Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
It smells like we'll end up on the lows and a bunch. Hope I'm wrong, but this has looked major ugly from early on.
But then, not only are we going into a global recession, we've actually been in one since the dot.com meltdown and now the rest of the world is catching up. It also looks like this new Great Austerity will last for a long time - another ten years.
The market is puking because Uncle Ben hasn't OK'd QE3 and most of Euroland is broke. Without a continued influx of inkwet dollars - there's nothing keeping this sucker afloat.
Ouch. I'm sad, because I trust Rono's assessment of this here situation. This downturn has become secular, and it had been already, going back to The '08 Crash, which followed "prosperous" years built on sand, air, promises (as opposed to actual stuff you could trust) and debt---which represents further promises of stuff not yet held in your hand. And as Jane Curtin reported on the SNL week-end news years ago, "one in the hand is worth two in the bush." I'll deliberately neglect to mention her context. (LAUGH!!!)
We are in a funk. The benefits of diversification are not what they used to be either, since we are indeed all so interconnected now: instantaneous huge-volume trading around the world in the blink of an eye. To pretend that diversification offers a measure of protection is to assume that The Dude ("The Big Lebowski") was effective in protecting his privacy by installing permanent, nailed-down doorstops on the floor inside his house, though the door opened OUTWARD. Diversification MIGHT merely keep a bad situation from getting to be utterly putrid. And this negative economy will not get magically fixed anytime soon. This is a 1930s-like extended Depression.
I was trying to cheer up wifey about it all, earlier today: sooner or later, world leaders who care only about money (not safeguarding and protecting people from economic exploitation) will again take over the reins, and we will once again have Regulators and Legislators asleep at the wheel while corporation can resume making money hand over fist as we cope with the way they abuse us. But the stock market will do very nicely once again.
Ouch. I'm sad, because I trust Rono's assessment of this here situation. This downturn has become secular, and it had been already, going back to The '08 Crash, which followed "prosperous" years built on sand, air, promises (as opposed to actual stuff you could trust) and debt---which represents further promises of stuff not yet held in your hand. And as Jane Curtin reported on the SNL week-end news years ago, "one in the hand is worth two in the bush." I'll deliberately neglect to mention her context. (LAUGH!!!)
We are in a funk. The benefits of diversification are not what they used to be either, since we are indeed all so interconnected now: instantaneous huge-volume trading around the world in the blink of an eye. To pretend that diversification offers a measure of protection is to assume that The Dude ("The Big Lebowski") was effective in protecting his privacy by installing permanent, nailed-down doorstops on the floor inside his house, though the door opened OUTWARD. Diversification MIGHT merely keep a bad situation from getting to be utterly putrid. And this negative economy will not get magically fixed anytime soon. This is a 1930s-like extended Depression.
I was trying to cheer up wifey about it all, earlier today: sooner or later, world leaders who care only about money (not safeguarding and protecting people from economic exploitation) will again take over the reins, and we will once again have Regulators and Legislators asleep at the wheel while corporations can resume making money hand over fist as we cope with the way they abuse us. But the stock market will do very nicely once again. Not so soon as the day after tomorrow, though...
Reply to @rono: Do you have evidence for any of this or is this your opinion? Maybe I just don't understand but the economy is larger now than it was in the 90s so I don't understand how we've been in a recession for ten years. I also don't understand why the "Great Austerity" will last ten years. Is that a gut feeling? Why not 7 or 12?
Yes, market action is uncomfortable and the economic situation and the subsequent political reaction are very troubling to say the least but I don't understand what your backing these assertions with.
I'm a big fan of John Williams. He has a website called shadowstats where he calculates the basic gov't stats using the formulae used during previous administrations. Take them back to the days of Reagan and unemployment is over 20%, inflation over 10% and GDP essentially negative. The GDP uses a price deflator meaning that if there is a problem with the CPI, it has an impact.
Now, as for the duration, I must admit that a lot comes from data in Harry Dent's earlier works regarding global population and aging and the associated impacts on the economy (e.g. buying a house, furniture, baby clothes, kids schooling, retirement, etc.). Now consider the baby boomers and you see these impacts on steroids.
Now add in the housing situation and how the banks are sitting on xM would-be foreclosures and still not willing to write, or cram down prinicipal. Oh, and the banks all serving as a classic example of supply/demand curves when price controls exist and supply disappears as in . . . credit. The artificial rates being imposed by the Fed are less than what the banks feel is the 'street rate'. Therefore, unless you're willing to pay the 'street rate', alas and alack, they have no money to lend. Oh, and this means the velocity of QE1, QE2, Twists and QE3-n, is right about freakin zero.
But, lo and behold, all this money from the Bernanke Bombers has to go somewhere and considering that in these most uncertain times, well run companies with yield are a part of everyone's 'safe haven', the stock market is (has been) rocking and Wall Street and CNBC are all in something of a multi-orgasmic state.
Did I mention the state of affairs in DC?
Oh, and the revolution will not only be televised, it'll be on your bloody iphone.
2013? 2010? 2015? feh, WTF does it matter. The problems are so enormous and convoluted and global - that it's gonna take a while for us humans to unf*ck ourselves.
Now, this is how I see it in the most likely scenario - say 60-65%. There is also the chance that they'll figure it all out and Kudlow is right and everythone is warm and cuddly and rich - 10%. And lastly, that it just melts down and we crash and burn in some sort of enormous fireball of financial ruin - 25-30%.
And, damnit, I'm really doing my best to be positive.
Thanks for the response, which I really do appreciate. I would be inclined disagree with you on the merit of changing the Inflation index for the last 30 year, but to be honest I can't say that I've developed an informed opinion on the technical merits of updating the CPI nor what components to include or remove. That's beside the point; you had an answer.
To be honest, I don't really understand the rest of your argument. It looks more like a list of disconnected facts that give you the over all impression of a negative economic outlook. Okay, you think the economy is bad. So do I. But where are you getting those numbers? Are you making them up? It looks like you made them up. Why? What does that say about the veracity of your argument? Did you vet your sources carefully? If you didn't vet your sources carefully, what does that say about the conclusions you reached?
I actually agree that it is likely that our current economic and political troubles are bad and likely to get worse and linger. I don't know what that will look like, I don't know if I'm wrong and I certainly wouldn't bet my investment portfolio on the outlook that I am more right than everyone else.
Let's POOL information and let each decide for themselves what to do with our own portfolios. What's at stake? Nothing shared in here is going to determine your success or failure unless an individual chooses to use MFO that way. I might (or anyone might) be correct, or not. If I'm characterizing things in a way that doesn't ring your bells, that doesn't need to be a big issue. I don't blindly trust every source, but I have found rono's word-pictures, data and characterizations of Mr. Market to be valuable in informing my own perception of the way things appear to me.
CPI and inflation. Sokay, 20% of the market basket of the CPI consists of housing as represented by rental rates - not home prices. Over 50% is subject to hedonic adjustments. Great word that means that if the product/service is 'new and improved', they can charge more and it doesn't count. Sounds reasonable as long as I can still choose the 'old and unimproved' version. Otherwise, it's flimflam. I had a 2000 minivan and bought the exact same thing in a 2005, but it cost me $5K more because I had to take bundled add on features. None of which would show up in the CPI but I had no choice, so they showed up for me. Nonsense. Hell, Big Al stated that if steak became too expensive, people could shift to hamburger and because they're still be eat beef, it should count towards inflation. Oh really.
As for my overall description of the state of global economic affairs, it's just that - my overall description of what I see from Up in Michigan. I believe the only actual figures I used were with my handicapping the future. Where did they come from?!?!? They're my predictions based upon a whole slew of global economic issues and themes at play. Do I have to support them? Cripes, they're odds on possible economic futures. From a strict quantitative perspective, you'd need an econometric models costing a bunch of money that I'm not being paid. In addition, while attaining my BA in Econ, I never much cared for the quality of the attempt to quantify human nature and common sense. I admire their efforts, but I've never yet seen an econometric model of the global economy that worked. Too many human components.
For example, witness the meltdown in Euroland. The Greeks have been happy and made a lot of promises to their people about this and that. They've had to borrow money from the Euro bankers to fund these promises. Now, their economy is soft and they can't pay their bills. The banks want to be made 100% whole and are demanding that the gov't make it so (shades of us with Tarp). The people, however, like the Germans, as saying Hell No - screw the bankers. This means that any politician that allows some sort of EuroTarp is toast - and it's very likely that the Euro CB will not assume the losses of banks loaning to folks that were a bad risk (not at all like what happened here). Ergo, now they're searching for a softlanding bankruptcy for Greece.
And, because we did assume the losses of Wall St., we'll be in the gutter for years. If they had let them all crash and burn, chances are we'd be fine in a couple years. They didn't - the kicked the can down the road.
Hey Max,
How best to protect yourself? About the only thing with substance are the corporations with lots of cash that are paying dividends. I'm still huge on pm's but have also been huge on dividends and corporate paper.
Glad to hear from you. JUST before this latest market dive, I eliminated my USA small-cap stake in PRSVX and also converted my RIVFX and RYDVX (from an old 403b) into my new Rollover IRA in TRP, which at the moment holds only PREMX....I got a real barbell thing going on right now: 40% in Asian equities & convertibles with Matthews MAPIX and MACSX, and 46% bonds: 40% EM bonds and 6% in a single zero-coupon thing maturing in 2 years from now. After that item matures, I think I'll re-deploy it into MWTRX or MWHYX. DLENX is also under consideration, but that one is almost all EM corporates...Well, maybe the private sector is better off than governments? But the "Emerging" world is putting the "developed" world to shame now. They are growing and solvent. The USA has squandered everything. Europe is "old money." I think YOU used that term in the old Fund Alarm, yes? So Europe was a region to pass by ---for the most part--- even before the Greece-Ireland-Iceland-Spain-Portugal mess. I have hardly a thing in Europe, only a residual amount through mutual funds that do not at all focus on Europe.
Reply to @rono: Ron, you are taking selective information to make your case and discarding the info that does not support your argument. You mentioned rents in CPI. Well, if they actually used housing data perhaps the CPI would actually go down further since house prices did decline.
As for Europeans a few years ago you were arguing how great Euro was. I guess we put a period on that argument now. Europe had a dream for greatness by being United States of Europe a la USA. When it got hard, how it is everyone for themselves. Germany looks so good financially. They, like China, built on a weak currency because if they were out DM would be so expensive to hurt their export industry. They can go on their own way but in the process they will hurt their export industries as well. I think the fat lady has not spoken yet.
Comments
It smells like we'll end up on the lows and a bunch. Hope I'm wrong, but this has looked major ugly from early on.
But then, not only are we going into a global recession, we've actually been in one since the dot.com meltdown and now the rest of the world is catching up. It also looks like this new Great Austerity will last for a long time - another ten years.
The market is puking because Uncle Ben hasn't OK'd QE3 and most of Euroland is broke. Without a continued influx of inkwet dollars - there's nothing keeping this sucker afloat.
Look out below,
peace,
rono
We are in a funk. The benefits of diversification are not what they used to be either, since we are indeed all so interconnected now: instantaneous huge-volume trading around the world in the blink of an eye. To pretend that diversification offers a measure of protection is to assume that The Dude ("The Big Lebowski") was effective in protecting his privacy by installing permanent, nailed-down doorstops on the floor inside his house, though the door opened OUTWARD. Diversification MIGHT merely keep a bad situation from getting to be utterly putrid. And this negative economy will not get magically fixed anytime soon. This is a 1930s-like extended Depression.
I was trying to cheer up wifey about it all, earlier today: sooner or later, world leaders who care only about money (not safeguarding and protecting people from economic exploitation) will again take over the reins, and we will once again have Regulators and Legislators asleep at the wheel while corporation can resume making money hand over fist as we cope with the way they abuse us. But the stock market will do very nicely once again.
We are in a funk. The benefits of diversification are not what they used to be either, since we are indeed all so interconnected now: instantaneous huge-volume trading around the world in the blink of an eye. To pretend that diversification offers a measure of protection is to assume that The Dude ("The Big Lebowski") was effective in protecting his privacy by installing permanent, nailed-down doorstops on the floor inside his house, though the door opened OUTWARD. Diversification MIGHT merely keep a bad situation from getting to be utterly putrid. And this negative economy will not get magically fixed anytime soon. This is a 1930s-like extended Depression.
I was trying to cheer up wifey about it all, earlier today: sooner or later, world leaders who care only about money (not safeguarding and protecting people from economic exploitation) will again take over the reins, and we will once again have Regulators and Legislators asleep at the wheel while corporations can resume making money hand over fist as we cope with the way they abuse us. But the stock market will do very nicely once again. Not so soon as the day after tomorrow, though...
Yes, market action is uncomfortable and the economic situation and the subsequent political reaction are very troubling to say the least but I don't understand what your backing these assertions with.
I'm a big fan of John Williams. He has a website called shadowstats where he calculates the basic gov't stats using the formulae used during previous administrations. Take them back to the days of Reagan and unemployment is over 20%, inflation over 10% and GDP essentially negative. The GDP uses a price deflator meaning that if there is a problem with the CPI, it has an impact.
shadow stats alt data GDP
http://www.shadowstats.com/alternate_data/gross-domestic-product-charts
Now, as for the duration, I must admit that a lot comes from data in Harry Dent's earlier works regarding global population and aging and the associated impacts on the economy (e.g. buying a house, furniture, baby clothes, kids schooling, retirement, etc.). Now consider the baby boomers and you see these impacts on steroids.
Now add in the housing situation and how the banks are sitting on xM would-be foreclosures and still not willing to write, or cram down prinicipal. Oh, and the banks all serving as a classic example of supply/demand curves when price controls exist and supply disappears as in . . . credit. The artificial rates being imposed by the Fed are less than what the banks feel is the 'street rate'. Therefore, unless you're willing to pay the 'street rate', alas and alack, they have no money to lend. Oh, and this means the velocity of QE1, QE2, Twists and QE3-n, is right about freakin zero.
But, lo and behold, all this money from the Bernanke Bombers has to go somewhere and considering that in these most uncertain times, well run companies with yield are a part of everyone's 'safe haven', the stock market is (has been) rocking and Wall Street and CNBC are all in something of a multi-orgasmic state.
Did I mention the state of affairs in DC?
Oh, and the revolution will not only be televised, it'll be on your bloody iphone.
2013? 2010? 2015? feh, WTF does it matter. The problems are so enormous and convoluted and global - that it's gonna take a while for us humans to unf*ck ourselves.
Now, this is how I see it in the most likely scenario - say 60-65%. There is also the chance that they'll figure it all out and Kudlow is right and everythone is warm and cuddly and rich - 10%. And lastly, that it just melts down and we crash and burn in some sort of enormous fireball of financial ruin - 25-30%.
And, damnit, I'm really doing my best to be positive.
peace,
rono
Thanks for the response, which I really do appreciate. I would be inclined disagree with you on the merit of changing the Inflation index for the last 30 year, but to be honest I can't say that I've developed an informed opinion on the technical merits of updating the CPI nor what components to include or remove. That's beside the point; you had an answer.
To be honest, I don't really understand the rest of your argument. It looks more like a list of disconnected facts that give you the over all impression of a negative economic outlook. Okay, you think the economy is bad. So do I. But where are you getting those numbers? Are you making them up? It looks like you made them up. Why? What does that say about the veracity of your argument? Did you vet your sources carefully? If you didn't vet your sources carefully, what does that say about the conclusions you reached?
I actually agree that it is likely that our current economic and political troubles are bad and likely to get worse and linger. I don't know what that will look like, I don't know if I'm wrong and I certainly wouldn't bet my investment portfolio on the outlook that I am more right than everyone else.
just saying...
CPI and inflation. Sokay, 20% of the market basket of the CPI consists of housing as represented by rental rates - not home prices. Over 50% is subject to hedonic adjustments. Great word that means that if the product/service is 'new and improved', they can charge more and it doesn't count. Sounds reasonable as long as I can still choose the 'old and unimproved' version. Otherwise, it's flimflam. I had a 2000 minivan and bought the exact same thing in a 2005, but it cost me $5K more because I had to take bundled add on features. None of which would show up in the CPI but I had no choice, so they showed up for me. Nonsense. Hell, Big Al stated that if steak became too expensive, people could shift to hamburger and because they're still be eat beef, it should count towards inflation. Oh really.
As for my overall description of the state of global economic affairs, it's just that - my overall description of what I see from Up in Michigan. I believe the only actual figures I used were with my handicapping the future. Where did they come from?!?!? They're my predictions based upon a whole slew of global economic issues and themes at play. Do I have to support them? Cripes, they're odds on possible economic futures. From a strict quantitative perspective, you'd need an econometric models costing a bunch of money that I'm not being paid. In addition, while attaining my BA in Econ, I never much cared for the quality of the attempt to quantify human nature and common sense. I admire their efforts, but I've never yet seen an econometric model of the global economy that worked. Too many human components.
For example, witness the meltdown in Euroland. The Greeks have been happy and made a lot of promises to their people about this and that. They've had to borrow money from the Euro bankers to fund these promises. Now, their economy is soft and they can't pay their bills. The banks want to be made 100% whole and are demanding that the gov't make it so (shades of us with Tarp). The people, however, like the Germans, as saying Hell No - screw the bankers. This means that any politician that allows some sort of EuroTarp is toast - and it's very likely that the Euro CB will not assume the losses of banks loaning to folks that were a bad risk (not at all like what happened here). Ergo, now they're searching for a softlanding bankruptcy for Greece.
And, because we did assume the losses of Wall St., we'll be in the gutter for years. If they had let them all crash and burn, chances are we'd be fine in a couple years. They didn't - the kicked the can down the road.
Hey Max,
How best to protect yourself? About the only thing with substance are the corporations with lots of cash that are paying dividends. I'm still huge on pm's but have also been huge on dividends and corporate paper.
peace,
rono
As for Europeans a few years ago you were arguing how great Euro was. I guess we put a period on that argument now. Europe had a dream for greatness by being United States of Europe a la USA. When it got hard, how it is everyone for themselves. Germany looks so good financially. They, like China, built on a weak currency because if they were out DM would be so expensive to hurt their export industry. They can go on their own way but in the process they will hurt their export industries as well. I think the fat lady has not spoken yet.