Up until mid 2011 it was generally thought that Fed actions such as QE would eventually result in inflation. QE has actually proven to be disinflationary. This explains why gold has fallen and the stock market has been consistently rising.
Slow disinflation is the perfect world for stocks. Interest rates are close to zero and remain there. Low interest rates enable price earnings ratios to rise and low rates make stock yields more valuable.
Disinflation also keeps labor in check which is obviously good for business and stock prices. It also keeps commodity prices from rising, another positive.
Stocks can still go much higher. In this world of 1% five year CD's, solid companies have much higher dividends and many are increasing them yearly. Of the 10 largest market value stocks in America, 8 pay dividends over 2%.
This is likely to continue much longer than most investors expect. QE pushes stocks higher, disinflation continues, the economy continues sluggish, therefore Fed action continues pushing stock prices higher...
<< <i>Up until mid 2011 it was generally thought that Fed actions such as QE would eventually result in inflation. QE has actually proven to be disinflationary. This explains why gold has fallen and the stock market has been consistently rising. >>
While assets have fallen in price because of deflation, QE has not caused deflation. It has in fact slowed deflation and even inflated FED selected asset prices. FED QE is intended to fight deflation, the FED would love nothing more than a bit more inflation. Fortunately however, the FED cannot force banks to lend or force consumers to borrow. Decreasing debt at all levels is the key to rebuilding an economy that became broken because of runaway debt. Velocity of money indicates that personal debt levels are in fact decreasing - consumers borrow to spend and the spending is just not there. Let's hope the trend holds despite what the FED desires from the consumer.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
QE has actually proven to be disinflationary and This is likely to continue much longer than most investors expect.
I agree with both statements.
However, if the world's central bankers cannot come to terms with the fact that mild deflation is not a terrible thing, it is unlikely to have a happy ending.
QE has actually proven to be disinflationary. This explains why gold has fallen and the stock market has been consistently rising.
An amazing conclusion, however misconstrued. By this logic, when the Fed takes away the punch bowl, inflation will ramp up. You might consider that the disinflation is because of the massive hole in banks' balance sheets and mark-to-fantasy accounting methods that are so appreciated by the crony system.
Taxpayers are being stuck with bank losses that are being monetized into new Treasury debt at $85 Billion/month, and the only disinflation going on is because the bank insolvencies are deeper than the $85/Billion a month can correct.
Q: Are You Printing Money? Bernanke: Not Literally
<< <i>QE has actually proven to be disinflationary. This explains why gold has fallen and the stock market has been consistently rising.
An amazing conclusion, however misconstrued. By this logic, when the Fed takes away the punch bowl, inflation will ramp up. You might consider that the disinflation is because of the massive hole in banks' balance sheets and mark-to-fantasy accounting methods that are so appreciated by the crony system.
Taxpayers are being stuck with bank losses that are being monetized into new Treasury debt at $85 Billion/month, and the only disinflation going on is because the bank insolvencies are deeper than the $85/Billion a month can correct. >>
I like this one. Disinflation, stagflation or inflation; which ever one is finally the culprit the end result was created by placing one band-aid over another…for years. There is no vacuum for the Fed to operate in. About the only certainty is who the bag-holders are.
Taxpayers are being stuck with bank losses that are being monetized into new Treasury debt at $85 Billion/month, and the only disinflation going on is because the bank insolvencies are deeper than the $85/Billion a month can correct.
A lot of taxpayers have houses and stock-containing 401k retirement plans and IRAs, both of which are up, some say, due to the QE and ultra low interest rates. How is that "being stuck?" It seems like it's helping them.
after all, it's not like very many of them have gold or silver, which are going down despite the QE.
The irony is, there are people who seem VERY aware that the stock market is going higher by Fed action, yet refuse to participate! in the party while the punchbowl is full!
<< <i>Up until mid 2011 it was generally thought that Fed actions such as QE would eventually result in inflation. QE has actually proven to be disinflationary. This explains why gold has fallen and the stock market has been consistently rising. ____________________________________________________________________________________________________________________
Please show me where prices have fallen. Groceries? Healthcare? Airfare? Autos? Fuel prices are about the same year to year but that is about it. The fed will say though that the computer that cost $5000 a decade ago is now $500. problem is, most of us never bought a $5000 computer. They will also say that if steak prices rise and you now eat chicken, or noodles in the good pilot's case, than the price of steak no longer counts as you are no longer buying it. Pravda and Tass are now our news sources as any real media would challenge the Fed with his corrupted stats.
6-8% annual inflation is my best guess, but hey, I am no Ben Shalom Bernanke.
<< <i>The irony is, there are people who seem VERY aware that the stock market is going higher by Fed action, yet refuse to participate! in the party while the punchbowl is full! >>
Buy high and sell low? No, thanks. Especially when the house is built of cards and could crumble at any time. Risk assessment required.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>QE has actually proven to be disinflationary and This is likely to continue much longer than most investors expect.
I agree with both statements.
However, if the world's central bankers cannot come to terms with the fact that mild deflation is not a terrible thing, it is unlikely to have a happy ending. >>
I dont agree as I think QE simply is not large enough to create inflation. The money the FED is creating is not keeping up with the declining multiplier usually provided by the banks. This would explain Jmski's illiogical statement of ending QE resulting in inflation. IMO, QE has only slowed what could have been a massive deflationary spiral.
However, at some point the banks will have no room to reduce lending and velocity will increase. The FED needs to end QE before this happens, which will be before conditions look rosy.
<< <i>The irony is, there are people who seem VERY aware that the stock market is going higher by Fed action, yet refuse to participate! in the party while the punchbowl is full! >>
Buy high and sell low? No, thanks. Especially when the house is built of cards and could crumble at any time. Risk assessment required. >>
Buy high and sell low? no no no, you should try it the other way around! Much better! No one suggests anyone should start buying stocks at the all time highs..
that would be like.. like.. well, like buying your first precious metals in 2011 and selling them now: silly!
Yes, buy stocks at all time highs. When gold went to new all time highs in 2010, the price rise accelerated and gold doubled in less than 2 years. The Dow Jones Ind Avge just made a new all time high earlier this year.
Disinflation doesn't mean that prices are falling it means that the rate of inflation is decreasing.
Many things are falling in price. Flat screen TV's are an excellent example. I don't think that soft drink prices have risen in years. Car leases are bargains because of low interest rates. How about residential real estate over the last 10 years? Long distance telephone costs continue to fall. Airline fares are lower than in 1960. I was looking yesterday and saw round trips to Moscow for $550. Gap Jeans are the same price as 1978.
<< <i>Yes, buy stocks at all time highs. When gold went to new all time highs in 2010, the price rise accelerated and gold doubled in less than 2 years. The Dow Jones Ind Avge just made a new all time high earlier this year.
Disinflation doesn't mean that prices are falling it means that the rate of inflation is decreasing.
Many things are falling in price. Flat screen TV's are an excellent example. I don't think that soft drink prices have risen in years. Car leases are bargains because of low interest rates. How about residential real estate over the last 10 years? Long distance telephone costs continue to fall. Airline fares are lower than in 1960. I was looking yesterday and saw round trips to Moscow for $550. Gap Jeans are the same price as 1978. >>
You are adjusting your benchmarks to suit your argument. Do you want to consider year to year inflation or 1960 to current or 10 years which would work best on residential real estate?
Food may be the best constant as we are buying and consuming it on a daily basis. Fuel as well. Real estate and technology much less frequently.
I do not buy animal protein, but it seems that any decent cut of beef or type of fish is $10 a pound, plus. Care to guess the prices in 1960? Maybe a Dollar or a buck and a half. Gas was 19 cents or so back then and a fine home in a nice town could be had for about $20,000. That is what my parents paid for a new and nice three bedroom in 1959. Reversing the current Fed inflation policy back to 1960, the cost of air transportation did not count then as few other than the well heeled got on an airplane. At least that is the logic that they use today to downplay soaring food costs stating that if you can no longer afford it, it doesn't count.
Getting back to the original question; I would bet dollars to doughnuts (OK that expression made a lot more sense when doughnuts were 25c each), the NASDAQ will hit 5,000 first. Why you ask, because despite all the bad news (e.g. Gov shutdown and Sequestration), the economy (and by economy I mean global economy) keeps humming along. It's not great, but I can't remember the last time Greece, Spain, Portugal, Cyprus, or Italy were mentioned in the news as possibly defaulting on their sovereign debt. Thus, the US, with its weak currency, is benefiting from the improved global economy, and our high-tech (which drives the NASDAQ) is the best in the world.
Now if you want to discuss the real issue here in the US, let's discuss underemployment, corporations cutting benefits, and the growth of corporate earnings while individual earnings have become stagnant.
"It's far easier to fight for principles, than to live up to them." Adlai Stevenson
" QE has actually proven to be disinflationary and This is likely to continue much longer than most investors expect.
I agree with both statements. However, if the world's central bankers cannot come to terms with the fact that mild deflation is not a terrible thing, it is unlikely to have a happy ending.
I dont agree as I think QE simply is not large enough to create inflation. The money the FED is creating is not keeping up with the declining multiplier usually provided by the banks. This would explain Jmski's illiogical statement of ending QE resulting in inflation. IMO, QE has only slowed what could have been a massive deflationary spiral.
However, at some point the banks will have no room to reduce lending and velocity will increase. The FED needs to end QE before this happens, which will be before conditions look rosy."
I agree that inflation is not a forgone conclusion, and I agree that the Fed's actions during the early part of the crisis prevented a potentially catastrophic collapse in the global economy.
I think it is much less clear that QE is prudent policy and was needed to prevent a deflationary spiral. I definitely do not understand the current situation, but I do know that it is very "weird" in the sense that we are facing something very unlike the depression economics that currently policy is based on. The weirdness has something to do with 30 years of global trade imbalances, aging demographics, changing priorities in the post industrial world, and about 15 years of aggressive intervention by central banks that has wildly distorted capital formation. It is definitely not out of the question that this can all be unwound gradually over the next 30 years. But, I repeat my original statement: if the world's central bankers cannot come to terms with the fact that mild deflation is not a terrible thing, it is unlikely to have a happy ending It may be that deflationary pressures are so natural in the current economy that we should not be obsessed with countering them. Private sector capital formation has effectively stopped in Japan and may have been greatly hindered in the US. I know that bankers believe that ultimately lending activity will pick up and when it does they will gradually raise short term rates and this can all be unwound. I hope they are right ...
It is so refreshing to read logic and reason. Thank you Higashiyama.
Natures course is always to reverse excess. The trick is to determine what exactly is excess. In the natural world this is easy as it is the point where carrying capacity is exceeded. Where is it in the man-made world?
1) my statement wasn't illogical. I was pointing out how illogical the current state of affairs is.
2) QE isn't disinflationary unless for some reason the population is increasing faster than money creation on a percentage basis.
3) The disinflation isn't as much money multiplier as it is money velocity, and although they could both be a factor my opinion is that the banks are simply getting free money in order to buy their way out of their derivative losses.
4) I do agree that "QE simply is not large enough to create inflation".
5) I don't think that banks have reduced lending for any reason other than to repair their balance sheets. Free money for bankers, and not much else. At taxpayer's ultimate expense in terms of burgeoning national debt that will virtually explode when rates rise.
6) SNAP and social safety net programs are the main reason that depression-like scenes such as bread lines aren't being splashed across the tv screens, that - in addition to the media agenda to make things appear "normal". They've got nothing on Goebbels in that respect.
7) "Private sector capital formation has effectively stopped in Japan and may have been greatly hindered in the US. I know that bankers believe that ultimately lending activity will pick up and when it does they will gradually raise short term rates and this can all be unwound. I hope they are right ... "
ZIRP will do that, in addition to helping juice the stock market numbers. But it's not doing anything to create jobs or to generate wealth.
Q: Are You Printing Money? Bernanke: Not Literally
People that did not panic and cash in their stock market based 401k accounts, but instead kept them through 2007 to the present AND KEPT CONTRIBUTING from then till now, have recovered all the losses of 2008-2009 on that initial balance, and additionally had the advantage of dollar-cost averaging the new contributions into the market at much lower prices, which are now high again. Their balance in those accounts, for those people, has NEVER been higher than it is today. If that's not "wealth", what is?
High stock prices also allow companies to grow and hire more people than otherwise, but no one expects to convince anyone of anything, just expression of opinions here based on real-world observations rather than crap read on mainstream or "alternative" media (it's hilarious to suggest that one is biassed and the other is not )
QE is more than large enough to do some serious inflation damage. Reason there is no current inflation is because banks are "encouraged" to keep all the new money on deposit with the FED as excess reserves. Benefits are (1) a small return in the form of .25% interest (2) ability to use it as collateral for leveraged bets (3) a good alternative to more risky consumer/business lending. The FED controls this action with the safe .25% interest it pays on the excess returns.
At any given time the FED can turn up inflation by removing the .25% it pays on the reserves and even charging a negative interest. This will force the banks to seek a better, yet risker, return in the open lending market. When excess reserves find their way to the street is when QE will have an impact on inflation.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>Their balance in those accounts, for those people, has NEVER been higher than it is today. If that's not "wealth", what is? >>
Balance would of course be higher, but of course reduced by real inflation and future cap gains taxes. Sort of the Bernanke magic wand effect. >>
You are "of course" correct. Those poor stock investors should have been buying PMs. Inflation + taxes+ 30-50% losses is the recipe for wealth creation.
Welcome to the boards. As Russ might say, fresh meat. I'm hungry.
<< <i>Derryb, the banks will be "instructed" to buy treasuries, thus ensuring low rates for much longer than many would wish. >>
My point is that the FED can, through control of excess reserves, achieve a desired inflation rate to combat its fear of deflation. Once the safety of excess reserves becomes a cost (negative rate paid by the FED) banks will channel the money to where they see the best return. This could easily drive up consumer interest rates, something else the FED fears.When the risk of open market loans is outgunned by the return they pay, banks will choose the risk. At the moment the safety of having excess reserves on deposit with the FED is the best game in town.
The recent taper talk was nothing but a stress test to see the affect on interest rates. The resulting rate rise caused a lot of puckering at the interest rate swap loaded banks. This is why you will not see tapering any time soon. The FED has a primary goal right now of getting money to Main St. with the hope of keeing interest rates down and increasing consumer spending (money velocity). This will not be an easy task and if not precisely engineered could easily result in spiking interest rates and rapid inflation.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>Their balance in those accounts, for those people, has NEVER been higher than it is today. If that's not "wealth", what is? >>
Balance would of course be higher, but of course reduced by real inflation and future cap gains taxes. Sort of the Bernanke magic wand effect. >>
You are "of course" correct. Those poor stock investors should have been buying PMs. Inflation + taxes+ 30-50% losses is the recipe for wealth creation.
Welcome to the boards. As Russ might say, fresh meat. I'm hungry. >>
Watch out for bones. My original account here preceded yours by a year or so.
When we discuss real wealth, it is a matter of what that wealth can buy. Certainly the majority of stock investors did better than the PM folks over the last 12 months and that may be true in the next twelve months. Point is, our government has a nasty habit of driving up inflation and taxing the hell out of our assets even though in the longer term, they are just keeping up with the rabid spending and printing by the folks in DC.
A 1963 Mercury Dime is a fine example. It bought you a cup of coffee at the Kresge lunch counter in 1964. It's metal value today is about $1.50 which would buy a cup of coffee at McDonalds. Problem is, when you cash in the dime at your local coin shop, you at least theoretically owe a cap gains tax on that coin that you held for nearly 50 years. I know this example is simple and nothing new to the studied folks here, but sometimes the masses forget this when evaluating the performance of their investments.
This becomes particularly problematic when the bubbles burst. Clinton boasted of a budget surplus during the second term of his 90's presidency. The stock market had risen dramatically form 4000 or so on the Dow in the early 1990's to over 10,000 in 1999. Mutual funds were the rage and the constant churning of these instruments created enormous year end paper profits which were aggressively taxed.
Investors went along with it as the Nasdaq was purring along to 5000. Problem was, the market took a nasty tank down. Of course the investors could in no way recover the taxes paid on the previously much higher priced equities.
Make no mistake, the same is true of the PM market and real estate, art and just about anything else.
Mutual funds were the rage and the constant churning of these instruments created enormous year end paper profits which were aggressively taxed.
Investors went along with it as the Nasdaq was purring along to 5000. Problem was, the market took a nasty tank down. Of course the investors could in no way recover the taxes paid on the previously much higher priced equities.
Not to mention that the whole scheme now revolves around higher tax rates, "going forward" as they now like to say.
We have some folks who like to jump in & out, capturing quick gains on technical moves, and we have some folks who practice classical portfolio rebalancing. All this is well and good, but nobody mentions the tax consequences of all this churning. It's not pretty, and if you think it doesn't affect your overall yield, you aren't doing the numbers.
In short, I believe that the tail risk for the stock market is now more significant than ever. In essence, the entire stock market is an in-the-money call option with an unknown degree of implied leverage, and I'm not interested. I'll accumulate cash & metals and be quite satisfied to stand aside. Someone else can collect the premiums, it's not worth it to me.
Q: Are You Printing Money? Bernanke: Not Literally
Seems that we continuously get to the edge of disaster and pull back. N Korea, Syria, European meltdown, Egypt, Iran etc. The cynic in me suspects that these temptations with fate are scripted rather than random. Maybe, maybe not.
This Chinese dispute with Japan appears to be different. Don't think that a few small islands are the goal but Taiwan instead. I recall that the U.S. sent in a carrier group to support Taiwan a decade or so ago. Perhaps China is seizing an opportunity while our president is busy trying to get a website to work. China is not our friend and more importantly they know that a few mouse clicks can send our financial markets into disarray.
1800 on the SP 500 looks extremely vulnerable.
Edit to add. Clinton sent in 2 carrier groups in Spring 1996.
<< <i>The Nasdaq composite cannot/will not hit 5000 before middle of 2016. >>
Hmm, only 450 to go for the NAZ. At this rate 5000 could be reached by early 2015. I remember posters years ago saying we'll never hit 5k again. Now it looks very do-able.
<< <i>The Nasdaq composite cannot/will not hit 5000 before middle of 2016. >>
Hmm, only 450 to go for the NAZ. At this rate 5000 could be reached by early 2015. I remember posters years ago saying we'll never hit 5k again. Now it looks very do-able.
Gold needs to pop $760.
I'd guess the 5000 will be orchestrated first. >>
I admire your use of the word "orchestrated".
Successful transactions:Tookybandit. "Everyone is equal, some are more equal than others".
<< <i>I recall a friend calling me in 1987 after the DJ crossed 2700. He said, we are going to 3000!!!
It got there, but it took a few years after a trip down to the 1600's.
This challenge may take a couple more years for a repeat of 5000. Multiples are pretty tightly stretched. >>
Wall Street's little honeymoon with the midterm results is good for 9% (previously posted historical data smoewhere.) That should push the NAZ right up to 5,000, then....whoosh! Don't ask me how big a 'whoosh' is.
Comments
result in inflation. QE has actually proven to be disinflationary. This explains why
gold has fallen and the stock market has been consistently rising.
Slow disinflation is the perfect world for stocks. Interest rates are close to
zero and remain there. Low interest rates enable price earnings ratios to
rise and low rates make stock yields more valuable.
Disinflation also keeps labor in check which is obviously good for business and stock
prices. It also keeps commodity prices from rising, another positive.
Stocks can still go much higher. In this world of 1% five year CD's, solid companies
have much higher dividends and many are increasing them yearly. Of the 10 largest
market value stocks in America, 8 pay dividends over 2%.
This is likely to continue much longer than most investors expect. QE pushes
stocks higher, disinflation continues, the economy continues sluggish, therefore Fed action
continues pushing stock prices higher...
<< <i>Up until mid 2011 it was generally thought that Fed actions such as QE would eventually
result in inflation. QE has actually proven to be disinflationary. This explains why
gold has fallen and the stock market has been consistently rising. >>
While assets have fallen in price because of deflation, QE has not caused deflation. It has in fact slowed deflation and even inflated FED selected asset prices. FED QE is intended to fight deflation, the FED would love nothing more than a bit more inflation. Fortunately however, the FED cannot force banks to lend or force consumers to borrow. Decreasing debt at all levels is the key to rebuilding an economy that became broken because of runaway debt. Velocity of money indicates that personal debt levels are in fact decreasing - consumers borrow to spend and the spending is just not there. Let's hope the trend holds despite what the FED desires from the consumer.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
I agree with both statements.
However, if the world's central bankers cannot come to terms with the fact that mild deflation is not a terrible thing, it is unlikely to have a happy ending.
<< <i>Thank you Baley and Derryb. This is quite an invigorating forum. >>
More so than the other?
An amazing conclusion, however misconstrued. By this logic, when the Fed takes away the punch bowl, inflation will ramp up. You might consider that the disinflation is because of the massive hole in banks' balance sheets and mark-to-fantasy accounting methods that are so appreciated by the crony system.
Taxpayers are being stuck with bank losses that are being monetized into new Treasury debt at $85 Billion/month, and the only disinflation going on is because the bank insolvencies are deeper than the $85/Billion a month can correct.
I knew it would happen.
<< <i>QE has actually proven to be disinflationary. This explains why gold has fallen and the stock market has been consistently rising.
An amazing conclusion, however misconstrued. By this logic, when the Fed takes away the punch bowl, inflation will ramp up. You might consider that the disinflation is because of the massive hole in banks' balance sheets and mark-to-fantasy accounting methods that are so appreciated by the crony system.
Taxpayers are being stuck with bank losses that are being monetized into new Treasury debt at $85 Billion/month, and the only disinflation going on is because the bank insolvencies are deeper than the $85/Billion a month can correct. >>
I like this one.
Disinflation, stagflation or inflation; which ever one is finally the culprit the end result was created by placing one band-aid over another…for years. There is no vacuum for the Fed to operate in. About the only certainty is who the bag-holders are.
A lot of taxpayers have houses and stock-containing 401k retirement plans and IRAs, both of which are up, some say, due to the QE and ultra low interest rates. How is that "being stuck?" It seems like it's helping them.
after all, it's not like very many of them have gold or silver, which are going down despite the QE.
The irony is, there are people who seem VERY aware that the stock market is going higher by Fed action, yet refuse to participate! in the party while the punchbowl is full!
Liberty: Parent of Science & Industry
<< <i>Up until mid 2011 it was generally thought that Fed actions such as QE would eventually
result in inflation. QE has actually proven to be disinflationary. This explains why
gold has fallen and the stock market has been consistently rising.
____________________________________________________________________________________________________________________
Please show me where prices have fallen. Groceries? Healthcare? Airfare? Autos? Fuel prices are about the same year to year but that is about it. The fed will say though that the computer that cost $5000 a decade ago is now $500. problem is, most of us never bought a $5000 computer. They will also say that if steak prices rise and you now eat chicken, or noodles in the good pilot's case, than the price of steak no longer counts as you are no longer buying it. Pravda and Tass are now our news sources as any real media would challenge the Fed with his corrupted stats.
6-8% annual inflation is my best guess, but hey, I am no Ben Shalom Bernanke.
<< <i>The irony is, there are people who seem VERY aware that the stock market is going higher by Fed action, yet refuse to participate! in the party while the punchbowl is full! >>
Buy high and sell low? No, thanks. Especially when the house is built of cards and could crumble at any time. Risk assessment required.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
easier to make money...
That might be the scariest statement I have ever read on this forum.
Roadrunner, what 13 yr wedge are you referring to?
Knowledge is the enemy of fear
Actually I expect neither.
Knowledge is the enemy of fear
<< <i>QE has actually proven to be disinflationary and This is likely to continue much longer than most investors expect.
I agree with both statements.
However, if the world's central bankers cannot come to terms with the fact that mild deflation is not a terrible thing, it is unlikely to have a happy ending. >>
I dont agree as I think QE simply is not large enough to create inflation. The money the FED is creating is not keeping up with the declining multiplier usually provided by the banks. This would explain Jmski's illiogical statement of ending QE resulting in inflation. IMO, QE has only slowed what could have been a massive deflationary spiral.
However, at some point the banks will have no room to reduce lending and velocity will increase. The FED needs to end QE before this happens, which will be before conditions look rosy.
Knowledge is the enemy of fear
<< <i>
<< <i>The irony is, there are people who seem VERY aware that the stock market is going higher by Fed action, yet refuse to participate! in the party while the punchbowl is full! >>
Buy high and sell low? No, thanks. Especially when the house is built of cards and could crumble at any time. Risk assessment required. >>
Buy high and sell low? no no no, you should try it the other way around! Much better! No one suggests anyone should start buying stocks at the all time highs..
that would be like.. like.. well, like buying your first precious metals in 2011 and selling them now: silly!
Liberty: Parent of Science & Industry
highs in 2010, the price rise accelerated and gold doubled in less than 2 years.
The Dow Jones Ind Avge just made a new all time high earlier this year.
Disinflation doesn't mean that prices are falling it means that the rate of
inflation is decreasing.
Many things are falling in price. Flat screen TV's
are an excellent example. I don't think that soft drink prices have risen in years.
Car leases are bargains because of low interest rates. How about
residential real estate over the last 10 years? Long distance telephone
costs continue to fall. Airline fares are lower than in 1960. I was looking yesterday
and saw round trips to Moscow for $550. Gap Jeans are the same price as 1978.
<< <i>Yes, buy stocks at all time highs. When gold went to new all time
highs in 2010, the price rise accelerated and gold doubled in less than 2 years.
The Dow Jones Ind Avge just made a new all time high earlier this year.
Disinflation doesn't mean that prices are falling it means that the rate of
inflation is decreasing.
Many things are falling in price. Flat screen TV's
are an excellent example. I don't think that soft drink prices have risen in years.
Car leases are bargains because of low interest rates. How about
residential real estate over the last 10 years? Long distance telephone
costs continue to fall. Airline fares are lower than in 1960. I was looking yesterday
and saw round trips to Moscow for $550. Gap Jeans are the same price as 1978. >>
You are adjusting your benchmarks to suit your argument. Do you want to consider year to year inflation or 1960 to current or 10 years which would work best on residential real estate?
Food may be the best constant as we are buying and consuming it on a daily basis. Fuel as well. Real estate and technology much less frequently.
I do not buy animal protein, but it seems that any decent cut of beef or type of fish is $10 a pound, plus. Care to guess the prices in 1960? Maybe a Dollar or a buck and a half. Gas was 19 cents or so back then and a fine home in a nice town could be had for about $20,000. That is what my parents paid for a new and nice three bedroom in 1959. Reversing the current Fed inflation policy back to 1960, the cost of air transportation did not count then as few other than the well heeled got on an airplane. At least that is the logic that they use today to downplay soaring food costs stating that if you can no longer afford it, it doesn't count.
...and back then it was optional, not federally mandated.
I knew it would happen.
<< <i>Hey Glicker, I'm enjoying your posts. Turn on your PMs sometime.
Thank you JM. Newb error on the PM. Thought I had it on. Think I have it on now.
No wonder my old friends never replied to my messages.
Now if you want to discuss the real issue here in the US, let's discuss underemployment, corporations cutting benefits, and the growth of corporate earnings while individual earnings have become stagnant.
I agree with both statements.
However, if the world's central bankers cannot come to terms with the fact that mild deflation is not a terrible thing, it is unlikely to have a happy ending.
I dont agree as I think QE simply is not large enough to create inflation. The money the FED is creating is not keeping up with the declining multiplier usually provided by the banks. This would explain Jmski's illiogical statement of ending QE resulting in inflation. IMO, QE has only slowed what could have been a massive deflationary spiral.
However, at some point the banks will have no room to reduce lending and velocity will increase. The FED needs to end QE before this happens, which will be before conditions look rosy."
I agree that inflation is not a forgone conclusion, and I agree that the Fed's actions during the early part of the crisis prevented a potentially catastrophic collapse in the global economy.
I think it is much less clear that QE is prudent policy and was needed to prevent a deflationary spiral. I definitely do not understand the current situation, but I do know that it is very "weird" in the sense that we are facing something very unlike the depression economics that currently policy is based on. The weirdness has something to do with 30 years of global trade imbalances, aging demographics, changing priorities in the post industrial world, and about 15 years of aggressive intervention by central banks that has wildly distorted capital formation. It is definitely not out of the question that this can all be unwound gradually over the next 30 years. But, I repeat my original statement: if the world's central bankers cannot come to terms with the fact that mild deflation is not a terrible thing, it is unlikely to have a happy ending It may be that deflationary pressures are so natural in the current economy that we should not be obsessed with countering them. Private sector capital formation has effectively stopped in Japan and may have been greatly hindered in the US. I know that bankers believe that ultimately lending activity will pick up and when it does they will gradually raise short term rates and this can all be unwound. I hope they are right ...
Natures course is always to reverse excess. The trick is to determine what exactly is excess. In the natural world this is easy as it is the point where carrying capacity is exceeded. Where is it in the man-made world?
Knowledge is the enemy of fear
2) QE isn't disinflationary unless for some reason the population is increasing faster than money creation on a percentage basis.
3) The disinflation isn't as much money multiplier as it is money velocity, and although they could both be a factor my opinion is that the banks are simply getting free money in order to buy their way out of their derivative losses.
4) I do agree that "QE simply is not large enough to create inflation".
5) I don't think that banks have reduced lending for any reason other than to repair their balance sheets. Free money for bankers, and not much else. At taxpayer's ultimate expense in terms of burgeoning national debt that will virtually explode when rates rise.
6) SNAP and social safety net programs are the main reason that depression-like scenes such as bread lines aren't being splashed across the tv screens, that - in addition to the media agenda to make things appear "normal". They've got nothing on Goebbels in that respect.
7) "Private sector capital formation has effectively stopped in Japan and may have been greatly hindered in the US. I know that bankers believe that ultimately lending activity will pick up and when it does they will gradually raise short term rates and this can all be unwound. I hope they are right ... "
ZIRP will do that, in addition to helping juice the stock market numbers. But it's not doing anything to create jobs or to generate wealth.
I knew it would happen.
High stock prices also allow companies to grow and hire more people than otherwise, but no one expects to convince anyone of anything, just expression of opinions here based on real-world observations rather than crap read on mainstream or "alternative" media (it's hilarious to suggest that one is biassed and the other is not
Liberty: Parent of Science & Industry
<< <i>Their balance in those accounts, for those people, has NEVER been higher than it is today. If that's not "wealth", what is? >>
Balance would of course be higher, but of course reduced by real inflation and future cap gains taxes. Sort of the Bernanke magic wand effect.
At any given time the FED can turn up inflation by removing the .25% it pays on the reserves and even charging a negative interest. This will force the banks to seek a better, yet risker, return in the open lending market. When excess reserves find their way to the street is when QE will have an impact on inflation.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>
<< <i>Their balance in those accounts, for those people, has NEVER been higher than it is today. If that's not "wealth", what is? >>
Balance would of course be higher, but of course reduced by real inflation and future cap gains taxes. Sort of the Bernanke magic wand effect. >>
You are "of course" correct. Those poor stock investors should have been buying PMs. Inflation + taxes+ 30-50% losses is the recipe for wealth creation.
Welcome to the boards. As Russ might say, fresh meat. I'm hungry.
Knowledge is the enemy of fear
Knowledge is the enemy of fear
<< <i>Derryb, the banks will be "instructed" to buy treasuries, thus ensuring low rates for much longer than many would wish. >>
My point is that the FED can, through control of excess reserves, achieve a desired inflation rate to combat its fear of deflation. Once the safety of excess reserves becomes a cost (negative rate paid by the FED) banks will channel the money to where they see the best return. This could easily drive up consumer interest rates, something else the FED fears.When the risk of open market loans is outgunned by the return they pay, banks will choose the risk. At the moment the safety of having excess reserves on deposit with the FED is the best game in town.
The recent taper talk was nothing but a stress test to see the affect on interest rates. The resulting rate rise caused a lot of puckering at the interest rate swap loaded banks. This is why you will not see tapering any time soon. The FED has a primary goal right now of getting money to Main St. with the hope of keeing interest rates down and increasing consumer spending (money velocity). This will not be an easy task and if not precisely engineered could easily result in spiking interest rates and rapid inflation.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>
<< <i>
<< <i>Their balance in those accounts, for those people, has NEVER been higher than it is today. If that's not "wealth", what is? >>
Balance would of course be higher, but of course reduced by real inflation and future cap gains taxes. Sort of the Bernanke magic wand effect. >>
You are "of course" correct. Those poor stock investors should have been buying PMs. Inflation + taxes+ 30-50% losses is the recipe for wealth creation.
Welcome to the boards. As Russ might say, fresh meat. I'm hungry.
Watch out for bones. My original account here preceded yours by a year or so.
When we discuss real wealth, it is a matter of what that wealth can buy. Certainly the majority of stock investors did better than the PM folks over the last 12 months and that may be true in the next twelve months. Point is, our government has a nasty habit of driving up inflation and taxing the hell out of our assets even though in the longer term, they are just keeping up with the rabid spending and printing by the folks in DC.
A 1963 Mercury Dime is a fine example. It bought you a cup of coffee at the Kresge lunch counter in 1964. It's metal value today is about $1.50 which would buy a cup of coffee at McDonalds. Problem is, when you cash in the dime at your local coin shop, you at least theoretically owe a cap gains tax on that coin that you held for nearly 50 years. I know this example is simple and nothing new to the studied folks here, but sometimes the masses forget this when evaluating the performance of their investments.
This becomes particularly problematic when the bubbles burst. Clinton boasted of a budget surplus during the second term of his 90's presidency. The stock market had risen dramatically form 4000 or so on the Dow in the early 1990's to over 10,000 in 1999. Mutual funds were the rage and the constant churning of these instruments created enormous year end paper profits which were aggressively taxed.
Investors went along with it as the Nasdaq was purring along to 5000. Problem was, the market took a nasty tank down. Of course the investors could in no way recover the taxes paid on the previously much higher priced equities.
Make no mistake, the same is true of the PM market and real estate, art and just about anything else.
Mebe D Carr can make us a 1963 Mercury Dime.
<< <i>*1963 Roosevelt Dime.
Mebe D Carr can make us a 1963 Mercury Dime.
No wonder my stingy dealer paid me face for it.
Back to the island yet CR?
<< <i>
<< <i>*1963 Roosevelt Dime.
Mebe D Carr can make us a 1963 Mercury Dime.
No wonder my stingy dealer paid me face for it.
Back to the island yet CR? >>
Nope. Still making donuts.
Investors went along with it as the Nasdaq was purring along to 5000. Problem was, the market took a nasty tank down. Of course the investors could in no way recover the taxes paid on the previously much higher priced equities.
Not to mention that the whole scheme now revolves around higher tax rates, "going forward" as they now like to say.
We have some folks who like to jump in & out, capturing quick gains on technical moves, and we have some folks who practice classical portfolio rebalancing. All this is well and good, but nobody mentions the tax consequences of all this churning. It's not pretty, and if you think it doesn't affect your overall yield, you aren't doing the numbers.
In short, I believe that the tail risk for the stock market is now more significant than ever. In essence, the entire stock market is an in-the-money call option with an unknown degree of implied leverage, and I'm not interested. I'll accumulate cash & metals and be quite satisfied to stand aside. Someone else can collect the premiums, it's not worth it to me.
I knew it would happen.
This Chinese dispute with Japan appears to be different. Don't think that a few small islands are the goal but Taiwan instead. I recall that the U.S. sent in a carrier group to support Taiwan a decade or so ago. Perhaps China is seizing an opportunity while our president
is busy trying to get a website to work. China is not our friend and more importantly they know that a few mouse clicks can send our financial markets into disarray.
1800 on the SP 500 looks extremely vulnerable.
Edit to add. Clinton sent in 2 carrier groups in Spring 1996.
Knowledge is the enemy of fear
Great group.
I knew it would happen.
Gold - 1326
<< <i>The Nasdaq composite cannot/will not hit 5000 before middle of 2016. >>
Hmm, only 450 to go for the NAZ. At this rate 5000 could be reached by early 2015. I remember posters years ago saying we'll never hit 5k again. Now it looks very do-able.
Gold needs to pop $760.
I'd guess the 5000 will be orchestrated first.
<< <i>
<< <i>The Nasdaq composite cannot/will not hit 5000 before middle of 2016. >>
Hmm, only 450 to go for the NAZ. At this rate 5000 could be reached by early 2015. I remember posters years ago saying we'll never hit 5k again. Now it looks very do-able.
Gold needs to pop $760.
I'd guess the 5000 will be orchestrated first. >>
I admire your use of the word "orchestrated".
Gold...$1236
NASDAQ....4552
47% of NASDAQ in a bear market
<< <i>The Nasdaq composite cannot/will not hit 5000 before middle of 2016. >>
I will stick by my comment.
Knowledge is the enemy of fear
Gold 1143
It got there, but it took a few years after a trip down to the 1600's.
This challenge may take a couple more years for a repeat of 5000. Multiples are pretty tightly stretched.
<< <i>I recall a friend calling me in 1987 after the DJ crossed 2700. He said, we are going to 3000!!!
It got there, but it took a few years after a trip down to the 1600's.
This challenge may take a couple more years for a repeat of 5000. Multiples are pretty tightly stretched. >>
Wall Street's little honeymoon with the midterm results is good for 9% (previously posted historical data smoewhere.) That should push the NAZ right up to 5,000, then....whoosh! Don't ask me how big a 'whoosh' is.
<< <i>Wall Street's little honeymoon with the midterm results is good for 9% (previously posted historical data smoewhere.) >>
Good chance from this level but far from a certainty in this cycle. Janet probably has the date circled in her daykeeper.
<< <i>
<< <i>Wall Street's little honeymoon with the midterm results is good for 9% (previously posted historical data smoewhere.) >>
Good chance from this level but far from a certainty in this cycle. Janet probably has the date circled in her daykeeper. >>
I wonder if it's digital and in the cloud?
<< <i>I wonder if it's digital and in the cloud? >>
More likely on paper tape from an old Univac.