RC-Monster Forums - View Single Post

Finnster · 03:32 PM

Hi Jerry,

So what I am looking at is the underlying macroecon, as well as perceptions that are driving the market right now, as well as historical seasonal market trends. Its also important to keep in mind that it usually pays to be contrarian in your investment strategy.

I think the market (at least the areas I'm looking at) are heavily discounted from general anxiety as well as risk of recession. I think the former (as alluded to previously) is an overreaction to the S&P downgrade, the stupid debt ceiling fight, continued weakness in job numbers, as well as a general lack of response from DC as everyone is out on vacation in Aug. Fear of the 2008 collapse is also fresh in everyone's mind, as well a general misunderstanding of economic fundamentals, especially coming from conservative circles imo.

So basically the econ is very weak, everyone knows that, but I don't think we are anywhere near 2008. GDP of 4Q08 fell 10%. We are still growing, albiet at a snails pace. Also, companies are much stronger than they were pre-crisis, and everyone has been deleverging their debt for 3 yrs. There still is a massive amount of private and public debt, but balance sheets are stronger. Basically many companies are lean, mean and sitting on hoards of cash.

As far as the public debt goes, its ugly, BUT...

The actual yearly cost of the debt is quite low in terms of GDP. This is due to the safety and strength of US treasuries and the tremendous appetite for debt by risk-adverse investors more than willing to buy debt. The prescriptions of "the gov't debt crowding out the private sector" made by some politicians are nonsense and not backed by facts (like historical low rates.) S&Ps downgrade was scoffed at. So while the numbers are staggering, its main effect will be the fear it induces rather than actual yearly cost to the economy (at least in the short/medium term.) What worries me more is the fear-induced paralysis on the policy front to address the fundamental employment and household debt problem.

The dollar may be dropping, but on a macro level that may not be a bad thing. What it means is that our exports become more attractive and competitive and should spur manufacturing growth here as well as slow down imports and improve the trade balance. This is why the Japanese, Swiss, Chinese and even Germans are upset, and are taking measures to fight the rise in their currencies. It also means the real value of our debts also go down, which can be helpful when the big problem with the econ is driven by all the household debt.

This is the major point that is missed/dismissed by the gold std/tight money folks. The major complaints versus the weaker dollar is the negative effect it will have on purchasing power of internationally traded goods, like oil. We are trying to get over an overconsumption binge, so orienting national monetary policy to accomodate that seems like a bad decision IMO. There will be higher energy costs as a result as one effect, but this is system is fairly adaptable (ie purchasing smaller cars) as well as other behavioral adaptations. I think this will be more than made up for by increased exports, and the jobs that come with it, that it shouldn't be the cause for serious alarm that some may suggest.

Also, one would think there is a serious inflation problem right now if one listened to certain news outlets. There has a been a segment of doom and gloomers that have been predicting "hyper-inflation" anyday now. They've been saying this since 2008, and they've been wrong all this time for very predictible and textbook reasons. The core inflation rate is still at near historical lows, the rises in oil and food (non-core) are very much being effected by supply and demand functions, and more so we cannot have large inflation cycle without rising wages. Wages are flat (and fell slightly in June) and home values are flat or falling. Basically you have to have the money in hand to be able to buy the goods at the inflated rate for prices to rise. The consumer is strapped and not spending, and producers/retailers are having to sell at reduced prices to be able to attract scare consumer dollars. This is a recipe for deflation rather than inflation (and is closer to the observed facts in 2009-2011.)
Also, currency values are relative, so to pull away from the $ requires you to move money somewhere else. What is this currency that will rise? The Euro? Hah! bigger mess. Renminbi? China fights to control its undervalue. That leaves what? The Yen and Franc? Rising, but hardly able to replace $ as global currency (esp as Japan is in the same situation we are in re: high debt, bad demographix and slow gdp growth.)

Comparisons of the US economy to Zimbabwe or the Weimar Republic are just off base to their fundamentals, and are more contructions of political hyperbole than accurate comparisons. Same goes for the Greece comparison as well.

Lastly, the end of quarter and end of year tends to result in a rally. Summer seasons are traditionally slow/weak for investors. Map the market this year to 2010 and its deja-vu all over again. Strong Jan-April, correction to over-confidence in May to a slow summer with talks of Euro debt crisis and double-dip, then market running on a 8mos bull run Sept 1 once everyone realized we're not all gonna die. Not saying it's fated, but I think there is a strong case the pessimism is overplayed.

The pols will be coming back to DC next week. Along with them will come job plans and the looming debt deal for Nov. Some of the talk is stupid to be sure, (as you've noted) but the effect will be to give the market news and direction to respond to. I have a small amt of optimism that Obama may be starting to pull his head out of his ass and start focusing on domestic econ issues and the neccesity of a real jobs plan. Up till now his strategy has been to fertilize the "green shoots" with loads of bullshit and little else, and just delegate the rest of the work to Biden and congressional leaders. Also, tea party popularity took a considerable hit with the self-destructive crusade to default in the fight over the debt ceiling. Their influence may be waning a bit, and their contractionary fiscal policies should get more push back. The political realm will be the most volitle for sure, and needs to be watched carefully by investors. One point of note is that the GOP did appoint tax hardliners to the SuperCommittee, but not tea party heros like Sen. Demint. The Dems nominated fairly centrist members and proven deal makers. Given this August, I see some daylight for something somewhat sensible actually getting done, if no more than to save their own asses.

So.... what does this all mean? The rules of my 401k require that I hold all funds for at least 30 days. Given all the above, am I willing to bet that they will have greater value in the short term? I think that it is a pretty strong possibility.
I'm a fairly active trader and sold almost everything in July (following the end 2Q rally from June) and before the debt fight finished. I had done a similar thing in April when things looked over-optimistic and peaky after the 8mos run, and bought back in in late May/early June when doom clouded the skies again. (Plus made sure got out in time this year, got caught holding the bag when the BP oil rig blew up last April and ended up getting stuck in things longer than I wanted.)

Basically I think it pays to listen to and read economists who know what they are talking about and have a solid track record, have some faith in govt leaders that they may actually have an idea to what they are doing, pay attention to market trends and emerging data, and be open minded to explainations and possiblities of the current situation. Turning off ideologes and propagandists, like much of Fox news or any Murdoch-run news also helps. ;) A lot of the criticism I hear is based on ideology, conspiracy theory, political opportunism, wishful thinking and mistake-proven econ theory. What I hear little off is criticism based on solid econ theories that result in reliable predictions, as well as a general lack of critical evidence and facts that weave into theories and diagnoses. Should be a flag for anyone paying attention. I certainly don't want to bet my money on the advice and opinion of perennial losers.

Here is some centrist food for thought:

-http://www.frumforum.com/time-to-dow...ditorial-colum
-http://www.frumforum.com/if-the-cons...ut-the-economy
http://www.frumforum.com/were-our-enemies-right
-How liberal Keynesian economists predicted the stimulus was too weak and ill-constructed to do the job. Jan 8, 2009
-Timid Obama aiming too low, Mar 8, 2009

As long as this post is, its just a brief overview. People can argue the politics of it all they want, but I'm not willing to risk my money on it.

	(#55)
Finnster KillaHurtz Offline Posts: 2,958 Join Date: Apr 2006 Location: Bucks Co, PA	Well you asked... so here's my long answer... - 08.24.2011, 03:28 PM Hi Jerry, So what I am looking at is the underlying macroecon, as well as perceptions that are driving the market right now, as well as historical seasonal market trends. Its also important to keep in mind that it usually pays to be contrarian in your investment strategy. I think the market (at least the areas I'm looking at) are heavily discounted from general anxiety as well as risk of recession. I think the former (as alluded to previously) is an overreaction to the S&P downgrade, the stupid debt ceiling fight, continued weakness in job numbers, as well as a general lack of response from DC as everyone is out on vacation in Aug. Fear of the 2008 collapse is also fresh in everyone's mind, as well a general misunderstanding of economic fundamentals, especially coming from conservative circles imo. So basically the econ is very weak, everyone knows that, but I don't think we are anywhere near 2008. GDP of 4Q08 fell 10%. We are still growing, albiet at a snails pace. Also, companies are much stronger than they were pre-crisis, and everyone has been deleverging their debt for 3 yrs. There still is a massive amount of private and public debt, but balance sheets are stronger. Basically many companies are lean, mean and sitting on hoards of cash. As far as the public debt goes, its ugly, BUT... The actual yearly cost of the debt is quite low in terms of GDP. This is due to the safety and strength of US treasuries and the tremendous appetite for debt by risk-adverse investors more than willing to buy debt. The prescriptions of "the gov't debt crowding out the private sector" made by some politicians are nonsense and not backed by facts (like historical low rates.) S&Ps downgrade was scoffed at. So while the numbers are staggering, its main effect will be the fear it induces rather than actual yearly cost to the economy (at least in the short/medium term.) What worries me more is the fear-induced paralysis on the policy front to address the fundamental employment and household debt problem. The dollar may be dropping, but on a macro level that may not be a bad thing. What it means is that our exports become more attractive and competitive and should spur manufacturing growth here as well as slow down imports and improve the trade balance. This is why the Japanese, Swiss, Chinese and even Germans are upset, and are taking measures to fight the rise in their currencies. It also means the real value of our debts also go down, which can be helpful when the big problem with the econ is driven by all the household debt. This is the major point that is missed/dismissed by the gold std/tight money folks. The major complaints versus the weaker dollar is the negative effect it will have on purchasing power of internationally traded goods, like oil. We are trying to get over an overconsumption binge, so orienting national monetary policy to accomodate that seems like a bad decision IMO. There will be higher energy costs as a result as one effect, but this is system is fairly adaptable (ie purchasing smaller cars) as well as other behavioral adaptations. I think this will be more than made up for by increased exports, and the jobs that come with it, that it shouldn't be the cause for serious alarm that some may suggest. Also, one would think there is a serious inflation problem right now if one listened to certain news outlets. There has a been a segment of doom and gloomers that have been predicting "hyper-inflation" anyday now. They've been saying this since 2008, and they've been wrong all this time for very predictible and textbook reasons. The core inflation rate is still at near historical lows, the rises in oil and food (non-core) are very much being effected by supply and demand functions, and more so we cannot have large inflation cycle without rising wages. Wages are flat (and fell slightly in June) and home values are flat or falling. Basically you have to have the money in hand to be able to buy the goods at the inflated rate for prices to rise. The consumer is strapped and not spending, and producers/retailers are having to sell at reduced prices to be able to attract scare consumer dollars. This is a recipe for deflation rather than inflation (and is closer to the observed facts in 2009-2011.) Also, currency values are relative, so to pull away from the $ requires you to move money somewhere else. What is this currency that will rise? The Euro? Hah! bigger mess. Renminbi? China fights to control its undervalue. That leaves what? The Yen and Franc? Rising, but hardly able to replace $ as global currency (esp as Japan is in the same situation we are in re: high debt, bad demographix and slow gdp growth.) Comparisons of the US economy to Zimbabwe or the Weimar Republic are just off base to their fundamentals, and are more contructions of political hyperbole than accurate comparisons. Same goes for the Greece comparison as well. Lastly, the end of quarter and end of year tends to result in a rally. Summer seasons are traditionally slow/weak for investors. Map the market this year to 2010 and its deja-vu all over again. Strong Jan-April, correction to over-confidence in May to a slow summer with talks of Euro debt crisis and double-dip, then market running on a 8mos bull run Sept 1 once everyone realized we're not all gonna die. Not saying it's fated, but I think there is a strong case the pessimism is overplayed. The pols will be coming back to DC next week. Along with them will come job plans and the looming debt deal for Nov. Some of the talk is stupid to be sure, (as you've noted) but the effect will be to give the market news and direction to respond to. I have a small amt of optimism that Obama may be starting to pull his head out of his ass and start focusing on domestic econ issues and the neccesity of a real jobs plan. Up till now his strategy has been to fertilize the "green shoots" with loads of bullshit and little else, and just delegate the rest of the work to Biden and congressional leaders. Also, tea party popularity took a considerable hit with the self-destructive crusade to default in the fight over the debt ceiling. Their influence may be waning a bit, and their contractionary fiscal policies should get more push back. The political realm will be the most volitle for sure, and needs to be watched carefully by investors. One point of note is that the GOP did appoint tax hardliners to the SuperCommittee, but not tea party heros like Sen. Demint. The Dems nominated fairly centrist members and proven deal makers. Given this August, I see some daylight for something somewhat sensible actually getting done, if no more than to save their own asses. So.... what does this all mean? The rules of my 401k require that I hold all funds for at least 30 days. Given all the above, am I willing to bet that they will have greater value in the short term? I think that it is a pretty strong possibility. I'm a fairly active trader and sold almost everything in July (following the end 2Q rally from June) and before the debt fight finished. I had done a similar thing in April when things looked over-optimistic and peaky after the 8mos run, and bought back in in late May/early June when doom clouded the skies again. (Plus made sure got out in time this year, got caught holding the bag when the BP oil rig blew up last April and ended up getting stuck in things longer than I wanted.) Basically I think it pays to listen to and read economists who know what they are talking about and have a solid track record, have some faith in govt leaders that they may actually have an idea to what they are doing, pay attention to market trends and emerging data, and be open minded to explainations and possiblities of the current situation. Turning off ideologes and propagandists, like much of Fox news or any Murdoch-run news also helps. ;) A lot of the criticism I hear is based on ideology, conspiracy theory, political opportunism, wishful thinking and mistake-proven econ theory. What I hear little off is criticism based on solid econ theories that result in reliable predictions, as well as a general lack of critical evidence and facts that weave into theories and diagnoses. Should be a flag for anyone paying attention. I certainly don't want to bet my money on the advice and opinion of perennial losers. Here is some centrist food for thought: -http://www.frumforum.com/time-to-dow...ditorial-colum -http://www.frumforum.com/if-the-cons...ut-the-economy http://www.frumforum.com/were-our-enemies-right -How liberal Keynesian economists predicted the stimulus was too weak and ill-constructed to do the job. Jan 8, 2009 -Timid Obama aiming too low, Mar 8, 2009 As long as this post is, its just a brief overview. People can argue the politics of it all they want, but I'm not willing to risk my money on it. Last edited by Finnster; 08.24.2011 at 03:32 PM.