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This Bubble's Got Legs

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71–80 of 131 posts

Re: This Bubble's Got Legs

#71
post #56

According to the OP, we have a global "central-bank-led cash bubble" powered by "an ever flowing money hose." If you believe interest rates are being kept "artificially low" (whatever that means) by the "money printing" of central banks like the Federal Reserve and the Bank of Japan, then you will agree with the OP. In this view of the world, central banks are contributing to our current economic malaise: by keeping…

> by keeping rates artificially low, central banks are causing asset prices to increase, making investment in productive endeavors less profitable

Central bank cash is agnostic as to whether you invest it in store-of-wealth assets or productive assets, so it's businesses and investors that make the decision to invest in the former instead of the latter. It seems silly for the OP to blame the central banks in this matter.

Re: This Bubble's Got Legs

#72
post #43

If you're interested in monetary policy and a fundamental analysis of the state of money and banking in the world today, I highly recommend "The End of Alchemy" by Mervyn King [0]. The book starts with a long history of why we have money at all, why it takes the forms it takes, and how banks evolved into their current role. It then goes on to describe why there is so much inherent risk in our banking system and what…

FYI, Mervyn King was the Governor of the Bank of England for 10 years.

Re: This Bubble's Got Legs

#73

Some background for those concerned with inflation: The US dollar is backed first and foremost by the global reserve status of our currency, which it became in 1971, as (probably the most important) part of the Bretton Woods System. As long as nations need US dollars to purchase crude oil, the US dollar will continue to be globally valuable. Secondly, the US has a powerful military, including hundreds of essentially…

Another reason, possible related to all of the above: if the USD sharply declines in value for some reason, its trade deficits with many export-dependent economies (e.g. China) will also decline and perhaps even become surpluses. Those who run such economies /really/ don't want that to happen.

Re: This Bubble's Got Legs

#74

So, the article says dotcoms caused first bubble in 2000, houses in 2008, but this one is driven by central banks printing money. And there is no way they will stop printing so this is an infinite bubble There is sooo much wrong with that. As @rtpg says, that s stops not when Fed stops printing money but when market realises that the high asset prices "globally" become obviously unsustainable. The issue is that when…

> So, the article says dotcoms caused first bubble in 2000, houses in 2008, but this one is driven by central banks printing money. And there is no way they will stop printing so this is an infinite bubble

> There is sooo much wrong with that

Well, for one thing, its not true. In the US, for instance, the Fed stopped QE in 2014, and has not only stopped QE but raised interest rate targets slightly since.

Central bank policy -- like the economic indicators that drive it -- tends to be cyclical, not infinite positive feedback. This has been a long and particularly intense period of loose monetary policy (largely, because governments, especially the USG, have completely been asleep at the switch in terms of fiscal policy response to the economic situation, relying more heavily than is sane on central banks and monetary policy), but there is very little to think that the usual cyclical drivers won't work the way they normally do.

(Of course, that won't actually pop asset prices in general -- though it may result in a shift across asset classes -- since the cyclical drivers of tighter monetary policy are exactly the same things that drive high general asset prices without a loose-money driver.)

> As @rtpg says, that s stops not when Fed stops printing money but when market realises that the high asset prices "globally" become obviously unsustainable.

Which, if those prices were high nominal prices driven by the Fed printing money such that the supply of money vs. that of other assets was ever expanding, would actually require the Fed to stop printing money, because as long as it continued to do that (and as long as people believed it would continue to do that), high asset prices would be sustainable.

(Conversely, if people believed that the Fed would stop, but would only do so because of the existence of some other driver supporting asset value, then even with the money-printing-presses stopped asset values would be maintainable.)

Re: This Bubble's Got Legs

#75
post #58

I am reminded of when I worked on a financial analytics app and we constantly had to remove the Zimbabwe stocks. They'd all gone up 1000's of percent and ruined all the other data on the chart (appearance-wise). Why? As the Zimbabwe currency lost value and became worthless, the stocks denominated in that currency held their real value. I would expect to see some version of this play out in the stock market today.

I have near zero knowledge of finance infrastructure, but shouldn't stock price be normalized by the exchange rate in which said stock is denominated? Say index everything in USD or whatever currency your user prefers. Otherwise, even if you remove Zimbabwe stocks from your charts, any analytics will be fundamentally flawed.

Re: This Bubble's Got Legs

#76
post #63
post #56

According to the OP, we have a global "central-bank-led cash bubble" powered by "an ever flowing money hose." If you believe interest rates are being kept "artificially low" (whatever that means) by the "money printing" of central banks like the Federal Reserve and the Bank of Japan, then you will agree with the OP. In this view of the world, central banks are contributing to our current economic malaise: by keeping…

whatever that means I believe the notion of artificially low/high rates actually does have a precise meaning. If banks freely set rates as players in a competitive market based on prevailing inflation rates, demand for money, etc, that would be the "market rate" of money. "Artificially low" rates would be those rates set centrally which are lower than what the market rate would be in a competitive rate market. Now it…

As the sibling says, the market rate is set by the banks - that's what LIBOR is. The central bank rate only sets an effective floor by offering a minimum coupon on government debt. This is partly why things get weird around zero.

There's no shortage of money, just a shortage of people and companies willing and able to borrow it.

(There are some subtleties here over things like the central bank "deposit window")

Re: This Bubble's Got Legs

#77

Isn't it always a thing before a bubble pops where everyone says the bubble wont pop.

This is a good read. https://www.amazon.com/Extraordinary-Popular-Delusions-Charl.... Market participants often do know there's a bubble. However, if your neighbor keeps making more and more money selling tulips (that was a thing), then you will be tempted to buy some tulips yourself, knowing full well that you are commanding an absurd price.

Bubbles can be more "musical chairs" than rational pricing.

Re: This Bubble's Got Legs

#78
post #58

I am reminded of when I worked on a financial analytics app and we constantly had to remove the Zimbabwe stocks. They'd all gone up 1000's of percent and ruined all the other data on the chart (appearance-wise). Why? As the Zimbabwe currency lost value and became worthless, the stocks denominated in that currency held their real value. I would expect to see some version of this play out in the stock market today.

I have near zero knowledge of finance infrastructure, but shouldn't stock price be normalized by the exchange rate in which said stock is denominated? Say index everything in USD or whatever currency your user prefers. Otherwise, even if you remove Zimbabwe stocks from your charts, any analytics will be fundamentally flawed.

You are right that most carefully presented charts will correct for exchange rate differences over time. However, a database of stocks will often keep performance over different time periods in the native currency as a convenience. For example, this is usually good enough for most screening applications, and on-the-fly charting apps.

Re: This Bubble's Got Legs

#79
post #56

According to the OP, we have a global "central-bank-led cash bubble" powered by "an ever flowing money hose." If you believe interest rates are being kept "artificially low" (whatever that means) by the "money printing" of central banks like the Federal Reserve and the Bank of Japan, then you will agree with the OP. In this view of the world, central banks are contributing to our current economic malaise: by keeping…

I believe the root of the problem is creating more money via institutions that don't need it. It would do a whole lot more good to give it to people who do need it and will therefore spend it. Their spending creates profitable business opportunities for others.

People and institutions that already have plenty of money are "hoarding cash" (and real estate) because, after other needs are taken care of, what remains is a concern about security if something unexpected happens. They don't see profitable investment opportunities worth the risk.

Re: This Bubble's Got Legs

#80

Earlier quoted context omitted.

Yes, i feel the same when I look at houses in San Francisco. The shittiest houses are valued at almost 1mio. I'm just saying, nope, I'm not buying that. ;)

Same here. The QE+low interest rates have delayed our home purchase perhaps indefinitely. We feel a bit like migrants .. can't afford homes in the city we grew up. It used to feel very miserable ... I'm looking at it positively now that I don't have "roots" that take away my job mobility. This also means we just have cash for retirement .. no housing at all. I suspect we'll end up moving to an ultra-low cost location…

I'd not blame QE+low interest rates for this, because the problem is not national, but limited to very few markets. Almost anyone can afford a house in most US cities. Changes in QE wouldn't magically change demand in SF and NY.

When we look at SF, what we see is a city that has A LOT more people wanting to live there than there are houses: Heck, I'd move there if the prices weren't insane. Investors/speculators are just a sliver of demand, and they only invest there precisely because the real demand to live there is that high. When there's high demand, and no increase in supply, prices go up to the levels we see now.

If the only people that wanted to buy a house in SF were software developers, prices would still be high, and we'd have enough of those that we'd see prices go up so that mortgages are about 50% of household income, just like in every other place, ever, that had high demand. And guess what? that's the current prices already.

So while I am sure the fed would be able to lower prices across the board by doing something that craters the economy, housing prices in desirable places to live are not the problem.

As far as retirement goes, it doesn't really matter if you own a house, or the equivalent in stocks. I can't tell you if you are saving enough, you are living beyond your means, or should just move somewhere else, as I have no details in your situation. All I can say is that it's a wonderful time to be a software developer in the US, economically speaking. It's pretty possible to work remote or at a satellite office of a big tech employer and save crazy amounts of money.

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