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  1. sdre Jan 17, 2018

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    Hello OF,

    I'm starting this thread for fellow like-minded folks like @tony.c to share their market outlook on the current economy/market. If this is forbidden, please go ahead and delete the thread.

    Also, this is by no means a place to ask questions like "Should i put my savings into bitcoin now?".

    I'm thinking of creating this thread to be a platform to discuss in a civil manner what are some mindsets/outlook on the US/World economy and take whatever posts here with a pinch of salt.

    Let me start off, US Market has been rallying quite abit, surely a bull run has to stop somewhere.

    Personally, I think its a good time to hold onto cash and wait for the market to cool down or perhaps, prepare for a downturn that will eventually come.
     
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  2. 77deluxe Jan 17, 2018

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    Many people have missed out on bull runs on that same line of thinking. Yes, rallies end, but they also have a midpoint, and 3/4 mark, and everything in between. Outside of a black swan event (war, natural disaster, etc.), I don’t see any reason to anticipate a reversal in the next quarter or two. Inflation is low, employment is good, and we are beginning to see wage growth. Additionally, a lot of money gained, if not the majority of it, via tax cuts will simply be invested, thus further inflating asset prices.

    I know this isn’t as exciting as predicting doom. It’s a riskier prediction because eventually the prediction will be wrong. Predicting doom gets more attention and is a safer call because sooner or later it will be correct.
     
    Edited Jan 19, 2018
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  3. akshayluc420 Jan 18, 2018

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    I look it at in 2 ways:
    1) Employability and earning potential at current job/industry in your particular territory economy
    2) Savings potential and ROI therefore

    I won't get into my career strategy and moves, but the ability to see trends on a global level and understanding how it'll impact your particular territory/economy is crucial. I think Brexit is a smaller scale example that most people with agree with (GBP devaluation, loss of skilled & unskilled labour, and investment). The curtailed Chinese, Russian and African tourist spending on the luxury side of the market has really hit the UAE luxury shopping tourism sector pretty hard: changes in their countries have impacted the economy here.

    Alright, even if you could make your moves, how do you ensure that you're able to save enough for a rainy-day/retirement/financial or life goals, and ensure you're on track via Returns on said savings? The conservative approach would be do make sure that you allocate savings in a manner that, at the very least, will beat inflation. Anything more than that is a gamble that carries considerable risks, as well as a considerable pay-day if you're lucky. Hence the divestment of savings and hedging them against each other. Can't go terribly wrong with a bit of real estate, a bit of gold, cash in a couple of currencies with relatively insulated economies (eg. Canada, Oz), a good medical & life insurance plan (hey, in case anything goes wrong). Or, just ape whatever Vanguard and Buffet are doing if you can muster it.

    However, it all starts with an axiom me dear Mum drilled into my head: STOP SPENDING MONEY ON STUPID SH::censored::T....except for pretty watches. (I added that last part) :p
     
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  4. Moadib Jan 18, 2018

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    The adage is 'there's always a bubble somewhere". It's nice to be in at the start and out just before the pop, but it's the riskiest places to be.

    For example the SOX (semiconductors) is at highs because of past underinvestment due to ROI being impossible at the prevailing IC prices. That shortage has now boosted IC prices, and therefore profitability and stock prices. It's of course unsustainable. Can it go higher - for sure. I doubt it will be this high in 2-3 years from now. So anyone who has enjoyed the run up, maybe step off now and look for somewhere undervalued. Anyone who's thinking to get in and look for that last 10-15% up.....it can also drop 50% or more from here.

    Cliched, but “Fearful when others are greedy and greedy when others are fearful.” In many markets it's time to be a bit fearful.
     
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  5. Tony C. Ωf Jury member Jan 18, 2018

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    My views on the economy and where we are headed are articulated on other, related threads. Put succinctly, I have no doubt that we are in the late stage of an historically epic bubble, catalyzed by unprecedented debt creation (aka "money", QE, etc.), and that it can only end very badly. Therefore, to my mind, the question is not if there will be major crisis as a result of such policies, but when it will unfold in earnest.

    When the 2008 crisis unfolded, those in power had the opportunity to choose real reforms, but instead chose to protect the interests of the wealthy. The result of this is that "markets", and I use the quotation marks for a reason (see the charts below), have performed spectacularly well, while 90%+ of the populations of the U.S. and Europe have continued to struggle.

    It is not possible to resolve an enormous debt problem by creating mountains of additional debt. This should be obvious to most, yet politicians and central bankers have been pretending otherwise for nearly 10 years now.

    Coordinated central bank policies have blown massive asset bubbles in stock and property markets. Those in charge know this full well, and are worried, which is why they are beginning to tighten (i.e. raise interest rates, reduce bond buying, etc.). But they are trapped, as the markets have become addicted to (nearly) free money, and will fall dramatically if the Central Bank spigots are shut off.

    Rather than going into further written detail, here are a few charts that readers may find illuminating, and that I believe tell a sad, and frightening story. They are not all completely up to date, but the trends shown all remain in effect today, and, it should go without saying, are clearly unsustainable.

    (The G3 are the central banks of the U.S., Europe and Japan)


    [​IMG]

    (EPS are earnings expectations - lol!)

    [​IMG]

    [​IMG]

    [​IMG]

    [​IMG]

    [​IMG]

    [​IMG]
     
    Edited Jan 18, 2018
  6. 77deluxe Jan 18, 2018

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    Tony C - when is Japan’s experiment in money creation going to end badly?

    And relative to GDP, hasn’t the money supply been larger in the US many times historically?

    I agree that massive amounts of consumer debt is a problem, but not sovereign debt when that country is the issuer of their own currency and there is demand for that currency.
     
  7. Tony C. Ωf Jury member Jan 18, 2018

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    Japan is a unique case, and not, in my view, analogous to the current state of either the U.S. or Europe. It is an interesting topic, but I'd prefer not to create a long sub-thread here. When you say "when is going to end badly?", you suggest that things are peachy in Japan, but they really aren't. To use an obvious example, the JCB has been printing for a long time now, and yet the Nikkei is at 23,700 – still 15,000 points lower than the top in 1989. In other words, most who didn't cash out around that time have been well underwater for the past 30 years!

    More to the point, Japan is culturally unique, and the population is willing to endure such radical monetary experiments, and the associated personal costs, much longer than those in the West.

    Another good, though potentially complicated question. I see demand for the USD decreasing already, and one can expect to see China, Russia and others continue on that course. So I actually do believe that sovereign debt will become a problem for the U.S., though I agree that consumer debt is a far more pressing issue today.
     
    Edited Jan 18, 2018
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  8. Waltesefalcon Jan 18, 2018

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    Tony, I completely agree with your assessment. We are in a precarious position and those in power don't seem to care. My great grandmother who buried coffee cans full of silver dollars in the back yard seems to have a better grasp of economics than many of our current leaders.
     
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  9. Tony C. Ωf Jury member Jan 18, 2018

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    Let me add something that I have found, at times, can help to clarify why the world is at such a dangerous point.

    Everyone has heard of interest rates, and most adults have had at least some direct experience with them when taking out home or car loans, etc. But I suspect that few have carefully considered what has been happening to interest rates since the '08 crisis, and how it may impact the world's economies in the near future.

    Interest rates are essentially a feedback mechanism for risk. The lower the interest rate, the lower the risk, and vice versa. Now, when the crisis unfolded in 2008, the central banks, led by the Fed, quickly crushed interest rates to near zero. This is a topic that has been, and will continue to be debated for years to come, but in simple terms, the Fed (followed by the ECB and JCB) argued that they were "emergency measures", without which, and including various forms of QE, the world would have plunged into a depression.

    Well, here we are, 10 years later, with the Central Banks claiming, ludicrously, that the major economies have largely recovered, and that the U.S. is close to "full employment", etc. This is all rank propaganda, and begs the obvious question: if things are looking so good, why would it still be necessary to keep interest rates at such a remarkable, and artificially low level?

    Here's a chart to put into perspective just how rare this long suppression of interest rates is. Recently the rate inched up to 1.5%.

    [​IMG]

    So, back to interest rates reflecting risk. If that is their central function – and it is – what effect do you imagine a deep, ten year suppression of such rates might have? If you thought: Well, it would greatly encourage speculation and borrowing that might otherwise not have been attractive had risk, in the form of higher interest rates, been implied, step on down and collect your prize! And if you thought that it would discourage savers, and push the average worker to consume and "invest", rather than save, you'd be correct about that, as well.

    To use just one of countless examples around the world, the U.S. Shale Oil industry exploded during this period, and companies borrowed huge sums of money at artificially low interest rates. When the price of oil dropped sharply, they were suddenly in trouble – and still are. And this is before rates are lifted to anything like a "normal" range.

    Dave Kranzler is another observer who has good insights into theses issues. He wrote a post in July of 2017 that includes the following, useful view of the interest rate problem:

    "Quantitative easing – when a Central Bank prints money and uses that money to buy sovereign bonds for the purpose of controlling interest rates – removes the market’s ability to price “time value risk.” Western sovereign bonds have been driven down to zero – below zero on a real interest rate basis. Western sovereign bonds are thereby simply interchangeable with a country’s currency. There’s almost no difference between holding cash or holding a 30-day T-bill , or even a 2-yr Note, other than the inconvenience and transaction cost of buying and selling the bond.

    The point of this is to reflect on the fact that bonds are indeed currencies – currencies with the added feature of time value risk. An investor buying the bond is willing to exchange current spending/consumption in order to lend money to the sovereign issuer. The interest rate is the amount paid to bear the time value risk. The interest earned is paid in more of the sovereign currency.

    QE has destroyed the market’s natural function of pricing time value risk into the capital markets which in turn has reduced most bond investments to the equivalent of holding currency in the pocket sans the benefit of compensation for bearing time value risk. This has in turn forced a flood of money of Biblical proportions into the the non-currency assets that are moving higher at the greatest velocity – primarily stocks."
     
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  10. M'Bob Jan 18, 2018

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    Your gloom and doom predictions makes me want to drink, and I don't. I may not be alone. Perhaps alcohol stocks will be spared?
     
  11. Tony C. Ωf Jury member Jan 18, 2018

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    If you can learn to brew your own, it may prove to be quite a valuable skill!

    And if anyone can paint a realistic scenario in which a major crisis can be avoided, I'm all ears.
     
  12. Moadib Jan 18, 2018

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    Perhaps why whisky, port and en-primeur wine are an investment vehicle of the wealthy? When the SHTF you can just crack them open and enjoy yourself, waiting for the storm to pass. Even if the value drops, it's still a superb drink.
     
  13. MaiLollo Jan 18, 2018

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    I think that if you look at the financial markets' value since their inception, crisis are cyclical and always happen after periods of growth. I agree with your thoughts on ECB's policies.
    One of the issues is that, with the disconnect between "real" money (cash) and "virtual" money (what we have on our accounts), as soon as thing start to go south people loose trust in the system and crisis happen.
     
  14. lando Jan 19, 2018

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    "trust" is the essential part here. It is the only reason the system we have is working right now.

    Imagine NO ONE trusting this system at one point...
     
  15. gostang9 Jan 19, 2018

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    I agree with the perspective that we are in the late stages of a propped up economy, and so I have 65% of our savings in cash.

    However, knowing that gains in the final moments of recovery can be significant, I still have 35% fully invested in the market.

    In my mind, this means a 15% market appreciation allows me to continue getting a 5% annual rate of return.

    If the market crashes 10 - 30%, I've protected the bulk of my savings and can buy in at much better prices.

    I remember October 2008 when there was a strong leg down, I desperately wished I had cash to put into stocks but I had no liquidity at the time. Even though the market continued dropping until March 2009, had I been able to buy in at the prices on October 2008, what a return that would have been. I have been moving towards cash for the last 4 years, buying in on dips and then cashing out again after big increases. All told it hasn't been as good a strategy as if I'd left everything in the market and simply let it ride, but I'm happy with the returns I've made and I like knowing the majority is safe in case of trouble.

    (none of this is advice on how anyone else should handle their savings, simply stating what I have done for myself)
     
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  16. alam Jan 19, 2018

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    Oh boy! Myself (like many others) must be feeding on fake news! :cautious: I read/follow other reports that indicate that the US economy remains strong and tracking the mid/growth performing stage of the business cycle. Some of the data sources/analysis (as of the start of 12/2017) that support this notion (that BTW I have followed for the last 6-7 years) are:

    a. Unemployment Rate (Source: Bureau of Labor Statistics) - unchanged from the previous month at 4.1%. Observations from other analysts is that "Taking a look at the unemployment rate over the course of the year, you can clearly see that we are at the natural rate of unemployment and further improvements in the rate are unlikely. So the focus is much more on wage growth at this stage of the business cycle. In November, average hourly earnings for all employees on private non-farm payrolls rose by 5 cents to $26.55. Over the year, average hourly earnings have risen by 64 cents, or 2.5 percent." They continue by saying: "That’s not impressive, but was good news as we are seeing a bit of a move from part-time to full-time jobs"

    b. Purchasing Manager's Index (Source: Institute for Supply Management) - according to other experts in the field, any number above 50 indicates growth in manufacturing and anything over 43.2 indicates an expansion of the overall economy. The November PMI reading was 58.2, and [again] according to experts, this a very strong number. Their analysis continues "A PMI above 43.3 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the November PMI indicates growth for the 102nd consecutive month in the overall economy and the 15th straight month of growth in the manufacturing sector."

    c. Yield Spread (Source: Cleveland Fed) - their analysis: "Using past values of the spread and GDP growth suggests that real GDP will grow at about a 1.4 percentage rate over the next year, even with October’s estimate and a bit above September’s 1.3 percent. Although the time horizons do not match exactly, the forecast, like other forecasts, does show moderate growth." The analysis continues by indicating "Using the yield curve to predict whether or not the economy will be in recession in the future, we estimate the expected chance of the economy being in a recession next October at 11.8 percent, just down from September’s 12.0 percent, which was a drop from the August probability of 12.5 percent. So the yield curve is optimistic about the recovery continuing, even if it is somewhat pessimistic with regard to the pace of growth over the next year."

    d. Money Supply Growth Rate (Source: Trading Economics.com|Federal Reserve) - Some of you may know that the Money Supply M2 includes savings deposits, money market mutual funds and other time deposits which can be quickly converted into cash or checking deposits) - This number increased from May to June. The reported language states: "Money Supply M2 in the United States increased to 13747.30 USD Billion in October from 13692.40 USD Billion in September of 2017". The report further adds: "The growth rate is what is meaningful here, and you can see that growth has accelerated over the past two months – a good sign for an expanding economy."

    Their conclusion: "..these indicators support the US economy remains in the Mid/Growth/Performing stage of the business cycle..." and this the reason [me, myself and I] continue to keep 100% of my long-term investments in S&P 500 stocks, Small Cap Index type of investments and International funds (Europe and Far East).

    @sdre we all know that hindsight is always perfect but for the last several years I have ignored all the noise and all the doom and gloom predictions, followed the above data/analysis and stayed fully invested in the US market without any regrets!

    Or perhaps this is all fake news/hogwash that just by pure coincidence worked out for me! (good thing I did not bailed out of the market in January of 2016 :) ) But hey, don't listen to me, am not an economist or financial planner!

    :)
     
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  17. Tony C. Ωf Jury member Jan 19, 2018

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    I'll just say a couple of things about the above post. First, while I wish @alam and others who are heavily invested the best of luck, profits are not realized until securities are sold, and there have been countless millions of people who have been similarly confident leading up to the peaks of every bubble who ultimately saw large chunks of their paper wealth disappear.

    Secondly, statistics such as the unemployment rate are precisely what I was referring to when using the phrase "rank propaganda".

    Without burdening readers with too much detail, the BLS (Bureau of Labor Statistics) numbers say that the unemployment rate is 4.1%, and based on their calculations, it is. The problem – and it's a big one – is that the numbers are designed to be misleading. For the sake of simplicity, they are using a base of what is called the civilian non-institutional population, which is 254,767,000, and there is nothing wrong with that. They then divide that group into the following two categories:

    1. The civilian labor force (159,784,000 people), including everyone who is employed or unemployed (i.e. has a job, or wants a job).

    2. The not in labor force (94,983,000 people), including everyone who is of able body and mind who could potentially work, but "chooses" not to.

    In order to put the best possible face on the employment numbers, the BLS completely ignores the second category, and calculates their rate using only those making up the first. Put another way, they only define a person as being unemployed if they: (i) have no job, (ii) can potentially hold a job, (iii) and are actively looking for a job. So, when people stops searching for employment, the BLS moves them out of the civilian labor force and instead deems them not in the labor forceeven if they stopped looking because there were no jobs.

    There are more than 90 million people in the U.S. who are not working, and yet the unemployment rate is 4%? Really? If you believe that, I've got a NOS, red-underlined, DON ghost bezel, tre tacche, Calatrava Timex that I would like very much to sell you.

    To gain a much more accurate appreciation of the level of unemployment in the U.S., let's take a look at two charts. First, the Labor Participation rate. Note that huge drop in the wake of the '08 crisis, and where it is today. Not only has it barely recovered at all, but it remains at levels that were last seen in the mid-1970s.

    [​IMG]


    The second is the Employment to Population ratio and Dow Industrials. This illustrates that the two largely tracked one another until, and even beyond the bursting of the Tech Bubble. In other words, there was a reasonably taut correlation between the growth of the two.

    Then, after the '08 crisis, you can easily see the yawning gap that has appeared. That illustrates the disconnect between the stock market and the real economy, as central banks have blown massive asset bubbles, and again it is easy to see that true employment hasn't come close to recovering from the last crisis.

    [​IMG]


    There are other factors to consider as well, such as millions of Americans having to work multiple jobs when they previously had one, or accept lower paying jobs in order to stay in the workforce. They are all considered "employed", of course, but even that can be misleading as well.
     
    Edited Jan 19, 2018
  18. sdre Jan 19, 2018

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    I'll like to think this thread as a form of discussion of varying points of views regarding how you view the market. Thanks for sharing.

    I had a chat with a good friend of mine. He was invited to the Bank of Singapore to attend their talk and review how Singapore's growth and how well the industries are improving. (Of course, their agenda is for consumers to be invested in the stock market/banks)

    I'm not saying the government is lying or that the news we see every day is fake news.

    Personally I'm citing caution and I agree with the @gostang9 on holding more cash. Be Committed to companies you think have room for growth and have buying power when you want to move.
     
  19. 77deluxe Jan 19, 2018

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    Exactly. Many people have forgot Econ 101, and think we are still under the gold standard.
     
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  20. STANDY schizophrenic pizza orderer and watch collector Jan 20, 2018

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    Wait to rates rise to double what they are now in a year or two :whistling: and the young ones that have never seen 5% or 10% in their adult life all of a sudden struggle with 3% repayments.

    Big problem with unemployment figures is like in Australia now unemployed is low but most in the figures are underemployed ie: working part time not full time.

    My advice to anyone is buy as much land next to a national park and put Bees along the fence line. ( Free honey ) and beef in the rest of the paddocks
    ( just google China's increasing import of beef in the last few years.)
     
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