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What to Worry About in This Surreal Bull Market

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Re: What to Worry About in This Surreal Bull Market

#191

Post by smaddox »

koolba wrote: post #58
tehwalrus wrote: post #24

Earlier quoted context omitted.

That ketchup bottle analogy is wonderful, thank you :)

The classic analogy from economics is filling water in a bathtub. Say you've got separate hot and cold faucets and there's a delay between turning the valve and the respective water flowing. By the time you get to just the right mix, the ratio of hot water is still increasing and it'll get messed up again, which leads to increasing the cold water, which makes it too cold, which ... You get the idea.

Which is perfectly controllable if your model includes delayed feedback. Unfortunately, the dominant macroeconomic models contain neither delayed feedback nor nonlinearity, and are not capable of simulating recessions without resorting to arbitrary "exogenous shocks".

In contrast, Steve Keen is actively developing dynamic nonlinear models of macroeconomics that is actually capable of simulating endogenous recessions.

If you're interested in learning more about Steve Keen's work, I highly recommend watching his presentation to the OECD: https://www.patreon.com/posts/my-speech-to-new-14735058

Re: What to Worry About in This Surreal Bull Market

#192

Post by dragontamer »

dominotw wrote: post #101
mathgeek wrote: post #14

The next market recession will happen the same as the previous ones: some lucky people will predict it, most won't, and everyone will in hindsight declare how obvious the signs were. The best strategy is still to diversify your investments, keep enough emergency assets to ride the wave, and not worry about it.

>diversify your investments Diversify into what though? Once market crashes, it takes everything down with it.

US Treasuries went up in 2007 by like 20% or something ridiculous.

There's always an asset class that outperforms during a crash.

Re: What to Worry About in This Surreal Bull Market

#193

Post by soundwave106 »

qznc wrote: post #187
soundwave106 wrote: post #184

Earlier quoted context omitted.

I would call Bitcoin a "speculative asset" right now, actually. Compared to major currencies, it is highly volatile. Bitcoin also is, in some sense, similar to a fiat currency (Bitcoin has no intrinsic value) without having the typical fiat currency backing (a supporting government, complete with armies, laws and their enforcement agencies, etc. sponsoring the currency). This adds a degree of risk to Bitcoin most oth…

Not being government backed does add risk? Bitcoin cannot declare bankrupty, but governments can (ok, affecting bonds primarily). Also, governments can abandon currencies and use different ones.

Governments can attempt to legislate away / restrict Bitcoin at any time, and have muscle power to attempt to enforce this. The converse is not true. This is the main reason I say that there is added risk.

You are correct that government backed currency is indeed absolutely not risk free either in all cases; if confidence in the government is lost, the "official" currency might end up as worthless, and alternatives may prosper even despite heavy-handed government efforts in some cases. There is such a thing as speculative fiat currency.

Having said that, even though forex is generally considered more risky than other sorts of investments, the likelihood of the governments of the major currency players executing the sort of serious humdingers to move their currencies into the "speculative" category seems quite low to me. (Of course, nothing in investing is guaranteed, but still...)

I'll also add that, from what I see, Bitcoin "governance" -- the technical code decisions (https://www.economist.com/blogs/freeexchange/2017/09/not-so-...) -- is somewhat in flux right now, eg the dramas over bitcoin blocksize limits. This also adds risk.

Re: What to Worry About in This Surreal Bull Market

#194

Post by csomar »

nine_k wrote: post #145
pg314 wrote: post #107

Earlier quoted context omitted.

> This is clearly false - wealthy people don't keep mountains of cash lying around as they would miss out on the growth in bull markets, and as a result their wealth would decrease relative to their peers. Some wealthy people do. E.g. Warren Buffett's Berkshire Hathaway was sitting on 100 billion dollar in cash last summer [1]. If he doesn't find anything that is fairly priced, he prefers to sit on his cash and wait.…

See also: Apple (~256B in cash), Google (~86B in cash). This cash is mostly securities, though; their "pure" cash positions would be "mere" ~15B and ~13B, respectively.

I think they mean low risk/volatility securities like T-Bonds. You can't hold 250B in a single bank. Or maybe you'll need to create your own bank. Plus they are going to demand interest and risk clarification on that.

Re: What to Worry About in This Surreal Bull Market

#195

Post by philippnagel »

mac01021 wrote: post #186
fnovd wrote: post #162

Earlier quoted context omitted.

>But... there is the question of whether our economic growth brings us closer to the absolute carrying capacity of spaceship Earth. Are we inching up on the absolute carrying capacity of Earth? Perhaps. But what about the carrying capacity of the Sun? We are barely capturing a fraction of the energy the Sun sends our way. Think about what we could do if our ability to harvest renewable energy in the next two decades…

The following blog post[1] should be required reading for everyone everywhere. It talks about physical constraints on economic growth. The main point he makes is that, regardless of how inexhaustable our sources of energy are, increases in our rate of energy use are still necessarily limited. He notes: 1. Economic growth is always accompanied by increase in energy consumption. 2. Nearly all energy consumption (whethe…

Super interesting, thank you! Are you aware of any books exploring this topic further (aside from the textbook mentioned in the post)?

Re: What to Worry About in This Surreal Bull Market

#196

Post by mjburgess »

zbentley wrote: post #171
mjburgess wrote: post #51

Earlier quoted context omitted.

Ah yes, the Flimflam-Fo Equation with its key parameters, "rich person a" and "rich person b". Conspiracy theories might well be defined just by the application of the fallacy, "if someone benefits, then they intended it". And here we see this fallacy being applied. Sound like a textbook conspiracy to me. The extremely weathly are not interested in increasing their net wealth, only in specific purchases to further th…

> the fallacy, "if someone benefits, then they intended it". Slightly tangential, but neat: that fallacy has a name! It's the "Post hoc ergo propter hoc" fallacy: https://en.wikipedia.org/wiki/Post_hoc_ergo_propter_hoc There might be a more specific named fallacy for when post-hoc happens with regard to individuals' intentions and benefits rather than causes and effects in general though.

post hoc ergo sher lock

Re: What to Worry About in This Surreal Bull Market

#197

Post by noddy1 »

pault wrote: post #152
dhimes wrote: post #103

Earlier quoted context omitted.

Attempting and succeeding are two different things. Right before the last real-estate crash I attended a seminar with an economist who spoke at length why there would not be a crash and in the coming spring there was going to be a real estate boom. Quoted lots of economic stuff to back it up (indicators and such- I don't remember but he was definitely convinced). The field of economics seems to have a ways to go befo…

It occurs to me that economics today is roughly at the same level of development medicine was circa 1500CE.

Completely agree.

It is further warped by the fact that although the anti-interventionalists are probably right, the interventionalists are the ones who do all the consulting and take all the jobs and give all the advice - because they are .. interventionalists. And who wants to pay a consultant to tell them "don't do anything, and there's nothing you can do."

Re: What to Worry About in This Surreal Bull Market

#198

Post by gok »

dannyw wrote: post #60
schrodinger wrote: post #50

Earlier quoted context omitted.

Wouldn’t companies with a strong international presence (e.g. Apple) contribute to that? It seems like increased globalization could explain that high ratio rather than “overvaluation.”

That would be counted in America's GDP. The metric as designed is more flawed, because not all companies are public.

Exports contribute to GDP but sales between foreign subsidiaries do not. So a Toyota made in Toyota-owned Kentucky factory contributes to the US GDP. This is in contrast to GNP; that US-made Toyota would count towards Japan's GNP.

Re: What to Worry About in This Surreal Bull Market

#199

Post by prewett »

jreynojustin wrote: post #176
e40 wrote: post #150

Earlier quoted context omitted.

Yep. This is a problem for people like my parents, who are 80+ and living off investments. A big downward correction is very scary for people in that situation, but not at all worrying for me.

Yeah agreed I know some folks in that situation back in 08/09. I'm still in my 20's so not sure how I'm going to deal with investing as I get into my retirement years. It can be scary to have over half your retirement wipe out with no time for correction. Probably a more cash heavy asset allocation would be the solution. Not sure though.

I think dividend income is a typical solution. It doesn't matter what the stock price does if the company continues paying dividends. If the company is strong and pays a dividend, the stock can be looked at like a low-yield bond. Except that dividend-companies tend to increase the dividend every year when possible, so it's also a bond where the yield increases. Coca-Cola has paid about 3% for years and years.

Re: What to Worry About in This Surreal Bull Market

#200

Post by hkmurakami »

31reasons wrote: post #180
e40 wrote: post #150

Earlier quoted context omitted.

Yep. This is a problem for people like my parents, who are 80+ and living off investments. A big downward correction is very scary for people in that situation, but not at all worrying for me.

Shouldn't their investments already been moved to Bonds/Money markets? At 85, if you have to worry about stock market, you are doing it wrong.

Depends on whether they want to pass on appreciated equity at a step up basis to their offspring.
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