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Old 07-16-2012, 11:47 AM   #21
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Originally Posted by GrayHare

Per the following link, during the past 20 years the Fed has been the primary driver of interest rates, and in turn stock prices:

"The Federal Reserve announces what it's going to do to interest rates eight times a year at Federal Open Market Committee meetings. These are scheduled in advanced and well-publicized, so investors know exactly when the goods are coming.

"Since 1994 (when the Fed started publicizing its moves), the S&P 500 has risen from 450 to 1300. But remove the 24 hours just prior to FOMC announcements, and returns fall to almost nothing."

http://www.fool.com/investing/genera...k-market-.aspx
This is less significant than it appears. Try removing any eight days of returns each year and re-plot the charts, and you'll get a range of results that resemble the Mötley Fool writers charts. Some will have a worse result, and some will have a better result.

Data here in Excel format: http://www.econ.yale.edu/~shiller/
Hack as needed...

In other news, correlation does not imply cause...
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Old 07-16-2012, 12:51 PM   #22
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Quote:
Originally Posted by M Paquette View Post
This is less significant than it appears. Try removing any eight days of returns each year and re-plot the charts, and you'll get a range of results that resemble the Mötley Fool writers charts. Some will have a worse result, and some will have a better result.

Data here in Excel format: http://www.econ.yale.edu/~shiller/
Hack as needed...

In other news, correlation does not imply cause...
The authors already did that for us and showed the unusual results driven by the Fed are indeed significant. From the article, "Might some of this be a coincidence? Highly doubtful. My colleague Matt Koppenheffer took market data going back to 1994 and randomly removed 136 days (eight per year for 17 years, or one for every FOMC meeting). The difference, compared with the unmolested market returns, was trivial. We ran the simulation several hundred times, removing different sets of random days. Nothing came within a third of the skew caused by removing the days shortly before FOMC meetings."
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Old 07-16-2012, 01:23 PM   #23
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Originally Posted by GrayHare

The authors already did that for us and showed the unusual results driven by the Fed are indeed significant. From the article, "Might some of this be a coincidence? Highly doubtful. My colleague Matt Koppenheffer took market data going back to 1994 and randomly removed 136 days (eight per year for 17 years, or one for every FOMC meeting). The difference, compared with the unmolested market returns, was trivial. We ran the simulation several hundred times, removing different sets of random days. Nothing came within a third of the skew caused by removing the days shortly before FOMC meetings."
I couldn't reproduce the result, but then I noticed that what they were pulling out wasn't simply the prior days trading, but a specific 24 hours from 2PM the day before the announcement until 2PM the day of the announcement, ending 15 minutes before the Fed announcement. That's a pretty specific window, which excludes the post-announcement moves.
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Old 07-16-2012, 03:37 PM   #24
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As far as SS is concerned, don't forget that the US government does not have enough money to pay for all it's spending. The government borrows money every year, so the interest paid to SS can be considered from one view point as borrowed money.

The government spent the SS contributions and replaced it with government bonds. Since the government is running a deficit, it's now borrowing money to pay off the bonds to SS. Although that's a very simplistic view.

It's like you gave your relative money all your working years to save for your retirement. But your relative spent the money on other things every year. But he did put an IOU in it's place every year, and the IOU includes interest. Of course, your relative is now way in debt and is borrowing money to pay your retirement. How long will they be able to afford to borrow all that money? Let's hope it's till we're gone!
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Old 07-16-2012, 03:46 PM   #25
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As far as SS is concerned, don't forget that the US government does not have enough money to pay for all it's spending. The government borrows money every year, so the interest paid to SS can be considered from one view point as borrowed money.

The government spent the SS contributions and replaced it with government bonds. Since the government is running a deficit, it's now borrowing money to pay off the bonds to SS. Although that's a very simplistic view.

It's like you gave your relative money all your working years to save for your retirement. But your relative spent the money on other things every year. But he did put an IOU in it's place every year, and the IOU includes interest. Of course, your relative is now way in debt and is borrowing money to pay your retirement. How long will they be able to afford to borrow all that money? Let's hope it's till we're gone!
I don't see why people focus on the what the Government owes SS as if it somehow different than the rest of the deficit. Using the example of your relative, the relative owes lots of other people far more -- like the Chinese neighbors. I hope you don't want to give a preference to their IOUs over our SS IOUs - wouldn't that be some kind of prohibited profiling.
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Old 07-16-2012, 04:39 PM   #26
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I don't see why people focus on the what the Government owes SS as if it somehow different than the rest of the deficit.
Perhaps it's because the borrowings from the SS trust fund are not included in the calculation of the deficit. Even the Clinton budget "supluses" would have been deficits had the borrowings from the SS trust fund been included.
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Old 07-16-2012, 04:42 PM   #27
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And you're right Donheff, our relative not only spent all of our retirement savings, but borrowed money from everyone else in town! Guess we'll have to wait and see who he decides to pay off first when it comes down to it.....
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Old 07-16-2012, 07:08 PM   #28
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Originally Posted by GrayHare View Post
Per the following link, during the past 20 years the Fed has been the primary driver of interest rates, and in turn stock prices:

"The Federal Reserve announces what it's going to do to interest rates eight times a year at Federal Open Market Committee meetings. These are scheduled in advanced and well-publicized, so investors know exactly when the goods are coming.

"Since 1994 (when the Fed started publicizing its moves), the S&P 500 has risen from 450 to 1300. But remove the 24 hours just prior to FOMC announcements, and returns fall to almost nothing."

Who's Really Driving the Stock Market?
Over that time, the Fed certainly drove the very short end of the interest curve - that's what the FOMC does.

But, that doesn't mean that the gain on stock prices came from the Fed. It simply says that short term traders had an idea of which direction they hoped the Fed would move (sometimes up, sometimes down) and they expected the Fed to go in that direction. So they bought on the expectation that the Fed would deliver the "good" news.
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Old 07-16-2012, 08:28 PM   #29
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The bottom line is that we (Government, banks, citizen buyers) blundered our way into a depression and things don't look rosy on the way out. At least we ERs are not worried about being laid off.
I think I'd rather have a slow recovery with lots of hiccups and worried industries/investors than to have the manic-depressive market cycles that we've experienced between 1973 and 2008.

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Using the example of your relative, the relative owes lots of other people far more -- like the Chinese neighbors. I hope you don't want to give a preference to their IOUs over our SS IOUs - wouldn't that be some kind of prohibited profiling.
One can vote the incumbents out of office, and the other has nuclear weapons. Hmmm. Tough choice.
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Old 07-16-2012, 09:02 PM   #30
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Low rates are a ticking time bomb and not just for individuals. Calpers announced today that their nominal return for fiscal year ending June 2012 was... wait for it... 1%!!! Pension funds (including SS trust fund) are getting hammered and the low investment returns are digging big holes.

By way of example Calpers projected 7.5% nominal for 2012.
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Old 07-16-2012, 10:04 PM   #31
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Guess they're about as good at predicting markets as anyone else. Any one year makes no difference. They need to string those 1%'s together to really cause (additional) problems.
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Old 07-17-2012, 08:14 PM   #32
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I don't believe there is a war on savers, just collateral damage. If the Fed wasn't practicing QE maybe we would be better off but maybe our equities would be halved instead and unemployment would be 15%. The bottom line is that we (Government, banks, citizen buyers) blundered our way into a depression and things don't look rosy on the way out. At least we ERs are not worried about being laid off.
Thank you for ending with a positive.
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Old 07-17-2012, 09:30 PM   #33
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Maybe another facet of the 'war on savers' is a generational/demographics issue. It occurs to me that the 'value' of capital and labor is always in flux. So if, generationally, there are fewer people to support the retired then labor becomes more important than capital. If we get older and there is a shortage of nurses then they get more expensive then if there is a surplus of such labor. So somehow the financial 'system' has to devalue capital/savings compared to labor and maybe 'stuff'. Now the market is a big thing , some folks have saved a lot and some little, some labor and material production can be more efficient. But it still seems like a fundemental proposition that our savings/investments (capital) are less valuable than the scarce resources of labor needed to support us. Maybe a good thing there are a lot of younger people in third world countries, we will slowly have to sell our assets to them for necessary services as we age.
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