Relax. Until the yield curve goes negative, there's nothing to worry about.
What is the yield curve?
What to Worry About in This Surreal Bull Market
201–210 of 223 posts
Re: What to Worry About in This Surreal Bull Market
#202Earlier quoted context omitted.
> "growth" (i.e. inflation) before the inevitable crash What you need to know is this: Financial crashes are an eternal cycle, they will never go away. Unless there is fundamental societal change. Here's why: Financial crashes are business to a couple of extremely powerful/rich people. After every crash, assets are undervalued. Rich people have the financial cushion to not be impacted in the slightest way by such cra…
What is more obviously manufactured is bad tax policy, as in way too low top end tax rates. That has incentivized wealthy people to invest in real estate and the stock market, rather than in the working class. That's why a house costs on average 24 times more today than in 1960, and yet wages are only 8 times more today than in 1960. And the tax rates on these capital gains are lower than middle class payroll and inc…
>...That's why a house costs on average 24 times more today than in 1960,
There might be isolated cases of that happening, but in general, nothing close to that.
>...In fact, if you look at a fifty-year period after World War II, home prices were absolutely steady. In 1947 the Case-Shiller index stood at 110, and in 1997, adjusted for inflation, it stood at 110 again.
http://www.motherjones.com/kevin-drum/2010/08/chart-day-hous...
There is a chart at the bottom of the article.
In terms of wages, it is more realistic to focus on total compensation:
>...Economists long have noted that focusing on AHE rather than total compensation yields an inaccurate picture of labor compensation due to the omission from AHE of employer-provided benefits.
https://files.stlouisfed.org/files/htdocs/publications/es/07...
The page has 2 charts showing the differences when you compare wages to total compensation.
The tax burden has basically gone opposite of what you imply. For example, the top 10% paid 49% of taxes in 1980 and paid 70% in 2014. (http://www.ntu.org/foundation/page/who-pays-income-taxes) The "top marginal rate" means very little by itself. What matters is the effective rate which takes into account the credits/deductions that are allowed, the other lower tax rates, etc.
>...The top end tax bracket needs to go well above 50% to make it riskier to invest what's left in those markets, rather than taking a risk on starting or growing a business, the expenses of which are 100% tax deductible.
If the effective federal tax rate would be > 50% and there would likely be state taxes also, why would anyone invest in a small business? The vast majority of new businesses fail in the first 5 years. With such high tax rates, why take a risk when the vast majority of the time almost all the money will be lost and if you are able to make a successful business, taxes will take almost all the profit? Much more rational to invest in government bonds.
Re: What to Worry About in This Surreal Bull Market
#203After basically 0% net growth in the market for over a year leading up to the election, there has been a 25% boom beginning exactly on the day after Trump won. That is no coincidence. The markets are anticipating Trump's promised massive deregulatory push (already well underway), tax cuts, a more union-hostile Justice Department and NLRB, and other business-friendly changes.
There's the question of whether pro short-term profit policies are really business friendly? Is increased likelihood of a banking debacle business friendly? Higher chance of a major ecological disaster? Is nigh surrendering Puerto Rico to the elements good for Puerto Rican businesses? I'll say charitably that the jury is still out but we've been down this road before in the not so distant past.
Re: What to Worry About in This Surreal Bull Market
#204Earlier quoted context omitted.
Part of the value of gold comes from the many industrial applications of the stuff.
Such as the Indian dowry jewelry industry. All other industrial uses are completely swamped by the creation of human ornamentation. But the thing about jewelry is that the gold in it is usually very easily recycled. So it is not as strongly consumed as the gold used in electronics, which requires a greater effort to recover, if it isn't simply landfilled a milligram at a time. That jewelry use creates a soft reserve,…
What's wrong with the Labor Theory of Value? (Never heard of it before, so I don't know)
The way I interpret Buffett's view on gold is that if I have a choice between buying a hunk of yellow metal that just sits there, or buying the same amount of shares of a (high quality) company like KO where people labor day and night trying to make more money for the shareholders, the choice is pretty obviously the latter. Of course, those people may be ineffective in their labors, or worse, stupid decisions by managers might make the company less valuable, but if I have some reasonable confidence in them, gold doesn't sound very attractive. In the case of KO, it has been steadily increasing dividends for something like 50 years, so something must be going right. That seems like pragmatism, to me, not Labor Theory of Value, though.
Re: What to Worry About in This Surreal Bull Market
#205Earlier quoted context omitted.
What is more obviously manufactured is bad tax policy, as in way too low top end tax rates. That has incentivized wealthy people to invest in real estate and the stock market, rather than in the working class. That's why a house costs on average 24 times more today than in 1960, and yet wages are only 8 times more today than in 1960. And the tax rates on these capital gains are lower than middle class payroll and inc…
>...That's why a house costs on average 24 times more today than in 1960, There might be isolated cases of that happening, but in general, nothing close to that. >...In fact, if you look at a fifty-year period after World War II, home prices were absolutely steady. In 1947 the Case-Shiller index stood at 110, and in 1997, adjusted for inflation, it stood at 110 again. http://www.motherjones.com/kevin-drum/2010/08/cha…
>There might be isolated cases of that happening, but in general, nothing close to that.
Where people want to live and work are cities. If you look at urban housing vs wages, housing has grown 3x compared to wages. Considering urban areas isolate cases is somewhere in between funny and absurd.
>The tax burden has basically gone opposite of what you imply.
I have neither stated nor implied anything about tax burden. I've only stated incentives and their consequences.
> For example, the top 10% paid 49% of taxes in 1980 and paid 70% in 2014. (http://www.ntu.org/foundation/page/who-pays-income-taxes) The "top marginal rate" means very little by itself.
The top marginal rate is a threat, with a real consequence. Of course the vast majority will try to avoid it, it's how they avoid it that matters.
> What matters is the effective rate which takes into account the credits/deductions that are allowed, the other lower tax rates, etc.
No, that's not what matters. I'm not trying to make sure the effective rate is either fair or equal among people who make the same income. What I want to do is incentivize a greater velocity of money, rather than rich people who don't need to save another dime, causing inflated housing and stock prices by stashing money there. I want the risk of saving money at the top end to be at least equal to that of starting or growing a business. And right now top end tax rates are so damn cheap it is way less risky to pay that cheap ass tax, and stuff the rest in real estate or stocks, than it is to take a 100% tax deduction and start or grow a business. That's bad.
And you increase the risk of being a hoarder with the real threat of taking most of that income away, above a certain amount. It doesn't matter that in 1928 probably only 5 people in the whole country paid 90+% income tax on their last $100,000 earned. The very fact that insane rate existed was the incentive for most everyone else to do something with their money rather than nothing. And it's the something else that is the benefit to society. Not how much revenue the government raised from it.
Re: What to Worry About in This Surreal Bull Market
#206A bubble in slow motion, someone called the present economic environment. I think it's an apt description. Extreme "quantitative easing" (I refuse to take fed speak seriously) has only taken effect very, very slowly. Why? Because all it really was was recapitalizing banks which had enormous gaping holes on their balance sheets after 2008. They have been able to fill the tanks now, getting money hot off the presses fo…
But if this was only the US policy how come there is such a bubble in bitcoin? Is this a sign of a bubble or people trying to hedge against a crash?
I wouldn't read into that beyond pure coincidence.
US investors are only a portion of the Bitcoin market, and the price action of the past year or so isn't at all out of line with the general growth trend.
The notion that Bitcoin would serve as a 'safe haven' during a market crash is also far from a foregone conclusion. Certainly possible, but I have difficulty accepting that traditional financial institutions would see it that way.
Re: What to Worry About in This Surreal Bull Market
#207Earlier quoted context omitted.
Please don't take offence, but you've misunderstood the mechanics of how wealth is accumulated. The wealthiest people in the world are wealthy by virtue of the gains made on the assets they already have. So, in a bull market, their assets grow while someone without assets is left behind. The inverse is true, too - they'll proportionally lose to the same degree in a crash - as while a poor person may have no investmen…
> 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.…
I think Mark Cuban also said he keeps a lot of his money as cash for buying opportunies.
Re: What to Worry About in This Surreal Bull Market
#208Earlier 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.
That's a good point. My mother is 80 (in a few months) and it's all about life expectancy. Her mother lived to 95. She is in good health. Should she assume the best or worst case? The choice she makes will greatly effect her lifestyle.
Hard problem.
Re: What to Worry About in This Surreal Bull Market
#209Earlier 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.
That's not something worth worrying about in your 20's. Just set up a recurring investment in index funds or similar and forget it exists until you're at least in your 50's or later.
Random catastrophes do happen to younger folks, of course, but those are something to deal with if and when they happen.
Re: What to Worry About in This Surreal Bull Market
#210Earlier quoted context omitted.
Such as the Indian dowry jewelry industry. All other industrial uses are completely swamped by the creation of human ornamentation. But the thing about jewelry is that the gold in it is usually very easily recycled. So it is not as strongly consumed as the gold used in electronics, which requires a greater effort to recover, if it isn't simply landfilled a milligram at a time. That jewelry use creates a soft reserve,…
What's wrong with the Labor Theory of Value? (Never heard of it before, so I don't know) The way I interpret Buffett's view on gold is that if I have a choice between buying a hunk of yellow metal that just sits there, or buying the same amount of shares of a (high quality) company like KO where people labor day and night trying to make more money for the shareholders, the choice is pretty obviously the latter. Of co…
You can read about it here: https://en.wikipedia.org/wiki/Labor_theory_of_value
I don't believe it is applicable to most of the economies on this planet.
If I may analogize, Buffett is saying that a trophy spouse that does nothing but look good and impress your friends (gold) is a less worthwhile investment than one that goes away all day to bring home $80 and a distinct grease-trap odor (stocks). A Van Gogh painting that hangs on your wall, slowly oxidizing its pigments (gold) is a less worthy investment than a plastic fish on a wood-veneer plaque that can sing four different songs whenever you walk past it (stocks). A square mile out in the desert with awesome sunsets and no light pollution at night (gold) is better than a square mile that grows corn, wheat, alfalfa, and soy when dosed with sufficient amounts of chemicals (stocks).
People value things other than money and rate of return, and other purely rational criteria. Sometimes people buy things to enjoy them as they are, rather than anticipate what they could be. The lump of gold will never be anything greater or lesser than what it was when you bought it, and some people like that quality. The 1 troy ounce .9167 gold coin will always be worth at least 1 troy ounce of .9167 gold, no matter what anyone else in the world does. If you bury 10 kg of .9999 gold and dig it up 100 years later, it will still be worth 10 kg of .9999 gold. You might be able to trade your gold for differently sized baskets of goods and services in different years, and the size of future baskets will always be smaller than what you could have obtained if you had wisely invested in companies, but you will always be able to get something, even if the world has effectively ended.