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EJ
05-25-10, 01:23 PM
http://www.itulip.com/images2/carflyingSM.jpg


Debt-deflation Bear Market Update - Part I: First Bounce officially over (really)

Why stock markets, oil prices, but not precious metals prices are falling

• FIRE Economy re-start flames out
• Housing bust recession not over
• Fed selling deflation, again

Only 27 days? Feels like years since the DOW stood more than 1000 points taller back when we published The Next Crash (http://www.itulip.com/forums/showthread.php?p=159533#post159533) on April 28. Not a forecast of an imminent correction. For that you needed to heed our man Finster's April 21 post Correction Due Shortly (http://www.itulip.com/forums/showthread.php?t=15299&p=158800#post158800). By coincidence stocks did “flash crash” a week later on May 6. As is our tradition here since 1998—an old age home, by Internet standards—we poured a bucket of cold water over fevered bullishness that was beginning to infect our modest home to fans of dispassionate economic and market analysis.

Several took me out to the woodshed in the comments area for failing to direct them back into the stock market like a good stock salesman in March 2009 when we trumpeted the start of the First Bounce of the Debt Deflation Bear Market. Not that we did anything to stop them. But let’s just say we were not encouraging, announcing an end to the rally several times as our way of trying to keep them out of harm's way.

The din of protests soon quieted to a hush a week after we posted as fear of losing money pushed aside the fear of losing out on a rally based on half-true data, wishful thinking, momentum, debt, money growth, and reversible capital flows. But a context-free, event driven media cuts and pastes facts and fantasy together into a Photoshop quasi-reality that changes hourly, so 27 days feels like another era.

The long decay

Officially, we’ve been out of the stock market since March 2000 when the S&P500 traded 45% higher than today in real terms. I tried explaining this to an investor radio show host last week but he didn’t want to hear it. Or, more to the point, his listeners didn’t and he knew it; a society buried in fallacies up to its eyeballs cannot afford to hear facts. His audience believes the half-truth that stocks had made “new highs” in December 2007, not coincidentally at the month when we issued our second warning to readers in ten years to get the hell out.

New highs? Really? Go to any inflation calculator site (http://www.westegg.com/inflation/infl.cgi). Enter the peak price of the S&P500 March 24, 2000 of 1527. That’s 1924 in today’s dollars. Seven years later in 2007 the index reached a new nominal high 1560. The S&P500 closed at 1073 yesterday.


http://www.itulip.com/images2/reals&p5002000-2010.jpg


S&P500 in 2009 dollars: March 2000 to May 2010


Behold the entire sordid process graphed as a bouncing ball that starts with a drop in the early 1980s when the Volcker Fed inadvertently launched the FIRE Economy. Tall Paul did a toaster reset on the U.S. economy with double-digit interest rates but not until after double-digit inflation did the work of wiping out a generation’s debts. Public debt, too; the nation didn’t have much to speak of, a fact that many forget who today hope for the U.S. to repeat the austerity of those good old days, as if the United States didn’t live off capital flows from foreign investors to finance not only its trade deficit--a flow of funds that is balanced by its capital account--but up to 70% of its government spending in some years. Why do foreign investors do this? Perhaps the crisis unfolding in North Korea will serve as a reminder why Japan needs American troops there, and to other nations why financing the U.S. military is good for the global economy. If that is the point of the showdown in Korea, the timing is ideal.

That was then. This is now.

The early 1980s austerity of high interest rates and reduced government spending set the United States up for a 20-year boom. If attempted today the same measures will trigger a sudden stop. This is why we find Volcker these days tromping around Capital Hill pressing the value of a VAT to cut our public debt. The irony of a Volcker plan to dial inflation into the economy to pay down debt is not lost on us; it's the inevitable end result of a finance-based economy that libertarian policies set in motion so many years ago when national economic policy was ceded to Wall Street.

The FIRE Economy boom reached its epic high with the technology stock bubble peak in March 2000 (http://www.itulip.com/GlobeArchiveJanszen.htm). The dwindling purchasing power of the S&P500, bellwether of the U.S. economy, chronicles the degeneration of the U.S. economy ever since as each new real market peak ends lower than the previous one.

But these are mere facts. This paint pealed pantry lined with cans of soup and bags of beans is no match for the slick Photoshop image of a happy debt addicted economy we see day in, day out, its denizens eating food on credit and plowing the highways in cars they can’t afford—they had to borrow money to buy them, in violation of the ancient old law of household finance to avoid using debt to purchase depreciating assets.

Fake facts conflate with the provable, all bobbled into an adulterated mash that looks real enough to the casual observer, but completely insane on close inspection.

Close inspection? Who has the time?


http://www.itulip.com/images2/greekriot.jpg


We all want to believe in the stock market. It’s un-American not to. Stocks measure the tenacity of our nation’s business leaders; stock prices are the market's scoreboard.

The figure of the unstoppable American entrepreneur is half accurate. Steve Jobs and Jeff Bezos are its flesh and blood. But what of the entrepreneurs who are raking in the big dough selling liar loans and securitized dog shit? Wall Street firms prey on our wish that our economy is 80% the former and 20% the latter even if on a total payments basis the statistically accurate fact is the reverse.

Our wish to see what we want to see demands this half-real Photoshop depiction of our economy. Bogus messages delivered with high production values, ubiquity, the patina of authority and legitimacy, and repetition, repetition, repetition does the rest.

Two economies not one

Much of the confusion stems from the bi-polar nature of our economy, for ours is not one economy but two. One production-based, governed by the stern rules of profit and loss. The other financed with capital gains and guided by the mutable laws of finance. Political influence on the former is direct and visible, such as through tax policy, the latter through inscrutable regulations, or lack of enforcement thereof, that results first in private debt, then in public when the private over-indebtedness leads to financial crisis. Public debt is nothing more than today’s taxes collected tomorrow, plus interest.

Who shall pay? In Greece, as elsewhere in Europe, not those who signed the papers that created the debt in order to finance the European lifestyle to which the nation states of the euro zone have become accustomed. Public borrowing beyond the level that produces a real return on investment is a bribe for votes. The structure of that system of bribery in Europe is layered on top of a half-currency, the euro. Without a central euro bond debt issuing or tax collecting authority, there is no way to resolve debt crises or convince creditors that sovereign debt is backed by sufficient tax receipts. But when the euro came together there was no operational provision made to revert to the old system of multiple national currencies should this obviously flawed system fail. For example, and an important one: modifying the banking computer systems and networks took years of coordinated effort leading up to the 1999 euro launch. A reversion to multiple currencies could be reasonably expected to be uncoordinated or, more to the point, chaotic. Think of it as a currency Y2K+10.

Thoughts of an orderly retreat from the euro are misguided. The euro zone member states locked themselves in a cage in 1999 and threw away the key. A fire erupted in the cage after elections in Greece last fall. The new administration revealed that the nation’s debts were twice as large as previously reported. The panic spreads as euro bond-holders doubt that the Greek government was the only one lying. There is no disinterested authority to bring them all to account.

Euro zone capital flight that began last week intensified this week. It flees into gold, pushing prices up even as stock markets tumble. It also flees into dollars, where it is not wanted; the United States needs its weak dollar to maintain export sector growth, and high oil prices to send inflation signals into the over-indebted economy to forestall debt-deflation in the FIRE Economy. Is it working?

FIRE Economy behind the curtain

Who knows? Or rather, how can we know? The performance of the productive economy is measured six ways from Sunday. Data on unemployment, inflation, productivity, and output are dutifully reported by the business media. We question its veracity, but what of measures of the health of the FIRE Economy? Where are the monthly reports on the ratio of mortgage debt to household income? What of measures of asset price inflation and deflation? How much household cash flow is pledged to pay interest on debt?

At least the last one we can calculate.


http://www.itulip.com/images2/mortggevsPCEannual1980-2009.gif


Interest on mortgages is now over 20% of personal consumption expenditure
versus 5% in 1980 before the FIRE Economy. This despite the fact that
60% of housing is owned outright and mortgages only apply to less than
half of households.


Given the foregoing, we have part of the answer to the question: Why have stocks performed so badly while gold has performed so well?

But no one ever asks the question, because the fact is virtually unknown.


http://www.itulip.com/images2/thairiot.jpg


Jeremy Grantham recently dipped a toe into the gold market after deriding the yellow metal through the whole asset bubble period. He went on record in 2002 saying, “I can say with a clear conscience that I have never made a mistake in gold because I have never had an opinion on gold," he said in a 2002 interview with Barron's. "I have completely and assiduously avoided it. I feel uncomfortable with gold. It has no yield."

That was one year after we looked at the same data and decided that gold was cheap, the economy was in deep trouble, and bought gold.

Nine years later, in a May 19 Fortune blog entry incongruously titled “One man vs. the gold bubble” Grantham said, “I hate gold. It does not pay a dividend, it has no value, and you can't work out what it should or shouldn't be worth. It is the last refuge of the desperate."

Well, if Grantham “hates gold” then he should have read the my America’s Bubble Economy chapter “Gold for people who hate gold” published in October 2006 when the metal that “has no value” traded at less than half of today’s price.

In any case, we welcome Jeremy to the market even if he is nine years late.

Why (nearly) everyone hates gold

The premise of articles on gold in the business press, as we explained in Lessons of the American Lost Decade – Part 1: The gold bugs were right (http://www.itulip.com/forums/showthread.php?t=13706&p=141535#post141535), is that stocks trounce gold. More volatile. No yield. Stocks are a better inflation hedge. Blah, blah, blah. The perpetuation of these myths has been entirely effective.

Stop an American citizen, I mean, consumer on the street and ask him if he knows that a portfolio composed of gold and Treasury bonds has trounced a stock portfolio for over 12 years. Ask him if he knows that gold out-performed stocks every single year since 2005, including this year—at least so far. He'll look at you as if he's just heard someone tell him that a herd of buffalo was discovered on the moon.

The first time we posted these charts in How to make $301% in six years with low volatility (http://www.itulip.com/forums/showthread.php?t=2806&p=23397#post23397) January 2008, we were up 301%. Today: 417%.


http://www.itulip.com/images2/goldvsstocks2005-May2010.gif

Since 2005, gold has outperformed stocks every single year



http://www.itulip.com/images2/goldvsstocks1998-May2010.gif

Since 1998, the S&P has gained 13% while gold has gained 417%


There you have it. The real reason why gold is so derided. It makes fools out of even the most sophisticated, contrarian, and independent market analysts. How many tens of billions have been spent on fees and taxes and other transaction costs in pursuit of the returns that buying gold and doing nothing for ten years delivered?

Gold, an uncouth contestant on a trivia game show with a high school diploma and a checkered past getting all the answers right while his Ivy League business school competition gets them wrong.

Gold, an old man tooling his 1983 Jeep Cherokee past a $80,000 Infiniti SUV stuck in a snow bank.

Gold, a tattoo painted, steel studded teenager on a street corner jeering a Newman suited investment banker who’s slipped and fallen into a puddle of poodle poop.

Goddamn gold! Winning. Winning. Winning.

Bad facts

For readers who insist on participating in the Asylum Markets of the post FIRE Economy by playing the First Bounce (http://www.itulip.com/forums/showthread.php?t=13395&p=138356#post138356) rally, The Next Crash was intended as a reminder that, “Market participants can’t differentiate between an organic, private-sector-led economic recovery and a government-financed recovery,” as we noted last November, repeating an idea that we first proposed in 2008 before the First Bounce began. Portions of the productive economy may be recovering briskly, others not, while bits of the FIRE Economy respond to government subsidies while others flame out.

Japan has since 1990 gone through a related, albeit different process, since the early 1990s.


http://www.itulip.com/images2/japanstimulusVSgdpVSstocksNOTES122409.gif


The three charts show the relationship between post-bubble reflation policy, GDP, and stock prices in Japan since the start of Japan's debt-deflation period in 1990.

Once a credit bubble has collapsed, after the initial period of debt-deflation, stock markets continue to price in expectations of future performance of the economy, but the performance of the economy depends on government policy, and the impact of politics on policy, and market perception of policy. Note for example the impact of Hashimoto fiscal reforms in 1995 on GDP in 1997 and 1998 in the chart above. Today this relationship between policy and markets in a post-bubble, zero interest rate policy (ZIRP) environment is widely known, so you'd expect the markets to price in the result of policy changes before they are implemented. If the election of Rand Paul indicates a policy directional change that carries forward to the 2012 presidential elections, a fiscal reform crash may soon follow.


http://www.itulip.com/images2/paulsonfamily.jpg

The so-called Great Recession was a continuation of the recession that would have occurred in 2001 had the process of debt-deflation then been allowed to run its course instead of the housing bubble FIRE Economy intervention. The partially re-inflated FIRE Economy, and its distortions of labor markets, interest rates, and inflation, produced the Photoshopped economy with its incongruous mix of recovery in one area and ongoing collapse in another.

Whatever you do, don’t bring up the NASDAQ in a discussion of the stock market. That’s bad taste. Act like there’s nothing wrong.


http://www.itulip.com/images2/taslkingunclesam300.jpg

Debt-deflation Bear Market Update - Part II: Act like there's nothing wrong

When there are no easy solutions, there will be hard ones

• Selling deflation
• Europe’s intractable sovereign debt crisis
• Failure of public housing
• Richard Koo was right
• Right policy, wrong time
• Official end of the First Bounce

The First Bounce of the Debt Deflation Bear Market is the tail end of the now ten year process of decline of the FIRE Economy. If the 2008 financial and economic crisis was not great enough to create a political forcing function for change, then we can expect an even greater crisis in the future that will. more... $ubscription (http://www.itulip.com/forums/showthread.php?t=15699&p=162588#post162588)
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magicvent
05-25-10, 09:11 PM
When you say "If the election of Rand Paul indicates a policy directional change that carries forward to the 2012 presidential elections, a fiscal reform crash may soon follow," do you mean a crash after the 2012 election?

cjppjc
05-25-10, 10:13 PM
"Market participants can’t differentiate between an organic, private-sector-led economic recovery and a government-financed recovery,”

I think I can, but I'm not confident in my deliberations. It's always great to read you when you are.

charliebrown
05-26-10, 01:28 AM
I have wondered about this too, if a bunch of fiscal conservatives get elected in the fall, will the juice be turned off?
It might be best in the long run, but it sure is going to hurt. What happens if the polls show that the juice will be turned off?
Will the crash come when the polling numbers become reliable? Also remember the bush tax cuts will expire in 2011,
when will people decide to book profits in 2010, and push off loses into 2011?

grapejelly
05-26-10, 01:46 AM
Euro zone capital flight that began last week intensified this week. It flees into gold. It also flees into dollars, where it is not wanted; the United States needs its weak dollar to maintain export sector growth, and high oil prices to send inflation signals into the over-indebted economy to forestall debt-deflation in the FIRE Economy. Is it working?

Huh?

High oil prices do nothing for inflation. They suck money out of the US economy and pay it to the oil producers abroad. It can only be inflationary if money is printed or created somehow through borrowing, to pay the higher oil prices. Of course, this is the case so in a sense you are right.

But you miss the point here.

The justification for high oil prices is the peace pact the US has with Saudi and other governments, pax americana. If oil prices fall too low, we can expect bad civil unrest, governments toppled, governments friendly to the US government interests.

This is very seriously a threat to US government interests if oil stays in the 60s for any length of time.

Chris Coles
05-26-10, 04:48 AM
"Once a credit bubble has collapsed, after the initial period of debt-deflation, stock markets continue to price in expectations of future performance of the economy, but the performance of the economy depends on government policy, and the impact of politics on policy, and market perception of policy. Note for example the impact of Hashimoto fiscal reforms in 1995 on GDP in 1997 and 1998 in the chart above. Today this relationship between policy and markets in a post-bubble, zero interest rate policy (ZIRP) environment is widely known, so you'd expect the markets to price in the result of policy changes before they are implemented. If the election of Rand Paul indicates a policy directional change that carries forward to the 2012 presidential elections, a fiscal reform crash may soon follow."

There is surely one way out of this corner, but it involves refusing to accept anything other than the original invested value of shares. Today, all markets reflect the inflated "value" of the share. But if you look at the origins of the joint stock company, it was the dividend paid consistently, that was the main driver of long term prosperity. In which case, the best route out of the fiscal dilemma is to create completely new, off market companies, that again, consistently deliver regular dividends. Thus the way out is to walk away from the existing markets and create new companies that have been created and evolved in the difficult times ahead, but free from the overhang of market expectations from the past.

c1ue
05-26-10, 08:29 AM
I have wondered about this too, if a bunch of fiscal conservatives get elected in the fall, will the juice be turned off?

It is not clear to me that Rand Paul or any other "fiscal conservative" elected would actually 'turn the juice off'. The whole point of the 'nihilist' post was that no politician, much less his entire political party, would commit suicide by doing the 'right' thing.

His platform is incoherent. On the one hand, he says he'll reduce the deficit and balance the budget. On the other hand, he wants to cut taxes. And no mention of Iraq of Afghanistan.

His health care 'plan' is similarly ridiculous. The reason health care is so expensive is NOT because of tax subsidies or penalties. Making all medical expenses tax deductible does NOTHING for making it more affordable; it just saves money for those with money.

As a Congressional candidate, he can get away by saying all of these things but not actually accomplishing any of them - since the other 500+ Senators and Representatives can be blamed for not following his 'platform'.

opps
05-26-10, 09:08 AM
Your numbers comparing gold to the sp500 for 2009 I believe are wrong. The sp500 was up around 25 last year not the teens as the bar chart shows.

Serge_Tomiko
05-26-10, 11:12 AM
It is not clear to me that Rand Paul or any other "fiscal conservative" elected would actually 'turn the juice off'. The whole point of the 'nihilist' post was that no politician, much less his entire political party, would commit suicide by doing the 'right' thing.

His platform is incoherent. On the one hand, he says he'll reduce the deficit and balance the budget. On the other hand, he wants to cut taxes. And no mention of Iraq of Afghanistan.

His health care 'plan' is similarly ridiculous. The reason health care is so expensive is NOT because of tax subsidies or penalties. Making all medical expenses tax deductible does NOTHING for making it more affordable; it just saves money for those with money.

As a Congressional candidate, he can get away by saying all of these things but not actually accomplishing any of them - since the other 500+ Senators and Representatives can be blamed for not following his 'platform'.

He hasn't mentioned Iraq or Afghanistan specifically because he favors a complete shutdown of our foreign military activities. This view is so well known the neocon cabal in New York City has been attacking him relentlessly. They even sent Giuliani out there to do his pathetic coward smear! I know more than a few of these chickenhawks in New York City, and they absolutely detest Rand Paul and genuinely fear the growing popularity of his views. I had to endure such smalltalk at a famous private club just last night about this very topic.

As for healthcare, that is obviously a complicated issue. Ideally, I'm sure he would prefer a largely middle class society where free enterprise governs medicine. Thanks to the huge underclass we've imported into this country over the past half century and the destruction of middle class wealth thanks to usury, this isn't very feasible. But the man is principled, even if it is at times ridiculous, and that is something Washington sorely requires.

For the record, I think nothing can save this ship from sinking, but I can't help but cheer anyone Giuliani opposes.

open4
05-26-10, 04:14 PM
Its good that you no longer feel apologetic in having not advised your readers to re enter the stock market casino, irrespective that the casino managers’ temporally fixed high returns to rebuild their credibility and entice more victims to the rigged game, and that now your long term, logically correct but, reluctant analyses that gold, in the face of the barbarous relic of fiat currency is sadly the best bet .


While you clearly understand that the establishment, through its self interest has failed to act for the public good, emotionally you are having difficulty coming to terms with this.


I think that eventually you will agree that Austrian economics could work again.

LargoWinch
05-26-10, 08:40 PM
Your numbers comparing gold to the sp500 for 2009 I believe are wrong. The sp500 was up around 25 last year not the teens as the bar chart shows.

Using Google Finance I obtained an increase of 27.8% between Jan 2, 2009 to Dec. 31, 2009 for the S&P500.

Hence, I believe you are correct opps, or perhaps we are both missing something?

bart
05-26-10, 09:56 PM
I think that eventually you will agree that Austrian economics could work again.


I both sincerely doubt it, and also hope not.



Austrian economics has about as many shortcomings and good points as any other economic school.

"Economics exists to make astrology look respectable."
-- John Kenneth Galbraith

seanm123
05-27-10, 10:17 AM
Are you wearing your seat belts?

US money supply plunges at 1930s pace as Obama eyes fresh stimulus

The M3 money supply in the United States is contracting at an accelerating rate that now matches the average decline seen from 1929 to 1933, despite near zero interest rates and the biggest fiscal blitz in history.




http://www.telegraph.co.uk/finance/economics/7769126/US-money-supply-plunges-at-1930s-pace-as-Obama-eyes-fresh-stimulus.html

bart
05-27-10, 10:30 AM
The M3 rate of decline is actually steeper than in the 1930s:


http://www.nowandfutures.com/images/m3b_long_term2.png

grapejelly
05-27-10, 10:44 AM
this is exactly what happened in the 1930s...and in Japan starting in 1990. More stimulus, the economy "recovers", but it's all malinvestments and phony, and when the stimulus is withdrawn, the crash is even worse than before. This is why Keynsian economics is so completely bogus. What we need is MORE productivity but what we get is more consumption and waste instead. This makes us all poorer, but that is an invisible consequence for the timebeing. The visible consequence is hundreds of thousands of census workers "employed", which is all the caretaker politicians care about.

raja
05-27-10, 11:06 AM
The first time we posted these charts in How to make $301% in six years with low volatility (http://www.itulip.com/forums/showthread.php?t=2806&p=23397#post23397) January 2008, we were up 301%. Today: 417%.
There is no profit . . . until you sell it.

When you sell, will you be able to spend the dollars before they continue to inflate? What will you buy?

What about the possible 90% gold-profit tax you mentioned previously?

By the way, I got a good laugh out of this:


http://www.itulip.com/images2/paulsonfamily.jpg

Chris Coles
05-27-10, 11:13 AM
The stock of money fell from $14.2 trillion to $13.9 trillion in the three months to April, amounting to an annual rate of contraction of 9.6pc. The assets of insitutional money market funds fell at a 37pc rate, the sharpest drop ever. .........<!-- BEFORE ACI -->


..... The US authorities have an entirely different explanation for the failure of stimulus measures to gain full traction. They are opting instead for yet further doses of Keynesian spending, despite warnings from the IMF that the gross public debt of the US will reach 97pc of GDP next year and 110pc by 2015.

Larry Summers, President Barack Obama (http://www.telegraph.co.uk/news/worldnews/middleeast/israel/7767429/Barack-Obama-invites-Netanyahu-for-White-House-visit.html)’s top economic adviser, has asked Congress to "grit its teeth" and approve a fresh fiscal boost of $200bn to keep growth on track. "We are nearly 8m jobs short of normal employment. For millions of Americans the economic emergency grinds on," he said.




There are two problems highlighted here. The first is the idea that all asset prices always rise. But the one thing the people running "High Speed Trading" desks cannot prevent, is the simple fact that prices go down as well as up.

The second problem is equally simple, neither here in the UK, or, for that matter in the UK are we creating anything like enough new, private sector jobs. Here, I estimate that if we are going to tackle the problem at the roots of the economy, the micro company level where most employment is created, (even that which eventually become major employers), is the large number of new businesses we need to create. Regardless of which nation, the UK, US or even the likes of Greece, if we say that every new company will employ, say, five people in their first year, then for every 1 million new jobs, we need 200,000 new companies. In the case of the US figures, then you are looking at capitalising 8 million new jobs, and that is 1.6 million new companies. These are full on logistic exercises; we cannot "play" at these numbers, we have to have simple rules and a very clear plan to enable new job creation at such levels.

8 million new jobs, using criteria I have already set out in The Road Ahead from a Grass Roots Perspective www.chriscoles.com/page3.html (http://www.chriscoles.com/page3.html) and my proposals for The Capital Spillway Trust www.chriscoles.com/page4.html (http://www.chriscoles.com/page4.html) at, say, 25K per job equity capital plus 50K working capital means that someone has to find 200 billion equity capital and another 400 billion working capital.

That is 200 billion of savings re-invested as new equity capital into 8 million new jobs.

And another 400 billion taken from existing funds.

The upside is that instead of the money being immediately being given directly to the banking system, instead, it is given to the new job creator, who then deposit it into their new business bank account as Share Capital. Instant stability for the new company account, additional stability for the bank and thus the wider banking system.

The existing proposals for Quantitive Easing (QE), have not produced any significant new job creation and the economies of all effected nations continues to contract. So continuing with the existing solutions is not going to work. Everyone has to recognise the need to try something new.

So, why not?

FRED
05-27-10, 02:11 PM
There is no profit . . . until you sell it.

When you sell, will you be able to spend the dollars before they continue to inflate? What will you buy?

What about the possible 90% gold-profit tax you mentioned previously?

By the way, I got a good laugh out of this:


http://www.itulip.com/images2/paulsonfamily.jpg

Did you all see the latest junk coverage of gold in the WSJ (http://finance.yahoo.com/banking-budgeting/article/109666/why-i-dont-trust-gold?sec=topStories&pos=5&asset=&ccode=)?

How the MSM covers gold:

• Stock investor with a record of beating the S&P500 by 20% over ten years: Stock investment expert

• Gold investor who invested 15% of net worth in 2001 with a record of 400% return over a ten year period when the S&P500 returned 18%, who invested in gold at $270 on the theory that gold was cheap and governments would re-inflate over-indebted economies via currency depreciation: Gold bug.

• Not invested in gold, ignored it until the price went up 200% to over $500 in 2004, then repeatedly mis-labeled gold a "bubble" at $600, $800, and $1000: Gold investment expert.

And the business media wonder why independent sites like iTulip.com are growing while their audience is dropping off.

Ben
05-27-10, 02:25 PM
Bart, what does this mean? Where is it going?

Munger
05-27-10, 02:44 PM
Hypothetical: what if the world achieved ~100% productivity due to full roboticization. Further, the means of production were owned by 1 person. That would mean ~100% of the population is unemployed, and ~100% of the population cannot afford the goods being produced. Thus 100% efficiency has lead to 100% unemployment. Yet there is clearly an abundance of goods -- the robots could endlessly produce all that humanity needed, tend to the retail stores, wait tables, and no one would have to work.

I don't want to hear how this is not realistic; I have already said it's a hypothetical. I just want to know how greater efficiency would solve this problem, but redistribution would not.

Fiat Currency
05-27-10, 02:49 PM
... And the business media wonder why independent sites like iTulip.com are growing while their audience is dropping off.

I don't think they actually do "wonder why".

I think they just do their "duty" - knowing full well that they'll be on the other end of TARP-II or some other self-appointed form of malfeasance.

3348

flintlock
05-27-10, 04:26 PM
That's a good question. There is obviously more to the problem than productivity. There must be an incentive to become productive. If you force that one owner to give it all away, why would he trouble himself to produce anything? It's obvious we have too much wealth today concentrated in too few hands. The real question is how do we achieve a balance that keeps everyone happy( and productive):)

I think another way to look at it is that people are becoming more and more irrelevant. In your scenario, what do the robots need us humans for? So we can keep marching forward in the quest for "progress", or we can somehow find a level that is sustainable for humans, not robots. We need to slow down, take the time to fix the problems that we have been ignoring for decades, and try to work towards a solution that raises the quality of life in a sustainable manner.

Chris Coles
05-27-10, 04:29 PM
Hypothetical: what if the world achieved ~100% productivity due to full roboticization. Further, the means of production were owned by 1 person. That would mean ~100% of the population is unemployed, and ~100% of the population cannot afford the goods being produced. Thus 100% efficiency has lead to 100% unemployment. Yet there is clearly an abundance of goods -- the robots could endlessly produce all that humanity needed, tend to the retail stores, wait tables, and no one would have to work.

I don't want to hear how this is not realistic; I have already said it's a hypothetical. I just want to know how greater efficiency would solve this problem, but redistribution would not.

You have hit the proverbial nail right dead centre, on the head. The present economy is built upon the idea that everyone wants ever cheaper products to buy in an ever smaller number of outlets without understanding the implications of thus regularly reducing the employment of the people.

We get a good example of the new philosophy with the way the young believe that they do not have to pay for anything they find on the web. Somehow the general population has been trained to believe that everything is going to arrive at their local Walmart, eventually, for free....

But when I was a child, each local community had a butcher, a baker and candlestick maker. You could find every skill within a short distance. Every child in every community had some idea of what they could do, as a part of the local community, to sustain their community over the long term. But today, we are a very long way away from such.

The change is obvious, we must return to basics and create new employment, using every skill, to design and manufacture high value products to suite the needs of each local community. Over time, we have to return to many suppliers and thus many more involved with the long term development of successful communities.

The age of the robotic manufacture is over; it is an illusion.

bart
05-27-10, 04:57 PM
Bart, what does this mean? Where is it going?

Two ways to answer:


1. Every time since 1868 (when M3 started) that M3 goes below 0% growth rate, a recession or depression has always followed, complete with much lower stock prices etc.

Here's a shorter period, and with a 13 week change rate in light blue(to see possible changes faster). As you can see with the 13 week RoC, although M3 is still shrinking, it not only has bottomed but has climbed up significantly.

http://www.nowandfutures.com/images/m3b_13week.png





2. In extreme tinfoil hat mode, the sheople need to be kept very scared and M3 shrinking at a high rate is one of many ways to do that... and then a sudden and hugelky unexpected turn up allows more "capital growth" at various banks, etc.

Ben
05-27-10, 08:29 PM
Sorry - all I have are lots of questions

How many recessions have there been?
How many were preceeded by M3 shrinkage?

It's seems like money supply shrinkage didn't predict the last recession. It only started shrinking in May 09.

What happened to M3 during Japan's lost decade?

To me it seems to suggest that QE isn't working => apply more QE (as is already being talked about) => buy gold

What's your take?

bart
05-27-10, 09:10 PM
Sorry - all I have are lots of questions

How many recessions have there been?
How many were preceded by M3 shrinkage?

It's seems like money supply shrinkage didn't predict the last recession. It only started shrinking in May 09.

M3 is not a reliable item for predicting inflation - except when its annual change rate goes below zero and stays there for a while.

1875, 1893, 1920, 1930 and 1947 are all examples of when M3 went below zero growth and stayed there for a while, and all were followed by a recession or depression.



What happened to M3 during Japan's lost decade?

To me it seems to suggest that QE isn't working => apply more QE (as is already being talked about) => buy gold

Here's a shorter term look at M3:
http://www.nowandfutures.com/images/m3b_long_term.png



QE is working fine for the banks and most of the upper 5% net worth folk.

And it depends on how one defines money supply whether it helped predict the last recession, but in general there are better ways to reliably predict recessions - one of which includes the 10 year minus 3 month yield curve.




What's your take?

Not sure what you're asking?

The S will increasingly HTF over the next few years, with lots of volatility, fear & greed, behind the scenes intervention, bouts of relative inflation & deflation but boiling down to significant stagflation, hard assets will do better by far than paper based ones, "social unrest" will spread around the world, the chances of war aren't low, etc.

flintlock
05-27-10, 09:37 PM
Anyone who has watched one of those shows on TV that shows how things are manufactured can tell you that people are going to become less and less relevant when it comes to making things. They have robotics and precision manufacturing down to a science. An amazing ability to pump out products at lighting speed. The problem now is going to be finding anyone who still has a job so they can afford the stuff . Sure, we need engineers, designers, etc to plan the production. But past that its a handful of employees who can turn out what thousands used to. Or will we all just sell each other non-essential products and services? Entertainment. Vacations and Day Spa packages. I really don't see an easy answer. I think the growth of government employment is, in part, a response to this problem.

EJ
05-27-10, 10:10 PM
This is a scan of three of many 50 peso gold coins I inherited from my father when he passed away in 1991. He paid $79 in 1973.


http://www.itulip.com/images/50pesos.jpg


Today the price is $1500.


http://www.itulip.com/images2/mexgold.jpg

That represents a compound annual growth rate of 8% over 37 years.

Looking for an investment that has done better. What do you have for me?

c1ue
05-28-10, 12:10 AM
Looking for an investment that has done better. What do you have for me?

Well, there IS Berkshire Hathaway, but then again that would be going to the 'Dark Side' of the force.

Sir Warren has done a fine job of growing his investments even as he fed the FIRE monster.

raja
05-28-10, 12:38 AM
This is a scan of three of many 50 peso gold coins I inherited from my father when he passed away in 1991. He paid $79 in 1973.

Today the price is $1500.

That represents a compound annual growth rate of 8% over 37 years.

Looking for an investment that has done better. What do you have for me?
Should the government institute a 90% "collectibles" tax on gold profit before you sell the coins, if you sell them for $1500 you will have earned $142 after-tax profit. Thus, you will have doubled your money in 37 years . . . but considering inflation over that time period, that profit would be worth considerably less in 1972 dollars.

Don't get me wrong . . . I'm a gold owner, too . . . but the investment is far from bullet-proof.

metalman
05-28-10, 01:42 AM
Should the government institute a 90% "collectibles" tax on gold profit before you sell the coins, if you sell them for $1500 you will have earned $142 after-tax profit. Thus, you will have doubled your money in 37 years . . . but considering inflation over that time period, that profit would be worth considerably less in 1972 dollars.

Don't get me wrong . . . I'm a gold owner, too . . . but the investment is far from bullet-proof.

was that the question? better... not bulletproof...


(http://www.investorsfriend.com/return_versus_gdp.htm)What Does This Imply For Future Long-Term Returns In The Market? (http://www.investorsfriend.com/return_versus_gdp.htm)
For 30 year periods (and for other longer periods of at least 15 years) starting today we should expect the nominal GDP plus dividends figure to be in the range of about 7.5% (although with huge volatility around that average figure in any given year). This somewhat low level is driven by today's very low interest rate outlook, low inflation outlook and relatively modest real GDP growth outlook. Due to the historical and logical relationship of large-capitalization stock returns being no greater than the sum of nominal (after-inflation) GDP plus the dividend yields, we should not expect large-capitalization stock returns to exceed about 7.5%. And this is before trading and management costs and before any income taxes.

stocks were close... better if taxes taken into account... not if survivor bias.

Chris Coles
05-28-10, 05:33 AM
This is a scan of three of many 50 peso gold coins I inherited from my father when he passed away in 1991. He paid $79 in 1973.


http://www.itulip.com/images/50pesos.jpg


Today the price is $1500.


http://www.itulip.com/images2/mexgold.jpg

That represents a compound annual growth rate of 8% over 37 years.

Looking for an investment that has done better. What do you have for me?

But EJ, look again at your own post. The price stays the same 1944, 1945, 1946, year on year. Now I hear that David Cameron is talking about a return to a Gold Standard here in the UK. What your father paid is surely not what they will be worth in today's money AMOUNT, but will, surely, when all is said and done; be worth the same VALUE?

That the real lesson is; that to hold Gold removes the potential for loss of VALUE.

Ben
05-28-10, 06:52 AM
Do you have a link where Cameron is talking about the gold standard?

Ben

Munger
05-28-10, 11:23 AM
That represents a compound annual growth rate of 8% over 37 years.

Looking for an investment that has done better. What do you have for me?

Umm ... Stocks and Bonds with dividends reinvested?

http://www.econlib.org/library/Enc/art/lfHendersonCEE2_figure_041.jpg
http://www.econlib.org/library/Enc/StockMarket.html

I couldn't find data up through 2010, but from my scientific "eye balling" method I am guessing that the drop in stocks and rise in gold since 2001 has not made up the difference (bond returns were just slightly higher than gold from 1930s to 2001, stock returns were ~100x higher).

EDIT: Sorry EJ -- I misread your post, I thought you had written 1937, where it said 1973. Of course you are correct since then.

metalman
05-28-10, 12:06 PM
if his dad went full jtabeb & put 100% of $100k into 50 peso gold in 1973, he'd have $1.9m today vs $1.5m if in s&p500.

metalman
05-28-10, 12:11 PM
But EJ, look again at your own post. The price stays the same 1944, 1945, 1946, year on year. Now I hear that David Cameron is talking about a return to a Gold Standard here in the UK. What your father paid is surely not what they will be worth in today's money AMOUNT, but will, surely, when all is said and done; be worth the same VALUE?

That the real lesson is; that to hold Gold removes the potential for loss of VALUE.

i gotta coupla those... the are bullion coins... commemorative... the dates of the above are 1921-1944, 1921-1945, 1921-1946. all the those i have are 1921-1947. 50 pesos never bought an oz of gold.

the lesson is that since the usa defaulted on gold debts in 1971, ALL of the theoretical 'gains' in stocks = inflation.

Munger
05-28-10, 01:52 PM
I dunno -- this tool (http://politicalcalculations.blogspot.com/2006/12/sp-500-at-your-fingertips.html) says 100% S&P500 from Jan 1, 1973 to today would be annualized 9.73% nominal returns -- with dividends reinvested.

metalman
05-28-10, 01:57 PM
I dunno -- this tool (http://politicalcalculations.blogspot.com/2006/12/sp-500-at-your-fingertips.html) says 100% S&P500 from Jan 1, 1973 to today would be annualized 9.73% nominal returns -- with dividends reinvested.

cool tool, munger. does it adjust for survivor bias?

raja
05-28-10, 02:20 PM
was that the question? better... not bulletproof...

When I said "bulletproof", I was being polite . . . .

Munger
05-28-10, 02:56 PM
Not sure -- I tend to be suspicious of anything I find on the internet, so I wouldn't draw any hard conclusions from this. But it seems fairly legit upon quick inspection.

bart
05-28-10, 03:18 PM
the lesson is that since the usa defaulted on gold debts in 1971, ALL of the theoretical 'gains' in stocks = inflation.


Not quite. When dividends are included, they're up.

http://www.nowandfutures.com/images/dow_plus_divid_cpi_lies1900on.png




Here's gold, in linear:
http://www.nowandfutures.com/images/gold_cpi_lies1963-current.png



... and log based:
http://www.nowandfutures.com/images/gold_cpi_lies1963-current_log.png

Chris Coles
05-28-10, 03:57 PM
Do you have a link where Cameron is talking about the gold standard?

Ben

No. And having looked for it I have come to realise that he was not talking about a Gold standard for money, he was talking about a Gold Standard for dealing with the debt issue. So apologies everyone, I misheard what he had said.

This is the link to the interview
http://news.bbc.co.uk/today/hi/today/newsid_8708000/8708021.stm

Ben
05-28-10, 07:45 PM
hmmm according to your graph stocks are cheap to fairly valued

Ben
05-28-10, 07:47 PM
thanks! - interesting as always

bart
05-28-10, 09:25 PM
hmmm according to your graph stocks are cheap to fairly valued

Indeed, especially on the CPI w/o lies one.


But there's always:
"The market can stay irrational longer than you can stay solvent."
-- John Maynard Keynes

And of course the hard asset and KaPoom cycles... and that the Dow was under the trend line from about 1975-1996. ;-)

Ben
05-29-10, 08:07 AM
Well, I think you can only use this kind of mean-reversion analysis at extreme points with a longterm time-frame. In 1975 it had only just dipped under, so at that time, you couldn't draw conclusions. After 1985, however, you could think about buying stocks for the long-term. And if you had bought 85-90, you would have been rewarded over the next 10 years.

Now, according to CPI adjusted we are fairly valued, but that's in the context of having over shot to the upside. It's only a buy signal if it dips significantly below.

I'm not sure what to make of the without lies adjustment. It seems to suggest that it will soon be the time to buy. How do you square this with EJ's use of the inflation adjusted dow?

When it comes to this kind of thing, I prefer looking at Shiller's 10 year trailing P/E (http://www.multpl.com/) . On wikipedia you can find the graphs of 10 year trailing P/E vs 10/20 year inflation adjusted annual returns, so you can get an idea yourself of the predictive value. (my take: gives clear signals at extreme points, above 22 is bad, but otherwise, from a 10 year point of view, you can expect positive real returns from stocks most of the time. Now we're at ~20, but that's in the context of coming down from a high, so it's not a clear buy or sell)

yernamehear
05-29-10, 09:26 AM
Of course people, EJ included, cherry pick time frames. What a real investor needs is a diversified portfolio that weights the different asset classes differently with "gasp", TIMING of the weightings. (Trades are necessary). There are many who tout that bonds have out-performed for about 20-25 years now, etc. It's not about a single asset class forever/buy and hold/forget.

I have some gold, stocks, bonds, etc. Right now, I'm a little overweight gold and commodities, underweight bonds and stocks. There have been many academic studies about this, but those are relatively boring compared to engaging in internet board flaming.

Good luck.

bart
05-29-10, 09:35 AM
Just like almost any chart, it needs to be interpreted in context of many others. It's primary purpose for me is to show how large a factor that inflation has been and is, but it can of course be used in a mean reversion context. If it is though, one of the main charts that needs to be taken into account is the hard/paper asset cycle... and we're far from the end of that cycle in my opinion.

http://www.nowandfutures.com/images/dow_gold_oil_crb1900-current.png




The "without lies" adjustments are based on John Williams work at shadowstats.com and I very highly recommend you study his work and factual context. We've been being lied to about CPI since at least 1982.

I don't see any conflict with EJ's use of the CPI adjusted Dow, "without lies" is complementary.

P/E stuff can work too, as long as its within a broad context.

metalman
05-29-10, 01:36 PM
Of course people, EJ included, cherry pick time frames. What a real investor needs is a diversified portfolio that weights the different asset classes differently with "gasp", TIMING of the weightings. (Trades are necessary). There are many who tout that bonds have out-performed for about 20-25 years now, etc. It's not about a single asset class forever/buy and hold/forget.

I have some gold, stocks, bonds, etc. Right now, I'm a little overweight gold and commodities, underweight bonds and stocks. There have been many academic studies about this, but those are relatively boring compared to engaging in internet board flaming.

Good luck.

who's flaming? this started with ej posting 3 coins his dad bought in 1973. 'cherry picked' the dates? he didn't get to decide when his dad bought them.

then he calculated an 8% compound annual rate of return to the current price.

then he asked 'what's beat this'?

yep, a provocative question. have we answered it? munger's tool looks like it does, but how did one buy the s&p500 in 1973? if you bought 500 stocks of the index then how many of those went out of business in 37 yrs?

we haven't answered the question yet.

yernamehear
05-29-10, 04:52 PM
1. Aaah, there are several portfolios that would track the S&P 500; there's this one with 30 stocks in it that does it pretty well.
2. Choosing a given year and challenging a single asset class (or even a single metal) to "beat this" is effectively cherry picking
3. Perhaps I was being too specific. My point about flaming is that reading a serious, and "boring to most people" academic-style article is not what people really want to do. They want some emotional excitement, e.g. seeing of there's some excitement on an internet board. This topic hasn't had flames (I haven't read it all though).
4. Search M. Faber and Tactical Asset Allocation.

Good Luck again.

metalman
05-29-10, 04:57 PM
1. Aaah, there are several portfolios that would track the S&P 500; there's this one with 30 stocks in it that does it pretty well.
2. Choosing a given year and challenging a single asset class (or even a single metal) to "beat this" is effectively cherry picking
3. Perhaps I was being too specific. My point about flaming is that reading a serious, and "boring to most people" academic-style article is not what people really want to do. They want some emotional excitement, e.g. seeing of there's some excitement on an internet board. This topic hasn't had flames (I haven't read it all though).
4. Search M. Faber and Tactical Asset Allocation.

Good Luck again.

you new here? try this... (http://www.itulip.com/forums/showthread.php?t=6521&p=61898#post61898)

Jim Nickerson
05-29-10, 05:56 PM
Barron's interview with Ray Dalio http://online.barrons.com/article/SB127508631314298427.html?mod=BOL_hps_mag#articleT abs_panel_article%3D1 5/29/2010


How are your portfolios positioned?

Our portfolio is mostly skewed to Treasury bonds, gold and emerging-market currencies, especially Asian currencies. We also hold commodity assets that are limited in supply and that high-growth emerging countries need. I want to minimize my exposure to the major developed countries' currencies -- the U.S. dollar, the euro, the British pound and the yen -- because those countries have a lot of debt, and they are going to need to print more and more money and will have more sluggish growth rates. I prefer the yen to the others. However, none of these can get too far out of line with the others, and when there is downward pressure on one, there is pressure on all. Just as the notion that the G-7 countries represent the major world powers is obsolete, it is also an obsolete notion that their currencies are the major reserves of wealth.

The depreciation of the major currencies and the printing of money will not cause a significant general level of inflation anytime soon.

Explain why the printing of money won't cause inflation

The printing of money will offset the deflation that is coming from the weak demand for goods and services due to weak credit growth. For example, in March of 1933 the U.S. printed a whole lot of money, and that had the effect of converting deflation into modest inflation, but not a high rate of inflation.... My point is, in developed countries there is too much of most things at the moment, and that's creating a deflationary environment. There is too much manufacturing capacity. There is too much labor. There is too much housing stock. As Europe's economy weakens and its debt crisis worsens, the printing of money does not mean that it will produce an accelerating inflation because simultaneously there is also less being purchased, and the surpluses are already causing deflationary pressures. That is why, contrary to almost everybody's belief, I believe the bonds in countries that can print money will be good investments.Hugh Hendry, in an article from moneyweek.com dated 5/28/2010, quoting the author M.S.Webb.

http://www.zerohedge.com/article/hugh-hendry-warns-prepare-hyperinflation

"Otherwise, given that hyperinflation is still some way off, you buy 30-year US Treasury bonds or gilts. It is, says Hugh, the one thing most of us can't bring ourselves to do. But it is also the one that, pre-hyperinflation, 'makes a lot of money.'"

I do not know if the Finster Market Outlook has an iota of value, nevertheless its projection from last week (5/22/10) projected gains in "USTBonds" of 10.41% over the next month, 15.87% over the next four months, and 28.84% over the next year. "UST" is a symbol for the US Treasury 10-year note. Finster's site shows "USTBonds", and "bond" I believe denotes the US Treasury 30-year bond. So whether Finster's projections are for the 10-year Treasury note, or the 30-year Treasury bond, I do not know.

http://users.zoominternet.net/~fwuthering/FFF/FinsterMarketsOutlook (http://users.zoominternet.net/%7Efwuthering/FFF/FinsterMarketsOutlook)

jk
05-29-10, 06:58 PM
thanks for the heads up on dalio, jim. i've been ignoring barron's for a while, but i never ignore dalio. this portfolio ["Our portfolio is mostly skewed to Treasury bonds, gold and emerging-market currencies, especially Asian currencies. We also hold commodity assets that are limited in supply and that high-growth emerging countries need."] sounds very itulipish.

Jim Nickerson
05-29-10, 07:15 PM
thanks for the heads up on dalio, jim. i've been ignoring barron's for a while, but i never ignore dalio. this portfolio ["Our portfolio is mostly skewed to Treasury bonds, gold and emerging-market currencies, especially Asian currencies. We also hold commodity assets that are limited in supply and that high-growth emerging countries need."] sounds very itulipish.

When I read Dalio's remarks, except for the T-Bond part, I thought it sounded very "jk-ish." I sometimes think "jk" is really Ray Dalio anyway. At least both are from CT and since CT is small, if the two are not the same, they must live close to one another.

If one thinks Dalio is likely correct, what sort of allocation percentages might one consider between the assets he mentioned? Three asset classes to me don't represent much diversification.

jk
05-29-10, 08:39 PM
When I read Dalio's remarks, except for the T-Bond part, I thought it sounded very "jk-ish." I sometimes think "jk" is really Ray Dalio anyway. At least both are from CT and since CT is small, if the two are not the same, they must live close to one another.

If one thinks Dalio is likely correct, what sort of allocation percentages might one consider between the assets he mentioned? Three asset classes to me don't represent much diversification.
i foolishly sold my tbonds at the recent bottom and missed out on the recent rally, so i make no claims to be as smart as dalio. westport is about 45 minutes drive from where i live. i know my percentages, of course, but not dalio's. as of yesterdy, i'm 30% gold, 10% silver, 18% energy, 8% other currencies including loonies, gim and meafx, 6% agriculture, about 9% shorts and 1.3% in puts. up a bit over 3% ytd- nothing to write home about.

yernamehear
05-30-10, 01:38 PM
you new here? try this... (http://www.itulip.com/forums/showthread.php?t=6521&p=61898#post61898)

Nope. VERY familiar with what happens "here".

:)

Ben
05-30-10, 07:30 PM
I like academic papers on quantitative investing!
I use mechanical strategies to pick stocks.
I thought that one was interesting. It's the first mechanical market timing model I've seen.

Metalman, if you bought the S&P you would rebalance every year (as a tracker ETF does), so companies going bust would get sold before they go bust, so basically survivorship bias wouldn't be such a big problem. I mean, most tracking ETFs have tracking errors of under 1%.

There are also lots of simple mechanical investing strategies with 1 year holding periods that would have significantly beaten the S&P e.g. buying the lowest decile by P/S ratio

However, yernamehear, I still think it's more than possible to do an EJ and avoid long-term periods when stocks perform terribly, while switching into assets entering secular bull markets, like gold. You just need to be an uncommon sort of person.

metalman
05-30-10, 08:46 PM
I like academic papers on quantitative investing!
I use mechanical strategies to pick stocks.
I thought that one was interesting. It's the first mechanical market timing model I've seen.

Metalman, if you bought the S&P you would rebalance every year (as a tracker ETF does), so companies going bust would get sold before they go bust, so basically survivorship bias wouldn't be such a big problem. I mean, most tracking ETFs have tracking errors of under 1%.

There are also lots of simple mechanical investing strategies with 1 year holding periods that would have significantly beaten the S&P e.g. buying the lowest decile by P/S ratio

However, yernamehear, I still think it's more than possible to do an EJ and avoid long-term periods when stocks perform terribly, while switching into assets entering secular bull markets, like gold. You just need to be an uncommon sort of person.

kind sir, pls list all of the s&p500 etfs available in 1973... or am i supposed to be a pro who has the time/knowhow to rebalance? in 1973 i didn't know how to balance a much more than my own ass on a chair as i stared out the window thinking about my gf.

ever read what ej actually did?

sold gold in early 1990s & bought stocks.

sold stocks in 1998 except his dot com private equity.

ipos & sales...

sold the stock (cisco stock?) spring 2000.

bought 10 yr bonds & cash (6% plus?)

bought 15% gold 2001.

upped gold to 30% early 2009.

those 10 yr t bonds bought in the fall of 2000 will be maturing in a few months.... that the real reason ej is eager to find a new asset class???

(forgot he also has series i savings bonds... Future inflation fears topple TIPS)
(http://www.itulip.com/forums/showthread.php?t=4990)

Ben
05-31-10, 07:09 AM
hehe ok. I imagine you could just buy the 30 (or more) largest S&P companies, then once per year sell those that are no longer top 30 and buy the new ones, and come pretty close to tracking it.

yernamehear
05-31-10, 08:27 PM
kind sir, pls list all of the s&p500 etfs available in 1973... or am i supposed to be a pro who has the time/knowhow to rebalance? in 1973 i didn't know how to balance a much more than my own ass on a chair as i stared out the window thinking about my gf.

ever read what ej actually did?

sold gold in early 1990s & bought stocks.

sold stocks in 1998 except his dot com private equity.

ipos & sales...

sold the stock (cisco stock?) spring 2000.

bought 10 yr bonds & cash (6% plus?)

bought 15% gold 2001.

upped gold to 30% early 2009.

those 10 yr t bonds bought in the fall of 2000 will be maturing in a few months.... that the real reason ej is eager to find a new asset class???

(forgot he also has series i savings bonds... Future inflation fears topple TIPS)
(http://www.itulip.com/forums/showthread.php?t=4990)

Congratulations to EJ. These are anecdotes.

Again, it is pretty easy to buy 30 stocks, as was previously posted, (and maybe fewer), and correlate with the S&P 500. The "s&P 500 etf's" objection is a red herring.

No offense to EJ, Bill Miller, or whomever, but with billions of investors in the world, somebody is going to flip a coin and get heads 15 times in a row (essentially, Bill Miller did).

One needs quantitative/mechanical trading systems with risk management ( I know a few), not anecdotes.

Like I always say, Good Luck. :cool:

bart
05-31-10, 08:49 PM
Those are not anecdotes, they're facts... as anyone can confirm via searches.

Using a term like anecdote for a real track record could be construed as attempted spin or similar.

yernamehear
05-31-10, 09:24 PM
Those are not anecdotes, they're facts... as anyone can confirm via searches.

Using a term like anecdote for a real track record could be construed as attempted spin or similar.

And a special good luck to you too!! (you'll need it)

http://www.thefreedictionary.com/anecdote

ROFLMAO;)

bart
05-31-10, 09:54 PM
And a special good luck to you too!! (you'll need it)

http://www.thefreedictionary.com/anecdote

ROFLMAO;)


Yep, a noise freak - as expected.

Thanks for taking the bait and exposing yourself so clearly, plus showing the difference between a fact and an anecdote for me.

metalman
05-31-10, 10:10 PM
And a special good luck to you too!! (you'll need it)

http://www.thefreedictionary.com/anecdote

ROFLMAO;)

one last reply before adding you to my ignore the troll list...


November 1998: Warns on Internet Bubble (http://www.itulip.com/knowyourmania.html)
August 1999: No Y2K Disaster (http://www.itulip.com/y2k.htm)
November 1999: How the Internet Bubble Will End (http://www.bankrate.com/brm/news/investing/19991129f.asp?keyword=)
March 2000: Internet Bubble Top (http://www.itulip.com/GlobeArchiveJanszen.htm)
April 2000: A Bear Market is Born (http://www.itulip.com/urgentmessage.htm#Bear)
January 2001: Post-Bubble Recession (http://www.itulip.com/recession2001.htm)
September 2001: Gold Price Bottom at US$270 (http://www.itulip.com/gold.htm)
August 2002: Warns of Housing Bubble (http://www.itulip.com/index_old.html#Today)
January 2004: How Housing Bubble will End (http://www.itulip.com/housingnotlikeequities.htm)
January 2005: Housing Bubble Correction (http://www.itulip.com/housingbubblecorrection.htm)
June 2005: Housing Bubble Top, crash to follow that leads to severe recession
(http://www.itulip.com/forums/showthread.php?t=606)
October 2006: Severe recession starts Q4 2007
(http://www.itulip.com/forums/showthread.php?t=743)
December 27, 2007: Start of Debt Deflation Bear Market, 40% decline to follow
(http://itulip.com/forums/showthread.php?t=2774)
June 16, 2008: Top of commercial real estate market, crash to follow
(http://www.itulip.com/forums/showthread.php?p=38410#post38410)
September 15, 2008: Fed Funds spread signals crash (http://itulip.com/forums/showthread.php?p=47860#post47860)
March 27, 2009: Debt Deflation Bear Market: First Bounce (http://www.itulip.com/forums/showthread.php?p=86995#post86995)

bart
05-31-10, 10:14 PM
one last reply before adding you to my ignore the troll list...
...



It's not impossible in my opinion that he's an astroturfer too.

http://en.wikipedia.org/wiki/Astroturfing

metalman
05-31-10, 10:22 PM
It's not impossible in my opinion that he's an astroturfer too.

http://en.wikipedia.org/wiki/Astroturfing

w/o discernible agenda besides detraction.

bart
05-31-10, 10:34 PM
w/o discernible agenda besides detraction.

Yep, one of the hallmarks of a troll - as are cutesy names and junior high school type hissy fits and lack of manners, etc.
http://en.wikipedia.org/wiki/Troll_%28Internet%29


We'll see...

Chris Coles
06-01-10, 04:00 AM
Congratulations to EJ. These are anecdotes.

Again, it is pretty easy to buy 30 stocks, as was previously posted, (and maybe fewer), and correlate with the S&P 500. The "s&P 500 etf's" objection is a red herring.

No offense to EJ, Bill Miller, or whomever, but with billions of investors in the world, somebody is going to flip a coin and get heads 15 times in a row (essentially, Bill Miller did).

One needs quantitative/mechanical trading systems with risk management ( I know a few), not anecdotes.

Like I always say, Good Luck. :cool:

There are other aspects of this corner of the debate that are worth highlighting; particularly when we remember that there are often many hundreds of guests on these particular pages.

The early subscribers were drawn to itulip as it reflected the same thoughts as we were having about the economy. What EJ has done is set out the detail in a way that none of us could do on our own. His various messages were so very well set out in detail, we could see they matched our own thoughts; but in doing that, he showed us the leadership credentials of someone prepared to give up a large slice of his time to telling the story.

Turning to the point you have made about the "billions of investors in the world."

Have you given any thought to the simple fact, (as I see it), that most of our present problems are caused by almost all the savings of the planet are in fact being "traded" rather than directly invested back into new job creation at the grass roots of our communities?

That when you "trade" a price of whatever you have in mind, you are not directly investing into the company or commodity; but simply making a change to the days "price" of whatever you trade.

For example, by my own calculations, the UK is short of some 6 million private sector jobs and the US is perhaps short of another 10 million. Indeed, there are debates going on that raise those numbers to respectively 15 million and 25 million.

Taking my own figures and introducing the idea that we need some £25,000 equity capital and £50,000 working capital to create long term stable private sector capital based employment here in the UK with pro rata in the US, then here in the UK we are some £450 billion under capitalised as a nation. Using the same parameters, the US is also under capitalised by as much as $750 billion. That is savings that are being "traded" rather than directly invested back into long term employment.

From my point of view, the sooner everyone recognises the long term difficulties caused by such massive under investment in local equity capital, the better it will be for everyone. As such, I will not be surprised if EJ eventually, comes around to the same viewpoint and starts to point everyone back to the most basic investment strategy:

Investing equity capital directly into your local community entrepreneur who is creating new private sector employment for their children coming out of education looking for a long term career.

Success comes from being open to new thinking, rather than following the billions all doing the same thing..... unsuccessfully.

flintlock
06-01-10, 03:58 PM
One needs quantitative/mechanical trading systems with risk management ( I know a few), not anecdotes.

I keep expecting Billy Mays to jump out any second now and sell us one of these "systems". "But wait, there's more!"

DSpencer
06-01-10, 04:23 PM
Hypothetical: what if the world achieved ~100% productivity due to full roboticization. Further, the means of production were owned by 1 person. That would mean ~100% of the population is unemployed, and ~100% of the population cannot afford the goods being produced. Thus 100% efficiency has lead to 100% unemployment. Yet there is clearly an abundance of goods -- the robots could endlessly produce all that humanity needed, tend to the retail stores, wait tables, and no one would have to work.

I don't want to hear how this is not realistic; I have already said it's a hypothetical. I just want to know how greater efficiency would solve this problem, but redistribution would not.

I understand that this is a hypothetical and “you don’t want to hear how this is not realistic”. It’s still worth noting that “the world achieved ~100% productivity due to full roboticization. Further, the means of production were owned by 1 person. That would mean ~100% of the population is unemployed and ~100% of the population cannot afford the goods being produced” is a non sequitur. Even given the unrealistic premise, the remaining parts of this hypothetical do not follow.

If nobody can afford the goods/services that the robots produce, then there will still be demand for goods and services and the labor force to provide them. They would simply form a new economy outside of the existing economy. Unless your argument is that one person owns all potential means of production, (ie every square foot of the earth and sea). In that case, the problem does not relate to production efficiency but to one person owning the world.

Not trying to be a jerk, I just disagree that 100% production efficiency would ever lead worldwide poverty. In fact, I believe it would be closer to the opposite.

metalman
06-01-10, 04:25 PM
I keep expecting Billy Mays to jump out any second now and sell us one of these "systems". "But wait, there's more!"

betty: 'i need a quantitative/mechanical trading system with risk management? what's that, ted?'
ted: 'glad you asked, betty. a quantitative/mechanical trading system with risk management is a system that guarantees you make the right buy & sell decisions at the right times so you always make money'.
betty: 'always make money? gee, ted. i like the sound of that'.
ted: 'you can't get that with those wishy washy anecdotal systems. why they're not even systems at all'.
betty; 'not systems? that's bad, right?'
ted: "very bad, betty. why that's like trying to drive your car with a crystal ball'.
betty: 'ha ha! i'd never do that, ted!'
ted: 'you don't want one of these guys who pretends to know the workings of the political economy through a decade of research & interviews & the impact of monetary & fiscal policy on asset prices & calls the big events right 90% of the time. no, that kind of person is the kind you need to watch out for'.
betty: 'darned right, ted. that kind of person should be stripped naked, dipped in oil & roasted on a spit over an open fire'!
ted: 'couldn't have put it better myself, betty'.

DSpencer
06-01-10, 04:45 PM
Investing equity capital directly into your local community entrepreneur who is creating new private sector employment for their children coming out of education looking for a long term career.

Success comes from being open to new thinking, rather than following the billions all doing the same thing..... unsuccessfully.

This is an interesting thought. Do you personally invest into local businesses?

If this is truly a better strategy than the big markets, then why do more people not invest in it? Lack of opportunity? Too much risk?

Chris Coles
06-01-10, 06:16 PM
This is an interesting thought. Do you personally invest into local businesses?

If this is truly a better strategy than the big markets, then why do more people not invest in it? Lack of opportunity? Too much risk?

In a very real sense, I could be described as the iTulip clown.Hilarious
You see, I am the unfunded inventor; poor as the proverbial church mouse. But being forced to live in this particular part of the economy has given me a viewpoint that some believe has value for the long term. I have set out my thoughts, first of all here on iTulip and also in the comments columns of The Times in London and then turned them into a free PDF book The Road Ahead from a Grass Roots Perspective which you may download from www.chriscoles.com/page3.html (http://www.chriscoles.com/page3.html) and then I formed The Capital Spillway Trust, www.chriscoles.com/page4.html (http://www.chriscoles.com/page4.html) gave it a constution and opened a bank account with just £1 and started to repeat an exercise I had started in 1994, I went back to the Bank of England and asked them for support for my thinking. That in turn led to Mervyn King asking me to put my thinking to the UK government, at that time Labour, and with the change of government, also to the new. Having been trying to get my point across for some decades now, I am not holding my breath; one gets used to dissapointment.

I am very close to having to give up completely as many seem to like the thinking, but without funding, it all has to come to a halt. Either eat or try and continue. Not an option I would wish on anyone I can assure you.

In my spare time I have written a book about gravity. Indeed, suspect that I have opened the door to the control of gravity, but in so doing, have completely destroyed Big Bang theory and Ideal Gas Law. So no one will give so much as a smidgin of publicity..... the book was launched early April but you will not have heard about it so no publicity equals no sales and back to square one again.

Sorry to sound a bit down. But a lifetime of being right, but at least twenty years too early, has taught me that the world does not really want to hear new thinking.

So there we are, have a read.

Fiat Currency
06-01-10, 09:24 PM
In my spare time I have written a book about gravity. Indeed, suspect that I have opened the door to the control of gravity, but in so doing, have completely destroyed Big Bang theory and Ideal Gas Law. So no one will give so much as a smidgin of publicity..... the book was launched early April but you will not have heard about it so no publicity equals no sales and back to square one again.

Sorry to sound a bit down. But a lifetime of being right, but at least twenty years too early, has taught me that the world does not really want to hear new thinking.

So there we are, have a read.

Chris - What is the name of the "gravity" book ?

Sidewinder
06-02-10, 12:09 AM
Chris - What is the name of the "gravity" book ?

Maybe wrong here, I haven't read his work but perhaps he meant this one?

http://www.lrsp.com/b2c.html

Chris Coles
06-02-10, 03:12 AM
Maybe wrong here, I haven't read his work but perhaps he meant this one?

http://www.lrsp.com/b2c.html

Spot on Sidewinder. Thanks for getting up early and setting the record straight before I got up myself.

Chris Coles
06-02-10, 03:21 AM
And then I noticed this at the bottom of your post

"If necessity is the mother of invention, desperation is the father..."


and I have to say I completely disagree. The only way forward towards successful exploitation of invention is to invest in the person that created the thoughts in the first place. But I am sure that anyone doing comprehensive research of the record will confirm that by far the majority of inventions are never properly capitalised and remain to this day as an idea on a piece of paper filed in the patent office.


Those that are invested in are usually taken from the originator and exploited and the originator marginalised. A VERY good example were the founders of CISCO who were shown the door by the VC that stepped in to fund their start up. How many new ideas did they have locked up in them? Instead, they simply walked away from invention.

DSpencer
06-02-10, 03:18 PM
Wow, that was an unexpected response. Thanks for the background. I guess this idea is very personal to you given your situation. Hope your luck changes.

Chris Coles
06-02-10, 05:55 PM
Thanks for that; even the best of us have a "Bad" day when it is better to have a good moan and spend the day outside in the sun. So today was mine. Feel much better now.

dcarrigg
06-07-10, 09:42 PM
I think the growth of government employment is, in part, a response to this problem.

Flintlock, this is a popular myth, but I think it can be proven to be just that, a myth.

According to the census:

1) Total US population from 1997 to 2007 increased 11.2%
2) State employment (in FTEs) over this time increased 7.5%
3) Federal employment (full time employees) over this time decreased by 1.3%

In other words, neither Federal nor state employment increased at the same rate as the population, and Federal employment actually decreased over this time.

Technology can make government workers obsolete nearly as fast as those in the private sector, or so it may seem. With state and local governments in dire fiscal straits, I'd venture to bet you will see these numbers decrease drastically by the time the 2012 census of government occurs.

I do truly believe that it is important to dispel this myth that government employment is growing. I don't know where it stems from, but it is not the case.

Otherwise I agree with your earlier post ;_Y

bart
06-07-10, 09:52 PM
The facts, direct from the BLS, on government employment:





http://www.nowandfutures.com/images/govt_employee_percent.png

metalman
06-07-10, 10:14 PM
Flintlock, this is a popular myth, but I think it can be proven to be just that, a myth.

According to the census:

1) Total US population from 1997 to 2007 increased 11.2%
2) State employment (in FTEs) over this time increased 7.5%
3) Federal employment (full time employees) over this time decreased by 1.3%

In other words, neither Federal nor state employment increased at the same rate as the population, and Federal employment actually decreased over this time.

Technology can make government workers obsolete nearly as fast as those in the private sector, or so it may seem. With state and local governments in dire fiscal straits, I'd venture to bet you will see these numbers decrease drastically by the time the 2012 census of government occurs.

I do truly believe that it is important to dispel this myth that government employment is growing. I don't know where it stems from, but it is not the case.

Otherwise I agree with your earlier post ;_Y

charts i found googling itulip don't agree with your story...

http://www.itulip.com/images/payrollsbysector1990-2008.gif


http://itulip.com/images/unemployed-percentchange1107-1108.gif
The largest percentage increase in unemployment occurred in construction, agriculture, and professional services, the least in government.


http://www.itulip.com/../images2/government.gif
Only in government did unemployment decline during the recession

http://www.itulip.com/forums/showthread.php/14856-The-Bucking-Bronco-Job-Market-%C2%96-Part-I-Unemployment-by-industry-Eric-Janszen

ThePythonicCow
06-08-10, 12:56 AM
Federal employment actually decreased over this time.If some Federal jobs were "privatized" or contracted out during that time, how would this show in your numbers? I presume this happened some, at least in the defense and intelligence areas.

ThePythonicCow
06-08-10, 01:01 AM
this myth that government employment is growingPerhaps, even if government full-time employment is decreasing, the portion of the population depending on the government for money is increasing. Some collect social benefits (Medicare, Social Security, Unemployment, Food Stamps, ...) Some work for contractors or other companies heavily dependent on Federal or State government policies, regulations or expenses.

dcarrigg
06-08-10, 01:40 PM
If some Federal jobs were "privatized" or contracted out during that time, how would this show in your numbers? I presume this happened some, at least in the defense and intelligence areas.

You make a good point there - this is only counting full time employment - the numbers for part-timers and temps stay about even over the timeframe, but the numbers going out in private contracts are not readily available.

dcarrigg
06-08-10, 03:25 PM
charts i found googling itulip don't agree with your story...


Metalman,

The first chart you present from ITulip is not in agreement with the one that Bart just posted either - I will look into that later tonight.

The second and third charts are from a later time period. I was looking at the latest decade of census data available (1997 to 2007). You are looking at the effects of the recent recession.

I'm assuming that the second and third charts refer to unemployment claims (otherwise it's % of government unemployment compared to what?) - most state and local governments have tried rather to push workers into retirement by changing benefits unless they leave rather than fight a battle with public sector unions. This means that there may be less employees and less employment at the same time (whilst still draining government coffers).

Secondly, we have seen California public employees paid with IOUs, payments to employees to voluntarily leave, payroll reductions, furloughs, etc. This is again a factor of the unionized nature of public employees.

Thirdly, all employees hired by stimulus money are limited in their jobs until 2012, when they are unemployed, so a bullet was dodged for a couple of years there.

Fourth, if public sector employment did not rise as fast as population while times were good, then what is the big deal if there are less unemployment claims from it when times are tough?

I think that the total sum of these issues paints a differing picture than what is typically assumed.

bart
06-08-10, 03:44 PM
The first chart you present from ITulip is not in agreement with the one that Bart just posted either - I will look into that later tonight.



The data is identical to what I have, its just looking at gov't employment numbers directly instead of as a percentage of NFP.

There is no conflict, and your original points have been shown to only be looking at a partial or incomplete picture.

DSpencer
06-09-10, 10:04 AM
It is confusing to compare multiple graphs and numbers that use different time frames, measure slightly different things and use a different method (% vs number).


Fourth, if public sector employment did not rise as fast as population while times were good, then what is the big deal if there are less unemployment claims from it when times are tough?

I'm not sure where the idea that public sector employment should rise at the same rate as the population increases has originated, but I don't agree with it.

"the big deal", at least for people with my perspective, is that these public sector employees are non-productive members of society. Who cares if they go on unemployment when their original checks came from taxpayers anyway? In fact, I would prefer they be unemployed because they can't do as much harm as when they are "working" for the government.

dcarrigg
06-10-10, 09:40 AM
The data is identical to what I have, its just looking at gov't employment numbers directly instead of as a percentage of NFP.

There is no conflict, and your original points have been shown to only be looking at a partial or incomplete picture.

That is indeed the case - I was looking at state and federal employment - not local employment including teachers, local police &ct. Even with them included, there was a broad downward trend as a percentage of employment until the recession hit, and it still has not recovered to previous levels.

bart
06-10-10, 09:50 AM
If one looks at the raw data, it shows that the uptrend in gov't employees started before the recession.