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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.

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The stock market is detached from economic reality. A reckoning is coming.

"Wealthy investors and the Fed have been propping up large companies. It can’t last."

"If the stock market doesn’t reflect the health of our economy, what does it measure? Most directly, it indicates the financial health of the richest among us. Overall, about 55 percent of Americans own stocks, according to Gallup, but ownership is heavily skewed toward the wealthy. According to Federal Reserve data, the top 1 percent of U.S. households own 39 percent of equities and mutual fund shares, and the top 10 percent own 83 percent — which leaves workers in the bottom 90 percent owning just 17 percent."

Article Here

Comments

  • Yes, the stock market and the economy is two very different thing. Those of us who have jobs and 401(K) are very different those who live from paycheck to paycheck with little saving, let alone investing for retirement. Unfortunately these income folks will not benefit from the stock market and the bigger pictures of the American Dream.
  • MJG
    edited September 14
    Hi Guys,

    I agree that the stock market and the economy are distinctly separate entities. The economy is today while the stock market is about tomorrow. Time matters. Predicting tomorrow accurately is an impossible task given the interacting nature of our complex society with its never ending rules and unknowable rule changes. Folks confidence always changes in unforeseen ways. Good luck on any forecasting accuracy in this world. But over time the world has become a better place by most measures so investing positively in the future is not a bad generic policy. So I invest.

    Best wishes to all, but especially to those who don’t have the resources to invest in the marketplace.
  • edited September 14
    "the stock market and the economy is two very different thing" = correct
    "A reckoning is coming" investing based on predictions isn't recommended.

    Over the years we heard the following:
    1) US stocks are over value, the rest of the world is undervalue. US stocks did better in the last 10 years.
    2) The GMO team and Arnott have been wrong for 10 years.
    3) Gundlach was way wrong when he predicted the 10 year will be at 6% in 2021
    4) Bogle was wrong when he predicted stocks/bonds performance based on the past and averages.
    5) Inflation and interest rates can only go up. Both wrong for years.
    6) inverted yield signals recession = wrong. High PE, PE10 signal the end of the bull market...wrong again for years.
    7) There is no way stocks will have a V recovery in March 2020 based on blah, blah, whatever...and they did.
    8) The economy is bad, unemployment is high, the debt is huge = bad future stock market. The reality? Stocks are still up.
    9) If Trump will be elected, it will be a disaster. Reality? stocks were up
    10) New predictions a) The new president will be XXXX so do something now b) Covid-19 cases will be up c) China-US relations got worse

    The Fed successfully managed to do all the above and why many "experts" were wrong

    If you didn't get the message already, most investors should do nothing to very little. Predictions are a flipping coin. Some will be correct just because markets go sometimes down.
  • @FD1000: I am delighted to be able to agree with you.
  • edited September 14
    But the larger question still remains. Just how is it that Main Street and Wall Street are so very divorced from one another? The only reason to ignore that question and to point to rosier outlooks is because the metric used to measure the wonderful-ness of the Market has been replaced. Replaced by Fed action and Central Banks around the world, subsidizing the foundations of their economies; and therefore, the world's Economy. Profit no longer matters. Nothing is allowed to fail. Liquidity pumped-into the economy makes The Market a "meth lab," as was referenced here not long ago. The ones who are doing the "cooking" in the "meth lab" can continue to cook, and we can continue to own stocks, AND bonds--- and benefit from owning both. Until it no longer works. Until someone or something "pulls the plug." And it's been going on, in one way or another, since the '08-'09 Crash. ...From "Louisiana 1927" by Randy Newman: "some people got lost in the flood, some people got away alright.... Now, the River broke through, way down in Plaquemines. There were six feet of water in the streets of Evangeline."
    https://weather.com/storms/hurricane/news/2020-09-14-hurricane-sally-forecast-gulf-coast-storm-surge-flooding
  • ...Also: Lots of volatility. You all can see that. Not to mention range-bound, eh? Albeit at near-record levels. And my own portf. is benefitting nicely... So, what's to be done?
  • edited September 14
    @Crash: "Just how is it that Main Street and Wall Street are so very divorced from one another?"

    Is this a new thing? It's going on for decades. It's actually got better for main street because indexes + doing nothing worked so well. Wall St + other investment pros used to take more
    Wall St and many companies have been playing with the numbers for many years. Example: how come the new earnings beat the estimates at 70+% every time?

    What other choice do you have? Stay in cash/MM?

    BTW, I don't follow my generic advice, I'm a trader and retired. When I see elevated risk (VIX > 35 + others) I sell a big % of my portfolio but I don't recommend it to anybody.
    Another exception: I think the US market is the best long term market so just enjoy and invest. Many investors don't understand markets and think there is a high correlation between markets NOW to the economy, unemployment and others.
  • edited September 14
    @FD1000 OK, ya. But the implication is that all the reports and statistics made public every week, month and year are meaningless. Some of those reported numbers come from private sources, some come from gummint. So: untrustworthy numbers. Untrustworthy gummint. No matter which Party is in control. That's a REAL problem. Yes, it's been going on for decades, maybe back into my teens. Hell, the gummint lied about how many North Vietnamese and Cong were killed each day, on the tv news. I saw something long ago that said if there was simply a blood-trail found, it counted as a casualty. But the "officialized deceit" has been raised and compounded exponentially. It must be admitted that the '08-'09 Crash was a watershed. And the beat goes on. Louder and louder. It's getting almost to the point of "alternative facts." (wink, wink.) And I belong to one of the two major Parties here where I live, only because the Primary is a "closed" one. https://howiehawkins.us/
    https://berniesanders.com/




  • Based on where I live and the surrounding community if you don't think that Wall Street and Main Street are hundreds of miles apart then you need to come out of your basement once and awhile.
  • It's getting almost to the point of "alternative facts." (wink, wink.)
    I almost wet my pant in laughing so hard. Thank you.
  • edited September 15
    Tend to agree with FD1000 and MJG to the extent that I think one shouldn’t make significant changes in their investing approach (ie: running to cash, loading up on gold, buying treasuries) based on such prophesies as “A reckoning is coming“. I sometimes post such articles as Mark here, but I like to add a disclaimer saying this is for discussion purposes and “not necessarily my own opinion.” Without that, some may interpret the post as some kind of personal financial advice. Just my 2-cents.

    There’s always a reckoning coming. Greenspan spoke of irrational exuberance” in ‘96.
    Vanguard sent out letters cautioning its investors that “trees don’t grow to the sky” in the late 90s. President GWB in ‘08 warned of “ ... a depression greater than the Great Depression.” Marc Faber, Jim Rogers, John Hussman. And so it goes. Bottom line: I want to make money. Not a lot. But a sum substantially greater than the meager returns available on cash. So, I’ll stay the course, ride the markets thru a diversified portfolio, go with the flow .... Maybe “tilt” this way or that for good reason - but no major changes based on the dozens of daily prophesies - often from writers who know less about it than you or I do.
  • Is consumer spending still 70% of our GNP? We know who owns the assets. I wonder who does the buying.

    I don't see any problem with having a plan to take profits and rebalance according to your situation and comfort level. That may not involve predictions. But it does mean selling from time to time. And doesn't that involve the estimation that while I could make more, I am happy with what I have made so far?

  • edited September 15
    WABAC said:

    Is consumer spending still 70% of our GNP? We know who owns the assets. I wonder who does the buying.

    I don't see any problem with having a plan to take profits and rebalance according to your situation and comfort level. That may not involve predictions. But it does mean selling from time to time. And doesn't that involve the estimation that while I could make more, I am happy with what I have made so far?

    .............Sounds similar to the way I'm operating, these days. Simple portfolio, not many changes to be made---- because I did my homework. The one slightly disappointing aspect these days: RPSIX. Dependable, extremely diversified, bond-wise. A TRP fund full of other TRP bond funds, with a small slice of equities. That equity portion makes it a bit unique, I suppose. Might help add to profits, most years, yes? ...But the monthlies have been getting disappointing. Not awful, just going lower in dribs and drabs. So, I've searched and searched TRP for a different bond fund that's worth anything. (Apart from tax-free, specific-State funds. I've even looked at some of them, too: NJ and VA.) But there's no tax-free advantage for us. TRP is really not a bond shop. I just don't want to go starting brokerage accounts that I've never needed, ever before. ...The other bond funds in our stable: PRSNX, PTIAX. That PRSNX is our 3rd-largest holding, at 21%. RPSIX is number two. (Anyone else notice that a few months ago, PTIAX moved their monthly pay-out date to the MIDDLE of the month??? They must have received too many complaints. Performance is rather GOOD, but they play the game about vested shares and "pending" shares. Screw THAT. I told them I don't want to hear about "pending" shares. My money is green and very real. And they take it automatically from my account, monthly. The withdrawal from my account is never shown as "pending."

    ... I'm on a rant, so, get on with it... Once, speaking to a "Supervisor," I asked him: "why are there "pending" shares in the first place? Is it because you have too few people hired to do the record-keeping in a TIMELY manner?" And the phone went dead. Until I broke the silence, and said: "Alright, then. THAT'S clear." Good fund. But that whole business sucks dooky from shrews.
    https://animals.net/wp-content/uploads/2019/07/Shrew-2-650x425.jpg
  • @Crash,
    Sure, if you want to rant why not but a typical investor, including retirees, should do nothing (or very little if it makes them happier) and just follow their long term asset allocation based on their goals.
    As a trader I'm not attached to any fund and their managers, I hired them as contractors to do a very specific job, if I find better choices I switch. Several funds I held for years and several just a few weeks.
  • Here’s Yardeni’s optimistic view: https://www.yardeni.com/pub/yriearningsforecast.pdf

    It’s also interesting to look at the estimated sector earnings here: https://www.spglobal.com/spdji/en/documents/additional-material/sp-500-eps-est.xlsx?force_download=true

    Seems to me the stock & bond markets can be totally divorced from Main Street. Certainly now that there is always the Fed put. Which is to Sa the Fed will always stop the markets from falling. Years ago I believed folk like David Stockman who said a day of reckoning was coming. Now I’m more inclined to believe FD1K.
  • And here I've been thinking the relationship went somewhat like this: The Fed is in place to help the market spend down the future of Main Street today. It's somewhat comforting to learn that that is not the case.
  • If Yardeni (or the street consensus) is right, market is trading at about 19 times 2022 earnings. What do I know, but with interest rates set at zero through 2023, that doesn't seem crazy to me.
  • Crash, If your accounts are with T Rowe Price, you might want to consider PTTFX for a bond fund. It is highly diversified, but unlike RPSIX, it doesn’t hold any stocks. I moved a portion of my TRP account from RPSIX to PTTFX a while ago and wish I had done more. RPSIX is a good long-term income fund, but it takes a hit whenever stocks fall.
  • @Tarwheel Thanks for the suggestion. You're obviously pleased. But when I compare the monthlies, there's not much of a difference. I'm not even taking monthlies yet, just re-investing it all. But I guess I'll just save a bit of effort and stick with RPSIX.
  • edited 1:08AM
    Re RPSIX. Not a bad fund. Here’s some possible reasons it’s had a lackluster year:

    12.3% invested in stock fund PRFDX, which follows a value investment approach (long out of favor) and has 21% invested in financial stocks which have struggled recently due to very low interest rates. PRFDX is off about 14.5% YTD.

    16.5% invested in their high yield fund PRHYX, which is essentially flat YTD.

    8% invested in their EM bond fund, PREMX, which is slightly negative YTD..

    That makes well over one-third of its holdings either flat or underwater this year. Shouldn’t be any mystery than why it’s not keeping pace with most bond funds. The fund is not and does not pretend to be an investment grade bond fund. Considering the commitment to PRFDX, it’s hard to consider it a bond fund at all. In fairness, this has been an unusually good year for some sectors of the bond market - longer dated government and intermediate investment grade corporates for example. Don’t expect that outperformance to continue indefinitely.
  • edited 3:23AM
    @hank That is enlightening. :) ..... I also recall a particular observation you once made to me about RPSIX: "a good place to put money that you don't know what to do with, yet." I suppose that rings true. At year's end, I'll be hoping for something more than current YTD performance shows. But I'm certainly not panicking. Thank you.
  • edited 11:46AM
    @Crash - Good recall. For benefit of others, the remark was from one long-time direct investor with TRP to another who had recently moved a large sum to TRP, in part to qualify for some of the “perks” TRP affords larger direct investors with the firm.

    That said, my thinking re allocation-type funds that make extensive use of bonds to hedge equity and lower credit holdings underwent some fundamental changes during / after the March 2020 market debacle (across many sectors). I am more concerned now that longer dated higher quality bonds (RPSIX does hold some) no longer offer a sufficient “offset” to riskier assets within the portfolio due to the extraordinary low interest rates they bear and an intensified Fed intervention in the credit markets. There is no easy way around the dilemma. For myself, I’ve added some risk on the equity end, added exposure to intermediate / short term bond funds, and reduced exposure to lower quality longer dated bonds. Not a drastic revamp - just a gentle nudge in the direction indicated.

    The above observation isn’t limited only to RPSIX. It applies to all multi-asset allocation funds with heavy bond exposure, including my long time favorite TRRIX. It’s not that the funds have changed, but that the underlying fundamentals have shifted. To some extent, Price acknowledged that change in fundamentals with the introduction of TMSRX a bit over a year ago. I’m more inclined today to say that that money you’re not comfortable committing to riskier credit instruments or equities might be better placed in a short term or ultra short bond fund while awaiting better opportunities.
  • +1

    The above observation isn’t limited only to RPSIX. It applies to all multi-asset allocation funds with heavy bond exposure, including my long time favorite TRRIX. It’s not that the funds have changed, but that the underlying fundamentals have shifted To some extent, Price acknowledged that change in fundamentals with the introduction of TMSRX a bit over a year ago. I’m more inclined today to say that that money you’re not comfortable committing to riskier credit instruments or equities might be better placed in a short term or ultra short bond bund while awaiting better opportunities.

    Stay safe, Derf
  • TRP has invested a portion of some of its allocation funds in hedge funds for a while now. I’ve had a large portion of my Roth IRA in TRPBX for quite a few years, and it’s got about 5-10% of assets in a hedge fund, if I recall correctly.
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