Hi Pezz,
Thank you for taking my posts seriously, and a discussion is thus born …
<<You must tell me why it is going down. Not why it isn't going up.>>
First, let’s settle on why the market is not going to go up. Bull markets, old or new, do not start off with the markets already at high valuation levels. Especially when folks are already loaded down with all manner of debt, using 14+% of income for interest payment. More particularly when these same good folks are watching their neighbours getting retrenched, downsized, made redundant or getting thrown out with the servers still in the original packaging. More so if these folks only have (pick a number) 3 months of financial reserve to find the next, but lower paying job, lasting possibly into their impending but under-funded retirement.
Then we make a case on why it may pay to be out of the market …
grantsinvestor.com
QUOTE
"The Times You Get Paid To Walk Away" To conclude today's Rap, I'd like to share some thoughts on the "risk" of being out of the market. Wall Street loves to talk about how negatively missing "the best" up days impacts your returns. Therefore, you should never get out and trust them to do right by you. What they don't tell you is that missing "the worst days" impacts your returns even more dramatically. Here's the math. From January 3, 1983, through March 31, 2000, $10,000 grew to $106,554 indexed to the S&P 500. Missing the 10 best days left you with only $64,812. Missing the best 50 left you only $21,652. Pretty compelling argument for staying in the market, as far as it goes. However, missing the 10 worst days left you with $234,860, while missing the worst 50 left you with $767,094. The results are even more dramatic using the Nasdaq as an index. Now, this isn't an ad for market timing, which is a very hard game, but it does suggest that if valuations get totally out of hand (as they have done thanks to the mania), risk cuts both ways, contrary to what Wall Street wants you to believe. Of course, the reason for this is that stocks go down faster than they go up -- a lesson bubbleonians have yet to fully comprehend. Thanks to the Leuthold Group for coming up with that data. The moral: There are times you get paid to walk away, and this is one of them.
UNQUOTE
Finally, we close on why the markets will go down …
Valuation will eventually have to reflect on financial reality, economic laws, and people’s desperation. Corporate profits will continue to trend down, adjusting for capex reduction, fiercer competition over the smaller pie, labour compensation rise (no more options, but much more cash), and rising long term borrowing cost. KO, INTC, GE, G, you name them, they will come down. Valuations are not in line with financial reality, but in the tank with outrageous expectations.
I do admit, by FED rate decline, some folks will not see alternatives to equity, and they will lose because of their inability.
The situation can easily be made more dire when the USD start to tank, not if, just when.
<<History since WW 2 is on the side of the Bulls. Nothing anybody on this thread has convinced me that this time is different.>>
I did not realise we are supposed to convince each other of anything. Never mind about convincing. Figure out the odds … if I am wrong, I get wealthier to a lesser degree, and if I am right, I get wealthier to a greater degree. How does the equation work for your allocation?
BTW, it is different this time because the bubble is (choose your own adjective) truly big, relative to GDP and personal financial fragility.
<<"Inflation is coming" ... Where is the evidence?>>
Others may provide better numbers, but I just look at financial asset valuation, housing, energy, compensation (adjusted for options), school fees, cost of long term capital, and of course, certain ancient commodities, solid, liquid and gaseous.
Also, more importantly, it is dangerous to stick around at ground zero, watching the same handwriting on the wall, waiting to see government posted evidence. When everyone sees the handwriting, the previously cryptic inscriptions may be stamped on the foreheads of many, all lined up neatly in a roll.
Anticipation is an important survival aid.
<<"recession is coming" ...We've had'em before>>
First, let’s settle on the fact that recession is not coming, but in the living room, on the sofa, demanding its cup of coffee … tech recession is here, and its effects are spreading, to the employment and capital markets, and making all politicians nervous, including Uncle Greenspan. Yes, we had them before, but not with such personal financial fragility and structural mis-allocation.
<<"29 revisited" ... How so?>>
Do not know, not waiting around to find out, busy getting on the high ground, readying to look through the rifle scope for targets. Again, if I am wrong, I make less, and if I am right, I make more.
<<<<EDIT: let us not spend any time debating whether inflation is worsening or not]>>
As you wish but t'would seem to be the crux of you argument>>
To the good folks on this thread, do we or do we not have inflation, in all that we need to spend on?
My relatives now spend US$ 2-3000 per year more (compared to last year) on electricity in an economy (California) accounting for a godly percentage of the US total. Gas cost more, school cost more, food cost more, but alas, Uncle Greenspan says inflation minus inflation is equal to core inflation, and not too surprisingly, equal to zero. Simple kiddie algebra.
<<I think that the thread is quiet because [dare I say it?] some are losing the 'faith'>>
I think you have simply forgotten how bad “bad” can get, and are under the mistaken impression that folks on this thread exist only to piss off Pezz by posting notes of caution. No, we do not work that way and we are generous in our hearts, working toward the betterment of all. We are not losing faith. We are watching a puppet play, in slow motion, demanding our full attention, as audience. Puppeteer Greenspan does his bit, and the bulls do theirs.
Chugs, Jay |
