economy

[JohnRoberts]

Ha ha. I hear you But I don't see his statement and action as being mutually exclusive. I don't think that Mr Buffet (or Mr Gates for that matter) would really care how much tax they have to pay. As you say, most of their dough is parked in charitable foundations already anyway, which is high-level tax avoidance strategy (see Mr Zuckerberg). And I also don't really believe that these people care any more whether up-and-coming richies can or actually do catch up with them. That's not what drives them in the first place. But maybe I'm wrong 

Imagine their response if the government decided to pierce their foundation's shelter to forcibly transfer their wealth to others?

The super rich are beyond being motivated by simple income. They tend to be more charitable than the general population so we need to figure out how to make more of them. 

The characterization that the rich are greedy and/or evil seems more applicable to dictators (Maduro, Castro,  and Kim Jung Un are all eating much better than their impoverished people)..

JR

[edit- that said I've know some merely wealthy who were tighter than a steel drum... /edit]

 

[Gustav]

The super rich are beyond being motivated by simple income. They tend to be more charitable than the general population.

I'd be really interested in getting a source on those conclusions.

Gustav

 

[JohnRoberts]

I'd be really interested in getting a source on those conclusions.

Gustav

My observation was based on anecdotal stories, not statistics.  Many poor people tithe 10% of their income while some wealthy may only give 1% (even though that 1% is more money than a poor persons 10%).

I'm sure somebody will provide the research to prove me wrong... :-X

JR

PS: Speaking about economics is anybody besides me concerned about the low trading volatility as the market keeps climbing a wall of "not worried"?  A lot of new money is coming into passive index funds instead of actively managed mutual funds. So stocks are being bought just because they are in the exchanges, not vetted by individual buy/sell trading decisions. The handle on index funds may not be large enough to affect efficient pricing but at some point it could....  or not... The next black swan will not announce itself.   

 

[dmp]

The super rich are beyond being motivated by simple income. They tend to be more charitable than the general population so we need to figure out how to make more of them. 

I'd be really interested in getting a source on those conclusions.

Like a lot of stuff posted in the brewery...

The super rich are like horders with a house full of stuff but without the social stigma.  ;D
My opinion, fwiw.

 

[dmp]

PS: Speaking about economics is anybody besides me concerned about the low trading volatility as the market keeps climbing a wall of "not worried"?  A lot of new money is coming into passive index funds instead of actively managed mutual funds. So stocks are being bought just because they are in the exchanges, not vetted by individual buy/sell trading decisions. The handle on index funds may not be large enough to affect efficient pricing but at some point it could....  or not... The next black swan will not announce itself. 

There are a lot of people cautious right now. The last time the volatility was this low for so long was right before a previous correction (2007).
In addition to this, the price to earnings of the market is on the high end right now, compared to historical levels. The inverse, earnings to price, is more illuminating, as it indicates how the earnings on equities compares to bonds.  For a P/E of 25, the e/p is 4%. While bonds are 2.4%

http://www.multpl.com/shiller-pe/

Of course past performance does not dictate the future. Historically, the market reverts to the mean, but it could be a few years or it could be tomorrow. It is imo, inevitable that the p/e will decrease if interest rates rise.

I wonder if there is another correction how the central banks will respond?

 

[JohnRoberts]

I'm not as worried about macro trends as funny business...

High speed traders are not making the big profits they used to (a good thing).

Many hedge funds are not beating the market like they promise... (perhaps a good thing).

It looks like a lot of traders are using the same algorithms so trades are getting crowded, and like I mentioned too much money in index funds could diminish price discovery...

Or not...  The market can stay irrational longer than traders can stay liquid... so you can be 100% correct and still lose your shirt waiting for the market to normalize.

Only thing I know is that I don't know... probably sitting in too much cash, but I sleep OK.

JR

 

[dmp]

Last I read index funds are about 10% of the market currently. It is a hypothesis that as more money goes into index funds, the market will lose 'direction', but I don't think we are there yet.
I do think there are a lot of people hoping to get out before the collapse AND there is a lot of margin debt riding the wave...  which will make it more painful if it does pop.
There's probably 10% baked in now just on the premise of a Trump tax cut.
But I wouldn't have a clue when it comes to predicting where the market will be in the future. But in the big picture it has always trended up (the difference between investing and gambling)

 

[JohnRoberts]

Last I read index funds are about 10% of the market currently. It is a hypothesis that as more money goes into index funds, the market will lose 'direction', but I don't think we are there yet.

Agreed,, and it doesn't seem like the market would ever be dominated by non-directed money.. but who knows?

I do think there are a lot of people hoping to get out before the collapse

?? The market fundamentals are far more solid that last time it was this high (dot.com bubble).  I don't know about "collapse", but many like me are waiting for a correction. It seems like a long time since we had a proper correction... lots of near corrections that were nipped before fully running the course. I suspect this too may be related to trading algorithms that identify any developing corrections as an opportunity to buy low.

AND there is a lot of margin debt riding the wave...  which will make it more painful if it does pop.

about $0.5T, so half the student loan or car loan exposure. And only a couple percent of the total market . That said using leverage to increase returns can also increase downside so will be more painful for those investors.

There's probably 10% baked in now just on the premise of a Trump tax cut.

and regulation roll back, and offshore earnings repatriation, and infrastructure spending (while I'm not sure we need stimulus with employment markets tightening up.)

But I wouldn't have a clue when it comes to predicting where the market will be in the future. But in the big picture it has always trended up (the difference between investing and gambling)

It always goes up in the long term but short term is the question. The older I get the more important this short term behavior (to me).

JR

 

[Script]

The super rich [...] tend to be more charitable than the general population so we need to figure out how to make more of them. 

Well, the following is not proof of anything

Acccording to the data on the following website (data are very old, US census from 1987 to 1998), we could just as well do the exact opposite and impoverish more people to a yearly income of less than 10K (our politskis haven't tried that yet ) , as those people tend to donate the highest percentage of household income. So logically, the more they are, the higher the amount in total dollars.  :-X 

Moreover, those people should preferrably be white and aged 75+. Oh, and we really need to explain to them that they have to give to other than religious causes  :

http://www.allcountries.org/uscensus/638_charity_contributions_average_dollar_amount_and.html

I'd agree that we need to figure out a way how to make more 'super rich' and 'insanely rich' donate even more than they already do  :-* One way would be to threaten them with taxes  ;D. simply because I also agree that many would rather donate it (question of choice what to support) than hand it over to the state. But I'm not sure we first need to create more 'super rich' to achieve that.

Better to give tax relief to the middle class and exemptions to low incomers. Basically what Trump wants to do. However, he hasn't given any clues on how to finance the ensuing state deficit in the long run... ... sure, he didn't buy the new presidential jet plane  8)... but that alone won't cut it...

 

[Script]

I don't know about "collapse", but many like me are waiting for a correction. It seems like a long time since we had a proper correction... lots of near corrections that were nipped before fully running the course.

Proper correction? You mean Fibonacci retracement (20100 or 18000)? Or full crash?

We have seen a few retracements over the last couple of years (up to 10% and more; Fibonacci of 30%) in Europe. Apart from that we seem to have just entered a period of long-term rise (see Dow Jones 1900 until today). Add to that still ongoing QE. Also add statistical market performance in presidential years and post-election years, and maybe the 'magic' of years with a 7 as last digit -- this last point being purely statistical, if at all, and rather akin to reading tea leaves.

Economic prospects and data in the US are less optimistic than in EU. Massive influx of money in the EU. But might already be waning.

Some US stocks have already retraced by 10%. I usually watch for MA256 for longer term investment and MA20 to 60 for very short term.

I suspect this too may be related to trading algorithms that identify any developing corrections as an opportunity to buy low.

Very likely. Add massive amounts of cash in the hands of institutional investors due to QE. But also add behaviour of central banks to regulate or rather counterbalance market developments rather than accellerate them (shift in paradigm). At least in Europe.

[...] and regulation roll back, and offshore earnings repatriation, and infrastructure spending

Yes, but repatriation most probably a one-off only.

It always goes up in the long term but short term is the question. The older I get the more important this short term behavior (to me).

I expect a major dip in the second half of this year. Purely coffee ground reading

 

[JohnRoberts]

Proper correction? You mean Fibonacci retracement (20100 or 18000)? Or full crash?

generally we want to see 20% dip to declare a correction...  we have seen several in the 10%+ range which makes me suspicious some trading algorithms are countering the market trends (not sure if this is good or bad, probably bad). 

We have seen a few retracements over the last couple of years (up to 10% and more; Fibonacci of 30%) in Europe. Apart from that we seem to have just entered a period of long-term rise (see Dow Jones 1900 until today). Add to that still ongoing QE. Also add statistical market performance in presidential years and post-election years, and maybe the 'magic' of years with a 7 as last digit -- this last point being purely statistical, if at all, and rather akin to reading tea leaves.

Economic prospects and data in the US are less optimistic than in EU. Massive influx of money in the EU. But might already be waning.

Some US stocks have already retraced by 10%. I usually watch for MA256 for longer term investment and MA20 to 60 for very short term.
Very likely. Add massive amounts of cash in the hands of institutional investors due to QE. But also add behaviour of central banks to regulate or rather counterbalance market developments rather than accellerate them (shift in paradigm). At least in Europe.
Yes, but repatriation most probably a one-off only.

The problem with making repatriation one time only, (like the last one time only repatriation), is that companies will continue hoarding capital offshore afterwards. We need to fix the underlying mechanism, tax policy that distorts this behavior, incentivizing companies to not invest these earnings domestically.

I expect a major dip in the second half of this year. Purely coffee ground reading

I am sitting in a little too much cash, waiting for a buying opportunity, so I guess I am predicting a dip too.  No idea when...

JR

 

[Script]

FED allegedly says they intend to cut down slowly but steadily on their portfolio, starting later this year, with volume adjusted to economic situation / outlook. Process will take three to four years, they poject, and never be back to pre-2008 level of 800(?), actually substantially higher. (Charles Evans, Dublin).

ECB allegedly says they intend on announcing in July a possible trajectory for very slowly cutting down on QE, maybe starting in autumn. (Not confirmed).

Hm... Looks like they (or the media?) think there is enough (too much) money in the system and they want to row back / slow down. But then again, we tend to read such news when markets go up / have gone up, and we read the opposite when markets go down / have gone down (halfway down), change of paradigm.

It's not just algorithms, it's also a lot of central bank-spewn psychology. I suspect them wanting to prevent a major correction because of the panic it might cause (Oh God, 1929 is back!) at any cost (pun intended). There's way too much fear-inducing news coverage going on.

 

[dmp]

Proper correction? You mean Fibonacci retracement (20100 or 18000)? Or full crash?

We have seen a few retracements over the last couple of years (up to 10% and more; Fibonacci of 30%) in Europe. Apart from that we seem to have just entered a period of long-term rise (see Dow Jones 1900 until today). Add to that still ongoing QE. Also add statistical market performance in presidential years and post-election years, and maybe the 'magic' of years with a 7 as last digit -- this last point being purely statistical, if at all, and rather akin to reading tea leaves.

A correction is a decline of at least 10% and a bear market is a decline of 20%. 
I don't know if it will come in weeks or years or decades, but I think it is safe to say that a correction and a collapse (>20%) will occur again at some point.  Debt is the big longterm risk. Market gains in the US have been strongly correlated with QE. The idea that it can be unwound without a corresponding correlation (negative) is hard to believe.
There was a lot of inflows to equities at the Nov election by people who disliked Obama and thought Trump would be a boom for business. 'soft' data was positive. 'hard' data has been less positive (i.e, 1st qtr gdp). This 'emotional' money people put into the market that led to a +10% increase in valuations (P/E) and I expect is going to have the professional investors less likely to keep buying and may lead to a correction.

I don't buy into the statistical analysis of markets but I do find it interesting though (Fibonocci levels).  In my Grad research I looked into a Fibonocci pattern in turbulence - fascinating stuff.

Momentum for instance has been shown to be a real effect on stock increases, but as the algorithms are all tuned into the same thing, at some point the advantage disappears. And as JR said, they appear to have been buying any dip for the last year to prevent any significant corrections. But they are also looking at many other factors that will affect future earnings (GDP indicators, etc). If things start to look bad for 2nd quarter GDP they might  switch from buy to sell.  Who knows?

The idea of third party thinking (not how I value an asset, but how I think other people value the asset) is what drives crazy speculation. As does thinking in hind sight only - trying to jump on the high gaining stock regardless of the actual value of the asset. And then once everyone is jumping on in a sense less way (ala dot com bubble), we know what happens.

I suspect them wanting to prevent a major correction because of the panic it might cause

Major corrections lead to layoffs, people losing their houses, etc... so the idea of preventing major corrections seems to make sense from a 'greater good' analysis. The job market loses from the great recession took almost 7 years to recover.
Unfortunately there are people who profit greatly on boom-bust cycles. There also is argument that it is necessary for the long term health of a vibrant free market. During busts the weakest companies are destroyed etc... but I'm skeptical of that.

 

[JohnRoberts]

A correction is a decline of at least 10% and a bear market is a decline of 20%. 

yes, my bad...

I don't know if it will come in weeks or years or decades, but I think it is safe to say that a correction and a collapse (>20%) will occur again at some point. 

always does, bull markets and bear markets don't last forever.

Debt is the big longterm risk. Market gains in the US have been strongly correlated with QE. The idea that it can be unwound without a corresponding correlation (negative) is hard to believe.

yes intentional attempt to promote wealth affect, by inflating assets (mostly homes, but stocks went along for the ride)  to keep people spending.

There was a lot of inflows to equities at the Nov election by people who disliked Obama and thought Trump would be a boom for business. 'soft' data was positive. 'hard' data has been less positive (i.e, 1st qtr gdp). This 'emotional' money people put into the market that led to a +10% increase in valuations (P/E) and I expect is going to have the professional investors less likely to keep buying and may lead to a correction.

??

I don't buy into the statistical analysis of markets but I do find it interesting though (Fibonocci levels).  In my Grad research I looked into a Fibonocci pattern in turbulence - fascinating stuff.

I read at least one book on "technical analysis" (statistical analysis?) years ago..  this is a very old discipline (thousands of years old, as long as merchants have traded goods and wanted to predict future prices). It does not trump fundamental analysis, but can confirm what the mass market thinks at any point in time...

Momentum for instance has been shown to be a real effect on stock increases, but as the algorithms are all tuned into the same thing, at some point the advantage disappears.

hedge funds have been having trouble beating markets lately. This is probably good but who knows (not me).

And as JR said, they appear to have been buying any dip for the last year to prevent any significant corrections. But they are also looking at many other factors that will affect future earnings (GDP indicators, etc). If things start to look bad for 2nd quarter GDP they might  switch from buy to sell.  Who knows?

yes market is always discounting based on future expectations. It appears that the future looks better to many. George Soros shorted the market after trump won and lost a cool $1B before covering his shorts late last year. It is probably bad to invest based on pure personal politics (just ask George), while a pro business anti-regulation agenda seems like a positive for business and markets.

The idea of third party thinking (not how I value an asset, but how I think other people value the asset) is what drives crazy speculation. As does thinking in hind sight only - trying to jump on the high gaining stock regardless of the actual value of the asset. And then once everyone is jumping on in a sense less way (ala dot com bubble), we know what happens.

short term trading is always based on speculation about what other people think a stock is worth. Long term investing is about intrinsic future value of a company and it's management's ability to grow that value over time.

Major corrections lead to layoffs, people losing their houses, etc... so the idea of preventing major corrections seems to make sense from a 'greater good' analysis.

Huh? The stock price has little to do with operating the business... In the extreme it may get the CEO fired, but not the workers. There is an indirect affect in a company's ability to raise working capital for expansion via selling more stock (secondary offerings). This would affect future growth not current employment levels.

The job market loses from the great recession took almost 7 years to recover.

A recession is related to GDP growth, not stock market prices. Business earnings will follow the health of the economy and stock prices are factored from corporate earnings so they are related but different things..

Unfortunately there are people who profit greatly on boom-bust cycles. There also is argument that it is necessary for the long term health of a vibrant free market. During busts the weakest companies are destroyed etc... but I'm skeptical of that.

Dead wood theory.... Keeping the weak companies alive, does not help long term economic growth. Better to let them fail and be replaced by new companies, with new ideas, and faster growth.

JR

 

[dmp]

??

Look up ETF inflows. If I recall correctly $$ inflows in Nov were more than in the previous entire year. It is conjecture that this was from people that had a negative view of the economy under a Dem and thought a Republican would be a godsend. Not sure what your question was about. Hard data vs soft data?

Huh? The stock price has little to do with operating the business...

Well, it's the chicken and the egg - the same thing really. boom-bust cycles in the economy (which stocks follow/anticipate) leads to unemployment, etc...

Dead wood theory.... Keeping the weak companies alive, does not help long term economic growth.

Oversimplification. I disagree because in the details, the 'bust' cycle doesn't really weed out dead wood. For example, I co-founded an engineering company in 2003 - we had hired two employees by 2007, had next year projects in the proposal stage to double revenue and hire a couple more when the recession hit. We were working with multiple companies that cut outside spending immediately so we dissolved our company. Now did this cut out deadwood? I do basically the same thing I did then, but in a different form. The economy lost millions of jobs and GDP had a serious hit due to the bust cycle.  My experience in industry and the economy doesn't support the justification of boom-bust. It actually helps consolidation and reduction of competition. The 'true' justification is that people in positions of power see the bust cycle as a way to profit. 

 

[JohnRoberts]

Look up ETF inflows. If I recall correctly $$ inflows in Nov were more than in the previous entire year. It is conjecture that this was from people that had a negative view of the economy under a Dem and thought a Republican would be a godsend. Not sure what your question was about. Hard data vs soft data?

I don't follow money flows, but i hear it mentioned in passing. Generally dumb money coming into the market is a negative or contrary indicator because they are routinely late to the party.

No matter my low regard for President Obama the stock market prospered under him thanks to easy money policy, I rode it hard... If anything I have less money in the market now than anytime for the last several years... I did rotate into banks who I expect to benefit from rising interest rates, and companies like ups and fedex who should benefit from internet shopping trends. Other than that I could use some good ideas.

Well, it's the chicken and the egg - the same thing really. boom-bust cycles in the economy (which stocks follow/anticipate) leads to unemployment, etc...

Stock market is a marker for the economy.. the central bankers try to manage the economy... You can't manage the economy by managing stock prices, while stock prices rising were a secondary consequence of trying to manufacture "wealth effect" with asset inflation.

[edit- thinking about this some more there is a case where a company's falling stock price can lead to layoffs. For a mature corporation the easiest way to get a short term boost to earnings is to lay off workers. If those same workers were productive and creating more revenue than they cost the layoffs will lead to reduced earning in the future, but in the short term a better earnings number. If the falling stock price is based on reduced estimates of future economic activity the reduced workforce may be appropriate. So it's a little complicated. [/edit]

Oversimplification.

agreed...

I disagree because in the details, the 'bust' cycle doesn't really weed out dead wood. For example, I co-founded an engineering company in 2003 - we had hired two employees by 2007, had next year projects in the proposal stage to double revenue and hire a couple more when the recession hit. We were working with multiple companies that cut outside spending immediately so we dissolved our company.

sorry you got caught up in the "great recession". That was more like a 100 year flood than a normal business cycle...  The normal business cycles weeding out a few weak sisters is IMO healthy, like pruning a tree.  What happened in 2007-8 was not remotely healthy for anybody. Before the housing collapse the entire economy was over stimulated by too easy credit.

Now did this cut out deadwood? I do basically the same thing I did then, but in a different form. The economy lost millions of jobs and GDP had a serious hit due to the bust cycle. 

I do not claim anything good about 2007-8...

My experience in industry and the economy doesn't support the justification of boom-bust. It actually helps consolidation and reduction of competition. The 'true' justification is that people in positions of power see the bust cycle as a way to profit.

I started my current business in 2005 and didn't see a huge impact from 2007 economic contraction, but probably because I sell a niche product and wouldn't lay off my one employee...

I wound down my kit business in 1985 because automation and offshore manufacturing trashed my business plan (just ask Heathkit).

What doesn't kill us makes us stronger, unless it cripples us.

Good luck and I hope you start up another business... life it too short to tolerate bosses. (or business partners).

JR

 

[Script]

Other than that I could use some good ideas.

Don't have. But just as you do, I look at fundamentals, read business news and turn to the oracle of chart formation. All very time-consuming.

Chart-only based investing is gambling on mandalas. I don't believe in the statistical interpretation of markets either. The idea of a 'trend channel' itself, or 'double rebounces' or any other 'indicator' sounds so utterly absurd (cos artificial), but there sure are recurring patterns that can give additional visual confirmation when to buy or sell a stock.

Anyway, experience tells me that algorithms are most likely programmed to also detect and act on chart formations (short and long-term, and the most basic ones are movements within trend channels). And when they do act (such as on 'expansion'), it is often impossible to follow by hand.

I use Fibonocci only to identify how far a stock has gone down, not for identifying upward momentum (algorithms beat you at that in any opening auction). Could jump the train, but only if fundamentally convinced and upward potential is more than a few weeks.

 

[JohnRoberts]

Don't have. But just as you do, I look at fundamentals, read business news and turn to the oracle of chart formation. All very time-consuming.

Chart-only based investing is gambling on mandalas. I don't believe in the statistical interpretation of markets either. The idea of a 'trend channel' itself, or 'double rebounces' or any other 'indicator' sounds so utterly absurd (cos artificial), but there sure are recurring patterns that can give additional visual confirmation when to buy or sell a stock.

Yes I like technical analysis for timing and back up support when buying or selling positions (but usually when buying). it is fairly easy to recognize classic technical patterns but there are no guarantees that they will deliver, just an extra degree of feel good if the point and figure charts predict big upside targets. Looking back at charts can reveal support and resistance levels, again nothing is guaranteed, but suggestive of downside risk.  In my experience when a stock (company) blows up, former support levels are meaningless (fundamentals trump technicals).

Anyway, experience tells me that algorithms are most likely programmed to also detect and act on chart formations (short and long-term, and the most basic ones are movements within trend channels). And when they do act (such as on 'expansion'), it is often impossible to follow by hand.

I use Fibonocci only to identify how far a stock has gone down, not for identifying upward momentum (algorithms beat you at that in any opening auction). Could jump the train, but only if fundamentally convinced and upward potential is more than a few weeks.

I read an article this morning in WSJ claiming that most trading algorithms when inspected more closely do not meet statistical significance.... Shocking I know?  ;D ;D

JR 

 

[Script]

[...] they appear to have been buying any dip for the last year to prevent any significant corrections.

In the US in 2016? Yes, looks like it (Dow Jones). 2016 should have been more turbulent than announced. (It was somehwhat in Europe, cos 2016 coincides roughly with hausse/baisse cycle!? Am I imagining things?).

In January 2015, after a harsher correction in late 2014, the ECB started their QE. Not a coincidence I think. They then expanded the volume several times when markets seemed to flatten, falter, tilt.

That's what I mean: since 2010, they are almost 'directing' the markets with liquidity to prevent dips (fear of crash) at any cost. Or, said negatively, they took any sign of weaknesss as pretext to flood markets further. Algorithms just place that money. And whenever markets went up to quickly in the EU, Mario Draghi the magician press-conferenced that the crisis is not over yet...

Right now the system is still full of massive amounts of non-invested money, but maybe we are moving into a natural upward swing of hausse cycle(?! if those still apply at all). So I guess they think it's about time to slowly but firmly reduce QE, while monitoring markets very closely as before. The US seems the better ground for that, since there are still too many political trapfalls in the EU.  Japan: no signs of rowing back. The UK: keep 'printing'.

Read two articles this week announcing that the economic 'crisis' (2007/08) has finally been overcome. Hm, first time reading that. But 'euphoria' sure looks different (good or bad?). BTW Bitcoins hit a new alltime high with Trump and Macron.

Anyway, good luck to us all, since once unleashed, QE is hard (to impossible, as some say) to tame.

 

[JohnRoberts]

Read two articles this week announcing that the economic 'crisis' (2007/08) has finally been overcome. Hm, first time reading that. But 'euphoria' sure looks different (good or bad?). BTW Bitcoins hit a new alltime high with Trump and Macron.

Anyway, good luck to us all, since once unleashed, QE is hard (to impossible, as some say) to tame.

Saying so doesn't make it so... they are still unwinding the extraordinary aspects of 2007/8 remedy.

Since I am an optimist I choose to be optimistic about this, but like the old saying goes you don't know who isn't wearing trunks until the tide goes out, and we still have economic distortions yet to be revealed, IMO.

I was heartened to read that a review of Fannie and Freddie is going on quietly in congress, but not exciting enough to break out above the team politics noise (talking points) in the news.

yes good luck to the entire world, since we are economically linked together more closely than ever.

JR

PS: There are new alternatives to bitcoin but I still don't trust them, as I watch my (tiny) gold position hover down at a loss years after I bought it (not everything in the market goes up).