The stock market is the cheapest since 1980
forbes.com
forbes.com
I think the real lesson here is everyone is getting squeezed out. I feel like the other shoe is going to drop some day, but who knows when. The weaker hands (poorer people) will inevitably fold first, increasing wealth inequality, as it usually does.
Same thing about all the retirees eventually dying off and liquidating or handing down all this money, stock, and housing (honestly, I feel the same about political leanings, but that seems fairly steady unfortunately). Seems like if history has shown us anything, while one person might be good with money, the same can't always be said for their children (3rd generation rule - by the 3rd generation, 90% of wealthy families lose it).
Particularly with house prices here being completely insane, parents very much want to leave houses to their children.
I've also read multiple articles around how to get, or encouraging, retirees to be comfortable actually spending their retirement savings, rather than the interest/earnings from those savings, given its so hard to get a living income that way.
I think the 'die broke' crowd will be limited to a very small sliver of any generation... those poor enough that they have a chance to actually spend all their money, but well off enough that their children own their own houses ( possibly debt free )
... this is ignoring the 10000-unit gorilla that is appreciation of the underlying based on speculative investment and not based on actual supply/demand for housing itself ...
The current litterature seems to suggest that on the contrary wealth easily pass down generations. The recent book Capital in the 21 century by Piketti is one of the largest analysis of wealth distribution based on tax data in most western countries for the last century.
Two economists from the bank of Italy went even further and analysed tax data up to 1427 in Florence. They found that "The top earners among the current taxpayers were found to have already been at the top of the socioeconomic ladder six centuries ago."
So it seems that the data suggest that the third generation rule might only be a way for rich people to teach their kid to be careful with their wealth don't you think?
If you have more data I would gladly read about it.
How would that apply to the stock market? I suppose BRK.A has never split and now AMZN is getting a little large if you can't buy fractional shares a la RobinHood so then I guess the only parallel would be if we saw some huge stepwise increase followed by a market wide plateau (but no drop). This would cement people's positions of the invested before/after pandemic I suppose
Hopefully we’ll remember that we actually have the remedy for this in the form of redistributive tax policies (as opposed to the current inefficient tax policies that drives wealth concentration and stagnation)
The problem with capital gains is that they can be driven by bubbles. During bubbles investors buy a stock because the stock went up instead of looking at how the company is performing. It's a self reinforcing feedback loop because foolish investors attract even more foolish investors. A lot of those foolish investors are retail investors who are often behind when it comes to information and they often just follow the news. Think of shoeshine boys giving stock tips. They are not only late to buy but also late to sell so they buy during the peak and sell after the crash.
The easy fix is to increase capital gains taxes because it significantly decreases the gains from bubbles. At the same time dividend taxes should be decreased because you cannot "fake" dividend payments. Paying out a dividend reduces the market cap of the stock by the total dividend payments because it is merely distributing its income to investors. Even if the company borrows money to pay dividends its balance sheet will show X million debt and thereby reduce the value of the company by the value of the total dividend payment. This is equivalent to not borrowing money in the first place.
It also encourages companies to actually invest into improving their income rather than playing stock market games with short sighted policies to boost their value. This is something central banks are currently struggling with because they hand out money like crazy but don't see anyone do anything with the money.
(I’m trying to avoid rushing into heated arguments over the internet atm, so I’m gonna give myself some time to digest your response.
I would like to say that my main point was more about political rhetoric than economic arguments.)
Whatever the side effects (growing wealth gap, rich making out like bandits), they don't care. As long as the masses have their minimal existence, Netflix, cheap food, etc.
1 - fetishization of quantitation in politics. Bias for policy endpoints that can be measured with "objective" numbers.
2 - Selection of employment as a policy endpoint that both the economic left and the right can agree on.
3 - Selection of monetary and fiscal policy as the means to keep employment levels high.
4 - https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-hi...
"even in the long run, it’s really, really hard to cut nominal wages. Yet when you have very low inflation, getting relative wages right would require that a significant number of workers take wage cuts. So having a somewhat higher inflation rate would lead to lower unemployment..."
5 - Goodhart's law
Result:
Stealthily cheat the labor class out of their wages to keep employment high over the course of generations (see productivity gap, http://country.eiu.com/asset_images/773319461.gif)
Keynes: "Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some."
Keynes should have been more specific: Inflation selectively impoverishes the poor and, and enriches the politically connected, who are usually already wealthy.
Broadly speaking, this means the financially unsophisticated.
It doesn't necessarily mean the poor, as (a) they have debt > savings, (b) modern inflation primarily accrues in assets rather than staples, & (c) competition for employees inflates base wages (if low unemployment).
Could be that people with lower net worths are less comfortable risking what little savings they have on investments.
They may also need more liquidity in case of emergencies. Wealthier people can generally afford emergencies without going into their investments.
Consider: You are spending 90% of your wages on day to day expenses and there is 2% targetted inflation. You have lost a whopping ~20% of your margin of survival (100%-90% == 10% -> 100% - 91.8% ~ 8%). If you are spending 20% of your wages on day to day expenses and there is 2% targetted inflation, you have lost closer to 2% of your margin of survival. It's much easier to find lifestyle changes or, more likely, shift your investment balances that will keep you prospering in the "wealthy" situation.
And, before you say "wages keep up". No they don't, otherwise the policy of using inflation to prop up employment doesn't work via the policy mechanism. Definitionally.
> they have debt > savings
You haven't been poor, have you? The wealthy are truly the consumers of low-interest debt. You can't do things like trade forex, place margin stock trades, place options, etc, so fluidly except in a low-interest rate, debt-fueled economy. These debts are awesome because the nominal payback is diluted by real loss in purchasing value. By contrast, the poor are consumers of high interest rate debt. Sometimes even in the annualized double digit regimes (sounds really bad, but this is usually short-term, on the order of weeks to months loans, so only slightly bad). These financial instruments are NOT substantially ameliorated by inflation. If you are in debt and poor, you are not waiting for hyperinflation to make it easier for you to pay off the repo man.
Where do you think does the price rise come from? From magic pixie dust? It has to come from somewhere and since every service and good is the product of human labor that means any cost increase must derive from the scarcity of labor and thus increased income for workers.
In the past 5 years the US was one of the few countries that actually hit its 2% target inflation rate and guess what? It was one of the fastest growing first world economies both in terms of GDP and income for workers. It did not suffer because of the targeted inflation, it flourished because of it. The worst effects of inflation happen way beyond 5% and no country on earth wants that type of inflation. 2% is the best compromise between stability and change and it will always stay that way.
>And, before you say "wages keep up". No they don't, otherwise the policy of using inflation to prop up employment doesn't work via the policy mechanism. Definitionally.
Wages actually can't not keep up because by definition inflation happens when demand exceeds supply. Demand for consumer goods is by definition demand for the productive output of a worker. Buying that consumer good is directly paying the wage of a worker. If worker salaries consistently lag behind consumer price inflation then a competitor can just hire the cheap labor and undercut the incumbents and thereby reduce unemployment caused by "insufficient greed". I want to clarify that when I am talking about consumer inflation I am talking about demand side inflation.
Increased wages kill relative wealth and therefore for the wealthy the best thing that could happen for them is low consumer inflation or even deflation. Inflation forces them to actually invest their wealth to keep up with inflation and that investment must employ workers or otherwise it would not catch up with inflation. With deflation they don't need to do anything. You will get poorer every year automatically.
Economics is purely about setting the right incentives. Once you have set up the right system human greed alone will drive the economy to do the right thing. Unfortunately people hate greed because it screwed them, so they hate it even more when it doesn't screw them because that ruins their sense of justice (greed is always evil).
You don't think those people are presenting graphs! with numbers! in powerpoint slides? Also, this is a classic: https://www.youtube.com/watch?v=JUvm9UgJBtg&t=2m40s Numbers! It can't be wrong.
There are two options: Just wait (for decades) until salaries in China have caught up to western levels. Introduce an artificial stimulus for domestic work.
That artificial stimulus is not the responsibility of the central bank. The rest of the government has to do this.
"Minimally happy" is another way of saying doing away with extreme poverty and desperation -- that might not be so bad.
Outside the US that certainly is the case.
If an average worker makes $20/h and you own $100 million you want to grow to $200 million but if an average worker now makes $40/h you haven't gained anything. Worse, if inflation is greater on the consumer side (the money is flowing into assets first so this will never happen) you can actually end up with "only" a $200 million net worth but workers who demand $60/h. You are actually less wealthy than before despite the increase in net worth! Workers massively benefit from consumer inflation.
To me the lesson is if you have any idea how to create a good (> 5%) return on investment, then it's your time to shine! The world is awash in capital looking for a home, and it could be your project. I would propose the real issue is more of the berkshire hathaway problem, in that there are plenty of opportunities to make good returns, just few of them billion dollar sized (in terms of position size).
Consider something like putting solar on one's home. It can have an ROI of 10-30% (quick google), but organizing a multi-million dollar investment on others' homes is administratively tough. So the "little guy" (home owner in this case) can have an opportunity to place ~$50k at a high ROI...
Now, if you're talking about really poor (like hand to mouth) then their best investments are likely in education and skills training. A sort of intangible capital that (afaik) no market keeps track of.
1. hard to diversify, very few opportunities allow you to split your $300k into $50k investments
2. because of 1. and for other reasons the risk is often quite high
3. very illiquid as for example with PV panels
4. huge time and administration costs as for example with running a corner shop or a kebab stand
1. Trading marginal time for additional income/wealth. An example would be renovating your own home on after coming home from work, or being a single unit landlord and having to fix the toilet. You're trading netflix time for additional wealth generation
2. Locked in choices, choosing to own a home is a choice to accept whatever circumstances come in the next 10-25 yrs. You. lock in the the choice and the outcome (home ownership at a certain future date). Any returns beyond that are "luck" but smart middle class people make choices with high likelihood of good outcomes
Convenience is a luxury of the upper class.
Can stocks continue their historical run up? Sure. But we're pretty clearly one catalyst away from a major correction. Will that catalyst arise in the next year? Impossible to say, but it will come eventually.
In an effort to save the economy, the Federal Reserve and Government have created a much bigger long-term problem. They've shown a willingness to prop up the stock market and removed all downside risk. Wealth inequality is ballooning to an all-time high due to large inflation of asset prices. Homes are less affordable than ever due to extraordinarily low interest rates.
And when the Fed attempted to raise rates (2018 dip) and stocks dipped a few percent, they backed off totally. Years of asset price growth is happening in a few months, which is basically a wealth transfer from the investors of tomorrow to the asset holders of today.
While government intervention has helped the real economy in the short-run, we're setting ourselves up for much bigger problems down the line.
That's what drove the turnaround and led to the subsequent (and ongoing) bull market.
However, the market is much frothier now (in certain segments) than before covid hit. For example, Tesla's value has increased by 10x from the March lows. Tesla is being priced as if it will be a near monopoly on both car sales and the self driving market, which is pretty clearly not true. Even though it may take legacy automakers or Apple a few years to catch up.
There are less levers to pull than before. Interest rates are close to 0, congress has already passed trillions in new spending. Ability to counter a second dip will be more limited than before.
A catalyst would be something like accounting fraud being uncovered in one of the growth stock darlings (ala Enron), or perhaps Tesla simply reporting numbers far below expectations. Volkswagen EVs are outselling Tesla in Europe for example, so the bull thesis of a monopolistic market position is a bit weak. Another catalyst could be unexpectedly high inflation, which would indicate the Federal reserve may raise rates soon.
It's also entirely possible the market just trades close to flat for a few years until valuations level out into something more realistic.
Is it possible that we're in a "new normal" where stocks are just valued higher than historical norms in perpetuity? Maybe, but when things look this frothy, the "new normal" thesis generally doesn't pan out.
It's unlikely that Tesla will be a car sales or self driving monopoly... but their charging network is by far the best, and they allow other manufacturers to use them. I think this, in addition to the car sales, self driving, and massive speculation is what is causing the stock price to be where it is.
However, I think it's likely that regulation will eventually prevent vendor lock-in/monopoly around charging stations.
Imagine you could only go to some subset of gas stations, depending on which manufacturer you got your car from?
It's a dump on 1 years earnings, that everyone feels they can 'write off'.
Investors/Fed/Gov may not see it as a secular shift.
So as soon as they see light at the end of the tunnel, then it's 'a matter of time to normalcy' so a rush to get back into the money.
A major war would be a different thing because it could mean a secular shift in the system.
A massive housing bust as well, because nobody knows what comes afterwards.
Young people will argue that the victims were older people who had less lifespan left than them. It will also help with aging populations, retirement schemes and free up the housing market. Economically it might not be significant at all.
I personally don't like to see people dying, I would want them to live a little bit longer even if they are a burden to me.
Their mandate is not comprehensive enough. They've created a huge societal risk by effectively propping up companies that took on excessive risk or were otherwise poorly managed. Yes, they blunted unemployment in the short run, but excessive risk taking is now being rewarded, which has longer run consequences.
It's natural and healthy for poorly run companies to fail in times of crises... it leads to strong companies surviving and more stability in the long run.
They've also positioned it such that it will be very difficult to raise interest rates in a reasonable timeframe. When the next crisis comes, there are fewer levers to pull.
Finally, it's pretty clear the Fed is watching the stock market closely, as they backed off on increasing rates after the market dipped in Dec 2018. Their actions show they aren't strictly abiding by their mandate (see also: they very recently changed their rules on what they consider unacceptably high inflation)
I don't agree that companies failing in a recession is "natural". I guess COVID is natural, but a restaurant business that goes under because their customers are temporarily afraid of dying is not a result of being poorly run, but of bad luck. I also don't agree that there is too much risk taking -- rather I think there is too little. High interest rates on government debt rewards lazy investors who don't want to work to find good investments.
I want an alternative, high interest savings accounts and CD used to be a good safe place for some savings, now your losing value relative to inflation.
A mixed portfolio makes no sense. Nobody has a pension, everyones retirement is in the market, none of this seems good to me long term, all very fragile.
Either your in stocks or Bitcoin at this point or your at negative rates relative to inflation.
Kraken, Gemini, and Coinbase are all quite trustworthy, if any of those are available in your locale.
Buying and holding for 4+ years has produced amazing gains in Bitcoin since its inception. Trading often and fooling around with alt coins has caused many great losses and pain. Don't invest more than you can stomach losing or holding in the red for a few years.
I am a US citizen. I have fully complied with tax law as I understand it. To my knowledge, I’ve never been involved in any darknet marketplaces. I’ve seen an opportunity much sooner than my peers.
I have been waiting for the current price volatility since the last ATH spike in January 2019 since exiting a majority of my bitcoin positions. The block reward halving last summer combined with an ever increasing mining difficulty is a no brainer to me. Good luck
There’s 7000 shitcoin trading on an infinite number of shitcoin exchanges providing infinite liquidity; that’s what I see. What is there to stop bitcoin?
Do not recommend a novice doing this. Like someone below has mentioned there are numerous exchanges now that will gladly serve as your gateway into bitcoin.
Just remember though, if you not in control of the private keys securing your wallet, it isn’t your money.
Do not blindly believe cryptocurrency exchanges are not running a fractional reserve. Without a transaction I’d on the bitcoin network, it never happened.
FWIW I started in bitcoin trading for anything in a chat room on irc. The landscape has changed significantly since.
"And that could explain why investors don’t shy away from stocks even at record valuations. There are simply no alternatives."
To be honest all that excess of money should be invested into renewables. No country can have too much renewables because they are low maintenance. The excess energy can be used to create more profitable employment opportunities.
It seems almost absurd that the world can end up in a state where it is impossible to invest capital in a way that provides any significant return at all. All is relative, but people still want to eat and get shelter from the rain.
There's certainly some potential for growth and returns still available when companies reach this stage, but the lion's share is taken out already. The index funds are also often at the ass end of this phenomenon, buying in only at very high valuations. The most absurd example happening a week ago, with Tesla entering the S&P500 as the sixth biggest company.
I'd like the possibility of investing in a fund of unlisted companies. The growth sector that's not represented in the major indexes is far too big to ignore. I try to compensate by having a portion of my wealth in "small cap" companies, but there is still a very significant sector that's completely missing.
It's pretty obvious. You don't have to invest that money in the same country where that money was created in the first place. If you exchange USD for yuan and the Chinese exclusively buy US assets with their newly acquired USD then there is no reason for workers to produce anything in the US. The factory can be in China after all.
In theory you could build housing with that money and employ construction workers but that is crazy talk in the US.
There is no incentive to save, but alternatively, it also pushes interest rates on mortgages to near zero which increases the demand side by opening up home ownership to people that before couldn't afford it which pushes up prices.
The same occurs with stocks, with no returns in other asset classes everyone floods in to stocks and pushes the prices higher.
This is definitely the new normal going forward, because you can't increase interest rates without dramatically reducing purchasing power, which in turn leads to slow down across many areas of the market.
Someone at Wall Street must have thought of that and pitched the securitisation already. Think about it - large companies agreeing up front to spend a minimum of X billion a year buying back their stock. And then WS banks parceling both sides of the risk and exposure to investors seeking anything with non-negligible yield.
BTC might go up, might go down. But it's a risky asset and there's only so much money that can flow into a non-productive asset.
The last 30 years has had an expanding market. We're now facing a deeply contracting market. Equities will lose most of their value; gold will do the opposite.
https://investmentsandwealth.org/getattachment/cc0f7589-7411...
Check the ETF TLT compared to total US stock market, VTI, on https://www.portfoliovisualizer.com/backtest-portfolio or the asset classes on https://www.portfoliovisualizer.com/backtest-asset-class-all...
Their negative correlation zig-zag is remarkable the past few decades. Some research postulates that in a decreasing interest rate environment (past 40 years), they’re negatively correlated, while in a rising rate environment they’re positively correlated, leading to the past 100 years minimal (almost 0) long term correlation.
"My 1980s technical analysis hasn't been relevant for 5 years and I just learned how to short sell muahahaha .... but I guess the market can remain irrational longer than I can remain solvent!"
I honestly think this is a natural progression for people studying stock trading on the internet.
But I really find the credit markets illuminate a lot, and I find a lot of traders and investors to ignore that. "Bonds are boring", so they think. They are a leading indicator in stock in a variety of ways. It all does circle back to macroeconomic trends and monetary policy, as they are intrinsically related. Yes, when people are trying to get higher yields there are few options. This isn't that controversial, the Central Banks say so themselves and increase the money supply to transform everyone into a finder to locate the remaining assets to buy. Every time you look at a bank and laugh at their advertised savings account interest rate, that is exactly what the Central Banks wanted you to do.
You hit the nail on the head. Bond behavior changes systematic incentives in a variety of first order and second order ways. It's inevitable that it gets somehow refactored back into stock behavior as a second order effect.
I guess the billion dollar word there is "somehow."
So, as the Central Banks in the major Western economies are prohibited from buying equity ownership, they generally do not buy stocks from companies^. They just buy bonds, mostly government bonds but when the utility of that diminishes they also buy corporate bonds.
Either way, Central Bank actions distort the entire credit market, allowing any existing bond holder to sell to the central bank at a profit. it allows corporate bond issuers to create and sell to the distorted market, or directly to the central bank in both the primary and secondary market, at a profit.
Note, when issuing bonds this is not called a profit, but let's be honest here, we are talking about writing on a sheet of paper that I will pay your $2,000,000,0000 back in 10 years at 0.75% a year. They frequently use new investor's money to pay back old investors. There is a word for that, but it dilutes my point. The accuracy of this reality doesn't change though.
These sheets of paper are exchanged for money that did not exist prior to the moment of that transaction.
The recipients buy stocks (and everything else). The corporate issuers buy back their own stock, give executives bonuses who make a diversified portfolio. The hedge fund issuers just amplify their own holdings with extremely cheap, non-margin callable leverage.
^Exceptions: Swiss National Bank buys US stocks with newly created francs.
US Federal Reserve buys bond ETFs, in order to access the universe of bonds.
Outside of the West, the People's Bank of China buys stocks directly. Predictable collective ownership philosophy.
[1] https://finance.yahoo.com/news/boj-becomes-biggest-japan-sto...
They have avoided it, specifically to avoid politicizing control of the money supply, and to keep private companies independent. It is part of the entire purpose of the Federal Reserve and its own independence.
The pandemic stimulus laws have been the most climatic changes to the Federal Reserve directly in the 100 years of its existence. The unshackling and new mandate has had predictable results, some parts of Congress are aiming to re-shackle it and create more safeguards against the legislatures accessing it, but now it is politicized.
The ability for the US to pay for anything is now completely tied to the market tolerance of more dollars on the market. The actual budget discussions have just been a sideshow to distract from this obvious source of funding.
We've also had nearly a decade where inflation is higher than the Fed rate. Making borrowing effectively more profitable than saving. And what are investors going to do with this borrowed cash? Well, probably buy assets that, at minimum, track inflation.
The Fed tried raising rates in 2018, but Yellen was replaced at the Federal Reserve with Jerome Powell, who quickly reversed course and put into place policies which are fueling an asset bubble. Now we are in this awful position where the economy needs higher interest rates, but whomever pulls the trigger on raising is going to tank the market, hard.
[1] https://www.federalreserve.gov/monetarypolicy/bst_recenttren...
Fed balance sheet has gone $6 trillion since 2007. ECB [1] bit less than €3 trillion.
US stock market cap is $36 trillion [2], up $17 trillion since 2007.
[1] https://www.ecb.europa.eu/pub/annual/balance /html/index.en.html [2] https://siblisresearch.com/data/us-stock-market-value/
https://en.wikipedia.org/wiki/Money_multiplier
so you have fed $$ going into banks, which increases their ability to generate loans of future $$ > fed $$, which is then reinvested somehow
The price of gasoline seems to remain the same [1].
[1] https://www.eia.gov/todayinenergy/images/2017.05.26/chart2.p...
If prices for goods are low so are the wages of the workers that produce them. If there was a way for workers to get some of the central bank money they would spend it on consumer goods which drive up demand for consumer goods and those consumer goods have to be produced by workers which drives the incomes of those workers up.
So when I am talking about consumer inflation I am not just talking about the prices of services and goods but also the incomes of workers. These things are linked extremely tightly. High incomes drive up consumer inflation and consumer inflation drives up incomes. If you can get rich without involving workers you have found a recipe for growing wealth inequality precisely because you avoided consumer inflation.
So by definition low consumer inflation is associated with inequality. If there was consumer inflation but no asset inflation the relative wealth of asset owners would diminish and the relative wealth of people with income would increase.
High consumer inflation is generally associated with low unemployment because the scarcity of workers is driving up prices of consumer goods. Imagine a medieval country that is going into debt to start a war. They are buying up all the food for the soldiers and thereby drive up the prices. If everyone is already at full employment because e.g. they are doing subsistence farming and barely grow enough food for themselves + some taxes then what happens is that food becomes unaffordable for farmers and you are taking away all the food from the farmers and giving it to the soldiers. This obviously results in a famine because those farmers need that food to feed themselves and grow more food next year.
However, we are not a medieval country that has hit its maximum economic output. There is slack in the system. We have unemployment, especially youth unemployment in European countries. If you increase demand for workers you decrease unemployment despite introducing more money into the system. If you figure out how to print money and somehow do not create more demand for workers you end up keeping employment low. As long as unemployment is high you can keep printing more money endlessly. That's not an argument in favor of printing more money, it means that you should spend your money on the right things instead.
https://www.project-syndicate.org/commentary/making-sense-of...
For the people that haven't noticed, a global pandemic and lockdowns killed 40% of small businesses this year, forced many large businesses to take on new debts that will blunt future profits, and forced the government into unprecedented deficits. Stocks are "cheap" because risk went up.
By any other measure they look far too expensive for the current economic outlook.
So, at least for them, the question is: How much does it take to buy a given return? The question isn't the only one in investing, but it's also not an insane way of looking at the market...
You haven't mentioned risk though - this is a very risky game and the more mispriced assets get the riskier it is.
What happens when interest rates rise?
At the end of the day though, when the short term situation resolves itself, that bike is still worth $500 and it wasn't cheap.
I think the fallacy here is that you don't HAVE to buy returns. You could choose to just eat the inflation or pick an alternative asset class.
On the other hand that is insanity and has the potential of turning into a humanitarian crisis IMO but I guess we'll see how that plays out.
I would imagine many retired government workers would end out on the streets or instead they will print an ungodly amount of money to paper over and shift it into a different problem.
This idea sounds self evident, and everyone is already doing that.
Forbes asks me to subscribe, after reading this, I have to reconsider this at least in 1 year where my memory of this low info density article faded away...
"Does investing in emerging markets still make sense? | Apart from China and India, there is little sign that developing economies are converging with the developed world." (https://www.ft.com/content/0bd159f2-937b-11e9-aea1-2b1d33ac3...)
One other issue is that a lot of foreign debt is denominated in US dollars. The US can print its way out of any crisis, other countries can't.
So what happens if inflation goes up? Well for inflation to have any meaningful effect it would have to blast past the fed's targets and the fed would need to massively increase bond yields. Which would remove the pressure on stocks, causing stock prices to drop.
What I'm not so sure about is what happens if inflation really does stay flat. If inflation stays flat, then everyone is just holding a load of stock with really bad yeild. Does that also cause a crash when people realise they're holding bad investments and those bonds don't look so bad because there isn't inflation?
We're one financial scandal away from a crash, one pandemic resolving drug away from a bull market.
... and trying to guess which will hit first.
Or more accurately, and the market has already priced in the capital weighted average sentiment of which will hit first.
The big question is if this situation of overpriced stocks will increase, how long it will endure and how will it end?
This is the real question; how does the Fed stop holding down the accelerator, and when they do, how many years of flat returns do we end up with?
"The time had come, as in all periods of speculation, when men sought not to be persuaded of the reality of things but to find excuses for escaping into the new world of fantasy."
– John Kenneth Galbraith
It's like claiming some deeper insight from the area of a square vs. its side length.
A yield of bond: 0.5, equity 4 vs bond: 1, equity: 4.5 doesn't change his argument, but changes the ratio significantly.
He then peaced out of my life but that part stuck.
I guess he decided raising his child would cut too much into his savings rates.
I don't disagree with his stance descriptively, but if we embrace it, it means committing ourselves to an amoral, spiritually impoverished future.
Mmmm no it’s not that simple, but it’s a long story. Last I heard he was presumed homeless.
The end game of rising inequality is not a few living good lives while most suffer. It is chaos and instability.
It is important to turn that high income into assets. Living on cashflow is a losing bet long-term.
There’s another dimension that I find increasingly useful to look at.
Capital is infinitely scalable. One person can put $1 to work, or one person can $100 billion dollars to work.
Labor has a hard limit somewhere around 60-80 hours per week. One person cannot sustainably put more labor “to work” without capital. Labor is essentially time.
So you have time and money. But not all hours you spend are the same. You can spend an hour fixing your car, or painting your house. The net effect of that hour is to provide a bit of value for perhaps up to a dozen people.
Or you could spend an hour creating something that provides a bit of value many times into the future for thousands, millions, or billions of people.
One is not inherently better than the other, but one is inherently more economically valuable than the other.
So the lesson is if you are time rich but capital poor, and you want to get capital rich, you need to spend your time on things that provide a bit of value for an arbitrarily large number of people. In other words, one-to-many not one-to-one.
There’s an upper limit to how much money your labor can make working 1-to-1 or even 1-to-N where n is small. There’s no limit to how much money your labor can make when N is large.
When I was a kid, there was college+professional job out there for the A and B students, and there were jobs at the factory or mill out there waiting for the C and D students. Now, it's success for the A++ students with the "right" extra-curriculars (and for the too-rich-to-fail kids), and unemployment/meth/prison for the remaining A, B, C, and D students.
Meanwhile I did basically no homework between the ages of 11-24, graduated 2 years late from college after flunking a couple courses, spent all my "free" (= homework/class) time reading and fiddling around with computers, and ended up in one of those hot jobs. My parents freaked about me ever having a job or living on my own - my mom sent me a graduation card that said "Some call it graduation. We call it a miracle." I matched her final salary (after 35 years in the workforce) in my first year out of college.
IMHO, the best skills you can teach your kid these days are: 1) supply & demand 2) compound interest 3) how to read what's "hot" and what people really care about 4) how to form a mental model of what's in someone's head and trade with them so they get what they want and you get what you want 5) statistics and 6) whatever labor-saving technologies of the day can make things more efficient and throw people out of work. That was software when I was a kid; it's probably things like deep neural nets and robotics now, and may be biotech/nanotech/material science by the time kids today get into the workforce. Lots of middle-class parents fight the last war and prepare their kids for the world they entered as 20/30-somethings. They need to stop stressing over economic realities now (which will be totally different by the time our kids enter the working world) and teach general principles for being able to look around you and make sense of the world, then trust the kid to be able to do that on their own.
But it sounds like you just lucked into your career because you enjoyed computers.