, 11:30:18 AM »
Haha, so if things go badly, it's the fault of the Fed, but if things go well, then the Fed doesn't get credit - is that pretty much your stance here?
No my stance is that the Fed has a mandate to control several conflicting economic factors and only a single rather crude lever (interest rates) to do this with. At the current rates this lever has very little real fiscal effect and so the result is that the economy is moved  by people's guesses of what other people's prediction say about what the fed might do in the future. This isn't just the Fed, it's the same for central banks the world over.

The rather more interesting question (which might be better in the libertarian thread) is whether the government has any business fixing the interest rate than it has setting the SP500 or the price of bread.





 
 
« Last Edit: September 21, 2016, 11:39:33 AM by nobodyspecial »

Tyson

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Re: Signs of a Downturn in Stocks
« Reply #96 on: September 21, 2016, 11:33:16 AM »
Sigh, a libertarian.  I should have guessed.  Pointless to try to talk to you people, so I'm checking out.

Jack

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Re: Signs of a Downturn in Stocks
« Reply #97 on: September 21, 2016, 11:37:36 AM »
The only real effect of Fed rate changes is to send a political message about whether consumers should believe things are getting better or worse - and you cant help feeling a superbowl commercial would be cheaper and more effective.

I'm not sure I buy that. If that were the case, wouldn't raising rates also cause an increase in consumer spending and stock prices (exactly opposite to its actual effect)?

nobodyspecial

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Re: Signs of a Downturn in Stocks
« Reply #98 on: September 21, 2016, 11:49:34 AM »
The only real effect of Fed rate changes is to send a political message about whether consumers should believe things are getting better or worse - and you cant help feeling a superbowl commercial would be cheaper and more effective.

I'm not sure I buy that. If that were the case, wouldn't raising rates also cause an increase in consumer spending and stock prices (exactly opposite to its actual effect)?
I think that is the reason for so much deliberation at the Fed. If it was a simple relationship they could replace them with a spreadsheet.

Economics101 says when you cut rates, businesses borrow and expand, your currency weakens and  exports boom, mortgage payments drop and people go on a mad spending spree on their new cheap credit cards.
The problem is that at around 0% this simple relationship doesn't hold.

Nobody thinks the Fed raised rates last december to reign in over-expansion in industry or rampant consumer spending to prevent inflation. It was at best an attempt to start the process of getting back to a point where interest rate changes have some effect but mostly an attempt to convince people to go out and spend. They are in the ironic position where DECREASING interest rates lead to lower consumer spending because people think it means things are going to get worse. Unfortunately not enough people were convinced by the raise.

ps. Not a libertarian - I'm Canadian (that's why I can't spell).
pps. We now export central bank chairmen as well as Hockey Players


       
« Last Edit: September 21, 2016, 11:58:17 AM by nobodyspecial »