|Contents||Bulletin||Scripting in shell and Perl||Network troubleshooting||History||Humor|
|News||Casino Capitalism||Economics Bookshelf||Recommended Links||Bulletin||Rational Fools vs. Efficient Crooks: The efficient markets hypothesis||Corruption of Regulators|
|Stock Market as a Ponzy scheme||Economics of Energy||Unemployment||Inflation vs. Deflation||Coming Bond Squeeze||Notes on 401K plans||Vanguard|
|401K Investing Webliography||Retirement scams||John Kenneth Galbraith||Financial Sector Induced Systemic Instability||Neoclassical Pseudo Theories||The Great Stagnation||Tax policies|
|Selected Reviews||The Roads We Take||401K investment tips||Casino Capitalism Dictionary||Financial Quotes||Financial Humor||Etc|
Due to the conversion of the society to neoliberal model started under Reagan, chances of "happy retirement" (aka "golden age") for lower 90% of world population (and probably 80% of US citizens) became slim. The key idea of neoliberalism is "Greed is good" -- if we increase inequality to max, we speed up growth (albeit mostly in financial sector ;-). And that means wealth redistribution that hurts middle class and decimates lower class. So 99% should be satisfied to get what trickle down from the top 1% and should not complain. The top 1% grabs lion share of nation wealth and almost all gains because it can (as is "Yes we can"). Corruption of regulators guarantee that in a process they never risk jail.
So "insufficient retirement funds" problem for, say, 90% of the population is a feature of neoliberal regime, not just an accidental result of 2008 financial meltdown. Investment banking has been ruthless in dumping risk on hapless 401K lemmings. The stock run of 2013 improved situation for the most reckless part of savers, who adhere to "stocks for a long run" philosophy (aka Naive Siegelism), but did not fundamentally changed it. Situation is worse for those whom the meltdown of 2008 frightened away from the stock market. People in retirement or close to retirement were disproportionally affected: as stocks are inherently riskier than other investments (and should be trimmed with age, as 100 - your_age rule suggests), but interest on bonds precipitously dropped during Helicopter Ben actions to save financial sector from complete meltdown.
Lack of retirement funds means that many seniors will be forced to work well past the traditional retirement age, if (big if) they can find employment. Living standards for for 90% of seniors will fall, and poverty rates will rise. It is important to understand that this is not an accident but the natural result of dominance of neoliberalism as a new social system. And the retirement crisis is the direct result of conversion of the state into neoliberal model. Such a conversion imply
Those factors of neoliberal conversion started under Reagan have been well documented individually. What is less appreciated is their combined ferocity. There are also some negative demographic factors:
In other words 401K Donors to Wall Street (which as a cruel joke are called 401K investors) are currently travelling on the Cruise Ship "Affluent Society" in Stormy Fiat Currency Waters to the final destination, which might be the Frugality Island :-). Fleecing by financial oligarchy of middle class retirements plans is the fact of the US life. Recent "crazy" run of S&P500 to 1800 eased the pain, but structurally the situation essentially remains the same and what rases fast falls even faster:
...America’s overall retirement system is in big trouble. ...
Many workers used to have defined-benefit retirement plans, plans in which their employers guaranteed a steady income after retirement. And a fair number of seniors ... are still collecting benefits from such plans.
Today, however, workers who have any retirement plan at all generally have defined-contribution plans — basically, 401(k)’s... The trouble is that at this point it’s clear that the shift to 401(k)’s was a gigantic failure. Employers took advantage of the switch to surreptitiously cut benefits; investment returns have been far lower than workers were told to expect; and, to be fair, many people haven’t managed their money wisely.
As a result, we’re looking at a looming retirement crisis, with tens of millions of Americans facing a sharp decline in living standards at the end of their working lives. For many, the only thing protecting them from abject penury will be Social Security. Aren’t you glad we didn’t privatize the program?
It's very probable that without new technological breakthrough the USA economy as well as all major Western economies are in "permanent stagnation" period. Stagnation of median wages may have been evident for longer in the US, but the Great Recession has led to declining real wages in many other first world countries. And semi-permanent rate lowering by FED and derivatives frenzy of major banks should probably be viewed as the last, desperate attempt, if not to provide growth, then to provide an illusion of growth. At any cost.
Generally, as return on investment in manufacturing diminishes more and more, money are chasing financial assets, creating one speculative boom after another. And each of them sooner or later ends in spectacular bust. Herbert Stein quote "If something can't go on forever, it will stop" (which sound more like Baby Ruth quote ;-) is fully applicable here. What is important to understand that "boom-bust" cycle now is the way neoliberal economy functions. They are not aberration, they are the immanent feature of the system. The side effect of fleecing 401K lemmings is in full accordance with the main idea of neoliberalism: redistribution of wealth between top 1% and the rest of population. And any attempt of more equitable sharing of wealth face huge, emotional resistance of "Masters of the Universe" one of which recently compared such attempts with Hitler's Kristallnacht (Progressive Kristallnacht Coming — Letters to the Editor - WSJ.com)
For an individual investor it is impossible to predict when such a bust happens. But it is reckless not to take into account this possibility, when financial assets appreciate like there is no tomorrow. Again for a regular investor the game now is not about the return on capital, but the return of capital.
This neoliberal invention called 401K is, in essence, a privatization of retirement plans. And instead of growing the funds, many people discovered that it actually impose a tax of savers because it offloads all kind of investment risks on the individual. It also created a huge and semi-parasitic industry of mutual funds, which try to lure 401K investors in stocks. Those who were saving in bonds, especially in bond mutual funds and ETFs now face dramatically lower returns due Bernanke helicopter money and bringing short term rates below inflation, In no way they are safe. See Coming Bond Squeeze.
Read Saving your 401K (or may be not now; when S&P500 is above 1700 most people would discard any such recommendations as junk ;-).
But the current value of S&P 500 that does not change general situation: what is proposed for lemmings in 401K plans is not investing, but gambling with Wall Street as a casino owner (aka Casino Capitalism). As such there is a distinct possibility to be a victim of computerized financial warfare of Wall Street with middle class. The financial elite also lusts after Social Security money, and would love to have it transferred over to them for 'safekeeping'. The news isn’t good about the shift from defined-benefit to defined-contribution pension plans for individual investors. Wall Street behavior is sticky. As John Kenneth Galbraith noted:
"People of privilege will always risk their complete destruction rather than surrender any material part of their advantage."
One important side effect of the transformation of the USA society into neoliberal society since 1970 was offloading risks on individuals. That's true for retirement too. Now with 401K plan it's individual who assumes the inflation risk, interest risk (See Bernanke stole your pension), market volatility risks and structural unemployment (rampant in the USA) risks. This neoliberal society now faces several major crises which lead to the loss of power and prestige and as such deeply affect the US economy:
For readers looking for a clear explanation of why the US government is detested and feared by much of the earth's population (Global South) should read Dilemmas of Domination The Unmaking of the American Empire, Nemesis The Last Days of the American Republic, or Suicide of a Superpower Will America Survive to 2025
When a large number of old people expect to receive certain amounts from their retirement portfolios, reductions in running yields end up reducing their monthly income. People were forcefully pushed into stock market casino, in which of course Wall Street is the winner and ordinary investors are the losers. Casino Capitalism, the internal version of neoliberalism the USA and Great Britain has been nurtured and encouraged by a series of government decisions. Of which creation of 401K plans was only one among many. There were also important decisions to deregulated financial markets and allow derivatives with the hope to replace income from manufacturing by income from financial sector. In other words its was a counter-revolution of the part of ruling elite that lost its influence in 30th (dismantling New Deal from above in the USA (Reaganomics) or Thatcherism in the GB). As Nancy Folbre is an economics professor at the University of Massachusetts wrote in her article Rowboats for Retirement (NYT, Jun 24, 2013)
It feels so good to row your own boat. You’re the captain. You can set your own course and speed. According to the boat advertisements, you are almost sure to reach your destination as long as you pay for good advice, rebalance and row hard. Sure, there may be big waves, but you can ride them out, and storms always subside.
A lot of people used to think of 401(k) retirement accounts this way. But in the last six years, most Americans have gained a new appreciation of financial bad weather and the threat of a perfect storm. Stock market volatility, low interest rates and a sagging bond market have discouraged retirement savings.
Persistent unemployment and stagnant wages have left many workers treading water, struggling so hard to stay afloat that they couldn’t open a retirement account even if they wanted to.
A new report from the National Institute on Retirement Security, based on analysis of the 2010 Survey of Consumer Finances, shows that about 45 percent of all working-age households don’t hold any retirement account assets, whether in an employer-sponsored 401(k) type plan or an individual retirement account.
Among those 55 to 64 years old, two-thirds of working households with at least one earner have retirement savings less than one year’s income, far below what they will need to maintain their standard of living in retirement. By a variety of measures, most households, even those with defined benefit pensions, are falling far short of the savings they will need.
At the same time, the amount of funds you need for retirement now it difficult to estimate as you now carry both inflation risk and market crash risks. That means that you need to put efforts in creating a model (using Excel) suitable for your situation to have a realistic assessment of what you need and can be adapted to the changing situation (for example ZIRP regime installed by Bernanke and Co.). More or less comfortable monthly income now approaches $4.5K a month for a couple of two, renting a modest two bedroom apartment, who wants and is able to travel (let's say one trip to children, one vacation and one trip to parents, $2000 each). Here we assume a pretty modest lifestyle:
|Suppl Medical Insurance||400||4800|
|Car amortization (two cars)||208||2500|
|Car insurance (two cars)||150||1800|
|Drugs and out-of-pocket med||100||1200|
|Presents to relatives||50||600|
|Cloth, computer, furniture, etc||50||600|
But to get those funds by growing your 401K investments is a difficult task. At minimum, if one of spouses SS is at max ($3K at age of 70) you need $300K of your own funds to get from age 65 (when you lose your full time employment) to age 70. As many IT specialists who reached senior age lose full time employment much earlier and are underemployed since, that actual task is even harder. Generally it is realistic to assume that since 60 you will be underemployed and can't get more then 50% of previous salary. Most of available jobs now are McJobs in service sector.
Yes, once in a while stock market performs a spectacular run and that can help. But the question is whether it last. Who would expect that when the USA economy is still in zombie state with high unemployment S&P 500 would reach 1667 as it did on May 17, 2013.
But for each 100 days then stocks are at their five year peak level, there are ten different years. And the key problem is that to one can predict when the fortune changes and at what level stock market will be when you desperately need to withdraw money. In any case, the events of 2000 and 2008 for many people were like losing a boat load of money at a casino, then having the dealer smile at you and say "How about one more try. Trust us. This time it will be different..." At this point, relations of Wall Street and 401K investors look like in a classic scorpion and frog fable. Boomers were brainwashed about "stocks for the long run" and now they see that returns are below expectations (as of Feb 25, 2013 S&P500 grew 15% less in comparison to the same investment to Pimco Total Return fund, if we invested from 01/01/1996 biweekly to Feb 2013).
As most 401K investors feel that they do not have enough money for retirement they tend to take outsized risks and recently jumped back to stocks and junk bonds (aka reaching for yield), because interest in regular bond funds and Treasuries disappeared (thanks to Bernanke Fed).
But the May 2013 boom in stock prices is no escape: in the current oil-constrained US economy stock prices have been sliding in real terms since the 2000 peak, and every time after peak they suffer a collapse, as the pump-and-dump insiders start a dump phase, the Fed opens the credit tap to push them back up, thus the oscillating pattern around a downwards trend in 2000-2012. One positive for 401K investors trend is that S&P500 became like another government statistics. That means that it is the US government who now desperately wants to stop or slow the decline of the SP500, because the SP500 goes down, most pension funds and other insurers blow up... As Greenspan argued recently the main goal of USA policy is to boost stock prices (and house prices).
But at the same time ZIRP — the near zero percent rates sinking already retired Boomers retirement dreams. Some can't bear the pressure and do move assets back into stocks reaching to yield. They can be lucky, but if they are not then the next crisis will wipe out that paper gains in no time like has happened in 2008. And there is no guarantee that the third great robbery of the century is far away: halfway across that stream, scorpion again will show the frog its true nature…
That's why the first thing in retirement planning is to learn Excel. Even with crappy rates your Social Security will kick in at 66, or your financial situation will be better if you can wait till 70. In most cases this "66-70" increase in SS can be tremendous help. In o ther words minimal size of 401K should give you the ability to postpone Social Security till 70. Also with crappy interest rates you need to understand that your health is becoming your most valuable asset.
Minimal size of 401K should give you the ability to postpone Social Security till 70. Generally IT staff can't assume that they will be employed till 66, so it is better to reach this amount around 60. That means that you should strive to contribute the amount which at 60 "theoretically" makes you 401K sufficient to support "self-financed" retirement for 10 years. Assuming $60K a year and 3% return after inflation a year that comes approximately to $500K. With $12 a year ($6 an hour) supplementary income you need only $400K and with $24K ($12 an hour) supplementary income this amount drops to $300K.
It's not a rocket science to calculate approximate year by year expenses from the day of your retirement/unemployment to your longevity expectation date +7 (very few people exceed their longevity estimate obtained using Retirement & Survivors Benefits Life Expectancy Calculator by more then five years) to see do you really need to play in the casino, or you still can live frugally, but securely without taking outsize risks. Here is an example of an estimate:
Life Expectancy Calculator
The following table lists the average number of additional years a male born in 1950, can expect to live when he reaches a specific age.
If you are at Age Additional Life Expectancy
Estimated Total Years 63 20.5 83.5 66 18.3 84.3 70 15.5 85.5
The means that as you (and your wife) age, you better decrease your equity exposure to the level where your minimum life expenses are covered without your stock part of the portfolio.
For the examples table below shows minimum monthly expenses obtained by drastically downsizing retirement life style shown above:
|Suppl Medical Insurance||0||0|
|Car amortization (one car)||100||1200|
|Car insurance (one car)||100||1200|
|Drugs and out-of-pocket||100||1200|
|Cloth, computer, furniture, etc||50||600|
|Presents to relatives||50||600|
This calculation means that you probably can survive on around 60% of your "desired" retirement income. Unfortunately this involves pretty big sacrifices in life quality. So in no way you can allow you next egg to drop 50% due to stock market calamities, as happened in 2008. So please remember that the game is rigged and it's you who might pay the price of all this gambling...
But here with almost no cushion you need to be aware about growing medical expenses. Like with older cars, maintenance became more frequent and more expensive with age probably doubling each ten years after 60.
In order to model your personal situation in Excel more realistically on year-by-year basis you need just a few inputs such as:
After that you need to create you first simple spreadsheet, with the columns such as Total assets, Interests income, SS income, Pension (if nay), Other sources and Expenses columns like listed above. Each row of the spreadsheet should correspond to one year. Some cells can be initially calculated manually. You will be surprised how much information you can get from this simple exercise.
In selecting you allocation try to fight greed and opt for security. That includes avoidance of anything that has a slightest shadow of possible scams involves. Stakes are just too high.
Warning ! Warning !Warning !
Please read section about retirement scams first !!! This is real danger for those close to retirement and all people already in retirement. Targeting is very sophisticated and the fact that you have a university diploma might not save you, unless you understand the risks. Often scamsters are seniors themselves and live in the same community and/or attend the same church. Remember, if the investment it too good to be true it usually is.
Now in order to survive, many financial advisers are faced with tough choices. And this type of behaviors is no longer limited to sleazy "cold-call" financial advisors.
Moreover, there are three important factors that IMHO dictate extreme caution as for stocks holdings for people who are close to retirement (see discussion at Economist's View for more details)
Boomers might get clobbered by the impact of volatility, or they can lose purchasing power due to inflation. This another reason why increasing the share of equities is the solution. A better solution is to think of retiring with a part-time job. One realistic plan to enhance your retirement financial security is to continue part time working till 70. That not only allows to maximize the Social Security pension but also allow you to dispose you unprotected from inflation assets in a shorter time frame, lessening the impact of inflation.
Getting part time job not only allows you to get supplementary income from your private retirements assets, but it permits some of us (especially for former office slaves, may be the first time in life) to realize untapped in regular work potential. The first $12K are generally tax free.
People do miss their jobs - even jobs they hated. I have never seen statistics, but my experience suggests at least 50% of those who quit without another job regretted the decision. One discussion list posted a note from a 40-something woman who had chosen enjoyable, low-paying jobs. Now she is against the wall, with no nest egg to fund a career transition.
In any case don't be suicidal and try to compensate insufficient funds by buying some complex financial product from Wall Street. As one trader put it (naked capitalism, Aug 02, 2013):
“My advice to people dealing with the financial sector is: never buy anything that’s complex. Because the more complexity the more opportunities there are to screw you over. I just can’t get my mind around how banks can still call clients in the corporate world and say, look we’ve got this great idea that’s going to make you a lot of money.
I mean, what are they thinking? Nobody in the City can be trusted because they don’t work for you, they work for themselves.”
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Even Lord Rothschild, who invests over 2 billion pounds of his own dynasty’s and other depositors’ cash through RIT Capital Partners, is ringing alarm bells this week: “With the world recovery still fragile and reliant to a large extent on policy support [QE/money printing]", he warns, "it is not hard to envisage markets having to deal with shocks in the coming year.” Yes, “shocks.”
... ... ...
Abandoning a domesticated animal or withdrawing its supply of food can end in criminal convictions here in the UK, yet the duty of care and animal cruelty legislation does not, it seems, apply to human beings. This government has taken Britain over the line into barbarism, around 5 million Britons, if they get their way, are headed for the Tory party knacker’s yard.
Cameron seems fixated on trying to stop the unemployed or other victims of his money laundering fraudster City funders from eating and sleeping. The Britain he wants to see is a sadistic place where, as US writer Gore Vidal mockingly commented: “It is not enough to succeed, others must fail.” Only the selfish, the ignorant and the rich count as human in Cameron’s financial determinism.
The Recovery™ - Bubble Back To the Bar For the Hair of the Dog That Bit You
"Double, double toil and trouble,
Fire burn and cauldron bubble.
Cool it with a baboon’s blood,
Then the charm is firm and good...
By the pricking of my thumbs,
Something wicked this way comes."
William Shakespeare, Macbeth, Act 4 Sc. 1
And why would we expect anything different, given the lack of serious reform and the careful targeting of the monetary expansion into the hands of the same old TBTF financial firms that have been distorting markets and misallocating capital for their own advantage since the repeal of Glass-Steagall?
The best way to cure the damage from a widespread, real economic collapse in the aftermath of a financial asset bubble is surely a continuation of the failed policies of the past, and yet another asset bubble targeting the most wealthy in the hope that something will trickle down to the rest.
February 2, 2014 | blogs.ft.com/
After the Reserve Bank of India’s Raghuram Rajan took the Fed and other developed country central banks to task this week for ignoring turmoil in emerging markets, Richard Fisher, president of the Dallas Fed, gave the standard retort on Friday. He said the US central bank must make policy according to what is best for America.
Doing so means the only reason the Fed would change its monetary policy is if trouble in emerging markets had a direct effect on the US. There are two main channels – exports and financial markets – but neither looks likely to hurt the US unless the EM turmoil gets a lot more severe. Thus while the Fed may make a greater show of consultation, and soak up some flak at the G20, its actions this year are unlikely to change.
If interest rate rises drove big emerging markets into recession, then that would hit US exports, but any plausible effect is very small. A proper estimate needs a big equilibrium model, because you have to consider currency and feedback effects, but you can get a pretty good idea just by looking at where most US exports go.
Rank Country Exports Percent of Total Exports — Total, All Countries 1,448.2 100.0% — Total, Top 15 Countries 1,033.6 71.4% 1 Canada 277.0 19.1% 2 Mexico 208.2 14.4% 3 China 108.9 7.5% 4 Japan 59.9 4.1% 5 United Kingdom 44.0 3.0% 6 Germany 43.8 3.0% 7 Brazil 40.4 2.8% 8 Netherlands 39.3 2.7% 9 Hong Kong 38.8 2.7% 10 Korea, South 37.6 2.6% 11 France 29.2 2.0% 12 Belgium 29.1 2.0% 13 Singapore 28.3 2.0% 14 Switzerland 25.5 1.8% 15 Australia 23.7 1.6%
The only member of the ‘Fragile Five’ to make the Top 15 is Brazil. Brazil buys 2.8 per cent of US exports. Meanwhile, exports equal only 13 per cent of US output. Thus exports to Brazil amount to less than 0.4 per cent of the US economy.
It quickly becomes clear that only a very broad emerging market slowdown – one that included China or Mexico, for example – would have much effect on US exports. It remains the case that a US recession can plunge the rest of the world into an export crisis; there are not many countries that can have the same effect on the US.
A more plausible way for an emerging market shock to hit the US is via financial markets. Corporate America earns a good share of its profits from emerging markets. The Asian financial crisis in 1997 and the collapse of Long-Term Capital Management in 1998 show how financial shocks from emerging markets can quickly hit Wall Street.
But as Capital Economics point out, both the Asian crisis and LTCM had short-lived effects on US stocks, and the S&P 500 ended up rising by around 25 per cent in both of 1997 and 1998.
The effects have been similarly modest so far in 2013 and 2014. The S&P 500 is less than 4 per cent below its all time high. A deeper EM crisis could mean greater losses for US banks and investors but so far there is hardly an effect on financial conditions that would justify a change of Fed policy.
Flight to Safety?
So far the troubles in emerging markets, far from being a drag on the US economy, have if anything been a net stimulus. That is because ten-year bond yields have fallen. It is hard to know whether that reflects capital flight to US Treasuries or merely a little less optimism about the US growth outlook. Either way, it loosens financial conditions in the US.
An emerging market crisis could end up influencing the Fed sometime this year. But it would have to become much more of a crisis – rather than just the wobbles we have seen so far – to activate these channels and thus endanger the US economy.FC leung Ki | February 3 4:29pm | PermalinkPaul A. Myers | February 3 4:40pm | Permalink
The author quotes Mr. Rchard Fisher, President of the Dallas Fed as haqving said that 'the US Central Bank must make policy according to what is best for America.' This policy sounds like unilateralism in economics, closely similar to unilateralism in using arm forces that led to disaster.VermillionBord | February 3 6:15pm | Permalink
Excellent table. A very diversified list. Undoubtedly a lot of good research will come out of the QE experience.
An interesting hypothetical model would show a US increase in monetary supply and its ripple effects out across the world economy. If a lot of US-fueled monetary expansion hits a country, one presumes the domestic monetary authorities can counter it with some form of sterilization (?) or macro prudential policy. Possibly, the domestic country could sop up incoming liquidity with public debt and finance public investment. The opposite would be to allow a housing bubble to take off.
I think US authorities are going to have to pay attention to the impacts of both expansion and contraction in the wider world. I would say overall stability is a paramount goal of US policy.
An axiom is that countries have no permanent friends, just permanent interests. I think the US permanent interest is international stability. How to achieve and sustain this goal has to be reinvented every generation or so. One might say that today Fed Reserve policy is a bigger policy tool than NATO.MmmHmm | February 4 3:29am | Permalink
"One might say that today Fed Reserve policy is a bigger policy tool than NATO." Or more likely to be said is that Fed policy is like a financial thermonuclear ticking time bomb.
In regards to this line, from up above: "The S&P 500 ended up rising by around 25 per cent in both of 1997 and 1998." Statistically speaking two samples makes no rule. Also, there are a lot of variables at play in both cases, and also in the current one that make any analysis on such lines flawed to begin with. You might argue though that there is no proof such events have any long term effects.
By early March "the US will be in the 2nd longest bull market of the last 80 years," and as Marc Faber warns, "usually, these long bull markets end badly." Simply put, The Gloom, Boom, & Doom Report publisher notes "it's too late to buy US stocks," warning of previous major declines like 1987, 2000, and 2007.
"It's not an opportune time" to buy US stocks but while it might be too early to buy some of the beaten-down emerging markets at these levels, Faber believes investors can make money in the longer-term - "I think I can make the case that over the next five to 10 years, I will make more money by buying now in the emerging economies then in the U.S."Ham-bone
According to St. Louis Fed, the Monetary Base has halted it’s $100 B/mo growth and as of Jan, added just over $10 B/mo…bout to go negative??? Big change in trajectory since November…prior to taper $10B (now $20B/mo taper)??? Somebody draining the pool??? http://research.stlouisfed.org/fred2/series/AMBNS click on 1yr or 5yr chart to see big change http://research.stlouisfed.org/fred2/graph/?chart_type=line&s1id=AMBNS&s... http://research.stlouisfed.org/fred2/graph/?chart_type=line&s1id=AMBNS&s... During periods since ’09 when the monetary base was flat, equities have been down / flat and then lifted by anticipation of QE / QE execution. If this pattern holds (particularly w/ record leverage) stocks bout to get clobbered. Also notable is that golds big upside runs happened during the flat periods or QE runoff periods…
here are the last five months…after growing consistently by about $100B/mo all ’13..Novembers growth was $31B, Dec $13B…and likely going negative in next month???
- 2014-01: 3,749.462 Billions of Dollars
- 2013-12: 3,736.789
- 2013-11: 3,705.077
- 2013-10: 3,610.306
- 2013-09: 3,508.808
This slowdown is way in excess of tapering and looks more like reverse repo’s kicking in??? Correlation to market downturns since '09 has been 100% when this happens.
have you ever heard N.N. Taleb's saying "that's like picking up nickels in front of a steamroller"...? Or his other gem "it's not the frequency with which you are right that counts, but rather the aggregate of your losses."
I like Marc Faber, but I'm still waiting on that 20% correction call from levels 40% lower than where we are now.
The market is a policy tool and until that changes the only response is to BTFD. When policy does change there will be no getting out.
Well said, Doc.
Faber has a sense of humor and a sense of style. He plays the game on a global scale, but which "emerging markets" is he talking about? Argentina, Venezuela, Greece, Colombia, Eastern Europe? What is the last time one of these suckers emerged and stayed up long enough for someone to get their money back, much less a profit?
I saw this clip live (in a moment of weakness, forgive me)...Faber was in part responding to the shill commentator who in his comatose state declared that whatever the returns might be in emerging markets relative to the U.S., there would certainly be "less risk" in the U.S. So Faber's comments were very, very crafty in dressing down that assertion.
May 2012: Marc Faber Sees A 1987-Like Crash Approaching
Aug 2013: Marc Faber On Today's 1987 Redux "Market May Drop 20% Or More"
And the biggest LOL of them all...
May 2012: Marc Faber Sees 100% Probability Of Global Recession In 2013
I feel bad for anyone who actually takes this clowns advice.
Good thing there wasn't a global recession in 2013. Oh, wait...
What does the economy have to do with stock prices the last 5 years (or arguably longer)?
Everything. The more the sheeple have been sold on the Keynesian myth that monetary stimulus is needed to jump-start the economy, the more stawks have been inflated. Prolly a 90+ R-squared on that.
The longer the realists like Marc are wrong, just means the worse it will be when it happens.
Funny, if you call him out on being wrong on his ongoing bearishness he bristles and says "show me where I ever said to short stocks!"
Your predictions of 30% crashes would not lead one to believe that a short position would be your advice?...
he likes to hedge alright..his words.
The difference between this long running bull market and the previous ones is there was some actual substance besides hopium behind them.
For example, the runup to the dot.com bubble crash in 2000 had tremendous investment in internet technology and, I think more importantly the paradigm shift of U.S. manufacturing to China. (and the profits U.S. companies were enjoying via the labor arbitrage, lack of regulation, new customers, etc.)
This bull market is backed purely by confidence in central bank intervention without any underlying premise other than recovery to the good ole days.
Yes, but unemployment is at 6.6%! Happy times are here again! *snark.
comma1 -> comma1...pgl -> comma1...
Headline from Boston Globe website:
Jobless rate falls to 5-year low of 6.6%
Fred C. Dobbs -> comma1...
Yep - it fell and this time because the employment to population ratio increased a wee bit. But much of that 5 year decline was alas from a fall in the labor force participation rate.
US employers add 113K jobs; rate dips to 6.6% - via @bostondotcom http://bo.st/1kkkkaW
See also: Stocks Move Higher After Unemployment Rate Falls http://nyti.ms/1f1Ilwb
NEW YORK (AP) — The U.S. stock market is moving higher in early trading after the government reported a decline in the unemployment rate last month.
Earnings gains from several U.S. companies including Expedia also drove the market higher early Friday. The market had its best day of the year the day before.
The Dow Jones industrial average rose 75 points, or 0.5%, to 15,700 shortly after trading began. ...
Did anyone notice that local, State, and Federal jobs lost 33,000 in this report?
If government hiring were increasing to norms in all likely hood this jobs report would have been a mildly good one.
The takeaway is that Republican/Tea Party forced austerity hurts America and increases unemployment.
Will someone please tell that story so the media will pick it up and run with it and maybe start asking Republican/Tea Party candidates about what austerity is doing to America?
Jesse's Café AméricainI know some might object to referring to today's trading as 'technical' but I think that is exactly what it was.
By technical I mean that those in the know saw the market structure of positions, to which they have an advantageous view, looked at the buying and selling pressures, saw a short term opportunity to profit, and then jammed the futures up hard after the Non-Farm Payrolls number came out. They ran the stops, and handed out some serious pain to traders who were positioned bearishly.
They can do this in the absence of a consensus of more organic selling volume, as opposed to computer gamesmanship. In a light volume market, dominated by the hot money traders, they can almost write their names in the snow with the tape. I showed a picture of it at the time, but a while ago when AG Eliot Spitzer was taking on Wall Street, they made a nice picture of a hand 'giving him the finger' using the 5 minute SP futures. You can't make this stuff up. If you want to be a short term trader, you need to understand and respect that. In the intraday trade, fundamentals don't mean squat, unless they are driving the herd to do something in force.
That is not how it always is, at least not to this degree. But with computers dominating the course of the intraday trade and regulators held at bay, its taken on a larger footprint than what might ordinarily might be expected.
The bad news is that in the face of some exogenous bad news, I would think this market is set up to melt down. That is because it is a snarky, in your face 'professional market,' not based on value but on bullshit, on short term money muscle and market gamesmanship.
Does this strike you as improbable? Talk to me after the next crash, when the economic sages are running around waving their hands saying, 'what happened, what happened?'
And by the way, this is not sour grapes from a bear. I have 'no' short position and no stock positions for that matter. I just think this is one hell of a way to allocate capital and revive the real economy. It is a disgrace, and a shame.
U.S. businesses have never had it so good.
Corporate cash piles have never been bigger, either in dollar terms or as a share of the economy.
The labor market, meanwhile, is still millions of jobs short of where it was before the global financial crisis first erupted over six years ago.
Not in the slightest, according to Jan Hatzius, chief U.S. economist at Goldman Sachs:
“The strength (in profits) is directly related to the weakness in hourly wages, which are still growing at just a 2% nominal pace. The weakness of wages and the resulting strength of profits are telling signs that the US labor market is still far from full employment.
Companies have been unable to raise prices much because of the economic recovery has been fragile. But they’ve still managed to boost profits beyond anything ever seen before because they’ve got away with employing as few workers as possible at as low a rate as possible.
Jan 22, 2014 | Zero Hedge
Citi's credit group is bullish; but, as they admit, for all the wrong reasons. Bullish, because they still believe that the extraordinary liquidity environment which has dominated the last four years will remain in place this year (despite tapering) and for the wrong reasons because aside from their doubts about the foundations of much of the economic recovery itself, nearly all the factors that they would normally base their view on the markets on seem to be pulling in the opposite direction. In their own words, "everything is expensive; and the market is driven purely by a variant of the Greater Fool's Theory."
Via Citi's Credit group:
...We are bullish...
For the wrong reasons, because aside from our doubts about the foundations of much of the economic recovery itself, nearly all the factors that we would normally base our view on credit on seem to be pulling in the opposite direction:
Credit fundamentals are deteriorating. Although the fragile European and global recovery should support earnings, we expect leverage to rise further as companies push shareholder value.
Valuations are increasingly unattractive. Scored against 20 different fundamental metrics, credit spreads come in as 'Tight' or 'Very tight' on every single one of them at the moment. The yield offered by € IG corporate credit is in the 4th percentile looking at the last ten years – hardly a compelling case for investing if you look at credit from a total-return perspective.
The marginal money is going elsewhere. Judging by our survey, inflows into corporate credit have been on a falling trend for 18 months and are now close to neutral at a five-year low. This weakens the technical that has so often left the credit market almost impervious to negative headlines in recent years.
Market composition is deteriorating. We think the European credit market should see a record volume (~€90bn) of subordinated debt issuance next year. While some of that (the AT1 issuance) will remain outside the indices for now, the market will still have to absorb a lot of additional risk.
And to top it off, positioning in the credit market is very different. The rush into beta may have further to go, but already the rally we have seen since September has created a vulnerability through higher-beta exposure in the market. We reckon that it is at least comparable to the one that was exposed by the Fed's change in tone on tapering in May.
We'd argue that markets may be driven by a variant of the Greater Fool's Theory, where the underlying rationale for many would in essence be:
"I don't like credit here, but I don't like other assets very much either (other than, perhaps, equities). I don't see what turns the market any time soon and I can't afford to sit and wait for a better entry point, especially while central banks are backstopping everything. I'll have to take more risk and then sell to someone else when I see a trigger ahead. Worst case, I'll be in the same boat as everybody else."
We are not arguing that this is irrational – on the contrary, for individual investors whose performance is tracked on a monthly, weekly or daily basis, this argument seems entirely rational – especially against the perception that central banks can no more afford to let the prevailing equilibrium slip today than they could in 2009.
But the sum of that individual rationality is a market with a very obvious vulnerability.
When no one sees an immediate risk of losing, when positions get ever longer and when valuations are stretched further and further as a result, less and less is needed to eventually topple the consensus. Longer-term, it is a recipe for breeding black swans.
So the inherent challenge is to predict how long the Greater Fool's game goes on.
However, the more tension that builds up between market valuations and fundamentals and the more stretched positions get, the more likely a subsequent selloff becomes.
Where's the value? Spreads look tight to fundamentals on every single one of the 20 metrics
The Market is expensive? - Come back in a month after the SP500 breaks above 1850 and closes in on 1900, and then read this same article again.
Point is that this sort of articles is useless in determining when the market will really top before the next Bear market.
And.. No one ever knows beforehand when Markets Top.
Conclusion? - Stay with the trend. Thanks to the FED, I am grateful to having seen my 401K going 50-80% higher since Nov-2011.
No matter how many articles of this sort ZH will keep posting, it's the FED who drives this market higher still.
May 20, 2010
Since when has labeling anything you disagree with “Socialism” a substitute for poltiical discourse? We embarrass ourselves as a nation to the rest of the world when we do this.
Bill Gates’s Dad Says the Rich ‘Aren’t Paying Enough’ in Taxes
01/16/2014 | Zero Hedge
GMO Market Commentary: Ignore The "Common Sense"
From GMO via Wells Fargo
"I've got plenty of common sense ... I just choose to ignore it."
- Calvin, from Calvin and Hobbes
By the time the Times Square ball landed, U.S. equity markets had closed the books on one of the best years in recent history. Oecember's further rise of 2.5% put the capstone on an amazing year for the S&P 500 Index, which finished 2013 up 32.4%. New historic highs on this index were reached routinely throughout the month. Small-cap stocks, as represented by the Russell 2000® Index, added 2% in December to finish the calendar year up a remarkable 38.8%. Yes, you read that correctly: Small-cap stocks rose almost 40% in a single year.
The "common sense" justifications for these dramatic moves are now well documented. The Federal Reserve (Fed) model, which compares earnings yields on the S&P 500 Index (the inverse of price/earnings) with the Treasury yield, clearly signals to load up on stocks. Common sense also tells us that profit margins are at an all-time high, so clearly it's a good time to be buying stocks. Yellen's dovish background, common sense tells us, is yet further reason to expect continued loose monetary policy and accommodation. And, finally, common sense dictates that recent upward gross domestic product (GOP) revisions, lower unemployment numbers, and a successful holiday retail season, means that of course it's time to load up on stocks.
Here's the problem: We don't buy the common sense. And so, like the philosopher boy above, we choose to ignore it. We suggest you do the same, but for good reason.
First, the Fed model, while intuitively appealing, is a relative measure. Yes, bond yields are ridiculously and artificially low, so of course earnings yields are going to look attractive on a relative basis. But we're trying to make money in an absolute sense, not a relative one. What if bonds and stocks are BOTH overpriced? Then what? Oh, and one more inconvenient truth-the Fed Model's track record of forecasting future returns is actually quite abysmal.
Second, yes, we'll concede that profit margins are at all-time highs-an undeniable fact. Here's the problem: Profit margins are reliably mean-reverting, which means that hitting an all-time high is not a cause for celebration but just the opposite-a reason to be afraid.
Third, yes, quantitative easing can continue for some time, maybe even decades. But that isn't a reason to get excited about stocks. In fact, we believe quite the opposite. What it means is that if that is true (and we don't believe that it will be), then we've got much bigger problems on our hands because stock returns going forward are going to be dismally below what they've delivered for the past 150 years of our modern industrial society.
And finally, ah, yes, GDP growth! Too bad GDP growth has historically had zero to mildly negative correlation with stock market returns. In other words, even if GDP growth is resuscitated, even if 2014 turns out better than we thought, so what! Economic growth-across developed countries, across emerging countries, across time-has told us absolutely nothing about future stock market returns. Sorry to deliver the bad news.
So, we ignore common sense and instead rely upon the unconventional wisdom of, you guessed it, valuation. Rather than load up on stocks, we remain cautious and nervous because, from a valuation perspective, U.S. stocks look downright frothy. And, if the global markets continue to rally into 2014 and beyond, it is more likely that we'll trim. By the end of November, our official seven-year forecast for the S&P 500 Index was -1.3 (real) and our forecast for small-cap stocks, at 4.5%, is worse than it was during most of 2007. Quality, a large position in the fund, has also seen its forecast come down as it, too, has had quite a nice run. Forecasts for quality are still quite positive, so we're happy to continue owning these stocks but becoming less happy by day. Outside of the U.S., the only groups that we are somewhat optimistic about are value stocks, particularly in Europe, and emerging equities, which we think are priced to deliver 3.4% annually over the next seven years.
January 11, 2014"In the same way, those who possess wealth and power in poor nations must accept their own responsibilities. They must lead the fight for those basic reforms which alone can preserve the fabric of their societies. Those who make peaceful revolution impossible will make violent revolution inevitable."
John F. Kennedy, First Anniversary of the Alliance For Progress
The Jobs number sucked out loud this morning, as the economy added a meager 74,000 jobs, compared to an expected number of 197,000. That's a swing and a miss. Both hourly earnings and average workweek missed as well. Today's box scores are included below.
The good news was that the unemployment percentage dropped hard from 7.0% to 6.7%. Huzzah! Stocks rally back, and the VIX plummets.
The fly in that holiday toddy is that they did it by whacking the denominator in the unemployment ratio, declaring about a half million or so able bodied workers to be the new walking dead. (Hey, I was just kidding about liquidating people as the next move the other day.)
Capping that bit of cheer off, US retailers reported their worst holiday season since 2009.
Stimulating the economy is not a bad idea when it is in shock from a financial crisis brought on as the result of massive systemic fraud and financial asset bubbles perpetrated by the financial system. And yes, austerity has been proven wrong, again and again, and is the stuff of puritans and pigmen.
But stimulating the economy by giving more money directly to the same self-serving jokers that caused the problem in the first place, AND failing to correct the massive distortions in the economy that have been growing through horrible policy decisions over a period of years, is not exactly what Lord Keynes might have had in mind, ya think?
The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustainable recovery.
“Those who fail to exhibit positive attitudes, no matter the external reality, are seen as maladjusted and in need of assistance. Their attitudes need correction...
Suddenly, abused and battered wives or children, the unemployed, the depressed and mentally ill, the illiterate, the lonely, those grieving for lost loved ones, those crushed by poverty, the terminally ill, those fighting with addictions, those suffering from trauma, those trapped in menial and poorly paid jobs, those whose homes are in foreclosure or who are filing for bankruptcy because they cannot pay their medical bills, are to blame for their negativity.
The ideology justifies the cruelty of unfettered capitalism, shifting the blame from the power elite to those they oppress."
Here is a recent conversation I had with a friend about the current state of the US recovery. As an accountant with a wide range of exposures, I enjoy hearing his perspective since I no longer have that sort of current insight into the corporate culture in America. I have years of background running large businesses in corporations, and some forays into large scale M&A work, so I have seen quite a bit of it. The methods rarely change, merely the guises and degrees.
Here are excerpts from his side of the conversation with only one parenthetical comment of my own."I don’t think we’re seeing profits in a traditional sense. Instead, it appears to me that we’re watching a long, drawn out LBO’ing of America. It appears that companies are liquidating capital and returning it as opposed to earnings spreads on revenue.
It seems like we’re seeing the final blow-off phase that started with the stock option becoming the primary form of compensation for corporate talent. By drawing out the LBO, they re-stock their options each year with a guaranteed return thanks to the Fed and their own Treasury Departments.
The problem is that you can’t have systematic corporate buybacks with employment/economic growth as they create diametrically opposite outcomes. The more work I do, the more I conclude that the US economy has not expanded since 2006.
I was looking at mutual fund data the other day and it showed that people moved their fixed income money into domestic equity - $185 billion in liquidated bond funds to buy $175 billion in equity funds. This happened after the Fed announced tapering was on the table. Just like the gold market, I suspect that “someone” forced the liquidation of bond funds and herded the money into equity funds to keep the rally going. (I think it is perfectly reasonable to flee bond funds at any time that interest rates are turning higher. Bond funds often take it on the chin in such a deleveraging of a long term interest rate trend. However, I think the whole taper thing was hyped and used by the wiseguys, as are most things these days by our financial masters of the universe. - Jesse)
Coincidentally, corporations used half a trillion in cash flow on buybacks. It’s a liquidity game but with limitations. What’s the next asset that can be liquidated or levered? They’re still working on gold but sometime soon, the price of gold will be set in the East, where the gold resides. Agricultural commodities are being liquidated but that ensures a drop in planting next year. Oil is too valuable on the geopolitical front to liquidate.
There are certainly winners in this economy but far more losers. At some point, the weight of the losers acts against the winners, many of whom are levered up with confidence. Corporations can liquidate equity capital but we all know how the LBO’d companies operated in the 1990’s. In many ways, they’ve gotten corporations to behave like consumers did in the 2000’s, only this time they’re trained to buy back their own stock. Every cycle has natural limits.
We know that corporate cash flow is no longer growing and we know that it’s more expensive to sell debt today than a year ago. We also know that the Fed sees the stock market as their proof of success. So how does this shakeout? If corporations are a lemon, how much juice can you squeeze out of the lemon?"
Although I do not wish to be an alarmist, I have to say that this trend of attempting to sustain the unsustainable has gone on longer than I had previously thought possible.
I am fairly sure that the next crisis will bring these things to a head and some sort of resolution. But therein also lies great danger. Philosophies that have grown time can have deep roots, and when faced with what to them is an intolerable change, can react somewhat excessively. They may even welcome the opportunity to act excessively and decisively, at least in their own minds, as the path to winning.
When a ruling subculture that has become accustomed to crushing and liquidating things for its own power and pleasure, whether it is natural resources, the environment, crops, animals, land, or social organizations, eventually runs out of things, it can become frustrated and angry in its seeming impotence to continue on, to keep expanding.
Indirectly and somewhat benignly at first, but with a growing efficiency and determination over time, it will begin with the weak and the defenseless, attacking and objectifying them, even in the most petty of ways and impositions. It will turn to its critics, and then everyone who is defined by them as 'the other.'
That is when a predatory social and economic philosophy can turn into pure fascism, and start liquidating people. And finally it liquidates and consumes itself.
But really, no one wakes up one morning and suddenly decides, 'Today I will become a monster, and wantonly kill innocent women and children.'
Otherwise ordinary people get to that point slowly, one convenient rationalization for their 'necessary and expedient' behavior at a time. After all, they are the good people, they are the strong, they are the most successful and the favored.
They are the entitled, and not these others who would seek to drain them, drag them back down. They are the champions of progress and achievement and civilisation, the hardest working, and the epitome of mankind.
What could possibly go wrong?"He prompts you what to say, and then listens to you, and praises you, and encourages you. He bids you mount aloft. He shows you how to become as gods. Then he laughs and jokes with you, and gets intimate with you; he takes your hand, and gets his fingers between yours, and grasps them, and then you are his."If you are one who thinks that the above 'could not possibly happen here,' and I am sure that there are many, you may wish to read the following vignette from modern US history. Alan Nasser, FDR's Response to the Plot to Overthrow Him
J. H. Newman, The AntiChrist
Dec 24, 2013 | econbrowser.com
Bruce:Speaking of optimism, stock market bullishness is at an extreme, with one bearish sentiment indicator at the lowest level in its history going back 25 years, and at the lowest level since before the 1987 Crash.
Reported earnings and revenues have been flat for over two years, whereas the S&P 500 is up 60-65%, and the P/E has expanded 50%. The only two times in the 142-year history of the S&P 500 when a similar situation occurred with real reported earnings having contracted yoy along the way was in 1986-87 and 1928-29.
Shiller's 10-year average P/E is above the levels historically when secular BULL MARKETS PEAKED (1881, 1929, and 1966-68) and thereafter experienced secular bear markets lasting 15-16 to 20 years. Even a best case scenario implies a ~0% real total 10-year return (before fees and taxes) and cyclical drawdowns of 35-50%+ in the meantime.
The speculative leveraged meltup we have seen since summer-fall 2012 (Fed's "all in") is one for the history books, if not one for which the history books must be rewritten.
Fewer stocks are participating in the meltup.
Despite Wall St. (that depends upon inflating bubbles), Fed officials (who work for the TBTE banks and Wall St.), and establishment economists (who serve the TBTE banks, the Fed, and Wall St.) claiming that there are no bubbles anywhere (or they are incapable of seeing, or are not permitted to see, bubbles), there are bubbles ABSOLUTELY EVERYWHERE (because the Fed/TBTE banks intended there to be bubbles):
Non-financial corporate debt to GDP
Real estate, including in China, Asian city-states, Canada, Australia, parts of Europe, and the oil emirates
Wealth and income concentration to the top 0.01-0.1% to 1-10%
Equity market cap to GDP
NYSE margin debt
Derivatives to GDP
Total debt to GDP
Student loans and college tuition
Subprime auto loans
Bank assets to GDP
Fed balance sheet to GDP
Professional athlete and CEO compensation
Professional sports franchise prices
Tight oil extraction and exports
There is also a bubble in the number of people claiming that there are no bubbles anywhere.
The bubbles are global and cumulatively far larger than anything experienced in history, even larger in scale globally than in 1999-2000 and 2006-07.
The bubbles, Fed printing, bank cash hoarding, and the resulting EXTREME wealth and income concentration to the top 0.1-1% to 10% is contributing to money velocity plunging and the pricing of Millennials out of the housing market, causing household formation to collapse.
Bears have been in hibernation for so long (as in 1999-2001 and 2007-08) that no one remembers where their caves are or if they are any still alive. The bulls have only themselves left to trample in the next stampede out the exits (when, not if, it occurs) when the TBTE bankers finally decide to pull the plug on (or deflate) the bubble, as they always do.
Reason for optimism or unreasonable optimism by the top 0.01-0.1% to 1%?
A friend sent me the following email.
The inability to see that the current monetary policy does not work in any mechanically rational way is embedded in the culture of the professional and academic community. There is an orthodoxy of thought in all the elite institutions of learning and then in all the government and private applications of that learning. This group think will not change, as Schumpeter explained, until all the old heads of academic economic departments die and a new generation can impose a new orthodoxy. Professors and Central Bankers, who have spent their whole lives writing papers and books from an Aggregate Demand, Quantity Theory of Money point of view, are not capable of mentally confronting the possibility that everything they learned and taught for their whole lives might be wrong.
All the cherished beliefs of a generation that low interest rates stimulate economic activity, that increasing the quantity of money will increase bank loans and inflation, or that the economy’s growth can be judged by the level of government spending and consumption, are exposed as intellectually bankrupt myths, are not effective in structuring policy, but the current orthodoxy makes it culturally and professionally impossible to admit that.
Ricardo, brilliant. Thank you and thank your friend for his/her clarity in succinctly stating the obvious that obviously cannot be admitted by establishment economists.
The focus on public debt by many academics creates a political debate that obscures the structural drag effects of demographics, "globalization"/"trade" (neo-imperial "trade" regime), PRIVATE debt to wages and GDP, and the resulting end of the reflationary effects on the growth of economic activity when the cumulative imputed compounding interest claims of private debt on wages and GDP are so large as to no longer permit growth of private economic activity.
Neither supply-side nor Keynesian policies can resolve the secular Long Wave debt cycle we currently face after 32 years of falling nominal interest rates and the reflationary effects from increasing debt to wages and GDP. More private debt (debt-money lending/deposits) to wages and GDP to increase supply does not work when there is too much private debt to service.
(Total rentier income [interest, dividends, and capital gains)] received disproportionately by the top 0.1-1%, and total gov't receipts combine for an equivalent of 51% of GDP, 120% of public and private wages, and 145% of private wages. The hyper-financialized economy and local, state, and federal gov't spending at 35% of GDP is resulting in a private sector so burdened by debt service, i.e., "rentier taxes", and gov't taxation that it cannot grow.)
Nor is more public debt to wages and GDP successful in increasing gov't spending to encourage private sector growth when the private sector is burdened with unprecedented debt.
By definition, secular highs in debt to GDP coincide with bubbly asset values to GDP, which in turn is reflected by extreme wealth and income concentration, as the top 1-10% receive 20-50% of income and hold 40-85% of all financial wealth.
The secular debt constraint to real GDP per capita precludes further supply-side expansion of debt, whereas extreme wealth and income concentration and runaway central bank reserve expansion causes asset bubbles, further hoarding at no velocity by the top 1-10%, and plunging money multiplier and velocity.
Historically, high debt/GDP, asset bubbles, and extreme wealth and income concentration are unambiguous indications of sub-optimal incentives, gross price distortions, misallocation of flows, and precursor conditions to decelerating real GDP per capita, financial panics, currency crises, structurally high labor underutilization, social instability, political reaction, and war.
Then add the structural ("permanent"?) drag effects from peak Boomer demographics AND Peak Oil (and net energy per capita), and the effects of debt and inequality are exacerbated (reinforced).
The median household income per capita for the bottom 80-90% of US households is equivalent today to the country GDP per capita in eastern Europe and the wealthier areas of Central and South America. The bottom 50-60% now have household income per capita of Mexico, poorer South and Central Americans, and South Africa.
The typical American male under age 35 receives an income of 60% of that of his generational predecessor in 1970-73 after taxes, inflation, and the effects of higher costs to income for energy, housing, education, and medical services.
The typical college grad today (the 50% who are employed or not underemployed or unemployable) receives a salary similarly adjusted at the equivalent purchasing power of the minimum wage in 1970.
We should thus not be surprised why Millennials are staying home, or moving back in, with Mom and Dad (or Mom or Dad); why household formation is collapsing; why Millennials' headship rate is at a record low; why Millennials are not marrying; and why the birth rate for Caucasian females is converging with that of Europeans, Japanese, Singaporeans, and Taiwanese.
In spite of all of this, or because of it, the stock market is melting up and the top 0.1-1% have virtually disengaged from what remains of the productive sectors of the economy on which the rest of us depend for paid employment and purchasing power.
Now the owners of most of the financial wealth and the means of production of goods and services and the managerial caste that facilitates economic activity intend to accelerate automation of paid employment, expand "trade" via an Asian NAFTA, increase immigration to the US, further increase surveillance-state capabilities, and impose "austerity" on the 50% "takers".
In the context of such conditions, it's no wonder economists spend most of their time focused on attempting to determine how many angels can dance on the head of the proverbial pin. No one gets paid nor receives tenure, a department endowment fund, and a pension by looking out of the window of the ivy-covered tower at the real world and telling his peers to do the same and write about it.
Jan 01, 2014 | ZeroHedge
We have gotten to a point when even the most tenured economists have finally admitted the truth, and in the process none other than JPMorgan itself has just issued a chart titled "The era of central bank-driven equity rallies."
Is the U.S. consumer tapped out? If so, how in the world will the U.S. economy possibly improve in 2014? Most Americans know that the U.S. economy is heavily dependent on consumer spending. If average Americans are not out there spending money, the economy tends not to do very well. Unfortunately, retail sales during the holiday season appear to be quite disappointing and the middle class continues to deeply struggle.
And for a whole bunch of reasons things are likely going to be even tougher in 2014. Families are going to have less money in their pockets to spend thanks to much higher health insurance premiums under Obamacare, a wide variety of tax increases, higher interest rates on debt, and cuts in government welfare programs. The short-lived bubble of false prosperity that we have been enjoying for the last couple of years is rapidly coming to an end, and 2014 certainly promises to be a very "interesting year".
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The term "irrational exuberance" derives from some words that Alan Greenspan, chairman of the Federal Reserve Board in Washington, used in a black-tie dinner speech entitled "The Challenge of Central Banking in a Democratic Society" before the American Enterprise Institute at the Washington Hilton Hotel December 5, 1996. Fourteen pages into this long speech, which was televised live on C-SPAN, he posed a rhetorical question: "But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?" He added that "We as central bankers need not be concerned if a collapsing financial asset bubble does not threaten to impair the real economy, its production, jobs and price stability."
Immediately after he said this, the stock market in Tokyo, which was open as he gave this speech, fell sharply, and closed down 3%. Hong Kong fell 3%. Then markets in Frankfurt and London fell 4%. The stock market in the US fell 2% at the open of trade. The strong reaction of the markets to Greenspan's seemingly harmless question was widely noted, and made the term irrational exuberance famous. It would seem to make no sense for markets to react all over the world to a question casually thrown out in the middle of a dinner speech. Greenspan probably learned once more from this experience how carefully someone in his position has to choose words. As far as I can determine, Greenspan never used the "irrational exuberance" again in any public venue. The stock market drops around the world that occurred after his speech on December 6, 1996 have all been forgotten, eclipsed by bigger subsequent events, but it was those stock market drops that focussed public attention on the phrase irrational exuberance and which caused it to enter our language.
The term irrational exuberance became Greenspan's most famous quote, out of all the millions of words he has uttered publicly. The term "irrational exuberance" is often used to describe a heightened state of speculative fervor. It is less strong than other colorful terms such as "speculative mania" or "speculative orgy" which discredit themselves as overstating the case. I chose this phrase as the title for my book because many people know instantly from this title what this book is about.
Often people ask me whether I coined the term irrational exuberance, since I (along with my colleague John Campbell and a number of others) testified before Greenspan and the Federal Reserve Board only two days earlier, on December 3, 1996, and I had lunch with Greenspan on that day. I did testify that markets were irrational. But, I very much doubt that I am the origin of the words irrational exuberance. Actually, Greenspan is quoted in a Fortune Magazine article in March 1959, long before he became Federal Reserve chairman, about "over-exuberance" of the financial community. Probably, "irrational exuberance" are Greenspan's own words, and not a speech writer's, and probably Alan Greenspan had written a draft of his 1996 speech even before I testified.
Robert J. Shiller
Cowles Foundation for Research in Economics
and International Center for Finance
30 Hillhouse Avenue
New Haven, CT 06511
Please note that CCM Capital Appreciation C was not involved in the SEC charges of fraudulent market-timing aimed at PIMCO nor was Bill Gross, PIMCO's chief investment officer, who opines in this month's Investment Outlook that the high fees charged by hedge funds make them "generally overpriced." Bill Gross manages PIMCO's humongous Total Return Institutional Bond Fund, which has an expense ratio of 0.43% and tracks the comparable Lehman index with an R-Squared of 95%. Vanguard has an institutional fund that closely tracks the Lehman index for a 0.05% expense ratio. Therefore, Mr. Gross gets about 0.38% for the active 5% of the fund, which is a "true" expense ratio of 7.8%. It must be said that Mr. Gross delivers an impressive alpha of 0.84 on that active 5%, so he could have a bright future in hedge funds.
Antal E. Fekete, Professor Emeritus, Memorial University of Newfoundland
June 10, 2003
Unfortunately, the use of "Lysenkoism" as an epithet has been degraded by overuse, especially in absurd situations. I propose to restrict "Lysenkoism" to circumstances where a clear case can be made for coercive enforcement of the belief system from outside the system (e.g., by state patronage). For example, if a concept spreads concurrently among the scientific communities of several countries, it is almost certainly not Lysenkoism. One might feel like calling it that, but the analogy with Lysenko would fail to apply.
Socking away money for retirement is a great idea, but how much do you really need to save? How long do you need to work to set yourself up comfortably in your golden years? Enter your information below, the charts and numbers on the right will change as you go along, so try a few different numbers and see how different scenarios might play out for you.
All amounts are calculated using today's dollar values. The rate of return on investments is adjusted for a 3% inflation rate.
Here are the results of your profile questionnaire. The possible allocation models are Very Defensive, Defensive, Conservative, Moderate, Moderately Aggressive, Aggressive, and Very Aggressive. Your risk propensity suggests a Conservative portfolio allocated with the following mix:
Cash Fixed Income Equity 5% 45% 50% 5% Money Market 20% Domestic Fixed Income
15% International Fixed Income10% Mortgage Backed
10% Large Cap Growth
15% Large Cap Value10% Small/Mid Cap
15% International Equity
1) Very high internal expenses
2) Outrageous surrender penalities (for the first several years) that handcuff you to the product
3) The insurance is nearly worthless
4) The tax deferral aspect is WAY over-rated since index funds accomplish virtually the same thing at a fraction of the cost
5) Money taken out of an annuity is taxed as ordinary income versus the lower (usually) cap gains tax rate
6) Poor estate planning tool b/c the assets don’t receive a step up in cost basis at death and are taxed at the beneficiary’s ordinary income tax rate
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The Last but not Least
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Last modified: March 08, 2014